Good afternoon. This is the conference call operator. Welcome, and thank you for joining the Banco BPM first half 2022 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 Perrone, IR Manager of Banco BPM. Please go ahead, sir.
Thank you very much. Thank you everybody for being here with the presentation of the first half results. As usual, you can find the presentation on our website in Investor Relations page. Let me remind that the Q&A section is reserved only for the financial analysts. Now I leave the floor to Mr. Castagna.
Good afternoon, everybody. Thank you for being with us for the Q2 presentation of Banco BPM. We are very happy to have the opportunity to present this very strong and good set of results for the bank in such a difficult operating environment like the one we are experiencing during the last months. Nonetheless, both in terms of net income, volume growth, asset quality and capital buffer, we feel that we have done a strong set of results, probably the best results ever for our bank. Let's go through the different line. Profitability grew both in terms of core profitability, Q on Q and H on H 1.4%. Operating costs down 1.5%. We will see that like for like, the reduction is even bigger.
Net income at EUR 206 million +16% quarter-on-quarter, and adjusted net income at almost EUR 500 million. We have reached EUR 497 million of adjusted net income. All that still continuing to support the real economy with our activity, core net performing customer loans grew quarter-on-quarter 1.5%. Year-to-date, more than 3%, which was the forecast for the whole year 2022. It's very remarkable to notice that loans to corporates and SME are guaranteed for 29% of the entire volume by state guarantees. So we are continuing to have a very safe loan production, mostly supported by state guarantee.
In particular, the new lending to SMEs, 58% is with state guarantee. New lending at all is, again, at a very good level of EUR 13.7 billion in the first six months of the year, +13% year-on-year. Green new lending EUR 4.6 billion, and also the direct customer funding is growing to EUR 107.4 billion. Further improvement also in asset quality. We have been reducing year-on-year EUR 1.66 billion, the gross NPE, and in the last quarter, EUR 0.8 billion, down to EUR 5.5 billion, with an NPE ratio gross at 4.8%, 3.6% with the EBA definition. The default rate in the first six months of the year is still very low, 0.9%, below 1%.
The cost of risk also considering the amount that we have front loaded in order to execute forward disposal during the planned horizon is 55 basis points. If we consider only the core cost of risk related to the first six months, we are down to 35 basis points. Capital, even though impacted by the results of the reserves due to the Govies in FVOCI, is still at a very sound 12.8%. I have to say that thanks to the recovery of the yield of the Govies during the last month of July, we are back above 13%. Also, MDA buffer is fully loaded, is at a very comfortable 424 basis points, with all the LCR and NSFR very well above the minimum.
We feel that we are well-positioned to benefit from the NII boost that is already decided both by ECB, but the REPO movement are now reaching almost 70 basis points of increase. I want to remember that we are very sensitive in positive terms to the increase of Euribor for 100 basis points. The sensitivity for us is EUR 443 million. Even if we consider the 50 basis points of increase, official increase of ECB rates, on one-year time horizon is EUR 220 million of increase in revenues.
As you can see on the right side of page seven, the rates that we embedded in our strategic plan, both for 2022 was -0.49%, and was still negative also for 2023 and 2024 to at -0.39% and -0.15%. If we have a look to the forward rates, you can see that there is a massive potentiality to increase the profitability, thanks to the further increase of Euribor coming during the next months, probably due to the inflation.
On the left side of the slide, you can see how solid, how consistent has been during the year, starting from the pre-pandemic results in 2019, to have consistent core revenues, almost EUR 2 billion in 2019, and now EUR 2.1 billion in the first six months of the year. Likewise, the adjusted net income starting from EUR 300 million, last year was 382, and now we are almost at EUR 500 million of net income. The asset quality went down from 9.7% to 4.8%, as well as the risk connected to the domestic sovereign risk as going down from 65% to 41% of share of Italian Govies on the total portfolio.
If we consider only the hold to collect and sell, the Italian Govies are down from 58% to 28%. Let's go to page eight, also to see how this consistent set of results can help the NII which are not embedded in our strategic plan assumption, how we can go forward with confidence in order to get the results of our plan. As you can see, in Q2 2022, the core revenues were EUR 1.56 billion, already more than what we forecasted for 2023, which was EUR 1.02 billion.
In 2024, we reached EUR 1.1 billion, thanks also to the contribution of the bancassurance and the partial increase of NII. The same is also for operating costs. We are down to EUR 632 million. We still have to embed the further reduction of personnel, which happened during 2022. We think we can reach the plan trajectory, which forecast EUR 610 million of operating costs per quarter, both in 2023 and in 2024.
Cost of risk is basically already at the level of our business plan, as well as net income is already above the 2023 target, and with the further increase of both NII and bancassurance will most probably reach the target for 2024. In terms of asset quality, we are on page nine. We are already ahead of the target for 2024 of our strategic plan, which was EUR 6 billion of NPE. Now we are already down to EUR 5.5 billion, which means again -22.3% in the last year, and down to 4.8% in terms of NPE ratio.
The default rate and the execution of the Argo transaction allowed us to reach these results, and we still expect, without massive disposal, to overcome EUR 2 billion of reduction, total reduction in NPE during 2022. Let's also say, as I mentioned before, that we have already targeted and embedded in our cost of risk more than EUR 500 million of further disposal during the plan horizon. On page 10, some update about our bancassurance model evolution. As you may know, we have concluded, after the authorization by IVASS, the acquisition from Covéa of the 81% of BPM Vita. We have already applied for the status of financial conglomerate to the supervisor, which is a prerequisite to obtain the Danish compromise.
