Ladies and gentlemen, thank you for standing by. I am Joanna, your conference call operator. Welcome and thank you for joining the Alpha Services and Holdings conference call to present and discuss the 9 month 2024 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 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 morning everyone. Thank you for joining us. I'm Iason Kepaptsoglou, Alpha Bank's head of IR. Vasilis Psaltis, our CEO, will lead the call today summarizing our progress and giving you a few highlights. And then Vasilis Kosmas, our CFO, will give you more details on the quarter and the guidance. As ever, the whole team is here, and we will take Q& A in the end and should finish within the hour. Vasilis, over to you.
Well, thank you Iason and good morning from my side as well. Thank you for joining. Let's dive in starting now with slide number 4 please. With one quarter left until the end of the year, we have delivered recurring earnings of EUR 666 million which translated into a 14.4% return on tangible equity and EUR 0.26 of earnings per share for our shareholders. Our top line is resilient with net interest income remaining strong. While we continue making good progress in fee income generation, supporting our solid management of operating leverage and ensuring an improvement in provisions. We continue to grow our loan book and customer funds and to position the business to maximize the recurring value we can create for our shareholders and in a sustainable way.
Our capital buffers continue to grow steadily with 131 basis points of capital generation reaching a level of 16.5% in the third quarter, including the impact from deconsolidating Alpha Bank Romania, but that number goes up to 17.1% when accounting for the completion of other pending transactions. Please bear in mind that these numbers are net of a 35% accrual for dividends out of 2024 profits and this up from the 20% accrual of 2023. It is important to note that we are also well ahead of the final binding MREL requirements given the marked progress we have made in the first nine months of the year. As you will later hear from our CFO Vasilis, we are upgrading guidance for the year relative to the most recent upgrade we made in August with our second quarter results.
Today's upgrade relates mainly to three: firstly, better net interest income, secondly, lower provisioning expenses, and thirdly, stronger risk-weighted asset optimization. The combined output has allowed us to deliver higher recurring earnings, higher profitability, and a lower NPE ratio while increasing our guidance for tangible book value and regulatory capital. But I think it is also worth highlighting that within the space of Q3 and Q4 and versus the business plan we announced at the start of the year, we have been able to upsize our loan growth ambition. We are delivering already this year the 2026 NPE targets, and we are five quarters ahead of plan in terms of capital in MREL, all while sustaining our ambition for earnings generation. Now let's move on to slide five, please. There you can see that we have been and will continue to deliver a positive trajectory in earnings and capital.
Here is a summary of the unique characteristics we possess and our strategic positioning that underpins our confidence in delivering in this promise of earnings growth and strong capital generation. Unlike many of our peers in Europe, we strongly believe we can continue to grow earnings, grow capital and increase shareholder remuneration despite the interest rate headwinds. On this slide you can see a summary of our unique characteristics that underpin this differentiated positioning. Let's look now at each in turn. Starting on slide six, we have been diligent in ensuring that we manage our balance sheet dynamically with a view to maximize long-term value creation. At this juncture this has meant ensuring that we were well positioned for the impending decline in interest rates.
Here we're giving you full disclosure on the composition of our balance sheet, including the effect of hedging we have done and our sensitivity to interest rates. Assuming full repricing on a static balance in absolute terms we have a lower amount of core deposits versus past years. We have a higher share of hedges and have a lower net floating position of EUR 4.7 billion as you can see at EUR 12 million for every 25 basis points. This is at the lower end of the range for commercial European banks. Obviously rates are not the only thing affecting our top line and we expect a positive contribution from loan growth reinvestments in our securities book and lower cost of funding now that incremental funding issuance is less of a headwind. As Vasilis will explain later, we expect that our net interest income will be relatively resilient going forward.
Growth in net interest income is largely predicated on loan growth, which is currently mostly driven by growth in corporate loans, and as you can see on slide seven. We have been able to move effectively in tandem with our peers over the medium term, slightly gaining market share. This quarter we have seen very strong levels of growth and we expect this strength to carry to the end of the year, beating our previous guidance for the year. As we have witnessed, corporate loan growth tends to be bumpy given the long incubation period for investment loans to materialize and this will create volatility in performance, but we expect to sustain good, strong momentum into 2025. What is more, we have been able to accomplish this growth while ensuring that we are diligent in our underwriting principles.
