Good afternoon. This is the Chorus Call operator. Welcome, and thank you for joining the Banco BPM nine months 2020 results conference call. 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, IR Manager of Banco BPM. Please go ahead, sir.
Thank you very much, everybody. Thank you for with us tonight for the presentation of the third quarter result. As usual, before leaving the floor to Mr. Castagna for the presentation, and then up to you for the Q&A, let me remind that the presentation you can find on our website on investor relations page, and the Q&A section is reserved for financial analysts. Thank you very much. I leave the field to Mr. Castagna.
Good evening, everybody. Thank you for being with us this evening. I will try to be as much quick as possible in order to give you time to make your Q&A section. Starting on page five, we want to highlight the very resilient and the path of recovery, which is characterizing our first nine months, particularly significant in a difficult environment like the one we are still involved with the COVID-19 threat.
As a matter of fact, Q3 was very good in terms of core revenues, nine point five percent quarter-on-quarter, further reduction in cost, minus five point two percent quarter-on-quarter, healthy build-up in pre-provision income, which is not only is 44% better than Q2, but is also better six percent relating to nine months 2019, which as you know, was a very good year for us. On top of that, I would like to stress that we decided, as we anticipated in Q2, a further reduction of NPE through disposal.
We have managed to close two deals, actually, for EUR 1.2 billion of total consideration, of which EUR 1 billion of UTP and EUR 200 million of leasing bad loans. The total de-risking consideration since the start of our merger is now at EUR 21.4 billion. I remind that all this then is done without any capital increase, any request of capital from the market.
The cost of risk is confirmed that 100 basis point is a guidance for 2020, including the extraordinary transaction we are mentioning. On top of that, we have reserved some slide for give you a hint about how we are dealing in order to strengthen the internal credit management on the moratoria and also on the total loan portfolio in these difficult times. Last remarks on the capital position. As you can see, already considering the Q4 headwind that we expect in the next quarter, we have performed a Common Equity Tier 1 fully loaded at 13.6%, which is 14.1% without the headwind. On page six, a quick remind about the technical operational solution we adopt in order to minimize the impact of this period and preserving the commercial effectiveness vis-a-vis customer. We enhanced all our digital effort in order to empower the omni-channel approach.
I will give you some details later on. As much as we were very careful in terms of caring of our employees and clients in order to minimize the impact of the COVID-19, utilizing, of course, smart working up to 8,000 people, with a shift of branch presence adopted during the COVID-19, and the reduction of physical presence, both in head office and in headquarter. On top of that, of course, we are now fully provided with masks, plexiglass, gloves, and sanitizing gel in order to allow our colleagues to perform every day on their duties. In terms of cyber, we were very active in order to check carefully all the asset, also the device we allow to our colleagues to use during smart working. We have nowadays fully deployed all the tools needed in order to perform correctly also in smart working with our clients.
On page seven, some numbers about the commercial effort we have done, which we feel will help us also to face this second wave of COVID-19. As you can see on all the digital banking figures, we are registering a double-figure increase year-on-year. Mobile transaction, which we mean only mobile and tablets, is up 62%. The users of app, clients using app, are up 35%, online transactions are up 23%, and almost the same also with digital sales and orders executed via web. All in all, considering households, we increased the utilization of direct banking from 77% of last year to 84% of September 2020. This allows us also, in terms of commercial volumes, to rebound in Q3 vis-à-vis all the main figures of our activity. Investment product placement went up again to EUR 3.2 billion from EUR 2.4 billion last quarter.
The new lending is EUR 7.9 billion vis-à-vis EUR 6.9 in Q2, and especially with the moratoria measure guaranteed by the state, which went up EUR 5.2 billion in Q3 vis-à-vis EUR 1.9 billion in Q2. Let me give some further indication about these measures on page eight. As you can see, we had EUR 9.5 billion of request for lending assisted by public guarantees in June. This increased to EUR 12 billion in September.
Now we are up in October to EUR 13 billion. Of the EUR 12 billion in September, EUR 7.1 billion were already granted to our clients, EUR 4.9 billion are of course, in our pipeline, EUR 3.5 of these already approved by the credit, and EUR 1.4 is under approval because of recent request from our clients. The distinction of this EUR 12 billion between 100% guaranteed below EUR 30,000 of loans is a total consideration of EUR 1.4 billion.