From July this year, we are consolidating line by line the result of BPM Vita in our H2 2022. The next step will be in 2023 related to Vera Vita and Vera Assicurazioni. We will have the first window to exercise the call option to company in H1 2023, starting from January. In the second half of the year, we have the opportunity to have the closing for Vera Vita and Vera Assicurazioni. With basically one year in advance vis-a-vis what we expected in our strategic plan. Let's say how are doing our negotiation in terms of potential partnership. We have received during the last weeks several potential offer from different partners.
The board today resolved, decided, and authorized the management to continue to explore the potential to establish a new partnership in insurance, in particular to focus the next phase of the process exclusively on non-life activity. A final decision is expected by year-end 2022. Let's pass on page 12 to the financial results. As I mentioned before, there are very good results in all items. On the left side, you see quarter-on-quarter increase. On the right, year-on-year, you can see that we have 1.4, as I mentioned before, of core revenues. Let me make you notice that we are one of the few that, up to now, have an increase also in commission, not only in interest rate, both quarter-on-quarter and year-on-year.
We have also a reduction of 1.5% of cost. Pre-provision income is the same as last year-on-year. Thanks to the reduction of cost of risk, we, notwithstanding the up-fronting of more than EUR 80 million, have a pre-tax profit of EUR 688 million, which is 30% more than last year. After taxes, this became EUR 457 million, 16% more than last year, and a net income of EUR 384 million, which adjusted became EUR 497 million. The adjustments are related almost entirely to the pre-provision on the de-risking and on some adjustments for the value adjustment on our real estate. Let's pass to page 13 to some details about our profit and loss.
We have the net interest income on page 13. The half yearly trend and the quarterly trend are both positive, 2% year-on-year, 3.1% on the quarter. The increase in the quarter is due 50% to the commercial activity, and 50% to the contribution from the Govies. Of course, this is starting to benefit from a better commercial spread, which thanks to the liability spread increase and the Euribor increases, giving 10 basis points of advantage vis-à-vis the last quarter. This is what happened until now.
On the right side of the slides, we hope to have the opportunity to give you some clear understanding on what can happen in terms of sensitivity, both due to the 50 basis point already decided by the ECB raising of the facility rate, and also to a possible further increase of further 50 basis point. Let's say that on the first 50 basis point on an annualized NII will have an advantage, we will have an advantage of EUR 220 million. For the second part of the year will be a bit less of half this amount, because of course, the advantage do not start immediately on the first of July. Should be something more than EUR 100 million.
If the increase will happen in the second part of the year for another 50 basis points, so the total increase of Euribor will be 100 basis points, the total sensitivity for us, the total increase of NII for us will amount to EUR 443 million, which is 21.6% of our current NII. If we projected this NII in the next two years, 2023 and 2024, we will have a slightly lower impact of the NII contribution, and precisely EUR 360 million, equal to 18% of our NII in 2023, and EUR 260 million in 2024. This comes from the positive influence of the TLTRO calculation rates. Of course, still we have a strong contribution, also independent from the TLTRO.
Because you see that also in 2024, when the TLTRO will expire completely, we still will have a strong contribution, 13% increase on our NII. On page 14, I mentioned before the very good result on fee and commission. We have 1.8% year-over-year and 1.4% improvement on Q-over-Q. Of course, this come from a different movement of management, intermediation, and advisory fee, which are 2% and 0.3% lower, respectively last year and last quarter, but completely balanced by the commercial banking fees, where we have an increase of 5.7% year-over-year and 3.1% on a quarterly basis, leading to a total increase of the commercial activity of the bank. This comes particularly from the good performances coming from the lending activity.
We make reference to the EUR 13.7 billion new loans, the payment-related servicing, the positive performance of consumer credit and credit cards product, the investment banking and structural banking fees, advisory fees, which counterbalanced positively the lower contribution coming from asset management fee, in particular funds and SICAV placement, which in turn were counterbalanced also by higher fees from life insurance and certificates. All in all, what we have is a reduction of the investment product placement that you can see on the histogram of the lower left side of the slide 14. We reduce it to EUR 3.9 billion in Q2 vis-à-vis EUR 4.5 billion in the first quarter. This reduction does not affect so much the total commission, which were very well counterbalanced by the other commercial banking fees.
Operating cost, as I mentioned before, 1.5% reduction year-on-year, 2.6%, year-on-year. 2.6% always year-on-year if we consider that 2021 was benefiting of some COVID-related savings, for all more or less EUR 50 million of contribution. The cost income is still very good at 54.5%, slight reduction of since 2021. On Q-on-Q, we have a slight increase of 1.2%. The increase of EUR 10 million in other administrative costs come, I would say, half from the energy cost and half from the new contract that we are dealing with in order to substitute at the expiry date the old contract.
On the other side, the staff cost is reducing both year-on-year from over almost EUR 30 million year-on-year and still is reducing in Q2, even though the major increase and reduction will happen in the second half of the year, where we experience another EUR 10 million of cost reduction due to the exit almost 240 exits that we had in June, always following the early retirement scheme that we started in 2021. The total head count is still a bit above 20,000 people. On the next page, 16, we see again some figures related to the credit profile and the cost of risk. Year-on-year, the stated cost of risk is 35% lower than last year.
