Gentlemen, thank you for standing by. I'm Constantinos, your call operator. Welcome, and thank you for joining the Alpha Services and Holdings conference call to present and discuss the nine-month 2023 financial results. All participants will be in listen-only mode, and the conference is being recorded. Signal an operator by pressing star and zero on your telephone. At this time, I would like to turn the conference over to Alpha Services and Holdings management. Gentlemen, you may now proceed.
Hello, everyone. This is Iason Kepaptsoglou, Alpha Bank's Head of Investor Relations. Thank you for joining us for the presentation of our Q3 results. Vassilios Psaltis, our CEO, will be leading the call, including focusing on the recently announced deal with UniCredit. Then Lazaros Papagaryfallou, our CFO, will go through this quarter's numbers in some detail, and as ever, we will take Q&A in the end, hoping to finish within the hour. Vasili, over to you.
Thank you, Iason. Good morning, everyone, and thank you for joining. Let's dive straight into our results on slide 5, please. As you can see, we have posted another strong set of results, continuing on the path to produce sustainable value for our stakeholders. Our profitability in the first nine months has exceeded 12%, with well over EUR 500 million of normalized earnings. Revenues are up by close to 20% year-on-year, driven by higher rates, higher bond and loan volumes, and higher recurring fees. Operating leverage and strict cost discipline have driven our cost-to-income ratio down to the low forties, while asset quality remains relatively benign, with our cost of risk having largely normalized. As a result, we have generated EUR 0.24 of recurring earnings per share in the nine months of the year, and this is up 92% on a year-on-year basis.
We remain focused on maximizing the value that we add to our stakeholders, and with this quarter's results, we continue to demonstrate that we are making quick work of meeting our financial targets, of increasing profitability, and generating capital to support growth and create value for our shareholders. On slide 6, we have just as a reminder of our 6 strategic priorities, the operational levers we're using to achieve our financial ambitions. I would like to use the opportunity to share with you, in some detail, how the deal we have struck with UniCredit interlaces with all of them. And with that, let's move to slide 7, please. On 23rd of October, we have announced a groundbreaking agreement with UniCredit. The agreement consists of 3 distinct components. First, we are combining our respective banks in Romania, creating the number 3 player in the market.
Our local bank will merge with UniCredit Romania, with Alpha Bank receiving EUR 300 million in cash, as well as a 9.9% stake in the combined entity. Second, we are forming a commercial partnership in asset management, bancassurance, and other banking services. UniCredit will acquire 51% of our life insurance subsidiary, Alpha Life, while Alpha Bank will distribute UniCredit's mutual funds. Additionally, the two banks will operate a cross-border referral system. And third, to underpin its commitment to the partnership, UniCredit will acquire a stake in our bank. As you can see on Slide 8, through the merger of our Romanian subsidiaries, we're able to attain critical size, solidifying the status of the combined entity as a top-three player in the market, thus improving the profitability potential.
Based on 2022 data, the pro forma entity has just over EUR 10 billion of loans, EUR 12 billion of deposits, and a net income of EUR 200 million, while net profit in the first half of this year, if we were to annualize that, is just over EUR 300 million. The merger brings together two franchises with complementary client segments, enlarging the range of services and products provided and driving growth for the combined business. Our ongoing share of the combined entity offer us exposure to the future growth of the business. The transaction is expected to close within 2024 and is subject to the usual confirmatory due diligence process, corporate approvals for the merger, and all necessary regulatory approvals and consent, including on antitrust. Let's move now to the commercial partnership in Greece on slide 9.
There are actually several complementary aspects to this part of the transaction. On Alpha Life, this is our pension and savings products-focused subsidiary. UniCredit has a leading market share in the respective business in its home country, and with that comes expertise in product development and servicing that will empower our capacity to distribute contemporary products. There is, thus, considerable potential upside to net income flows for Alpha Life post-transaction, given the vast experience and expertise that UniCredit brings, allowing us to accelerate the implementation of our business plan with respect to the relevant segment and potentially overshoot our targets due to partnering with a strong commercial partner.
On asset management, through a distribution agreement for UniCredit's asset management products, Alpha Bank clients will benefit from an increased offering that will now encompass UniCredit oneMarkets mutual funds, as well as the terms and conditions that UniCredit has been able to obtain from their existing partners. The ability of UniCredit to extract better terms out of their partners for the benefit of our clients as they do for their existing clients, it's a clear differentiator and is now enhanced as they bring with them the combined weight of 16.5 million clients... and very importantly, through a cross-border referral partnership, our bank will now have access to UniCredit's 13 markets of presence. This will expand our reach well beyond the borders of our core markets.
