Gentlemen, thank you for standing by. I am Jenny, your Chorus Call Operator. Welcome, and thank you for joining the National Bank of Greece Conference Call to present and discuss the second quarter 2023 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 then zero on your telephone. At this time, I would like to turn the conference over to Mr. Pavlos Mylonas, CEO of National Bank of Greece. Mr. Mylonas, you may now proceed.
Good afternoon, everyone. Good morning to those of you joining from the US. Welcome to our second quarter 2023 financial results call. I'm joined by Christos Christodoulou, Group CFO, and Greg Papagrigoris , Group Head of IR. After my introductory remarks, Christos will go into more detail on our financial performance. Then we will turn to question and answers. I will begin with a brief overview of Greece's economic prospects, a key driver of our performance, before I turn to our financial results in the second quarter. Let's begin. Economic activity in Greece remains resilient despite the slowdown in the euro area, with leading indicators pointing to an acceleration in growth during the remainder of the year. Overall, full-year GDP growth should exceed 2.5%.
The composition of growth is healthy, with the main drivers being both exports of goods and tourism services, as well as fixed investment. The export performance reflects strong competitiveness as Greece keeps gaining export market share, while fixed investment reflects strong enterprise profits and buoyant real estate prices. Fixed investment will be buoyed by surging FDI, $6.5 billion in 2022 alone, and support from the RRF. These two funding sources have already created a strong pipeline of large investment projects. Regarding tourism, the recent forest fires, as abhorrent as they are, appear currently to have only a minor impact on tourism overall, and even in the local market of Rhodes, the season has been hurt, hurt badly, but is far from over.
The other main component of GDP growth, private consumption, remains solid despite the contractionary fiscal policy arising from the withdrawal of energy and other inflation support measures. This resilience affects growing real disposable income in equal parts employment and wages, which should accelerate further as inflation continues to decline at a faster than expected pace. Recall that headline CPI inflation currently stands near 2%. A final point on the macro, both our fiscal and current account balances are overperforming significantly versus expectations, both important considerations for the imminent upgrading of the sovereign to investment grade. The primary balance is heading for a surplus above 0.5% of GDP, ahead of budget projections, due to buoyant revenues, and the current account is down 2% of GDP in the first 5 months of the year versus a year earlier.
In such a positive economic environment, supported by bank and state policies in place assisting the more vulnerable, our net NPE exposure has remained unchanged throughout the year at EUR 0.3 billion, with a small pickup in mortgage arrears in the second quarter being the only sign of strain. In the event, the results so far are well inside our full year 2023 NPE formation guidance of EUR 350 million. Once again, confirming the defensive nature of NBG's loan book. The other critical component of our balance sheet is our liquidity position, which remains a defining comparative advantage. It comprises a large and stable demand deposit base, fueling a net cash position, which increased by a further EUR 1 billion in the second quarter to near EUR 7 billion. Regarding loan demand, corporate credit demand at the system level remained soft in the second quarter.
Our domestic corporate performing loans were up by 8% year-on-year in the second quarter and nearly flat year-to-date. A positive sign is that repayments of working capital facilities from corporates with excess cash has slowed markedly. Moreover, based on our strong pipeline of large corporate projects, we expect significantly stronger disbursement activity in the second half of the year, allowing us to meet our expectations for domestic loan additions of about EUR 1 billion-EUR 1.5 billion. Moving to the profitability performance, a combination of, first, the country's growth performance, second, a renewed political mandate for structural reforms, third, the unique strength of our balance sheet, among other positives, its response to raising rates, so-called positive NII beta, and fourth, a successful transformation program, which has made us more efficient and sales-oriented.
These four have resulted in a strong set of second quarter results, outperforming our targets on all fronts. Specifically, our first half 2023 core PAT exceeded EUR 500 million, up by more than 3.5 times year-on-year, reflecting strong core income growth, contained operating costs, as well as the continued containment of the cost of risk. Altogether, they drove our cost to income ratio to a low of 32% and our core return on tangible equity to above 16%, well above the target of 11% that we have for the full year 2023. The strong results on the pro-profitability front result in capital generation at the pace of over 80 basis points per quarter during the first half of 2023, adding 160 basis points of core capital since the beginning of the year.
