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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good day, and welcome to the TCS Group Third Quarter and Nine Months 2020 IFRS Financial Results Conference Call. Our speakers today are Oliver Hughes, CEO; Ilya Pisemsky, CFO; and Sergei Pirogov, Head of Corporate Finance.At this time, I would like to turn the conference over to Oliver Hughes, CEO. Please go ahead, sir.
Thank you, Sergei, and good afternoon to everybody. I'm very happy to report Tinkoff's strong third quarter operational and financial results. We delivered a record quarterly net profit of RUB 12.6 billion, representing growth of 30% year-on-year and an ROE of 45%.We reached several milestones this quarter, surpassing 12 million customers and becoming Russia's third largest retail bank by number of active customers. This makes us the largest nonstate owned bank by active customer base and we're now setting our sights on the #2 spot.As we unlock the potential of our ecosystem strategy, engagement with each customer grows noticeably. We will soon reach 1.4 products per customer from 1.3 at the beginning of the year, despite the fast pace of growth of the customer base. More than 30% of customers now have 2 or more products with Tinkoff, up from 24% at the beginning of the year. Each cohort of customers takes less and less time to use more of our products and services. These operational and financial results delivered in spite of the challenges brought by the COVID pandemic. There was even more confidence in our medium-term target to surpass 20 million customers, whilst continuing to significantly grow our bottom line.Our technology platforms, data analytics and artificial intelligence capability will be instrumental in helping us to reach those goals, and that is why we've recently decided to create a separate unit within Tinkoff whose sole focus is the development of AI technologies, including hiring new talent and giving it more freedom to create innovative solutions.Let me take you through some of our operational and financial highlights before giving you an update on the current COVID situation. Tinkoff Black is powering on and is our main source of new customers. In the third quarter, Tinkoff Black's growth accelerated. We opened 1.4 million new accounts, up from 1.2 million in the second quarter and 1 million in the first quarter. This inflow of new customers, coupled with the normalization of the situation after the first wave of COVID, meant that our debit card TPV reached a record RUB 640 billion, up 43% year-on-year. Total current account balances also grew to over RUB 300 billion. As well as the locomotive of customer acquisition, this rich and viral product has de facto transformed into a high-retention loyalty program for our ecosystem. A recent banking market survey conducted by Romir gave Tinkoff an NPS of 26% and a share of loyal customers of 50%, making us the absolute leader among Russian banks, 3x higher than the next nearest player.Tinkoff Investments continues to lead the way in the high-potential Russian brokerage market. As at the end of the third quarter, our customer base had reached 2.4 million. Now assets under custody have reached over RUB 220 billion, having more than quadrupled since the beginning of the year. In September, we surpassed RUB 1 trillion of trading volumes, reaching almost RUB 3 trillion for the quarter. All this contributed to quarterly revenue of RUB 2.2 billion for Tinkoff Investments, up almost 40% quarter-on-quarter.Our product offering continues to evolve at a place -- a pace. Just by way of example, our asset manager, Tinkoff Capital, launched Russia's first ETF that tracks the NASDAQ-100 Technology Sector Index. Despite our leading position in this market, we're still at the beginning of what is a secular shift towards brokerage and wealth management in Russia. Our relentless focus on UX, navigability, functionality, investor education and engagement will allow us to capture this space.Tinkoff Business, our transactional SME offering, also had a very strong third quarter. We added 30,000 new customers to the existing customer base of almost 600,000. Very importantly, under that headline number, we continued to increase the share of higher NPV customers and to make inroads in the medium-sized business segment. Our competitive advantage has strengthened throughout the year. Our ability to help SMEs migrate to online payments with their accounting and tax reporting fully online through our cloud software, build websites, set up electronic document processes, set up delivery services with partners and much more have been highly relevant to a sector that has been particularly affected by the COVID pandemic. This is translating into solid F&C income growth with the third quarter showing of RUB 3.1 billion, up 26% year-over-year. Our efforts were noticed even outside of Russia as Tinkoff Business recently took silver in Europe's SME Bank of the Year category at the Global SME Finance Awards for 2020.Tinkoff Acquiring, our online C2B payments business, has been riding the wave of e-commerce and digital payments growth. Our TPV in the third quarter grew 30% year-on-year to RUB 126 billion, leading to 30% year-on-year acquiring commission growth to over RUB 2 billion. We believe the financial performance of this business line will improve further as the restrictions on interchange rates that were implemented earlier this year were lifted at the end of September.Overall, our noncredit businesses reached a record high of 41% of total revenue, up from 33% a year earlier. Our credit businesses returned to growth in the third quarter after a short pause in the second quarter with our gross loan book growing 6% quarter-on-quarter. Our decision to increase lending was made based on positive incoming asset quality data, which allowed us to gradually unwind approval rates and grow the number of NPV positive disbursements. This was particularly evident in the car loan segment, which exhibited very strong growth in the third quarter. Despite this growth, we maintained certain filters and criteria that shield our portfolio from the segments that experienced the most economic stress and remain poised to respond quickly to any changes in the external environment. We're very comfortable with the quality of our portfolio as demonstrated by the share of restructured loans, which has now fallen to 1.1% of the total book from 4.5% at the end of July. Ilya will provide more details on this later.The successful growth of these business lines is inextricably linked to the growing popularity and functionality of our super app, the highest-ranked of its kind in Russia and perhaps in Europe as well. As a matter of fact, Tinkoff's super app took first place in the Global Digital Communication Awards 2020 for Disruptive Communications. The jury made its decision on the super app's strategy, innovation, creativity, implementation and effectiveness. Our daily active users have reached 2.5 million and monthly active users is over 7.5 million.We continued to add new e-commerce use cases and we recently added a financial messenger that allows customers to share bookings, send tickets, split bills, create group chats and much more. Our integrated new categories into the app will drive engagement, retention, and ultimately, the lifetime value of customers.To further increase customer engagements and retention, two days ago, we launched Tinkoff Pro, our subscription offering that gives customers all kinds of benefits within the Tinkoff ecosystem, including financial, insurance, transactional and lifestyle offerings. For just RUB 199 per month, customers will get higher interest rates on their deposits, discounts on Tinkoff Mobile, reduced card fees, more attractive FX conversion rates, higher and more tailored cash-back offers for more categories including Tinkoff's lifestyle services, Tinkoff Insurance and Tinkoff Travel, discounted offers for partner streaming services and much more. We have high hopes that this very comprehensive offering will help us acquire even more customers, engage more -- and engage more with our current loyal customer base.Some of you might be wondering whether we're seeing any impact of the second wave of COVID. Please refer here to Slides 3 and 4 in the presentation. The good news is that because we have continued to grow the customer base in all our business lines throughout the year, overall transactional activity is significantly above February levels. However, the pace of growth has somewhat slowed in the last few weeks as consumers and businesses take precautions in the face of the second wave. To be more specific, our online card transaction volumes are 60% higher and offline card transaction volumes are 40% higher than in February. But there are some signs that the pace of growth, mainly in offline, has slowed a bit over the last few weeks.Our online merchant acquiring volumes are 45% higher than in February, and so far, we are not seeing indications of a slowdown. Our SME customers turnover is 20% higher than in February, although there are some signs of this slowing a little. Our retail brokerage transaction volumes are 230% higher than in February and here we're confident there will be no slowdown.On the asset quality side, we're currently seeing no change in the high frequency metrics that we monitor on a daily basis, although, as I mentioned earlier, we continue to exercise caution. As things currently stand, there are no government plans to reimpose lockdown while some extra measures are being implemented. For example, Moscow's mayor recently announced that it will impose some limits on restaurants, entertainment venues and public events. These are limited. However, we're always mindful of potential adverse economic scenarios and we're well equipped to deal with this should it come. We have a digital customer acquisition servicing model, which allows us to grow the customer base under any scenario. We have a high flexible cost structure and experienced team that will steer Tinkoff through crisis, a diversified business, strong liquidity buffers, ample provisioning taken earlier this year through macro-factored adjustments and capital buffers at their highest that they have been for two years.With that, I'll hand over to Ilya to take you through our third quarter results in more detail. Over to you, Ilya.