It will allow us to service the international needs of our clients, clearly differentiating us from our peers, without having to face the uncertainty or cost of setting up an international presence. Moving into slide 10, all of this is being underpinned by UniCredit's planned investment in Alpha Bank. Two weeks ago, UniCredit submitted an offer to the Hellenic Financial Stability Fund to purchase their 8.98% stake in Alpha Bank. The process is now well underway, as you have seen from the HFSF's announcement, with a competitive bidding process, which is due to complete next Friday on the tenth of November. This investment from UniCredit is the first from a foreign bank in 17 long years, following the decade-long Greek crisis. It's a vote of confidence in a country's return to normality, as well as the potential of our bank.
It will return Alpha Bank to full private ownership, and it does so through a de-risk transaction that does not draw upon market liquidity, leaving the HFSF divestment process undisturbed. Importantly, it adds a strategic anchor investment to our share register, a reputable industrial player, reinforcing our leadership in the regional market, as well as giving us direct access to their expertise and underpinning the potential for further commercial collaboration opportunities. The various facets of these transactions are fully aligned with our strategic objectives, as you can see on slide 11. The transaction vastly improves the return on the capital that we deploy in our international business.
The merger would unlock the profitability benefits of having critical scale in a country where such scale is important, and we are able to retain our presence in a capital efficient way, allowing us to enjoy the uplift in value from the synergies while participating in the favorable growth outlook. The transaction has allowed us to realize the value of our franchise in Romania in an accelerated manner, while limiting the risk from the investment that would have been required otherwise. The commercial partnership with UniCredit is similarly very important. I have already mentioned how it is a real differentiator for the Alpha Bank franchise. It will cement our franchise with Greek corporate as we become the de facto port of call for their international ambitions, alongside our leadership position domestically.
It enriches the product range that we're able to offer to our affluent customers, while also bringing expertise that will de-risk our efforts to expand our reach to the emerging affluent class. And last but not least, it makes us part of a Pan-European network, increasing our negotiating power with counterparties and elevating our access into various European markets, as well as to leading expertise. And then on slide 12, here you can see that we outlined the financial impact from the deal. These transactions are clearly positive. Back in June, we set our 2025 targets with our investor day. Overall, the transaction leaves net profit expectations unchanged. We will, of course, lose the contribution of our Romanian subsidiary from the P&L. However, we will be able to make about half of that from the 10% stake in the more profitable combined entity.
The remainder will come from lower funding needs and the reinvestment of the cash proceeds. At the same time, we will be further enhancing our capital ratio by more than 100 basis points, of which 90 basis points is due to the deconsolidation of the EUR 2 billion Romanian risk-weighted assets. We expect to achieve the same profits, but with lower capital consumption, thus achieving 50 basis points higher profitability. Importantly, these estimates do not include the potential upside from the commercial agreement. To conclude on my side, let's now turn to slide 13, which again, is something we shared at our June investor day. Improved profitability is coming from two sources. First, we are seeing a structural improvement in the profitability of each of our business units as the levers we are operationalizing, combined with macro tailwinds, are producing sustainably higher returns.
Secondly, we ensure that we allocate capital in the most value accretive way. We have seen returns on regulatory capital based on our 13% target for CET1 grow from 9.5% last year to over 17% in the first nine months of the year. Group returns on the regulatory capital that we need to carry are reduced by the regulatory treatment of our deferred tax assets, leading us to deliver a return on tangible equity of 12.8% in the first nine months of the year. Maximizing returns for our shareholders is our utmost priority. Lazaros, the floor is yours.
Thank you, Vassili. Let's now take a quick look at this quarter's numbers. Turning to slide 15. This quarter, we are reporting a positive bottom line of EUR 188 million. Excluding one-offs, normalized profits came in at EUR 208 million, up 7% versus the previous quarter and over double Q3 of last year. The most notable one-off in the quarter was the EUR 12.5 million donation to those impacted by the natural disasters in Thessaly. Looking at our performance in the first nine months of the year, reported profits are up 59% and normalized profits up 92%. Slide 16, on our balance sheet, our tangible book value grew 9% year-over-year, while our regulatory capital is up 11% over last year's levels.