This has pushed our CET1 ratio to be best in class and reached 17.3%. The solid results in the stress test, where NBG's performance was in bucket one, should lead to lower regulatory capital requirements. In view of the sustainability of the core income improvement, we are proceeding to revise our guidance for 2023. Specifically, we are raising our return on tangible equity target by 4 percentage points to exceed 15%. This target assumes that ECB rates peak near the current 375 base points, leading our NIM to slightly exceed 300 base points, and our cost to income ratio to remain inside the 35% mark for 2023. More importantly, we expect much of this good financial performance to be sustainable to 2025.
The two main factors are, first, the reduction in the ECB DFR rate, deposit facility rate, will be gradual and constitute a reversion to a long term, a long-term sustainable equilibrium on our estimates of about 250 basis points. Second, loan volume effects. An estimated compounded annual growth rate of 7% should offset a large part of the impact of the base rate decline, while our faster than previously anticipated capital buildup is likely to reduce MRO costs through lower issuance. As a result, we guide for a core return on tangible equity of over 15% for 2025, also considerably higher than our previous guidance. The capital generated through the three-year period to 2025 is anticipated to exceed 450 basis points versus our previous guidance of 350, before shareholder, before shareholder remuneration this afternoon.
In view of our solid results and their sustainability going forward, I'm quite confident regarding our ability to remunerate shareholders going forward. With that, I would like to pass the floor to our Group Chief Financial Officer, Christos, who will provide additional insight to our financial performance before we turn to Q&A. Christos?
Thank you, Pavlos. Let me begin with the highlights of our profitability on slide 16. The continued strong momentum in our NII, a double-digit growth in fees on a like-for-like basis, and sustained discipline in containing our cost base, drove our core profit after tax to EUR 508 million in the first half of 2023, translating into a core return on tangible equity, which exceeded 16%. The strong and sustained outperformance on all fronts is thus triggering an upward revision of our core return on tangible equity guidance to over 15% for 2023, relative to our previous guidance of 11%.
The key profitability driver is our NII, expected to increase by over 50% at the full year level against our previous guidance for a growth in the high teens on the back of higher than anticipated benchmark rates, as well as lower deposit betas and a much smaller deposit substitution effect. Searching NII is coupled with fee growth at a high single digit pace and contained costs. We are affirming our guidance for the year, thus sustaining our cost to core income ratio below 35% relative to our previous guidance of circa 42%. Additionally, better formation trends relative to expectations are set to keep cost at risk within our guidance of 80 basis points. On slide 17, we report the highlights of our balance sheet and the trends in asset quality.
Disbursement picked up in Q2 2023 to EUR 1.4 billion, up 22% quarter-on-quarter, driven by corporates. Domestic performing loans amounted to EUR 27.4 billion in Q2 2023, up by EUR 0.8 billion year-on-year, and marginally lower year-to-date, due to high repayments of working capital facilities from cash-rich corporates in H1 2023, a trend that we saw slowing down in June and July. Encouragingly, the corporate pipeline in the second half of the year is very strong and will drive performing exposures back into healthy expansion territory in H2 2023. Domestic deposits rebounded by nearly EUR 1 billion quarter-on-quarter in Q2 2023, driven by much market and premium customers, fully reversing Q1 corporate drawdowns.
Thus, on a year-to-date basis, deposits were up by 1%, or EUR 0.4 billion, while our TLTRO balance was reduced further by EUR 3.1 billion quarter-on-quarter to just EUR 1.9 billion in June 2023. On asset quality, net NPEs have remained near flat year to date at just EUR 0.3 billion net of provisions, well inside guidance, while our domestic NPE ratio stood at 5.3% with our cash coverage at 82% and cost of risk at 68 basis points. Turning to capital on slide 18, our strong core profitability momentum allowed us to sustain organic generation of circa 80 basis points in Q2 2023, adding up 160 basis points of organic capital generation year to date, driving our CET1 and total capital ratios to 17.3% and 18.4% respectively.