Thank you, Oliver. All right. All right. Hello, everybody. I'll start on Slide 9 with the balance sheet, and in the third quarter of 2020 group assets grew by 8.4% quarter-on-quarter. Our credit portfolio returned to growth, reaching over RUB 346 billion from RUB 324 billion in second quarter and because of the contribution from the investment portfolio, which grew on the back of the inflow of current accounts. Our assets traction did not change much from the previous quarter with the loan portfolio representing slightly less than half of total assets and the liquidity balance of cash and securities representing 43%. Other assets grew due to the regulation of dollar- and euro-denominated security deposits payment systems.Moving to Slide 10, in the third quarter, our gross loan book grew 5.5% quarter-on-quarter and 12.9% year-on-year after relatively flat growth half of the year due to the COVID pandemic. This growth is the result of an increase in the credit card portfolio and solid growth in home equity, car and point-of-sale loans. The share of credit card in the net loan portfolio declined to 60%, and the net loan portfolio grew by 6.8% quarter-on-quarter as the risk improved to pre-COVID levels.More granular information on the loans portfolios can be seen later on Slides 20 and 21. While the leading indicators have really started to improve already towards the end of the second quarter, the lagging indicators are yet to catch up explaining the increase now NPL ratio to 11.1%, driven mostly by the growth of our portfolio in courts. The percentage of loans that are 90 to 180 days overdue fell to 4% of the gross portfolio, compared to 4.3% in the second quarter. Many of our clients were getting an assistance in the form of short-term payment holidays during the second quarter and third quarter as well.The NPL coverage went down to 153% because of the improvement that we see in the recovery of Stages 2 and 3 loans. And on the next slide, Slide 11, shows this in more detail. Stage 2 provisioning went down from 44% to 46% -- sorry, to 44% while the total balance of Stage 2 loans reduced from 8.8% to 6.6% of the gross loan. Stage 3 provisioning went down from 71% to 69%, while the total balance of Stage 3 loans increased from 12.6% to 13.1% of the gross loan portfolio. And Stage 1 normal [ loans to provisions ] quite highly at 6.3% especially as we maintained most of the macro factor adjustments taken in the first quarter of the year.Slide 12 shows some ongoing statistics on the restructuring programs. You may recall from earlier presentations that we often -- we offer 3 main kinds of programs. The first is one set out in Federal Law 106, which gives payment holidays of 6 months to customers with over 30% decline in income and -- which cuts the allowed interest rate over the said period. Eligibility for this program is quite rigid, which has made our proprietary programs suitable to many of our customers, either restructuring option after 3 months or 1 month temporary relief program. And the eligibility criteria for our own program is less stringent and the programs are more flexible for both customers and for us. So far in the period between March 20 and October 31, we gave 1-month temporary relief to over 128,000 accounts, gave restructuring programs up to 3 months to over 139,000 accounts and gave restructuring programs based on the Federal Law 106 to 3,900 accounts.Right now the number of customers with outstanding programs is significantly lower as you can gather from that slide. This is because the inflow of customer requests for payment holidays has dried out. Many customers have returned to current status and because we are gradually returning the program to a pre-COVID status where only rare case of restructuring occurred.The total size of our restructured portfolio at the end of October was RUB 4.6 billion or approximately 1.1% of the portfolio, down from 6% as of May. Most of these restructured loans are currently classified under Stage 1, although with higher provisioning rates than current loan.The Group's funding structure can be seen on Slide 13. In the third quarter, the total funding base increased 9.3% quarter-on-quarter and 45.7% year-on-year. The growth mostly came from individual customer current accounts, which increased by over RUB 30 billion or by 11.9% quarter-on-quarter. SME customer accounts increased over RUB 10 billion, or 21% quarter-on-quarter after first half slowdown as we continued to actively acquire SME customers.Individual term deposits reduced a bit as our customers are less inclined to put their money on hold for a year. I think that rates have fallen significantly over the recent periods.On Slide 14 you can see shareholders' equity increased by 7.8% quarter-on-quarter to RUB 116.5 billion on the back of strong quarterly profit. Our Basel III core ratio improved to almost 20%. Our Basel III CET1 ratio went up to 16.4%. At the bank level, statutory risk-weighted assets decreased meaningfully to RUB 884 billion due to the Central Bank of Russia reduction in risk weight prior to certain unsecured loans. These led to further increase in our statutory 3 capital ratios, the N1.0 and the N1.1 ratio rose to 13.9% and 10.8%, respectively. At the N1.1 level, we now have a very sizable 308 basis point buffer for the minimum requirement.Now I'll comment on our profit and loss statement beginning on Slide 16. Compared to third quarter of 2019, our revenue grew by 12% to RUB 48.8 billion with the share of income from noncredit sources growing from 32% a year ago to a record high 41% as our noncredit businesses showed solid growth across almost every segment and credit revenue growth slowed recently. We expect this trend to continue in the fourth quarter of the year and into 2021 as well.Our next slide is on cost management where you can see the return to growth in acquisition cost after 2 quarters of cost preservation. Our business model allows to reduce increased cost very rapidly depending on the market conditions. And now, we see this as the appropriate moment to spend more. The result, acquisition costs are, as a percentage of total, are back to pre-COVID levels and our cost-to-income ratio increased accordingly to 38.2%. Still, you can see that our cost structure is very lean, taking into account the number of different businesses that we developed simultaneously.Going back to the credit business on Slide 18, you can see that interest income grew by 3% year-on-year to RUB 30.2 billion in third quarter. This moderate growth corresponds to the slow down in the loan book due to the pandemic and so the increasing diversification of the book into lower-yielding credit products with otherwise comparable net portfolio return.Gross interest yield on the credit portfolio had a quarter-on-quarter debt reduction to 26.8% after having been quite resilient in the first half of the year when the portfolio did not grow. Had we grown through the first half, you would have seen this reduction earlier and not as a one-off step down. The 310 basis points quarter-on-quarter reduction in yield and quarterly interest received is mainly attributable to 3 impacts. First, the improvement in credit risk as we charged lower penalties for delinquent loans compared to the first and second quarter. This improvement accounts for a simultaneous 110 basis points quarter-on-quarter reductions in both gross yield and cost of risk.Second, the higher pace of growth in lower-yielding product and the credit card portfolio yield itself trending lower and this accounts approximately 450 basis points of the yield