Our cash balances are up by EUR 500 million, mirroring the growth in our deposit base, which, combined with issuance and liquidity released from the divestment of assets previously held for sale, has allowed us to comfortably fund the growth of our loans and securities book. Now turning to slide 17, to look at the main profit and loss components. Net interest income continued to grow in the quarter, up by 8% on the back of high rates and an increased contribution from the securities book. On a yearly basis, NII grew by 41% versus Q3 of last year. Fees and commissions grew further to EUR 100 million, up 12% versus Q2, and 18% year-on-year. Recurring operating expenses were down 1% in the quarter on lower general expenses, while year-on-year, they were 3% higher on higher staff costs and depreciation.
Finally, cost of risk came in at 79 basis points, excluding transactions, in line with our full year guidance of 80 basis points. With that, let's look at the drivers of our top line performance during Q3 in more detail on slide 18. We had another quarter of growth in our net interest income, which has now reached EUR 477 million. Interest rates and the pace of increase in the overall deposit beta continue to surprise positively. As a result, we are today upgrading our NII target for the year to EUR 1.8 billion, from EUR 1.7 billion at the Q2 , and from EUR 1.6 billion at the time of our investor day in June.
The assumptions underpinning our target are a deposit facility rate remaining at 4%, with average three-month Euribor for the year at 3.4%, and an average deposit pass-through of 15%, implying an exit rate of 17% in the Q4 . The increase we expect in the deposit beta for the Q4 is in line with the trends we are seeing this quarter. We expect a small pickup in the pass-through to time deposits from the Q3 rate of 50% and a further shift in the mix to time deposits. I would like to provide you with an update to our interest rate sensitivity.
1 percentage point change in the deposit beta is about EUR 17 million at current rates and deposit volume assumptions, while a 25 basis point change of the ECB deposit facility rate is slightly higher than EUR 30 million, based on current deposit pass-through assumptions and the size of the securities book. As the deposit beta increases and the security book increases, the sensitivity will progressively go down. On the asset side, we continue to see some pressure on spreads in line with the guidance we gave at our investor day. We have continued to be cautious not to pass on the temporary benefits of a low deposit funding cost to the long-term loan facilities that we underwrite, as we want to avoid locking in levels of profitability that are below our thresholds.
Our loan disbursements year to date in Greece have an average risk-adjusted return on capital in excess of 19%, a performance we closely monitor in view of our profitability targets. This is an integral part of how we position the balance sheet, given the outlook for interest rates. Current macroeconomic developments suggest that rates will remain higher than previously anticipated for a longer period of time, and that remains a tailwind for our profitability. Net interest income is at or close to its peak, but will likely remain at elevated levels in the coming quarters. Naturally, the deposit beta will continue to increase, which will be a headwind to our net interest income, even if the end state for the cost of retail funding ends up being better than originally anticipated.
However, the longer rates remain at these high levels, the higher will be the benefit from the reinvestment of maturing securities that currently have lower yields. We continue to manage the balance sheet dynamically, preparing for steady or even lower rates. The contribution from fixed rate debt securities has increased again this quarter, and this is a trend that should continue as, one, we continue to increase its size, and two, we have circa EUR 2.8 billion maturing debt securities until the end of 2025, and a further EUR 2.2 billion incremental in 2026. That on current rates would reprice 1.5%-2% percentage points higher. At the same time, we are incentivizing credit expansion with fixed rate type of products, hence locking in the current risk-free rate curve and
Using derivatives in the form of fixed rate receivers to have flexibility to hedge our interest rate risk profile and to protect its net interest income. Slide 19, on fees. We have had a strong quarter across all segments, with all product lines seeing growth. To a certain extent, this reflects seasonally higher levels of activity in the summer months, mainly related to card and payments, but it is also the product of the work that we have done to grow our assets under management base, price credit holistically, and reposition our operating model in retail. We expect to continue to reap the benefits of this in the coming quarters. On to costs now, slide 20.
Our disciplined approach continues to yield cost benefits, resulting in a containment of our cost base as recurring expenses have been flat in the first nine months compared to the same period last year. We have been offsetting the impact of inflation and higher investments through the benefits of deconsolidating the merchant acquiring business and offloading non-performing assets, while we have also seen a reduction in the contribution to the resolution fund by EUR 8 million. Our headline cost income ratio stood at 39.2% in the quarter, and just 36% in our domestic business. As a reminder, and in line with our guidance, we expect to see a seasonal uptick in the last quarter of the year. Moving on to slide 21, in loans. Growth in our performing loan book has slowed to 1%.
