Good afternoon. This is the Chorus Call conference operator. Welcome and thank you for joining the Banco BPM First Half twenty twenty Results Conference Call. There will be an opportunity to ask questions. Conference.
At this time, I would like to turn the conference over to Mr. Roberto Perronayo, IR Manager of Banco BPM. Please go ahead, sir.
Thanks a lot and thanks everybody to be present with us at the presentation of Banco BPM's first half results. As usual before leaving the floor to Mr. Castagna for the presentation, I would only remind you that you can find the presentation on our website on the Investor Relations page. And that section Q and A is reserved only to the financial analysts. I leave the floor to Mr.
Castagna.
Hello. Good evening, everybody. I know it's 6:30, August 6, so I have to be quick. I'll try to do my best. Thank you for being with us.
I know it's been a long day also for you. I'll start on Page 5. Basically, some news about how is our reaction to the COVID. What we can say almost as all the other bank, we are back to normal, of course, with much more digital business grown over these weeks months. Basically, we have reopened all the branch.
We will terminate our full reopening by beginning of September. And now we have more than 90% of our people in the branch And almost 50% into head office compared with the 35% in the branch and 20% in head office during the peak of the COVID. I won't spend time about digital. You You can see the figure out they have grown. They are consistent.
Also now that we are basically we drove the branch open. Basically, the digital experience has been appreciated by our client and also, I would say, by our colleagues. Back to normal also in terms of business. As you can see, investment product placement and Fees and Commission, which were the 2 items eaten by the crisis during the 2 months 2.5 months of the COVID peak are now in June almost back to normal. Product placement in June was EUR 1,300,000,000 compared to EUR 0.7000000000 in May and EUR 0.3000000000 in April.
As much as the fees and commission Revenues up to EUR 151,000,000 in June compared to EUR 104,000,000 in April at 121 in May. The average of the Q1 was 147. On Page 6, some comment about the government support measure and how our bank is proactive Trying to have a granular approach at client level in order to exploit all the opportunity given by the state measures and also the possibility to try to cover at our best the needs of our client. Basically, we had a 3 step approach, Sure. Analyzing all the corporate and SME clients, the drivers were the pre COVID rating, the capital solidity, the sector outlook and the share of wallet.
Having done that, we then segmented our client into different groups, homogeneous group in order to assess which kind of impact that would have had by the COVID and which kind of measure they would need on our side in order to be the safe as possible. As you can see, the output was to give target list for each relationship manager, basically indicating the strategy to be adopted at single client level. On Page 7, the new lending activity, which grew a lot Into Q2, the results of full semester was EUR 12,400,000,000 of new lending, up 15% visavis first half twenty nineteen. And the impact of the guarantee as of June It was EUR 2,000,000,000 out of the EUR 12,000,000,000. Just to mention the pace of the growing guarantee measures.
In July, we are up to EUR 4,000,000,000 So EUR 2,000,000,000 only in July. The amount in the pipeline of the public guarantee amount as of today to EUR 11,500,000,000 of which already granted in July EUR 4,000,000,000 as As I mentioned before, and out of the EUR 7,500,000,000 still to be granted, We have EUR 5,000,000,000 which are already authorized by our credit department and waiting for being drawn by our client. Only EUR 2,600,000,000 under approval. Going to the moratoria measure on Page 8, just a quick number. We had suspended installments for EUR 2,300,000,000 out of which EUR 0.4 billion out of Abi moratoria and EUR 1,900,000,000 for the decree, a Curitalia decree moratoria.
The total underlying exposure related to these installments amounted to EUR 16,000,000,000 Out of which EUR 3,000,000,000 Abi moratoria EUR 12,900,000,000 Curitale decree moratoria. As you know, The AbbVie monetoria has 12 to 24 months of extension. Meanwhile, the decree It's supposed to expire by September this year, but it's most probably to be renewed with the August decree As far as we know, at least at to January 2021, giving us, of course, time to intervene in order to have the best possible measure for our client to comply with the installment. Basically also to this regard, we have a distribution by rating class mostly in the low medium risk class applying for moratoria differently from the financing guaranteeing by the state. The moratorium was basically applied by everybody, the majority of which are in the low medium risk, 76%, Only 14% in the mid high risk and 10% in the high risk categories.
In the exposure to select sectors, which we mentioned also in our Q1 results, which are the most exposed to COVID It's only EUR 500,000,000 for mid high risk and EUR 300,000,000 for high risk. Let's have another look on this On Page 9, as you can see, out of EUR 102,000,000,000 of loans portfolio, we have 86 Percent from 87.8 percent in the low, medium low and medium risk categories and 8% in the medium light, 5% in the high risk category. Inside this, we have that the sector Most impacted and are the sectors that are you can see in the node 3, transportation, accommodation, Restaurants and Travel Agency, Textile and Leather, Automotive and Transportation are accounted for EUR 8 EUR 1,000,000,000 out of the EUR 102,000,000,000 of our portfolio. Of this EUR 8,000,000,000, almost 5 are already covered by either real estate guarantee or state guarantee approved under the liquidity decree. The remaining EUR 3,000,000,000 are still under examination In order to find the best solution and try to give also to them the support as much as possible of state guarantee.
