May 8, 2024

Tarmo Sild
CEO of Iute Group

In the big picture, our efforts to invest in quality rather than quantity are beginning to pay off, so we are readying for a quantitative expansion of Iute Group based on quality. With this in mind, the race is on for us to create more value for more customers.

Our Iute ecosystem offers combined value by providing customers personalized liquidity when needed, but also by enabling money storage, conversion and payment services as well as access to digital insurance services. Integrating different products into a single mobile super app, a single access point, requires continuous work and learning. In addition to the externally visible integrations, we have created additional internal value using data science to help reduce credit risk and optimize Iute’s operating costs through predictive modelling. Furthermore, we are working tirelessly to better understand how positive customer experiences are influenced by the design of product flows. Value is created when the customer journey and the integration of external partners become seamless, effortless, and cost- efficient. And this value is expressed as success in the cost-to-income ratio, the total number of customers and churn rates and revenue. That said, we remain hungry for success and want to stay hungry rather than full from what we have already achieved.

Drilling down into Q1 2024, the price of loans paid out remained below 40% APR. While the cost of capital remained relatively stable in the lower teens range, the price of loans came under additional pressure as a result of increasing competition from banks. The banks are also pushing ahead with the digitalization of their business and have changed their approach to consumer lending in our markets. Accordingly, we expect the net interest margins in non-bank lending business to narrow further below 20 percent in the coming year. The tighter margins in the non-bank lending business can be compensated by increasing the portfolio volume without a significant rise in operating expenses and by limiting loan defaults. In view of the recent quality improvements in the loan portfolio, we at Iute have started growing the size of our portfolio with greater vigor. The corrective efforts invested in the ‘quality over quantity’ approach in 2023 are therefore beginning to bear fruit in 2024.

For the remainder of 2024, we do not expect the central banks to lower base interest rates, meaning that the cost of debt capital remains high. However, Iute Group is strategically resilient and seeks to respond by increasing size of the loan portfolio while reducing the cost of loan origination and maintenance. In view of a loan portfolio yielding less than 40% on an annual basis, Iute’s approach is to grow in terms of size and maturity. Our aim is to grow the loan portfolio beyond the 300 million EUR mark, while at the same time further improving the quality of the loan portfolio and significantly reducing the cost-to-income ratio.

It is very pleasing that the new loans issued in Q4 2023 and Q1 2024 show a customer repayment performance of over 90%. At the same time, allowances for loan impairments for the loan portfolio that has continued to grow fell to less than 20 million EUR, compared to 24 million EUR at the end of Q1 2023. In other words, the quality of the portfolio is improving.

Revenue from wallet services and digital insurance brokerage continued to grow significantly faster than revenue from lending business. Revenue from our non-bank wallet and insurance brokerage services doubled compared to the previous year, but we expect even faster growth monetizing the benefits Iute Group created for its customers. Our Iute ecosystem is already delivering and we remain hungry for growth in terms of total customer and revenue.

And, not surprisingly, we are also continuing our efforts to push up operating efficiency. As such, our non-bank businesses already reduced their cost-to-income ratios below 40%. However, our goal remains to reach the 40% mark for all companies consolidated in the Iute Group and we must pay particular attention to Energbank, which still spends more than 60% of its revenue on operating expenses.

Nonetheless, Energbank’s turnaround also gained momentum. The bank streamlined its staff by more than 10% compared to Q1 2023 and continues to adapt its activities and qualifications to the needs of its customer. After a three- year phase of sharply rising base interest rates and yields on government bonds, the Moldovan banking sector and thus also Energbank must again learn to lend money to the real economy and focus on the actual needs of its customers as interest rates normalize. In this context, we see the expansion of Energbank’s loan portfolio by more than 20 million EUR since Q2 2023 as an important progress and expect this to be reflected in its revenue increasing from Q2 2024 onwards. With the transfer of Iute’s digital lending technology decided in April 2024, and the use of know-how synergies, we also expect Energbank’s results to improve significantly already in H2 2024. The technology takeover will be a lengthy process, which has been initiated by now.

In closing, our ongoing challenge is to attract more performing customers. However, despite our efforts, the number of Iute Group’s performing loan and wallet customers is at standstill. We therefore need to learn more about our customers and at the same time educate our customers to build their trust in the benefits of digital financial services. The more real value we create for our customers, the greater the rewards will be for Iute Group, its team, and its investors.