Starting with Q4 of last year, we have been faced with elevated levels of repayments, and this trend continued in the Q3 . It is evident in the quarterly series, in the upper right part of the slide, that in the last quarters we have experienced above average repayment volumes, but we expect such volumes to decelerate. In the medium term, we have a pipeline that supports strong net additions in the Q4 . Overall, we still expect to meet our guidance for mid to single digit growth in group performing exposures during 2023. A downside scenario would risk less than 1% of our above EUR 33 billion target for performing loans, and it would be driven by the delay of certain specific disbursements to next year. As you can see on slide 22, we continue to see strong growth in customer funds.
Our deposits have grown by EUR 500 million this quarter, or EUR 1 billion, if only private sector deposits are taken into account. The shift to time deposits, as can be seen on the right-hand side, continues, reaching 25% of total deposits as of September. The cost of deposits continues to evolve favorably, making the inflows this quarter even more impressive. On AUMs, we have had notable valuation headwinds this quarter, but net inflows, driven by mutual funds and fixed income products, continue to support our fee income line. In the affluent and mass affluent segments, we have seen further sales of our captive asset management products, whereas in private banking, there has been some shift of net inflows to fixed income products under our custody. And with that, let's now briefly look at our segmental performance. Slide 23 on retail.
Another strong quarter, with returns on allocated Common Equity Tier 1 at 28% for the nine months. Revenue growth has been the driver of the reduction in the cost income ratio, but the business has also seen a 4% reduction in its cost base as it continues to optimize its footprint. Tailwinds from rates and a granular deposit base support a strong performance in this segment. In our wholesale division, as you can see, revenues have grown 10% on higher rates and higher loan balances. Recurring costs were again down meaningfully as the transformation program continues to bear fruit, and as a result, we have seen an improvement in profitability by 2 percentage points. Loan disbursements year to date have taken place at a risk-adjusted return on capital above 16%, in line with our business plan targets for this capital intensive segment.
We continue to optimize capital allocation and RWA consumption in order to drive returns in wholesale. Slide 25 on our wealth and treasury operations. Revenues are down versus last year. This reflects some trading gains we made in 2022, while specifically this quarter, we have seen a negative impact from a government-led switch into longer tenures. That will, however, lead to an NII benefit going forward. On the bottom line, this has been counterbalanced by the positive effect of the rating upgrades on the Greek sovereign. Core revenues, the same, the sum of NII and fees, have doubled, up by 107%.... Income from securities reflects our new organizational and operational structure since late 2021, with the creation of the Chief Investment Officer function that oversees the dynamic management of our balance sheet.
As we have moved away from generating trading gains to offset the impact from offloading problematic assets, our securities book is there to generate interest income with low volatility over the medium term, alongside loans, complementing the liquidity, capital, and interest rate characteristics of the rest of the banking book. In our international operations, on slide 26, we have seen normalized profits more than doubling, as revenues have benefited from excess liquidity and volume growth, with returns on allocated capital up 18 percentage points. In view of these strong results from our international operations, we are pleased to have been able to maximize the value of our Romanian operations for our shareholders, ensuring that we retain a presence to benefit from the growth prospects while improving returns on allocated capital.
Finally, Slide 27, capital allocated to non-performing assets has fallen significantly this quarter, as portfolios previously held for sale have been deconsolidated. With that, let's move to asset quality on Slide 28. NPE formation in Greece was negative this quarter. Inflows have come in slightly below the run rate of the previous quarters. Curing activity remains robust, and alongside repayments, has driven negative NPE formation. The underlying cost of risk came in at 55 basis points in the Q3 , in line with the previous quarters, with an additional 13 basis points for servicing fees and 10 basis points for securitization expenses, with the latter 2 basis points higher quarter-on-quarter, following the completion of a synthetic securitization in the Q2 . That brings the overall cost of risk, excluding transactions, to 79 basis points for this quarter, in line with our annual guidance.