We have seen spread pressure in the market which comes as a function of lower funding cost, better visibility on the outlook and improving credit rating of our clients. However, we continue to price risk adequately and we have worked hard to ensure that we optimize capital consumption and to ensure disbursements meet our profitability thresholds. Moving now to Slide 8, our resilient top line is coupled with solid progress on fee income as we continue to lead in the asset management space and are making good progress in all other areas. There is significant room to grow in banc assurance as well as in the payments and lending space. The 2026 number on this page is based on the business plan we announced with full year results back in March.
We are planning to upgrade our ambition in the new planning cycle to reflect our fair share of wallet in certain segments as well as new initiatives. Our partnership with UniCredit is providing tangible benefits for our customer, reinforcing our franchise as you can see on slide 9. Earlier this week we announced the closing of the transaction in Romania. Our private banking and affluent customers have already bought EUR 150 million worth of funds from UniCredit's onemarkets which is an offering that we have since our soft launch in July. While the official launch occurred in October, the joint venture in bancassurance is expected to close in the first half of 2025, but we are already working closely with UniCredit in manufacturing unit-linked product with an AI-themed offering already launched in October.
Our wholesale offering is also benefiting from our partnership as we are already participating in relevance indications. In addition, we are expanding our collaboration in trade finance, guarantees and letters of credit, in clearing, in trading, treasury, factoring as well as brokerage. We have also begun to pitch jointly for certain DCM deals and have done our inaugural deal on a big Greek corporate as joint bookrunners. Our partnership with UniCredit gives us the opportunity to drive innovation in the Greek market to be exposed to international competition and to put ourselves at the forefront of the European banking developments as a member of an extensive Pan- European network. This is an opportunity that differentiates us from the rest of the pack and we will fully utilize it to enhance the value that we create for the benefit of our shareholders.
Turning now to slide 10, other than 2024 that Vasilis will discuss shortly, we are not providing a detailed update to guidance today. This will come with our full-year results, but allow me to reaffirm our commitment to growing our bottom line in the coming years. Our conviction is built upon the structural advantages I just discussed. Our top line is resilient, has a lower sensitivity to falling interest rate, is combined with specific tailwinds from loan growth, securities reinvestment and lower funding costs. We are making sure that we are growing our loan book profitably and are diversifying our revenue streams by expanding our fee generation capabilities.
Growing earnings and improving profitability is no easy feat given the headwinds we expect from falling interest rates, but as I have explained already, a lot of work has already been done to give us the confidence in our ability to deliver on this promise. Slide 11. Improving earnings and profitability will translate into strong capital generation. We have a solid starting point on this both in terms of regulatory capital as well as in terms of MREL, which means we have less headwinds from incremental issuance as we have already optimized the capital stack comfortable buffers against regulatory capital in MREL and the payout plan distributions subject to regulatory approval.
We expect to distribute more than 30% of the current market cap in dividends and at the end of the period still have more than 40% of the current market cap in excess of the capital that we need versus our management targets. The forward achievement of a 17.1 Core Equity Tier 1 ratio which stands strongly not just in a Greek but also in a European context. The fact that we have comfortable MREL buffers, the sustainable above 40% return on tangible equity, organic profitability and the decisive dealing with the last small tail of NPEs to achieve our target. To have our ratio driving under 4% means we are comfortable and confident about this year's target for dividends and also increase our ability to beat the target of a cumulative over three-year payout of EUR 1.1 billion to our shareholders.
Slide 12. I hope that all the above further explain why we feel so strongly about the buyback we have initiated back in August. We expect to have superior earnings growth in the coming years that will lead to significant capital generation and now from one Vasilis to the other. Vasilis, the floor is yours.
Thank you, Vasilis. Let's start with quarterly results and we'll end up with the guidance upgrade and a few words on DTCs, so slide 14 please. Before we delve into the details, allow me to point out a few one-off items in the quarter that get lumped into one line. The biggest one was a EUR 31 million provision for the voluntary separation scheme we announced. It relates to just over 450 full-time employees and the payback period is just under three years. You will see a small top-up of this provision, less than EUR 10 million, in Q4 as we finalize the number of participants and which option they opt for in terms of immediate exit or sabbatical leave. We also took a further EUR 18 million provision for NPE transaction, which mainly relates to the recent NPE transaction.
