Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Banco BPM full year 2020 group results presentation. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. At this time, I would like to turn the conference over to Mr. Roberto Peronaglio, investor relations manager of Banco BPM. Please go ahead, sir.
Thank you very much to be present with us tonight for the presentation of the full year results. Before leaving the floor, Mr. Giuseppe Castagna, let me remind that you can find the presentation on our website in Investor Relations page. The Q&A section is reserved for financial analysts. Thank you very much. I leave the floor to Mr. Castagna.
Thank you, Roberto. Good evening, everybody. Thank you for being with us for this full year 2020 presentation. Let's start immediately on page five, where we have summed up some significant performance which our bank was able to reach in this very challenging environment of 2020. The first part is related to the asset quality, which we managed through a credit management initiative linked to the moratoria, to the state guarantee loans, and through an effective monitoring very in-depth to our portfolio. The second is the cost management. We were able to adapt a very flexible business model in order to reduce the cost and offset the lack of revenues of the first part of the year.
The third part is the very strong commercial return we registered in the second part of the year, in H2, with a very effective commercial activity from our branch network, also leveraging on digital banking. This produced a very solid rebound in H2, with pre-provision income up 43% vis-à-vis H1. All these results allowed us in a complicated year, in which of course we expected some rules to respect also in terms of dividend distribution, encouraged us to be very cautious and prudent, both on conservative provisioning policy. In the last quarter, we have done 1.3 disposal between portfolio and single name. We have increased of 500 basis point the coverage of NPE. We have up-fronting with IFRS 9 further amount in order to foster new disposal starting since 2021.
At the same time, we were able to front-loading restructuring cost, able to foster 1,500 early retirement person, a scheme for 1,500 person, and a closure by June this year of another 300 branch, which sum up to the 750 we already have closed since the starting of the merger. This allowed us, all in all, to be back to distribute a dividend of EUR 6 per share, and overall, to be very positive on the outlook of 2021. On page seven, we wanted just to give an outlook on the four-year of our merger, in which we think we were very much able to build up a track record in de-risking and capital generation.
As you know, we have reduced from EUR 30 billion- EUR 8.6 billion the amount of NPE. At the same time, we were able to increase common equity Tier one from 11.4% to 13.3%, which is the result of 2020. Needless to say that in between, we have financed something like 1,000 basis points coming from revenue generation and asset management transaction, which allowed us to reduce EUR 21 billion the amount of NPE during these years. Starting from the credit profile, let's have some look about the main action of this year. Of course, the action were very much linked to the pandemia and to the measures taken by the government. We wanted to reach target in sustaining the economy. We were able to reach a new record new lending in 2020.
After EUR 21 billion in 2019, we were able to lend EUR 27.6 billion, including EUR 10.2 billion assisted by state guarantees. We still had at the beginning of the year almost EUR 4 billion of new loans assisted by state guarantees in pipeline, of which in January we were able to deploy EUR 1 billion. The second target was to uphold the portfolio quality through the reduction of NPEs, 15% down to EUR 8.6 billion and 7.5% NPE ratio. Thanks to a very favorable migration rate, we had only 1% of default rate to a very low market share in the moratoria, 5% versus 7.3%, which is our natural market share of loans.
On checking very carefully the quality of the moratoria, both for the one who already expired in December, which were an amount of EUR 3 billion with a very marginal default rate of 0.5%, and the same rate we are experiencing in the early engagement campaigns for the moratoria, which are expiring in the next few months. We have, as we will check later on, reviewed a big amount of this kind of moratoria, and we already have some good expectation about the potential repayment. The other step was, as I mentioned before, to massively reinforce the coverage. We have reached for the first time a total of 50% of NPE coverage. Particularly, we have upgraded UTP coverage to 43.7%, 46 basis on-year. If we include the Django disposal, the amount of coverage was even more than that.
All this considering a tough scenario for 2021, of course, related to the COVID, and also provisioning further amount to start further de-risking since 2021. The last objective was to contain the capital absorption, and we think that we had reached also these results, having 86% of loans assisted by state guarantee at zero risk weighting. On page eight, a focus on the moratoria. As I mentioned, we started with EUR 16 b illion of total request. In December, we had EUR 3 billion of moratoria expiring, with again, a default rate of 0.5%. For another billion, more or less, we had some different measures often linked to state guarantee. The remaining portfolio as of end of the year is EUR 12.2 billion, of which EUR 10 billion coming from the government and EUR 2.3 billion from the ABI moratoria.
