Ladies and gentlemen, thank you for standing by. I am Gary, your Chorus Call operator. Welcome, and thank you for joining the Alpha Services and Holdings conference call to present and discuss the second quarter 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. Should anyone need assistance during the conference call, you may 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.
Good afternoon, everyone, and a very good morning to those of you dialing in from the US. Welcome to Alpha Bank second quarter results call for 2022. This is Vassilios Psaltis, Alpha Bank CEO, and I'm joined today by Lazaros Papagaryfallou, our Chief Financial Officer, our Chief Economist, Mr. Panayotis Kapopoulos, and Iason Kepaptsoglou, the head of IR. Let's start by looking at the macro picture with page four, please. There you can see that Greece delivered robust real GDP growth for the first quarter of this year of 7% on a year-on-year basis. This was supported by strong private consumption growth, the continued rise in business investment, as well as the strong base effects, given that in the first quarter of 2021, the Greek economy was under lockdown.
Thus, real GDP growth forecasts have now been revised upwards from 3.2% last March, which was to reflect the Q1 GDP that showed unexpected strength amid high numbers of COVID cases early in 2022 and the start of war in February. The economic outlook for the rest of this year remains positive and above expectations for Eurozone growth. The Russia-Ukraine war is expected to impact domestic economic activity. However, there exists evidence of pickup in demand, mainly supported by, firstly, further deployment of investments, and secondly, the revival of tourism-related revenues in the post-pandemic environment. This invisible resilient growth is also evident in the evolution of several leading indicators in the second quarter of the year. Hard data reveals some positive signs for the domestic economic activity.
For instance, as depicted in the upper left-hand graph, retail trade increased in real terms by 7.1% year-on-year during the period of January to May 2022, while manufacturing production index rose by 3.6% year-on-year in the same period, and by 3.9% year-on-year in June. Furthermore, the dynamics of private building activity growing by 13.8% in terms of volume remained resilient over the first quarter of the current year, synchronizing with increasing residential real estate prices. On the contrary, as seen in the graph, soft data, namely the economic sentiment indicator and PMI, are moving downwards, reflecting the highly uncertain environment in geopolitics and energy security.
Inflation accelerated further to 11.6% in June this year on account of the diffusion of the mainly imported inflation on domestic economy from three channels, energy costs, inflation expectations passed through, and weak euro. As depicted in the graph of the lower part, inflation for housing recorded the highest increase in the first half of 2022 compared to the same period in 2019, followed by transport, food, and non-alcoholic beverages. Therefore, the downside risks to the growth outlook in 2022 are primarily related to the monetary policy, which is tightening, as the ECB has now taken a hawkish shift, which may depress growth to the extent tax revenues again underperform.
The impact on the borrowing cost of the widening of the 10-year Greek government bond spreads in an international environment characterized by elevated uncertainty, as well as the adverse effects of persistently higher energy prices, especially in the case of a cut-off of Russian gas. However, the impact of the latter on Greece is expected to be milder, as the Greek industry structure is less energy consuming, Greece faces a milder winter and exhibits lower reliance on Russian gas compared to other large European countries. Let's turn now to Slide 5. Despite this challenging backdrop, we have been able to deliver the final leg of the inorganic reduction of NPEs. This quarter marks a major milestone for us, as we have been able to reach the single-digit NPE ratio after a decade-long dislocation in our balance sheet.
Our balance sheet has been revamped, reducing the stock of problematic assets by circa 90% through a combination of outright sales, securitizations, and a meaningful organic reduction. The journey is not complete. We expect a further improvement in our asset quality to take our metrics towards the European average. Evidently, the task at hand is much more manageable, not only due to the greatly reduced stock, but also for two fundamental reasons. Firstly, the remaining organic reduction will be simpler to achieve as we can enjoy the benefit of experience and have now developed a superior capacity to resolve NPEs. Secondly, our NPE reduction strategy was designed to divest the worst part of the book and leave us with the task of managing predominantly forborne secured retail exposures.
