Ladies and gentlemen, thank you for standing by. I am Gedi, your Chorus Call operator. Welcome and thank you for joining the Alpha Services and Holdings Conference Call to present and discuss the 9 months 2022 Financial Results. All participants will be in listen only mode and the conference is being recorded. The presentation will be followed by a question and answer session.
At this time, I would like to turn the conference over to Alpha Services and Holdings Management. Gentlemen, you may now proceed.
A warm welcome to the Alfa Bank 9 months call for 2022. This is Vasilios Psaltis, Altobeni's CEO. I'm joined today by Lazos Verraefalo, our CFO Janis Amiris, our General Manager for Wholesale Banking and Dias from Depakcioglu, the Head of IR, to update you on our 3rd quarter results. As the global macro situation appears to be precarious, allow me to start off by setting the stage for Greek Micro before reflecting on our position within that. With that, let's turn directly to Slide 4, please.
As you can see, Greece has delivered robust create real GDP growth in the first half of twenty twenty two, up by 7.8% year on year and above the euro area average of 4.8%, with a strengthening economic outlook for the rest of the year. The strong growth expansion is driven by 3 elements. 1st, Private consumption growth, up by 11.4% year on year, which was the largest contributor to overall GDP growth by 7.9 percentage points. On the back of persistent employment gains, some use of accumulated savings and fiscal interventions amounting to $4,100,000,000 of which EUR 4,600,000,000 in fiscal costs and EUR 7,500,000,000 from the Energy Transition Fund. 2nd, investment growth, up by 10.9% year on year, contributing 1.4 percentage points to overall GDP growth on the back of a remarkable revival of foreign direct investment alongside the hike in corporate lending.
And third, external demand with export of services rising by 34.4 percent year on year, contributing 5.2 percentage points to GDP growth on the back of strong tourist season. Although domestic and external demand is expected to weaken on the back of the adverse effects of the energy crisis on the purchasing power of households, Private consumption and exports of services are expected to continue to support GDP growth, even if to a lesser extent. However, GDP growth in 2023 is envisaged to be driven by investment as depicted in the upper left hand side graph. More specifically, real GDP growth is expected to decelerate to 2.1% in 2023 from 5.3% in 2022 based on the draft 2023 budget tabled by the government. And this is supported mainly by investment that is expected to grow by 15%, making it the largest contributor to GDP growth as opposed to private consumption, which is expected to increase by less than 2% to and travel receipts, which had the lion's shares in the preceding years.
There are a number of factors supporting the prediction the execution of investment in the future growth mix. 1st, the remarkable improvement in the business environment during the last 3 years. In the most recent Economist Intelligence Unit report, Greece was reported as the most improved country among 82 Economies, moving up by 16 places in the relevant rankings. 2nd, and moving now to Slide 5, to the strong upward dynamics in FTI ratings. Foreign direct investment is expected to hit a new record in 2022 to As inflows within the first half have already reached more than 80% of the 2021 level.
The latter was the highest value of the last 20 years
to be at 2.9
percent of GDP. 3rd, a significant injection of investment is expected in 2023 by the Public Investment Program and the Recovery Resilience Fund amounting to DKK8,300,000,000 and DKK5,600,000,000 respectively. The improved liquidity conditions, as seen in the top right hand side graph, in conjunction with the banking sector's ability to optimize allocation of funds RRF loans are expected to support future credit expansion. More specifically, 210 investment projects have been submitted so far for the low part of the IRF with a total budget of $8,200,000,000 These developments, alongside the adoption of key horizontal structural reforms, as for example, the speeding up of the administration of justice and conflict resolution processes and the stable tax regime, are expected to strengthen future investment in the longer term horizon. The full factor is the prudent adjustment of labor cost in the the current inflationary environment, which leaves material breathing space for firms to tackle the energy crisis and ensure that the wage price spiral will be avoided.
Turning now to Slide 6. We can say that last but not least, The 5th factor is that a spectacular improvement in debt sustainability is underway, compressing the sovereign risk and increasing business confidence. A lower debt to GDP ratio is expected, supported by, firstly, the investment driven growth in 2023 Secondly, inflationary pressures, which accelerated to 12.1% in September 2022 and thirdly, the fiscal time delay as presented in the state budget. More specifically, as depicted in the upper left hand side, The primary fiscal deficit in 2022 stands at minus 1.7% of GDP, better than initially expected. And despite the sizable support to Hafslen Firms, a significant part of its cost has been financed through the Energy Transition Fund rather than the state budget, while tax revenues are running above the target in 2022.
For 2023, the primary balance is expected to return to positive territory at 0.7% of GDP following 3 years of pandemic related high deficits, putting downward pressure to the debt to GDP ratio, which is expected to decline in 20222023
to
impact of the cutoff of Russian gas on the real economy, which, however, is expected to be milder compared to other countries as the Greek industry consumes relatively less energy. Allow me now to pass the floor to Yanis to speak about loan growth. Hello, everyone. This is Jan Cemers. I'm the General Manager for Wholesale Banking.