On slide 20, our high quality balance sheet underlines our unique comparative advantage in a period of tightening monetary and fiscal conditions. Also, strong economic growth, supporting our rising profitability. On the asset side, nearly 90% of our loans remain closeness, with our securities portfolio effect. On the liability side, we are mostly funded by deposits, which comprise circa 98% of our net funding, of which 80% are core and highly price inelastic, comprised mostly of savings deposits that run on an average balance of less than EUR 4,000 per customer. Hence, the substitution of core deposits by time remains insignificant, and the change in the deposit mix quarter-on-quarter is immaterial.
A superior liquidity profile is also manifested by our net cash position, which after factoring in full TLTRO repayment, increased further to nearly EUR 7 billion in Q2 2023, up by more than EUR 1 billion quarter-on-quarter, highlighting the liquidity advantage of the bank, reflected also in our leading by European standards, liquidity coverage ratio of over 250%. The high quality and robustness of our balance sheet is confirmed by the exceptional results NBG achieved in the EBA 2023 EU-wide stressed exercise. At this close on slide 8 of our presentation, NBG ranks top amongst Greek banks, and within the top in Europe, with the capital depletion under the adverse scenario in the three-year period at just 136 basis points, a result that positions our bank in the top five across all European banks participating in the exercise.
Now, let me provide some further insight to the key drivers of our profitability. Domestic NII kept on a strong momentum, increasing by 12% quarter-on-quarter, as shown on slide 21. This was mainly a function of base rate repricing, driving net interest income for performing balances up by 12% quarter-on-quarter, while loan yield increased by circa 70 basis points quarter-on-quarter to 5.7%, declining 70% way faster. An additional driver was the increase in the interest income from our securities portfolio, driven mostly by higher average volumes. Time deposit costs have kept ticking up to 134 basis points in Q2 2023, from 90 basis points the previous quarter, implying a beta of circa 40% well inside our guidance. Total deposit beta remains below 10%.
As a result, our NIM was up by 40 basis points quarter-over-quarter to 297 basis points in Q3. Turning to slide 26, domestic fees increased by 16% year-over-year on a like-for-like basis, underpinned by double-digit growth in both the retail and corporate lines of business, further supporting our sustainable core revenue stream. More notable growth areas were our cards, deposit bundles, investment products, as well as trade finance and leasing fees. At the same time, transaction volumes picked up by 10% year-over-year in Q2 2023, spearheaded by our e-banking transactions, up by 18% year-over-year, testament to the soundness of our digital strategy, which keeps delivering impressive results. On the next slide, we show our costs, which have remained tightly contained.
Despite sectoral wage increases in late 2022 and abating inflationary pressures during Q2 2023, the increase in personnel and G&A costs were managed at just 1% year-on-year inside our guidance, while the 12% year-on-year increase in depreciation charges reflects our ambitious IT strategy, centering around our ongoing replacement of our core banking system. All in all, operating expenses were up by 3% year-on-year, driving our cost to core income ratio down to 32% in H1 2023 from 50% a year. Turning to asset quality on slides 28-30, net NPE movement settled just above zero levels in Q2 2023, with marginally positive formation in the quarter.
As already mentioned, the small peak in mortgage arrears in Q2 remains well inside our full year 2023 formation guidance, making us feel very confident for the second half of the year. Going forward, market support schemes to protect vulnerable performing borrowers, especially regarding the interest rate cap in variable rate mortgages applicable since May, will ensure asset quality. Finally, sector leading coverage levels across all stages were maintained, as shown on slide 10. On slide 32 and 33, we provide a snapshot of key ESG priorities. We are enhancing further our ESG capabilities and infrastructure, capturing emerging opportunities from the green transition of the Greek economy and leading the market in sustainable financing. For all our achievements, we recently received the Diamond ESG and Social Responsibility Award by the Corporate Responsibility Institute.
Before closing my remarks, as shown on slide seven, I would like to highlight that the strong H1 2023 financial performance, resulting in a new core return on tangible equity target of over 15% for 2023, is fully sustainable with our core return on tangible equity target for 2025, set at over 15%, despite maintaining a high capital generation mode.