Our NPE ratio is down 40 basis points to 7.2%, with half the reduction achieved organically and the other half stemming from the closure of Project Cell , the sale of a portfolio of unsecured exposures. Coverage has ticked up this quarter to 41%, despite the sale of a highly covered portfolio, due to the cures we have seen this quarter, and we expect the trend to accelerate going forward. Let's now briefly look at the quarterly evolution of our capital position on slide 29. As you can see on the top graph, our fully loaded common equity tier one increased by 48 basis points in the quarter before a dividend accrual of 15 basis points. Our organic capital generation was strong for another quarter at 50 basis points, despite the payment of the AT1 coupon this quarter, consuming 6 basis points.
We continue to fund growth through internal means, while our capital generation capacity is further levered through the recovery of deferred tax assets. Our reported fully loaded Common Equity Tier 1 stood at 13.9% pro forma for the Q3 profits, or 13.7% post-dividend accrual, while if the anticipated RWA relief from transaction is taken into consideration, our fully pro forma loaded Common Equity Tier 1 ratio stands at 13.9%, well above our management target of 13%. It is important to note that we expect a further benefit of 27 basis points to our capital ratios following the conclusion of another performing loan securitization, and this is to be concluded within 2023, and reducing RWAs by circa EUR 0.8 billion.
As previously communicated, we aspire to reinstate dividend payments out of 2023 profits, and we aim to secure regulatory approval in early 2024. On the next slide, you can see that our capital ratios are well ahead of regulatory requirements, while the EUR 400 million AT1 issuance that was completed earlier this year further built our capital buffers. Then lastly, on slide 31, where we present our financial targets. Once again, we are upgrading our 2023 guidance. To be clear, at this stage, we have not reviewed our 2025 targets, which are simply presented here as a reminder of what we shared at our investor day. Some elements have been mentioned throughout the presentation, but allow me to summarize. We now expect net interest income to land at circa EUR 1.8 billion, with rates and deposit beta evolving better than expected.
Results in raised revenue guidance of circa EUR 2.3 billion. We don't expect any notable deviations in our expectations for fees or costs, but the high revenue base means that the cost income ratio will now be closer to 43%. Our cost of risk guidance is unchanged at circa 80 basis points for the year. As a result of the above, profitability is expected to come in excess of 11.5%. Earnings will grow to EUR 0.30 per share. Our tangible book value will land closer to EUR 6.3 billion, and our fully loaded Common Equity Tier 1 ratio will be circa 14%. And with that, let's now open the floor to questions.
Ladies and gentlemen, at this time, we will begin the question and answer session. Anyone who wishes to ask a question may press star followed by one on their telephone. If you wish to remove yourself from the question queue, then you may press star and two. Please use your handset when asking your question for better quality. Anyone who has a question may press star and one at this time. One moment for the first question, please. The first question comes from the line of Eleni Ismailou with Axia Ventures. Please go ahead.
Hello. Congratulations for this set of results, and thanks for taking my question. Three questions from my side. So you gave us some guidance during the call that suggests that NII will be coming down in the next quarter, as well as in 2024, compared to what we've been seeing so far in 2023. So could you give us some more color to understand the quantum of the move as well as, the potential moving parts? And my second question is, what are the biggest upside and downside risks to this outlook? And third question is, how should we think of the impact on the asset quality in the coming quarters due to the effect of the higher for longer interest rates? Thank you.
Thank you very much for the questions. Coming to NII. Let's first discuss the outlook for rates, which is an important, obviously, input to this discussion. The latest macro developments point to a higher for longer environment than previously anticipated, and the markets kind of project a shallow cutting cycle starting from the second half of 2024. Now, with higher Euribor than initially expected, there are various dimensions in the balance sheet that we need to take into consideration. Yes, as you said, the NII is close to its peak. Naturally, the deposit beta will start to increase in 2024, and the time lag of the repricing between floating rate assets and deposits will be gradually closing.
However, this deposit beta increase is expected to be lower than previously anticipated, and can be attributed to a slower conversion from first demand to time increase in deposits in the Greek banking system, as well as preference of the clients to keep their money in shorter tenors. On the other hand, the longer the rates remain at high levels, the reinvestment of our maturing, lower yielding fixed rate assets over the next few years will reprice at 1.5%-2% higher than current book yields. Overall, if you take all these drivers into consideration, we do expect a moderate pressure on NII in 2024 versus 2023.
Now, with regards to asset quality, as you have seen, in the last quarters, and that was very much the case in the Q3 of the year, default flows have been increasing, and we have been giving a lot of emphasis in improving our performance in this front. This has been obviously facilitated by liquidity, which is out there in the system and our clients. This has assisted payment behavior, and we have also launched targeted campaigns to engage with our customers and preempt any potential difficult situation, especially for those who are most vulnerable. Government programs that have also provided liquidity have also assisted in this direction, as well as the initiative the banking system launched earlier this year to introduce a cap on mortgage floating rate loans.