If we go to the level of high risk rating and mid high risk rating, the EUR 8,000,000,000 became EUR 400,000,000 for the high risk, EUR 1,000,000,000 for the mid di risk and only EUR 100,000,000 EUR 400,000,000 are still to be Secured. On Page 10, we have the scenario that we applied on the performing loan exposure in order to consider the ECL impact on H1 result, which as you know was EUR 140,000,000 on the performing exposure. This was extrapolated with a more conservative scenario vis a vis Q1. As you know, in the Q1, we had our own scenario, which was more or less 8% of lower GDP. Meanwhile, the new scenario is the one approved by ECB And this is a multi scenario approach, which give us more or less 9.6%, 9.7% of lower GDP.
But we were able to disaggregate by sector The impact of the relevant GDP reduction for each specific sector. And again, the COVID impact was €140,000,000 on the performing exposure. On Page 12, You can find the results of Q2 compared with the Q1. As you see, we reported EUR 105,000,000 of net profit, which was EUR 128,000,000 adjusted. On the left of the slide, you find the disposition Considering the fair value on the liabilities under net financial results, In order to give you a more comprehensive and comparable effective result, We have re exposed the fair value on the liabilities and the net income before tax in order to give you a comparison of the line by line result on Q1.
As you can see on the right side of the Slide 12, we were able to have Better results basically in every items Q2 on Q1, both in terms of NII. In terms of total income, revenues were up 5%, not in terms of fee and commission where I told you We have registered more hard effect of the COVID lockdown. We also were able to reduce 3.3 percent operating cost and have profit From operation at EUR 387,000,000 compared to EUR 320,000,000 of Q1 2020. Provision were up almost EUR 50,000,000, EUR 263,000,000 compared to EUR213,000,000 for a pretax profit 2.6% Higher of Q1, EUR 106,000,000 versus EUR 103,000,000. After Systemic charge, we had the net income before the line that I mentioned before and the PPA, Which was EUR 76,000,000 positive compared to EUR 20,000,000 of Q1 2020.
The final net income including the fair value on liabilities is negative EUR 46,000,000 compared to EUR 151,000,000 Q1, which in turn was affected by these items. Let's go to the sort of sum up of the most important item. On Page 13, we have, frankly speaking, a quite solid H1 performance In this COVID context, total revenues again up 5%, cost down 3.3 with very good pre provision income. Also in terms of reserves and unrealized gains, We got the most about our GOVI's portfolio. As you can see quarter on quarter, We had EUR 230,000,000 of reserves on fair value on cost, which of course apply to our common equity Tier 1 and impacted for 40 basis points.
Meanwhile, we also registered a very comfortable EUR 245,000,000 of Positive performance in terms of unrealized gains on debt at amortized cost. But as you know, this is not going neither in the profit and loss nor in the common equity Tier 1. It's still a reserve, which is very comfortable for the months ahead. Also in terms of volumes, we had a quite comfortable growth both in terms of loans, which grew 4% year on year and 1% quarter on quarter. The real growth is still to come.
If you consider that only in July, We registered another EUR 1,000,000,000 of increase in stock, which is another 1% compared to the Q2 of this year. The same in terms of current accounts and deposit, the increase was 8.7 Year on year, 3.2 percent quarter on quarter. In July, we have another EUR 2,100,000,000 of deposit growing 2% versus Q2 2020. Asset quality, we We are experiencing a slow decrease of our NPE exposure going down from 9.1% to 8.7% growth and 5% net NPE ratio with the taxes ratio down to 49%. Very comfortable also our liquidity and funding position, of course, couldn't be different because of the possibility and the opportunity that we exploited the drawing €25,000,000,000 of TLTRO.
We still have EUR 24,000,000,000 of unencumbered eligible securities, and we still could Draw another EUR 10,000,000,000 of TLTRO 3. The LCR, of course, was up 193%. Capital ratios also in this also on the capital side, we had some strengthening. Common equity Tier 1 grew 40 basis points to fully loaded to 13.3%, mainly due to the strengthening of the GOVI's performance. Meanwhile, Phase in Commonwealth and Equity Tier 1 was up 14.7%.
Also in terms of MDA buffer, we were up 3 35 basis points. As you may remember, our guidance is 250 basis points. Meanwhile, on the common equity Tier 1 ratio versus minimum requirement, we are up 480 basis points. Let's go to some specific figure of the balance of the P and L. Net interest income is up EUR 5,000,000.
On the right, you can see the different contribution to the growth of the net interest income. It's interesting to notice that also In the 3 months of the quarter, we had a slight increase month by month from EUR 154,000,000 in April to 164 in June. The commercial spread is up some basis points. We feel that this could experience some decrease in the next months due to both the lowering the Euribor and also the increasing volumes of state guarantee, which of course at lower spreads. I already mentioned the volume both in June, Also the increase we registered in July, so I skip Page 17.
Going to Page 18, where we have Some details about our performance in lending, strong increase 13% visavis Same period last year, 22% up in terms of corporates, 30% down in terms of household. But if you look on the low side on the left low side of this slide, You can see that also the household in the Q2 is growing from 0.6 to 0.8. Likewise, of course, Enterprise and Corporate. Then there is another figure that scheme that you can see the different figure month by month. As you can see, we are increasing Quite dramatically, the lending taking advantage from the state guarantee.