Meanwhile, the SMEs lending, guaranteed from 70% to 90%, amounts to a total of EUR 10.6 billion, of which EUR 6 billion already granted, EUR 4.7 billion still to be provided. In terms of moratoria, we are basically at the same level we announced in June, is around a bit below EUR 16 billion. The total amount is still EUR 15.6 billion. A small reduction, of which EUR 12 billion from state moratoria and EUR 3.4 million of Italian Banking Association kind of moratoria. In October, this figure is stable. Let me spend some word about how do we see this situation because of the many concern we hear about the potential disruptive effect of the end of moratoria.
Let's say that, thanks to our geography, there is a first consideration, very important in our view, which is the difference between the market share of moratoria measures and the market share of public guaranteed issued vis-à-vis our natural market share. As you can see, due to our geography, we are very much involved in new lending with public guarantee, in which we have a market share of 11% of EUR 105 billion of total loans granted by the Italian banking system. We have, again, EUR 12 billion. Meanwhile, out of the EUR 300 billion of moratoria, we have a stake of only five percent, which is the EUR 15.5 billion I mentioned before. This means, in my opinion, that the quality of our kind of client, due to the very much development manufacturing in our region, is much more addressed to state guarantee loan rather than to moratoria.
Having said that, also the moratoria are quite safe, in our opinion, because the distribution of loans under moratoria by rating class at September still amount at a very comfortable 77% in the low-medium risk class of rating. Meanwhile, we have 13% of mid high risk and only 10% of high risk client. If we extrapolate the client in these two category, which also are in the more exposed selected sector, highly potentially impacted by COVID-19, we have at risk EUR 400 million in the mid high risk client and EUR 300 million in the high risk client. I will explain how we are dealing with this client in the next page. Another very consistent figure, which I think can give you an idea of the liquidity that our clients are getting from these measures is the increase in deposit from our non-financial corporates.
As you can see, this kind of clients in March stand at EUR 25.6 billion of deposit. Meanwhile, in October, they increased over 28% up to almost EUR 33 billion, which is usually EUR 7.5 million more. This means that, of course, the most of the loans we have granted are still there in the current account of our client, and they are taking in full consideration all the installment of the moratoria that are going to expire in the next months in order to comply with this maturity.
Let's also say that almost EUR 2 billion of this increase in deposit come from the same client who apply for moratoria. Meanwhile, the other EUR 5 billion comes from the other client, mostly the one who applied for the new loan guarantees. Some few hint about what we are doing in order to monitor and check continuously the client who applied for moratoria.
Out of the EUR 12 billion who applied for the government moratoria, we extrapolated a more risky portfolio, the one we were mentioning before, which amount to EUR 2.7 billion. We are selecting and contacting the almost 9,000 clients pertaining to this category, in order to ask each of them the current liquidity situation, the potential need for any further measure in order to comply with the moratoria, and so on. Up to now, we have contacted and received answer by almost 20% to 22% of our clients in this cluster. 70% of them, they don't need anything further in order to comply with the installment that are going to mature in the next months. The perception is that only a few part of these will be engaged.
This, of course, is what we are doing in order to find further measure, possibly also new government guaranteed loans, in order to face potential liquidity needs. The same exercise we are doing also on the total performing portfolio. We have completely renewed our workflow-driven monitoring platform with a new early warning system, which is allowing us now to have a consideration of EUR 6 billion in the watchlist of credit, of course, which are running in different client. 70% of this kind of client comes out in our watchlist without any overdue. This is just to say that we don't wait for a client to enter into some difficulties, to have some quick hint about potential difficulties. Up to now, 94% of the clients entering the watchlist come out without any difficulty.
Again, on the new lending, so we are now in nine months at around EUR 20.3 billion, which is more or less the total of the full last year. 65% is ordinary business, 35% is COVID measures. If you only consider the Q3, this amount switch completely in the opposite situation. If you consider enterprise and corporate, 74% of the new loan granted in Q3 is assisted by state guarantee. You can see also how we are proceeding continuously with the new loans lending. In November, we are still continuing at this pace. On page 12, some figures about Q3 and the nine months. As you can see, are all very positive figures. NII is up eight point four percent, mostly thanks to the TLTRO, but also to the increase in loans. Fee and commission is up 11%. Total revenues is up 14%. Operating cost is down five percent.
Pre-provision income, as I said before, is up 45%, but more important, is up also vis-à-vis nine months 2019. The net income of the quarter is EUR 157 million, which lead us to a EUR 263 million of net profit. Of course, during this quarter, we also registered the SIA stake and the Nexi and SIA stake revaluation. As you know, we are both shareholders in SIA and Nexi, and I would say that we were rewarded to keep this strategic participation, which produced these very comfortable results. Just a glance also to the Common Equity Tier 1 evolution. As you can see on the green side, the phase-in went up from 14.6 to 15.4, the fully loaded from 12.8 to 14.1, and even though we apply 50 basis point of headwind due in Q4, we end up with a 13.6, which we feel very comfortable.