This mainly reflects the normalization in our NII from the 2023 peak, driven by an anticipated moderate decline of ECB's benchmark rates from peak 2023 levels, with the performing loans expansion in the two-year period to 2025, absorbing part of it, along with incremental remedy transfers. Furthermore, higher fees and cost containment will also be supportive, allowing us to keep our core-to-core income ratio below 40% in 2025, while cost of risk is seen decreasing to circa 60 basis points or lower over the same period. NBG delivered a solid financial performance in the first half of 2023, underpinned by a high-quality balance sheet as well as our superior levels of capital increase.
Corporate profitability is on a strong and sustainable growth path, which further enhances our capital position, fortifying our commitment for enhanced rewards for our shareholders moving forward. With that, let's now open the floor to questions.
Ladies and gentlemen, at this time, we will begin the question and answer session. Anyone who wishes to ask a question may press star followed by one on their telephone. If you wish to remove yourself from the question queue, then you may press star and two. Please use your headset when asking your question for better quality. Anyone who has a question may press star and one at this time. 1 moment for the first question, please. The first question is from the line of Alevizos Alevizakos with AXIA Ventures. Please go ahead.
Hi, thank you very much for the presentation. Very well done on this set of results. I've got a question with three [legs], if I may. You already touched upon it on your remarks when talking about the remuneration of the shareholders. I wanted to know, do you believe that the EBA stress test pass with flying colors, admittedly, gives you now additional ammunition to up the payout for this year's dividend? That's the first part. The second part, in the interim, what are the other plans to deploy some capital organically, or even through some small add-ons? It seems like the investment securities book keeps growing, but I wanted to know whether you have some pipeline, some alternative in the pipeline.
Finally, how do you feel about your ability to acquire the performing loans that currently sit with the services and are due to return it to the system? Do you believe that this is now turning into an opportunity for this year or early next year? Thank you.
Okay, thank you for those questions. On the stress test, clearly the good results, we hope, should lead to a lower regulatory capital requirement. I think that basically frees up capital, and it leads to your second question. Well, let me finish your first question. We weren't allowed, as Greek banks, to issue dividend this year. Next year, we think we will. But again, it will be a number somewhere of the order of 20%-30%. I don't think asking for much higher in the first year is quite the right thing to do. Okay? Our goal is to have a decent size remuneration, remuneration.
Now, on deployment of capital, which is growing and growing rapidly, we have to look at loan growth to support the domestic economy. We are looking at asset acquisitions, including loans acquisitions, domestic, which include your last point, the reperforming loans, okay, and the financing of portfolios of reperforming loans. We will be optimistic in terms of joint ventures, partnerships, et cetera, as we've been continuing what we're doing, to find players who are experts in things that we are not or should not be, and partner up with them, including a way to improve our customer base. Clearly, there is shareholder remuneration in, in, in the broader sense, which again, is not the gonna be the immediate request to the regulator.
Yes, good results is going to free up capital. The deployment of capital I described and the reperforming loans is a very large opportunity. There's several tens of billions of assets which will come back in the next five, six years to the banking sector. Either they come back as portfolios or they come back as single assets. I think there's a great opportunity. NBG, I think, is the among the first banks in Greece to try to offer auction financing and other such services. Yes, I do think it's a great opportunity. The fact that we did not spin off our our bad bank and kept the people, I think was a strong a strong give us a strong competitive advantage.
Thank you. That was very clear. Well done again for the results.
The next question is from the line of Sevim Mehmet with JP Morgan. Please go ahead.
Good afternoon. Thank you for taking my question. Looking at the run rate of NII, which continues to be very strong, if we take into account all the data that you have now, what do you expect it to peak? Here, I'd like to understand how you also see it evolve from that point in the subsequent quarters. Do you expect it to plateau or start coming down already from that peak? Secondly, and maybe related to that, looking at the guidance for 2025, it seems now you've upgraded the NIM guidance to 250 basis points from 210 basis points, but you still use the same BFR assumption of 2.5%. Can I please ask what differences you now see here in the underlying assumptions? Is it mix shift?
Is it deposit betas? Maybe any other color you have. Thank you.
