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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Thank you for standing by, and welcome to the TCS Q3 and 9 months 2018 IFRS Financial Results Investor Call. [Operator Instructions]I would now like to hand the conference over to your speakers today, Oliver Hughes, CEO; Ilya Pisemsky; CFO; and Sergey Pirogov, head of Corporate Finance. Oliver, please go ahead.
Thank you. Good afternoon, everybody, and thanks for joining the call today. As we approach the end of 2018, I'm pleased to confirm that the year is coming together very well indeed. As usual, we have the seasonally slower start to the year with growth accelerating in the second half of this year. This can clearly be seen coming through the numbers for quarter 3.Before I give you the headline results, I'd like to give you some more color by telling you what we like and what we don't like about this year so far.I'll start with what we like. Firstly, growth of our ecosystem in terms of customer numbers, which now stands at over 8 million accounts, about half of these customers are borrowers and half are transactional customers. Tinkoff Business here is almost 400,000 accounts, and Tinkoff Investments is motoring with now over 200,000 brokerage accounts opened. We know how to achieve a base of 20 million customers, and this is our medium-term ambition.Secondly, cross-sell is really becoming a contributor to growth as we start to realize the benefits of having this large and growing customer base. Tinkoff Black is our current account product amidst the feed of much of this cross-sell. Thirdly, alongside Tinkoff Black.
[Technical Difficulty]Ladies and gentlemen, we are experiencing some momentary interruption to this conference, please stand by. We'll be back shortly.Please go ahead.
Thanks. Hello, everybody. I'm afraid the line dropped. We're in the U.K. at the moment, so this probably [ richest ] infrastructure that's to blame. We're back on now through Tinkoff Mobile. So hopefully, the line will be good enough quality for you to hear me.So I'll come back to what we like and what we like less about this year. But firstly, growth of our ecosystem in terms of customer numbers, which now stands at over 8 million accounts. About half of these customers are borrowers and half are transactional customers. Tinkoff Business gave us almost 400,000 accounts, and Tinkoff Investments is motoring with now over 200,000 brokerage accounts opened. We know have to achieve a base of 20 million customers, and this is our medium-term ambition.Secondly, cross-sell is really becoming a contributor to growth as we start to realize a benefit of having this large growing customer base. Tinkoff Black, our current account product, is the feed up much of this cross-sell.Thirdly, alongside Tinkoff Black which is going to overdrive as a result of the current TV advertising campaign, emerging stars in terms of noncredit operating income, our Tinkoff Business and Tinkoff Investments with Tinkoff Insurance and Acquiring also going well.Fourthly, continuing to broaden our range of credit products. Personal installment loans and point of sales loans now supplements our core credit card products, enabling us to maintain an above-market loan portfolio growth rate without compromising our tight underwriting standards.Furthermore, we've now launched all of our planned secured lending pilots in home equity loans, car loans and SME loans. We'll have more to say on this by December of next year. But I can say at this stage that we have already issued over RUB 3 billion worth of these secured loans as we test distribution, double data and build our models.Now for what we like a bit less about this year so far. Firstly, we see early signs of the reappearance of what we consider to be irrational competition in the consumer lending market that is growing quicker than consumer income.Secondly, the regulators' [indiscernible] are using risk weights to kill the lending market. This will, over time, inevitably have a drag on capital. And as promised, here are a few headline numbers. Net loans grew by 30% year-to-date to RUB 168.7 billion. You may remember that previously, we guided for 25% POS for the year. As well as strong credit card growth, personal installment loans have become an important growth driver as we cross-sell to our existing customer base, mostly in the mass-affluent segment. Point of sale loans are also growing well with an acquisition channel for all the loan types. Fee and commission income was up almost 90% year-on-year to RUB 19.1 billion and there was 30% of total revenue. Cost of income has been elevated over the last few years as we invested in building new businesses. It stabilized at the beginning of this year, we came down to 40.1% in the third quarter. We're putting a lot of organizational and mental efforts into this, we'll reduce it further over the coming quarters. Cost of borrowing is down to 6.1%, and cost of risk is down to 6.2%. Our results -- as a result of these very strong metrics, net income for 9 months stood at RUB 19 billion. This represents a 