Ladies and gentlemen, thank you for standing by. I'm Mirjo, your Chorus Call operator. Welcome and thank you for joining the Alpha Services and Holdings' conference call to present and discuss the First Half twenty twenty one Financial Results. All participants will be in a listen only mode and the conference is being recorded. The presentation will be followed by a question and answer today's conference call.
At this time, I would like to turn the conference over to Alta 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 Alfa Bank's 2nd quarter earnings conference call. This is Vasily Psaltis, I'm Alfa Bank's CEO, And I'm joined by Lazo Oscar Galifalo, our CFO and Dimitius Kosopoulos, our Head of IR. Starting from Page 4 on the economic front, Domestic economic activity is expected to bounce back from the Q2 of this year onwards, with real GDP projected to grow more than 5 In 2021, supported by high frequency data, which shows that tourism arrivals exceeded expectations And economic sentiment improved in the Q2.
In particular, in the 1st week of August, the number of international tourist arrivals to Athens International Airport Reached over 70% of the amount recorded in the corresponding period in 2019, pointing to a recovery in tourism in 2021 as we expected. Additionally, total passenger traffic from the Athens International Airport grew by 3 71% year on year in the second quarter, While in July, it increased by 108% on a annual basis. More specifically, Based on anecdotal estimations by Business Insiders, international tourist arrivals in July reached 65% of 2019 levels, While thus far, August data suggests arrivals will be over 80% of 2019 levels. Subject to no further adverse developments in respect to the pandemic, wildfires or anything else, QA's revenue this year Myself, up more than 50% of 2019 levels. And mind you, 2019, we had EUR 18,200,000,000 revenues, Whilst in 2020, revenues reached only 24% of those levels.
As a consequence, September October will be the crucial month For quick tourism and whether 2021 revenues as a whole could exceed 50% of those recorded in 2019. Additionally, the economic sentiment indicator also improved slightly in the 1st 7 months to 2021 compared to the corresponding period of last year, further supporting the expected growth from the Q2 onwards. Retail trade Continued its upward trends for the 2nd consecutive month, increasing by 15% year on year in May. Similarly, The manufacturing production index has remained on an upward trajectory from November 2020 onwards, significantly improve the operating conditions across the grid manufacturing sector. Finally, despite the heavy fall of the pandemic on economic activity, House prices in the construction sector remained resilient in the Q1 of this year.
Specifically, house prices continued To rise by 3.2% year on year, more rapidly against the Q4 of last year, with private printing activity also increasing sharply in the 1st 5 months of 2021 by 53%. Lastly, as you will remember from our Q1 results and strategy update, Greece is the largest relative recipient of the Year of Reference in Europe that are aimed at supporting Greece in its transition to sustainability, digitization and organization. There has been notable progress on enabling the fight flow in the last few months. On 17th June, Greece became one of the first five countries to receive EU Commission's formal approval of its IFRS plan, Greetings Greece 2.0. As a result, Greece has also been one of the first five countries to receive a pre financing of EUR 4,000,000,000 on the 9th August.
Following the approval of the plan, the Greek government has launched the first 12 projects amounting to DKK1.9 billion, The largest of which are focusing on the construction of a highway section, upgrading local urban infrastructure and the digitization of the land registry. The Greek government anticipates that it will receive an additional €2,600,000,000 of subsidies in the 3rd Q4 of this year And is expected to launch additional projects. Greek banks are currently in discussions with the government to set up a legal framework for our refi and blending, Which we expect to be completed in the Q4. With regards to the process of bank engagement, we expect that the banks will be invited to sign framework cooperation Agreement on the dates of our Rett business plans to enable the planning of disbursements in the transaction of eligibility criteria as they will be specified. Alphabanks' capital increase, which was concluded successfully in July 2021, position us to be one of the key banking pillars that will unlock our debt funds for customers.
Having seen the progress made during the summer months, both at the institution and at the multi bank level, our confidence in our ability to deploy this capital to work Has further increased. Now moving to Slide 5. The decisive reduction of NPEs remains a key priority of our business plan. With Galaxy now completed and our servicing partners are fully operational, We have switched focus on preparing and delivering the next leg of inorganic and inorganic NPE reduction. This consists of a series of transactions, both under the Helene Gas Protection Scheme and non HAPS transactions, spanning over this year and next year.