Let us now focus on loan growth on Slide 7. In the Q3, we have continued to grow our book mainly on the back of business loans in Greece. Credit to business is expanded by €500,000,000 this quarter, allowing us to reach €2,200,000,000 in the 1st 9 months of the year. This quarter, the group performing loan book has grown by 3% in Greece and by 2% in our international business. Since the end of 2020, that marks the start of our latest business plan, we have grown performing loans by 16% increase and 9% in our international business.
Net credit expansion has been front loaded in 2022, allowing us to meet our target earlier. To a certain extent, this has been circumstantial with certain large projects maturing earlier in the year following pandemic related delays, While we also expect further prepayments in Q4 on account of the strong GDP and tourism performance. We are now building our pipeline for next year, ensuring that we will be able to capitalize on our strengths And we continue to capture the investment led credit growth that is present in our market. As was paid by Vasiles earlier, Growth in 2023 will be supported, among other things, by RRF investments, EU subsidy schemes and the public investment program. And we have a very strong position in the structuring of such transactions with very good penetration in many segments of the market.
We are delivering this growth in a sustainable manner, both from a risk and a profitability perspective. Our risk adjusted returns remained relatively stable despite And with that, I'll hand it back to you, Vasily. Well, thank
you, Danny.
Thank you, again. Before I pass the floor to our CFO, On Slide 8, allow me to remind you that our aspirations for creating value for our shareholders remain intact, and we continue to make progress towards that goal. Here you can see that our tangible book value is on an upward trajectory. Our recurring profitability has resurfaced. And last but not least, our capital levels are progressing according to our plan.
For 2022, as Raghav will explain in a minute in detail, the prospects are improved. We now expect to end the year with a 7% return with a net income of circa €400,000,000 mark, more than 20% above our initial guidance for the year. To 2023 might ultimately prove to be a challenging year, but we remain squarely focused on positioning the business so as to be able to navigate through the spirit of turbulence and deliver on our results. Lazareth, the floor is now yours to present our financial performance. Good afternoon, everyone.
This is Lazio Papadagalifalo, Alfa Bank's CFO. Let's now take a closer look at this quarter's numbers. Turning to Slide 10. This quarter, we are reporting a positive bottom line of €93,000,000 Euro 335,000,000 for the 1st 9 months of the year. There are a few notable items this quarter.
First, a trading gain of circa $70,000,000 on the back of interest rate derivatives hedging interest rate risk in the banking book. 2nd, in other income, we have had a $25,000,000 reversal of insurance provisions from the liability adequacy discuss at our insurance business as a result of the increased yield of the asset portfolio versus the guaranteed interest rates. 3rd, we have had a €56,000,000 impact from transactions or, as we show here, EUR 77,000,000 post tax. And lastly, there's a EUR 3,000,000 reclassification of expenses related to the issuance of credit cards that were previously reported under general administrative expenses and are now presented under commission expenses. Excluding one off items, normalized profits to came in at EUR 117,000,000 or EUR 324,000,000 for the 9 months.
Our NPE ratio has fallen by 20 basis points to 8% on the back of loan growth and 0 net NPE flows. On capital adequacy, our total capital ratio stood at the end of the period at 16.5%, accounting for the risk weighted assets we leave from transactions. Now turning to Slide 11 to look at the underlying P and L trends. We've seen a solid improvement in net interest income on the back of volume growth and higher rates with improved quality as the contribution of non performing exposures fell to 10% from 18% a year ago. Fees and commissions witnessed a resilient performance at $93,000,000 in the 3rd quarter, driven by funds and payments alongside robust loan origination fees, further diversifying the bank's revenue stream.
Retail and operating expenses continue to trend lower, demonstrating the improvement in efficiency. And the cost of risk came in at 70 basis points for the 9 months, excluding transactions reflecting benign asset quality flows. Moving on now to the next slide to look at loan growth and pricing. We continue to deliver solid levels of loan growth with a €500,000,000 net credit expansion for Greek business loans, driving the 2% quarterly growth in our total performing loan book. We have added just over $4,000,000,000 to our loan book since the onset of our latest business plan, adding 15% of the starting balance and growing the book by just under 10% in the 1st 9 months of this year.
The evolution of loan spreads, both on the business and on the individual side, has been distorted this quarter by the existence of loss in our loan books. What we show here on the lower side is the effective arrival rate that is in our books for the reference period, the spread on top and the resulting yield in order to decompose the various drivers ensure conclusions of pricing evolution. Yields are up by 12 29 basis points for business Turning now to deposit gathering on Slide 13. The group's deposit base increased by EUR 1,600,000,000 in this quarter, driven by corporate deposits. Combined with the increase in our loan book, Our loan to deposit ratio has stabilized around the 80% level.