51% year-on-year increase, and this gives an ROE of 72.9%. A satisfying testament that Tinkoff team's consistent execution was the fact that Tinkoff Bank was recently recognized by Global Finance as the world's best consumer digital bank. Over the last few months, we've been busy adding new financial services as well as expanding the range of lifestyle, nonbanking services that we offer through our mobile app. To give you an idea of the growth and usage of our mobile app, we're now up to 9.5 million installs. This is a 55 -- sorry, 45% since the end of 2017. Our monthly active users now is up 76% year-to-date and now stands at 3 million, and our daily active users, DAU, has doubled year-to-date and stands at 1 million. We now have 62 million sessions per month. This has grown 3.5x year-to-date. In addition to restaurants, taxi, travel and conference on our platforms, in September, we added cinema tickets to our mobile app. Now we're already selling around 40,000 cinema tickets per week without doing any promotion. Tinkoff Investments premium was launched, offering access to over 10,000 global securities, providing personal manager services directly in the Investments app. Tinkoff Black customers can now keep their money into 30 currencies, and we link their cards to these accounts in different currencies at will via the mobile app.In October, we launched an app that caters to our customers in future. We now welcome children and teenagers on to Tinkoff Junior app that gives young customers an easy and fun access point to the financial world. Spending limits set by parents, we have more than 10,000 new young customers in the first month. And finally, we recently launched an android mortgage app to users of the Tinkoff Mortgage platform.I'm proud to announce that Tinkoff has become the first Russian bank to open a virtual development hub. This is a cloud-based development center that brings together employees from different locations across Russia and CIS. We already operate 10 Tinkoff development hubs in various parts of Russia, with a virtual office taking us to 11.On that note, I hand over to Ilya who'll go through the financial and operating results in more detail.
Hello, everybody. Let me start from Slide 4. In the third quarter of 2018, our assets grew by 12.1% mostly because of the strong credit portfolio growthfrom RUB 152 billion to RUB 169 billion. There was also a similar increase in liquid assets with cash and treasury portfolio together, which increased by RUB 15 billion. As a result, the proportions in the asset remain stable with net loan representing just about 50% of the balance sheet.Moving to Slide 5. Our gross retail loan book added 8.4% in the third quarter and 23.3% year-to-date. This growth is the result of both an increase in the credit card portfolio, which gave us 370,000 new activated credit cards in the third quarter and solid growth in cash loans and point of sale loans, now representing together 19% of the total loan book. The net loan portfolio increased by 10.8% in the third quarter and by 30% year-to-date. Quality of our portfolio remained high with the NPL ratio going down to 10.8% and loan's 90-plus days overdue going down to 3.1% of the growth portfolio.The loans in court portion of the NPL book used to 7.7% of the growth portfolio. The recovery rate of this portfolio is approximately 10% per year. The group's funding strategy can be seen on Slide 7. The total funding base increased 11.7% in the third quarter and 42.1% year-on-year. The retail and SME components of the funding base increased through intensified organic acquisition where we added a record 428,000 retail and 73,000 SME customers during the quarter. So -- but net to debt increased slightly as a result of the weaker rubble.On Slide 8, you can see shareholders equity increase by 8.2% in the third quarter to RUB 37.6 billion. Our Basel ratios remained flat at over 16%, while N1 and N1.2 ratios were down to 15.1% and 14.4%, respectively. As a result of the annual remeasuring of operating risk as a part of total risk-weighted efforts and solid growth of the [ equity ], N1.1 reduced to 4.3% accordingly.Now some comments on our approach in last statements, beginning on Slide 9. Compared to 9 months of 2017, our revenue grew by 45% to RUB 80.6 billion while the share of interest income from the loan portfolio went down in the revenue composition from 80% to 69%. This trajectory will continue in the upcoming quarters. I'm also tracking our coverage of the administrative costs by net fee and commission income as an indicator of the robustness of Tinkoff Business model during the potential downturn. You can see on the chart at the bottom of Slide 9 that net fee and commission income to admin expense are growing steadily from 36% to 46% year-on-year.Just going back to the credit business on Slide 10, you can see that interest income grew by 28% to RUB 54.8 billion in the comparable 9-month period. This growth corresponded to the growth of the loan book and securities portfolio. Gross interest yield on the credit portfolio went down to 36.2% for the 9 months compared