This EUR 12.2 billion, 80% of these are client of low, medium risk as rating, 12% mid high risk, and only 8% high risk. If we go into the sector with more impact from the COVID, we have a total of EUR 2.7 billion-EUR 2.8 billion of risks under moratoria, of which EUR 2.4 billion under the best rating category. In order to check into this couple of billion, we have run, and we're still running, early engagement campaigns activated on a total portfolio of selected mid, high, and high-risk clients amounting for EUR 2.2 billion, out of which only EUR 2.8 billion are nowadays in watchlist and only 0.6% are with signals of default. The outstanding moratoria related to our performing loans amounts to only 12%.
On page nine, we start with some figures, starting from asset quality, again, coming back from 9.1% to 7.5% in gross NPE, from 5.2% to 3.9% on net NPE, 39% to 43.7% for UTP coverage, and 56% to 59% to bad loan coverage. If we include write-offs, we reach 65%. At the same, I would say at a very good level, we of course have also our liquidity and funding situation. LCR is an IR of 191%, NSFR ratio is much higher than 100%. We have EUR 20 billion of unencumbered eligible securities, and we have reserves both on amortized cost and HTC&S, respectively for EUR 875 million and EUR 198 million, with a very strong capital gain.
Coming to capital, again, we reached 13.3%, coming from 13% of December 2019, with an increased MDA buffer, thanks to the many issues we had in 2020 and beginning of 2021 of AT1 and Tier two. The total amount passed from 250 basis points to 450 basis points in January this year after the last issue. Again, we propose a dividend distribution of EUR 0.06 per share, which amounts to 2.8% of dividend yield on the last quotation, which is above 3% if we consider an average of the first month of the year. On page 10, we have some figures about the operating performance and the commercial performance, both very encouraging. Second half on first half on NII, +8%, net commissions +3.7%, operating costs -5.4%, pre-provision income +43%.
This shows also how we really had an impact from the first wave of the COVID, we were able to neutralize the negative effect of the second wave with these results. The commercial performance is also very good. Core net performing loans +8% year-on-year, new lending at a record of more than EUR 27.6 billion, +29% year-on-year, deposits EUR 13 billion+, asset under management 2.2% year-on-year, 3% on the last quarter 2020. Again, cost savings with a number of maneuvers which almost many of them we can consider extraordinary. We were able to offset the partial lack of revenues, especially from asset under management. We reached further savings of EUR 174 million.
The profitability we have generated allowed us also to provision EUR 260 million gross, in order to foster the agreement with trade unions already provisioned in 2020 and with an exit forecast of 1,500 people and the closure of 300 branch. This was also facilitated and also the decision of closing further branch is coming also from a renewal activity on digital banking, which strongly supported the commercial activity. We have some figures in the page 11, mobile transaction +61%, app users +26%, EUR 1.3 million, investment orders executed +21%, and so on, with a share of digital transaction up to 83%. On page 12, there is some specific action we have taken, and we're still undertaking, in order to increase even more the digital approach.
The first one is related to the advanced analytics capabilities we have adopted in order to foster more than 20 customer journeys on main commercial areas. Which were able to allow more than 10 million remote digital contacts with our clients, driving over 20% of contribution on total retail sales. Another important step was the full digital platform serving SMEs and private client in order to finance the Superbonus and Ecobonus initiatives. We have already 3,000 operation in pipeline only after a few weeks, and this is also completely digital. We enable all our personal relationship managers and wealth manager advisor to remote advisory. Nowadays, all the transaction can be executed from remote. We launched also a new mobile first platform app platform, which was ranked at the best level from the main customer ratings and has registered an increase in customer usage of 24%.
Finally, we are now onboarding individual customer with the digital identity in order to reach the complete paperless relationship with client by this year. On page 13, also on ESG, we wanted to mention some achievements we have reached. We have started an ESG committee headed by the CEO to coordinate and control the ESG activities. The board oversight is allocated to risk and control committee. The executive remuneration is linked to ESG KPI. Also on environment, clients, people and community, we have started many initiatives, some of them already quite successful. Likewise, the 100% of usage of renewable energy with a strong reduction on CO2 emission, the credit platform for clients investing in sustainability. Again, the Superbonus digital platform, the asset under management, fully compliant with this ESG policy amounting to more than EUR 17 billion.