We do expect our good performance in default flows to continue in the coming quarters, and we do expect to see an organic reduction of non-performing loans on the back of these initiatives and on a steady state of curings out of our forborne non-performing exposures. We are not agnostic of risks in the context of higher rates, but we think the combination of all these drivers will drive us to a more benign outlook in 2024, suggesting that we have further room to organically reduce our non-performing exposures towards our targets introduced in the business plan day in June.
This is clear. Thank you, and again, congratulations for this set of results.
The next question is from the line of Mikhail Butkov with Goldman Sachs. Please go ahead.
Good day. Thank you very much for the presentation, and congratulations on strong results. I have a couple of questions. Firstly, on the UniCredit partnership, the partnership with UniCredit. This deal helps you to free up more than 100 basis points of capital, as you mentioned. But it also probably helps to free up some of the bad budget in the later years, which you originally planned for the international growth in Romania. So the question is, how would you plan to allocate this freed up capital? Do you have any ambitions for other any plans for other international growth opportunities, or it will be more for the local growth and possibly dividends?
Then the second question is also on net interest margins to follow up. As we are getting, is it less than 12 months to the second half of next year when there will be the street expects some rate cuts to start? The question is, do you work on any hedges to extend the high net interest margins for longer, and are there any tools which can help you to keep it at high levels? And the third question is connected to the recent S&P upgrade. So there were already many comments that it can help to reduce the cost of issuance for MREL and other. We could also see the practices that in sometimes investment grade is connected to the risk-weighted assets for specific exposures.
Do you see any kind of benefit for the risk-weighted density from the recent S&P upgrade in the later quarters? Thank you very much.
Let me, let me start, Lazaros, let me start with the question on our positioning for low rates and our hedging strategy, as well as the issuance cost related to the investment rate, and then Vassilios will speak about on credit. So coming to our hedging strategy, I remind that we started this hiking cycle with circa 90% floating rate performing loan book, and a low concentration diversified deposit base. As a result, our balance sheet has been geared up to increase profitability in a high rate environment. While our interest risk profile and NII terms are better off at a high rate environment, the balance sheet is now more balanced towards all different interest rate environments than a year ago.
We have most probably reached the terminal rates in Eurozone, and Alpha is preparing its balance sheet for steady and even lower rates by investing in fixed rate debt securities and incentivizing credit expansion with fixed rate type of products, hence locking in the current rate, rate curve. By doing so, we will aim to manage and prepare against an easing cycle with a physical hedging strategy between the various items of the balance sheet. On top of that, the bank is and will be using derivatives, fixed rate receivers, as I have explained previously, to have flexibility to hedge its interest rate risk profile and to protect its net interest income. The ratio of fixed rate assets to total assets and to first demand deposits currently stands at circa 30% and 55% respectively.
So over the next 12-24 months, we expect these ratios to increase by 15-20 percentage points with a deployment of EUR 3 -EUR 5 billion fixed rate receiver swaps. Lastly, it's worth highlighting that lower rates, coupled with a better credit fundamentals on Greece and the Greek banking sector, will result, all other things being equal, to lower issuance costs from our rolling and future wholesale issuance. That partially captures your second question on investment grade and how this can facilitate Alpha and all Greek banks to increase their wholesale funding at lower rates. Yes, we do expect a wider universe of investors to invest in our instruments when they get to the investment grade zone, and this as we have explained in the past is expected to reduce our funding issuance cost.
Vasilis, the floor is yours on new credit.
Yeah, thank you. Now, in terms of the part of our transaction that relates to Romania, it goes without saying that we continue to believe that Romania is a great market to be. It's an attractive banking market, and it's a fast-growing economy. The key point, however, that we made also when we had the joint call with Andrea was that in order to maximize your options in that country, you don't need just to have a strong franchise, which we do, but you also need to have scale. And as with the transaction that we have structured, as far as Romania is concerned, we believe that we're gonna be able to reap the best of both worlds.