The same is in terms of MDA buffer. You remember that our guidance was to be up to 150 basis points. We are in a comfortable 414 basis points. Some words about the de-risking we announced early. We are performing, we have, of course, a binding offer for EUR 1.2 billion of GBV. EUR 1 billion is related to the Project Django, which is a true UTP portfolio sale of midsize dimension. These are all positioned between EUR 500,000 and EUR 25 million of GBV each, more or less 50% real estate, 15% other industrial sector, with quite an average vintage of almost five years, for which we have received the formal binding offer from a couple of bidders. We are, of course, expecting to close this by year-end, but we anticipate to this quarter the effect of the IFRS 9 impact on cost of risk.
Project Titan, instead, is a securitization multi-originator GACS, for which we will contribute for a figure between EUR 150 million and EUR 200 million. This is due to be concluded during the year, and also for this transaction, we have anticipated the IFRS 9 impact. On page 15, let's see the results of this further reduction. We have been down from the numbers that you can see in September 2019. We are EUR 10.5 billion, down to EUR 10.1 billion in December. We are now at EUR 8.6 billion if we consider the effect of the Django and Titan transaction, which means go down year-on-year 18% and 12% only in Q3. As I remember before, this means EUR 21 billion de-risking since the merger. The ratios were down. Before Django and Titan, EUR 8.6 billion gross, EUR 4.7 billion net.
With the effect of the announced transaction, we are down to seven point seven percent of gross NPL ratio, which is further reduced to six point seven if we include loans to bank as per EBA definition. This has been possible also for the very good migration rates. Of course, they were due to also the current situation with the moratoria measures. As you see, the default rate on page 16 were down to one percent.
In Q3, only EUR 150 million of flow. NP danger rate down from 11% to seven point seven percent. Of course, also cure rate was down from five point one to three point five percent. This was the reason why we decided to increase again our disposal plan. The figure we have after the IFRS 9 impact is a coverage of 48%, 51% including write-off. Bad loans 57%, 64% including write-off. An increase from 39% to 42.7% of UTP.
Of course, this will go back more or less at the same level of previous quarter once the two transactions I was mentioning will be executed. The cost of risk, including the IFRS 9 impact of this transaction, is up to EUR 324 million, which allow us to be still into the range of 100 basis points, which we gave you as a guidance for this 2020. On page 17, some figure about our balance sheet. Core performing loans up five percent year-on-year, 1.6% quarter-on-quarter. Current account and deposit 10.8% year-on-year, three point seven on the quarter.
Unfortunately, as you see, all these available amount are not yet fully utilized in terms of conversion into asset under management, mostly because of the current situation, the uncertainty of the forecast for the next months due to the COVID. Even considering, of course, that we have already a pace in new product sales of investment of asset management product in line with the first months of this year. Also in October, we are still registering some increase. Loans went up zero point six percent October on September, core funding plus three percent only in one month, October versus September. Not to mention the very comfortable liquidity and funding position. We have an LCR of almost 200%, NSFR most comfortably above 100%, eligible securities unencumbered around EUR 26 billion.
As you know, we have a performance during this year, all the kind of the bond issue, both in AT1 senior non-preferred and T2 lately in September, EUR 500 million. The debt security portfolio performance is very good. We have increased our reserves on held to collect and sale from EUR 32 million of June to EUR 166 million of September, with a contribute to our Common Equity Tier 1 of EUR 134 million or 23 basis point. As much as the unrealized gains on amortized cost went up of EUR 211 million, September on June. Let's also mention that as of today, we have a further increase of another, let's say, EUR 170 million-EUR 180 million in total consideration between these two categories. Net interest income on page 18. As you see, the eight point four increase Q-on-Q was mostly due not only to a slight increase in commercial transaction operation, but mostly with TLTRO.
Of course, what we included, EUR 47.4 million, is not the total contribution on TLTRO on the Q3, which is higher. We have to consider the downside of the extra liquidity reinvestment for a portion of TLTRO, which we are not investing in loans because of the growth also of the deposit where we were mentioning before. The total results, as I mentioned, is almost EUR 520 million. In terms of commercial spread, notwithstanding the shift from short-term lending to medium-term transaction guaranteed by the state, we are keeping an asset spread in the region of 182 basis points, one basis point better than last quarter. The reduction in commercial spread of 15 basis points is all a consequence of the reduction of Euribor in the quarter for 18 basis points.