Of course, our internal work with our people on different inclusive program and aimed at valorizing talents. Also in the community, we were able to distribute more than EUR 6 million of initiatives in order to help our communities during the difficult period of COVID. Let's go to some figures on page 14. As you will see, we have put vis-à-vis H1 and H2 in order to make you understand better how the reaction of the bank allowed to reach the results we are mentioning. On NII, we increased 8% almost in the second half, allowing the bank to reach the same result of 2019. Of course, even though we increased almost 4% fees and commission, this was the results who paid more difference in terms of lower revenues vis-à-vis 2019. We had something like EUR 120 million of difference vis-à-vis last year.
We recovered something in NFR, where we had some one-off, like the Nexi and SIA transaction, but also a very good return from the govies and trading activity. All in all, total revenues stand up to EUR 4.152 billion, almost EUR 200 million less than last year. We were able to recover almost EUR 170 million with lower cost, showing how the flexibility we can use on cost can also offset difficult period, of course, coming from not internal reasons, but coming from the general situation, in this case, from the economic effect of the pandemia. All in all, we were able to have a pre-provision income basically at the same level of 2019, only 1.4 lower year-on-year. Of course, we were very attentive as far as the loan loss provision were concerned. We prefer to be very consistent and very prudent on this side.
We not only financed the EUR 1.3 billion of disposal, we decided also to front load some IFRS 9 provision, apart from building up more coverage on UTP and bad loans. We will see afterwards how much is the core activity related to loan loss provision, how much is what we consider one-off. Of course, we have the restructuring cost, which I mentioned, the EUR 260 million gross, which are EUR 187 million net. System charge for EUR 143 million, which lead us to a net income stated of EUR 21 million, an adjusted one of EUR 330 million. Let's go back to the revenues. On page 15, we have again some core revenues split for quarter on the right side and for a year on the left side. We will see some much details in the next page.
On page 16, we will have NII which in the second half was 8% higher than the first half. This was mainly due to the TLTRO. As you can see, the third and the fourth quarter, of course, experienced a massive increase vis-à-vis the first two quarters. The reduction in Q4 of around EUR 10 million comes half from the reduction of the Euribor, so the liability spread coming down from -57 to -62, and partially also from non-commercial activity, especially the cost of the liquidity we place from TLTRO. On page 17, the dynamic of the net fees. This is a 3.7% second half on first half. If you compare Q3 and Q4 to Q2, which was, of course, more affected by the pandemic, we have an increase of 11% and 14%, respectively, which is still growing.
We are having, as you can see on the right side, month-by-month revenue generation is increasing to EUR 150 million in December. I have to say that also January and the first week of February are at a record level of investment product placements. We can see better on page 18, investment product placements. As you can see, after a quite good first quarter of EUR 3.7 million, only partially affected in March by the pandemic, we had a very low Q2 on EUR 2.4 million, then rebounded to EUR 3.2 million and EUR 3.7 million for a total amount of EUR 13 billion on investment placement. On the right bottom side, you see how the first months, the January 2021, was 17% higher than January 2020, which was in turn a very good month for us.
The first week of February is already EUR 600 million of production. As far as lending is concerned, on page 19, again, +29% year-on-year, EUR 27 billion of new loans, EUR 24 billion related to enterprise and corporates, EUR 3.3 billion to private individuals. If we split ordinary business and COVID measures-driven business, we have 63% in ordinary business, 37% of state guarantee measures. On the right side, some indication about the asset spreads. In the first half of the year, we still were lending at a lower spread vis-à-vis the outflows, also for the starting of the COVID measures under EUR 30,000, which of course were being 100% guaranteed, were the one at a lower spread.
In the second part of the year, we not only recovered the spread of the new loans to 175 basis points, but also we registered some positive basis points vis-à-vis the outflows of the second half, which more or less is not that different from the outflows that we will have in 2021. If we will be able to maintain the same pace of new asset spread, we should have some better figure as forecast for 2021. On page 20, the quality of the portfolio. On the left side of the slide, you can see the flow of new lending. As you can see, both the ordinary business and the COVID measures are for the best quality of our client, only 5% and 2%, 7% all in all, both on ordinary business and COVID measures are in the medium-high and high risk, only 1% in the high risk.