reduction.Third, the specific design of some -- of faster-growing products, such as, for example, car loans and point-of-sale loans where we are paying front-loaded commissions to dealerships and merchants, which have a negative impact on the effective interest rate. This accounted for approximately 50 basis points of the yield reduction.And looking forward to the fourth quarter and to 2021, I do not anticipate such sharp decreases in yield going forward. So basically, the trajectory of the yield reduction will flatten out and there should be a more moderate reduction of gross yield of around 40 basis points to 70 basis points per quarter.Interest expense, on the same slide, which is somewhat [indiscernible] in the third quarter, down 5% year-on-year to RUB5.3 billion while cost of borrowing declined to 3.9% on a blended basis, thus providing support to the net interest margin.And on Slide 19, you can see that third quarter net interest income grew by 4% year-on-year to RUB 24.4 billion. Sequentially net interest margin declined to 16.2%, but our risk-adjusted net interest margin improved to 11.8% as the reduction in the gross yield explained earlier was more than offset by improvement in cost of risk, which was 6.5% in the third quarter, down from 12.5% in the second quarter. This improvement was largely due to the large proportion of borrowers coming out of the restructuring programs back into current status.The next 2 slides give you more granular information about the unsecured and collateralized parts of the loan book, including gross yield and cost of risk. Slide 20 shows the more matured unsecured loan book with credit card and personal loans. And Slide 21 shows smaller, but faster-growing collateralized parts. You can see that both collateralized and unsecured portfolios recovered from the effects of the COVID pandemic in a similar manner, giving us more room to increase our lending activities.Our fee and commission income resumed strong growth in third quarter after slower first half of the year due to the pandemic. It increased 39% year-on-year to RUB 13 billion led by our investments in SMEs and current account business. And acquiring also contributes as you can see on Slide 22.The Tinkoff's Insurance premiums underwritten grew 7% year-on-year, but have been flattish in recent quarters due to the pandemic crisis. Credit-related insurance is dependent on the lending volume, which was lower this year and car insurance is correlated with new car sales, which dropped 27% year-on-year in the second quarter. Furthermore, we are tightening our underwriting policies on [indiscernible] and especially for limited insurance programs. Still, the Insurance business remained above the breakeven both in auto and nonauto segments.Our current account business continues to drive number of customers, balances and transaction volumes, you can see on Slide 23. At the end of the third quarter, we stood at 10.7 million current account customers with over RUB 300 billion of balances. The continued growth of customers and balances allowed us to build and reach RUB 3.1 billion of fee income, which is reported net of current [ backup ] we returned to our customers. The current account business is breaking even taking into account the positive margin contribution from the deployment of cash into the treasury portfolio and into the short-term portfolio of the credit book.Our SME business is now developing at a good precrisis pace, which can be seen in our Slide 24, bringing us new customers, which, in turn, increases transactional volumes. As of the end of 9 months, we are approaching 600,000 customers and RUB 70 billion of balances on SME current accounts. We earned RUB 3.1 billion in fees in the third quarter of the year in addition to treasury income.On Slide 25, we'll give some operational statistics on Tinkoff Investments, the fastest-growing business line, which is far from slowing down with almost 2.4 million customers and transactional volumes approaching RUB 3 billion, which is a tenfold growth over a year. The assets under custody have grown to over RUB 221 billion. Our revenues from this business line grew 8x year-on-year and comprised almost RUB 2.2 billion in the third quarter. This business contribution to group results is becoming more and more visible both on the top line, and more importantly, bottom line as this business segment has relatively low maintenance unit costs.If you could please turn to Slide 26, you see that acquiring business line, which is benefiting from the accelerated transition to e-commerce. Our Internet acquiring business is the third largest in Russia, processing more than RUB 126 billion in the third quarter, which is a 30% growth year-on-year. Acquiring generated RUB 2 billion of fee and commission income in the third quarter, but it's also an important part of value proposition to many of our SME customers. This business works both with large aggregators, as well as in regional merchants in roughly 50-50 split. Our gross acquiring commission is stable at 1.6%.Overall, we were able to show record quarterly profit of RUB 12.6 billion, up 30% year-on-year bringing the total for the first nine months of 2020 to RUB 31.9 billion, up 27% year-on-year. This is a remarkable result given all that 2020 had to offer. Our exceptional profitability, coupled with adequate capitalization, allows us to distribute 30% of the quarterly group profit in the form of dividends all according with our dividend policy.Our return on equity grew on a quarterly basis after a dip in the third quarter and now over 40% both quarterly and for the 9 months of the year. Our return on assets followed a similar path and in the third quarter was over 7%. There is a detailed statistics on return on assets in the appendix to this presentation on Page 30, which helps to understand why gross yield and net interest margin necessarily the most important metrics for successful fintech company.And with that, I give the mic back to Oliver.
Thanks a lot, Ilya. The third quarter was another great quarter for Tinkoff, proving that our growth, product innovation, monetization engines continued to run at full speed. Despite the second wave of COVID, we're confident in our ability to deliver solid operational and financial results in the coming quarters and in the medium to long term. The wider management team, including myself and Ilya, are fired up to deliver on the commitment we've made to investors to reach 20 million customers by the end of 2023 while continuing to grow engagement, and of course, profitability. We will provide more detail on this during our Strategy Day, which we had to postpone earlier this year, but now plan to bring back in the first quarter of 2021, details to follow.As an expression of this confidence, we're recommending a dividend of RUB 0.25 per share for the third quarter. We're also upgrading our 2020 guidance as follows. Firstly, we expect our net loan portfolio growth to be in the 10% area. Secondly, we expect cost of risk to be 10% to 12% -- sorry 10% to 11%. Guidance was previously in the 12% area. Thirdly, we expect cost of borrowing to be in the 4% area, the guidance was previously in the 5% area. And lastly, we expect net income to be at least RUB 42 billion. Guidance was previously RUB 30 billion to RUB 35 billion. You might remember that this net income guidance, at least RUB 42 billion, was the guidance that we originally gave you at the start of this year. We got there in the end, thanks to the amazing efforts of the entire Tinkoff team.With that, we'll hand it over to Q&A. Thanks for your attention.