On Slide 6, you can see one facet of our strategy in rolling out our new operating model. This has necessitated specific actions on the business development front to ensure that we have a streamlined platform focusing on the parts of our business where we can add the most value, while at the same time leveraging the expertise and capacity of industrial partners to enrich our product offering. This quarter, we have made further strides in this direction as we have completed the sale of our merchant acquiring business to Nexi with the launch of Nexi Payments Greece, and we hosted a relevant press conference with Nexi CEO here in Athens. The distribution agreement that is in place and the envisaged success fees will contribute positively to our profitability as we make market-leading products available to our clients.
Additionally, we are at the final stages of completing the divestment of our real estate portfolio, having selected a binding offer, allowing us on the one hand to focus on the core of our business and divest our real estate exposure, while at the same time capturing the upside from the activity in this segment through the provisions of real estate management services. Let's now focus on loan growth on Slide 7. In the second quarter, we have been able to maintain our momentum in growing our business loans. Credit to businesses expanded by EUR 1.3 billion this quarter, showing that we maintain our leadership in the sector for a second consecutive quarter. We are delivering this growth in a sustainable manner. We ensure that we underwrite profitable exposures and when necessary, syndicate part of the large tickets we originate to retain our prudent risk management policies.
Syndication of exposures has amounted to EUR 4.6 billion this quarter, a very sizable number. While it so happened that we have not been on the receiving end of any notable ticket from our peers. This means that post syndication, our business loans grew by EUR 4.7 billion this quarter. Year to date, we have been able to deliver a net credit expansion of EUR 1.7 billion. That is 77% of our full year target. Together with the growth we saw last year and accounting for trends in the remainder of the book, we have already delivered, in six quarters, 37% of the full year target we presented in our business plan last year that envisaged an EUR 8 billion growth in our loan book in Greece.
This has been the culmination of the strategy we have put in place to leverage upon our strong franchise. Our tireless efforts have reestablished Alpha Bank as the leading bank in business lending in Greece, having seen a remarkable growth of 44% in our performing balances since the end of 2018. Now, let's focus on how that translates into value creation on Slide 8. Our aspirations for creating value for our shareholders remain intact, and we continue to make progress towards that goal. Our tangible book value is now on an upward trajectory. Recurring profitability has resurfaced. And last but not least, our capital levels are progressing according to plan. Times are fairly uncertain, and we continue to navigate a challenging macroeconomic environment. We do so from a vastly improved position.
Since our capital and liquidity position are relatively shielded from the current dislocations, the quality of our balance sheet has been completely rebound and makes us optimistic on the prospects for growth as well as for the improved profitability. We have a diversified business model. Segmentally, we have the leading franchise in corporates, as can be seen by the levels of growth we are generating. We also have a strong presence in the affluent segment with 10 billion of assets under custody and a network that was able to deliver, even at this highly disruptive environment, positive net sales in the quarter. We are also diversified geographically through our international presence in Romania, Cyprus and the UK, with the former having twice the population of Greece, experiencing a similar influx of investment and having the potential to grow consistently for a prolonged period.
Our strategy has positioned our franchise to maximize value accretion. We continue to build upon our track record and our resolve to deliver on our promises, and that has been strengthened by the progress we have been able to deliver so far. With that, I would like to turn the floor to Lazaros to present our financial performance in the first quarter of the year.
Good afternoon, everyone. This is Lazaros Papagaryfallou, Alpha Bank's CFO. Let's start by taking a closer look at second quarter numbers. Turning to Slide 10, this quarter, we are reporting a positive bottom line of EUR 117 million or EUR 243 million for the first half. We've had two effectively counterbalancing notable items this quarter. One, we have taken the vast majority of the remaining loss budget in order to affect a reduction in non-performing exposures. Two, this quarter has also seen the gain from the sale of our merchant acquiring business to Nexi, which we show here net under discontinued operations and other. Excluding the above and other one-off items, normalized profits also came in positive at EUR 73 million or EUR 207 million for the first half.
Our NPE ratio has fallen by four percentage points to 8.2% on the back of the transfer to held for sale this quarter of a series of NPE portfolios. On capital adequacy, our total capital ratio stood at the end of the period at 16%, accounting for the risk-weighted assets relief from transactions. Now turning to Slide 11 to look at the underlying trends. Our net interest income has grown this quarter as expected and is of better quality as the contribution from non-performing exposures decreased further down to 11% from 30% a year ago. Fees and commissions stood at EUR 101 million, with second quarter seeing growth in cards, robust loan origination, and sustained performance in wealth management.
