Ladies and gentlemen, thank you for standing by. I am Danny, your Chorus Call operator. Welcome, and thank you for joining the Alpha Services and Holdings conference call to present and discuss the full year 2021 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 good morning to those dialing in from the U.S. Welcome to Alpha Bank's fourth quarter 2021 earnings conference call. This is Vassilios Psaltis, Alpha Bank CEO, and I'm joined today by Lazaros Papagaryfallou, our CFO, our Chief Economist, Panagiotis Kapopoulos, and Iason Kepaptsoglou, our head of IR. Let's start directly on slide 4, please. Real GDP recorded a near V-shaped rebound in 2021, underpinned by strong growth in private consumption, supported by a sharp increase in savings accumulated during the pandemic. The better-than-expected performance of exports and services, thanks to the remarkable recovery of tourism, while investment recorded significant gains, increasing share of GDP to 12.9%. Real GDP increased by 8.3% in 2021, almost recovering to its pre-pandemic levels, with the recession actually lasting only one year as it was -9% in 2020.
Labor market conditions continued to improve, with the unemployment rate falling to 12.8% in December 2021, and this is almost three percentage points below December 2020, where it averaged 15.5%. This is obviously supported by the significant employment gains. Economic activity in the current year is expected to remain on an upward trajectory, but likely to be moderated somewhat by the heightened geopolitical uncertainty. More specifically, growth in 2022 is expected to be underpinned by several fundamentals, which will remain in place, such as the expected second-round rebound of tourism, the investment injection of our RRF funds, accompanied by a reliable government plan, and the acceleration of structural reforms. However, this scenario is subject to the economic fallout of the full-scale Russian invasion in Ukraine and the related sanctions, which are expected to moderate the growth dynamics in 2022.
The uncertainty stemming from the suddenness of the recent geopolitical developments make accurate quantification of the economy quite difficult at this stage. The main uncertainties regarding the course of Greek economic development in 2022 derive from the following impacts. Firstly, the impact of soaring energy prices on businesses' production costs, profitability, and investment planning. Secondly, the combined effect of energy and food price inflation and the corresponding import energy dependence of our country on the real disposable income and purchasing power of Greek households. Inflation is now following a steeper upward trajectory, reaching 6.3% in February 2022, fueled by soaring energy prices. Thirdly, the impact on Greek tourism due to the weakening of European households' disposable income, which are the main origin of tourist arrival in Greece.
Fourth, the heightened uncertainty has adverse effect on borrowing costs, especially for a country that has not yet achieved investment grades. Finally, the extension of fiscal flexibility that is expected in Europe. Moving on to slide five. As you can see, the direct impact on our business from our exposure to the countries involved in the conflict is minimal. Note that the loan and deposit figures presented here relate to ultimate beneficial owners with links to the relevant countries, and thus the portion actually have residency in the country in which we operate. Our indirect exposure, i.e. by suppliers and borrowers who are themselves directly exposed to the relevant countries, is also limited, with no supplier-side dependency and relatively contained exposure for our corporate clients, which we have stress tested, and expect no impact.
Our business is thus relatively shielded from the first order impact of the war in Ukraine. Undoubtedly, it is the impact on the bigger picture that matters. On slide 6, you can see that we face the current uncertainty from a vastly improved position. As you can see, 2021 has been a year of profound activity for our business, and we have delivered no less than 11 transactions, including EUR 16 billion of NPE disposals and securitizations, business development deals, capital market placements, and balance sheet optimization measures. This clearly demonstrates the bank's determination and capacity to execute on a large pipeline of projects well within the timeline and economic parameters that were presented in our business plan. Our actions in 2021 have also prepared us to capture the opportunities that lie ahead.
Having largely completed the restructuring work, the franchise is already demonstrating tangible progress towards achieving the plan objectives in terms of loan growth and fee and commission income. Given the importance of business banking in achieving our strategic objectives, let's turn to the next slide to zoom in on the dynamics we're experiencing. Overall, for 2021, net credit expansion for business banking has amounted to EUR 1.6 billion, with clear evidence of an acceleration during the year. There are two separate drivers behind this trend. Number one, unexpected prepayments came mainly in the earlier part of the year, as a wider audience of corporate clients was able to get direct access to the markets. Number two, on the back of the strength of our franchise, we have been able to secure a dominant position in landlord transactions, and demand for credit increased during the year.
On both accounts, the outlook for 2022 overall points to further strengthening of credit expansion. The needs of our customer might adjust to the current environment, but the requirement for bank financing will likely be greater. It is important to note that we have very good visibility on the large portion of the disbursements for 2022, with a meaningful number already secured. Focusing solely on major transactions, we have already disbursed circa EUR 1 billion and signed or agreed a further EUR 1 billion. It is also important to touch upon pricing in this segment. As can be seen on the bottom left of this slide, we have experienced a notable contraction in spread and expect some further pressure this year.
Looking back to 2021, this has mainly come as a result of the repayment of some expensive facilities that we had provided at the height of the Greek sovereign crisis. The remaining stock of such facilities on our books is small and should not lead to a notable impact on spreads going forward. Additionally, there has been a de-escalation of pricing alongside the normalization of the economic environment. This process should continue in 2022, with an additional impact coming from the mix of loans that we expect to disperse during this year. It is, however, important to note that the overall profitability of the business we're underwriting is well above our threshold levels. Turning to slide eight. This year we have leaped forward in terms of balance sheet cleanup.