Of course, the quality of the portfolio is bettering because we are substituting basically short-terms loans with medium-term guaranteed loans. On page 19, a sound rebound also in terms of fees. Commercial banking fees at the same level of Q1. Management advisory still a bit below Q1, 11% above Q2. This is also due, of course, the difference with Q1 also to Agos in the Q3. As you can see on the right box, basically July and September were very consistent at around EUR 143 million. We also wanted to show you the commercial recovery in investment product placement, the monthly trend. As you see on the down right side, apart from the very massive impact in March, April and May, in which we reduced very much the capability of placement.
Since June, we have relaunched this activity, apart from the Q3, also October is very sound, is EUR 1.2 billion in terms of value date corresponding to the commission in Q3. In terms of sale, we are up to EUR 1.4 billion, which means that we have already reserved a new commission for Q4. On page 20, operating cost, also for these very sound results. I have to spend some word in order to make you understand some one-off saving in terms of personnel. We were down total cost from eight point four percent vis-à-vis Q1 and five point two percent vis-à-vis Q2. As you see on the right box, there is a massive reduction vis-à-vis the first year of the merger. We have almost reached EUR 500 million of current reduction in cost, a part of this comes from some benefit related to the COVID.
As you can see, staff cost is down 15% from Q1 and 10% from Q2. Both Q2 and Q3 benefit from the reduction of variable remuneration due to the constraint of the economic situation, and also from some one-off COVID related savings from the government. No much more to mention as for administrative cost, even though, in this case, we have some negative one-off due to cost of COVID measures. Last page, some final remarks. Very sound, we feel, performance, considering also the de-risking at EUR 263 million of net profit. Strong pre-provision income at EUR 1.3 billion. De-risking strategy would allow us to seven point seven of NPL ratio, going down toward our final target.
A very solid capital buffer in terms of Common Equity Tier 1, even considering the headwind of Q4, and a quality of loan portfolio supported by the state guarantee and by the many measure we are activating in terms of monitoring and early warning. Some hint about the outlook of the last quarter. We think in core revenues, if nothing disruptive happen in terms of COVID, we can be in line with Q3, both in terms of NII and fees and commission. Let's say that we have already utilized all the one-off for cost. We think the guidance for Q4 will be more similar to Q1 rather than Q2 and Q3. Asset quality. We are still exploring some opportunity for single names disposal during Q4, but also considering this, we think we can confirm the guidance of cost of credit around 100 basis point.
Finally, the target of capital, of course, will remain 250 basis point, but we are comfortably above 400, so we think we can reach easily this target. Thank you very much, and I leave you the floor for the question.
Excuse me. This is the Chorus Call conference operator. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. To remove yourself from the question queue, please press star and two. We kindly ask to use handsets when asking questions. Anyone who has a question may press star and one at this time. The first question is from Christian Carrese of Intermonte. Please go ahead.
Good evening. Thank you for taking my questions. The first one is on the fees. I would like to understand what kind of products are you selling to your clientele, and the upfront fees booked in the third quarter compared to the first quarter. The second question is on costs. The EUR 60 million one-off is a one-off, so back to first quarter level in the fourth quarter. I was wondering if you see any additional room to make efficiency, take into account that you show in the slide that the digital usage from clientele came up from 77% to 84%. In the past you mentioned the possibility to reduce further the branch networks, so if you can share with us your thoughts on that. Third question on net interest income. I was surprised from the fact that asset spread went up in the quarter.
What do you think could be the trend in the coming quarters? Finally, on Agos Ducato joint venture and your relationship with Crédit Agricole, if you can give us an update on the put option expiring next year, and also if you can, some update on what we read on the newspaper. Thank you.
Thank you, Mr. Carrese. Good evening. Upfront amount for EUR 15 million more Q3 on Q2. The total fee are 20% coming from running fees, 80% are from increase in global sales. Which kind of product is split between funds? We also have an increase in banc assurance. Basically all the normal product, very conservative, because as you know the feeling for our client now is to be very prudent. We are having a very fair approach in order not to stress them, but try to make them understand it is better to convert their current account holdings. Costs, basically, yes, as I mentioned before, we have exploited at the maximum level. We are beating probably the EUR 100 million reduction cost that we gave as a guidance in Q1, when we announced the results of Q1, due to the COVID-19.
Frankly speaking, we are doing better in revenues. We are still exploiting at maximum level the cost savings. Of course, this is for the current situation. Of course, we will still be very proactive in terms of efficiency and cost efficiency. As soon as we will announce the new plan for next year, of course, we will give you also some new number about branch personnel and so on. For the time being, of course, and especially during this period, we think it's better to wait and see for understanding how the situation will evolve.