Our operating expenses were stable this quarter, but down on an annual basis as we continue to improve our efficiency with further benefits to come. Cost of risk remains on a path to normalization at 70 basis points for the first half, in line with our full year guidance. The quality of our earnings continues to improve with our core pre-provision income at EUR 173 million this quarter, up 6% over the first quarter. Moving now to the next slide to look at the growth of our loan book. The strategy we have put in place continues to deliver tangible results. Looking at the chart on the bottom right of this slide, our performing loan book was up 3% this quarter and is up 7% year to date.
Our origination capacity remains strong, while at the same time we ensure that our concentration limits and our profitability thresholds are well observed. We have, and we continue to monitor closely the structure of the deals we underwrite and the nature of the projects we finance. We have, and we continue to syndicate part of the large tickets we procure, ensuring that we are the owners of the relationship with our counterparties while retaining our prudent risk management policies. The risk-adjusted return on capital for disbursements has remained above our 15% threshold. Year to date, we have delivered a EUR 1.7 billion net credit expansion for business loans, de-risking our target of EUR 2.2 billion for the year in the context of a changing macroeconomic environment.
Lending spreads on performing exposures for individuals were up again in the quarter, while the reduction of corporate spreads is effectively due to the move in reference rates. This quarter, we have also seen meaningful growth in our securities portfolio as per our strategy of capturing opportunities in the non-commercial space now that the risk-reward balance has shifted favorably. Year to date, we have added EUR 1.7 billion of high- quality securities to our book at good yields of circa 1.6% and with very low risk-weighted asset consumption. We are adding securities at maturities that naturally match the profile of our funding base, thus optimizing our balance sheet structure. Importantly, due to the active management of our book, we have been able to curtail the volatility to our capital base from turbulence in the market.
The DVO1 of our fair value through OCI book currently stands at below EUR 200,000, while the contribution of our securities book to our asset base currently stands at 16% below the peer average. Turning now to deposit gathering on Slide 14. The group's deposit base increased by EUR 1.6 billion in the quarter, driven by corporate deposits. Combined with the increase in our loan book, our loan to deposit ratio has stabilized around the 8% level. Our commercial funding surplus, that is deposits minus net loans, has also remained stable at roughly EUR 10 billion over the past year, showing that deposit growth is funding the expansion of our loan book. Liquidity drawn from the ECB's TLTRO facility stood flat at EUR 13 billion, unchanged QOQ.
Let's now see the drivers of our NII performance during the second quarter in more detail on the next slide. Net interest income in the second quarter stood at EUR 302.7 million, up by 6.9% from the previous quarter. The quarter benefited from one more calendar day, while we also show some minor negative impacts from the transition and the new pricing of TLTRO funds at the tail end of July. On an underlying basis, net interest income was up 6.7% in the quarter. Growth in performing loans and higher security balances drove, alongside the repricing of a part of our book at higher rates. Interest income from non-performing exposures stood at EUR 33 million this quarter, with circa 40% of that coming from the NPE transaction center.
A completion of certain NPE transactions will create some volatility in the numbers going forward, and we are no longer enjoying the beneficial 1% rate of TLTRO funding. Given the growth in our loan and securities balances and increasing rates, we feel comfortable in revising our guidance for net interest income at circa EUR 1.2 billion. Turning to Slide 16 on fee income generation. We have had another resilient quarter with growth in cards and payments alongside robust loan origination and sustained performance in wealth management. The quarterly move in fees is mainly attributable to base effect, as in the first quarter, we have benefited from larger project finance fees. On a yearly basis, we are clearly up across all categories, highlighting the progress we're making in diversifying our revenue pool and capturing the growth opportunities in the segment that we're targeting.