If we see the quarter reduction, you see that the 2 quarters in 2022 were very much below the 2 quarters of 2021, even if we consider in both cases some extraordinary provisioning that were done in 2021 for EUR 94 million and in 2020 for EUR 113 million. Having said that, the real cost of risk, the core cost of risk for the first half of the year is down to 35 basis points and Q2 is down to 26 basis points. On the bottom left side, you see that the migration rates are still good. The default rate we mentioned before, below 1%, 0.9%.
A default rate a bit higher, but it's just a spike that we had because a single position already, considering bad loans that we passed during Q2, and also due to the Argo disposal in which we, in order to complete the Argo disposal, we had some movement from UTP to bad loans. All in all, we also can say that we are proceeding with some early engagement campaign, likewise we did during the moratoria in order to forecast with some kind of objectivity the possible default of our client, which were due to repay. We have done the same exercise this year on almost EUR 6 billion of credit related to client exposed to energy raw material intensive sector. Out of these EUR 6 billion, we have classified as NPE only EUR 55 million.
At the same time, we are prudentially increased of EUR 1.5 billion, the Stage 2, due to this kind of client, but with the final results, which was below Q1, exactly is, in Q2, we have EUR 11.2 billion in Stage 2, which is 10.4% of total performing loans versus 10.7% of the last quarter. All in all, also Stage 2 is giving us also we have such a prudential approach on the category I mentioned before. We are getting some strong output.
Let me remember again that we are quite satisfied of the increase that we are registering quarter by quarter on the percentage of total gross performing loans to SME and corporates, which now guaranteed by the state that now amount to a 29%, and last year were below 27%. Again, on page 17, on the coverage, on the right side of the slide, you see that the bad loans are now covered even after the Argo Transaction to 61.5%. If we include write-off, we are above 70%. UTP still a very comfortable 40.3%, past due at almost 30%, and total NPEs 47.8%, which is almost 53% if we consider the write-off. The share of secured NPE is still almost two-thirds of the total NPEs.
Let me pass the floor to Mr. Ginevra, which will go through portfolio and liquidity and capital.
Thanks a lot, Giuseppe. I hope you can hear me. Page 18 now presents the recent evolution of our bond portfolio, the securities portfolio. You see in this page that, in the first half of this year, we took the opportunity to increase the level of bond holdings, which allowed us also to exploit the increasing yields, for increasing the future contribution to NII. The bond portfolio, staying on the left part of this slide, is represented for two-thirds, of, by, amortized cost component, which is important because, limits the level of volatility of, the portfolio or capital induced by, variations in returns. Turning to the, right part of this slide, this shows the progressive important diversification that we are achieving in this portfolio.
Italian Govies now cover a share of only 41.1%. This used to be 91.1% at the merger date, end of 2016. This 41.1% compares with 50% or below 50%, which is the 2024 target. Bearing in mind that we have concentrated vast majority, predominantly majority of Italian Govies in amortized cost portfolio, 75% of such bonds are in this portfolio, which keeps its historical cost without being exposed to the market volatility. The next page 19, provides some elements on the contribution of fair value through other comprehensive income portfolio, both to capital and to the P&L. In a volatile market context, as is the case in the first half of this year, reserves went down.
They were at EUR 46 million on a net basis at the beginning of the year. They have been booked at EUR 467 million negative on the 30th of June. A volatile environment. It's not surprising that this trend has been partially reverted in the first part of the year. This reduction is important to note, and now I'm on a pie in the bottom part of the left of this slide is mostly attributable to market risk much more than credit risk. Italy, as a matter of fact, contributes only for 11% of the reduction in the net level of reserves, while 50% is core Europe, so basically Germany, France and Spain, 20% is U.S. Govies, 19% is other type of securities.
Moreover, the hedging strategies on the portfolio have also contributed to mitigate the impact of the reduction in reserves. Now turning to the net financial result, which is in the top right part of this slide, we see that the contribution of this item in the P&L is EUR 49 million in the second quarter after negative contribution from Nexi of EUR 37 million. Again, another volatile item, which in the third quarter so far has showed conversely a positive contribution. The contribution of fair value through other comprehensive income to the net financial result is positive for EUR 70 million, and this positive contribution is largely attributable to option hedging.
A final point is that, we tend to look at this capital volatility in close conjunction with, the, exposure, overall exposure of our P&L to NII. The comparison is such that, the capital sensitivity is as limited as EUR 2.5 million per basis point if you look at, the fair value of the comprehensive income portfolio. This only for EUR 300,000, from Italian Govies, so very limited contribution to this, yield sensitivity, while, the NII sensitivity, which was mentioned by Mr. Castagna early on, earlier in this presentation, is EUR 443 million. It's almost one, a factor of two, the difference between the NII sensitivity and the capital volatility.
Next page, a snapshot on funding and liquidity, showing that we are in a very comfortable position in terms of LCR, about well above 200%. NSFR, which is above the minimum requirement of 100%, with the total level of liquidity as high as EUR 45 billion or above EUR 45 billion. We have continued in our issuance program during the second quarter. In April, we issued an 8.1 Additional Tier 1 for EUR 300 million. Recently in July, we were out in the market with a green senior preferred private placement of EUR 300 million. Worth mentioning also the covered bond of EUR 750 million that was issued in March. We are also receiving very comfortable signals from rating agencies.