to 39.5% the year ago, mostly due to the growth of the noncredit card part of the loan book. Interest expense increased 15% year-on-year to RUB 10.8 billion, while cost of borrowing went down to 6.1% on a blended basis as our filing from retail and SME becomes cheap.On Slide 11, you can see that net interest income grew by 30% year-on-year to RUB 43.1 billion, and interest margin went down to 23%, and our risk adjusted net interest margin decreased to 18.2%, both due to the reduction in the growth yield explained earlier. Our cost of risk remained in the 6% to 7% area despite the stricter IFRS 9 rules that penalized the faster growth of our noncredit card part of the loan portfolio.Our fee and commission income growth on Slide 12, it's outpacing interest income growth. These increased by 89% year-on-year and the margin to RUB 19.1 billion for the 9-month period. All sources of fee and commission income showed growth, with SME being the most rapidly growing segment.Tinkoff Insurance also contributed RUB 4.6 billion in the premiums during the 9 months of 2018. Our current account business is accelerating again as we're acquiring more and more customers, as you can see on Slide 13, thanks in large part to new features and services in the mobile app. A 10% introductory rate had been [indiscernible] from TV also helps to promote the product. At the end of 9 months of 2018, we stand up 4 million current account customers over RUB 100 billion of balances. And key is growth of customers and balances allowed us to build up RUB 4.4 billion fee income, net of cash back that we return to our customers. The current account business is hovering around breakeven, taking into account positive margin contribution from our treasury portfolio into which we deploy cash that customers hold on their accounts. Our SME business is developing at a good pace, which can be seen on Slide 14. As of the end of 9 months, we are approaching 400,000 customers, which is RUB 33 billion in balances on current accounts. We earned more than RUB 5 billion in fees in the 9 months of the year in addition to treasury income. Most of the cash we receive we place into treasury operations. Though, in the third quarter, we are running some test on SME lending, mostly short term, deploying less than RUB 0.5 billion into operations so far. We are working hard on our mortgage growth of business to find the right balance between volume and profitability. It was near breakeven in the third quarter, and we expected to be positive in the fourth quarter of the year.On Slide 16, you can see some operational statistics on our Tinkoff Investments service. We keep steadily growing that business line as we see strong customer interest in the product, and we'll like to continue upward trends in customer activity. Tinkoff Investments had a step-changing growth in third quarter in customers, collections volumes and balances and fee income. This business line is bottom line negative due to significant investment into development of the platform and customer position. We are pleased with the way it has become a Russian phenomenon, and therefore, we are willing to keep this business line in the area for a couple of more quarters as we grow the customer base.Now turning to Slide 17 for some comments on operating expenses. In the third quarter of 2018, our expenses grew more slowly than the revenue. Therefore, the cost to income ratio improved positively from 42.8% to 40.1% for the third quarter and from 42.3% to 41.7% for 9 months of the year. In the fourth quarter, operating costs might be elevated a bit due to high season of the tightened activity and then annual seller increase in November. Overall, we were able to make the equivalent of the entire bottom line for 2017 in just 9 months of 2018. We achieved a record quarterly profit of RUB 7.3 billion and RUB 19 billion for 9 months of the year, which translates into a 73% return on equity. And this allowed the distributor help with our retained earnings according to our dividend policy.And now back to Oliver.
Thanks, Ilya. I think mobile is holding it well. So to conclude, most of our business lines have you heard -- as you've heard, they're going very well. Coupled with a tighter cost ratio and very good risk metrics, we're in great shape. We're, therefore, in a position to revise our guidance outputs for this year. We increased our full year net income guidance to RUB 26 billion plus that was previously RUB 24 billion plus, and net loan growth is at 40% plus. It was previously 25% plus. Cost of risk remains unchanged in the 7% area, and cost of borrowing will be at the lower end of our guidance of 6% to 7%.To wrap up, I'd like to announce that the group's board has approved a quarterly gross dividend of $0.28 per GDR or USD 51.1 million in total based on the company's dividend policy.Thank you very much for your attention. I'd like to hand over to questions. For them, we'd like to ask the questioners today to speak extra clearly please because we're doing it through our mobile phones, so we want to make sure we hear your questions perfectly. Thank you.