[Operator Instructions] The first question comes from Mikhail Shlemov from VTB Capital.
Congratulations on the great results. Several questions from me, please. The first one, I want to start with the risk-adjusted margins. Ilya has mentioned in his part of the presentation that despite the gross yields going down, specifically in the credit cards and some sort of the cash loans, the risk-adjusted margin has actually bounced back fairly nicely. I wonder whatever level of a normalized risk-adjusted margin you are thinking about as this has been obviously quite volatile over the course of the last 4 quarters. That's my first question.The second question relates to the announcement, which Oliver has made in his opening remarks about the introduction of a subscription model for the customers. I wonder -- I know that it has been a very recent development, probably just like couple of days of age. However, we would probably appreciate your thoughts how you think it's going to impact unit economics, how you look at your customers' lifetime customer value and whatever kind of an effect we should see on the fee growth dynamics from that side?And probably, last but not the least, there has been some interesting headline that a German start-up, Vivid Money, which you have seeded actually with your ex-colleague of yours has actually raised external funding. I was wondering if this will be still going to be fully consolidated in your fourth quarter financials or it's actually becoming an independent company right now.
Thanks very much, Mikhail. So Ilya will take the first question, I'll do the second question on Tinkoff Pro and then Sergei Pirogov will take the third question probably.
Yeah. Well, Mikhail, we're not specifically targeting our adjusted net interest margin because it's a composition of several things, which may not necessarily go in the directions we want for all sorts of reasons. But I'll try to answer your question that we -- probably over next few years should be in some kind of a corridor of approximately 8% to maybe 11%, something like that. So basically in there, our growth yield is gradually going down. There was a step reduction this quarter, which was anticipated as the gross yield held on quite strongly in the previous 2 quarters. So -- but this reduction is not going to be that steep in the future. It will definitely be a trajectory that will change [indiscernible].Cost of funds is also going down, but again, it's difficult to give a long view on the rate, but definitely in the upcoming 2 quarters it's not going to increase. More likely go down a bit more. And cost of risk right now normalizing and right now really below 10%. So we're taking on everything into account. I guess something in the area of 8% to 11% looks like a reasonable assumption. But again, it's not necessarily what we want to target. We go down in every -- it just goes down in every product and they are all have a different lives and different trajectories of growth. And we target bottom line through the NPV approach and there are obviously other things to take into -- to keep in mind there, especially cost of acquisition. Hope it helps.
Thanks. So on Tinkoff Pro, as you say, Mikhail, this is a very fresh initiative that we announced it yesterday or the day before -- day before yesterday. So basically, what it is, this is a subscription service where we package together different services from Tinkoff, but also external providers. So there's interesting content from streaming providers, for example, which our customers will get huge volume from. So they're basically prices that they wouldn't be able to get on the market themselves, all built into this RUB 199 per month. We think that we could get up to a 15%, 20% penetration into our existing customer base.And so, on the one hand, you have the things that we're subsidizing and there may be a reduction -- a slight reduction in the fee flow that we get from some of those business lines as we offer better rates to existing customers through this subscription package. But on the other hand, they will be taking up other services and all that's bundled into this RUB 199. And if we have 15% to 20% penetration over the next -- well, my colleagues are saying, the next year, I mean, that was pretty ambitious, but let's say, a year to 2, just to be on the safe side, then this obviously extends the lifetime value. So it doesn't just increase the number of services that they're using within Tinkoff and our partners, but they're also will be -- going to stay with us for longer. So the customer stickiness that we talked about are quite a lot. So this increases our ability to cross-sell our other services to which we'll monetize them in other ways. So we have high hopes for Tinkoff Pro.We're the first financial institution to do this in this way in Russia. It's obviously something that you see coming from online providers of various types. We want to try it and we think this is something which could really drive customer retention, extend lifetime value, customer engagement, getting them into all sorts of different products and services, interact more so that we can sell them other stuff. So we think this is an interesting development. But obviously very early days, we'll keep you up-to-date as this thing evolves and we can give you some numbers.Sergei, can you tell us a bit about Vivid? Yes, sorry, go on, Mikhail.
Oliver, yes. Just like a quick follow-up on Tinkoff Pro. Previously, we have discussed many times just like the potential monetization of a Tinkoff Black product, which is close currently to breakeven, has been always years out as you're still pumping up the client acquisition. Should we think that the Tinkoff Pro is actually a first step to properly monetize Tinkoff Black as well in addition to the client retention, which you were talking about?
Not directly. So Tinkoff Black is the way that we bring customers into the ecosystem on a very rich product. So obviously we've talked about that many times, yes. So Tinkoff Pro. So -- if you think about it, as customer comes into the mobile app, they're onboarded increasingly through mobile as opposed to just through the web. They will get the option to open a Tinkoff Pro package as part of the onboarding process. So it doesn't monetize and close sale as Tinkoff Black customers, but it means that they immediately have a suite of services that they can get access to within the Tinkoff ecosystem. So I mean, if you call that monetizing the Tinkoff Black business line then, okay, it is monetization. But that's not what it's about. It's about putting -- giving people the opportunity to open other products and services through which we will monetize them immediately or earlier in their lifetime with Tinkoff.Sergei, over to you.
Yes. Thanks. On your question with respect to Vivid Money. As you know, Vivid Money is a European fintech, a start-up founded by our ex-colleagues, Artem Yamanov and Alexander Emeshev. They are focused exclusively on Western Europe and it's now been designed to be part of the Tinkoff Group as such. So TCS has the opportunity to participate in the seeds round of Vivid Money. And we, of course, wish Vivid a lot of luck in penetrating the Western European market with their product focused on current accounts and fully charged combination of daily banking with retail investments. They have a lot of ideas to be implemented in the next few quarters. We don't have plans to deviate from our small bet approach to projects like this. For us, it's one of the small bets because we don't think we are qualified to take on risks associated with businesses like that in full scale. So we have no immediate plans to increase our share in the project. And moreover, just couple of weeks ago, Vivid successfully closed their Series A round, attracting one of the prominent fintech investors from Silicon Valley. So they're likely to continue implementing their projects like this. So about consolidation, I don't think that anything is going to change accounting-wise between Vivid Money and the TCS Group Holding.
Am I understanding this right where just like if we assume that after the seed round, TCS was a majority investor in Vivid Money it would stay the same after the round A?
Mikhail, round after round, we're going to get watered down as you can imagine while the value of our investment is likely to grow like their Series A round was valued at EUR 100 million post money, which means that TCS' sort of share went up -- I mean, the value of our investment into this project went up by approximately 2.5x. So yes, we'll continue to have a sizable stake, but it is quite likely that we'll be diluted over time.