Hello. Thanks for your question. Let's start on the, on the first one, with regards to NII. Currently, based on what we've seen from ECB, our expectations, given the latest rate increases, that NII will peak in Q3. We are on watch, keeping eye on the dynamics as well, and that has to do with deposit betas, that has to do also with continuous spread compression, as well as other elements and deposit mix. We expect a plateau in NII that would inevitably go down towards the latter years of the, of our business plan. Yes, the peak should be expected to be around Q3. Now, with regards to your second part of the question, effectively, you've answered it as well.
The reason for the, for the improvement has indeed to do with the better than expected betas that we see in the deposits, as well as the much better than expected change in mix. Let me remind everybody that we expected that the transition, let's say, from from time, from core to time, would end up in the area of 65% in terms of core and 20 and 35 for time. By the end of the year, we are nowhere near that, and that's why you've seen this upgrade in the, in the numbers. I hope that answers your questions.
That's very clear. Thank you, Christos. Can I ask if you're able to quantify the deposit betas and mix assumptions that you bake in, in the long term?
Yes. Well, at least the latest that we have in mind is that by the end of the year, we would expect the deposit mix to more or less settle down at around 75% core and 25 time. Let me remind everybody that now we are at 20 to 20% core to time. The pass-throughs on the time deposits, which are now around 40%, we expect it to just be tied up at 50%. While we on the core deposits, we are seeing that the beta is just at 3%, we wouldn't expect it to be much higher than 5% or 6%. That's more or less the dynamics that we would expect the, you know, the deposits going forward.
Overall, our deposit beta around 13%-15%, I'd say, somewhere there.
Great. That's very helpful. Thank you.
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. First is on asset quality, so that in line with industry trends, we can see that your NPE ratio has increased marginally in the second quarter due to a one-off corporate case. However, contrary to industry trends, your level of cost of risk has reduced on a quarterly basis as opposed to peers, and we can also see that your NPE coverage has reduced marginally, given that you have the highest one in the industry. The question is: what level of flexibility do you have in balancing between the absolute level of cost of risk and the NPE coverage? That's the first question.
The second one, we can also see different results on the lending growth across Greek banks and in the Bank of Greece data in the second quarter of this year. How can you maybe describe the competitive landscape currently on that front? Finally, on the, a small follow-up on capital allocation strategy. Is there anywhere on the list that you, you can also make the share buybacks from the, if your largest shareholder in a sense, or it's not the part of the capital allocation opportunities which you consider currently? Thank you very much.
Okay, thank you for the questions. I'll take the first one on asset quality and probably take the other two. Indeed, we've seen a marginal increase in formation, as we said, in Q2. The change in our NPE ratio was just 13 basis points, so not significant. We have this 1 corporate account, which is a system-wide account it is, but if we don't have, maybe our information would have been in the negative. With regards to cost of risk, given the levels of coverage we have, yes, indeed, we do have flexibility, but given that we are still not outside of the core situation with the volatility and the economic uncertainty, we continue to be cautious.
Though we do have a lot of upside risk, and we'll see how we manage these buffers that we have seen so far with regards to our levels of coverage going forward. Pavlos, to you.
Okay, on the loan environment, it's been flattish for the first half of the year, and again, I think both myself and Christos mentioned it, is in part to the, the use of cash, cash management by corporates to reduce the interest costs. The, the dynamic part of the market, it's the corporate side, while the retail is still relatively weak. In the corporates, it's the large corporates, mostly, with the SMEs, but most of the corporates, and there are a lot of projects, some linked to the RRF and other European funds, and they, and they're, and they're bulking and dropping.
For us, I can tell you that we have about EUR 2.5 billion of loans, corporate loans, that have been approved but not yet disbursed. Okay, those will be coming. It's a question of time, time, time to money, rather than time to yes. We have about another, I'd say, EUR 1 billion of projects, which are coming to the credit committee, so, reaching a time, time to, to yes. Again, mostly no surprises: infrastructure, tourism, renewables, again, some SMEs and some shipping. So, it's the first half was disappointing, but it's a, it's a bit of a choppiness created as well as the cash management. The third question, buyback from the shareholder. It's a question you need.
It is allowed by the law, so that's one thing. On the other hand, you need, you need to ask the shareholder, okay? This is not something that we can have a view on independently. We are, we are, we, we could be looking at that, but it's something that we'd have to do in combination with, with the, with the shareholder. Unfortunately, that's as much as I can say on that one, I think.