Meanwhile, the stock is on the lower part of the slide, still continue to improve, showing more lending vis-à-vis low-risk client and progressively lower lending vis-à-vis high and medium-high risk client. All in all, in the best part of our portfolio, we have reached 88.6% of our stock. As far as the further increase of state guarantee loans, on the right side of the slide, you see that we had still a pipeline from 2020 of EUR 3.7 billion beginning of the year. EUR 1 billion has already been provided to our clients in January. We will consider a potential estimate for up to EUR 5 billion for 2021. On page 21 is again the amount of core loans and deposit and assets under management we already mentioned before. Let's go directly to the operating cost on page 22. Since the beginning of the merger, we had EUR 630 million of reduction in cost.
You will see on the right side of the slide, we started at EUR 3,060 million in full year 2016. Of course, this was excluding the restructuring cost of the merger, and we ended up this year to EUR 2.430 billion. Of course, we can see that at least EUR 120 million comes from saving some personnel, which are linked to the COVID, and coming from reimbursement and disruption for people not able to work, to lower variable remuneration, which of course are not repeated in 2021, but still we are a further room to improve the normal activity in cost management, thanks to headcount reduction of 1,500 people, which will be massively utilized in 2021.
We believe that we can have, by the year-end, 1,300 people, most of them in the first part of the year, which will leave the bank, starting to factorize at least EUR 40 million-EUR 45 million already in 2021, going up to EUR 109 million in 2022, and the total consideration of EUR 125 million in 2023. The same, we will have some further savings on the reduction of the retail network. We consider that even though for this year, they will have only a minimum of EUR 3 million-EUR 4 million of cost savings, this will come up to EUR 50 million already from next year, EUR 50 million of savings. Going back to asset quality on page 23, some figure about the stock reduction and coverage. We went down EUR 1.5 billion. On the right side, you can see the reduction. Starting from EUR 10 billion, we had EUR 1 billion of new inflow, the default rate.
We had EUR 1.4 billion of basically workouts and cure rate. The disposal, EUR 1.1 billion related to Django and Titan. The total consideration saw now amount to EUR 8.6 billion. The migration rates for 2020 were again 1% default rate, 7.5% danger rate, and 3.3% cure rate. Of course, default rate and danger rate were better because of the moratoria. Cure rate was worse than last year because of the difficulties in having judiciary composition, agreement with clients, and in auctions, of course, due to the closure coming from the pandemic. On the right side, we will have the full coverage split into different categories. We think we have reached a very cautious amount of coverage, especially considering that we have 60% of our NPE which are secured. On page 24, NPE ratios.
This is an outlook on the upside of the slide about the massive reduction we had both in gross and net NPE and in Texas ratio, starting from the merger, and reaching very comfortable 7.5% and 3.9 net, and the Texas ratio of 39%. If we follow EBA definition, we are down to 6.7% of NPE ratio. Some detail about LLPs. The global amount of EUR 1.337 million, we have split into two different categories. One is the core drivers, which amount at almost 70 basis points, and the other one is both the effort we had from the disposal and the strengthening of the coverage on UTP and bad loans, and also the IFRS 9 impact, both on performing loans due to the deterioration of the forecast, and also front-loading provision for foreseeable future, the de-risking starting from 2021.
This is an amount of more or less 50, 55 basis points. All in all, we take advantage from the results in order to be very cautious and pave the way to a much better 2021. On page 25, some numbers about balance sheet. I already mentioned the liquidity and funding. Let me say that we have bonds outstanding for EUR 19 million. We had a quite active issuing during 2020. In January 2021, you will see the different issuing we have done, both in senior, non-preferred, AT1 and Tier two. On page 26, I would say the Italian govies are still having a lower impact vis-à-vis the total securities portfolio, and in 2021, due to the reduction of the spread, we will forecast another consistent reduction in the percentage of Italian govies on total securities.
Let me just take your attention on the very low duration of our portfolio. Capital and equity. We feel that it's a very solid position, both in terms of capital, in terms of buffers. The capital through this capital work that you see on page 27, we started 13%, we ended up to 14.1% in September, where we anticipated the effect of the headwind we expected for the last quarter in almost 50 basis points. They were almost 50 basis points. Is 13.6% the post-impact numbers, building up the performance due to the increasing LLPs and restructuring costs of Q4, and some positive effect from regulatory, this coming especially from the treatment of the software. We reached 13.4%, after the proposed distribution of the dividend, we end up to 13.3%.