And then we also had a further EUR 18 million contribution from Romania under discontinued operations as of earlier this week. This is now gone, so you should expect to see the contribution from our retained 10% stake in recurring income from associates. Next slide. On main P& L items. Operating Income has grown both in the quarter and versus last year as our net interest income has remained largely flat with the contribution from fees continuing to grow.
Healthy costs continue to be impacted by higher depreciation and we're also working on a higher base for staff costs following the one-off rebasing of staff wages earlier this year as well as the earlier negotiation of the collective agreement. General and administrative expenses for the quarter have been lower due to marketing expenses. All in all, however, things are going according to plan. We'll talk about impairments on a later slide, but I think it's clear that we continue to face a benign environment when it comes to asset quality.
Lastly on the bottom line, reported profit at EUR 167 million despite the one-offs and normalized profits up 7% on a quarter-to-quarter basis at EUR 229 million which is a record quarter for normalized profits. On the next slide we see trends for the main balance sheet items. Performing loans were up 3% in the quarter and were running at 8% year on year. Customer funds also up 3% in the quarter with solid trends in both deposits and AUMs and we totaled 10% year on year. Tangible book value was up 1% in the quarter, but once we add back the EUR 61 million cash dividend paid and the amount spent on the buyback, growth was actually 3% in the quarter.
And finally the highlights for the quarter capital up to 16.5% in terms of CET1, adding 170 basis points in Q3 including the deconsolidation of Alpha Bank Romania with another 60 basis points to come from the completion of remaining transactions, now sitting well above our stated 16% target. Let's turn to slide 17 where we show two main components of revenues. Net interest income was basically flat in the quarter. Keep in mind there's a EUR 4 million benefit here from a higher number of days quarter on quarter. The biggest impact of course came from lower rates as we see that filtering through our loan book volumes. As you can imagine given the quiet summer months came relatively late in the quarter, so we're going to see more meaningful impact from loans in Q4 on deposit costs, a mixed picture.
Lower rates have just started to reduce the cost of deposits, but clearly been offset this quarter by higher volumes. Moving to the non-commercial side, the contribution from bonds continues to grow as expected, coming both from higher volumes and better rates on reinvestments as per our guidance. On the liability side there is lower ECB and repo funding stemming mostly from lower use of repo lines as a result of higher deposit inflow. As discussed on the fee and commission side, a very strong quarter with good levels across categories. Higher disbursements have driven the resumption of growth in business credit-related fees. On asset management business fees continue to grow even though we have already met the budget for AUMs this year, so there were less transaction-related fees this quarter on account of lower sales, cards and payments.
Q3 always are seasonally stronger, but I think we also see some healthy underlying trends here if one compares the actual performance versus a year ago. Last but not least, good quarter on bancassurance where we expect growth going forward. Turning to slide 18 to discuss performing loans and customer funds. Performing loans saw a EUR 1.2 billion of net credit expansion in the quarter on account of a steep increase in disbursement for corporates. This follows the usual pattern we have described in the past with growth in corporates being significant 10% year on year. In our case be a bit wary of the annual growth rate for corporates as most of the growth last year came in Q4. We do expect however to carry this strength to the end of the year, beating our previous guidance for the year and expect sustained good momentum into 2025.
Also important to note for our retail business that although mortgage lending is still in negative territory, both consumer lending and now also small business lending have turned the corner. Numbers are not large, about EUR 150 million of net credit expansion combined for the two. But it does mean that the retail book is now year to date just about growing. Even though individuals are basically flat on customer funds, we've seen an influx of deposits this quarter. The vast majority relates to business deposits. Retail deposits are also up in the quarter, while we also see a good increase in AUM balances. About half of net sales in the quarter actually came from core deposits in the bank, so the trends of customers preferring to move into asset management products instead of time deposits continues.
The relevant chart has been relegated to the appendix showing that time deposits stand at 25% of the total in Greece for a fifth consecutive quarter. Slide 19 on asset quality. Small reduction in the NPE ratio. Now down to 4.6 on account of growth in the denominator as NPE flows are persistently around zero. Our coverage increased further by one percentage point now at 48%. Cost of risk at 63 basis points year to date and 58 this quarter. I want to draw your attention to the note on the top right-hand side showing that we expect to reduce NPEs to below 4% by year-end. This inorganic action refers to a portfolio about half the size of what we did in Q2, so circa EUR 250 million instead of EUR 500.