Including the Project Galaxy transaction, we have reduced the stock of NPEs by more than 75%, reaching a 13% NPE ratio, ahead of our original plan. The main driver of the acceleration was the conclusion of Project Sky ahead of plan. It is important to remember that Project Sky was an outright sale of effectively the sum total of our problematic exposures in Cyprus. Given the complexity of the project and the investment ticket required by the buyer, the accelerated delivery of the project within the original cost budgets showcases the execution capacity we have. Preparatory actions for the remaining perimeter that will complete our NPE journey within 2022 are progressing well, and we expect to show solid progress with our first half results for the majority of this envelope. Turning now to slide nine.
You can see that we have made further progress in our business development, and capital generation transactions. The joint venture with Nexi on the payment space is nearing completion. The synthetic securitization, which we code-named Project Aurora, is now complete, while we now also have a definitive agreement in place with OTP for the sale of our subsidiary in Albania with no impact on the business from the recent geopolitical developments. The development of our real estate joint venture, Project Skyline, has progressed further, and is attracting high levels of interest. Throughout these past three quarters, we have demonstrated our ability to constantly deliver on a large pipeline of projects well within the timeframe and economics that we presented during our business plan, thus decisively reducing execution risk. Let's now shift to the next slide to look at the outlook for 2022.
The invasion of Russia to Ukraine and the accompanying geopolitical tensions, and inflationary pressures cloud visibility on growth dynamics with as yet intermediate responses from a fiscal and monetary policy standpoint. Our focus remains on ensuring that our franchise is best placed to support the financing needs of our customers while delivering on the planned improvement in structural profitability. As you can appreciate, however, our targets for 2022 that were approved earlier this year do not incorporate an impact from the current situation. Now, with that in mind, we believe net credit expansion could double, with business banking in Greece accounting for circa 90% of the total. Revenues are expected to be positively impacted by growth in performing loans alongside further gains in fees.
The transitory impact from increased levels of liquidity, alongside the value accretive from loading of NPE transactions and the loss of merger and acquisition fees will, however, more than outweigh the aforementioned benefits. Our reported cost base should see a meaningful improvement with a double-digit decline in costs year-on-year, as will the benefit from the completed voluntary exit scheme, non-performing, and other transactions. The ongoing cost rationalization should easily offset inflationary pressures. NPEs should fall below the €1 trillion mark on the back of the payment of NPE transactions and a backloaded organic reduction, driving underlying cost of risk down to 70 basis points. The NPE ratio is expected to reach 7% by the end of the year, with single-digit levels at the end of the first half. Our organic capital generation should surface in 2022 as we reestablish bottom line profitability.
Progress on the transaction front, alongside further optimization measures, should allow us to exceed our capital targets in 2023 and reinstate dividend payments. Last but not least, I would like to stress that despite the current uncertainty, we remain squarely focused on delivering the main pillars of our business plan for 2024 in terms of profitability, tangible book value, and regulatory capital. With that, I would like to pass the floor to Lazaros to present our financial performance in Q4 and the outlook for 2022.
Good afternoon, everyone. This is Lazaros Papagaryfallou, Alpha Bank CFO. Let's start by taking a closer look at the financial performance in fourth quarter. Turning to slide 12. This quarter has seen the transfer of the Project Sky and Project Orbit portfolios to held for sale, as well as the discontinuation of our Albanian operations following the agreement with OTP Group. Therefore, the mentioned actions have progressed our restructuring and have delivered the promised reduction in problematic assets with NPE ratio down to 13.1% and the associated impact driving our fourth quarter bottom line into negative territory. Note that we have also completed the Project Cosmos securitization and as a result have recognized the EUR 1.7 billion senior note. The underlying Q-on-Q performance was affected by seasonality costs and a higher underlying cost of risk.
On an annual basis, we have delivered EUR 330 million in normalized profits after tax, up from EUR 87 million in 2020 and fully in line with our targets. On capital adequacy, our total capital ratio stood at 16.1% at the end of the year or 16.7%, accounting for the RWA relief of Project Orbit, Project Sky, and Project Riviera, all of which are accounted in the held for sale account. Now turning to slide 13. In terms of new credit, we continue to steadfastly support our customers as we disbursed a further EUR 1.6 billion of new loans in Greece this quarter, bringing the total to EUR 5.4 billion, addressing credit demand mainly from businesses.
Net credit expansion, i.e., disbursements minus retainments, stood at EUR 1.3 billion for the year, driven by EUR 1.6 billion expansion of credit towards businesses still being partly offset by retainers on the retail book. Net credit expansion accelerated in the quarter, reaching EUR 0.5 billion. Following a 10-year deleveraging process, Alpha Bank witnessed in the fourth quarter the first meaningful expansion of its domestic performing loan portfolio. As highlighted in the bottom right chart, at a group level, our performing book, excluding the Galaxy and Cosmos senior notes, has turned a corner this year and expanded by 2% or EUR 0.6 billion on an annual basis to EUR 28.6 billion.
Looking ahead, net credit expansion should more than double in 2022, and we expect the group performing loan book to grow by circa 9%, with business banking in Greece accounting for more than 90% of the total. Lending spreads of performing exposures continue to witness some expected pressure, but are still evolving, mildly better than initially feared. Spreads of our new production remain resilient and at a very satisfactory levels, which together with a positive mix of net credit expansion should support the profitability of our loan book. Credit demand is expected to further accelerate in the coming quarters on the back of a significant pipeline of projects. In 2022, we expect to underwrite a number of significant projects on a standalone basis outside the RRF perimeter.