Much even better, the MDA buffer, where we started 250 basis points, which we consider also our target level in the mid-terms. As a matter of fact, after the issue of the AT1 January this year, we are up 49 basis points for common equity fully phased at 614 basis points for phased-in. As far as the common equity Tier one phase-in, we are at 14.6%. All in all, to have a quick recap, significant rebound in the second half of all revenues, which is very encouraging for 2021. Strong and attention and safeguard for the quality of portfolio, both in terms of action in Italy in order to detect at first level any possible hint of deterioration. Also, increasing massively the coverage in order to foster higher reduction in NPE, further reduction in NPE.
Again, the cost efficiency, not only in 2020, but also with the already booked provision for the retirement scheme in order to offset partially the one-off cost of 2020. Some outlook on 2021 on page 29. We think, thanks to the TLTRO, which of course will last for the entire year in 2021, and we have also higher capability to draw TLTRO. In our funding plan, we think we can expand of another EUR 10 billion drawing TLTRO for this year. We think we can reach a very consistent increase in NII, as much as we think we can have a very strong recovery in commission, both coming from investment products, thanks to the results I mentioned, and we are already experiencing at beginning of 2021, and also to the commercial activity where we had some maneuver, which should give us some room for increasing the commercial banking fees activity.
Total income is expected to be higher than 2020. On the cost side, of course, I already say that we can only partially offset the massive reduction we registered in 2020, but we are confident that with the pace of reduction we have done during this year, we can be able to have a PPI slightly better than last year, notwithstanding lower RMF results. Cost of risk. Also in this case, let me split in two different parts. We think that the normal cost of risk will be more or less at the level of what we provisioned under the normal cost of risk, the 70 basis point for the ordinary activity.
Of course, we have considered that there will be still a macroeconomic environment which may entail some additional non-core provision, which in any case, we expect to be at a lower level than the one we registered in 2020. For capital, we confirm that our targets remain MDA buffer 250 basis points and common equity Tier one at higher than 12%. Thank you for your attention. I leave the way for your question.
Excuse me, this is the Chorus Call conference operator. We will now begin the question and answer session, which is reserved to analysts only. Anyone who wishes to ask a question may press star and one on your touch-tone telephone. To remove your question from the question queue, please press star and two. Please pick up the receiver when asking questions. The first question comes from Antonio Reale of Morgan Stanley. Please go ahead, sir.
Hi. Good evening, thank you for the presentation. I've got three questions, please. The first one is on NII. If I look at your NII dropped further in Q4, then you sold some unlikely to pay loans and deposits have been growing quite steadily, actually, and these are all drags on interest margins. You've also reduced the sovereign bond portfolio significantly Q on Q. I'm wondering what makes you confident on the NII outlook for 2021. If you could elaborate sort of all the moving parts, including loan growth, of course, that would be great. The second question is related to the first one, actually, and I'm curious to understand what was the contribution to NII from TLTRO in 2020, and what would you expect it to be in 2021, please? The second question is on costs.
You've talked about cost inflation next year as the cost related to the sort of lower activity from the pandemic are expected to come back, and as you increase your IT digital investment spending. Can you help us quantify both of these effects? For example, how much of the benefit did you see in terms of cost savings in 2020 related to this? My last question is on the moratoria loans. I would like to understand what your core cost of risk estimate, which, if I understand right, is at about 70 basis points, and you've confirmed it for next year. What does that 70 basis points assume in terms of defaults on this moratoria loan? What percentage of the EUR 16 billion do you assume could default? Remind us if any provisioning overlay has been set aside to cover for this already. Thank you.
Okay. Thank you. Starting from TLTRO, of course you have to consider not only the six months on top of last year, but also the increase that I mentioned of around EUR 10 billion. We think that we have a gross effect of EUR 180 million, unfortunately offset from how we will use the liquidity because, of course, not all the liquidity can be used to positive interest rates. The net effect will be around EUR 100 million-EUR 110 million. As far as the costs are concerned, we had, again, something like a reduction in variable remuneration, quite consistent, 45% of what we forecast for this year, which should be around EUR 45 million. We had a reduction, of course, in general expenses due to lower cost of personnel. We had some reimbursement also from the government, for people who could not attend to work due to COVID.