On top of the historical investment-grade rating that we have always been granted by DBRS, recently Fitch had assigned to the bank a long-term rating of BBB-, so also in this case, investment grade. Moody's upgraded one notch to Ba1, which is just one notch below investment grade. The next slide shows the impact of the various paths that were described in the previous part of this presentation on capital. We started the quarter at 13.1% end of March.
We received a positive contribution from P&L of 36 basis points, partially absorbed 21 basis points by the expected level of dividend, 50%, as per the historical, as per previous year decision, plus an additional component, which is the effect of Additional Tier 1 coupons. The total before impact of reserves is at 13.3%. Of course, we had a negative impact of reserves. On a net basis, this is 54 basis points, leading to a total of 12.8. This negative aspect has to be interpreted as a temporary phenomenon because, on one hand, it's progressively absorbed through the pull -to- par effect.
By December 2024, basically, this amount will be reduced by the simple natural tendency to par of the price of our AT1 bonds. On the other hand, it is also influenced by the movements in the market. As I said earlier, in July, after June, the market evolved positively. Now, more than 40 basis points of these 54 have been recovered so that we are well above 13%, on a pro forma basis. Quick mention on the Phase-In ratio, which is at 14%, and on the buffers.
Our fully loaded buffer for, in terms of MDA, distributable amount, is 424, so very reassuring, benefiting not only from the high level of Common Equity Tier 1, but also from our ability to fill in full all the buffers, both in terms of Tier 1, additional Tier 1, and Tier 2. Thank you, Edoardo. Let's terminate with the final two slides. One is to concentrate the very good set of results of this first six months. Let's say that after the restructuring, I would say that we were both geographically and temporally very well positioned to exploit.
The still very good growth in GDP in the first six months of the year, which is above 3%, and in our geographical territory may be more than that. This led us to a very good set of results, again, both in terms of profitability, in terms of cost-to-income ratio, in terms of slowdown of cost of risk. At the same time, in terms of further staying concentrated on the further reduction of gross NPE stock, looking at the current level of results, but also looking forward with the provision in advance that we did for the next quarter. Edoardo's talking about the solid capital position even better if we consider recent movement of the Govies.
Notwithstanding this good performance and a good feeling that we have also in Q3, I will have to say that we are experiencing a solid set of results also in July. The boom also of the touristic contribution to the summer will for sure boost also in Q3 the economy in Italy. Notwithstanding the good performance, we can see the potential slowdown due to the effect of the geopolitical situation and of the Italian uncertainty in the last quarter of the year. That's why we still are strongly believing that NII sensitivity will be the catalyst to support revenues and profitability even in a slowdown scenario.
What is our outlook with a certain approach of prudence is that we will go over EUR 4.4 billion of total revenues, EUR 2.5 billion of operating costs, pre-provision profit above EUR 1.9 billion. A cost of risk that we will consider consistent with a slowdown scenario of 55-60 basis points, which would lead to an EPS over EUR 0.40 with a dividend payout of 50%, which is embedded in our capital work that Mr. Ginevra was showing you. Of course, if we consider the adjusted EPS will be in the region of EUR 0.48 with the capital above 13% and MDA buffer of more than 420 basis points.
This will be for us the good start for the target that we have in 2023 and 2024, which we confirm with our full commitment of our management and the conviction that the NII can be really a catalyst for improving these results. Now, I leave the floor to your Q&A.
Thank you. 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 Giovanni Razzoli with Deutsche Bank. Please go ahead.
Good afternoon, and thank you for the details. Three very quick questions. The first one, can you share with us what are the assumptions that you have made in terms of increasing deposit cost, if any, in the sensitivity that you are providing us? I'm asking you this because everyone seems to be focused on this topic and is providing comments. As a major commercial bank, it could be interesting to know what your view. And also, as more detail, if you can share with us what was the TLTRO impact benefit that you have in the first half and what is the amount that is expected to disappear in the second half of the year. The second question, I'm going back to the comment that you have just made.
What you are basically saying is that you expect to confirm or improve the 2023 business plan targets also in a slowdown scenario, thanks to the, you know, levers that you have on the NII, which can, you know, I guess, offset lower fees or, I don't know, higher cost of risk, whatever. Is my understanding correct? The third clarification, you decided to go for a partnership in the bancassurance only in the P&C and protection business. You will retain the full control of the life business, and you do expect to take a decision by year-end, right? That's those are my questions. Thank you.
Thank you, Giovanni. Good afternoon. Yes, of course, the NII sensitivity already get the assumption for a parallel shift, so an increase also on deposit. I don't know if I can give you the right figure, but for sure, the first increase of 100 basis point embeds a few basis point in terms of cost of deposit, because this would mean to go to 50 basis points over your
Sorry, you've been pretty conservative there because your fees have not incorporated any on that.
They are incorporated in the scenario that we have of the normal cost of deposit, so how much these deposits are stable or not. In our figure, we do not assume that the cost of deposit will increase significantly in the first 100 basis points.
Okay.
There is an increase in any case. TLTRO, I should say that we have a slowdown in the second half of the year of EUR 30 million, more or less vis-à-vis the first half, which is due, of course, to the 50 basis points reduction of the premium. But at the same time, we recover on the placement because you know that now the placements are much more remunerative than before. On 2023 and 2024, of course, we have to wait for understanding better what kind of a scenario. If I look around, of course, there are a lot of negative forecasts about 2023.