Let's say that in Q2, the amount of state guarantee Represented 29% of the total new lending in the only in July, The amount of state of state guaranteed loans was up to 60% And this of course is going to better our loan portfolio quality. On Page 19, just one minute about the funding. Of course, we are not issuing Anything. First of all, we had some very interesting and Very good in terms of rate issue in January February. Nowadays, we are waiting for normal time to restore.
But first of all, we haven't grown so much in terms of Yes, the Ultra, we have almost cover all our needs. I would say that the only thing We will issue by this year is for regulatory requirement if needed and not for liquidity needs. Talking about liquidity on Page 20, again, EUR 24,000,000,000 of unencumbered eligible securities, up to EUR 28,000,000,000 in July. I already mentioned that we can draw another EUR 10,000,000 of TLTRO. The total effect of the TLTRO drawing will be in H2 2020 because of course, as you know, the drawing was done at the end of June.
Let's go on Page 21 to net fees and commission. As you can see, we were down 8% year on year and 14.6 Q2 and Q1, I can say that we are Optimistic, if we see the right side of the slide, you can see both in terms of revenues on the upside of the slide and in terms of monthly product placement trend on the lower part of the slide, The restoring of the normal activity. I would say that after experiencing a very low April with EUR 104,000,000 of revenues coming from commission. We went up to 121 In June, which is in the average of the best months of the best 2 months beginning of the year. The same as you can see on the low side of the slide.
We went from EUR 1,200,000,000 EUR 1,500,000,000 of product placement January February down to 0.9%, 0.3%, 0.7%. Now we are back to almost the normal activity, of course, coming from the reopening of the network. Again, on the financial net financial results, as I mentioned before, the results is minus EUR 2,000,000 compared with EUR 206,000,000, but these are mostly due to the fair value of the of own liabilities on the certificate issuing from our bank. If we exclude these lines, which you know is not going to affect the common equity Tier 1, We are we registered a comfortable EUR 82,000,000 of NFR compared to EUR0 in the Q1. Mostly of these revenues came from disposal of govies for EUR 34,000,000 from some revaluation of fair value asset for EUR 29,000,000 and negotiation activity for EUR 80,000,000.
I don't comment the reserves So debt securities and the underlying gains, which we already mentioned before and which are still registering further increase also in July. Debt Securities, our portfolio is increased in the last 2 quarters this year. Let's say that the Q1, we just recovered as we do every year Some trading activities, which normally end of the year, we try to keep as low as possible. Meanwhile, in the Q2, we had an increase of almost EUR 3,000,000,000 of HTC GOVIS with a very short maturity linked to the expiring of TLTRO funding. So we have matched the 2 activities.
Still we have 57% of of Italian Golf is mainly concentrated as you can see down in the slide in the HTC portfolio. Page 20 Just to mention that the duration is very low, is going down For Italian govies, AC from 3.9 to 3.3 and for Italian govies, TCM On Page 25, some good news from operating costs. We were able to still reduce As we are doing basically since the beginning of the merger, as you can see on the right side of this slide, basically we are down On the average result of each year, 15% from 2017, And we have reduced another 4.5% comparing H1 2020 to the same period 2019. Still, we feel that we can be able to have some further reduction in cost also in the 2nd part of the year, namely in staff cost, but also in other administrative costs. On Page 26, we have some figure about asset quality.
As I mentioned before, we are down to 8.7% 5% of total NPV ratio gross and net and 3.1 and 1.4 on bank loan ratios. The coverage is still sound, 56% of Med Loan, 63% if we include the write offs, 80 basis points higher, a bit lower, 30 basis points lower in OTP coverage, down to 39.3 Mainly due to the different composition of the UTP portfolio where we increased the guaranteed UTP versus the uncovered. A good increase also in past due coverage and the total coverage of 48.6 percent including write offs. Of course, we have also increased, as I mentioned before, the performing exposure to 45 basis points. Flows are going very well.
The migration rates are still very comfortable, Down 1.1 percent to the fault rate, down 8.1% danger rate. Unfortunately, also down the cure rate to 3.7%. As you can see, the inflows both to NPEs and to bad loans are very low. Of course, this is also due to the monetary effect. On Page 28, cost of risk.
The blue figure is the normal cost of risk, mainly in, of course, coverage on nonperforming exposure. Meanwhile, the yellow one is COVID related top up in generic provision, which amount to EUR 140 million between the 2 quarters. The cost of risk with this increase is up 28 basis points on the first half and 97 basis points on the Q2. I would like to draw your attention on Page 29. This is a graphic that in our opinion can explain Together with the attention we are having for covering as much as possible our clients with this state owned guarantee.
Also this slide is very important. It shows you how our geography helps in cost of risk containment. As you can see, we have split Italy in 4 different area, Each one, of course, representing different regions, in which you have the red one, which have The one with the NPE ratio the higher NPE ratio, you can see that most of our peers have a good exposure To this region, while we have only 1.5% of exposure to our book to this region. And the same, of course, going up, where we have the bigger exposure is in the region where The gross NPE ratio is below 9%. So I think this can give you some idea We could be able to safeguard our asset quality profile.
Another very interesting, quite new slide we are going to propose is Page 30. This is to show that it's quite it's very difficult to imagine a pickup of the cost of risk to historic situation. As you can see, we exposed the different contribution to the global cost of risk for 2017, 2018, 2019 2020 split into the stock driven provision, The disposal provision, the flow driven provision and only for this year also the COVID impact. As you can see on the correlation on the right side of the slide. The most important correlation is the stock, The amount of stock that you have and so having reduced quite impressively the stock From EUR 30,000,000,000 to below EUR 10,000,000,000 is quite difficult to consider a cost of the stock That can go higher than the level that we have right now.