On the one hand, we are keeping our presence in a much stronger entity, which in a combined way is gonna be the undisputed number three in the market, and has put its eyes on becoming number two at a certain point in time. That will practically cater for our 10%, bringing roughly the same revenue stream as we would have had on our own. We're doing that by practically reinvesting a good part of the proceeds, so that's, that speaks about, you know, the, it's a, and we feel it's a testament of how we feel about the market. But you're right, that we're releasing also in tandem 120 basis points of capital.
So on the one hand, the capital, I mean, the revenue stream that we're getting is with a much, much lesser capital investment, and on the other hand, we're getting this release of 120 basis points. Now, that's obviously, as we have shown with our very focused, and I would say non-sentimental approach that we have taken for Romania, we're very diligently implementing our capital allocation framework. So for the excess capital, that's exactly the same we're gonna do. We're gonna be reviewing our options. You know, our targets is to reinstate, as of 2023 profits, the dividend payout, that is very important to us.
It is very important that we continue the stream of that capital to our shareholders, but at the same time, we have good businesses to fund at high ROEs, and we are reviewing our options.
Vassilios, let me jump in again, in order to complement my previous answer on the impact of rating upgrades, and also cover the issue of any potential impact on RWAs. Let me clarify that the recent upgrade will not affect the RWAs of securities, especially Greek government bonds. These have been risk-weighted at 0%, and overall, rating upgrades are expected to be reflected to other asset classes, and this will benefit eventually RWAs.
Thank you. Thank you very much for very detailed answers.
The next question is from the line of Mehmet Sevim with JP Morgan. Please go ahead.
Good morning. Thanks very much for the presentation, and congratulations also from my side. I'll have one more follow-up on NII, if I may. So I think what's positively surprising is that the pace of growth has also accelerated quite visibly this quarter, compared to the previous quarters, and that's particularly encouraging, also looking at the lower NPE and NII contribution this quarter. Lazaros, I remember you mentioned earlier that you would have expected a peak in the Q3 , but just thinking in terms of the quarterly development from here, can I ask where you would see NII in the Q4 , maybe in the Q1 of next year, and where you would expect it to peak? And secondly, just one follow-up on the earlier answer that you gave.
Can I confirm you said you expected the fixed rate assets and deposit share to increase by 15 points in the next year? And, would that be mostly through hedges, so you, as you said, fixed rate receivers, et cetera, or, is that mainly through securities? And again, if that's through hedges, what kind of an impact on the P&L would you expect, and would that be also baked into your 2024 NII guidance, or, or at least indication, where you said you would expect, little pressure? And, just thirdly, if I may, on loan growth, there was an incremental improvement in net credit expansion this quarter, which is quite encouraging, also looking at the quiet summer months. Repayments are now coming down, but if we still consider your full year target of EUR 33 billion, the pace of growth looks relatively muted.
So I'm just wondering how you see the pipeline into the year-end and the repayment schedules also into the year-end, and whether you're still comfortable with this, guidance. And one final one, that will be just on asset quality. A few months now have passed since the floods. Just, can I ask if you're seeing any early signs of stress from that particular part of the book, or, you know, is that basically overall, not a deal for asset quality, as you see things now? Thanks very much.
Now, yes, indeed, our previous projections and guidance alluded to the peak in quarter NII happening earlier this year. Obviously, we were wrong in this projection, given that we were expecting lower rates and a higher deposit beta. So I think developments have alluded to a different trajectory on the count of both rates and deposit betas, which are now expected to be more benign for our top line. As I said, the outlook for 2024 suggests that NII will be moderately reduced compared to 2023.
Having said that, most probably NII in the Q4 of the year is expected to be higher than the one we have in the Q3 , as to end up in annual net interest income in excess of EUR 1.8 billion, as we have guided earlier in this call. The second question relates to my comment on our hedging strategy, and the fact that over the next 12-24 months, we expect to see the ratio of fixed rate assets, total assets, into first demand deposits increasing by 15-20 percentage points. That includes not just fixed rate securities, but also fixed rate receivers. This, in the range of EUR 3 -EUR 5 billion, as previously explained.
Obviously, the outlook I've given you for NII in 2024 encompasses and includes also the impact from entering into these fixed rate receivers.
Now on loan growth, I think you're right. What we are seeing so far in the year has been muted. However, this is not related to the disbursement. They are very healthy. They are according to plan. This is related to the elevated level of repayments. And where we have been wrong is that we thought that this would be a first half phenomenon. However, we have seen that continuing into the Q3 as well, but eventually at some point, they will de-escalate. I mean, they're not gonna be elevated repayments forever. I mean, if you look at the right-hand side graph that we have put on page 21, this is quite visible.