Today I read also only one broker talking about below zero, but normally we are not considering this kind of sensitivity. We think that with a GDP in the region of 1%, we can have still a very good impact, a positive impact from the NII sensitivity and increase of Euribor. But it's better, of course, to wait for the last part of the year to confirm the target or the increasing target for 2023. For bancassurance, yes, the decision is that we take the life business, which is the vast majority of the business in terms of volumes. I would say that is also the one that is more related to the normal activity of our network, which is very good in terms of asset management placement.
I would consider the life business very much in line with the other kind of product in asset management. Meanwhile, we feel that it's worth to consider to go deep into detail with the bidder in order to understand which kind of better evolution can have the sensitivity that we have on our own business plan related to the improvement that we can get from an industrial partner. The first understanding on the non-binding offer is that there is room to improve our results. May I add some more technical comment on TLTRO just to take the opportunity of the question. It's something where you have some certainties about what happened in the first half, because we used to have a special interest period which ended at the end of the first half.
There is uncertainty on the second half because it depends on the actual level of deposit facility rates during the second half. In the current scenario, the reduction in contribution from NII due to the expiry of the special interest period is more or less by and large compensated by the increase in the second half due to the fact that the cost of funding in using TLTRO is lower than the overall return on the deposit facility.
Clear. Thank you. Thank you very much.
The next question is from Noemi Peruch with, Mediobanca. Please go ahead.
Good evening, and thank you for taking my question. Thank you for the update also on the insurance business. It's very clear. So here I have just one question. Can you please share with us, like, the financial and operating trade-off you have in mind for the P&C business? In case of sale, how would you deploy the likely capital gain? Would you consider paying it to shareholders? On common equity, can you please break down the moving part leading to one basis point on page 21. Lastly, may you give us some color on the evolution of attitudes to our investment of Italian SMEs in the last month?
What are your expectations in terms of corporate loan growth for the rest of the year? Would you expect cost of risk to move above 60 basis points in 2023, 2024 before falling to a more normalized level? Thank you very much.
Thank you. You know, we have still to consider the different opportunity that we can get. You know that the P&C business is not really only the upfront payment, but we have to consider the commission level, the strategic business plan that you have to agree with the potential partner, and the growth of value also of the joint venture. There are different issues that you have to examine, and I would say that the capital gain will be only a part of this entire amount of consideration.
Let me imagine that cannot be more than 20% of the entire value of the combination. Of course, we are not very much pressed by the capital gain, but more by the evolution of the business and the reinforcement to the commission level for our bank during the year. It wouldn't be in any case such a capital gain too, if we consider only non-life. It wouldn't be actually so extraordinary to have to consider a different destination of the capital. Moving parts all in all is a bettering of RWA and a low and negative contribution from DTA always coming from the Govies' impact on reserves.
Edoardo was explaining the 54 basis point, where the net, of course, there is also an impact on DTA, and this offset the advantage that we have on RWA. Corporate clients. Up to now, I have to say, and you can consider the EUR 13.7 billion we have done in terms of new lending and increase of more than 3% of the total core performing loans, which were already the target for 2022, and we have done it without, let's say, the PNRR deployment, which is still to come, and maybe will come in the second part of the year. I see a corporate activity which is strong right now. As I mentioned before, we had some early scheme in order to understand and to detect potential difficulties.
Also, because there is also now in place some aid program from the state to contribute to our client. As a matter of fact, we are not yet in this kind of of a solution to propose to our client. We see clients with strong backlog of order. We are increasing export, which are, in any case, keeping a good profitability, even though eroded by the cost of energy and for some of them, by the cost of raw material. Not yet, as you see from 0.9% default rate, any signal of deterioration. Having said that, for a prudent approach, we consider that in the second part of the year, the default rate could increase, and for the whole year, we consider something that is more than 0.9%.
Thank you.
Thank
you. The next question is from Christian Carrese with Intermonte. Please go ahead.
Thank you for taking my question. Congratulations for the results. Very solid in terms of quality core revenues. I would focus on net interest income and cost of risk. Taking into account the additional buffer in terms of net interest income, looking at 2024, I was wondering what kind of cost of risk do you expect due to higher rates and default rate at around 1%? Do you think that could be a little bit higher? The net interest income and cost of risk, what could add to net profit in 2024? The second question is on bancassurance. If you could split what was embedded in the business plan for 2024 in terms of bancassurance between life and non-life business.
On net financial results, we saw a positive impact coming from the option hedging on FVOCI. Do you expect any additional positive contribution from the hedging in the coming quarter? Thank you.
Thank you, Christian. I will start with some answers, then I will leave the floor to Eduardo in order to give you some color about the hedging strategy and the impact on NFR. Let's say starting from the bancassurance, which may be the quickest one, the EUR 120 million of value in 2024 were a split of, let's say EUR 85 million, more or less, of life and the difference of non-life. Of course, the life will still remain and the non-life will be split in some different possible part with the potential partner. Of course, we are working in the sense that the potential partners have to be able to make more money for us in terms of commission.
All in all, I wouldn't say that this change our strategy for the figure that we embedded in our plan. On the contrary, maybe if we go to these solutions why we feel more safe, more certainty, certain to reach that results with an international partner. NII understood well that you were talking about 24? It's a bit difficult.
Yes. Yes.