All in all, it's something amounting to EUR 140 million, of which we think a part of it, of course, can be slightly repeated this year. That's why I mentioned EUR 120 million as the difference of cost of personnel. Digital, of course, is not immediately or directly linked. For instance, we are still imagining a cost for fully deployed potential capability of our digital activity, which again, will help us in the next year to further make more cost-effective our branch network and our people. The last is moratoria. I say that the normal cost of risk is EUR 70, is not what we expect for 2021. Of course we know that there could be some effect, especially in the second part of the year.
Currently, what we have experienced for what was expired in December, what expired in December, what is expiring in the next few months is a very, very low default rate. Again, 0.5%. Of course, we expect this to increase. Will depend, of course, from the economic situation. Let's say that we have, in our forecast, a figure which is around 2.5%.
Thank you. Very clear. On the commercial NII, could you just share a bit more color on the 2021 trends?
Commercial NII, again, basically we consider it almost flat. This will depend also for this year more from the liability spread, so from Euribor rather than the asset spread. For the asset spread, we think we can keep the pace of the second half this year to continue to lend at around 175 basis point. If there will be no acceleration in moratoria, we expect that the outflow is at a lower margin. There would be some increase. We don't expect, on the other hand, a massive lending, likewise the EUR 27 billion of the last year, because of course the majority of the clients have already made recourse to the government measures. All in all, I would say the same results for the commercial activity.
Many thanks.
The next question is from Jean-François Neuez of Goldman Sachs. Please go ahead, sir.
Hi. Good evening. I just wanted to ask on, firstly, on the Stage 2 loans, I read in the appendices to your presentation 6.9 billion balance at year-end, if I didn't make a mistake. In comparison to BPER, which is the other inside domestic bank that has reported so far, it's much smaller in relation to also the size of your book. I just wondered whether you believe that there is more risk classification to be done there, or whether you believe that this is the best representation that you have so far of the shift in risk in your portfolio. The second thing I wanted to ask is with relation to consolidation, because you're often quoted in the press, Mr. Castagna, on this. I wonder to what extent you see the 2021 DTA monetization as something which shouldn't be passed on.
For example, if I look in Pillar 3, I found deduction of EUR 1 billion of DTA, and it's a lot of capital ratio, obviously. Also a lot of your market cap, even more. I just wondered to what extent you believe this is imperative to this opportunity in 2021 to be able to monetize that asset, or you believe that the strategic consideration might not be there in order to justify trying to take advantage?
Thank you, Mr. Neuez. Stage 2, we think we have done all our internal homework in order to classify the best possible way and the most prudent way, having such an availability of amount to provisioning that, frankly speaking, we think that we have a quite good portfolio. I showed the PD and the rating of our client, how is increasing towards the best category. Nevertheless, we have a provisioned a consistent amount of around EUR 120 million to performing loans in order, of course, to accommodate potential increase in Stage 2. We are already protected, but still we are not experiencing a strong increase. We think that due to our territory, as you know, you made a comparison with another bank. If you consider the different geography, maybe you can have some difference in the output of the quality of portfolio.
DTA, of course, I think you are mentioning M&A, basically, which is the only way to capitalize DTA. As you know, we are quite open and outspoken on the possibility to reach some agreement. Far, we are still, I would say, at a preliminary internal homework in order to understand which one could be the best and the most possible option in our case. Of course, it's one of the main target we would like to reach, but unfortunately, as a difference with our results, this does not depend only from us, but also from others. We will deploy all our effort in order to try to have a fruitful combination in the interest of both shareholders of the potential combination, but still we are at a very preliminary understanding.
Okay, great. Thanks a lot.
The next question is from Domenico Santoro of HSBC. Please go ahead, sir.
Yes, hi. Good afternoon. Just a few clarification and some follow-ups. On capital, how much of regulatory headwinds you expect this year, 2021, and also 2022, if you can quantify the impact? On the, let's put it this way, non-core part of your guidance on loan loss provision, can you be more specific which part is model or which part is additional charges that you might expect from your NPE, the risk, even if my understanding is that you already charged, you already booked something in Q4. My understanding is that this year, things that don't improve, you might run with more or less the same amount of provision of 2020. Thank you.