Our commercial funding surplus, Deposits minus net loans has edged above €11,000,000,000 this quarter, showing that deposit growth is to funding the expansion of our loan book. Liquidity drawn from the ECB's TLTRO facility to Stood flat at $13,000,000,000 unchanged Q on Q. Following the latest announcements from the ECB, From the November 21 onwards, the cost of TLTROs will fully match the remuneration received from money deposited at the ECB, thereby effectively eliminating any positive carry. On the other hand, the still low cost of the instrument, Given the volatile environment we operate, it has its own attractions. For the remainder of 2022, The end of the carry translates into a flat contribution from TLTRO versus Q3 levels, while the carry will completely disappear in 2023.
Clearly, we have excess liquidity and could contemplate early repayment to complete a portion of the TLTRO now that the option is available. And with that, Let's look at the evolution of net interest income in more detail on the next slide. Net interest income in the Q3 of 2022 stood at $339,000,000 up by 12% versus the 2nd quarter. The headline performance was impacted by $15,200,000 reduction in net interest income due to the termination in June of the 50 basis A EUR 1,500,000 negative impact on NII from lower average net loan balances on the back of transaction impairments booked in the 2nd quarter and EUR 3,500,000 of positive seasonality. On a recurring basis though, net interest income increased by 17.1% versus the 2nd quarter on the back of growth in loan and bond balances as well as positive impact from higher interest rates, with the latter accounting for about 1 third of the increase in NII on a recurring basis.
Interest income from non performing exposures stood at €32,000,000 this quarter, with circa 34% of that coming from completed NPE transactions that will leave our balance sheet shortly. On TLTRO, we have provided you with a more detailed chart here so that you can see the contribution in detail. For the end of the preferential wait period on the 24th June and onwards, interest for the TLTRO has been calculated based on the weighted average interest rate for its tranche for the period covering the starting date of its tranche until the reporting date, to, namely taking into account the effect from the changes of the rates in that period. Minus 50 basis points until the 26th July, 0 until 13th September to and 75 basis points until the end of the quarter. As mentioned, post ECB announcements, we should see a similar figure to the Q3 in the Q4 and effectively zero contribution thereafter.
Given the growth in our loan and securities balances and increasing rates. We feel comfortable now in revising our guidance for net interest income for this year to €1,300,000,000 Moving on to fees on Slide 15. Again, a reminder that we've made a small reclassification from costs to fees with no impact to the bottom line.
This
quarter, We have also seen the impact from the deconsolidation of the merchant acquiring business following its sale to Nexu. Excluding this one off, fees were actually up 6% this quarter on the back of growth in cards and payments, alongside robust loan origination on 11% year on year. Now looking on to costs, Slide 16. Excluding the benefit from the deconsolidation of the merchant acquiring business, costs We're again glad this quarter. Our headline costincome ratio stood at 45% in the quarter, Excluding resolution fund fees or $44,000,000 adjusted for the envisaged savings from transactions awaiting completion.
The equivalent number stands at 40% for our Greek operations. Having taken into account Our up to date estimates for the timing of certain transactions as well as inflationary pressures, we can confirm our full year guidance for total OpEx base at around €960,000,000 This is a 20% reduction over 2021 reported operating expenses or 5% on recurring expenses. Let's now turn to asset quality on Slide 17. With regards to asset quality trends in the quarter, There is yet again very little to mention. NPE formation in Greece was 0 with a small reduction in inflows and outflows.
We are yet to witness material signs of deterioration in the portfolio on the back of higher energy prices and inflationary pressures, And we expect to see a small organic NPE reduction in the last quarter of the year. On the right hand side of the slide, you can see further information on our cost of risk evolution. The underlying cost of risk came in at 61 basis points over net loans in the 3rd quarter, with the 1st 9 months coming in at 70 basis points. It is interesting to note that non performing exposures above 90 days past due represent 4.3 percent of total loans. The delta between the two ratios is attributable to for board nonperforming loans below 90 days past due, which are well positioned to procure curings over the next couple of years.
On Slide 18, we provide you with a few further data points for our cash coverage ratio. First, our NPE book has fallen quite dramatically. And as you can see on the top right hand chart, The mix within that book has shifted quite substantially. We have consciously opted to transact on the worst part of our portfolio, namely non performing loans that have been many years in default, Denounced loans, exposures under the insolvency loans and high LTV loans. We have divested almost the entire stock of our wholesale non performing today.