Elena Tsareva, BCS Global Markets.
Congratulations with record results, very impressive. My first question is about contribution of fee and commission to the revenues, which is now 41%, also record level. And do you -- just could you please give some color if the share can exceed 50%, like, for example, in 1-year horizon? And what kind of business lines you think will be contributing more to this fee and commission share of revenue growth? And also into this question, now we see competition rising and some fintech players or IT players, tech players and also mobile players are also increasing their focus on brokerage business, do we see any threat to fee margin, for example, for the brokerage business in your part? Or you see no threat at all from this kind of competitions that we see? One kind of question -- my first question, sorry.
So we -- so the first part of the question was do you think -- do we think that our fee and commissions income could grow to 50% of total revenue? Potentially, it could. So we -- no, we don't give specific guidance on that because, while we have a view, we don't set it as a target. And obviously, it's very much a function as to what's happening in the lending business, which, to a certain extent, is a function of what's happening in the external environment. And so lending has been a little bit slower this year than it has been in previous years, but quite a lot slower. So we're guiding to 10% growth throughout the year, but there are obviously reasons for that. So if we assume that we'll resume a quicker growth next year in terms of the lending business, then low the income that we get from the noncredit business lines is growing quicker than the income that we get from the credit business lines and it still may not take us to 50%, let's say, in the next 2 or 3 years. So that's my guidance, but it's just me kind of thinking aloud here. But could it get to 50%? Yes, it could.In terms of which business lines contribute most to that, it's obviously Tinkoff Black. It's -- and the current account business in general, so Mikhail, in the previous question was asking about Tinkoff Pro and how we think about that, how we could monetize Tinkoff Black customers over time, maybe that's one of the ways. It's SME, which is going very well this year despite some of the challenges and we're making big inroads into medium-sized business, not just in small business and micro business, which where we've traditionally been. Obviously, the brokerage business, which I'll [ comment to mean ] acquiring, we see huge opportunities and potentially other stuff as well, which we have in the works. So if we come back to the brokerage business, there are -- there is obviously interest. You'd expect there to be because this is obviously a booming market where you're getting whole rafts of new segments of investors coming in with a very different sets of requirements, technology-driven, so that they obviously invest your mobile apps more than having going to branches with brokers in suits and whatever. But it seems to be the case that there are 3 or 4 brokers that are leading this, so the other guys who have the technology, the brand and the capital to invest in this because it requires quite a lot of investment. And so there don't seem to be any, let's say, smaller start-ups outside of banks who are making any inroads. Certainly, a few interesting things happening in the market, but the guys who are leading the charge are Tinkoff's [ Bank ] , VTB, maybe BCS, Alfa all start to picking up in terms of volume as well. So that's where the battle lines seem to be drawn. And then it comes down to your ability to acquire customers, but that then breaks down further into how you work with the external market in order to bring new to broker customers in but also working with your existing customer base in the adjacent businesses through the ecosystem. Your product range, your interface and obviously your execution of the back end, which drives your economics.But I think what was implied in your question was also do we expect to see in Russia what we've seen in other markets where you see commission-free trading, things like that. It's too early to say. I don't think any of the brokers are planning on that at the moment. We'll see, but if that -- if the market does go in that direction, then we expect this to be net beneficiaries from that, to be honest with you. We're already growing very quickly, but we don't grow extremely quickly. But it's a bit early to tell -- to make -- to conjecture on that.
Maybe mostly were in terms of competition brokerage to likely [ improve ] the initiatives of MTS and Yandex who are going to step into fintech finances here but overall trend is understood. Your comments are helpful. And just maybe a follow-up to this question. So, I understand you do not expect deterioration of fee and commission business lines into the fourth quarter of this year from all the restrictions we now have like second wave of COVID. So I understand not much negative impact on fee and commission from this side, right?
No. We're all same.
Okay. And just maybe a bit on like cross-sell to what we're doing now. If you just can provide a little bit more color whether cross-sell is like mostly attributed to one particular specific growing business like -- products like brokerage or it's like widespread across businesses lines you have? And maybe some kind of...
Sure. So we have some arterial routes, which we referred to in the past and there's actually information on this in the presentation materials, in this investor presentation and other stuff on the site. So we have Tinkoff Black as a feeder into SME, into our personal loans and home equity, into credit cards obviously, into Tinkoff Investments. Although Tinkoff Investments is actually drawing on the market more and more, so over 30% of customers coming on to Tinkoff Investments platform are actually coming from outside the Tinkoff ecosystem. And our share is growing over time.So Tinkoff Black is a big feeder. We have point-of-sale loans, which is actually on a standalone basis now a profitable business line. But that also feeds into credit cards and into our personal loans and actually the first signs of that feeding into the debit card business, Tinkoff Black as well and that's something we really want to see, but -- and then various other business lines. I won't go through all of them, but all of them are beginning to feed into other business lines. And so this is now a 2-way process. So for example, we take SME, initially it was SME customers coming from Tinkoff Black customer base. Now it's the other way as well, it is coming from the open market. So we -- over the last 3 or 4 years, we've really been learning how to cross-sell when we started with the obvious cross-sell business lines. Now we're going deeper. So for example, Tinkoff Mobile is cross-selling across all sorts of different business lines within the ecosystem. And here it comes down to the next layer, which is the next level of detail, which is how we actually do that and we have all sorts of different ways of cross-selling and we do this through the mobile app. We do it through other communication channels, digital channels within the ecosystem. We can actually do it by calls so we have call bots, but also a very large channel, which has developed over the last basically 18 months or so is our representatives. So that's turned into a very big cross-sell channel as well and it's something we're driving further. So we've communicated our medium- to long-term target. So by 2023, we have this 20 million customer base and we think we'll have 1.7, 1.8 revenue-bearing products per customer who are active customer by that time and we think we can get it up to 2 products per customer as well in a slightly longer period.
Andrey Pavlov-Rusinov from Goldman Sachs.
And congrats with the strong results. It's also a great feeling to again be on your standalone call and discuss your standalone strategy. So basically, the first question I have is on your loan growth. Essentially, the third quarter was some revival of lending activities and basically if you can elaborate a little bit on how you think this trend will go into the fourth quarter and maybe also early next year should the COVID negative factors will be hopefully behind us? So you've been a bit more active in cash -- sorry, in car loans rather than, let's say, home equity loans. So is your thinking there changing somehow? And also if the credit cards growth in the third quarter is at reasonable level to expect going forward or could you accelerate there? And I've got a couple of small questions, maybe I'll ask them afterwards.
Ilya, do you want to kick off and then I'll add if necessary?