The commercial performance of our asset management business proved quite resilient this quarter, seeing positive net inflows of EUR 25 million against an extremely challenging market environment for the industry. Our commercial strategy has resulted in a positive AUM mix shift, as fixed income outflows were, to a large extent, redirected to balanced funds inflows, better placing asset management for a market recovery. Nevertheless, inflows were moderate but positive due to market volatility, and mutual funds AUM balances decreased by EUR 239 million or 6% in the quarter due to a negative valuation effect. Lastly, as we show here, our merchant acquiring business contributed EUR 8 million to fees this quarter, a figure that will disappear following the sale of the business to Nexi.
On the OpEx slide, on Slide 17, we show that second quarter recurring operating expenses were flat quarter-on-quarter b ut have improved year-on-year due to material savings in staff costs. We have also shown here the split between our Greek and our international businesses in Romania, Cyprus, and the United Kingdom, as well as the contribution we make to the Resolution Fund. Post the aforementioned savings, our operational efficiency metrics will be best in class increase. Our international business continues to rescale and is showing tangible signs of progress. Lastly, the Resolution Fund charge is expected to tail off in the medium term. The inflationary pressures we are witnessing on our cost base are not meaningful, and we don't expect a significant impact this year.
The anticipated closing of certain agreed transactions and the deconsolidation of respective costs will deliver the anticipated benefits to a good extent in 2022, but fully phased in 2023. Looking forward, we expect to materialize savings from sale of the merchant acquiring business as well as the transaction in non-performing exposures in real estate, resulting in a pro forma quarterly run rate of EUR 228 million or EUR 212 million without the contributions to the Resolution Fund. On a like-to-like basis, pro forma for the impact of these transactions, we expect recurring costs to trend EUR 100 million lower than 2021 full year costs at EUR 850 million for the group or EUR 680 million for Greece only. These numbers exclude contributions to the Resolution Fund, which amount to circa EUR 6 million annually and are expected to phase out in 2024.
Moving on to asset quality on the next page. With regards to asset quality trends in the quarter, there is very little to mention. NPE formation in Greece was zero, with a minor uptick in inflows and outflows at similar levels to the first quarter. We are yet to witness any signs of deterioration in the portfolio and continue to expect an organic NPE reduction in the second half of the year. On the right-hand side of the slide, you can see further information on our cost of risk evolution. The cost of risk came in at 0.9% over net loans in the second quarter, with the first half coming in at 0.7%, in line with our annual guidance that we maintain.
As we mentioned previously, we have taken a significant charge this quarter in order to affect the reduction in NPEs through transactions. This is probably a good bridge to the next slide. As you can see, our stock of non-performing exposures is now reduced to EUR 3.2 billion, driven by transactions mainly, as we have transferred EUR 1.6 billion of non-performing exposures to the held for sale, with a full P&L impact incurred this quarter, leading the NPE ratio to a single-digit level of 8.2%. Despite uncertainty, our main asset quality target for 2022 to reach a single-digit NPE ratio has been delivered ahead of plan. Looking forward, we continue to anticipate negative organic formation for the second half of the year, leading the stock of NPEs towards the EUR 3 billion level.
On Slide 20, it is important to highlight that our NPE reduction strategy has worked on two fronts. Evidently, we have reduced the stock vastly through sales and securitizations, but also through a meaningful organic reduction. What is not immediately apparent is that the quality and composition of what remains behind is also greatly improved. We have opted to sell the worst part of our NPE portfolio, and as a result, what remains behind is of better quality. 78% of the remaining stock is secured NPEs, while 86% of the total is retail exposures. Our NPE ratio stands at just 3%, while our international business has effectively already fully normalized its balancing. 43% of our NPE book is forborne exposures under 90 days past due, predominantly mortgages that will drive curings and organic reduction of the stock going forward.
We are thus comfortable with our current standing. With that, let's turn to the last slide and look at the evolution of our fully loaded capital position on the lower part of the slide. Our organic capital generation was positive this quarter, showing that we are able to fund growth through internal means. We have added 22 basis points to our capital position through our profit and loss account, and more than offset the recurring impacts from DTC amortization and risk-weighted asset growth. Our capital ratios are also proving resilient in the context of market volatility as a result of our active management of the book to ensure that we are correctly positioned for the current environment. This quarter, we have seen a minus 5 basis points impact from the lower reserve of the investment securities portfolio, measured at fair value through other comprehensive income.