Naturally carrying a higher cash coverage, and we have retained mainly retail secured exposures collateralized by residential assets. As a result of the sales, nonperforming exposures under 90 days past due now represent 46% of the total book, VELT versus circa 30% before the cleanup. Within that book of NPEs under 90 days past due, the proportion of mortgages has almost doubled and now accounts for over 60% versus 33% back in 2019, as you can see on the top right part of the page. Our coverage within that book is relatively stable, something that we depict here on the bottom line, with a coverage on mortgages reflecting collateral as well as the probability of the performance. We see a good pace of curings out of these 4 board employees, And we expect more to come in 2023.
Since the beginning of 2022, we have launched more long term restructurings for exposures above 90 days past due, and we see higher responsiveness from clients. The average LTVs of our retail mortgage and P portfolios are now lower. The increase in real estate prices over the last few years facilitate long term solutions with clients in accordance with their current affordability. Lastly, on the bottom Left part of the page, you can see the evolution of the stock and coverage for the remaining NPE book that is above 90 pages past due. Leaving the bus reduction aside, our coverage per segment has remained relatively stable and is comparable to the levels to participate.
On the next slide, following the quantum leap of the previous quarter, Our NPE ratio has fallen further by 20 basis points to 8% on account of growth in our loan book. By year end, we expect the stock of NPEs to fall just below the EUR 3,000,000,000 level. On all accounts, we are entering this period of dislocation on a much better footing. As can be seen on the next slide, our balance sheet has been revamped. Our capital and liquidity have been strengthened, And we are now more efficient and more profitable.
We should take some comfort in our vastly improved position, but clearly asset quality to is now a topic of heightened focus. So on this front, there are 2 different segments I'd like to touch upon. First, Our corporate book is showing notable resilience, primarily because it is built upon the survivors of the Greek sovereign crisis. And as such, our back book is, to put it mildly, weathered. Secondly, because we have purposely build our pipeline over the last few years in a very selective manner.
We have focused on growth sectors for segments with good visibility on cash flows. We have underwritten long term facilities with lower divisions. Given the prevailing challenges, we are currently updating our risk analysis, zooming in on sectors that are relatively more exposed to the current turbulence, like construction, transportation, wholesale trade. And we are assessing in a granular, bottom up way, what the impact could be in terms of rating migrations and Stage 2 transitions. Simca 25% of these more affected sectors or approximately €2,000,000,000 exposures could potentially experience a 1 notch downgrade in our systems, triggering closer monitoring and review by our credit committees.
The actual provisioning Nick would be material on the one hand due to the starting point for the risk profile of these exposures, where the average probability of default to stands at 0.7% on the and on the other hand, due to the very, very high levels of collateralization. On mortgages, the picture is more nuanced. The fully performing back book is very resilient as it to support the Q3. Production remains very depressed. So as a system, We have not grown into the crisis during a period of low rates.
We're very focused on analyzing early warning signals, especially with regards to forebourn exposures that may be exposed through default risks. So far, We have not witnessed a deterioration of payment behavior despite increasing flows in set up on hoards of the books where pressures on disposable income have been combined with step ups in payment schedules. We are engaging with proactive actions where necessary, and the response rates are quite encouraging. We have already seen an improvement in asset quality flows in the Q3, and this has continued in the Q4. Let's now briefly look at the evolution of our fully loaded capital position on the lower part of next slide, that is Slide 21.
As before, it is probably best to look at the movements in capital in 3 separate buckets. Our organic capital generation was strong this quarter as profitability has recovered, allowing us to build our capital base both on the back of the period's profits as well as due to the resulting DTA recoveries, more than offsetting the carrying impact from DTC amortization. We continue to find growth through internal means. The change in risk weighted assets was actually a tailwind to our capital position this quarter due to lower market risk weighted assets as value at risk and stressed value at risk fell due to the termination of the swap end the lower FX position. The increase in credit risk weighted assets on the back of loan growth Was a minor headwind due to increased cash collateralization of exposures.
Overall, we are very pleased with the 60 basis support the financial results. We have added to fully loaded Common Echo Tier 1 organically. Our capital ratios are also proving resilient as there was effectively no impact from fair value through other comprehensive income due to the low sensitivity of our book to shifts in the yield curve. And then lastly, on transactions, the benefit this quarter was mainly from the completion of the synthetic securitization And the deconsolidation of our Albanian subsidiary, while the remaining risk weighted asset relief stems from the various NP transactions. The combined impact of what we've seen this quarter and what we expect to come is very much in line with the guidance we have given.
Our reported fully loaded common equity level stood at 11.8% at the end of the quarter, up by 70 basis points versus Q1. While pro form a for the anticipated RWA relief on the transactions, our fully loaded common equity Tier 1 stands at 12.1% Note that we now also have the 2 synthetic securitizations in the pipeline that are expected to add 65 basis points to our capital ratios during 2023. On the next and final slide, we provide you with an update of our guidance. Q4 net interest income should continue to benefit from higher volumes on loans and bonds as well as the continued increase in interest rates, bringing the total for the year to EUR 1,300,000,000. As mentioned previously, the loss of interest income from transacted entities as well as the loss of TLTRO carry will affect next year's numbers.