I would say the same almost for the flows. Of course, there is a lower elasticity in the flows, but also this is important to show That if you see the different figure of the flows, this can show you that basically our bank Was already with a good cleanup when we started the merger. Unfortunately, we had a lot of stock, But the quality of the performing portfolio is performing almost the same since the merger. Finally, strong capital ratios in buffer. We have anticipated the figure of 13.3 on common equity Tier 1, 14.7 percent and phasing.
Let me Say some details. The increase was driven by The HCCM reserves on Novis and from the SME supporting factor. Meanwhile, We are already embedded in our capital the effect of the FWA deterioration Following the GDP scenario, we have applied to our numbers and the shift of the PD from the best categories toward The lower one. This should bring some lower effect in terms of reduction of common equity Tier 1 in the 2nd part of the year. We are really comfortable With the MDA buffer we are registering and the only possible the only effect that we are forecasting for Reducing Common Equity Tier 1 is related to the combined effect of regularly headwind and tailwinds, which are going to be applied by the year end and amount to some 35 basis points.
Just some final remarks. We find the performance quite Solid, good net income. Moreover, a comfortable pre provision profit Up to EUR 390,000,000 in Q2 versus EUR320,000,000 in Q1 and fostered by a very good cost containment, which we feel We'll characterize also the 2nd part of the year. Also the provision policy is prudent. Our scenario does not forecast other potential impact on performing loans.
We are I'm deciding and we will make some further reason during the second part of the year In order to still reduce the NPL ratio, of course, the workout for the 1st part of the year was very difficult Because of all the constraint of the COVID, so we are having some sort of understanding and some reverse software on the market in order to see if it's possible to have toward the last part of the year some disposal of NPL. The capital position again very robust as much as the liquidity and the MDA buffers. Some figure about the outlook. I already mentioned A positive outlook for the second half of the year. Basically, all the more significant items Are going to better, so both NII, fees, cost control As much as the cost of risk, we should remain at the level we have envisaged, we imagine potential outlook between 90 basis points and 100 basis points.
I would terminate with this and I leave the floor to you for your questions.
Excuse me, this is the Chorus Call conference operator. We will now begin the question and answer session. We kindly ask to use handsets for asking questions. The first question is from Christian Carrezza with Intermonte. Please go ahead.
Yes. Good Thank you for taking my question. I would say positive set of results, in particular on core revenues. My first question is on net interest income. If you can share with us the moving parts expected in the second half twenty twenty.
In particular, in terms of customer spread evolution, I would suppose A further reduction of adjusted spread due to new loans guaranteed. TLTRO, The current additional contribution expected in the second half and the possibility you to increase for additional €10,000,000,000 of the TLTRO take up. The GOVI exposure increased in the quarter. We expect to further increase that And is there any room to optimize liquidity taking into account that today you have a liquidity coverage ratio of 193%. The second question is on fees.
We saw a quite Increase in deposits year to date, I think €5,000,000 We saw a positive trend in June. Do you expect this year, The Q3 to be different from the other years in terms of seasonality. So you do expect some commercial action to try to regain what lost in the first and second quarter. 3rd question on cost base. You said cost should go down further in the second half.
So if you can update branches that you announced after the COVID outbreak. And finally, a question on M and A and dividends. We saw ECB asking banks not to pay dividends to keep some capital And at the same time, issued a consultation paper in which clarified rules For M and A, so bad weather recognition and so on. I was wondering if you can share with us your thoughts on M and A. We saw the success Do you see further consolidation, need for consolidation in the current environment?
So it could be Helpful to hear from you your thoughts. Thank you.
Thank you, Mr. Carreze. Very comprehensive set of questions. I would say, of course, I cannot give you the right number, but We expect a quite consistent increase of NII in Q2. This is both for TLTRO, but also for the increase of volumes of our lending activity, even though we'll be temperate by the slight reduction in the spread because of the vectoring of the quality of the asset of the loans we are going to grant.
We don't think, as I mentioned before, to exploit very much the TLTRO Either then for repositioning the maturity during the time life, So it's possible that you are going to add some drawing in order to have different maturity and not only one maturity, But the average will be more or less the one that we have right now. Cost So it's very as I mentioned, unfortunately, we think that we are quite good at cost reduction. We have done a massive cost reduction in the 1st 3 years of the plan. We tried to have an unfortunate Industrial Planning, which we were not cutting cost so much because we thought it was the time to invest more to invest for more revenues. But of course, as we mentioned that time, as the case may be, and unfortunately, the COVID The case, we were able to still reduce our cost base.
And we feel that this year can be quite Consistent the reduction that you are going to have, consistent with the reduction we had in last year, year by year. The majority will come not from redundancy and branch closure because as you know, We still have to present the renewal of the industrial plan. And until then, it's very difficult to have Some action to be taken, but also on an ordinary basis And thanks to some measure COVID related. We will be able to Consistently reduce cost base for personnel and also for other general costs. Commission.
As I mentioned before, we are quite comfortable because of the June performance. The July was in line with June. The normal this is for Investment Products. The normal activity is recovering. The amount of loans we are doing, of course, bring with them also a lot of commercial activity.