The improvement in the quality of our capital is self-funded. Transactions added a total of 26 basis points during this quarter, as the impact from the sale of the merchant acquiring business more than offset the loss budget for NPE transactions. The upcoming RWA relief from transactions will further increase our capital ratios by 78 basis points, showing that the overall impact has actually been positive. Our reported fully loaded Common Equity Tier 1 stood at 11.1% at the end of the quarter, up by 18 basis points versus the first quarter, while pro forma for the anticipated RWA relief from transactions, our fully loaded Common Equity Tier 1 ratio stands at 11.7%. Other than the cumulative impact we have incurred on our investment securities portfolio, our full year guidance still stands.
It is worth highlighting that we currently have circa EUR 2 billion of Deferred Tax Assets not included in the regulatory capital. As our capital base expands, given organic profitability, there will be room for more Deferred Tax Assets in the regulatory capital calculation to further support Common Equity Tier 1 in the coming years. 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 is from the line of Alevizos Alevizakos with Axia Ventures. Please go ahead.
Hello, and congrats for the presentation and for the great set of results. I've got a couple of questions, if I may. The first question is, I got all the good detail about the cost guidance moving forward and the tail down of the Resolution Fund. I wanted to ask, what's the guidance for the year 2022 versuz the previous one, which I recall was around EUR 940 million recurring costs? And the second one, you've already done, like, a huge 1H in terms of the net lending expansion but still didn't up the target for the full year. I was wondering, what's the pipeline like, and why don't you up the disbursement targets? Thank you.
Alevizos, Vasilis. I'll start with the latter. You are correct in pointing out that all the effort that we have put over the past couple of years has started to materialize as of the beginning of the year. I think delivering net credit expansion increased to the tune of EUR 1.3 billion over these first couple of quarters is really a remarkable achievement and speaks also for the dynamics that currently we see in the market, because it's not just us. You have seen also that the other Greek banks also are posting a strong growth. Mind you that so far, what we have not yet seen is the RRF kicking in.
We are all building our pipeline, but obviously, it takes a bit of time in terms of incubating those deals and bringing them to fruition. I think more meaningful than that would be starting from the fourth quarter and into next year. Having said that, given also the fact that we are writing these new credits at good levels, we have been able actually to upsize our guidance for the full year now. We are north of EUR 1.2 billion. I would say that we are gonna be definitely something like EUR 70 million higher in terms of net interest income vis-à-vis the guidance that we had at the end of last year for 2022.
With that, I'll pass the floor to Lazaros for the cost piece. Good afternoon. Coming to costs, I refer to the plan and what will be the impact from the transactions we are doing that are going to fully phase in 2023. On the back of these transactions pro forma, the carrying cost base will be EUR 100 million lower compared to the one we posted back in 2021. From EUR 950 million to almost EUR 850 million after the phase-in of transactions, all other things being equal, of course, and excluding the costs for the resolution funds. Coming to 2022, the operating expenses that we're going to report will see a transitory impact from the timing of the completion of certain transactions that I have referred to, as well as the retention of our U.K. operations.
That is, however, net neutral given the associated revenue. The inflationary pressures that we're experiencing are minor, less than 1% of our cost base. We expect our total cost base to be down by approximately 20% this year, while recurring expenses should come in 5% lower year-on-year, with our cost to income improving by 8 percentage points to 54%, and with a further 5% reduction already locked in from the transactions that are pending completion and I have referred to.
Great. Thank you both. Once again, well done for this year.
Let me come back to one point that I think I omitted answering, which was about the EUR 2.2 billion target that we have posted for this year. Indeed, given the progress that we have seen so far, we are in all likelihood gonna be able to upside that by roughly half a billion more. Again, this also has to do with the timing of certain syndications. Give or take, I think this is where we're gonna be able to end the year.
Up to 2.7% for the year, for the full year in terms of the lending expenses?
Yes, yes.
Excellent. Thank you.
The next question comes from the line of Mehmet Sevim with J.P. Morgan. Please go ahead.
