CEO’s latest message

August 22, 2024

Tarmo Sild
CEO of Iute Group

Iute Group’s progress in the H1 2024 has been calm. The overall result is made up of many moving parts, some of which were expected to perform better. The most pleasing results have been achieved in the business activities that have been busy acquiring new customers and by the increased transactional activity of customers within Iute Group’s services ecosystem. The least pleasing observations relate to the increased pressure on profitability, which the Group has not managed to cope in line with expectations.

The loan portfolios of both the bank and non-bank businesses grew along with maturities. Energbank partially compensated for the revenue it previously generated with high-yield government bonds by replacing the amortized bonds and growing its loan portfolio in H1 2024 by more than 14 million EUR or +21% compared to the end of the previous year. Iute non-bank has increased its net loan portfolio by 18 million EUR or +10%. The weighted average maturity of both bank and non-bank loans exceeds 24 months. The Group’s consolidated net loan portfolio totaled 265 million EUR at the end of H1 2024, in line with the target set of 300 million EUR by the end of 2024.

The Group’s profitability has been achieved despite a steady decline in loan pricing. Non-bank loans have an APR of nearly 37% ,while bank loans yield only 11%, and we expect the downward trend to continue. At the same time, lending regulations are tightening and competition continues to increase. A declining APR is beneficial to loan customers, but requires the lender to maintain prudent management of credit risk and operating expenses. In H1 2024, lending margins narrowed as the cost of deposits, bonds and other forms of capital rose faster by +6.2% year-on-year. On the upside, margin pressure was partially offset by improved operational efficiency in non-bank business, where the use of automated processes reduced costs.

Revenues grew in all non-bank value streams: loans, wallet, and insurance brokerage, while Energbank’s revenues declined as the “party” on high-yield government bonds ended and the newly originated loan portfolio is not yet generating adequate revenues. From a consolidated perspective, the Group’s revenues in H1 2024 increased by +3.4% year-on-year, but more slowly than the 5.6% hike in total operating expenses. Consequently, operating expenses remain a source of pressure to profitability due to compliance costs, but also due to costs related to Energbank’s turnaround.

Looking back at H1 2024 it is fair to say that the non-bank business supports the banking business more than the other way around. Nevertheless, building and leveraging synergies between bank and non-bank businesses is ongoing and we expect to see the first fruits of technology and data sharing still in 2024, which will translate into higher revenues and a larger customer pool for the bank.

Adding to the complexity of the picture is the cost of credit risk. The Group’s allowances for loan impairment in H1 2024 increased by 9.5% year-on-year, as also reflected in the non-bank CPI30, which remained at 86.4% in May and June 2024.

Both bank and non-bank businesses grew in terms of asset size. The asset growth was achieved along with more customers. However, the non-bank business attracted more than 4,000 customers in Q2 2024 while Energbank added a few hundred customers only. Until Energbank starts offering fully digital services, there is little incentive for our target customers to switch from their existing banking service provider. In total, the Group reached 229,310 performing individual customers who use and pay for our services.

The transaction activity of the Group’s customers’, both bank and non-bank, increased both in terms of the number of transactions executed with the Iute Wallet and in terms of volume. Revenues from wallet services grew to 2.6 million EUR in H1 2024 on a year-on-year basis, accelerating to 23% from Q1 to Q2.

Iute Group’s insurance brokerage revenues hiked and reached a significant 1.4 million EUR in H1 2024. Here, Q2 revenues doubled over Q1, a gratifying demonstration of the team’s aggressive growth efforts. In total, both wallet and insurance revenues exceeded 7.5% of the Group’s total revenues and show a sustainable growth trend.

In the coming quarters, pressure on efficiency will remain high. Especially Energbank’s operational turnaround will remain an ongoing challenge with occasional signs of progress. We are not satisfied with the bank’s opex-to-revenue ratio, which remains above 60%.

On the bottom line, progress to achieve the Group’s annual net profit target of 15 million EUR has slowed in H1 2024, while other key performance indicators are well on track,” said Tarmo Sild, CEO of Iute Group.