And so we can have some sort of optimistic approach in terms of also Banking Commission. As we registered already in June, dividend, capital, as you see, is very strong. Of course, we are still showing an optimistic approach, but we want to see If the situation is really the one we see right now, so we'll take some other We will take advantage from the ECB rules to wait until the end of the year. And then I hope we'll have a clear view of the situation to understand what is better to do. But the most important thing is that we have enough capital.
The MDA buffer is well comfortable and the production also of profit that we mentioned for the first half. We feel it's possible to have also good production in the second half. M and A, congratulation to Intesa for the deal. Of course, this is a new situation. We couldn't do anything.
And so we had to wait Foresee what was going to happen. For sure, this is a catalyst for the new aggregation. We are our job is to be ready to take any potential opportunity at our best. And in order to do that, we will try to work as much as possible to have sound balance sheet, sound revenues and be ready for whatever opportunity is going to come.
Just a follow-up, would you take in consideration also a buyback, have in mind that the current low valuation?
Everything is possible. Every year we do this conversation, which depends From the amount of revenues and profit that we are going to generate and I would really Take the opportunity to wait up to the end of the year. But again, I think you can be comfortable from the size of capital we have reached. That we have reached. Thank you.
The next question is from Giovanni Razzoli with Equita. Please go ahead.
Good afternoon. Some clarifications on my side. The first one is on your cost guidance, because if I'm not mistaken in the business plan, you were assuming staff reduction, the voluntary exits with a cost in the region of €200,000,000 to €120,000,000 if I'm not mistaken. Shall we assume that you will enter into negotiation with the trade unions for this plan? Or shall we wait for the new business plan.
And if so, can you give us an indication of what's your thoughts about the timing of this business plan. The second question relates to the situation of Agos, which has been Very good performance in this second quarter. Please correct me if I'm wrong, but if I remember correctly, You have a put option with the Cadie Agricolem 10% stake for evaluation of €150,000,000 which expires in June 2021, while you retain the option of listing the company, if I'm not mistaken, by November this year. I was wondering, as the timing is running late, What are your thoughts on this stake and what could be the impacts on your capital if the put option were to Spiro, you were not succeeding to listing the company. Thank you.
Thank you, Giovanni. No, you're right. We mentioned, of course, in the business plan some early retirement scheme. Of course, nowadays, everything is freezing because it's frozen because we have to wait for the update of the plan in order to start negotiation with the union, which are a prerequisite in order to make some provision on the expiry on the exit. So of course, what I was mentioning before in terms of cost reduction was not taking in account the potential add on need for redundancy.
Of course, if this will be the case, we will have Enough room also for that. But of course, I was talking like for like. Agos, we have also because of the COVID, we decided together with Credit Agricole to give some time for deciding what to do. And we are basically under negotiation to postpone the maturity of the put option. So I cannot give you some any other detail because it's not yet closed, But the intention of both parts is to postpone to better times, I would say, The possibility to lease the company.
Okay. Thank you.
The next question is from Fabrizio Bernardi with Fidentiis. Please go ahead.
Hi, everybody. I have another question on M and A, the usual one on AMA. And if you can give us an update about The possibility is the other asset management company may join Animas or later maybe there is An evolution of the situation considering the UB K UBI has gone and the deeper maybe looking for a partner. 2nd, if you think that there will be an extension of the moratorium as some of the CEOs that had the conference call in the last few days have told us. And 3rd, if you can give us an idea of the capital gains on God is, And let's say, all to collect or amortize cost that you may realize quarterly.
Just to have an idea of the magnitude of the trading line that we can assume. Thank you.
Thank you, Mr. Bernardi. Anima, as I mentioned many times, Anima is a strategic partnership. For us, of course, we took the opportunity to increase our stake Both for showing that it's not a stake we want to dispose. And secondly, because it was a very low price when we increase our stake.
We feel that whatever transaction with the product factory is very convenient For the bank, so we are very interest to try to understand what are the opportunities on the market. We don't forecast right now to increase our stake in ANIMA. But again, all the product factory for us It's a core business and we want to try to be stronger in each of these product factory. The extension of monetary, of course, I don't know nothing for sure. As far as we know, we have been told that there should be some postponement in the new decree from the government, the one which will be issued in August.
If this is the case, it's very good for the banking system because as much as we have arranged the good transaction for many of the client who needed the moratoria and the liquidity to comply with the installment. We will have another 3, 4 months of time. As I mentioned before, we have worked for the vast majority of client, but still we have some 1,000 of clients, which we have to deal with. So some postponement will be very beneficial. Again, for the reserves and realized gains.
Basically, we are not going to be opportunistic on that. We have had a very good second half in terms of NFR. We have almost Reached 70% of the budget for the year. So we are not going to have speculative approach in order to capitalize these revenues. Of course, we follow the market.
So if there are opportunities, we can decide to take some advantage that normally all this is done to support NII, especially with the TLTRO convenient funding.
Sorry, if I can, a follow-up on M and A. When I look at your stock trading at 0.2% tangible, so it's a very low valuation. And you usually tell me That this multiple is not good for M and A, especially if you go on with a paper deal. So this multiple is more a risk What a concern or a positive factor from the initial point because at the end, OBI was taken over at 5, if I'm right, The tangible equity, so more than twice your multiple. So which is your consideration about the current valuation of the stock?