The current short-term pipeline includes financing of projects mostly in energy, services, real estate, and manufacturing sectors aimed at creating the conditions for Greece's long-term sustainable growth. Vasilis mentioned, in 2022, we have already dispersed circa EUR 1 billion and signed or agreed for a further EUR 1 billion. Turning now to deposit gathering on slide 14. The group's deposit base expanded by EUR 1 billion in the quarter, comprising 70% of the bank's total funding sources. At the end of the fourth quarter, domestic deposits reached another record high since the onset of the crisis, reflecting inflows from core deposits that now account for more than 80% of the domestic book. The continued shift of the product mix produces an overall positive impact on the bank's interest expense. On a year-on-year basis, our group deposit base has expanded by EUR 3.7 billion.
Liquidity drawn from the ECB TLTRO facility stood flat at EUR 13 billion, reflecting the full utilization of our TLTRO free borrowing allowance or circa 18% of our total assets. Benefiting from the low-cost liquidity drawn from the ECB, the bank's blended funding cost remained in negative territory in the fourth quarter at -5 basis points and continued to support net interest income. Finally, the group's robust liquidity position is evident by the strong liquidity coverage ratio, which stood at 183% at the end of the fourth quarter, far exceeding the regulatory threshold, with a material improvement in the loan-to-deposit ratio to 78% versus 90% the year prior. Let's now see the drivers of our net interest income performance during the fourth quarter in more detail on the next slide.
Net interest income in the fourth quarter stood at EUR 298 million, down by 5.3% QOQ, negatively affected by the acceleration of NPE clean up and funding costs. Last quarter's reported net interest income has been restated for the sale of Albanian operations, while the headline performance should also be adjusted for the one-off income of EUR 6.8 million recorded in the third quarter on the back of a restructuring of a large corporate loan in Cyprus, as well as a penalty on the reprofiling of TLTRO III maturities that we will recover via their extension. On an underlying basis, net interest income declined by 2% in the quarter, mainly due to the NPE clean up and increased funding costs.
More specifically, on performing exposures, higher volumes were partially offset by continued spread pressure, leading to an increase of EUR 0.7 million in net interest income. On non-performing exposures, lower volumes, mainly on the back of the derecognition of the Cosmos securitization, were partially offset by higher spreads, thus leading to a reduction of net interest income from NPEs by EUR 4.2 million in the quarter. The contribution from deposits was flat quarter-on-quarter as the positive impact from repricing in Greece and repo movement was fully offset by higher balances. Funding came in EUR 4.7 million lower, mainly due to the cost incurred from the two senior preferred bond issuances of EUR 0.5 billion and EUR 0.4 billion in September and December respectively. Lastly, bonds and other saw a positive effect of EUR 1 million, reflecting increased income from securities.
On the bottom of this page, we portray an indicative sensitivity analysis of our net interest income to higher interest rates, starting from the current level of policy rates at -50 basis points, according to which an increase of 200 basis points of the base rate from current levels leads to a 12% increase of our top line. Turning to slide 16, we show the main drivers of our fee income generation. On a quarterly basis, net fee and commission income was down by EUR 4.1 million to EUR 104.3 million on the back of the seasonally weaker performance of the card business, down by EUR 8.2 million QOQ, and reflecting a decreased contribution from loan commissions stemming from low syndicated loans. While it was supported by increased fee generation from asset management.
On a yearly basis, net fee and commission income witnessed a solid recovery in 2021, up by 20.6%. The main contributors to this performance were growth across cards, asset management, bank assurance and loan fees. The headline yearly performance was positively impacted by an extraordinary fee of EUR 10 million booked in the second quarter related to an early termination of a previous agreement with AXA, whereas a non-recurring benefit booked in the first half of 2020 of EUR 11.8 million related to the modification of collateral agreements negatively affected the year-on-year comparison. On a recurring basis, net fee and commissions posted an increase of 21.3% year-on-year.
Looking ahead, in 2022, the observed pickup in commercial activity, the growth in asset management, along with our business development initiatives that strengthen our franchise positioning, should allow us to offset the negative impact from the sale of our merchant acquiring business, leading to a flat fee income generation target of circa EUR 0.4 billion for the year. On the OpEx side, on slide 17, we show that in the fourth quarter, recurring operating expenses increased by 9.7% QOQ, or EUR 23.1 million, reflecting mostly a rise in general expenses due to higher taxes and marketing expenses, as well as seasonally higher staff costs and an increased depreciation charge, primarily due to the faster amortization of intangible assets.
On a yearly basis, recurring operating expenses decreased by EUR 15.6 million or 1.5% year-on-year to EUR 1 billion in line with our target. This performance is underpinned by a decrease in staff costs, partially offset by an increase in general expenses as well as a higher depreciation charge, primarily on intangible assets. Adjusting for the deconsolidation of Cepal, recurring operating expenses amounted to EUR 979 million, as we show on the bottom left of the following slide, where you can also see the breakdown per line. It is important to highlight here that the bank has already secured EUR 132 million of cost savings with circa 80% of the benefit materializing within 2022, allowing it to target a double-digit improvement in costs year-on-year, stemming from the following.