[Operator Instructions] And we will take our first person from the queue who is Andrew Keeley from Sberbank.
A couple of questions for me. First of all on capital. Oliver, you spoke about regulation as a kind of drag on capital. And we see that the -- your N1.1 ratios dropped to just over 10%. I'm just wondering if you can give us some thoughts on what kind of minimum capital level you feel comfortable with? And is there a level that you would start thinking about trimming the dividend payment?
I'd probably answer this question. Through -- we see more pressure from the increase risk base from -- on lending, and we'll be actively monitoring the situation. We will be, of course, looking, in our business planning, to preserve certain way over the minimum levels of [indiscernible] certain buffer. It should be somewhere -- well, somewhere around 1%, 2% in the normal course of business. And if we see that the trajectory of growth is faster than the buildup of the capital, we might consider trimming our dividends a little bit, but we will review it later, closer to each of end periods. So right now, where we -- we don't see where we are adjusting our dividend downwards, but we'll see from now.
Okay, Ilya. And then I have a question on your loan yields. I mean, we've seen that they've come down by 3% or so over the last couple of quarters. It would be good to hear your thoughts on, I suppose, the pace of how you expect kind of further contraction to come. And maybe just a few thoughts on where you see the kind of primary drivers of this pressure, whether that's mixed effects, regulatory impacts, kind of, changing card usage habits or just the blend of all of these kind of things, but it'll be good to hear your thoughts on that.
Okay, I'll start with the second part of your question. We, of course, we will see the decrease in our yields because of the changing in our portfolio. We will have more cash flow and portfolio -- part of our portfolio is growing faster than credit card book, and cash loans are less yieldier than credit card book. Therefore, it's my feeling as the cash loan and POS loan portfolio grow faster from a smaller base, that will drag our blended gross yield down. So most of these changes are portfolio composition. Of course, our changing costumer behavior and the fact that we increase our more profitable portion of credit card book also has an impact on gross yield. But for the time being, at least for the second, third quarter, you'll see the same trajectory in fourth quarter that's mostly the composition. And if next year, we are successful in ourself and start ramping up secured lending, then you'll see a further decrease in gross yield on a blended basis. More importantly, we issue each and every loan that tend to be positive. So for us, [indiscernible] line is much more important than the growth in SME.
Now just a final question. Oliver mentioned the kind of reappearance of irrational competition on the market. I'm just wondering whether you can tell us a bit about how this makes you think and act in regards to your approval rates and your growth outlook? I mean, consciously, you've not given any real guidance for next year, but perhaps just some, kind of, whatever guidance or thoughts you could give on that would be helpful?
Sure. So what I was alluding to there was the reappearance of some irrationality. So we see a market which went through a period of cleansing, deleveraging from 2014, '15 onwards, then back into growth in the first half of 2017. It's been growing quite since then, and this year, rather quickly, so it'd be 20%, 25% probably growth in -- for the year in unsecured consumer lending. So you can see in the overall numbers market wide that everything is fine. Risk numbers are good, credit quality is good, customer leverage is growing at an acceptable pace, obviously, it's growing back up now. Plus there are some players in the market who are going to help lever at the moment. So there's a couple of players who are extending loan, large cash loans. If we were in a market where consumer incomes were growing as well, then it wouldn't be so bad proportionally across the market, consumer income is not growing, it's stagnating. So this affects the mass market more than the mass-affluent market. So if you are an urban white-collar mass-affluent customer, then you're likely to have an income that's growing. But the disparity between your income and the income for borrowers in the regions is actually growing as well. So unfortunately, you see for mainly distributed and therefore, there could be, at some point, signs or problems reappearing as a result of leveraging of customers and the rapid pace of expansion of credit. That's what I was alluding to. So right now no problems. If you're looking at our portfolio at a micro level in all of the portfolios, so we're not just talking about the credit card portfolios, the mass-affluent, but also the cash loan portfolio, now the point-of-sale portfolio and the other secured loan lending portfolios, which are regrowing and testing. The cost of risk is excellent. We are still, if you look at the leading indicators, in a very good place. So our first step or second step also indicating the quality vintages that we're bringing in is still excellent. The delinquency rate is the most important leading indicator, which shows the speed at which existing customers go into delinquency is actually -- is either stable or still ever so slightly going down. So we see absolutely no issues whatsoever even when we take mostly provides into the numbers in the current micro segments in our portfolio. So there is no signs of any problems, and we very much hope that the regulators, various interventions, will make sure that there won't be any problems long time to come. So that's about our investments. Yes, we like the market.