We are working confidently towards delivering the first set of transactions by year end With a total envelope of EUR 7,000,000,000 that makes 85 percent of the EUR 8,100,000,000 perimeter expected to be effectively delivered within 2021. Market conditions permitting, this would lead the group to an NPE ratio of circa 13% by the end of this year. In more detail, Project Cosmos, a $3,500,000,000 house securitization, is fairly advanced in terms of preparation with significant activity planned for the next 6 months, including the receipt of a preliminary rating and the submission for a half guarantee, which knocks in the overall costs. Our plan is to have Asserti approval by year end. In parallel, Project Orbit and Sky, the first one being an unsecured portfolio sale, The latter is a Cyprian secured portfolio sale, unexpected to launch imminently and bids should be received within the Q4.
Having said that, we also have our eyes focused on the 2022 transaction pipeline with preparatory actions already underway for the remaining $1,100,000,000 perimeter. We expect to be in a position of delivering solid progress in the Q1 of next year for the majority of this envelope. On Slide 6, in line with our strategy, we have continued to make progress in maximizing the value of our business and enhancing our franchise through strategic partnership with top tier international players. Following on from the bank assurance agreement with Generali, We have recently announced the signing of a binding MOU with Nexi, the European leader in payments acceptance, to form a long term partnership in Payment Solutions and Merchant Acquirence. These are the key value drivers for these transactions, which set it apart from other precedents in the market.
First, this is a partnership with Alfa Bank retaining an initial 49 states in the business. Payment Solutions is one of the highest growth areas globally, and we expect this business to capitalize on its market leading stages, The quality of the partners and the superior technological capacity of Nexi to continue to deliver solid growth and profitability. Remaining in the business for the long term gives us exposure to the upside potential embedded in the sector. 2nd, in terms of value, we have agreed a base valuation of $307,000,000 which lies at the higher end of current trading multiples and transaction precedents. As we are selling 51% of the business, we expect the record to record a gain also for the 49% stake we will retain, enjoying the full capital benefit of the value of the business, which is projected to offset a 60 basis points of total count.
Sure. We are highly incentivized to make this a profitable venture through an important earnout structure of up to EUR60 1,000,000 enterprise value in the next 4 years. We expect this upside to be attainable and we'll strive to capture it. Finally, we have consciously struck the balance between upfront consideration and long term profitability through the terms of a referral agreement with Nexi. A significant part of the value of this partnership will thus come in the form of fee income on the back of merchant revenues procured by Alfa Bank.
This is very similar to what we have agreed with Generali and ideally, with the strong distribution capacity of our channels. We anticipate total fees of around EUR 200,000,000 over the course of the agreement. Moving on to Slide 7. We have also initiated Project Skyline, where we aim to form an alliance with an international partner To capitalize on the growth prospects of the Greek real estate markets, via our listed subsidiary, Alfrasteca Ichinica, We will create a large scale real estate investment platform focusing mostly on commercial real estate. Federico will establish a long term service agreement with our in house real estate management unit, creating new revenue streams for the bank.
The deal is expected to be capital accretive and signing should be expected in early next year. We have also undertaken several of the announced actions aimed at optimizing our island sheet to deliver further capital relief and business model simplification. The sale of our subsidiary in Albania is progressing well with interest exceeding our initial expectations. The transaction is now in an advanced phase, the binding offers expected in the last quarter of this year. Similarly, the sale of our U.
K. Subsidiary is expected to launch in the Q4 of this year with signing in the first half of next year. We also wanted to take an opportunity to provide you with a few more details on our $2,000,000,000 synthetic securitization of SME and corporate loans, which we call named Project Agora. Strong investor interest has been expressed in Phase 1 with several non binding offers received. Phase 2 of investor engagement is now commencing.
The transaction is expected to be concluded within this year. On Slide 8, We highlight that our performance during the first half shows that we will be able to comfortably meet our full year guidance on profitability, Asset Quality and Capital Advocacy. Trends continue to evolve in line with our expectations on all fronts. And as I mentioned earlier, We're now looking for a 13% NPE ratio by year end versus the 18% we have guided when we announced Project Tomorrow. The following quarters, we'll see the completion of critical milestones in our plan, unlocking the path to double digit returns with growing capital buffers.
Lastly, on capital, I have to note the outstanding performance AlfaDunn registered in which we stressed, Posting the highest estimated ending fully loaded correctly Tier 1 among weak systemic banks under the baseline in the first scenario of 17.3% 8.3%, respectively. While 2023 fully The leverage ratio in the adverse scenario came at 6.1%, at the top range of EU banks and best in class among Quickpeers. And with that, I turn the floor to Lagos Popagarifalo for a closer look in our financial performance in the Q2. Thank you, Vasilis, and good afternoon to everyone. With regards to Q2 2021 performance, I will now provide a summary of the key financial trends looking at Slide 10 of the presentation.