I am happy of one thing, if you allow me, that when we presented our business plan, of course, was the beginning of the COVID, we said, we think our bank, after showing that it's able to reduce cost massively year-over-year, would like to be more concentrated on revenue growth rather than on cost savings. Saying that, of course, if the revenue growth was not going to show up because of the situation, we would have been able, in any case, to reduce costs. This is exactly what we have done. Spread, notwithstanding, we are very good. We cannot give comparables of our contribution on state guarantee measures, it's very consistent, much higher than our mid-sized player. We were very good at keeping in terms of spread, as you'll be seeing in our figures.
We think that having already granted the vast majority of this lending guaranteed, the spread is not going to go down more. The only reduction we are experiencing is because there is not so much short-term lending, which, as you know, especially in the current account, utilization normally is much more convenient for the bank. Last, Agos, I think I already said sometime that we were working with Crédit Agricole in order to consider the COVID impact of this period and basically to postpone the put option for a considerable amount of time. We have an agreement already reached. This should postpone of at least 18 months the put maturity, which was due by June next year. You also asked about other things, about Crédit Agricole?
Yes. The rumors on newspaper regarding potential M&A consolidation and so on. I don't know if you want to share with us your thoughts on that.
Yeah, my usual consideration on that, we are, I would say, the first mover. We consider ourselves the one available for further consolidation. Having said that, we are open to discuss with everybody as a strong project for build up a solid bank project in Italy, in the region that we are stronger. We will be available to talk to everybody. Of course, I see also the rumor. We are not commenting on rumor, we have an interest to explore any potential move in order to strengthen the bank even more, to factorize potential cost synergies and so on. We will see. The COVID doesn't help. Of course, it's a period in which we are all into our, let's say, house, either real house or in the office.
It's difficult to have contact and it's complicated. We are here on the market, and we will see what happens.
Thank you very much.
The next question is from Antonio Reale of Morgan Stanley. Please go ahead.
Hi, good evening. Thank you for taking my questions. I've got a couple. Just the first one is a follow-up on NII. Looking at your wider trends, we've seen a further drop into Q4 and deposits have been growing, which in a negative rate environment is clearly a headwind on margins. I'm wondering how you see loan demand dynamics. What's the outlook for loan growth into next year? Obviously there's still a pattern for government loans, I wonder if you have any visibility beyond that you can share. That's my first question. Second question is on moratoria loans, I would like to understand what your cost of risk estimate for the full year assume in terms of potential defaults on these loans, both looking at this year and if you have any visibility on next.
What percentage of your EUR 15.6 billion do you assume could migrate potentially into non-performing? You show good color on slide nine. I wonder if that's a good proxy to use. We're now entering also into the final part of the year. I wonder if you're in a position to comment a bit more on the outlook for cost of risk for next year. That's my second question. Lastly, you're back active on the NPL market after the lockdown. We've been negotiating a relatively large unlikely-to-pay ticket, and I would like to hear from you, anecdotally, what you're seeing in terms of NPL bids compared to before COVID. Without necessarily going into a lot of details given your negotiations, but just big picture, pre- and post-COVID anecdotal color will be very useful. Thank you.
Thank you, Mr. Reale. Yes, of course, deposit growing is not something that we are happy with. Together, of course, with the strong liquidity that we have also due to the TLTRO, you know that we are not drawing all the TLTRO just because we have so much deposit growing. Let's say that it's not black or white. Of course, up to one month ago, we were thinking that the confidence of potential more comfortable situation in terms of pandemic would have led our client to convert more deposit into asset under management. Of course, we know that now this is not the case, maybe then, if this will go up for some months, maybe there will be some more measures from this ECB. It's difficult to make forecast because there are also the intervention from ECB, which try to compensate potential downside.
Loan growth is a bit the same. Of course, up to now, they've been fostered by the state guarantee. I would say again that we were one of the most active into this market, by far, I would say. This is all ammunition that I think our client can exploit if the situation will be clear or if they need to put into the market more liquidity. If the situation is going to be better in the second part of 2021, there is the possibility of recovery also for loans. Otherwise, of course, if the situation stay as it is, I don't think we can imagine a lot of loan growth for next year. Unfortunately, almost the same from cost of risk. Please keep also in mind what we have said quarter by quarter since the beginning of the pandemic.