Right. We have resumed our active growth of the loan portfolio. Unfortunately, even in our quite agile business model, you cannot just turn on/turn off the ignition and in 4 seconds go to 100 miles per hour. This machine, well, has to warm up a little bit, which we did through the summer and I think in the autumn we are getting sort of the cruiser speed, taking as car analogy. We obviously want to grow faster. We have capital buffers for that. We have acquisition channels for that and unit economics stack up, so we'll definitely try to increase our issuance. Of course, we are looking with -- we are looking for the situation out of our windshield. So if there will be a sort of the second wave of the pandemic, we will become stronger and government will decide to, I don't know, to make another shutdown then it's probably where we'll have to reduce our lending activity for a time. But we do not expect that, so we've seen that the current our status quo with some limitations. We will continue, but certainly, I do not expect that the lockdown as it was in April and first half of May. So right, we will try to intensify the growth of our portfolio. It's easier to do in a younger, smaller segment and it's more difficult to do in the credit card portfolio because our products have inertia because of its size.And secondly, because it's the client behavior is gradually changing within the credit card portfolio with people transacting more and therefore repayment rate on the portfolio is growing every year. But nevertheless, we are issuing credit cards at -- right now at the pre-COVID levels and are always looking for the ways to increase issuance. But I guess for the immediate future, you sort of for the fourth quarter of the year and you see it from our guidance, you should assume that we will probably be growing in a similar manner that we do in the third quarter. Going forward, we are not giving guidance for 2021. But again, if there is a status quo with the pandemic, we will try to issue more and accelerate from what we have right now, we'll see.Car loans actually grew faster than home equity loans, true. There is no sort of specific sort of idea behind this. It's not that we will try to slow down home equity and accelerate car lending. These are 2 separate business units with different channels to distribute loans and it looks like right now our car loan business is sort of the growth champion because it's not only developing very good at regional car centers, car dealerships, but it's also -- went online quite successfully and grows in the online space as well in the car-selling aggregators. But it's -- well, it does not [ coincide ] with the growth in our segment or the absence of. I think I've answered your question, right?
Yes. That's pretty helpful. So just a couple of other small questions. First of all, on the interchange fee, essentially, it was good to see quite a strong rebound in the third quarter. So was it driven by your kind of less spending on promos for new clients in Tinkoff Black or were there any other reasons? And is it at sustainable levels? And also the second question is on insurance loss ratio, it's quite low for the second consecutive quarter. So is it also at a sustainable level going forward?
Ilya, do you want to do the first one and I'll take insurance, the second?
Yes. Sure. So on the interchange, there are 2 things going on. First, there is growth in transaction volumes as basically they are back to the precrisis levels and are growing. They are growing -- they have grown on a per-unit basis from the second quarter, obviously, because the situation is improving. It is also growing because we have more and more customers. But moreover, there is another specific reason. It's that in the second -- well, in the second quarter, the interchange was supreme because there were certain measures taken by the government, by the Central Bank, to reduce it during the pandemic. And right now they leave this -- have been taken off, which immediately led to the increase in the transaction. So I don't know if it helps. So there were restrictive -- some restrictive measures and they were eased.
And then they're supposed to probably kick in from the first quarter this condensed reinstatement of -- or initial acquiring commissions or it's something else?
No. From the 1st of October. Yes. So we reinstated the temporary reduction in interchange, which ended on 30 September.
Yes. But the question was should we expect this growth forward? And yes, because these restrictions were lifted.
Okay. So it could then actually rebound even more in the first quarter?
Yes.
On the insurance side, we have done an unusual second quarter obviously because people were insuring their cars, but won't drive for much of the second quarter. So that explains the loss ratio decline. In the third quarter, people started driving more again. We have been busy tightening up on all of our models and underwriting on the insurance side. So there's quite a lot to try and scale up in 2019. And some of it was successful, some of it was less successful, especially on the OSAGO, the mandatory insurance site. So we still did -- we saw a bit volume below -- quite a lot less than last year on the OSAGO side, but we used the data that we collected in 2019 in order to refine the models in 2020.So we're doing lesser volume but much better quality based on the information we collected last year. So this basically has taken us to a place where we now are -- we're consistently writing profitable business in the noncaptive insurance business versus on the OSAGO and KASKO predominantly, although we have some other products as well, including travel insurance. And we're slightly slowly but steadily scaling that up, so NPV-positive insurance business, that's the name of the game. So there's nothing exciting happening there yet, but we like this business long term and we're still looking for the key.
Gabor Kemeny, Autonomous Research.
I'd like to follow up on the asset quality first and your thoughts about the trend going into 2021. I mean under your baseline macro assumptions, which I understand don't assume a severe second lockdown and also given the fact that you have a reasonably low share of restructured loans, which I think means that you have a decent visibility on asset quality, how do you think about the provision outlook going into next year? I think you mentioned that it started to normalize in the third quarter. I wondered whether we could consider this a kind of reasonable assumption for '21.And secondly, coming back to the brokerage business, can you help us clear the growth opportunity here in terms of the revenues from -- coming from retail brokerage? And also if you could talk a bit about what competitive edge you have which makes you a -- what incentives do you provide to clients, which help you become a market leader here?
Ilya, do you want to do the first one? I'll do the second.
Right. Well, without giving guidance for this -- for the next year, it's a bit premature especially with where we are moving around all of the place. Right now, we see that at least for the foreseeable few months, we should expect similar quality of our incoming applications and similar quality of our existing portfolio. You are absolutely right, we the sort of, how to phrase it, experiment with the significant payment release to our customers, it seems to be almost over. It was definitely a successful experiment and we preserved a lot of our customers from being delinquent and they are right now back into the normal paying status. And right now, we have some only 1% of our loans still in this program and it's actually tailing off. We see that basically the leading indicators are quite encouraging right now for the risk. So we -- but with the result portion, we think that basically it's going to -- we see it in a more optimistic color than even, I don't know, few months ago. But again, it's difficult to give and I don't want to give any specific guidance for the next year.