All right. Thank you very much for the answers.
The next question is from the line of Osman Memisoglu with Ambrosia Capital. Please go ahead.
Hello, many thanks for the presentation. First, just a hopefully a technical one. Your core, core profit this quarter, your core CET1 is actually higher than your total CET1, which is unlike previous quarters. I was wondering what's driving that? That's my first question. Coming back to my colleague's question on deposit cost, I was wondering if you could share the time deposit share you incorporate for 25 figures, and thanks for providing guidance on those. One final thing on operating expenses. You had a impressive performance, down 1% Q on Q in this inflationary environment. Just want to get if you would share any color on how you see OpEx evolving from here. Thank you.
Okay, let's start on the last one. In order for this year, we, we expect, despite the inflationary pressures, to have a low single-digit increase in OpEx. Obviously, this has to do a lot with the fact that we are investing a lot in technology, and we referred many times in our efforts to update our core banking system. Now, inflation is coming down, but it's still going to be in our lives for a bit longer. Although we anticipate that we'll be able to contain costs going forward, we don't expect a big impact in the numbers. In the plan, we have a plan to remain in the low single-digits with regards to cost going forward, which we are optimistic that we can deliver.
Now, with regards to your first question, whatever we have, that is not considered core, has to do with our trading and other income. That's more or less the reconciliation between our core, core income tax, as well as the attributable tax. There is nothing specific there. It has to do with the dynamics in the line, and the difference between each quarter. If I may ask you to repeat question two, because I didn't get that, please?
Sure. your time deposit share assumption for, 2025, and if, if you could maybe share it for 2024 as well, how do you see this evolving? What's incorporated in that, rotation for 2025?
Yeah. We believe that the biggest pressure with regards to the, to the change in the deposit mix, will come, I would say, by the end of this year, mid next year. I, I time mid-quarterage with, you know, more or less normalized at the peak levels, and then the expectation is that they are coming down. I would say that in our plan, the terminal, let's say, ratio between core and time, is assumed somewhere between 70%-30%, a bit lower, even a bit lower, 68%-70% core, and the remaining being time.
Perfect. Thank you very much.
The next question is from the line of Daniel David with Autonomous Research. Please go ahead.
Thanks for taking my questions. I've just got a quick one, just with regard to MREL and capital. Could you maybe just elaborate on your plans in debt markets or your, your ambitions for the rest of the year?
Okay. Now, MREL. Currently, as you could see from the presentation, our MREL, our MREL and capital gain is at 22.5%. Our target for the end of the year, for January 2024, is at 22.7. Effectively, we are nearly there. There's more capital expected to be generated organically through the profitability of the bank. We should quite comfortably, and that gives us a formality. Nevertheless, being proactive, given that the, the binding target at the end of 2025 is at, is at 27%. Subject to market conditions, we could explore the opportunity of tapping the market in the second half of the year. That's where we are. Quite comfortable with regards to MREL, but we need to be proactive.
Me too, or is that?
Well, it depends. Again, as I said, market conditions, will dictate whether we, we go for a senior or a Tier 2. We do have flexibility, and you know that we have a buffer for, a Tier 2 as well already. We'll see that when the time comes.
Mr. David, are you finished with your questions? We will now proceed with the next questioner, please. Thank you. The next question is from the line of Panagiotis Kladis with Alpha Finance Investment Services. Please go ahead.
Thank you very much. Good afternoon to everyone. Coming back to the, to your excess capital, deployment. I remember a few months ago you established an international desk for participating in syndicated loan products abroad. I was wondering, what are the expectations out of this initiative? Should we expect something for this year or maybe next year? Thank you.
You remember well, and it is being set up, but at the moment, we don't have formal targets for it. I think, in the 2024 budget, they will get targets. We're just still learning, learning how to play this game. We do not have targets. We do consider it an important part of the, of the, of the, capital deployment strategy, but no specific numbers for the moment.
Okay. Thank you very much.
The next question is from the line of Gecker. Mr. Maximilian has pulled out his... Mr. Gecker has pulled out his question. As a reminder, if you would like to ask a question, please press Star and 1 on your telephone. The next question is from the line of Simon Nellis with Citibank. Please go ahead.