Okay. , I don't have any news respect to what we already anticipated. We are one of the few banks who give you all the details until 2023. I don't expect a lot of difference what already I anticipate to you. I would say that this depends a lot from the IRB model that will come up eventually in the first half of the year. Again, I think that the 100 basis point that we put as a total consideration could accommodate the different headwind for this year. Of course, it's something that coming from ECB. As far as the NPE, if I understand what you asked, I don't expect the same amount of this year, unless we don't want really to strongly de-risk the bank.
We have another, I would say, a gap of another EUR 2 billion, EUR 2 billion and something, not considering the new inflow, to reach the 5%. Of course, if there are possibility, we will go also for reducing even more the NPE ratio. This will depend also from the inflow, as you may understand. I think in the first part of the year, we will be able to reduce even more the NPE ratio. In the second part of the year, will depend from the inflow. We have a quite prudent assumption about that. All in all, having experienced this year, 2020, let me remember that everybody was very prudent, and maybe extremely prudent when the pandemic came out, hinting of some 180, 200 basis point. End of the year, we have experienced a much lower impact on NPE.
We still think that 70 could be the core risk. Of course, we are prepared to pay some more tens of basis point in order either to reduce the stock from the current stock or to offset the effect of potential new inflow, should this be much higher than we expect.
All right. Thank you.
The next question is from Hugo Cruz from KBW. Please go ahead.
Hi. Thank you. Two questions. One on the guidance for the outlook for 2021. If you could give some guidance for the trading income line. It's been quite volatile, so it's very hard to forecast, excluding any kind of CVA effects. I wonder on the EBA kind of ECB stress test. You might have had the chance to look at the methodology. I wonder if you have any comments around it, if you expect it to be very stringent or not. That would be great. Thank you.
On trading income, let's say, first of all, that we don't have any advantage in full year 2020 from the DTL, because what was EUR 200 million in the first quarter 2020, end of the year is EUR -11 million. We have a loss because of the bettering of our credit profile. Frankly speaking, the same respect from next year. I think the current political situation should encourage, unfortunately, to have some offset in the credit profile, so some better in the credit profile, which will end up in some negative impact on fair value. The normal trading income this year, as I mentioned before, we have quite a huge amount of reserves both on AC and HTC&S. It is very probable that we will like to capitalize some of that. We think we can be in the region of more or less EUR 200 million for this year.
I don't have as much comments, I'm afraid, on the stress test, unfortunately, as we are at a preliminary stage. We will see where we will end up, but I don't have any consideration to give you.
Okay. Thank you very much.
As a reminder, if you wish to register for a question, please press star and one on your touchtone telephone. The next question is from Azzurra Guelfi of Citi. Please go ahead, madam.
Hi. Good afternoon. Couple of questions from me. One is on the potential for the creation of a European bad bank. What do you think about it? Also, what do you think is essential for this to be successful, especially for the Italian bank? The second one is looking at your stake in Anima. Do you think this is an asset, if the group were to consider any potential banking M&A, or is area of, if you want, complexity? Thank you.
Thank you, Ms. Guelfi. Bad bank, we have been very happy with what was done in Italy, frankly speaking, especially with the GACS transaction, which in our opinion, were the best way to massively reduce NPE. We hope, frankly speaking, that there will be a renewal of this opportunity in order to still apply this way. At the European level, again, is very difficult. Maybe there could be some action coordinating different national bad bank. Is quite difficult, in my opinion, to have a unique European bad bank because the recovery timing for the different jurisdiction are very different because of the judiciary system and so on. Maybe better to have effective measures that can help in our country, and then we will see if there will be some coordination also at European ECB level. Anima is definitely a strong asset for us.
That's why we wanted to increase our stake during the year. We are very happy of that. We think that both bancassurance and asset management are crucial for the banking activity, and so the more we can have of ownership of in these two assets, the better for us, of course. I think will encourage also potential other banks, because many of the potential synergies will come also from that.
The next question is from Christian Carrese of Intermonte. Please go ahead.