The recent senior preferred issuance will have a minor impact given timing. On fees, once accounting for the reclassification from costs to fees, we should be on track to meet our guidance of close to $400,000,000 We continue to see growth in the medium term coming from loan originations and transaction fees as well as an eventual improvement in the environment for asset management. On costs, We still expect a 20% year on year reduction for total costs, mainly on account of lower one off expenses, with recurring costs down by 5% in the year. Cost of risk, including Service and fees will likely land at circa 75 basis points this year as in the Q4, we will likely be negatively protect it by staging migrations and the cost of management actions. However, as we have thoroughly explained, We are not experiencing any material deterioration in asset quality and do not envisage a further uptick thereafter.
The impact from NPA transactions, net of tax, should be slightly north of €300,000,000 driven by technical impacts to like the effect of the retransing of Project Solar or foreign exchange movements. Our tangible book value has been affected by moves in our fair value flow share book and some FX elements, but it is otherwise evolving according to plan. On capital, we have been able to recuperate this lower tangible book value predominantly through RWA benefits. Overall, we expect to end the year with a better return than originally expected, approaching 7% with net income at or above the €400,000,000 mark, more than 20% above our initial guidance for the year to end with good prospects for further improvement next year. And with that, let's now open the floor for questions.
Ladies and gentlemen, at this time, we will begin the question and answer session. One moment for the first question please. The first question is from the line of Aria Vizakos, Aria Vizus Dros Axia Ventures. Please go ahead.
Hi. Thank you very much for taking my questions and well done on this great set of results. I've got 2 questions, both of them relating to a lending expansion. I can see and I've asked the same question last quarter, but I can see already that in the 9 month period for 2022, you met the lending expansion target for the full year 2022. So I was wondering whether you would like to kind of give us to a more comprehensive update for the rest of the year.
And then the second question is actually for the year 2023. I heard during the call that there is a pipeline. So I was wondering about what would be the volumes and what are the latest trend in terms of pricing? Do you see any kind of competition piling up. Thank you.
Okay. Thank you very much. This is Jan Ceneris. So the net credit expansion in the months that have passed Have been front loaded, so we have achieved our targets for the year, and we expect to stick to those targets for the rest of the year. There is, however, an upside a series of factors that present upside risks to these targets.
Therefore, there is upside potential, in other words. And this may come from the following facts. First of all, syndications. You would remember that we have syndicated circa €600,000,000 in the 1st few months of the year in certain high profile, I would say, drop in transactions that we have So we would expect in the months to come from competition approximately 300,000,000 in certain transactions that have already been identified, potentially more to come a bit later in the year. The second is that we have experienced up to now significant prepayments of facilities in certain sectors that have been Very positively affected by the very high GDP that we have experienced in the country and the tourist receipts that have been very increased as well as stated schemes that have affected positively many sectors of the economy.
Similarly, we have seen sectors such as shipping posting very significant benefits to from the current situation. Therefore, we have experienced significant prepayments, which might be lessened for the rest of the year. And the third fact is that up to now, We believe that and given the current circumstances, we believe that it is very probable that Corporates may wish to retain significant amounts of liquidity that they already retain in our bookings and further to potentially borrow more In order to maintain working capital balances, in order to do better balance sheet management. And this is in order to weather the volatility in prices and the very high inflation that we currently experience. Therefore, We believe that these factors might benefit credit expansion.
Nevertheless, let me point out that What we are doing is we are not only focusing on what is happening in for the rest of And in that respect, we are capitalizing on our very good structure and skills and good penetration in main segments to Now as far as 2023 As far as 2023, We would expect that the growth for the year is going to be mainly investment led. This has happened in 2022, but we also expect that this is going to continue for 2023. And there are certain material reasons that are attributed to that that's attributed to that. The first one is that we, as you know, are benefiting from IRF that in turn is benefiting many sectors of the to the economy ranging from production of energy, distribution of energy, saving of energy, Digital transactions and digitalization of many segments of the country and of the business environment since we have lapped Europe for a number of years in that and extroversion. 2nd, There is an ongoing support from other EU subsidy schemes, such as the so called ESPAC.
The first thing is that we have, as you have heard before, Lazarus, We have the public investment program that is in full steam, has a number of initiatives, a number of projects that are running currently, Such as the PPTPs, Republic Private Partnerships that currently have been turned out. The other thing is that we have significant M and A activity that we experience in many segments of the economy that are getting so called more institutionalized, such as the energy sectors where we consider a lot of you would see a lot of consolidation. And finally, I would mention that the working capital Needs of the corporates are expected to remain elevated in 2023, as I noted for the to last quarter of 2022 because inflation is still expected to remain very high. Now looking forward, past and during potentially 2023, we also expect additional support to for privatizations that are happening and are expected to continue. Now The last bit of your question relates to spreads and to pricing.