Of course, I am very disappointed about the current valuation. We would like to be, Of course, in a different position, but we have to take to have respect for this valuation. The market, Of course, in the last month, I think there is some realignment vis a vis also other banks, which are reducing the market cap. We will try to fill the gap in order to be ready again. If the case may be either to have a potential aggregation or to valorize at the maximum possible level Our stock in case somebody would like to look at our bank.
Thanks.
The next question is from Please go ahead.
Good afternoon. Thank you for taking my questions.
I just have 2 quick ones. The first
one is on capital and what impact on RWAs are you expecting from rate migration in the second half of the year and in 2021?
And then secondly, could you
just please give us a better understanding on what drove the increase in associate income over the quarter? Thank you.
Thank you for your question. Again, it's It's not that easy to consider the capital impact. We feel that we have already done what was needed in terms of outlook and forecast in order to adjust Our deteriorating of our performing portfolio with the scenario that we mentioned before. But on top of that, we feel that even though there should be some further deterioration, For sure, we still don't have factorized at the right level the positive effect of the guarantee. So we are right now experiencing as of June, we had only EUR 2,000,000,000 out of EUR 11,000,000,000 of potential pipeline of guaranteed loan already in our book.
In July, there were other EUR 2,000,000,000 and we are growing up Possibly to fill all these pipeline by the year end. If this is the case, of course, the positive impact of the guarantee. We're going to completely offset in our forecast the potential deterioration The potential further deterioration, if any, of the In terms of the stakeholdings and our participation, I would say normally, Especially in the last year, the best contributor was Agos. And this is also the reason why This year, we are having a lower contribution. And of course, the second is Animal.
Very clear. Thank you.
The next question is from Jean Houye with Goldman Sachs. Please go
ahead. Hi, there. Thanks for the call. I just wanted to ask on your comment about filling the guaranteed loan bucket. So the question that I have is, how do you expect this to play out the filling up of the guaranteed bucket?
Because do you expect this to be loans to new clients? Do you expect that even though it's not the aim that essentially over time this guaranteed bucket will Inouana, the refinance has served to amortize progressively existing loans of existing clients. And Obviously, this has an impact on the cost of risk, I guess, whether that's just additional loans or whether they serve to remix, if you want, the existing loan book. And also on the cost of risk, I just noticed that there wasn't much increase. There was a slight decrease in total NPE this quarter, but the provisions which Did not relate to COVID.
The one that you call physiological cost of risk, they still rose almost 20 basis points on the quarter without necessarily having seen Many new NPLs. So I just wanted to understand whether you'd stick to the cost of risk guidance that you gave earlier in the year And whether you think that this year is the peak or whether you think that the lag effect is going to hit 2021 as well as per the Slide where you show that the stock is much more powerful in terms of provisions than the typical flow. And my second question is on costs. I just wanted to ask the cost reduction like 5% year over year, that's a really big reduction and that's great to see. I just wanted to understand whether in there, there were any costs that you've postponed or any operations that you would normally do, any investments or Any items which is essentially going to have to be expensed at some point down the line and where this It's a temporary decrease, which will have to be refilled either in Q4 or later in 2021, trying to find what's the right base essentially.
Thank you.
Thank you. I'll try to give some order to your question. The guarantee, if I understood well, you want to know how much is a replacement of loans, how much is new loans. Of course, Especially for small, medium enterprise, the vast majority is replacement. So I would say 60% is going to replace loans, which are expiring as normally do during the year normally also normally we do EUR 20,000,000,000 of new loans each year.
Of course, it's not that this is all add on to the stock. The add on is only EUR 2,000,000,000, EUR 3,000,000,000 per year. So normally, there is a maturity and a replacement, which is more or less EUR 20,000,000,000. This year, we feel could be much higher. We feel could be in the region of EUR 26,000,000,000 EUR 27,000,000,000.
The vast majority, of course, is replacement, but there is also 30%, 40%, which is going to be new loans, not compulsory to new client, But the new loans to existing client or to new client. In terms So if I understood the question about the cost of risk, excluding the performing side, The increase of EUR 40,000,000, if you see also in Q1 and Q2 2019, there is the same increase in Q2 is quite physiological because Q1 normally comes after the end of the year And you have done a lot of provision already for year end. So I don't think it's something which is warning us. Again, we showed the correlation between the increase of stock, increase of flows to the cost of risk. And for the time being, we are not experiencing Neither increase of stock of NPL or increase of flows.
So we feel that this could be the normal situation up to the end of the year. The only new things could come from further eventual
Performing
provision. There are provision on performing. Lastly, cost, No, we are not going we have not done any postponement. We are of course, we are very attentive to invest. First of all, we didn't we had all the investment that we forecasted in the plan for IT.
So we are increasing our investment in IT. The other cost or expenses were related to revenue driven project, which of course for the current situation have been postponed, but are not costs that will come without revenues.
Okay, that's great. Thanks a lot. You were very clear to me.
Thank you.
The next question is from Noemi Paruk with Mediobanca. Please go ahead.
Good evening. Thank you for taking my question. I have 2. The first one is on capital. You mentioned a 35 basis point headwind in 2020.
Can you please update us on the distribution over time of the capital headwinds that you mentioned in your business plan? And can you update us on the disposal and synthetic securitization envisage in the plan? And did you make some of the securitization in 2020 already. And the second one is on fees. If I'm not mistaken, you are planning to reprice current account fees in H2 worth EUR 20,000,000, EUR 25,000,000.