Now we can take our next person from the queue, who is Svetlana Aslanova from VTB Capital.
I just wanted to ask a follow-up question on NIM. Risk adjusted NIM, based on what you said that you see a very good quality of portfolio. Shall we assume that risk adjusted NIM would have declined slower than NIM itself or probably will stabilize at some point?
Well, the net interest margin after loan loss provisions is declining slower. Well, this might be it's a lower line so it should decline slower. But more importantly, the risks are very stable despite the introduction of IFRS 9. So we were cautious guiding at the beginning of the year because it's kind of -- it was a new chartered territory for us. But now we see that, at least for now, when the sun is shining and the markets are good, the loan loss provisions are stable and quite low despite the fast growth of the portfolio. So you're right, the net interest margin after our loan loss provisions is declining less than net interest margin itself. It will probably continue to be slow in the -- certain quarters except for the fact that if there will be a deterioration in the markets, then it will all change quite fast because IFRS 9, it penalizes not only the high growth but also certain market dislocations because there are market adjustments in the formulas for the loan loss provision. What we really enjoy seeing that our net interest margin is 3x -- well, more than 3x higher than cost of risk. That means that our cost of risk has to triple before our loan loss -- before our loan portfolio will produce bottom line negative results. So that's the important part for us. So we'll have a really significant 300% cushion for our loan business.
Okay. And I saw that in the facts, it was citing you -- that you expect for the next year higher earnings. What points of growth do you see for the next year? And I know that it's probably too early to say, but would you assume more than -- again, more than 20% loan growth for the next year?
Sure. So we're not anticipating -- sorry, we're not guiding for next year. So we are not giving any specific guidance, and we can't give you any numbers for next year. But I did indeed answer a question from one of the journalists on the call this morning saying that we expect strong growth in revenue, we expect strong growth in the bottom line and we're going to be seeing continuing very strong growth in the noncredit business lines, including fee and commissions income, they grew by 90%, sorry, year-on-year already in 2018, and we expect that to continue and growth in the credit businesses. So we're not giving any specific guidance. We certainly see a very strong dynamic taking us through well into 2019.
And we now can take our next person from the queue, Mikhail Ganelin from Aton.
I have 2 questions. First is regarding your customer acquisition expenses. I see that these expenses well started to decline quarter-on-quarter. Does that mean that these expenses achieved some plateau and you don't consider to build them up? At the same time, we see that Tinkoff launch a wide-scale advertising campaign regarding Tinkoff Investments. So is there a probability that expenses will go up in the fourth quarter? So what's the trend in this item?
Mikhail, there are several components to our customer acquisition expenses as you know. And one of them is actually advertisements, and in a more general work advertisement, which is not attributed to their specification. And in the third quarter, it is usually lower than fourth quarter, so you'll definitely see an increase in this expenditure. Though not very significant, but definitely, fourth quarter is a high season for TV advertising. And the second component is the expenses that we -- that specifically attributed to the Asian delivery and the activation utilization of our product. And this could grow and this could go down because, it's, again, in itself consist of 2 things. One is volume. So when we increase volume, we spend more on customer acquisition. And for seasonal reasons, we can spend less on customer acquisition like, for example, on the fourth -- first quarter of each year after the fourth quarter of the previous year, we always spend less. But generally, we, of course, want to increase this portion of customer acquisition expense. In fact, we want to issue every possible product which we see and to be positive for us. And in this case, the third quarter where there was an increase on the issuance -- increase in the, I think, lot of -- in a lot of business lines, including credit. And in the fourth quarter, we expect to keep this pace similar, so there will be a high volume acquisition. But also, besides the volume part, there is effectiveness of the customer acquisition, and of course, we're working hard to make each specific customer acquisition in every product cheaper for us. And at least, well, I won't be disclosing specific numbers, but from what we see that for our main products, for example, credit cards and debit cards, per unit customer acquisition costs are stable. And that's even decreasing, it could be in the third quarter compared to the second quarter. So we are gaining some effectiveness. But for your model, I guess, that should be more of the volume gain. That's how I see.