Good evening. Thanks very much for the presentation, and congratulations on the results. Just a follow-up on the guidance from my side as well. How should we think about the 6% ROTE target for the full year, putting everything together, given the NII improvement, which is very clear so far, and the other lines as well? Also, do you have any color to share on the 8% guidance for next year, at this point? Just second question, if I may, on the coverage. Now, given the transactions have been accounted for, how should we think about the coverage levels from here, which has dropped to 40% this quarter? What's the trajectory for the next quarters? Maybe also, what's the level of coverage in the midterm that you would target? Thanks very much.
Hello. This is Lazaros. Now, on guidance, I will refer to the main P&L items. Starting from the top line. There are a number of tailwinds that have already materialized in the first half of the year, giving us sufficient confidence to revise our guidance on net interest income from EUR 1.15 billion to circa EUR 1.2 billion. The majority of expected net credit expansion has already come through, and market volatility has allowed us to capture higher yields in our growing securities portfolios. Our efforts and policy actions are thus bearing fruits. Additionally, we have been positive, we have seen positive developments on the monetary policy front, with higher interest rates being an obvious tailwind.
To be clear, any further increases in policy rates beyond the 50 basis points already announced by ECB would only have a minor impact in the top line due to the lag in the repricing of our loan book. On fees, there is nothing really new to report. We've shown that we have positioned the business to capture growth in an efficient and profitable manner, while leveraging our strengths on originating new loans and delivering right products to affluent clientele in asset management. The model has proven resilience despite the market turbulence. We're confident that the guidance of approximately EUR 400 million we have given still stands. On operating expenses, as I explained previously, we're targeting a 5% lower recurring expenses cost base or 20% lower reported cost base.
As far as provisions are concerned, our guidance for 70 basis points this year still stands, and our performance in the first half of the year is relatively in line with that number. The data we have on asset quality flows continues to come in effectively in line with our expectations, with no signs of deterioration thus far. Our risk models do not suggest the need for further efforts, but we are conscious of the fact that the current mix of macroeconomic variables might not be adequately captured given the lack of historical precedent. This quarter, we have taken a close look at our book to make an assessment and have reflected that on our provisions. This should curtail any risk to our cost of risk guidance from a potential deterioration.
Bottom line, we have given you a target for profitability of circa 6%, and this is increasingly likely that we will land somewhat higher than the number would suggest. As you can appreciate, given the heightened level of uncertainty, especially for this coming winter, we will need to wait and see what happens before we can reasonably provide any guidance for 2023.
This is very helpful. Thank you, Lazaros.
The second question on coverage. The drop in the cash coverage in the second quarter is attributed to the consolidation of sales portfolios that naturally carried a higher cash coverage, including Hermes, which is a corporate and SME secured portfolio. What stays back is predominantly retail. Retail NPEs amount 1.5, retail mortgage NPEs amount to EUR 1.5 billion, while secured and small business loans amount to EUR 0.7 billion. Two point two billion out of the three point two is retail secured mainly on residences. This portfolio, naturally, which is more diversified, commands a smaller cash coverage.
Now, as I said in the second quarter, we've taken a closer look on the portfolio, and we have deliberately increased cash coverage of certain cohorts of the portfolio to enable management action so as to further reduce the stock of non-performing exposures. We maintain the guidance on cost of risk for the full year at 70 basis points. We expect that our cash coverage, given the movement that we have taken so far, will enable a further reduction in the stock of non-performing exposures. Going forward, in 2023 onwards, we expect cash coverage to increase towards the 50% and 60% levels, respectively.
Great. That's all very clear. Thanks very much.
The next question is from the line of Nida Iqbal with Morgan Stanley. Please go ahead.
Hi. Thank you for the call. My first question is, if you can please remind us again of your NII sensitivity to rate hikes. Just to confirm, the NII guidance of EUR 1.2 billion assumes just 50 basis points of ECB rate hikes. Secondly, on loan growth, you know, 1H has been very strong, but given macro uncertainties, what are you seeing in terms of demand for the second half in 2023? Also how are you thinking about tightening credit standards, given the potential macro uncertainties ahead? Thirdly, just how do you see households and corporates getting impacted by inflation and higher rates? You know, how are you thinking about asset quality getting affected by this into 2023? Thank you.