You should expect a bit less than half of that EUR 100 million cost that we booked in Q2. Lastly, on results slide 20 on capital, so far this year we have generated 130 basis points of capital organically. P and L is contributing just over 200 basis points. DTA recovery adding a bit over 50 DTCs so far have cost us EUR 120 million while growth in RWAs practically reflecting growth in loans consuming just under 80 basis points. AT1 coupon payments were now done for the year, another 14 basis points. NPE transactions have consumed part of the organic capital generation, just under 50 basis points to be exact. But we continue to work on optimizing our usage of capital and RWA consumption and this quarter we have seen a benefit from the introduction of external ratings in our model, fully reversing the impact of NPE transactions.
With that, let's turn to slide 21 to talk about the 2024 guidance upgrade. The numbers are on the page, so let me quickly walk you through the drivers. Upgrade to revenue comes from net interest income, which we now expect to be flat this year. There's two drivers versus the upgrade we gave you. In one, deposit mix continues to surprise positively, and we now expect to end the year where we currently stand, so below the 29% we gave you in August. To some extent, performing loan balances will be higher than previously expected. Now, given the inorganic work we've done in NPEs, this isn't fully reflected on net loans, which is what we gave guidance on, but we look at net credit expansion, we now expect to land at circa EUR 2 billion for 2024.
Second point worth mentioning is that we see cost of risk landing lower at circa 65 basis points. We've given you some color on the transaction we expect to see in Q4 and to be clear that's a separate theme. What we're talking about here is trends in underlying cost of risk which have been better than expected. With cost of risk at 63 basis points year to date, the 65 suggests small uptick which reflects the usual cleanup we see in Q4. And lastly on capital, clearly we have over delivered on this front year to date and versus our business plan we are at 16.5 and we have already locked in the benefit from the deconsolidation of the remaining RWAs partly offsetting.
We still expect to see healthy loan growth in Q4 to get to the net credit expansion number I just mentioned, and that's a natural headwind for capital yield. Turning to page 22 and recognizing the importance of net interest income for the medium-term outlook, we would like to give you a first glimpse of what we're thinking about next year. We're currently in the process of finalizing our budget for next year and the business plan for the next three years that we will present to you with the full year results. But given the large dispersion we see in market estimates for 2025 ranging from EUR 1.4 billion to EUR 1.7 billion, we thought it's helpful to give you some color on the subject. Bottom line is that we don't expect to go lower than the level seen in 2023 and 2024.
This is pretty much in line with the guidance with full year results back in March where 2025 NII was flat on 2023. So let's see how the main components have evolved. Rates in 2025 will be lower. We previously expected 3-month Euribor to land at on average at 2.6 in 2025, whereas current forward curves suggest a lower level. We've given clear guidance on our NII sensitivity to interest rates, so you can use that as a reference to the impact on NII which in any case is relatively small. Remember also that our sensitivity to interest rates has come down. Loan volumes are evolving better than planned this year. As mentioned which means we will enter 2025 with a higher balance and we don't expect to see changes in 2025 in net credit expansion compared to what we've had in our plan before.
Deposit volumes are also evolving largely in line with expectations. We don't expect to see much divergence here where we've seen a slower transition to time deposits, meaning that the deposit cost of funding has been better than expected. On wholesale funding volumes, we're pretty much done in terms of MREL. We've stated that we want to build a buffer on top, so something small is still expected. Wholesale funding spreads, however, have seen significant compression as evidenced by the AT1 we issued in September at just 7.5%, so there might be a tailwind for refinancing of existing instruments. Loan spreads have been under pressure, reflecting funding cost benefits for the system and the improvement in credit quality and capital consumption through RWA optimization. We've actually seen the majority of what we expect in the horizon within the first nine months of 2024.
Last but not least, our securities book has grown a bit less than we expected, but the main tailwind for us in 2025 comes from reinvestment of securities. Albeit the short end of the curve has come down, longer term expectations have not shifted materially, so we remain confident that we can deliver the anticipated yield pickup. Appreciate that doesn't provide you with a numerical breakdown, but that will come with full year results and the updated guidance for the next few years that we're currently working on. So it's a bit premature to give you numbers, but hopefully the color we have provided gives you an idea about our confidence in the evolution of our top line. Turning to slide 23. Last to touch on the hot topic of deferred tax credits. You've heard all this from our peers, so nothing groundbreaking here.