Okay. That's helpful. Okay. And my second question is about -- could you tell more about secured lending, how it works? For what period is this lending and average size of the loan? And what is the average interest rate for these loans? And finally, may be some indication where do you see this secured loan portfolio by the end of next year in terms of size? A bit of more color on this.
Sure. So there isn't that much color to give at the moment because it's all pretty new, and we're testing. So we're testing all sorts of different strategies, different product, different pricing. So please treat, what I say now, with great caution because that will loop all over the place over the next 6 to 9 months. But broadly speaking, in car loans, the average duration is around 5 years which is pretty standard. The average size is, if I recall, around RUB 600,000. I'm looking at, Ilya, he'll correct me if I'm getting something wrong. RUB 600,000 and the yields will be at least pretty wide range between basically 15% and 20%, and we're testing different segments. As you can imagine, there's a new segments, there is efficient car dealers, nonefficient car dealers, efficient car dealers, and then -- and second-hand cars. So they are different rates, that's car loans. We originate through our own broker, TCB, Tinkoff Credit Broker, which is a system that we designed ourselves. We're attracting banks and non-Tinkoff into that broker. And we're already issuing a fair volume of disbursements each month. So that is very much a test. The home equity or specifically, I'll say, in Russian because it's -- we call it home equity, but it's not strictly speaking home equity as you may see it in other markets, the Western markets, where it compasses credit per dollar collected. And there, the loan side is around RUB 1.2 million, RUB 1.3 million, again, not be moving around a lot. The duration tends to be -- the tenure tends to be 7 years, I think, currently, and the rates there will be between 13% and 16%, probably. The third category are SME loans, and here, we have a number of different loan types, and again, these are very much being tested. So we have shorter duration working capital type loans, which are basically up to a year, and then we have longer duration, what we call, investment loans, which are for SME customers to -- that they take to invest in building their businesses and collateralized up to 10 years. I can't give you numbers on the actual tenure that we're getting at the moment because it's very, very fresh indeed. So that's basically where we are.
We can take our next person from the queue, who is Tolu Alamutu from Exotix.
I just have a few questions please. Hello?
Yes.
The first is -- okay, great. The first is on regulatory risk, which you mentioned is one of the key issues. Can you maybe remind us of what your forecast is for the impact of the changes in regulation on your capital ratios over the next, I think, 12 to 18 months? Has that been revised after this period? The second question is about your partnership with Sberbank on various types of payments. Can you maybe give us some idea of how that's contributed to the improved fee income? If there is any numbers you can give, that would be extremely helpful. Third question is about the very small, I think, it's RUB 2 million or so gain on buying subordinated debt. Is that related to the redemption of subordinated debt? Or are you buying in your perpetual security in the market? And related to that, any comments that you can give on the funding mix that is ideal for you would be great. And then would you consider coming to the Eurobond market may be with a senior or other deal? Or would you prefer to continue to grow deposits?
Okay. I'll answer first and third questions. Oliver will take the second one on Sberbank and then we'll give way to Sergey Pirogov will answer on our funding mix. So first of all, on the regulatory changes, as we already mentioned that we expect that pricing of risk rates will cost us approximately 1.5% to 2% of our capital equity in the next year, 1.5 years. And we are more intended to the issuing, so the portfolio gradually immigrates to new risk rates, but there are many things going off, and for example, growth of new sub portfolios in our loan portfolio, so it's all moving around. But again, I think that saying that we are -- our equity will -- it's still reduced by 1.5% in the next 18 months would be a kind of safe bet. On the third question, on the gain on repurchase of our subordinated bonds. So when we saw in August this year, so that was a turmoil on the markets, obviously, and we saw that our own issued subordinated bonds grow in their price below 95% of the face value, so we repurchased a small portion of this bond. I think it was about something material like $5 million of nominal value of the bond, and thus we recorded some gain on repurchase cost and bought them below the nominal. So I give back to Oliver for the second question.