This quarter, we have closed the Galaxy transaction and booked the resulting EUR 2,100,000,000 Net impact leading to a reported loss after tax of $2,300,000,000 in the first half. With the consolidation of Galaxy and net of a retained senior note, loan balances have decreased by EUR 1,900,000,000 With a partial impact on net interest income. All of the above are in line with the bank's estimates and capital plan. Leaving Galaxy aside, our corporate provision income generation decreased by 4.5% this quarter, Reaching EUR 226,000,000. The pre recognition of Galaxy and the lower retrospective TLTRO free benefit The Q1 are the main drivers.
On an adjusted basis, pro form a corporate provision income increased by 3% on a quarterly basis. Reported pre provision income stood at 243,000,000 Versus EUR137,000,000 in the previous quarter as EUR 160,100,000 of restructuring costs And other one off charges related with the bank transformation impacted the previous quarter's results. Trading income amounted to a loss of EUR 2,200,000,000 due to the recognition of Galaxy. On an adjusted basis, as shown here, It stood at €30,400,000 on lower GGB transaction activity. Investment losses significantly deescalated in the 2nd quarter, EUR 125,000,000 versus EUR391,000,000 in the previous quarter, Driving total cost of risk ratio 1.3 percent with underlying cost of risk, excluding impairment losses allocated to portfolio transactions, Down to 0.9%, better than our financial year 2021 guidance.
Regarding year to date performance, On a normalized basis, first half profit after tax stands at EUR 213,000,000 Confirming that the bank is on course to meet its near term target to deliver a 5% return on tangible book value in 2021. Now turning to Slide 11. In terms of new credit, we continue to step up and support our customers as we dispersed a further EUR 1,200,000,000 of new loans in Greece this quarter, bringing the total to EUR 2,300,000,000, addressing credit demand mainly from businesses. Net credit expansion, namely disbursements minus repayments, It was positive again this quarter and stands at €400,000,000 for the first half, reflecting credit demand from businesses. As highlighted in the bottom right chart at the group level, our year to date to date performing Loans expansion is well ahead of our year end target, and we expect momentum to hold in the second half of the year.
Lenders spreads on performing exposures saw some pressure in the quarter, also affected by specific corporate repayments. In line with our budget and our business plan, we expect some further pressure on loan spreads during the second half, especially on business lending, to the tune of 5 to 8 basis points. Spreads of our new production, however, remain resilient and at very satisfactory levels, Which, together with a positive mix of net credit expansion, should support the profitability of our loan book. Beyond the RRF projects that are expected to materialize from September onwards, it's worth highlighting The bank is currently in the process of underwriting significant projects not related to our alert and has already announced 2. The first is in the energy sector with public part operations, green bond loan.
The second is in the group hospitality And related to the financing of the Blackstone Managed Hotel Investment Partners investment program concerning 5 hotels in key Greek resort locations. Current short term pipeline includes projects beyond these 2, in the energy, hospitality and infrastructure sectors, and For now, amounts to total size, which exceed $900,000,000 On deposit covering on Slide 12, The group's deposit base expanded by $1,400,000,000 in the quarter, comprising more than 70% of the bank's strong accounting sources. At the end of the Q2, domestic deposits stood at the highest post crisis level, reflecting inflows from core deposits That now accounts for 79% of domestic deposits. The continued shift of the product mix This is an overall positive impact on the bank's interest expense. On a year on year basis, our group deposit base Has expanded by €4,100,000,000 or 10.2%.
Liquidity drawn from ECB remained stable q on q At EUR 12,900,000,000 reflecting the full utilization of our TLTRO III borrowing allowance or 18% of our total assets. Benefiting from the low cost liquidity drawn from the ACP, The bank's blended funding cost remained in negative territory in the 2nd quarter at minus 7 basis points and continue to support Net Investinga. Finally, the group's loan to deposit ratio materially improved to 83%, enabling the bank to address the credit demand expected under the utilization of our RF funds. The group's liquidity coverage ratio surged to 100 Let's now see the drivers of our net interest income performance during the Q2 in more detail on the next slide. Net interest income in the 2nd quarter stood at 371,000,000 Down by 7.2 percent Q on Q or $28,600,000 This quarter, the bank We recognized an additional EUR 6,900,000 one off retrospective benefit for the second half of twenty twenty two As a result of the accrual of minus 1% for the total amount of ECB borrowing of the respective period Versus a higher amount of DKK 24,700,000 that we booked in the Q1 of 2021, as we illustrate on the chart.