This is Lazaros. I will answer the first question, regarding the sensitivity on interest rates. In our first quarter guidance, we have indicated that our fully phased in NII sensitivity, that is loans versus deposits, is approximately EUR 60 million from -50 basis points to zero, and another EUR 120 million from zero to 50 basis points, namely a total EUR 183 million of NII improvement. From the next 50 basis points, that is above the positive 50 basis points, up to 1%, we expect the sensitivity to become less steep as we would gradually see the beta pass through in deposits to increase with a switch from first demand to time deposits, adding an extra EUR 50 million to NII. That is a total benefit of EUR 231 million fully phased in annual effect.
That was what we presented in the first quarter. Bear in mind that 90% of our loan book is floating rate, 70% of which has floors at zero, whereas 80% of our deposits are demand. The current three-month Euribor is at 26 basis points and six-month at 65 basis points. Therefore, loans have started to see the benefits of higher Euribor fixing rates, while deposit rates remain predominantly unchanged with the deposit facility rate still at zero. Updated 2022 net interest income guidance incorporates approximately EUR 40 million NII improvement from interest rates benefiting mainly our loan portfolio to occur within the second half of the year, and mainly the fourth quarter, which materializes in line with the sensitivity analysis we have presented in the first quarter results.
Now, let me take your second question as far as what we see in the market in terms of loan growth. I think so far there is practically demand across the board to be witnessed, both in terms of working capital at the levels of increase in the Greek GDP thus far. I think you can appreciate that. On top of that we have seen a vivid interest in order to put investments to work. You have seen that last year we have seen a marked increase in terms of penetration of investment with GDP to 12.9%, which still albeit is something like 60% of the average of Europe.
Also it was the strongest FDI year, if one compares back to time only in 2006, you would have found a stronger year. I think in the first half, what we have witnessed has been very strong growth. For the remainder of the year, I think what is important to report at this stage is that we don't see any of our customers withdrawing from investment planning. They're all hanging in there. Obviously, they are, you know, recalculating certain CapEx budgets given the volatility that it is in the material.
We see both the interest for investment loans that would go into the RRF picking up and gradually going into the next stage, as well as also other investment projects, which are focused in a few but strong areas in the hospitality area, in infrastructure, in energy, and in the food sector. Now for 2023, I think it's very difficult to predict if we're gonna be experiencing another strong year as we have this year. Having said that, I think there are two important points to keep in mind.
The first is that the RRF for grants will take place, and these projects, they will be delivered by, you know, by contractors, that will have a working capital need, and thus that would at least create some incremental demand. The second is that the way that the RRF for loans is taking place is in a first in, first out. Currently, the first EUR 1.6 billion at 4.35% fixed for up to 12 years. Then there are a couple of tranches which are still at very favorable terms. The first is gonna be up to EUR 4.6 billion, and the other one is at 1%.
There is a clear interest from people to, you know, conduct these investments as soon as possible, both in absolute, i.e., according to their planning, and also in relative terms that they are faster than other companies in order to be able to take benefit of that. I think this is as far as we could get at this stage in terms of predicting 2023, given the binary nature of a couple of important things that could really take us to the one or the other direction.
Coming to asset quality trends in light of inflationary pressures, indeed, this is a risk that Europe and Greece, of course, is facing. Currently, these inflationary pressures are not reflected in what we see in our books. If, as you remember, the first half has recorded in our portfolios negative organic formation with outflows outpacing inflows. We expect organic formation to be negative also in the second half of the year. However, the truth of the matter is that the past is not necessarily a good indicator about the future.
That is why we have also, as I said, looked in our books and have taken an incremental charge in the second quarter results as a management post-model adjustment to reflect a potential risk from inflationary pressures on asset quality and the need to employ management actions on all stages in order either to reduce NPEs within our plan or sustain new flows into stage three. Having said that, there are a couple of points that are specific to Greek households and Greek corporates that are worth mentioning.