First, the deconsolidation of Cepal, where we will see the full benefit in 2022. Second, the VSS program completed in early October in our domestic operations, which has driven our FTE base in Greece to circa 5,500 and rebased our local cost base to the lowest level seen in 15 years, driving the productivity and efficiency of our Greek operations to the top of the market. Third, the savings from the deconsolidation of the merchant acquiring business targeted for the second quarter. Last but not least, the cost benefits post the completion of NPE and other transactions, namely Sky, Skyline, Riviera, circa 30% of which will flow through the P&L already in 2022. These drivers will allow the bank to target a cost base of approximately EUR 920 million for the group in 2022.
We also present here on the right-hand side a detailed breakdown of the one-off items that we have incurred in 2021. We would like to stress that inherently the VSS charge transaction costs and the Sky RIO impairment will not repeat. Following years of cleanup, we also see limited room for further impairment of fixed and tangible assets. Our budget for 2022, thus incorporates only a minimum charge for exceptional items. Moving on to asset quality on the next page. With regards to asset quality trends in the quarter, NPE formation in Greece remains largely flat quarter-on-quarter, as lower inflows from expired moratoria were counterbalanced from lower recoveries and repayments. As you can see in the flow chart, the overall NPE formation in Greece for the year was better than originally anticipated.
As we reported, an almost flattish organic formation for the year versus an initial forecast of EUR 600 million new non-performing exposures. For 2022, we expect a negative gross NPE formation of EUR 0.5 billion, leaving our cost of risk below 70 basis points for the group. On the right-hand side of our slide, you can see further information on our cost of risk evolution. The vast majority stems from NPE transactions associated mostly with projects Sky, Orbit, and Cosmos. Moreover, servicing fees paid to Cepal, which were reclassified in the third quarter to the impairment line, amounted to EUR 25 million, adding another 30 basis points to the total cost of risk charge. On average, servicing fees in 2022 should be at half the levels seen in the fourth quarter.
The underlying cost of risk came in at circa 1.1% over net loans in the fourth quarter versus 0.6% in the previous quarter, while overall for 2021, the underlying cost of risk stood at 0.85% over net loans, better than our initial target of 120 basis points for the year, paving the way for the full normalization of the impairment line. Finally, in the bottom right graph, you will see that our group NPE ratio has contracted from 43% a year ago to 13% at the end of 2021, ahead of the original business plan targets.
As a result of the completion of the aforementioned transactions, our group NPE capped coverage decreased to 47% from 56% in the previous quarter, reaching the same level as a year ago, with total coverage including collateral at 108%. Moving on to slide 20 and continuing on the same topic. Of the EUR 5.1 billion of NPEs that remain following the recent transactions, circa 80% is secured exposures. As you can see on the right-hand side, the stock of remaining NPEs, excluding the planned transactions, amounts to EUR 3.7 billion, split relatively equally between forborne performing loans and non-performing loans. Overall, we expect to reduce our NPE volume by more than 40% this year at group level, from EUR 5.1 billion in December 2021 to below the EUR 3 billion mark by year-end.
On the back of EUR 1.5 billion of NPE transactions and a backloaded organic reduction of EUR 0.7 billion. Thus, the NPE ratio is expected to reach 7% by year-end, with single-digit levels expected already from the first half in 2022. This will effectively be driven by our transactions with a gross book value of EUR 1.5 billion, for most of which the bank is fairly advanced in terms of preparation. As previously mentioned, cost of risk is expected to come in below 70 basis points in 2022. We reiterate our guidance with regards to the remaining loss budget of EUR 0.3 billion for 2022, but note that this will be fully offset by the gain we will record on the sale of the merchant acquiring business. With that, let's turn to capital on slide 21.
At the end of December 2021, the group's total capital base stood at EUR 5.7 billion, resulting in a total capital ratio of 16.1%, down by 106 basis points QOQ. This was mainly attributable to a circa 91 basis points impact from transactions, namely Orbit, Sky, and Albania, and an 18 basis points impact from the lower reserve of the investment securities portfolio measured at fair value through other comprehensive income. Pro forma for the risk-weighted asset relief from projects Orbit and Riviera, which will be realized in the coming quarters, the group's total capital ratio stands at 16.7%. Reported fully loaded has reached through the quarter its trough as per our business plan targets. Pro forma for the anticipated RWA relief from transactions, it stands at 11.32%.
Once we also incorporate the impact from the sale of our merchant acquiring business, where we have a definitive agreement with Nexi, the common equity tier one level we have secured stands at 11.8%. We are also providing you here with a roadmap for our capital position. The total impact from the recent transactions, and capital optimization measures in 2022 should be a positive circa 10 basis points. At the same time, we expect to deliver circa 60 basis points in organic capital generation, including recurring profitability, DTC amortization, and RWA growth. As a result, we aim to finish 2022 with a fully loaded common equity tier one ratio of circa 12.5%. Based on the expected underlying profitability during 2022, we have already secured two-thirds of the expected capital generation capacity for 2023 and 2024.