It's a bit difficult. We were thinking that we were so- transparent to talk about 2022 and 2023. In 2024, as I mentioned before, there is a reduction, but just for the first 100 basis points, which would reduce the contribution on the first 100 basis points of EUR 180 million. Of course, if the situation would still continue the way we see with inflation, we don't think that the interest rate will terminate the hike with the 100 basis points. It's very much possible that there will be further increase going ahead in the next couple of years.
I was wondering, just looking at the forward rates, there will be some additional more than 100 basis points by 2024 compared to the strategic plan assumption. I'm looking at slide number seven. Take into account the further boost to net interest income. I was wondering what kind of expectation would you have in terms of cost of risk. Take into account also that you have increased the pace of the de-risking, looking at what you have done in the first half of 2022.
The forward rates, as you were mentioning, we put them on page seven in order to make understand that the forecasts are much more generous than our analysis of the first 100 basis points. Of course, any other 100 basis points will have a considerable effect on our figure for 2024. Of course, this could bring some effect on cost of risk. Let's say that we were already prudent in our business plan because we had a default rate for 2022 of 1.8%. Meanwhile, we are experiencing 0.9, 1.2 for 2023, and 1% for 2024. It's very much possible that there will be some switch from 2023, 2022 to the forward years. It's really now difficult to say.
We have to wait at least for the forecast of GDP in 2023, which possibly will come in the next quarter. On the question about expectations on results of hedge strategies, of course, hedge is a strategy which produces results against the market movement. In case of the strategy that we put in place in previous quarters have been effective in a scenario of increasing yields, mitigating the reduction in reserves. In these quarters we are seeing we are going the other way around. Of course, the hedging strategies are contributing with a negative impact on NFR. On top of this, of course, we are producing additional contribution to NFR from our ordinary activity.
If I may on this point. Basically on P&L may be a negative impact from hedging, but a positive impact in terms of capital. On bancassurance, not on the keeping the life business. What do you expect would be the impact on capital?
On P&L, the point on P&L is it depends on the evolution of rates. I mean, it's too early to tell what will happen in the second half, elections, and volatility in general is what makes the markets difficult to predict with a six months or five months horizon. On insurance, I understood that it's probably helpful to repeat the numbers which were not very clearly heard. Giuseppe said the contribution to a total EUR 125 million of the plan is a little bit more than EUR 85 million from life and the rest from non-life.
I was wondering on capital.
On capital, I mean, it depends on the evolution of the agreement. At this stage, we've only decided to go ahead in exploring the point of non-life. We will decide according to price that will be offered, commissions and so on and so forth. We don't anticipate major impacts on capital from this decision.
Perfect. Thank you.
The next question is from Andrea Vercellone with BNP Paribas. Please go ahead.
Good evening. I've got three. The first one is if you can explain qualitatively and quantitatively how you move from EUR 440 million theoretical sensitivity to 100 basis points up in net interest income to the actual sensitivity of EUR 360 million that you expect for 2023 and EUR 260 million for 2024. I don't get the moving parts. Second question is on the state guaranteed loans. Average guarantees there is 85%. Is it correct to assume that the maximum provision you would book on any such loans potentially
Needing classification to UTP or NPL or bad loan would be 15%, or you would potentially need to book more provisions and then write them back at a later stage. The final question is just a small detail. Have you booked now all of the capital gains on the bonds classified at amortized costs that you sold forward last year, or there's still some more to come in H2 2022? Thank you.
Hello, good evening. Let me answer on the second question, and then I will leave Edoardo to make some more explanation on the EUR 440 million becoming a bit lower in the next couple of year. This of course is only related to the first 100 basis point of which 50 basis points are already gone. For the state guarantee, we still don't have such experience to say that there are a lot of these defaulted, so basically we are dealing one by one the few that are going into NPE. Of course, we are very attentive not only to the documentation but also to being very quick in doing all the formality to be in the position to exploit the guarantee.
We are working on the set of loans guaranteed in the last three years, getting of course some remedial action where we see that there are problem. I can say that the vast majority, if not the complete entire stock, is well-positioned. What we will do is, like in any case, there is a guarantee, we will consider only the difference which from time to time will be not guaranteed. Let's say an average of 20% could give us an idea because of course, as you know, there are 100% guarantee up, down to 70% of guarantee. Because the seventy percent guarantee are the bigger one, I think 20-25% could be the maximum amount.
For amortized cost, we didn't get any profit during this month. We had already booked the profits for the forward sales that had been anticipated for most of them. There is only a limited amount which is remained for the second half. For the sensitivity, it's you're right, it's a complex dynamics. Let me try to explain as simply as possible. What happens when rates increase is that the investments in central bank deposit facility react immediately, almost immediately, with the sensitivity of like euro per euro or basis point per basis point. The 100 basis points increase in level of deposit facility rates creates 100 basis points increase in the return on this deposit facility.
On the other hand, for TLTRO, the mechanism for calculating the interest rate embeds an average between the historical minus 0.5 and the current level of rate of the deposit facility, implying that in any case, the more the rates are high, increased, the more you create a difference between cost of TLTRO funding and yield of deposit facility investments. First point. Second point, TLTRO has a maturity. Over time, our EUR 39 billion of TLTRO funding are expected to be reimbursed, part of them in 2023, remaining part progressing, part of them in half of it in June 2023, remaining part progressively until end of 2024. This means that this positive effect I was describing earlier is progressively reduced along with the residual maturity of TLTRO.