The underlying performance of net interest income was flattish on the back of 3 main drivers. 1, to a lesser extent, We had a lower contribution from performing loans by $400,000 mainly on the back of lower spreads For specific corporate repayments and repricing as discussed previously. 2, we had an €8,100,000 impact from the recognition of the Galaxy perimeter with a further EUR 1,300,000 driven by lower average nonperforming loan balances due to the increased provisioning. And 3, we had a negative effect from bonds and other of EUR 2,900,000, Reflecting GGB's recycling and lower one off items. On the liability side, there was no impact from deposits As continued repricing offset the increase in balances, whereas funding, net interest income had a positive contribution of EUR 1,800,000 As increased ECB borrowing offset the fully phased cost of the Tier 2 issued in March.
Turning to Slide 14, we show the main drivers of our fee income generation. On a quarterly basis, net fee and commission income surged to €105,400,000 up By 25.1 percent Q on Q. Excluding a EUR 10,000,000 free from AXA related to the signing of a new BasePacas loss It would still leave underlying fee income up by 13%. Asset Management had a better quarter on the back of a sustained growth in AUMs, primarily non money market funds But we're up by €800,000,000 The bank has already accomplished almost 1 quarter of its 2024 target of a EUR 3,500,000,000 growth in related AUMs. Revenues from cards and payments increased with transaction volumes surpassing 2019 levels on increased penetration of noncash Production.
Business credit related fees were also up on higher activity. On a yearly basis, Fee income generation picked up by 14% or $23,000,000 supported by increased fees from business lending, Increased commission income from mutual funds, stemming from AUMs and a credit mix evolution And credit cards and payments due to increased volume of transactions. The aforementioned EUR 10,000,000 Fee income from AXA compensated a decline in other fees versus the first half of twenty twenty, Which have benefited by $11,800,000 of fees received from the amendment of collateral agreements on derivative transaction last year. The observed pickup in commercial activity, the growth in Asset Management, along with the recently announced business development initiatives The strength in our franchise positioning allow us to be confident that we are on track to meet our fee income generation target Of circa EUR 400,000,000 for the year. On the OpEx side, on Slide 15, Recurring operating expenses on a group level for supply consolidation increased slightly year on year As savings from HR initiatives are temporarily offset by an increase in non staff costs, Mainly due to higher IT and transaction related items, with the latter linked to higher revenue generation.
Looking on each line separately, personnel expenses on a pro form a basis for the impact of Sepalta and the loan personnel costs Before the carve out of the bank's NPL units, decreased by €9,100,000 year on year, Reflecting the voluntary separations in our Cypriot operations that was completed in the Q4 of 2020 As well as the impact from HR initiatives in Greece. Going forward, the reduction in headcount By 8 20 FT feet
feet feet feet feet feet feet feet feet
feet feet feet feet feet feet feet feet Es from the disposal of Cepal that took place in mid June 2021, we felt the reduced group staff costs. General expenses were higher on a pro form a basis by $12,300,000 year on year in the first half, Mainly reflecting increased expenses from the pickup in activity in our car business and higher IT costs. Finally, the depreciation charge stood at EUR 4,200,000 higher year on year, again on a pro form a basis, Due to an increase in intangible assets linked to IT Investments as part of the group's transformation. As depicted in the top right chart, NPA management costs constitute more than 15% our recurring cost base. And in the medium term, we aim for a sharp decrease in line with the reduction of our NPE and RLO portfolio and the reduction in associated servicing fees, which are expected to decline by 6% by 2024.
Our strategic plan also targets a decline in the core operations cost base to a significantly lesser degree, supported by the voluntary separation scheme to be implemented in our Greek operations by year end 2021. Moving on to the next page. Quarterly NPE formation increase remained flat As entries, only slightly deteriorated due to higher inflows from an expiring Banatoria, fully offset by higher During some repayments and increased transactions, this flattish and T information performance in the first half is better than initially expected, making us optimistic for the remaining of the year and also compare business plan expectations for the duration of 0.0 per year. On the right hand side of the slide, you can see further information on our cost of risk evolution. The overall cost of risk over net loans stood at 1.3%, out of which 0.4% It relates to exposures expected to be sold for under securitization and portfolio sales.