As you might have noticed in the presentation by Lazar before, we have not experienced Any spread erosion in 2022 up to now, there are to Precious to the spreads that are continuing in effect. And this has to do with the back half of the book, the older loans that are getting gradually repaid. These are coming from very high levels of margins that experienced in that existed in the past. This is a phenomenon that gradually is coming to an end. There is some spread compression in some very large transactions.
And I'm referring mainly to transactions that are property, as I said, very good transactions, mainly Structured Finance, whereby the structuring dictates that the spreads are low because, Obviously, the securities are very robust and the owners are very good. But in general, I would say that What we do in the bank is that we are trying to maintain very good discipline in the pricing of those transactions. And therefore, we have managed to keep our spreads at very good levels. And what we do is that, in general, we are trying to get leadership position in some large transactions, actively syndicate in order to enhance our returns and obviously obtain many agency roles that support our margins and our returns on a risk adjusted basis. So we are Currently, very satisfied on with the yield that we are getting on those transactions.
If you look, And this is the final bit of what I would note. If you look internationally, You would observe that there is some upward pressure to in the margins for certain transactions. We are witnessing that because we are actively doing international syndications in order to get good profitability for our portfolio. And We expect that this is something that is going to slowly evolve in Greece as well. It might take certain time because deposit rates Hello.
Because liquidity is still okay, it's relatively abundant. And pricing has been high in the past, but this is something that we expect is we are going to see in Greece as well. Jan, just to be on the record here. With regards to numbers and the expansion of our performing loans book in 2022, We do expect performing loans to increase anywhere between €2,800,000,000 to €2,900,000,000 including the impact of FX and other movements. And we expect net loan additions on a group basis to increase by EUR 2.5 to EUR 2.6 period.
Just one clarification. That includes the international expansion as well?
Yes.
Which was for the Q3, I think you said to 2% quarter on quarter, correct?
Yes.
Excellent. Thank you very much.
The next question is from the line of Savim Mehmet with JPMorgan. Please go ahead.
Good evening. Thanks very much for the presentation and also very helpful comments earlier on the loan book. This is indeed a very remarkable NII It's very early cycle in the rate trajectory. Are you able to provide the latest sensitivity on the ACB rates from here. And this is maybe particularly related to Slide 24, where you show a quarterly jump in the deposit cost as well and some decrease in corporate yield as well.
So if you could please tell us whether this was Within your initial expectations and how we should see it from here, that will be very helpful. And Lados, you earlier mentioned 2 synthetic securitizations to In 2023, that would add 65 basis points to your CET1. Can I please just confirm with you whether these are These were within your budget or are these new transactions that we should be taking into our models? Thanks very much.
Coming to NII sensitivity, and I will be speaking to to the sensitivity of NII to higher rates on loans and deposits based on certain assumptions. I remind the audience that 90% of our performing book is floating. The repricing frequency is 2.5 to 3 months. We use rerival as the main reference rate. We assume a certain pass through in 1st demand deposits and time deposits for base rates to above 50 basis points.
So you should take into account that in the 3rd quarter, The respective reference you write was trending at 0, in essence. So from that point onwards, From 0 to 50 basis points, we get an annualized benefit to EUR 115,000,000. And then from there onwards, Every 50 basis points of variable increase adds €40,000,000 to €50,000,000 to annualize in NII terms. Obviously, this assumes a certain pass through to on deposits and assets. And in our analysis, we assume that Above 50 basis points, there will be a gradual pass through of 80% in time deposits end 20% in 1st demand because it's obviously playing with the sensitivities on pass through rates to give different results.
So already in the Q4, We do expect a significant increase of NII as rates go higher than the 0% that was the reference you write for the Q3 results. And definitely, we do expect hire NII in 2023 on the back of these tailwinds. Having said that, What I'm relating to you now is a static balance sheet analysis. NII trending forward We'll include, obviously, additional items like volume growth, loans and bonds, the impact of wholesale funding, to carry on till Tiano and other ingredients, right? So tailwinds and NII in the back of higher rates, for the Q4 and 2023.
Yes. Great. Thanks very much. And the second question was on the synthetic securitizations in 2020.
Yes. Synthetic securitizations, this is part of our budget for 2023. We have already affected 2 securitizations of performing loans. We do target additional capital generation through the risk weighted asset relief by approximately EUR 200,000,000 Out of these two transactions, we expect to complete these two transactions by the end of the Q2 of 2023. And this is a good addition in our capital position for next year as we expect further accretion on our fully loaded common equity one and total capital adequacy ratio.
That was the targets we have given in our plan.
Perfect. Thanks very much. Welcome.
The next question is from the line of Remusorio Osman with Ambrosia Capital. Please go ahead.