The truth of the matter is that disposable income has been increasing in Greece, and according to the most recent data by the statistical service, in 2021, we have witnessed a 5.8% increase in the disposable income of households, whereas in the first quarter of 2022, the annual increase was 3.8%. This upward course in the disposable income is driven by employment gains, significant employment gains, which are recorded from April 2021 onwards, with employment rate reaching 88%, and employment rising by 6% in May 2022. Government spending interventions oriented towards tax and social security contribution cuts and increases in subsidies for both households and corporations.
The rise in nominal compensation of employees by 1.7%, with wages and salaries growing 2% in 2021. Real compensation per employee increased marginally in 2021, but still it was positive, following respective positive growth rates in both 2019 and 2020 respectively. The minimum wage has gone up two times, from EUR 650 to EUR 663 at the beginning of the year, and in May from EUR 663 to EUR 713. That is 2% and 7.5% respectively. There are tailwinds in the disposable income of households that should help them face the current turbulence. Also, I need to emphasize that the households entered the energy crisis with stronger balances as they have deleveraged significantly during the last decade.
Private debt levels have fallen as a percentage of disposable income. That was the peak in 2009. The peak was 83%. That is market's outstanding credit as a percentage of gross disposable income. That was 83% in 2009, and in 2021, it has dropped down to 32%. You can compare this to other European countries, the 32% market's debt to GDP. Italy is 34%, Portugal is 65%, Spain is 68%, Germany 67%, and so on and so forth. It's relatively low on a European scale. Also, Greek households have accumulated savings through the pandemic. We have seen deposits increasing by EUR 16 billion, and we can assume that overall, the lockdown related accumulated savings have been around EUR 20 billion.
That is, a spending buffer that is worth approximately 11% of GDP, which again can help households sustain this difficult period. Of course, from a liquidity point of view, you have seen the loan-to-deposit ratio having improved significantly for the system as a whole. Similar metrics can be recorded for corporates. For example, when it comes to non-financial corporations, based on the recent historical data, statistical data, we have seen corporate lending as a percentage of GDP dropping considerably from 52% in 2009 to 32% in 2021, which again is the lowest compared to other European countries like Italy at 38%, Portugal 37% and so on and so forth.
Thank you very much. That's very helpful, Anton.
The next question is from the line of Daniel David with Autonomous Research. Please go ahead.
Hi. Good afternoon. Thanks for taking my question. I've just got a quick one with regards to issuance and MREL. I can see on your slides of MREL there's other liabilities that are included in your MREL stack that say they're subject to approval. It'd be good to just give you a background of what's included in that 90 basis points and then also your thoughts on issuance in H2, whether you'll be looking at markets or if it's best to sit out for now given the volatility we're seeing. Thanks.
Well, this is Vassilis. Thank you very much for your question. I think there are a couple of points to make. The first is if we must issue, and this resides obviously to our relationship with the SRB. Now this is something which we are discussing with the SRB. The SRB understands perfectly well what is the situation, and we have been able to meet our binding targets last year. Therefore, we are in a mode of preparing ourselves for issuance, having everything ready, and following very closely market activity, and thinking about pockets which given the circumstances in the markets, which as we all know, are very volatile one, could be more prone for such an issuance.
Therefore, there is nothing to report at this stage other than that we are vigilantly monitoring the markets.
Okay, thanks. Just the other MREL eligible liabilities are included. Is there anything to say there?
Can you repeat the question, please? We're not sure we heard you right.
Sorry. On Slide 49, you've got in the MREL ratio, there's 90 basis points of other MREL eligible liabilities. I was just wondering if you could maybe let us know what's included in that, 'cause I guess it's different to the capital stack and the senior preferred.
On these 90 basis points, they are relating to a discussion that we have currently with the SRB on them accepting that these fall within the MREL perimeter. These are practically assets of ours that we do believe and we have procured all relevant arguments to the discussion to the SRB that would fall within the MREL perimeter. What we can say at this stage is that the SRB is very constructively looking at the matter.
Okay. Thanks a lot.
Excuse me, I believe this. Sorry.
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Okay, great. Thank you very much for joining in. Hopefully we've helped you with your holidays, bringing the results forward this time. If you have any questions, the IR department is available. Thank you very much.
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