Yes. Good evening. Just two questions on my side. On product factories, as you said, bancassurance is crucial as asset management. If you can give us an update on Cattolica and Covéa partnership, so they put with Cattolica and so on. On NPE internal workout or disposals. As you said, the gross NPE ratio, the 5% EBA target means just slightly above EUR 2 billion NPE that could be reduced. Can you remind us the difference between internal workout and disposals? It was in the past, if I remember, around EUR 100 million for EUR 1 billion, something like that. If you can give us an update. I saw that the coverage ratio went up quarter-on-quarter and likely to pay up. Are you going to focus on UTP rather than NPL, or if you can give us some color on that?
You said in the first half 2021, maybe you could decide to sell some NPLs. If you can clarify on that. Thank you.
Thank you, Mr. Carrese. We are discussing with everybody, as is also known from the newspaper. We have done some action vis-a-vis Cattolica, because we think that we have some right to buy back the joint venture. We are partners, so we're open to potential discussion in order to find a solution. The same apply to Covéa. This is not coming from any rights, just because the joint venture is coming to an end by September this year. We are discussing with them in order to, let's say, in a way, put at the same level, in terms of timing, both the opportunity in order to make some consistent decision on the entire bank insurance set up. NP, all the time, I can say, because when we had so many NPEs, of course, we were able to have a massive internal workout.
We thought at the beginning of this year, before the pandemia, that we didn't need any more massive disposal because the workout was going very well. We had, I think, some EUR 1.2 billion, EUR 1.3 billion per year, of course, on a much larger portfolio. Once we experienced that the year was doing a slowing, because of course, there was no possibility to have extrajudicial or judicial or auction and so on, we decided to take the good window we had in September before the second pandemic wave to make a disposal of EUR 1 billion. At the old time, if I remember well, we had the difference, more or less EUR 140 million of cost for disposal each billion and something like EUR 20 million, EUR 30 million in terms of internal workout.
Of course, being now a portfolio which is much smaller, it is a bit more difficult to make this general consideration. We are, of course, studying both the opportunity, and we think, again, that in the first part of the year, we can get some good results.
Thank you.
Thank you.
The next question is from Adele Palam à of UBS. Please go ahead.
Yes. Hi, good evening. Two questions from me. One is in relation to the commercial fees. I was wondering if you have done any revision of the fees and types charged to the client in this year. The second is on tax. If you can give us a guidance on the tax rate for next year and if you have any positive effects left deriving from the NPL disposal.
Can you just repeat the first question? On the commercial fees, what you would like to know better?
If you have done any revision of the fees charged to the client in the year, up for revision in 2020.
Sorry, I'm not able to understand exactly the question. Let's start from the second one.
Tax rate.
Tax rate. I think in every budget we do, we consider a tax rate of around 25%. Of course, there are years like this year, which was much lower, was coming in opposite way, but normally we consider 25%. Commercial activity, if I understood well, again, we had some problems only between the first and the second quarter. We had some consistent reduction in investment sales, which nowadays are back at a very strong level. On top of that, we have also some fees coming from commercial banking because of the increase in some ordinary fees in current account. Both these actions should lead to a quite consistent increase, I would say, to level of 2019.
Okay, thanks.
The next question is from Noemi Peruch of Mediobanca. Please go ahead.
Good evening. I have two questions, both on cost of risk. Could you please clarify the COVID overlay you charge in the area? Maybe I missed that. The second one is: Is it fair to assume that 2021 cost of risk will hover around 70 basis points plus the impact of the NPE inflows, while the potential disposal are already provisioned for in 2020. Thank you very much.
All right. 2020, we already provisioned an amount which would allow us to make a disposal for EUR 900 million, EUR 1 billion. This is what is already provisioned. In 2020, of course, if we decide to make further disposal, and once we have utilized the first IFRS provision for this year, we have to make further provisioning, of course. The current is without the disposal, apart from the first EUR 1 billion, which is already paid in.
If I may, the COVID overlay charged in 2020, if you want to disclose it.
No. First of all, let me complete the answer to your question. Of course, the new inflows are included in our field. What is not included, of course, is potential further effects of COVID, which could spread out. I can give you in basis points, more or less, out of 122 basis points of cost of risk, the front loading for future de-risking and update of expected credit loss on performing loans was more or less 20, 22 basis points. The strengthening of the coverage was 10, 15 basis points and around 20 basis points, the disposal.
Thank you.
Mr. Castagna, gentlemen, there are no questions registered at this time.
Thank you, everybody, and see you soon on one-to-one meeting. Bye-bye.
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