We too intend to reduce the dependence of regulatory capital on the DTCs in an accelerated manner compared to the current position. What you will see in practice starting from 2025 is that for every, say EUR 100 of distributions, be it cash, dividend or a buyback, will reduce the stock of the DTCs by EUR 29 on a regulatory balance sheet. Accounting treatment remains unaffected. So the deferred tax assets underneath these regulatory deferred tax credits will still be there waiting to be recovered in the following years. There's no impact from this on the P and L nor on our records. In practice, the acceleration of DTC amortization will reduce annual capital generation by circa 40 basis points, assuming that we stick with a 50% payout without factoring any growth in profits and still factoring 5% growth in RWAs.
DTCs will get to 24% of CET1 by 2027 and 0% by 2033. In this illustrative scenario, our capital ratios would continue to expand and we would have need for issuance of incremental AT1, Tier 2 or senior preferred instruments. Every 10 percentage points increase in payout ratio would bring forward the elimination of the DTCs from regulatory capital where CET1 would still be expanding. Even with a 70% payout ratio, there will be no meaningful incremental MREL issuance need even under high payouts to the tune of 70%. With that, let's now turn the floor to questions.
Ladies and gentlemen, at this time we will begin the question and answer session. Anyone who wishes to ask a question may press star followed by one on their telephone. If you wish to remove yourself from the question queue, then you may press star and two. Please use your handset when asking your question for better quality. Anyone who has a question may press star then 1 at this time. One moment for the first question, please. The first question comes from the line of Eleni Ismailou with Axia Ventures Group. Please go ahead.
Good morning and congratulations for this strong set of results. I just have a couple questions from my side. The first one is if you could please confirm the outlook for payouts for this year and the next given the DTC amortization. And the second question would be what is the 35% payout ratio based on? Is it on reported or normalized profit?
I'll take the second one technical question and Vasilis will answer the first. I think the easiest way to answer this is that we've accrued EUR 210 million in our capital base for dividends this year. I appreciate there might be some confusion in how people calculate normalized and recurring earnings, but that will give you a very good basis upon which you can understand how the ratio is calculated.
Eleni, on your first question, I think we always need to bear in mind that the dividend is a derivative of many things. In our case we were quite focused on ensuring that we're going to be storing our capital at levels at the best possible levels, and I think it is indeed very strong performance that we managed to bring it forward by Q1. The 17.1% CET1 ratio is a testament to that. At the same, I mean, in the same vein is also the sheer fact that we have been able to front load also the achievement of the MREL target.
If anything that gives us now confidence to play the curve to our benefit. The second driver which always comes into this discussion is obviously the sustainable profitability. It's not just what you achieve in one year. It's what has been deemed as sustainable, and I think in this relatively. I mean, given that we have a significantly less windfall in this environment that we have been into, and the way that our balance sheet is structured, that gives us significant underpinning, hedging towards a low interest rate environment, I think it is clear that we can state that we are looking forward towards a sustainable above 14% profitability. So that's the second driver.
Now as a third one is any contingent issues that you may face. And I think by saying upfront that we now intend to bring forward by practically two years our NPE target and conclude the inorganic by coming lower to 4% by the end of the year, we iron that out as well.
So I think these three areas we demonstrate strong performance and that allows us to make a statement that we have indeed an increased ability to beat the target vis-à-vis the cumulative three-year payout of EUR 1.1 billion that we have put so obviously subject to our discussions with the regulator at this stage. What I want really to emphasize is how strong and comfortable we feel entering that discussion.
Okay, thank you. This is very clear. Thanks for your answer.
The next question comes from the line of Gabor Kemeny with Autonomous Research. Please go ahead.
Hello. A couple of questions for me please. The first one is on your upgraded NII guidance, the 2025 guidance. I mean, can you give us a sense of how you think about loan growth here? Because you seem to be quoting the strong 2024 starting base and I believe you were expecting something like a EUR two billion net credit expansion at the start o f the year as well. Also related to that topic, I mean a nice pickup in loan growth in the third quarter.
Can you give us a sense how concentrated the new corporate demand has been? Is it a few corporate tickets or rather broader? And how does the pipeline look from a concentration perspective? And my final question is also on NII on the rate sensitivity, the EUR 12 million rate sensitivity. Well, firstly, can you give us an update on the hedge parameters, please? And the other one is at what rate level do you think that your sensitivity would increase? How far would Euro rate have to drop for your sensitivity to increase from the EUR 12 million? Thank you.