If TLTRO lasts forever, then you have forever the impact I was describing. Given that TLTRO is expected to be reduced, the effect in 2022 for the next 12 months conventionally calculated as of 30th of June is higher than the effect as of December 2023 because the residual maturity of TLTRO is reduced by six months, and this is in turn higher than the level as of end of 2024 because end of 2023, so for the total year of 2024 because we remain at the stage with a very limited amount of TLTRO funding.
Yeah. Thank you.
The next question is from Tarik El Mejjad with Bank of America. Please go ahead.
Hi, good afternoon, and thank you for taking my questions. Just two quick questions. First of all, on the pass-through rates for deposits, I understand well that there is no impact there. I mean, what's the percentage you take as an assumption into your NII sensitivity? If I understand right that there is no sensitivity, can you please explain why? Secondly, on the insurance potential partnerships, can you? Maybe I missed that. But can you explain why the life is excluded from the discussions with new partners? Is it because the offer deals from the bidders were not compensating for the higher net profits you presented in the plan, or the bidders were not interested? Can you please just give us some elements there? Thank you.
Good evening. Let's say the sensitivity takes into account also an increase in the cost of deposit. More or less is again an average of 35 basis points.
400.
400. Of course it will depend the more the interest rate go up, of course, the more the impact will be higher.
30-35 is for 100 basis points.
Yeah. Insurance partnership. Why we do exclude life? I tried to explain before. We think that the life activity is much more in the normal activity of our network. Our people is very much used to sell investment product. They were very good also in the last year to adapt to the different insurance company and sell different product, the behavior in life insurance investments. We really feel that having also the support of our asset under management product factory, we can be very good in this activity. This of course is also the one who brings much revenues in terms of commission and capital gain. We think that we can exploit this activity 100%.
We cannot foresee such an advantage from joining with an industrial partner in this kind of business. Likewise, we think we can have in the non-life business. It's both a question of exploiting also the opportunity and the arbitrage of the Danish Compromise. Of course, we can have a full return on the life without basically spending capital. On the other side, to take the advantage of industrial partner to develop product strategy and you know, to adapt the different possibility in the many opportunity of non-life through the advisory of an industrial partner. The two business are really very different. Again, also in terms of capital, the life is very profitable for us because we basically have sort of free lunch.
Without spending capital, we can get revenues and profitability.
Thank you.
Thank you.
The next question is from Anna Benassi with Kepler. Please go ahead.
Yeah, good afternoon. I have a couple of questions. One, related to the contribution from associates in Q2 that has been below the Q1 level, EUR 41 million. Can you tell us what is the contribution from Agos and the contribution from the Bancassurance, so that we can plan particularly for BPM Vita, what you could expect with 100% ownership in H2? Another question is on your again NII sensitivity, just to make sure I've understood what you are saying. Could that reflect assuming a 100 basis points increase in rates overall, that 2023 NII could top EUR 2.4 billion and then could have a lower level in 2024? Am I right? Am I wrong? Because of what you mentioned on TLTROs, just to be sure I've understood what you said.
Finally, a detail on tax rate, because honestly, your €0.40 of stated EPS for this year does not completely work with the revenue, cost, and cost of risk indication you gave. Meaning, to me, the number could be higher than that. So maybe is a cost of risk or maybe some other one-off on top of what we saw on real estate impairments and goodwill impairments, whatever you have in mind. Thank you.
I hope I understood all your question. I'm not that sure, but let's start from the one I understood. The first one, maybe the easiest one, is the contribution from Agos. Let's say that was EUR 8 million. In the first half, 2022 was EUR 27 million, which is eight million more than the last year. Of course, these are commission. If you want to have the associates, I have to check. Agos is EUR 53 million in the first half.
Thank you.
The bancassurance, you want to know the, always.
Distribution for bancassurance.
49?
Yeah.
EUR 9 million. Yes, it was EUR 9 million. Always in terms of associates.
Okay, all the bancassurance, so both Vera and BPM Vita.
No, I am talking about the one, Vera and BPM Vita.
Okay. The three company. Okay.
NII sensitivity. If the question was, 2023 sensitivity will be higher than 2024, yes, because of the mechanism that Edoardo was explaining before.
My question was more than in total, the NII in 2024 would be lower than the NII in 2023?
For sure in 2022 would be lower because it's only six months.
Total NII.
Total. Sorry. I was talking about sensitivity, taking into consideration
No, total NII. Very, very basic.
The growth of Euribor. No, of course. Total for 2022 will be, I would say, at level of last year be higher. 2.1, I think, is the sensitivity that we have. In 2023, of course, we will benefit totally for all the year of the contribution of Euribor increase, so for sure will be higher. I cannot give you already some forecast, but will be higher also the forecast that we had in the strategic plan.
EUR 2.4 billion, you say. Okay.
Okay. One-off from real estate, they were almost from EUR 35 million-EUR 40 million, if I remember well. This comes because we have a possible transaction to execute hopefully by year-end on a quite consistent portion of our portfolio. Also, we are doing all the different appraisal in order to get the final figure in order to present the info memo to our potential bidders. That's why we have been working also on that. What am I missing?
Eventually, the factoring to some other negative one-offs that could explain why the stated EPS, so the EPS as reported, not the adjusted one, is in brackets only EUR 0.40. Because it could be higher.
Yes. The difference were again the adjustment in credit. As I mentioned too, we have made room for further derisking of more than EUR 500 million, and also what we have done on real estate. If I'm not wrong, we're also asking about the cost of risk this year, if it's embedded some negative assumption on the slowdown of the economy. Yes, the 55-60 basis points is very, it's a very prudent approach increase in the default rate for the second part of the year.