So if move on to Tinkoff Investments, so we are the leading brokerage platform in Russia by far. I think we're about 40% or maybe more of new brokerage accounts are opened through Tinkoff. This is all through the mobile app. We currently have 3 million accounts opened and we are the leader by number of active accounts on a monthly basis. In terms of assets under custody, we're not the biggest player. But we're growing very quickly and I said in my presentation, if I'm not getting the number wrong, I think we've grown our balance sheet by 5x this year -- 4 or 5x and we continue to do so. And the trading volumes have absolutely skyrocketed, so it was RUB 3 trillion in the third quarter, if I recall the number. Again, that's all in the presentation.So why and what was enabled us to do this? First of all, we were the first in the market to come out with a mobile app and have an intuitive easy-to-use app, which basically democratized investments. We were the first to come out with loads of features. So first of all, is onboarding. Secondly -- so basically mobile onboarding in a very easy process, in a couple of clicks and you can start investing. The second thing is funding your account from a card, we were first to do that. Obviously, other players are following suit because it's an obvious thing to do, but before nobody did it. The third thing is the product range that we offer, basically on virtual shelves in a mobile app and presented in a very intuitive way.The next thing was T+0 trading. So basically, you don't send the money off from your account and wait for 3 days as you do with many brokers or beginning to speed up a little bit but they used to be pretty awful. You then make a purchase or a sale and off you go, it's in your brokerage account. We had -- we were first in Russia to do robo advising, which we're, based on our algorithms, developing extensively. We split our target audience into 3 different categories. So we have, let's say, not [ shuffling ] in retail investors. So here we have a suite of different services, including robo advising. We have more high frequency traders.And then we have a virtual terminal. We have all of the features you'd expect to see in terms of research materials, in terms of take profit, stop loss. So I won't be listing, but obviously, you guys know about all this. We have a social network called Pulse, which, if I'm not mistaken, has now about 300,000 or maybe more, growing very quickly and it's where our investment auditors have also exchanged all sorts of investment ideas and column news and shared research and whatever else. Lots of little stuff in terms of the higher-frequency traders. But we're also starting to getting to, let's say, light-touch wealth management solutions for more wealthy audience and here we have online personal managers under a different suite of products and services that we're rolling out quite quickly.And we've also been doing, as I mentioned earlier, lots of stuff on the execution side as well, which will be coming onstream over the next year or so. So there's tons of stuff that drive this, but really it's about UX, it's about product, it's about speed, it's about convenience and it's about information. So right now in the market there are about 5 million, maybe a few more active brokerage accounts. A couple of years ago, it was less than 0.5 million and I think the consensus in the market is that this could reach to 20 million active brokerage accounts over the next few years and we're going to be riding that wave and obviously taking a lot of -- large share, about 20 million, as we continue to innovate our interface and work on customer experience, maintain our very high service and continue to segment different product offerings.
Andrew Keeley, Sberbank.
I want to come back to the topic of the loan yields coming down so strongly in the third quarter, which I think came as quite a surprise. And Ilya, it's very helpful. You basically kind of broke down 3 factors, which would be good just to kind of dig into a little bit more. So from what I can recall, you said of the kind of 310 bps decline and about 110 bps, which was due to generally kind of better credit quality, hence, kind of lower delinquency fees, which also obviously positively impacts the cost of risk. I'm trying to understand there whether there's any kind of one-off kind of impact in terms of these kind of lower delinquency fees? Whether that relates to kind of post-payment holidays, et cetera, lower restructurings.Just any additional kind of thoughts there? Then you basically said there was about 150 bps due to the kind of -- the change in the mix, which obviously also positively impacts the cost of risk, but you also mentioned credit card yields coming down. So I wonder whether you can just comment on what is driving that? Is that just -- is that kind of click process or lower interest rate environment in the market? What's contributing there? And then, you said, 50 bps in terms of I think kind of the car loan -- very strong car loan growth kind of front-loading fees to dealers. So should we expect that kind of thing going forward, I mean if you're going to continue with very strong car loan growth relative to the rest of the loan book? And I guess just trying to kind of put it all together, I mean how kind of confident are you in this kind of 40 to 70 bps decline per quarter because obviously as you point out rightly, we had a couple of quarters with pretty flat loan yields, but then this is a pretty big drop in one quarter and I'm just trying to kind of get a bit more understanding on that.
Well, yes. Great questions. I'll probably start with the last one on how comfortable am I in the constant rate of the yield going down. Obviously, not because, well, a year ago, I was saying that the yield would be going -- ticking down approximately 1%, 100 basis points a quarter, but it stood around 30% for much longer, right? And there were sort of specific reasons for that, which we all know. And right now -- and then, I started signaling on our previous calls that, for example, in August, I was saying that it's going to go down and it is going to compensate for that -- for being flat for a couple of quarters, which it actually did. So when I'm saying 40 to 70 basis points, I'm -- and that's sort of a longer trajectory not for 1 quarter, not for 2 quarters, but probably for, I don't know 5, 6 quarters. And therefore, within that time frame, there could be all sorts of fluctuations up and down.Now going to your earlier questions in the sort of, again in the reverse order because the one about the car loan portfolio and the point-of-sale loans, that's easier to answer. That I see as a more one-off, so basically when it was a lower growth and then it kind of accelerated faster in the absence of growth in such significant growth in other segments, then it kind of showed itself. But if we will -- I don't expect that, for example, car loans have to grow 20% in this quarter, then it will only accelerate even more. So when the lending in the segment sort of gets to a normalized pace, then all these specific factors, they kind of level each other out. And therefore, we shouldn't expect these kind of significant fluctuations in the future. So I would call it more of a one-off. Then the next one was, remind me, about the situation within the credit card portfolio, right? So yes. Channel mix is changing and that's on the easy part of the equation, right? But the credit card portfolio is not homogeneous and the tendency is that sort of the drive the internal forces in this sort of portfolio. They drive it to a higher transaction rate, more people in the grace periods, lower cost of risk. So it's sort of -- and obviously, the infrastructure, how people use credit cards is changing over time. And this internal force over time, of course, lead -- drags sort of the yield in the credit card portfolio down slowly but steadily. There's definitely going to be a certain floor to that. But again, right now, it's a slow but continuous process, which kind of showed itself in this quarter obviously. It's always been the case, but in this quarter, the step change in yield just basically needs a more -- deeper explanations from the management obviously. That's why I kind of emphasized that as well. So that's not a one-off, but again the rate of this change should be steep.And then the improvement -- the fast improvement that we saw in this quarter, which also sort of -- that's what's kind of a magical exercise for us. So I just asked my team just to model what would be our gross yield and cost of risk sort of -- the gross yield, the income that we would accrue and additional charge to cost of risk that we would accrue if the situation in the loan portfolio would be same as it used to be in the second quarter, right, wherein the cost of risk was much higher and that gave me slightly over 100 basis points of additional gross yield and additional cost of risk. And that's an academic exercise and it's sort of difficult to model this into the future. We do not expect -- again, we do not expect this such -- sort of sharp changes in asset quality in every quarter, right? So unfortunately, we know that during the crisis times they happen, but in the normal course of business we do not expect them and we sort of expect a more continuity of these numbers into the future. And therefore, that shouldn't be sort of similar effect in the next quarters. It's more of a one-off, I think. I hope it helps. Maybe some additional color if you steer me in any direction.
Yes. That's really helpful. Yes. Okay. I don't really have anything more on that. Okay. I want to ask a question on your customer acquisition costs, which jumped quite a bit in the third quarter. And I'm just -- I mean like it's obviously, been a function of growth kind of recovering and just generally very strong growth across many different lines of the business. I'm just wondering whether you can give any kind of color on how you see the outlook on that line. I mean is this kind of RUB 5 billion-plus? Is this the kind of new normal that we should think about kind of going forward at the moment on the customer acquisition costs?