Thank you, Gabor. Let me pick this one by one. On the loan growth. You rightly point out that our estimate for the year is round about EUR 2 billion. This is roughly higher than we expected at the beginning of the year. Given this is a number that refers to net additions rather than net loans. Remember, net loans during the year have deleveraged if you like for the very fact of the NPE transactions that we have accelerated. So we feel very firm about 2024. When it comes to 2025, I think it's well known in the market that a couple of lumpy deals came in the last quarter of 2024. But still that doesn't change our ambition for 2025 at pretty much similar levels when it comes to Q3 performance on loan growth and how concentrated that was.
There have been a couple of lumpy deals, but overall I wouldn't say this has been concentrated. You know, this EUR 1.2 billion you see has been concentrated on four or five clients. It's mostly it was always been corporate credits, but it's widespread across industries and clients, and as mentioned, a bit more growth demand that we see on small business which helps diversify a bit the mix, and then on NII, I think you asked what is the rate that this EUR 12 million sensitivity increases? It's 1.5% is the answer 1.5%. So if rates go below 1.5%, that's when the EUR 12 million sensitivity starts to grow, and then what has driven this on the hedge parameter, what drives this sensitivity is primarily the fact that we have been actively hedging our non-mature deposits.
This was a number round about 44%-45% a couple of years ago and gradually until first quarter. After first quarter of last year this number has grown to 84%. So currently 84% of our non mature deposits are hedged with fixed rates, assets or receivables. Hence you see this EUR 4.7 billion gap between floating rate assets and floating rate liabilities.
That's very helpful. Color. Thank you.
The next question comes from the line of Mehmet Sevim with JP Morgan. Please go ahead.
Good morning. Thanks very much for the presentation. I know you already outlined your views on that, and specifically I'm asking on capital return, was it? And you know the drivers that you mentioned are all very clear and well understood, but if I look at your capital, it's improved a lot better than initially expected. You've also further optimized it with the AT1. The business plan is looking much better, and some of the peers already talked about some higher capital return for this year already. Could I just ask what is stopping you at this stage to maybe upgrade your dividend payout assumption taking all of these also into consideration? Is there something that is stopping you or is this simply, you know, how things work and it will take simply a bit more time if it happens.
My second question would also be on the NPEs or the NPA transaction cost that you took this quarter. Could I just clarify, is this related to the upcoming potential transaction that will get you to 4% or is that more backward looking for something that happened earlier? Thanks very much.
Just to get the second question out of the way. No, it has to do with previous transactions as Vasilis mentioned in his speech. So that EUR eight million refers to the past, not the future.
But I think we have given guidance if one would turn the analogy, isn't it? But let me, Mehmet, come back to the first question and I think there are two things there. The first is that as far as our intention, I think it was unequivocal what I said. We are striving for that now. The second point is a matter of tone. You see, there are banks that are coming forward knowing full well that there is a discussion coming up with the regulator and they want to stretch the tone. There are other banks like ourselves that, you know, we pay duties to this dialogue and we want to speak about what we intend to do and that's as far as we should get. We don't want really to paternalize our counterparts in this discussion because they have a much stronger hand as well.
So we are very conscious of that. We're very humble in the way that we treat that. And this is the way we appear in the public domain as well.
That's super clear. Thank you. And if I may just follow up on that, I think the closing remarks of your CFO was that your MREL would still be met if you were to get to a 70% payout. I don't want to push it too much, but you know, is this something, if everything allows it, that we could potentially expect from you in the outer years if everything goes according to plan?
We want to give you the technical points that you see. What are the outer boundaries of a dialogue?
Okay, thanks very much.
The next question comes from the line of Gareth Lewis with Bank of America. Please go ahead.
Yes, thank you. A couple of quick questions for me. First, coming back to that discussion on capital and can you give us an updated sense of how quickly you would expect to reduce your CET1 ratio towards that 13% target? I mean, how relevant is that in your planning given the good profitability you have? And how do you think that's going to interact with the new issuance to maintain your MREL buffer? And secondly, just sorry, a little bit detailed on slide 29. Can you remind us what that other MREL eligible liabilities actually refer to and do you expect this to still qualify as MREL once there is full depositor preference in the EU? Thank you.