Sure. So on Sberbank, on the service that we launched with Sberbank back in the late summer, early autumn. So just to remind you what this service does, it's absolutely unique in Russia and actually pretty unusual in the world. They basically allow Sberbank customers to transfer funds to another person, so it's a P2P transfer by mobile phone number into a Tinkoff account and vice versa. So basically, what we did was we integrated our service, P2P transfer service, into Sberbank's -- Sberbank online mobile app, and we integrated Sberbank's P2P transfer service into the Tinkoff mobile app. And the biggest flow is basically, the biggest players in P2P transfers in Russia are Sberbank and Tinkoff and big flows take place between Sberbank and Tinkoff and that's why we chose each other as partners. It's also pretty technologically cool because in a mobile app, I can just type a name in my address book, a note pops, Larisa Chernysheva is sitting with us here. If she have an account Sberbank, which I think is highly unlikely, and then off the transfer, it goes. So this is basically faster payments, but between Tinkoff and Sberbank is the largest players in this market using mobile number. And we don't generate any income on this because Sberbank policy in order to protect their existing tariff system is that we charge the customer 1% and pass that 1% on to Sberbank. So it's revenue neutral for us. We view this as a cool ecosystem play, which enhances the customer experience and level of service we provide to our existing customers. What I'd like to remind you that from the 1st of January next year, the new -- well, the Russian equivalent of faster payments is called Sberbank [Foreign Language] appears in the market, which basically hooks up all banks in the system and will provide very low-cost P2P transfers to all Russian consumers using mobile phone number. And so we'll have a bit of a sea change in the way things are done in Russia from January next year. Sergey?
And the question on funding. Yes.
Yes, and then -- and lastly the question about funding. Yes, you are right that of late, we've been funding our loan portfolio primarily with retail deposits and that we are happy with the current tranche where approximately 90% of the loan portfolio is funded with -- through this sort to see that the retail deposits have proven to be very sticky. We see that supply of funding through this channel is very elastic, so we're quite happy with that. We don't have any need come to the normal international debt capital markets foreseeing that. Should need arise and we'll do it from time to time, we'll come to the local market with 1- to 3-year ruble bonds offering. This seems to be a much more frequent exercise. Now, we'll do it just once a year, even more seldom probably a tactical decision for us. Sometimes we might come with a tactical European commercial paper offering on the market also quite opportunistically. So it's truly of no strategic importance for us. As you know last year, we printed a $3 million -- $300 million subordinated perpetual Tier 1 Eurobond, which was used to support our N1.2 capital. So although nothing is in the cards right now for us in this respect, if we see stronger growth opportunity just in terms of our loan portfolio next year, we might potentially consider strengthen this offering or doing a similar transaction, but again, no immediate plan for that right now.
And we can take our next person from the queue who is Andrey Pavlov-Rusinov from Goldman Sachs.
Basically I've got a couple of questions. And first of all a follow-up on your cost growth essentially a very nice progress in bringing cost growth down. Congratulations on that as well. And then -- and basically referring to that my question is on your admin expenses and do you think that now you have attained a certain base to manage your further growth? Or -- and that could allow you to kind of keep the current cost base into the next year? Or would you need to grow that in line with your growing revenues?
Well, the cost trajectory, of course, growth is different in every business line. In the more established credit business, especially in the credit card business, of course, we do not need any significant administrative -- investments into the administrative costs, where -- which for us more importantly is salary of our IT-related personnel in the -- these businesses that are growing and gaining their market share and basically a start-up within our ecosystem, of course, the cost income ratio is there usually close to 100%, and we will be -- we will continue investing in these businesses. Therefore, it's actually a mix of 2. So if we invest more into new businesses then our cost income ratios suffer, so we increase expenditures. And when the business line became more established, we spend less, and basically the revenue comes to a point where basically the revenue is bigger than cost. But of course in the noncredit businesses, there is no such component as cost of fund and cost of fees. And therefore, we can allow ourselves to spend more in administrative and customer acquisition and servicing costs, and still have a profitable noncredit business line. So in these businesses, it's not a problem to have cost income ratio higher than 50%, let's say, it's absolutely okay. But generally, as our credit business, of course, still dominates the landscape, we see that our cost income ratio is below 50% and, in fact, stuck around 40% which we like.