Thank you very much.
The next question is from Marco Nicolai with Jefferies. Please go ahead.
Hi, everyone. Thanks for taking my questions. So I've got one on the NPL market. You just completed the Argo Transaction. You also have other portfolios to sell over the plan horizon. What are you seeing now on the NPL market in terms of average selling price and volumes? Any hints that the current market environment, current economic environment is impacting this market? Is there anything that could slow down your future progress here? Then in terms of payout, you mentioned for 2022, 50%. Are you considering to deliver this only via dividends or the buyback option is still there? Then a question on admin costs. These were up this quarter. You mentioned the impact of inflation.
Do you see this level, the level that we saw this quarter as a kind of a floor? Also you were guiding for EUR 2.5 billion costs in 2022. I think if I'm not wrong, before you mentioned that 2022, in previous results presentation, you mentioned that costs in 2022 should be lower than 2021, if I'm not wrong. Are we still keeping this kind of old guidance as valid, or you see them more as flattish versus 2021? Yeah, that's it from me. Thanks a lot.
Thank you, Marco. On the NPL scenario, frankly speaking, there is a lot of evolution on that market. We have, of course, not any more massive disposal of NPEs because we have been left with EUR 5.5 billion, of which less than EUR 2 billion of our bad loans. We are obliged in a way to be very cheeky in trying to find the best solution which do not always go through a straight disposal. We are examining, you know, contribution of asset. We are examining funds where we can contribute assets and an investor can invest in order to exploit the asset. We have a very sound pipeline in this respect.
We are not obliged because you have seen the default rate going down to the level we expected for 2024. If we consider also the further disposal embedded in our cost of risk, we are down to something like 4.2%. We are quite opportunistic. We have made room because our balance sheet was very good and our profitability was very sound. We took advantage to make some more provisioning in order to increase the potential de-risking, also in view of a potential deterioration of the default rate. No rush into selling anything specific and concentrated piece of asset to sell. Always find the best possible solution we have done up to now.
I think since we merged the bank, eight or nine disposals of assets from EUR 7 billion to EUR 600 million. I think we have quite an experience to run at the most convenient way also this activity. In terms of buyback is always an option, of course. We already said last year that could have been a possibility. Let's see how the forecast for this year, the outlook for this year will be in terms of GDP deterioration. Of course, we are talking about very good results, and I understand that we have some good feeling in trying to get the most possible reward to our shareholder.
We have also to consider that there are some clouds ahead of us for all the economy, and we have to consider at the end of the year what will be the situation. We have done a very prudent outlook of our potential results. 2021. If you talk only about general expenses, I think we are more or less on 2021. We have to consider how much could impact in the next two quarters the energy cost, but it's not that much higher than what we had in 2021. On the opposite, we think that if we consider also cost of staff, we will have some consistent reduction in general costs. Is it okay?
Yes, yes, very clear. Thank you.
Gentlemen, there are no more questions registered at this time.
Okay, thank you very-
Excuse me. Excuse me.
Oh, sorry.
There is a follow-up question from Luigi De Bellis with Equita SIM. Please go ahead.
Hi, good evening. A very quick question regarding the collection. Can you share with us, though, what trend are you observing on asset under management and under custody and the clients' behavior in the current environment? Thank you.
We have been down for market effect of almost EUR 4 billion during the first six months. Now we are recovering EUR 1 billion, EUR 1.5 billion. Of course, the recovery always stimulate the investor to make some new transactions. We are already experiencing, during the last couple of weeks, some rebound of the lower part of the investment sales we had between mid-June, mid-July, which was really the worst start of the year. Nowadays we think we can have some small rebound. We are confident again to have some rebound also from the market effect. We of course are also giving our client more product which can in one way defend them from the inflation and are more defensive.
We think that the attitude of our client should be stimulated by also this new product. Of course there will be not the increase that we thought last year, but this will be more than offset by the NII contribution and the lower cost of risk.
Thank you.
The next question is from Adele Palamà with UBS. Please go ahead.
Hi. Thank you for taking my question. Two questions actually. One is, clarification on NII, and on the guidance for the 2022 revenues. I mean, sorry if this was already discussed, but, can you tell me again which is the assumption of rate hike included in the 2022 guidance for the revenues? And then, the second question is if you can give us a guidance on the evolution of the equity accounting investment, a contribution to the revenues and to the trading income. I know it's a little bit complicated, the trading income, but just directional. Thank you.
No, I would say that if I get your question right, I think that almost all the increase comes from the core business, so not from trading contribution. We are very prudent about second half trading contribution. Meanwhile, we feel that the Euribor spike can give us some boost in terms of NII. Basically, the good side is NII and some saving on cost of personnel to try to keep a solid commercial base of fees through the commercial banking fees, some reduction in cost of risk, and a flat, I would say, trading income with respect to H1.
Okay. Specifically on NII, for 2022, you have 50 basis point rate hike, or you have more?
We have included in the guidance we gave we provided additional 25 basis points from the increase in the short-term rates.
Okay, thanks.
Gentlemen, there are no more questions registered at this time.
Okay. Thank you very much, everybody. I know it's a long day in summertime, but I'm not so guilty because tomorrow you have another day. Let's say that hope to see you very soon and to have a wonderful summer for everybody. Bye-bye.