Do you confirm this is still happening? Thank you very much.
Yes. I start from this. We are confirmed that we are Due to the COVID, whatever increase in cost of current account, this will start from January 2021. And so we are, of course, postponing this fee driven increase that will come from next year. In terms of capital, if I understood well your question, The 35 basis points comes from headwinds and tailwinds.
I think that most of them will come in the last Quarter, but I cannot really be so precise with you. Basically, they come from negative ARB market, the operational risk going to standard and the update of the historical series. Meanwhile, the positive one comes from the software deduction and infrastructure supportive factor. Most of them I think will come in the last part of the year.
And I was referring to the distribution over time between 20 2022. From your business plan, I see 100 bps of headwinds between 2020, 2021. So is it reasonable to think that in 2021, we will see 65 bps of headwinds?
Yes, of course, we mentioned that we are going to have some shift towards 2021. Basically everything is postponing by 1 year. So we will have a less impact on 2020, a bit higher impact in 2021, again, A lower impact in 20222023. The global, of course, is going to be 200 basis points, as we mentioned, in the presentation of the business plan.
Okay. And can you update us on the disposal and strategic secreitization as well? Thank
you. Yes, of course, the photographs was done Taking in account a lower amount of provision that we had in Foragas for the business plan, of course, Doing more provision, the shortfall is going to be reduced. So possibly, we will have lower impact also for that. Daniel asked about disposal. Basically, we are still working for some capital securitization possibly by the year end.
I already mentioned some sounding about NPE disposal, but still nothing sure to tell you for this quarter.
Thank you.
The next question is from Antonio Rehan with Morgan Stanley. Please go ahead.
Hi, good evening. Thank you for taking my questions. 2 for me, please. The first one is on your cost of risk guide. I'm looking at Your Slide 10, which shows your assumptions so far, which I think imply for the models, which I think imply EUR 140,000,000 of loan losses from IFRS 9, and that's exactly what you booked in Q1 and Q2.
My question is how much of your full year guidance of 90 bps to 100 bps is purely model driven, I. E. From macro and how much is underlying? And if anything else, how much is sector specific or any other? That's the first one.
Also, it's a follow-up on the previous question. I think what I asked for is 9 more Maybe from this question or element, as you decide how much to book in 2020 versus 2021, I wonder if you can share the logic there and what your numbers imply for next year. That's the first one. The second one on your latest comments regarding the disposal of NPLs. And you've been one of the most active sellers of NPLs in Italy in the last few years.
You've been negotiating NPLF pre COVID and you seem to suggest also post COVID. I would like to hear from you anecdotally what you're seeing in terms of NPL bids compared to before COVID. If you can share just a bit of an aspirate widening, if any, of your experience so far. Thanks.
Okay. Thank you, Mr. Viale. So I'm sure I got the first one. I have some problem with the second one, but I'll try to go for the first Cost of risk, basically, as I mentioned before, we should be done with the provision we have done on the performing loans this year.
Of course, if our forecasts are correct, so basically whatever will come We come in order either to increase the NPE ratio, the NPE coverage or because of some Higher flows should come to nonperforming lows. So I think We shouldn't be so different from the figure we mentioned in terms of performing loans. As far as I understood that you make some positive comment on our disposal. So thank you very much. What do we feel?
Nowadays, we don't know. That's Why we are trying to have some understanding of the current market situation. That's why we are trying to have some hint about the possible price. Please remember that the thought the majority answered that All the disposal we have done were bad loans. Meanwhile, this time could be also UTP, in which we have now a direct experience.
So this is why we are having some trying to have some understanding, Taking also in consideration that for disposal concluded by 2020, there is also some benefit Coming from the government measures in terms of fiscal Advantage. So we will try to understand what is possible to do. We think that we have A very comprehensive portfolio in terms of secured and secured, more secured, more provision and so on in order to find the best possible solution.
Okay. Thank you.
The next question is from Alberto Cordara with Bank of America Merrill Lynch. Please go ahead.
Hey, good afternoon. I just wanted to connected to a question that you asked before by a colleague of mine. Looking at the regulatory headwinds, you mentioned that there is And net impact of 35 bps in the 2nd part of the year. So my question is, can you give us an idea what is the most positive tailwind from software intangible and infrastructure supporting factor. And another Question related to this.
Of the 200 bps that you mentioned of regulatory headwinds, how much will be taken this year in the second half? And how much is left for the next few years and in particular for 2021. And the other question is, I think before you mentioned that this state back guarantee loss comes obviously at a lower spread And the arrival stake is on a negative path. So can you give us a bit more of an idea on what we should expect in
For the first question, I think you make reference to the 35 basis point I mentioned before, again, the different items, I didn't mention the right numbers, but The different items are the market, the update of the historical cities and the going standard for operational risk. So these amount to some, let's say, Almost 50 basis points. And on the other side, we have a positive impact between software intangible deduction and Infrastructure supporting factor of more or less 15 basis points. So all in all, it could be 35 basis points. With this, we have done with the forecast we gave you with the presentation of the business plan.