We say that we wanted to be very prudent. We wanted to make provision also on performing loans in order to prepare a potential higher inflow into non-performing. This is what we have done in the first quarter. Q3 was much better also for the confidence in the economy, which was going on. We thought it was the best moment in order to perform a disposal. Let's say that I think our timing was very good because, most probably, I don't know if going ahead we will find the same availability we found during the last month in order to conclude the deal today. Of course, for us, the UTP market was completely new. I would say that probably also for the market, a straight sale was completely new.
We are happy that we have showed that it's possible to have different player at the table dealing with each of them. UTP, I was one of the few who say that already for bad loans, there is not only one price. If this was true ex-post for bad loans, it's even more different from UTP. UTP is not an asset that you have to dispose. It's a company working, producing, exporting. The feeling that each of these players can have on the single asset is completely different. This is the reason why we split the amount of EUR 1 billion between two different players.
Thank you.
The next question is from Azzurra Guelfi of Citi. Please go ahead.
Hi, good evening. A couple of questions. One is coming back to M&A, not on a specific deal, but just to understand what would be your priority in case of a consolidation. I understand the strategic fit and creating a stronger bank, but would it be about a minimal capital impact or high EPS generation or definitely not asset quality compromise to be made? That would be one. The second question would be on the regulatory impact for 2021, because you gave us kindly the details for the fourth quarter, but if you can tell us what is the capital headwinds and positive development for 2021. The last thing, if you have any update on the potential impact of the new definition of default on NPLs. Thank you.
Thank you, Azzurra. Priority in consolidation. Let's say, of course, I cannot be so specific because as I was mentioning before, we are really trying to understand what could be the best situation. Of course, I think the industrial project have to lead any possible idea of consolidation. I don't know, during this period we are talking about to merge with somebody who can give you contribution by shareholders or so on. We have always been of the same idea that first, industrial project. We think our equity story is of a strong bank created in the wealthy region of Northern Italy, amongst the best region in Europe. We would like to pursue this project, it is the first priority.
Of course, this has to be done, as we did in the last merger, taking into consideration valuation for shareholders, which is not that difficult in our situation due to our stock price, and try to emphasize what is one of our best characteristics. I was mentioning the reduction in cost of almost EUR 500 million running in four years that we performed during the merger. I think that this can be a good suggestion in order to understand which player could be the one who can allow us to make cost savings and synergy cost saving. That's all, basically, that I can say right now, because I don't have anything to discuss because I don't have any concrete project to discuss. Regulatory headwinds, we were updating again the impact of Q4. I have to say that we stay with the consideration we gave on the Q2.
I think last year could be in the region of around 100 basis points all in all, and then reduce dramatically in 2022, and again, increase in 2023 due to the Basel IV. The total is still the region that we mentioned that time, I think is in the region 200, 230 basis points. Last question. Sorry.
It was beginning of
Definition of default. We are already running, of course, all our numbers ready for January 21. We think the increase of stock for the new definition of default could be in the region of EUR 200 million of new non-performing. In terms of capital consideration, would be something lower than 10 basis point. Thank you.
The next question is from Jernej Omahen of Goldman Sachs. Please go ahead.
Hi, good evening. I just wanted to ask on the accounting of the TLTRO benefit this quarter and going forward. I just wanted to understand how you have accounted for, essentially for which rate of TLTRO funding you've essentially accounted for, and whether in a year's time, part of it will reverse and the NII will fall back depending on the way you accrue the extra bonus rate for the TLTRO. I just wanted also to ask about the costs, which there is a one-off, you say, of EUR 60 million because of extra savings on variable compensation and so on, and COVID related expenses.
I just wanted to understand whether these are hard triggers, so to speak, which have been linked to the forthcoming of revenues earlier in the year and will come back in the future if your fees, for example, are better, or whether this is more, let's say, a softer allocation, and whether you think that some of these savings will stay into next year's cost base, essentially, on this particular item of this quarter rather than various initiatives that you have mentioned in your previous answers to the questions? Thank you very much.
I think I was quite clear. The contribution in Q3 was EUR 47 million, which of course is a net between what is going to be the contribution from the premium from ECB, the 100 basis points, and the part of this amount that we are not able to invest in ill assets. Of course, as you know, if we have to go back into ECB with a part of it, we pay 50 basis points. The net, we think the contribution could be in the region of EUR 50 million, and the same should be also in Q4. Going to costs. Sorry, maybe you asked also for next year. If you asked also for next year, in any case, I will anticipate. There should be EUR 30 million-EUR 35 million more in the first two Q next year vis-a-vis the last two Q this year.