Hello, Mina. Thanks for the presentation. 2 on my side. On the rate side, you touched upon it a bit, but Maybe you could give us a bit more color on what you're seeing currently on the deposit side. Are you seeing any further increases?
And in Any shift to time deposits? And then the second question is just catch up on What's the latest on the NP transactions from a timing perspective? Should we assume end of this year? Thank you.
Well, on the first one on the deposits, I think we should not believe from our side that Greece has been one of the few European countries that actually have not charged its customers with negative rates. So if you look at what happened in the European space in a period of mid-twenty 19 to mid-twenty 21, And then you would see that the average pricing has been at minus 35 to minus 40 basis points. Here in Greece, we haven't done that. So I think it is only sensible that we get into a slow start into that pass through. So far, what we're witnessing in the market is no shift among the due key bots Between savings and term as this would be only a derivative of pricing action, which inevitably will come.
To Our NP transactions are on track to be signed and or closed by year end. We do expect one transaction to overflow in to 2023, but that was initially in the plan. We count on the risk weighted asset relief, obviously, coming of these transactions as this is adding significantly to our capital position.
Thank you. If I could squeeze one additional question. I just noticed as a clarification on Slide 21, Q3 transactions of Capital, those were also synthetic or maybe I misunderstood. What do they relate to?
That relates to the lost budget that we have taken in the Q3 and the RWA relief that we have seen from Project Skyline
and
the consolidation of our Albanian operations.
Okay. Thank you.
The next question is from the line of Bruno Guirza Alexandros with Wood and Co. Please go ahead.
Yes, hello. Congratulations for the numbers. Just a quick question on the asset quality and the outlook for 2023. You mentioned quite benign outlook, at least based on your legacy book and the resilience following the crisis. Should would the current levels of cost of risk you think are reasonable for us to assume as well in 2023?
Or do you think you can go closer to the numbers you had in the initial guidance during the capital increase? I think it was 65 bps. You're now closer to 75. How do you think we should expect an increase compared to the current numbers?
Hello, Alex. You have seen that Our 3rd 9 months numbers suggest a flattish formation. And You have seen that inflows have been fully counterbalanced by Qings and managed connections. We do expect in the Q4 to reflect slightly negative formation as we are engaging into proactive actions with our customers. Also, it is important to note, We have not witnessed so far any material deterioration of payment behavior to Our ability to pass to pay as a result of the inflationary pressures and higher energy costs.
In corporates, we have seen practically no inflows for 6 to the Q1. Our loan book, as I have described previously, has grown in the last few years in a very selective manner, focusing on defensive sectors with very low capability of default and high levels of collateralization. And our risk division is constantly monitoring asset quality trends to and has advanced and progressed risk analysis to assess potential downgrades for corporates so that we monitor those corporates more closely, the ones that could be affected by the current challenging environment. And we have sized the potential downgrades in our rating system. And we have also come up with numbers as to potential to impact on impairment, which is very minimal because the starting point on the probability of default for these customers is very low and the collateralization is high.
We have also stressed our wholesale portfolio for increasing interest rates. And there are some reassuring results Seeing high volumes of exposures, either hedged or granted to customers operating in sectors with High margins and significant cash buffers following the accumulation of liquidity over the years. And For a long time, sensitivity to high rates has become an integral part of our credit underwriting process. In retail, we have experienced some inflows during the year on previously for bond exposures. We have fully mapped our portfolios.
We combine demographics with risk analytics to assess further deterioration for impacted customers, and we are actively engaging with them on management actions with targeted campaigns from the very early stages of delinquency with positive results and responsiveness Getting higher as quarters go by. You may have seen lower inflows in the Q3. I expect even lower inflows in the Q4 of the year. There are there could be questions about the impact of increasing interest rates and the burden they pose on households available in Canada, especially for our mortgage portfolio. Such an impact as per our assessment is rather manageable given our performing mortgage book characteristics in terms of origination, vintages, average ticket and remaining maturity.
An increase For an average mortgage of EUR 60,000, which is what we have in our books, an increase of interest rates by 2.5 percentage points We've increased the average monthly installment by circa 20% or €80. And We have set disposal income thresholds when underwriting new credits under to We feel that this is rather manageable for a book which has been originated Many years ago, the production has been very small in the last few years. The indebtedness of households in Greece So that provides some cushion for a potential stress on disposable dividend because of higher interest rates. Some data points from our services for managing collections and restructurings and modifications. I have seen from them an improving performance, especially after April.
That means higher collection rates, higher cash collections, key promise rates and all these metrics that signal the effectiveness to Of the performance as far as gas collections are concerned. I see those trends also continue into the Q4 of the year in our books. So that's why I'm rather optimistic in laying a message of potentially negative formation in the Q4 of the year. For next year, I see similar trends, And we expect inflows to be broadly offset by curings and collections. As far as cost of risk is concerned, in the 9 months, it has been mainly affected by management actions and macro adjustments in our risk models and to a much lesser extent on flows because as I said, inflows have been counterbalanced by outflows.