Underlying cost of risk, on the other hand, Remains consistently below the 1% levels and better than our 1.2% full year guidance. Finally, in the bottom right graph, you will see that post Galaxy, our group NP ratio has decreased significantly From 43% down to 26%, whereas our NP cash coverage increased from 49% to 54% For 105%, including collateral. Moving on to Slide 17. We expect to reduce RNP volume by another 45% this year at group level by reducing gross NPEs From EUR 11,400,000,000 in June 2021 after the closing of Galaxy to approximately EUR 5,000,000,000 by year end. This will allow us to reach an NPE ratio of 13%, which is at 5 percentage points better than what we expected at the time of our business plan announcement.
This is effectively driven by the acceleration of Project Sky, the sale of an NPE portfolio in Cyprus, Where the front loading of the prep work, including transaction structure, will allow us to launch imminently and receive offers within the Q4 of the year. Projects, Kosmos and Orbit, are progressing according to plan, with HAP submission for Kosmos expected in October and binding offers for audit targeted for the Q4 of this year. We reiterate our guidance with regards to a total load budget Of EUR 1,600,000,000 out of which more than EUR 600,000,000 has already been incurred in the last three quarters. As we have discussed in the previous slide, organic formation this year has come in better than expected, leaving some room to Potentially outperform our GRN target. This will be a function of the second half asset quality trends and successful progress on our transactions.
Our both developments continue to underpin our confidence in meeting our medium term goal of reaching a single digit Group NPE and NPL ratio well within 2022, while converging to the EU average level by 2024, Which, in turn, will lead to the full normalization of our cost of risk. At the same time, we have had a notable improvement the group's NPE coverage ratio from 7% in December 2020 to 54% in June 2021, whilst maintaining our robust capital position. On Page 18, You can see the quarterly evolution of our capital. Post the share capital increase, it stood at EUR 6,700,000,000 Resulting in a capital adequacy ratio of 17.4%, down by 90 basis points versus March 2021. The total capital ratio was negatively affected by Galaxy and CEPAL to a tune of 285 basis points, In line with the bank's guidance, whereas the share capital increase impacted capital positively by 220 basis points.
Organic capital generation stood at 2 basis points in this quarter. The buffer Over the regulatory total capital ratio of 14%, therefore stands at €1,300,000,000 The respective fully loaded total capital ratio stood at 15.4% and the fully loaded common equity Tier 1 at 12.7%. On the right part of the waterfall, we note that we expect internal capital measures to enhance capital ratios in the next quarters by 1.5 percentage points, Which will more than offset the anticipated negative impact from the upcoming NP transactions. The impact of both internal capital measures And upcoming NPE transactions will be fully reported by the end of the first half twenty twenty two. In the bottom right chart, we show the expected evolution of our capital ratio during each year until 2024, According to our business plan presented in May, the timing of internal capital measures, the lost budget accrual and RWA relief from NP Transactions.
We likely lead to a reduction in capital ratios near term as per plan, with total capital ratio always above our management target levels of 16.5%. Last week, turning on Page 19. The bank completed successfully based these test tests, Registering an outstanding performance, posting the highest estimated ending fully loaded common equity run ratio for year end 2023, I'm with Sustaining Bank under the baseline and adverse scenarios of 17.3% and 8.3%, respectively. 10.2% fully loaded ratio in the best scenario taking into account the share capital increase. The capital depletion, excluding IFRS nine, improved to 6.3 percentage points, while comparing to iterations of the stress test, While the fully loaded leverage ratio in the best scenario came in at 6.9% at the top range of EU banks and best in class among good peers.
Finally, looking at the bottom right hand side of the slide, I would like to highlight The bank's capital generation for the 3 year period was 2.7%, absorbing the impact of IFRS 9 phasing, Resulting in a 2023 common equity Tier 1 transitional ratio of 17.4%. And now let's open the floor to questions.
Ladies and gentlemen, at this time, we'll begin the question and answer Please use your hands and when asking your questions for better quality. The first question comes from the line of Floriani Jonas with Axia Ventures. Please go ahead.
Yes. Hi, guys. Good afternoon, everybody. Thanks for the presentation and well done on the execution on the plan. So my first question, I think all of my questions, they relate to some comments you made during the presentation.
The first question relates to the outlook on disbursements following the comments by Lazarus. I remember that during the period of the share capital increase, we discussed a lot about The growth opportunities in Greece and also how Alpha was preparing itself to start dispersing as soon as possible, Especially also to benefit from the RF boost. I know it hasn't been long yet, but Following Lazarus' comments, could you update us or linking the comments that you made on the call, where that Links, in relation to expectations for the full year, you've included this project that you mentioned there. I was just wondering if your expectation for total disbursements in 2021 and also expectation for the increase in the net loan book Has changed or improved over the last 2 or 3 months? So my second question then relates To the NPE dynamics, I see that on Slide 18, you're mentioning or you're showing the entries and exits of NPEs, Including the breakdown of the moratorium loans.