Of course, part of this, at level of NII, will be compensated by lower revenues on the Govies portfolio. Last question about cost. I think also in this, we were very transparent. We had one-off of around EUR 60 million, which is not really one-off. Part is one-off due to contribution of state measures from the COVID period. Another part is a reduction of the variable remuneration due to the size of the total revenues, which was already done also in Q2. The total amount between Q2 and Q3 is almost EUR 90 million. Of course, for next year, this amount we hope will not be there, because this means that we are going back to a total revenues more comfortable, and also to a no COVID contribution because COVID will have no effect.
If this will not be the case, of course, we will have the same kind of contribution next year. On top of that, of course, as you know, and as I anticipated to Mr. Carrese, we have also announced the reduction in personnel in our business plan. Of course, we are now again in talks with the unions in order to decide which kind of reduction in personnel could be applied, possibly starting from next year.
Okay, clear. Thank you very much for this.
Thank you.
The next question is from Noemi Peruch of Mediobanca. Please go ahead.
Good evening, and thank you for taking my questions. I have a few. The first one is a clarification on cost. You mentioned indeed a EUR 60 million of positive one-off in Q3 and lower variable compensation. Can you specify the size of the one-off? Is that EUR 40 million, so with a variable compensation of EUR 20 in line with Q2? The second one is on asset quality. On the EUR 1.2 billion UTP disposal, what is the average yield attached to these portfolios? The last one is on Common Equity. What drives the quarterly reduction in RWA? Is it the switch from drawn lines to state-guaranteed loans? Do the 50 basis points regulatory headwinds include the positive from lower software deduction? Thank you very much.
Okay. Let's take one question per time. Reduction in cost. Again, of course, apart from the one-off, there has been also normal reduction of the activity during the three months of COVID, beginning first half of the year. No transfer, no extraordinary compensation and so on. A part is a reduction due to the COVID. A part is because of the reduction of the global amount of the remuneration due to the lowering of the revenues, and a part is the one-off coming from the state. I cannot really be more precise than that, but we mentioned some figure into the comments. Sorry, can you remind me the second one was?
Asset quality.
Asset quality. Okay. The interest margin attached, the NII attached to the disposal. Is this the question?
Yes.
Okay. For next year, would be in the region of EUR 15 million. The last was on headwinds. First of all, let me give you some more detail about the RWA reduction, because if I am right, you also asked about that. This, of course, is already into the Q3 performance. When you see 56 basis points of Q3 performance and other, 25 basis points comes from the profitability, and 30 basis points comes from the reduction in RWA due to the state guarantee. Going further, Q4, for the time being, we only consider the headwind. We are not yet considering some potential tailwind, which in any case could be compensated by some further reduction. We think the guidance for year-end would be the same we gave today.
Thank you. Just to make sure I understand, the NII contribution is EUR 15 or EUR 50?
15.
Okay. Thank you very much.
The next question is from Domenico Santoro of HSBC. Please go ahead.
Hello. Hi, good evening. Thanks for the presentation. A couple of questions also on my side very quickly. First of all, on this UTP portfolio that my understanding has been already sold, I see it's mainly real estate, so I assume it's highly collateralized. Just wonder whether you can give us an idea of the coverage on this. I see that you have done a top-up, of course, ahead of the sale, and to understand whether we should expect a drop in the coverage or not. The other question is on the regulatory headwinds. These 50 basis points that you're mentioning coming in Q4, was it already included in the 200 basis points guidance that you gave back in March, or is something that we should consider on top of that? There were other questions about the M&A.
I'm just wondering whether I can use your brain on this. We have seen recently in all the M&A been announced so far in 2020, in Italy, in Spain, there was a big chunk of provisioning auto top-up to coverage from very solid banks and filtering, of course, into the capital. You said that you are quite open to discuss with other partners, so you're open to M&A. Is it something that the regulator, regardless of COVID, is asking in a way? I don't know whether you want to answer to this question, but alternatively, what would be the minimum level of capital that you would accept in a M&A transaction? Thank you.
Thank you, Mr. Santoro. UTP portfolio, I think I mentioned 55% is sort of real estate asset, which doesn't mean normally that you have a collateral. That means that you are also some company who's involved in the real estate business, which could mean also some construction and so on. This is the classification, 55% in the large family of the real estate and 45% in other industry. I cannot give you many details about the provision. Let's say that the coverage was consistent with the figure we showed today, that you can have some idea of the IFRS 9 if you compare Q1 and Q2 with Q3. If you wish, I can also tell that we are considering an impact of 10, 12 basis point in terms of Common Equity Tier 1. Regulatory headwind. Yes, it's 50 and not 35 for two reason.