So this is expected to continue also in the Q4 of the year. That will be driving cost of risk to a somewhat higher pace in the Q4 of the year so that the annual cost of risk I would expect that on the back of the trends I have described in asset quality, Cost of risk next year, including servicing fees, will not be materially different from the one we recorded in 2022.
The next question is from the line of Neeris Faiman with Citibank. Please go ahead.
Hi. Thanks for the opportunity. I was actually going to ask about asset quality as well. I think you answered most of the questions. But just on the €2,000,000,000 Exposure to companies that you think are vulnerable.
What do you think the impact of the downgrade would be? And would you do that upfront in the Q4 or is that more of a 2023 event? I guess the question is how much kind of upfront provisioning are you taking this to in anticipation of deterioration going forward because of the current macro environment.
Thank you, Simon. We assess The risk profile of our exposures on a constant basis, so this analysis to happens throughout the year and results either in upgrades or downgrades. As I said, there has been a specific analysis Stressing the wholesale portfolio and in particular those segments that may be affected by the energy crisis to end inflationary pressures more than other sectors. So in order to closely monitor Those more affected clients compared to the others and have our credit committees engaged in more regular reviews to support the situation. We are pursuing The downgrade for some corporate customers, it might not downgrade from a very high starting point though that will not result in either material staging to transition or provisioning because the starting probability of default for those customers is, let's say, 0.7% of the average probability of default.
So a stage in transition And that, combined with the overall collateralization of such exposure, does not result in any material provision and chargeback. It raises the flag internally for our risk management and wholesale divisions to engage actively and monitor the situation.
Okay. Thanks very much.
The next question is from the line of David Daniel with Autonomous Research. Please go ahead.
Good afternoon. Thanks for the call and taking my questions. I have just a quick one on Admiral. I mentioned the recent trade that you to Just wondering, is there anything more to come this year? What are your insurance plans for next year?
And how does the recent issuance I'll let you look at the call that's coming up. Does the new print allow you to call the 2 non core one that you did late last year? Thanks.
Indeed, there is a call in February on our 2 non call 1, the EUR 400,000,000 senior preferred that we have issued in December 2021. You may have seen that We issued a €400,000,000 Fremancol 2 a few weeks ago. That theoretically gives us the ability to refinance this call. And as you have seen, we have been quite active in MREL issuance and Flexible as far as tenders are concerned capturing the right windows in the market today's MREL. So we are constantly monitoring the market, engaging with investors to assess to our options for further issuance.
So as far as the EUR 400,000,000 Is concerned, we have an ability to refinance given the recent issuance, and we will be engaging with our advisers to tap opportunities when such opportunity suffers.
Thank you.
The next question is a follow-up question from Mr. Menychopoulos, Manuel Sandrosia Capital. Please go ahead.
Yes, thanks again. On the securities book, you've grown it quite nicely with obviously quite effective yields. Can you give us a bit Color on what your plans are on this, the size of this recent trends in Q4? And also just following up on the to NPE Transactions. You had some one offs this quarter.
Should we expect any one offs related to the cleanup in Q4? Thanks.
As far as NPE transactions are concerned, we have seen a charge in the 3rd quarter, EUR77,000,000 post tax. This is 1 third attributed to The impairment of a deferred tax asset in relation to leasing portfolios that have been included in the held for sale. One third of this another one third of this charge relates to REO transactions, including Skyline, which has been classified in the hands of sale. And another one third relates to rather technical adjustments like FX to movements in that and a good interest that had to be reflected in the gross volumes. So that's what we have reflected in the Q3.
As things stand, we do not expect add additional charges in the Q4, unless there are additional technical adjustments that need to be taken into consideration. Now on securities, we have been adding securities in our books since the beginning of the year at much better yields. We are talking about HQLA's high quality liquid assets that are reported with ECB, so they finance themselves at the ECB. This is adding good net interest income to our books. And we continue to add securities selectively also in the Q4 of the year.
And the distribution, obviously, is diversified. It's not just TGBs. Actually, it's less GDPs and more European sovereign and other bonds that come at quite good risk return We post all these purchases in the hold to collect to discuss our business model as we are buying those bonds to maturity in order to increase our net interest income.
Thank you.
Ladies and gentlemen, there are no further questions at this time, I will now turn the conference over to management for any closing comments. Thank you.
Well, thank you very much for your active participation between our 9 month results,
and we're looking forward to welcoming you to our
full year results into the new year. Thank you very much.
Ladies and gentlemen, the conference is concluded and you may disconnect your telephone. Thank you for calling and have a pleasant evening.