I was just curious to understand on the entry side, What has been the driver of those news NPEs? Are these coming from new defaults or are these re defaults Exposures. And also in terms of your, moratorium loans, your expectation for the year is €800,000,000 And we have now $300,000,000 in the first half. So have you changed your expectation for the second half or it's fair to assume that this €500,000,000 is coming now in the coming quarters. And then my final question probably relates To the previous one, I was curious to understand if you already have seen some tangible signs in terms of the new insolvency law in Greece.
Is there anything that is already reflected in the numbers or maybe on the Discussions we have with Seqal, how that is affecting collections or the relationship with the borrowers in this early months. And I'll leave it there. Thanks.
All right. Jonas, thank you for the questions. Coming to your first question on net credit expansion. We have been quite careful to Analyze disbursements and repayments in a manner that can illustrate the development of the net credit expansion rather just talking about gross disbursements. And you have seen that in the first half of the year, The net credit expansion in the performing book amounted to EUR 400,000,000 level, out of which EUR 600,000,000 These businesses, whereas there was a small deleveraging from household lending.
That is a higher run rate than the one we have incorporated in our budget and in the business plan that we have presented in May. You may recall in May, and that you can see on the lower right part of the Page 11, where we benchmark the credit expansion vis a vis the targets that we have portrayed in our business plan. You will see that the run rate is higher than the one that we have showed back in May as we have not been expecting really RRF to kick in, In the Q2 of the year, it has not started yet. I mean, the disbursements from our EU partners came to Greece late in the summer. And new projects new RRS projects should expect to affect our numbers In a tangible manner from 2022 onwards.
So all that was expected. On the other hand, As we see a lot of traction in the corporate market, we have already seen demand for very good projects at very good returns on allocated capital in tourism, energy, infrastructure. We have already announced a couple of projects, These are good and normal projects based on our risk appetite, and we have the pipeline currently in these sectors What I have said in the short term could produce an additional €900,000,000 of new disbursements in good projects. So momentum is building up in the second half of the year, not necessarily related to RRF, but mainly to corporate lending. And as our rate conditions mature and the infrastructure gets in place, we expect, obviously, much more traction from 2022 onwards as per the business plan projections.
Now on your second question with regards to the N2 dynamics, I said that we're quite optimistic on the organic formation For the year, we have provided a budget of €600,000,000 And what we see currently It's a better run rate. When it comes to new defaults, we have seen EUR 400,000,000 of Ex moratoria defaulting within the first half of the year And also the last quarter of 2022, out of the €800,000,000 projection that we have for this particular universe. So almost 50% of what we have projected has defaulted in the last three quarters. However, what we have also seen is a significant performance with regards to during repayments That has effectively counterbalanced fully any increase in the first half of the year. And this has been better than what we had in the budget.
Now if you ask me whether we are changing our guidance of 0.6% formation for the year, as I said, we are optimistic. We want to see some more data points with regards to certain restructurings that we have offered to the clients, Including the bridge program and some step up facilities, we want to see how they perform prior to amending the target towards a lower level for the year. But it is likely that this will be the case. And your last question had to do with insolvency law. I understand that you are referring to the out settlement in the platform that has been introduced by the government.
We have seen the first applications flowing into the system in July. No processing has taken place in August. So traction will start in September. So in a nutshell, It hasn't moved the needle in any respect nor the numbers and the volumes that we have seen to date make us believe that there is some sort of
The next question comes from the line of Kevin Mahnad with JPMorgan. Please go ahead.
Good evening. Thanks very much for the presentation. I have a couple of questions, please. Pazarus, you mentioned that there are several RFS related investment And you also mentioned that €900,000,000 figure for the total size. Can I please confirm that this is the loan First thing to figure that you expect for Alfa Bank specifically from these projects?
And what would be the timeline here for these loans to be That will be my first question. My second question is on the repayments. So thanks very much for the detailed data that you're providing on the performing loan movements. And there, I can see that the repayments are actually quite high at 1,000,000,000 There's a slight pickup quarter to quarter. What is business as usual?
Or would you should we take this as a run rate going forward. So let's say $3,000,000,000 to $4,000,000,000 of repayments each year for the coming several years. And My final question is on NPA management costs. Your full year guidance would imply a pickup in those costs in the second half. But given that Galaxy is now out of the books, wouldn't you expect that some relief in there in the second half?