I'll take the second question. The MREL eligible liabilities that we have that are not senior preferred notes that we have issued would not be affected by a change in the legislation with regards to depositor preference, and actually we have here with us Lazaros Papagaryfallou, our Deputy CEO who was actually part of the CFO team when we published the previous business plan explaining how CET1 ratio will evolve going forward, so maybe Lazaros, you can take the question of how and if and when we can get to a 13% ratio, CET1 ratio.
Hello, good afternoon. To start with, the management target at 13% also takes into account the fact that we have fully issued the AT1 bucket at EUR 1 billion. That is one thing then. Indeed, we have portrayed evolution of capital ratios showing how CET1 and Total Capital will unfold in the coming years, supporting both the releveraging of the balance sheet through loan growth and other assets growth, as well as support the payouts that we have portrayed in our plan. Still, after asset growth and payouts, we are left with a significant amount of excess equity which as portrayed on various occasions, amounts approximately to 40% of our existing market cap.
This excess capital that we portray in the planning horizon implies that we have more strategic flexibility to grow our asset base organically, but also through targeted add ons in case organic opportunities come our way or improve payouts and buybacks, which is part of our thinking. You see the bank that has introduced buybacks recently, the first bank to start splitting the buyback, the payout in a buyback and a cash dividend. Obviously this is a tool that we want to employ going forward in Quantum. So as Vasilis said, this is an ongoing dialogue with regulator. Getting to higher payouts or exploiting opportunities that come our way is a way really to use our capital buffers to the benefit of our shareholders.
Thank you very much.
The next question comes from the line of Mikhail Butkov with Goldman Sachs. Please go ahead.
Yeah, good day. Thank you very much for the presentation. Just wanted to follow up on the recent AT1 issuance. So was it done? Was this capital optimization done? As a matter of fact, better ability to increase the dividend payout later and to have o r what was the other m otivations behind the recent issuance and then also given the difference in the coupon rate in your two AT1s, when would you may consider the rollover of the previous issuance? Maybe at the lower rates? Thank you very much.
I'll take the second question on the previous 2021. The first call date is early 2028, so I think we have quite some time to go until then, and obviously in any case, that's an economic decision we would need to make at that point when we would have that option.
The first question on why we have progressed with the AT1 issuance is connected with my previous answer. We put leverage in the capital structure so as to operate through the cycle with a Common Equity Tier 1 at 13% and increase payouts, which is our ultimate target. I think most banks in Europe are optimizing their capital stack by using both Tier 2 and AT1 and thus pursuing the best optimal mix in the capital structure with a view to optimize payouts as well.
Okay, thank you very much. That is very clear.
Once again, to register for a question, please press star and one on your telephone. The next question comes from the line of Osman Memisoglu with Ambrosia Capital. Please go ahead.
Hello. Many thanks for this and congrats on the strong results. Just following up on a few things I may have missed. The EUR 210 million accrual, is that for nine months for payout or full year? That's the first clarification, if you could. And then on the NPE side you're going to go below 4% with another transaction in Q4 and there will be further NPE cleanup provisions. I wasn't clear about that. Thank you.
Our CFO Vasilis will take both.
For the first one, the EUR 210 million that you mentioned is the accrual we have taken for the nine month. So there's a bit more to take for the last quarter then. With regards to the last leg of this NP transaction, what we mentioned is this is another EUR 250 million gross book value that we will be deleveraging. Given that last quarter we took a hit of roughly EUR 100 million on a EUR 500 million book. I think we're guiding towards a similar ratio for the last quarter. Hopefully that makes sense.
Yes, yes, that's very helpful. And qualitatively, should we expect inorganic actions on the NP side to continue or we're getting close to this, to the end of this in 2025?
It's a tricky one too. I mean, we were aiming for the horizon for the end of 2025 to be at this rate, we will be a year ahead of time. We're very happy achieving this target ahead of time. Whether we proceed with more action, we need to be a bit opportunistic in the sense that there are cases where the cost budget for these transactions makes sense because you effectively decrease the cost of risk going forward. So if there are opportunities in thousands of, we will take them, but we'll remain opportunistic on the matter.
Okay. Thank you.
Ladies and gentlemen. There are no further questions at this time. I will now turn the conference over to management for any closing comments. Thank you.
I want to thank you for your participation at the 9 Months Results Call, and we're looking forward to welcoming you again on our full year results towards the end of February next year. Thank you very much.