And maybe just to add a little bit to that. So to mention what we've been doing over the last 12 months or so. So obviously, firstly that the phenomenon if you like that every business lines are coming, reaching breakeven, so obviously, there was an impact on the overall cost to income because they go below 100%. But we've also been doing a lot on the service side in terms of automation and then robotization of servicing, especially chat. We've been doing a lot on cost optimization in all sorts of phase rightly through the chain. And we've also been doing quite a lot on the staff side. And so we have staffing in a lot of business lines, now we've slowed down hiring to a certain extent. And so that will have a continuing positive effect on cost growth over the coming quarters.
That's very helpful. And I just got a small second question about your growth in the insurance revenues and also other income, essentially it was again a very great quarter. And maybe you could give us some sense of what was driving the growth there? For example, insurance, whether it was essentially credit related insurance that was basically you're now receiving through your Tinkoff Insurance rather than as a bank. And also what is the -- could be the outlook for the following quarters?
Hello. Just to test us, an alarm going off as well. Can you still hear us, Andrey?
Yes. Yes.
Excellent, right. We're back on to square one, that would be one second.
All right. We'd been lucky with our call today. On the insurance, you see, yes, you see that it grew quite nicely and there is -- there are 2 major components towards our insurance business. One is a credit protection insurance portion, which our insurance company receives. And the other one is auto insurance. Auto insurance right now is actually growing quite nicely. Hello? We're having an alarm call again. Sorry, I don't know if -- sorry, the other income. Other income in our profit and loss statement a significant portion of it is income that we're getting from payment systems, Visa and Mastercard. These are basically rate-based, volume-based for issue more credit and debit card of this systems and we're getting some money from them. We show them in the other income category.
And basically referring back to the insurance. Is it -- be kind of, say, based on the third quarter, is this kind of sustainable one? There is no particular one-off there, right?
Yes, it's sustainable. Yes.
[Operator Instructions] And we'll take our next person from the queue who is Andrey Mikhailov from Sova Capital.
Thank you for the resilience despite the alarm. My question is on cost of risk and asset quality. You mentioned a few times today that asset quality is good and it's -- could even be improving. You also mentioned that retail indicators are stable and again possibly improving. But my question is a bit more detailed. When we look at the Q3 numbers, the cost of risk for cash loans is higher than for credit cards, which is of course impacted by the fact that IFRS 9 analyze those growth. So cash loans grow much faster than credit cards and that's one of the factors behind the high cost of risk. And my question would be, if we assume that cash flows in Q3 grew in the same manner with the same pace as credit cards, where would the cost of risk for cash loans be for the Q3?
Well, you want to -- probably your question is underlying quality of the portfolio and where the chat operate, right, for this portfolio. So we see that it's somewhere around 4%, 5%. It's really elevated right now because of the growth. We're doubling the cash loan portfolio every quarter. And therefore, it's -- you basically -- the denominator is -- in this formula suffers, but when the portfolio stabilizes, we think it will be somewhere around 4% to 5% cost of risk, which we see that chat bots are right now. It's the best portfolio than the credit card portfolio.
Just to make sure, did you say 4% to 5%, is this correct?
Yes, 4% to 5%, that was the -- it will be gradually -- as the portfolio matures in its volume, you will see the gradual decrease in cost of risk.
Yes, yes, sure.
So that seems to be all the questions. Yes, I was just going to say, thank you, everybody for your patience, and apologies for the brief interruption at the start of the call. So it's a move to qualm to British Telecom and 10/10 to Tinkoff Mobile, the heroes of the day. Thank you, everybody for your attention today. Bye now.
Thank you. Ladies and gentlemen, that will conclude today's conference call. Thank you for your participation. You may now disconnect.