Or is there something else that is Still keeping the costs related to NPAs high in the second half. Thanks very much.
Coming to your first question about the disbursements. Yes, the EUR 900,000,000 short term pipeline that I have referred to on corporate loans Have to do with expressments. I have not given any guidance on repayments for the year. So in order to set the record straight, In terms of guidance, you should have in your numbers, I think, the year end target that we present on Page 11 As the balance for performing loans, that was the number we put in May, and that is the guidance we're giving. We may end up higher at the end of the year.
But currently, we give no other guidance than the one presented in our plan And reiterated in Page 11. So on your second question on retail disbursements, The Q2 of the year has been much better than the Q1 of the year in terms of loan disbursements. Actually, the RAN RE in the second quarter has doubled compared to the first Quarter make us believe that this is more representative of what we're going to see happening in the coming quarters. Still, the trajectory of disbursements and repayments are such that Well, probably the number we have put for household performing loans are €10,800,000,000 at the end of the year is representative of New dispense maintained payments in the second half of the year. But the demand is picking up definitely, especially in auto loans.
We definitely see positive trends and that goes also for housing launch. Thank you. And Yes, yes. Yes, yes. When it comes to NPA management costs, Unfortunately or fortunately, there is a lot of noise coming out of CEPAL consolidation and deconsolidation within the year.
I mean, remember, we have acquired Shepell and consolidated its P and L in our group P and L in the second half of twenty twenty. We are consolidating CEPAL until 18th June 2021. And subsequently, we are divesting CEPAL. Therefore, all that is creating some noise. And I have tried to present on Page 15 some pro form a numbers so that We take the noise out of it.
But when it comes to employee management costs, you may recall in our business plan presentation that, That was a big driver of cost reduction until 2024. And real traction there It's happening from 2022 onwards. That was also presented back in May, where we have started counting from 2022 onwards In terms of cost reduction, we should not expect to see a material reduction in 2021. On the contrary, this noise SAS has increased some of the costs. However, in alignment with the full guidance that we have given for $173,000,000 for 2021 and presented back in May.
After the Galaxy deconsolidation, Which happens or which happened, obviously. And the sale of additional €8,100,000,000 Which is happening in the coming quarters, we are going to observe a very significant decrease of NPE servicing costs. Same goes with Arios. Arios cost money, taxes and other servicing fees. And we have planned Ario transactions, Including the Skyline transaction.
So all that is decreasing NPA management costs to a good extent. So more traction on that line from 2022 onwards as per the planned projection.
Okay. That's all very clear. Thank you very much, Lazarus. Maybe just one follow-up, If I may, on Project Skyline, could you please walk me through the expected impact coming from there? I mean, You presented earlier that the main benefit will come from RWA release, but is there any equity impact In there that you would expect from the sale of the 51% at least of the portfolio as well?
Indeed, there are a few benefits. The first has to do with an arguably greater year as we will be disposing assets, which are risk weighted by almost 100% in our balance sheet. And we will also experience a reduction in costs visavis carrying These assets in our balance sheet. But no equity cost is rest projected in this respect.
Okay, great. Thank you very much for your help. Thank you.
My next question comes from the line of Manishoglouzman with Ambrosia Capital. Please go ahead.
Hello, many thanks for your time. Just following up on the NPE formation potentially being too conservative and tagging along maybe the cost of risk And we'll do it as well, which also seems to be trending much better than your 1.2% guidance for the underlying rate. When would you consider revising them? Maybe along with Q3 or are you looking to wait a bit longer? That's my first question.
And then on the cost bit, I appreciate the NPA and later on, but in the shorter term, I see quarter on quarter, there was a pickup in general expenses. If you could Give us a bit color on that. Should we expect that level to be sustained for the rest of the year? Thank you.
Now on your first question with regards to cost of risk guidance, We have 2 building blocks there. The one is provisions for transactions. The other building block is the underlying cost of risk. Now the underlying cost of risk moved To date, within our guidance for 1.2% over net loans. So we expect To trend within the year within that guidance, it could be lower if the forms in the second half are lower than the one we have budgeted.
So until we change our guidance for organic formation, we want to keep the 1.2% of our net launch guidance for underlying cost of risk. That is around the 400,000,000 level in terms of euro amount. Coming to transaction costs, Let me clarify that the new LP plan of what EUR 8,100,000,000 NP transactions that we have presented in May Has a lost budget in euro amounts of $1,600,000,000 or thereabouts. And we have already absorbed in our P and L almost EUR 600,000,000 or north of EUR 600,000,000 if we take into account also second quarter additional provisions in this respect. So we have EUR 1,000,000,000 more provisions to take in order to fully implement the EUR 8,100,000,000 incremental NPD Leveraging.