One is that 35 was considering headwind and tailwind. Frankly speaking, we were prudent in giving 50 because one of these headwind is related to market risk and depend from the market exposure you have month by month. Up today, we have an exposure which is higher than what we declared before. The difference, I don't think is meaningful. Of course, this is included in the global consideration. I think all the provisioning you were mentioning related to previous two transaction was coming from the badwill utilization, and from the ECB willingness to give the bank the possibility to use the buffer of Common Equity Tier 1. I think that, as I mentioned before, we have a very comfortable buffer to utilize. We are reducing, in any case, our exposure with NPE.
We think that if the case may be, we won't have many difficulties in going down to the potential request from ECB, which, of course, I think is supporting, as Mr. Enria is continuously declaring, any opportunity for consolidation. Frankly speaking, I don't think we will have some problem vis-a-vis ECB willingness in terms of this kind of a transaction.
Sorry, the 10, 15, if my understanding is correct, impact from the sale, what is it? Is it the additional provision that you have done in Q3, or is something that should come in Q4? If it is negative or positive.
You are talking about the UTP?
Yes, correct.
No, I was mentioned, because you asked how much you are provisioning. I was saying that all in all, the impact of this transaction in our calculation, of course, the transaction is not yet terminated, but we have a binding offer in these terms. Considering the DTA opportunity to utilize DTA up to EUR 2 billion of disposal and considering the net impact, the fiscal advantage of this opportunity, we think the final impact will be in the region of 10 basis points.
Positive.
Thank you.
The next question is from Adele Palamà of UBS. Please go ahead.
Yes. Hi, good evening. I have one question. If you can give us some color on the incoming maturities of the treasury portfolio, what is the percentage of the government work portfolio that is coming to maturity in 2020 and in 2021? What is the yield of the bonds expiring? Thank you.
Thank you, Ms. Palama. Let's try to understand if I got all your question. The yield of the state guarantee loans, we wrote on the presentation, is one point six percent.
No. I'm referring to the treasury portfolio, like the government bond.
Sorry, I understood the loan guarantee.
No.
Just a minute. I have to recover this. Yes, as I mentioned before, we are expecting a decrease in contribution for the Govies portfolio for next year in the region of EUR 30 million to EUR 35 million, which will be compensated by higher contribution from TLTRO. This is the guidance for 2021.
Okay, thanks.
Okay. Okay, sorry, can you give. The duration. No, the state guarantee loans.
The duration.
The duration. We have on page 33 the duration of the Govies split between Italian Govies and non-Italian Govies, amortized cost and FVTOCI. The duration of Italian Govies is two point nine for amortized cost, one point nine for Thank you, Mr. Vercellone. No, we are, of course, considering to increase Of course, as I mentioned before, the situation is so liquid that of course, we are also going to change some of our assumption of the funding plan assumption. As you know, we have drawn now EUR 26 billion out of EUR 35 billion, which is the total possibility for our bank. Maybe we will draw another a couple of billion EUR in order to then reimburse possibly in Q3 2021 all the extra drawing we have done thanks to the premium.
I think this will come from a better placing or managing of our TLTRO activity, but we are not going to draw a considerable amount on top of what we have already done. As far as the next question, the maturity is September 2021, and we have to decide what to do together with our partner by six months ahead of this maturity.
Thank you.
The next question is from Hugo Cruz of KBW. Please go ahead.
Hi. Thank you. Just sorry to insist on the headwinds. I just want to clarify what you said about headwinds in 2021. Is it going to be 50 basis points because you are front-loading something this year, or is it going to be 100 basis points? I understand that was before any potential benefit from the waiver for large NPL sales. Do you have any visibility now on whether you can benefit from that waiver or not? That's it. Thank you.
Thank you, Mr. Cruz. I mentioned the same amount we gave you on the next quarter presentation, which was due to the COVID. We switched ahead the impact of the headwind we gave in the three-year plan presentation. For 2021, should be in the region of 100 basis points. This, of course, is at our best consideration. We still are waiting from ECB to give the results of the inspection on the credit model. We are still confident that they can take in good consideration the one-off situation generated by the massive disposal we have done during these years. Is more than EUR 21 billion. Of course, I don't have a hint about what will be the output of the inspection we've got.
Okay. Thank you very much.
You, too.
For any further questions, please press Star and one on your telephone. Mr. Castagna, there are no more questions registered at this time.
Thank you everybody for being with us this evening, and I am sure we will be in touch during the next week. Thank you very much, and good evening.
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