But the RB on credit, you know that we have a long standing request application for the disposal we have done. We are still waiting for that and most Probably this will come in 2021. The second was NII. Again, also for that, there is increase of volumes, Possibly quite consistent. Decrease on spread because of the quality of these volumes coming from state guarantee loans or low or very low risk borrower, which of course are Taking some liquidity and the contribution of 1% for the TLTRO drawn this year.
So it's a consistent increase in NII.
Okay. But what should we expect in the next quarter? Is it still an increase in NII or some pressure?
Most is almost even in Q3 and Q4 because, of course, there is this big impact also from TLTR for the full deployment of TLTRO and also a consistent increasing month by month of the new loans. As I mentioned before, in July, we had EUR 2,000,000,000 of new loan, all with the state guarantee.
Okay. Thank you.
The next question is from Andrea Vercellona with Exane. Please go ahead.
Good evening.
I've got 2. 1 is a clarification on the moratoria or on the extension of the moratoria. And the second one is a follow-up on a previous question on cost of risk. On the moratorium, you mentioned before and we also read it in the newspaper that maybe it's postponed to the end of January. And you said that would be very Important because that gives you more time to wrap guarantees on client positionings.
I don't understand why that is the case since you are free to move anything, At least that's my understanding. From the expiring moratoria, the state sponsored one, to the Adi one, which is not lapsing yet. If that is not correct, I'd like to know why and what are the differences. To me, it's more or less a carbon copy, 1 or the other. And the second one is on cost of risk.
If I'm not mistaken, you said before that the provisions you will book in H2 We'll whatever they will be, they will only be related to Stage 3 loans, so existing NPLs or new NPL formation. Other banks are also doing some Stage 2 overlay, I. E. Moving some positions to Stage 2 and posting some provisions, I call them a bit inventive provisions. Is this something that you're planning to do as well?
Or you'll just take it as it goes? And then if you have NPL formations next Yes, you will provide them. Thank you.
Thank you, Mr. Versalone. First question, of course, I can switch, But we lose the 33% of the guarantee of from the state, which of course apply only To the monetarial decree and now to the Abi monetoria. Of course, so it's very good for us also for our portfolio to still keep this guarantee even though it's not a full guarantee. But of course, If this is not coming, we can also work with the Abi moratoria.
Secondly, I want to be clear about that. We, of course, have forecast which are quite consistent in terms of provision in Gulsing in H2. We expect that this will come from potential even though I mentioned, As of today, we don't have either increase of flows to the deterioration, neither to from UTP to bank loans. And so it's very difficult to make forecast. But with the scenario, we have there is a potential deterioration of the default rate of the danger rate and so on.
So if we follow these numbers, we have some consistent provision to do, Which will apply mostly to NPL and not to other performing. If this is not the case And we will be consistent with the default rate and danger rate, which we are experiencing right now, which are basically The same as usual. I think it would be possible to make some more provision also on Stage 2 because there is not a deterioration from Stage 2 to Stage 3.
And your 90 to 100 basis points guidance assumes this top up Or it's all underlying. My understanding is that it's all underlying plus what you have already made in H1, Correct.
Say that it's very difficult that could happen both. So for me, it's very difficult that can happen both As a shift between Stage 23 and at the same time, a further increase of Stage 2. So we think we are safe enough with our forecast, which are again the famous, let's say, 100 basis point. We still don't know if it will be because of the increase of Stage 2 or because there will be a shift from Stage 2 to Stage 3. As of today, it's more because of the increasing of Stage 2, but could be different in the next response.
Okay. Thank you.
The next question is from Domenico Santoro with HSBC. Please Go ahead.
Hi, good evening. Thanks for the presentation. Very two quick questions from my side. 1st of all, on the DTAs, as other European banks have done in Europe, you're going to potentially tamper your targets when the profit targets, of course, when you present the new business plan. So I'm just wondering whether At the point, there will be a profitability test on DTA, whether we should expect any write down of non guaranteed VTA that at the end that might be also beneficial of course for your cost Tier 1 given the way Basel And secondly, on the NII, I'm sorry to ask the same question.
Can you give us a bit So the visibility on the incremental contribution from TLTRO in the Q3 given that some of the banks are also getting back to the ECB part of the liquidity. Thank you very much.
Okay. Thank you for your question, Mr. Santoro. We have a very clear the effect We know that from one side, they can be very useful if the profitability is going to increase. On the other side, of course, they are burdened to the profitability on equity.
So in any case, we will have to do the right choice. Up to now, we thought we still think With the last business plans we presented, that was not the case to write down. Let's take advantage of this month. But we As of today, we don't think this is the situation we are going to face. But of course, we are under a very extraordinary period.
So just for example, if the situation should be Worse that we imagine because of a second lockdown or whatever, of course, we will be reconsidering Also the potential the possibility to write down something. But as of today, we are not taking this move. NII. I can view the gross profitability of TLTRO because it's very easy. It's 1% split basically even into the 2 quarter.
But of course, this is the gross because then you have also to Utilize and make the best possible use of this funding. Sometime, if you are not able To use everything, you have to make some transaction, which make which give you some negative basis point negative yield. So it's almost EUR 60,000,000 per quarter, if you could be able not to have negative yield on utilizing this liquidity.
All right. Thank you very much.
Ladies
and gentlemen, would you like
to add any final comments to conclude the conference?
Okay. So thank you very much to everybody. Plenty of questions. I'm very happy considering the timing. Have a nice holiday and see you on September.
Thank you.