Oh, thanks. Thanks so much for the opportunity. Just one quick one from me, which is on retail loan growth. I'd just be interested in your thoughts on when you think retail loan growth might revive and what conditions we need to see before it does?
That's a tough question. We've been forecasting stronger retail growth the past couple of years because the economy is doing well, and it hasn't materialized. I think the this time it didn't come around because of the higher rates, which are being absorbed now. I, I do see some light in mortgages where the applications are higher, and people are seeing the real estate market be quite buoyant, and that's why they're trying to get on that train. BSB more hesitant, and consumer, there is some, some life. But mortgages, if you look, if you look at retail overall, it is 80% mortgages. 80% mortgages, I'd say. That's what's gonna decide how, how, how buoyant that market's gonna be.
I think with the real estate prices going up, even with interest rates high, with banks offering decent fixed rate products, it'll, it'll, it'll pick up. Don't forget as well, that the mortgages that are on our, on NBG's books especially, but I think on the other banks as well, are the ones that have survived the crisis, and therefore, they have large capital payments. I mean, we have, I think, EUR 600 million repayments a year in mortgages, so we'd need to do EUR 600 million of disbursements just, just for that book to remain flat. Though disbursements have increased, they're still not, still not meeting that large capital payment. Not a fantastic crystal ball there, but we're gonna be more optimistic as GDP growth improves, as employment grows and as wage growth also helps disposable income.
All those factors together, should provide a boost to the retail sector, in contrast to 2022 and 2023, when disposable income declined quite significantly. That's, that's it.
That's helpful.
Yeah.
Thank you.
The next question is from the line of Alberto Nigro with Mediobanca. Please go ahead.
Yes, thanks for taking my question. The first one, may I ask you your expectation regarding the evolution of the contribution to the Single Resolution funds and the Deposit Guarantee Fund for 2024? The second one, if you can tell us, which is your ECB minimum reserve and the impact to the NII in 2024. Sorry, the last one, if you can repeat your expectation regarding the increase of term deposits, this year. I just didn't get it. Thanks.
Okay, let's start from the last one. When we said that, from the point that we are now, which is a mix between current time in the range of 80%-20%, we would expect that to settle at around 75%-25% by the end of the year. On your second question, with regards to our recent mandatory reserves, that's about, let's say, EUR 500 million. The burden that we have on our NII based on the policy change is about, I would say, EUR 18 million on an annual basis. That leaves about EUR 5 million for the rest of the year as a burden, given the fact that it is effective from September onwards.
Now, with regards to the evolution of the contributions, we expect that to to go down from from next year onwards, given the fact that we've reached the percentage that is prescribed by the by the legislation. That will be something positive for us going forward.
Thank you so much.
Once again, to register for a question, please press star and one on your telephone. As a final reminder, to register for a question, please press star and one on your telephone. Ladies and gentlemen, there are no... Apologies. There is one more question from Mr. Maximilian Gecker with Jefferies. Please go ahead.
Hi. Yes, good afternoon, and thanks for taking my, my question. Just one on your CET1 with capital target, and perhaps you could just give us a little update on you think or what you think would be an adequate level to in terms of CET1 ratio to run the bank at. We could get a bit of an idea what we should be thinking of as adequate capital. Thank you.
I think a number of 15 is what you should pencil down. Okay? 15%.
Okay, would that view change if you were to issue an AT1, perhaps?
I hadn't thought about it. I'd have to think about that. I'm not thinking very much of an AT1, though.
Okay, thank you.
For the moment, at least.
As a final reminder, to register for a question, please press star 1 on your telephone. Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to Mr. Mylonas for any closing comments. Thank you.
Thank you all for joining us for the second quarter results call. I appreciate you joining. It's August 1st, 2023, and I'm sure all of you want to go on vacation, so we will stick around for any of you who do want to ask the questions. Otherwise, I wish everyone to have a good and well-deserved rest the next couple of weeks. Thank you all.
Ladies and gentlemen, the conference is now concluded, and you may disconnect your telephone. Thank you for calling and have a pleasant evening.