Well, yes. This growth in customer acquisition cost came almost solely in the increase of our acquisition effort. So it's all kind of by salary to people involved in the acquisition process. It's buying leads from aggregators, paying partners. So it's all sort of there distributed into the unit economics. And the increase sort of seems like a sharp one, but if you would go -- in our presentation we showed 5 quarters, but we have significantly sort of beefed up our acquisition practices in several segments apart from just credit cards -- from just credit products. So basically, we sell more products right now on a monthly or quarterly basis than we used to even a year ago, it's obvious. And that, in a sense, yes, it's a new normal where we want to spend more on customer acquisition, yes, because we see it and we can trace that this customer acquisition pays off.
Just to add maybe...
Another thing -- maybe I would add just couple of words more. Another thing to look at that operating efficiency, though, we have a certain spike in the third quarter, again on a short 5-quarter scale. But if you sort of build this a bit into the parts, you will see that this 38% is actually a quite low number for us. Two years ago, we were up over 40% and then were dreaming of getting under 40%. So it's still a very, very good number in terms of our cost management, which actually commemorates our ability to scale this. Another thing I would have to add that in the fourth quarter, we will have and already have certain increase in TV advertisements, so it's seasonal. So that's definitely a fourth quarter of the year is not the time to cut down on acquisition costs, bear it in mind. Sorry, Oliver.
No. You just added TV, so that's fine. We're certainly going to be growing more quarter-on-quarter so into the future going into next year doing more acquisitions. So as you said, that is the new normal and certainly that's supported by more TV and other advertising costs.
Andrey Klapko, Gazprombank.
I share everyone's excitement about your results. Two clarification questions from my side. The first one is that it just really was extraordinary on the provision side due to the -- partly the macro factor write-back. So as far as I understand, it's still more than RUB 4 billion of this macro factor incorporated. Are you expecting it to be lower until the year-end, given the situation will be as it's now? Or how soon are you expecting this macro factor to be fully reverted? And the second question is about your loans in courts given a bit of accrual. On this category, could you remind us please the recovery -- expected recovery ratio on this line and how it stands against with the provisioning? So after the courts, will it be like a 0 impacts on the provisioning or it will be a write-back or accrual?
Okay. I'll probably -- I'll answer these questions. So well, you can see the numbers that are in our note -- in the footnote of our financial statements, which shows not specifically a macro factor but additional reserves. And true, it was about RUB 6 billion in the third quarter and it was solely macro factor. But then, it's -- this number is used to be RUB 5.5 billion in second quarter and now it's -- it reduced a little bit more to RUB 5.4 billion. But it's -- right now, it's not only a macro factor, which we created originally. It's also -- in the second quarter there was a additional reserves created for restructured loans apart from macro factor. So the macro factor reduced to RUB 4.8 billion, but then there was a RUB 700 million of additional reserves for restructuring, right?So that's -- so basically, that is why despite the fact that we reduced our macro factor by RUB 1 billion in the second quarter, the total sort of additional reserves still were RUB 5.5 billion. So in the third quarter, another layer of complexity added to that, I'm sorry, it's a growth of the portfolio. So while we are reducing the macro factor, it's approximately RUB 300 million of reduction in macro factor. But at the same time, as the portfolio has grown, we added -- the macro factor sort of added RUB 200 million because of that growth. So net change in macro factor was simply just RUB 100 million.And then there was some smaller change -- some small change in additional provisions for restructure. The restructure has reduced and right now it's only RUB 200 million of additional loan loss provisions for the restructured loans and that -- in the fourth quarter that would probably go to 0 together with the restructured portfolio. So the macro factors that we would -- so we do not have any kind of specific idea to kill the macro factor or bring it to 100%, so basically to 0 in ruble terms. We will look on the underlying assumptions sort of variables in this macro factor, we see how they correlate with the cost of risk and adjust accordingly. So put it in simple words, no, we do not have any specific idea of reducing macro factors just because we want it. Hope it helps. Please remind me the second part of your question.
Yes. About the loan in courts. So how the provisions and how it stands against the expected recovery ratio?
Okay. So the loan in courts, they are provisioned obviously as assets based on lifetime recovery. And that -- I guess, in the financial statements, it's something like 15% recovery, something like that. So I think there are provisions something like 85%, but then I'm not 100% sure about this. But it's something like that.
So in a nutshell, I mean, you're expecting -- after the courts, are you expecting some movements on the provision side on this category particularly or it will be a 0 impact?
Expecting the change in the provisions in the loans in court because of what?
After the court decisions, I mean, when the recovery actually happens?
Well, the recovery happens not because of the court decision. The recovery happens through the work of bailiff. And that's a quite a complicated issue because when the court decides on something positively, the case goes to bailiff and you can imagine that the bailiff somewhere in the region is getting hundreds of court decisions and he has to basically to go and somehow get money from the unfortunate borrowers who lost their cases. And it obviously takes time, so it's a very long process. It might -- it definitely takes longer than a year. We made it to be about 2 to 3 years when -- then there is still a chance for recovery from a loan through the work of a bailiff. And we can say that maybe that we can get enough -- where we can expect the portfolio recovery of approximately 10% of this year, which sort of as you take it on the effective rate, for current financial statements, it's obviously lower. And there is a certain sign how you help and how you work with bailiffs? So you increase your recoverability of your -- sort of these kind of assets, right? It's not an easy work. There is a lot of math involved and a lot of physical negotiations with this system involved as well. So we obviously work on the sort of increase. We're always trying to increase the recoverability of this asset, but it's a slow and steady process.
And we will now take our last question today from Andrzej Nowaczek from HSBC.
I'll be quick because most of my questions have been answered, but perhaps you could just remind us what the rates on your main loan products are currently? And if there are any significant back book/front book differences at this stage?
I think the question was about the rate, the yield now for our specific products, right?
If you can disclose the...
I did not hear it.
Yes. The rate yield in the products that's been discussed. And then also address in light of interest rate changes in recent quarters if there has been any difference accumulated between the back book and front book?
So if you take gross yield, it's about 34% something like that on average on credit cards. There was no installment loans, cash loans. It's something like 18% to 19%. Point-of-sale loans, somewhere in the similar area, maybe even higher. So basically they may be about 22%, something like that, 23%. When we talk about the auto loans, then it's approximately 14.5% on average gross yield before the insurance, obviously. And if we take the home equity loans, then it's even less. It's about, right now, about 13% to 14%, something like 13.5% on average. These are the yields. And obviously for some of these products also, there is an insurance premium, which sits in the insurance yield.
Okay. Thank you very much indeed to everybody for your participation, for your questions and your support. Have a good evening.
That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.