Now, in the near term, we have managed to put down a pipeline that supports strong net additions for the Q4 , and that makes us, I would say, relatively confident on meeting our guidance for mid-single digits growth in a group performing exposures during 2023. But even if we consider a downside scenario where, you know, some of that may still experience a timing asynchrony, so not being able to close within the quarter and getting shifted into the next year, that practically would mean of missing of less than 1% versus the EUR 33 billion target that we have put for performing loans. So that delta is not gonna be having any material impact whatsoever in our earnings.
With regards to your fourth question for asset quality impact from floods, the recent natural disasters. So Mehmet, in the short term, it is not expected to have significant impact on incomes, given the sizable state and European Commission responses, but could create upward pressures on inflation. In the medium term, we may see possible deterioration in the trade balance due to both the decline in the exports of goods and replacement for the sovereign or lost agricultural and livestock production that was initially intended for private for domestic consumption. That is the macro, let's say, context for the floods.
As far as asset quality is concerned, obviously we have not seen so far any material worth discussing impact on default flows, and the current data points we have from those affected that have sought to get support from the state, we're talking about very small numbers so far. Negligibly.
Great. Thank you so much. Much appreciated.
The next question comes from the line of David Daniel with Autonomous Research. Please, go ahead.
Good morning. Congrats on the results, and thanks for taking my questions. I have three. The first one is actually a quick one, just on CET1. I note the benefit you mentioned on the synthetic securitization, but are there any other headwinds to book in Q4 capital that we should be aware of? And where do you expect CET1 to get to at year-end? The second was just on NPEs, and I note that your coverage remains low to peers, but primarily because of your high foreign exposure. So I'm just wondering if you can give us any information on how you see that part of the NPE book running off, or any guidance would be helpful. And then finally, just on MREL, Q4 2022 saw a couple of transactions in the senior space.
Just wondering if you're looking at markets or, if not, could you give us some guidance on issuance plans into next year? Thanks.
Let me start with Common Equity Tier 1. We do not have short-term headwinds. We do expect RWAs to increase on loan growth in the Q4 of the year, as we do expect to see some good net loan additions until year-end. We do also have on the headwinds part the phasing of previously performed securitizations that, you know, eventually will result in higher RWAs. But on the other hand, we have strong internal capital generation. We have some additional optimization initiatives on risk-weighted assets, and we do expect to see Common Equity Tier 1 at the end of the year exceeding 14%. So on that front, I think we will manage to meet and exceed our targets.
Iason needs to help me with the rest questions. Can you repeat, please?
The second question was on coverage and how we expect that to evolve going forward, specifically guidance on cures and how we see the pipeline evolving on that.
I think the Q3 is very indicative of what we have been relaying to you over the last few quarters. What we are saying is that our organic reduction efforts are fruitful, and we are maintaining the cost of risk and the allowance account at levels that, if combined, our cash coverage improves. Also, that was the case in the fourth or the Q3 of the year, despite the fact that we have deconsolidated a consumer and secure portfolio, which carried higher coverage. Still, because of those drivers that I have explained, that is organic reduction and maintenance of the allowance account at those levels, you see cash coverage increasing, and that is the trajectory that we expect to see in the coming quarters.
The other question relates to issuance. You may recall that we have had an issuance of an MREL instrument during senior preferred, during the summer. There was earlier in the year an issuance of an AT1, and we have strong organic capital generation. So, we have managed to meet our January 2024 interpolated interim requirements for MREL. We have built good buffers, and we can now time our efforts in a more comfortable manner. The plan that we have portrayed until 2025 speaks about one or two issuances a year. Now, You may recall previously, Vasilis speaking about the benefits out of our agreement with UniCredit on the Romanian front.
That will increase Common Equity Tier 1 , and obviously, having more capital means we have more buffers and a more comfortable pathway to meeting our final MREL requirements. So on that front, you should expect the bank to take that into account, and overall, we think that, you know, net issuance for MREL is now lower than previously anticipated.
With that, we have reached the one-hour mark, so thank you very much, everyone, for joining. We will take any other questions you may have offline with the IR department. We're here for you all day. Thank you, and we'll see you again with full year results in March.
Ladies and gentlemen, the conference is now concluded, and you may disconnect your telephone. Thank you for calling, and have a pleasant evening.