Given the expected enhancement of our profitability, our organic capital generation capacity should grow to 100 basis points in 2023 and 160 basis points in 2024. In the following slide, we are providing you with detailed guidance for 2022. Here, I'd like to highlight three things. Firstly, it is evident that we are operating in times of heightened uncertainty. Exogenous factors will have an, as of yet, indeterminate impact on the macroeconomic environment. We believe that there are risks and opportunities in the environment that will transpire, but our outlook for 2022 has not incorporated any impact from the current situation. We are, of course, monitoring the situation closely, and stand ready to adjust our planning as necessary. The second important point is that our bottom line targets for 2022 are largely unchanged compared to the business plan.
However, the profit and loss mix is different to what we originally expected, mainly due to the acceleration of NPE reduction. The contribution from NPEs to our top line will be smaller. Our cost base will be better and provisions will be lower. As a result, the quality of our earnings will be stronger following the improvement to our balance sheet. Third, as mentioned, we are committed to delivering a sizable improvement in our capital ratios. This will enable us to surpass our 13% target for fully loaded common equity tier one in 2023, in line with our business plan, thus clearly laying the ground for the reinstatement of dividends. With that, let's now open the floor for 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 Jonas Floriani with Axia Ventures. Please go ahead.
Yes. Hi, guys. Good evening. Thanks for the presentation. I have a few questions. The first of them is in relation to your disbursement plans. I see that now the business net increase for 2022 is set at 2.2. If I'm not mistaken, before you had 1.5. Just wondering what has been the driver of this positive change in your guidance. Secondly, and also linked to that, if I look at your new guidance versus the previous one, I see that the negative delta mostly come on the lower NII, and I suspect, as Evangelos said, this may come from the faster NPE reduction. I just want to confirm that that's indeed the case.
Also, the lower profitability and capital, I was also wondering if you compare to the numbers you had before, if this is also a function of your 1 percentage point lower NPE ratio target now for 2022. Finally, given the current developments, I'm just wondering if and when you guys are planning to revisit the targets and to inform the market about any potential changes you may have. Thank you.
Jonas, hi. We couldn't hear your second and third question very well. This is Lason, the head of IR. If I can simply answer the first question. EUR 1.5 billion was the guidance we gave for 2021 in Business Banking. We have actually delivered EUR 1.6 billion in 2021. The EUR 2.2 billion guidance is for 2022. It is a new number that we are providing to the market today, and it comes off the back of the acceleration that we have seen during 2021. If you can repeat your second and third question, maybe a bit louder so we can actually respond to that.
Yeah. Is it better now? Can you hear me better or?
Yes, please go ahead.
Okay. The other questions are all in relation to the updated guidance as a whole for the group. Actually, the main delta there is on the lower NII for 2022. I suspect I just wonder if this is on the back of the lower NPE, which will take NII out of the bank. Because also this reflects on a lower net income and a lower return on tangible versus previously, but also you have a lower NPE ratio for 2022. I'm just wondering how should we think about these moving parts, and the lower profitability for 2022 versus before.
Then the third question was more in relation to the current macro geopolitical developments and if you guys are planning to revisit your targets and communicate to the market. I'm just wondering when that will be happening.
Jonas, this is Lazaros. Indeed, the acceleration of NPE deleveraging in 2021 has a larger impact in the net interest income line compared to previous guidance. In addition, excess liquidity from the higher deposits than initially anticipated also has an impact in the net interest income line. In addition, we have issued two senior preferred, one in September, one in December, and all that is flowing into the 2022 numbers. Overall, NPE deleveraging has obviously an impact in the net interest income line, which is higher for 2022 than initially anticipated. Overall, the trends are similar to the ones we have portrayed in our business plan back in the summer of 2021.
I mean, out of NPEs, NII is getting significantly lower during the year. The quality of earnings is significantly improving compared to 2021. Of course, NII on NPEs gets much lower, and there's going to be an impact on this front by approximately EUR 240 million just from NPEs NIIs. The impact is counterbalanced to a good extent by the higher NII from performing loans to the tune of EUR 75 million in our projections. However, as you will appreciate, it's not fully counterbalanced. These are the main drivers plus the fact that in the funding line we will have a smaller contribution from TLTRO III in 2022 compared to 2021.
In the last year, there was a retroactive booking of a benefit that related to 2022. This is not repeated in 2022 accounts. Obviously from June 2022, we will be accruing our ECB drawings towards 0.5%, minus 5.5% against the -1%. As far as the bottom line is concerned, we're giving a guidance both for normalized, and reported profits above EUR 0.3 billion levels, which results in a return on tangible book value of approximately 6% for the year. You will appreciate that the quality of earnings for 2022 is definitely much higher than the one we had on previous years.
Also, in the projections we gave back in the summer of 2021 on the back of the accelerated deleveraging of NPEs. You had a question on the macro and when we will revisit our targets if we do so.
Right. Jonas, this is Vassileios. As we stated, first and second order effects are very manageable, I think, for us, as for everyone else. It's the third order effects that matter. To that obviously, first we need to have the gun silencing before we start having a good picture of what the ripple effects may be. I'm afraid that we are watching the events as anyone else without being able to give some firm timeline on that.
Clear. Just a quick follow-up. On your new profitability target, that is also affecting the lower capital ratio that you're targeting as well, right? Lower organic capital generation, i.e., lower capital ratio versus before.
Jonas, I'm referring to page 21 of the presentation, where you see that we're giving a guidance for fully loaded common equity one at 12.5% for year-end 2022. I recall that back in the summer of 2021, we were speaking about a 12.8% target. The delta is approximately the fair value for OCI delta that we have seen in the second half of 2021. It has nothing to do with internal capital generation. There may be an asynchrony between 2021 and 2022 transactions and impacts. That's why we are building on the 2022 numbers going forward.