Now that the phasing of this provisioning In our P and L, we depend, to a very good extent, on the progress made on these projects. As we Do say scenarios under IFRS, we calculate the probability of completing these projects, and we take gradually the hit Now, Brooks, knowing that we will need to take an additional EUR 1,000,000,000 to effect these transactions. Given the progress so far and the fact that we expect the 3 main projects to be completed by year end, namely, Kosmos, Orbit and I would expect that during this year, there's going to be an additional EUR 700,000,000 or so of additional provisions related to Transactions that will hit this year's P and L as per our previous guidance. And the remaining May hit our 1st quarter results in 2020, 22 or the Q2. The impact of these transactions in capital terms, taking also into account The RWA release is presented on Page 18 at the upper right part of the page.
It's 1% in total capital adequacy terms, And it is the byproduct of the provisions and the RWA relief. And we expect to take all this impact by the first half of twenty twenty two. On the other hand, in order to counterbalance this impact, we have already initiated a series of internal generation measures, namely the merchant acquiring sale already announced to be completed In the coming quarters. And as synthetic securitization, the total impact of these internal capital Measures will exceed the impact of NPE organic reduction, no gas introduction. So from a capital point of view, we are very much Alligned already with the capital targets that we have given in the business plan, providing for At least a 16.5 percent total capital adequacy ratio in this journey of further deleveraging the balance sheet.
Thank you. And on
the cost side for the shorter term, any
Indeed, on G and As, We have seen some higher IT costs as we are progressing our transformation plan. We have also seen An increase in certain G and As related to volume driven costs on the cards business That are associated also with higher revenues, but they also hit the OpEx line in G and As with respective numbers.
That reminds me, given the one off
of €10,000,000 underlying fee income at Quite respectable $95,000,000 How should we expect that to trend in the short term?
Yes. On the top line, coming to fees, our guidance for the year is for a significant increase compared to 2020 by approximately 13%. On the other hand, We expect net interest income to drop by high single digit number as per our previous guidance, approximately 9%. That is our current projection as the Galaxy impact in the second half of the year will be approximately EUR 110,000,000 in our top line. And we expect OpEx recurring OpEx to trend flattish year on year.
Thank you.
The next question comes from the line of Penolopoulos Cosadines with Optima Bank. Please go ahead.
Yes, hello. Thanks for the presentation. Well done on the results and the good execution of the business plan. I have a very quick question on your agreement with Nexi. So once the deal concludes, I guess sometime in Q4, will you guys book the entire profit, the entire valuation Of your own business or just the 51% sorry, yes, the 51% that you are selling?
In most probably in the first Quarter of 2022, we are going to book the P and L for selling 51% And the value of our remaining 41% 49%. And that is providing A significant boost in the bottom line, as you will appreciate, providing 60 basis points Of internal capital generation.
Okay, got it. Thank you.
The next question comes from the line of Poulud Hanexameros, Poussinco. Please go ahead.
Yes, hello. A quick question on my end On the $700,000,000 that you mentioned as additional provisions for transactions expected in the second half, Do these refer mostly to Cosmos and all the securitization of Cosmos mainly or also for Sky? Because I believe in Cyprus You are more better covered in terms of cost coverage, if I remember correctly, at least. And maybe a bit on that on Sky, what led to this acceleration? Is it do you see higher interest or in the state you are in and you're moving faster because of that?
What is the reason behind that? Thanks.
The 700,000,000 Budget, the remaining budget for these 3 transactions encompasses scenarios For 100% capability to effective transactions this year. So indeed, it entails additional impairment for all three projects, including Sky. For Sky, which is the Cypriot NPE sale of EUR 2,200,000,000, We have booked EUR 320,000,000 in the Q1 of the year. We are effectively marked at EUR0.30 We expect Recoveries to be such that will require an additional impairment in 2021 accounts. And we will be taking additional provisions for Cosmos and Orbit.
Your question on Sky with regards to investors' interest, indeed, there is interest on this transaction. We have prepared very well to hit the market and engage with investors. That's why we are kind of front loading our previous guidance, expecting to have signing in the Q4 of the year.
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 participating in our first Tough results, and we're very much looking forward to welcoming you on our 9 month results in November. Thank you very much.
Ladies and gentlemen, the conference is now concluded and you may disconnect your telephone. Thank you for calling and have a pleasant evening.