You will appreciate that organic capital generation is such that leads us to our management target, our medium-term management target for our fully loaded Common Equity Tier 1 of 13% at some point in 2023. Eventually, enabling the bank to reinstate dividends on the back of 2023 profits.
That's clear. Thanks.
The next question is from the line of Mehmet Sevim with JPMorgan. Please go ahead.
Good evening. Thanks very much for the presentation. My first question is a follow-up question on your NII guidance of EUR 1.15 billion for this year. I understand the drivers for this year, but looking beyond 2022, would you still be comfortable with your EUR 1.3 billion expectation for 2023 as you presented in your business plan, given the year-end NPE targets of EUR 2.9 billion remains the same? Or should we think of a different number, given also the additional factors that you mentioned earlier for 2023?
That will depend on a number of factors, including rates. We have shown a sensitivity in rates, the materialization of net credit expansion for the coming years, as well as additional factors in relation to the liquidity that we will have in the system. Additional deposits flowing into the system, which we expect them to be lower compared to 2021, will have an impact on the net interest income. As far as the main drivers are concerned, namely NPEs, which drive down net interest income, there is no change to the plan. We are retaining the guidance we have for 2023 and 2024 for the top line and the bottom line.
However, the exact mix that will flow into the 2023 accounts, you know, will be updated also on the back of recent developments.
Okay. Thanks. Thanks, Natasha. That's very helpful. My second question is on your cost of risk guidance of 70 basis points for this year. Again, what are the drivers of this? Does this simply reflect the acceleration of the NPE reduction, or is there anything else behind it? I appreciate it may be early days again, but would you continue to see your normalized cost of risk at 60 basis points in 2024?
Let me remind that our projection for cost of risk in 2022 is a total of 1.3% of our net loans. In essence, this is comprised of two parts. The first is underlying cost of risk. That includes impairments on loans under business as usual type of mode, plus impairments for transactions. When it comes to transactions, the EUR 1.5 billion that is incorporated in our projections, we're giving a loss budget of approximately 0.6% of our net loans. That is approximately EUR 250 million. This additional loss budget on incremental NP transactions is more than fully counterbalanced by the profit we will have on the mentioned acquiring business, say, towards the second quarter of the year.
Actually, the profit on that basis from the sale of the business is higher than the loss budget we estimate for the transactions. On the remaining impairments for loans on underlying business, the guidance we're giving for 0.7 includes also servicing fees to Cepal, which is expected to halve compared to the 2021 numbers, just on the basis of lower volumes assigned to Cepal for servicing. It is the outlook for inflows, outflows, and management actions that give us confidence with regards to these numbers. Again, these projections have not been informed by the recent geopolitical events, but this is our budget for the year.
What we see in the first quarter of 2022 with regards to inflows, outflows, and the evolution of our NPEs, it's kind of supportive of our estimates for the full year.
Okay. That's all very helpful. Thanks very much for your comments.
The next question is from the line of Osman Memisoglu with Ambrosia Capital. Please go ahead.
Hi, many thanks for the presentation and your time. Couple of things. First on Q1 trends. I appreciate the geopolitical situation, but if you could give us some color, particularly on asset quality trends, formation so far in Q1, and any other color on either loan growth or spreads, would be beneficial. Second question, a bit of technicality. If you could share with us the total TLTRO benefit in 2021 and what you expect in 2022. Finally, you mentioned dividends. Is it possible to give a bit more color on potential timing? Many thanks.
During the first quarter, as far as asset quality is concerned, we are witnessing still good behavior by the customers in terms of collections, and repayments. We have not yet witnessed any deterioration compared to the recent quarters on the portfolios we manage down for deleveraging NPEs. Now, obviously, we will need to wait a little bit more until we have more clarity on the situation, the secondary and third order effects of the geopolitical situation in order to make more precise projections. We are confident that we have a very good basis to work with in order to organically reduce NPEs on top of the transactional part.
I remind you that, out of the EUR 5 billion NPEs that we have at year-end 2021, and if you take into account the EUR 1.5 billion transactions, what stays back is, mainly retail secured. You have, more than 50%, almost 50% of the stock in forborne NPEs below 90 days past due. These are customers which, engage with the bank. They are under restructuring, and we have, a good probabilities of curing. On that pool, we expect to see curings, in the year that will counterbalance inflows. Now, as far as new lending is concerned, we have, explained that a good part of our commercial plan for 2021 to 2022, has been either, being dispersed or contractualized.
EUR 1 billion dispersed so far in wholesale exposures, whereas another EUR 1 billion contractualized. We're progressing the books as per the plan so far. Your third question on TLTRO. Based on the reprofiling we've done in the last quarter, according to which we have extended maturities from 2023 to 2024 for EUR 4 billion of the TLTRO drawings. We expect to see some further benefits flowing in the four-year periods until 2024 by EUR 350 million. This is the cumulative benefit we are recording from TLTRO in the period 2021 to 2024 versus a previous estimate of EUR 330 million. It's a net positive.
However, if you compare 2022 to 2021, we're not going to have the retrospective benefit that was recorded in 2021 of EUR 30 million. Because drawings from ECB will accrue interest at -50 basis points compared to the -100 basis points, we will have less benefits to the tune of EUR 35 million in 2022 compared to the previous year.
Thank you.
Now, there was a last question with regards to dividends, and we have tried to show through our capital position that, you know, we have management targets for fully loaded common equity, tier one and total capital, and a trajectory for these capital ratios that support the thesis for capital distribution from the financial year 2023 onwards. I think I've covered all your questions, right?
Yes. Just to clarify, when you say from 2023 onward, is it from 2023 earnings to be paid in 2024 or from,
Exactly.
First payment in 2024.
Yes.
Thank you so much for the detailed answer. Just one quick thing on Q1 trends. I see in your full year, you're expecting an increase in individual loans. Are you seeing signs of that in Q1 so far?
Actually, in the first quarter of the year, there is outperformance in consumer loans and a slight underperformance in mortgage loans compared to what we have budgeted. It's early to say whether this is supportive of the full year budget.
Perfect. Thank you very much.
You're welcome.
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. I have a couple of questions. Firstly on the policy rates guidance on the sensitivity for net interest income. So could you maybe walk us through some of the key assumptions behind this guidance, if you could disclose? And also, is there any sensitivity you could share from the policy rates on the cost of risk? The second question is on the securities repricing and the Greek government bonds. So what was the impact year to date, if I could ask? And finally, just to finally clarify on dividends, you mentioned the management target for the minimum payout from in the year 2023, your guidance is for 13.5%.
Would that be fair to say that this is the minimum guidance for dividend payment on the capital ratios? Thank you.
On your first question regarding rates. You know, as rates go higher, the current structure of the balance sheet implies that we will see a benefit in the net interest income line. This is because while variable rate loans see the full benefit of base rates going higher, at least from when base rates turn positive, the pass-through on deposits is not 1-to-1. The pass-through beta from base rate increases to deposits is around 20%-25%. It is even lower when the base rate is below zero, as the deposits we have are practically floored at zero. On the other hand, on the asset side, variable rate loans get the full benefit of base rate increases from the moment base rates turn positive. The benefit is more limited from the -50 basis points to zero range.
This is because almost 85% of our euro performing variable rate loans in Greece have an embedded zero floor. To sum up, on our current balance sheet structure, the higher the base rates, and in positive territory, the biggest NII impact, whereas the benefit is more limited towards minus 50 basis points and zero, given the embedded floors on the majority of our variable rate loans. That was your first question with regards to rates. The second question was about Greek government bonds. You may have seen that in the last couple of years, we are effectively increasing our exposures in the hold to collect books, and we are reducing our exposures in the fair value for OCI books.
That is because we see less scope of recording trading gains in the fair value for OCI, and we are investing for income in the hold to collect portfolios. This has been a consistent action in the last couple of years, reducing also the volatility from Greek government bonds in the capital position. Towards the end of 2021, we have taken an additional decision in that trajectory to reclassify to change the business model in the fair value for OCI, effectively leaving only a very small portion of Greek government bonds in the fair value for OCI. The total amount for to start with in the fair value for OCI does not exceed EUR 1 billion, the bulk of which is treasury bills.
You will appreciate that the volatility we now have on the fair value for OCI portfolio is relatively limited. I mean, the DV01 that measures changes in value for one basis point of delta in yields is less than EUR 300,000. The last question was about the management targets for capital. I said that for fully loaded Common Equity Tier 1, the management target is for 13% and higher fully loaded Common Equity Tier 1 ratio, which is met towards 2023. We're not giving guidance as to the dividend payout. We will be contemplating.
That will be a function of the outlook and growth prospects as well, and the ability of the bank to deploy capital in profitable businesses across geographies.
Thank you very much.
The next question is from the line of Daniel David with Autonomous Research. Please go ahead. Can Mr. Daniel David hear us?
Sorry, can you hear me?
Yes, we can hear you now. You can proceed with your questions. Thank you.
Sorry, problems with my headset. Good afternoon, and thanks for taking my questions. I've just got a couple. Just on asset quality, I heard your answer to the earlier question. Just with regard to Step-up and the Bridge schemes, have they all now expired? I'm just interested to hear your thoughts on how we should think about those balances, whether they've all kind of had time to start paying again, or is there still a bit of a delay with regard to repayments being made? Secondly, just on issuance plans, assuming that primary markets and the conditions normalize again, could you just talk us through your MREL issuance plans and also your capital issuance plans? That'd be great. Thanks.
Yes. Starting with the various subsidy programs outstanding, it is true that they have either expired or they will expire in the first quarter of 2021. There is a program called BRIDGE that in essence subsidizes interest, and principal payments for borrowers. The first part of that program had outstanding balances of approximately EUR 1 billion for the bank, and the bulk of it has expired in year-end 2021, and a small portion will expire in the first quarter of 2022. On the back of those balances that expired, we do see a good behavior in terms of payments with more than 95% or approximately 95% of balances being in current buckets, as we call them.
They don't have a delinquency of over 30 days past due. Same goes with the second part of that particular subsidy program. The balance is again EUR 900 million. This second pillar is addressed to corporates, especially in the tourism segment, good quality customers. Again, on this second pillar for the Bridge Programme, we see good behavior with the bulk around 96% being in current buckets, mainly up to 30 days past due. Overall, these were programs which were targeting good performing clients. They are returning to normal payment behavior. We will see some defaults, there is no doubt about it, but this is embedded in our projections for EUR 800 million of gross inflows in 2022.
Part of these inflows will come from these pillars, clients that have received subsidies, including Step-up restructuring products offered by the bank. All that is modeled in our 2022 projections. As far as issuance is concerned, last year we have issued two senior preferred bonds, EUR 500 and EUR 400 respectively in September and December. The first was a 6 non-call 5, the second was a 2 non-call 1. I'm making reference to the maturity of these bonds because, you know, under the circumstances, we have become tactical in the way we approach issuance. If we find opportunities and normal conditions, we may go for short-term maturities or longer maturities, in order to meet our targets. We have fully met our targets, our binding targets for year-end 2021.
Actually, we also have a buffer compared to the minimum. Now, we have obviously more to do until January 1, 2026. Currently, markets are destabilized for investment grade, but non-investment grade issuers as well. Credit spreads have widened, so we don't envision any immediate return to the markets. However, we're preparing, and we're preparing on both fronts. The first is a senior preferred for a senior preferred instrument. As we have also portrayed in the presentation, there is scope to issue AT1 up to EUR 800 million. Currently, as credit spreads stand, this is not advisable. We're not planning any tapping of the markets until conditions normalize.
Thanks. Just a follow-up on that AT1, and I guess noting where your peer printed an AT1. Do you have any kind of guidance on where you would kind of rule out a transaction? Would double-digit coupon be too much? Is there anything you can say on that?
Can you repeat the question? I have not listened well.
Sorry. I was just implying or just probing on a potential AT1's coupon. I guess, with regard to where it might come in the market, and is there a level at which you'd see that transaction being prohibitive on earnings and capital accretion?
Balance sheet gets materially improved. We would expect to see this material improvement of the risk profile of the bank getting reflected in the coupons we pay for any instrument. The coupons you have alluded to, we don't think are representative of our credit quality. That comes to the comment I made about timing. Now it's not the right time to do so.
Understood. Thanks.
As a reminder, if you would like to ask a question, please press star and one on your telephone. The next question is from the line of Simbi Jay with Fiera Capital. Please go ahead.
Hi, good afternoon. Couple of questions from my end. Could you reiterate your 2023 guidance and the longer term, I would say return on tangible equity targets that you have?
Hi, this is Jason, Head of Investor Relations. As we have mentioned in the presentation, obviously, we live in times of heightened uncertainty, so I don't think it would be advisable to state here that we reiterate our full detailed guidance for 2023 and 2024. We have already seen a different mix in the P&L guidance that we have given for 2022. What we have, however, stated is that we aim to navigate both the current environment and any situation that will transpire in order to deliver the basic targets that we have set for 2024. Those comprise of the bottom line, net profits, the tangible book value, and the fully loaded common equity tier one.
Those are, in our view, what drives shareholder value, and those are the targets that we will look to adjust our plan accordingly in order to be able to achieve.
Understood. Can you reiterate those targets, please?
The target for 2024 was a circa 10% return on tangible equity. If I remember correctly, it's 6.7 tangible book value and 15.1 common equity tier one, fully loaded.
Perfect. Thank you. In terms of the second question is on the rate rise. I mean, you did mention that there's an embedded floor of 0%, and then there is a potential expiration of TLTRO benefits as well. I'm wondering, in case rates were to rise to 0% and TLTRO benefit was taken away, that effect in itself would be a negative to the tune of, right, EUR 90-95 million odd on an annualized basis. Would that be fair if the ECB took away the TLTRO benefits with the rate rises?
Sorry, can you repeat the question in a slightly simplified version?
Sure. I mean, you're accruing TLTRO benefits to the tune of, I believe, EUR 90 million currently. Now, I mean, a lot of this benefit was as a function of negative rates as well. I'm wondering, in case rates rise, is it your expectation that TLTRO benefits would still stay?
No. Actually, what we have in our business plan since its inception is that the TLTRO expires and is not renewed. We no longer enjoy the extra benefit from the middle of 2022, and we have to repay the full balance at the end, final service of financing at its expiration date. It's not something that creates a delta in NII. When we give our sensitivity, obviously, on NII, and we talk about the change in base rates, we do factor that into our projections. Right?
Okay. Understood. The last question is, if you're looking at, you know, the headwinds coming in from potentially the geopolitical situation aside, the fact that you may have to do an issuance of an AT1, especially if there's further tightening of MREL, do you really consider that, you know, a 10% target by 2024 is achievable or it looks more aspirational, considering the fact that, you know, you still have quite a few headwinds coming through, especially on NII?
As we said, I mean, we are relying on your guidance for 2022 and onwards on the basis of the budget and the business plan that was built prior to the geopolitical crisis. We will be updating our numbers and potentially providing new guidance after we have more clarity for what is coming.
The Cyprus loan, is that related to this crisis at all? Because that seems to be a pretty big number.
Are you referring to the impact from the restructuring of a securitized exposure on NII?
Yes.
No, that relates to the previous quarter. It's something that happened in Q3. We're adjusting the Q3 number in order to give you a better idea of what's happening on an underlying basis.
Understood. Thank you. That's all from me.
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 attending our full year results, and we're looking forward to welcoming you on our first quarter results in May. Thank you.
Ladies and gentlemen, the conference is now concluded, and you may disconnect your telephone. Thank you for calling and have a pleasant evening.