Good morning. This is the Chorus Call conference operator. Welcome and thank you for joining the Banco BPMN Strategic Plan twenty twenty-twenty twenty three. You may download the presentation from the Banco BPMN corporate website. After the presentation, there will be a Q and A session reserved to financial analysts only.
I will now leave the floor to Mr. Giuseppe Castagna.
Good morning, everybody. Thank you very much for being with us also today for this very important for us strategic plan presentation. Of course, we would have hoped to be in a different situation, not by the environment that you are experiencing during these days. But notwithstanding that, we were very determined and convinced that the best solution to be very open and transparent also in difficult situation. And we would like so therefore, to present what is, our plan, what are our strategic option, what are our action that we think we can implement during the planned time lag even in a situation like this.
Let me spend some words, first of all, to thanks all my colleagues and all my staff for being in a business as usual situation also during this week. Our bank is open. Our branch are open. Our my colleagues are working every day in a normal situation even though, of course, the sudden outbreak of the COVID-nineteen has been affecting our activity in some way. Let me explain what we are doing on a day by day situation activities.
We, of course, immediately set up a crisis committee governing the emergencies to secure ordinary operation, to secure the continuity business support for our clients. Of course, our commitment is at maximum level in order to minimize impact on clients, on colleagues, on their families and to ensure, of course, a responsible role for the overall economic system. We feel also this is an opportunity for the bank to show the commitment toward its territory and its community. The implication on the plan. Of course, the plan has been rooted on a pre emergency consensus macroeconomics, fine tuned, of course, day by day with taking account the actual indicators.
We have preferred to extend one year the business plan from 2022 to 2023 in order to give the opportunity to deploy all the action that will be taken during the plan to realize full targets. Of course, we have also imagined to test and to stress our plan with what we call V shaped scenario in which we imagine a below zero growth in 2020. Even under this scenario, the strategic plan is resilient across the main action and the main targets, in particular in terms of capital, sustainability and shareholders' remuneration. What are the main output we want to convey to you today? First of all, let's have a look to the recent past.
We have been going through the only real merger under ECB during the last two years, building up a bank, which is now the third bank in Italy with 4,000,000 of client with a very clear strategic vocation as a commercial bank building over the year a solid capital position with reducing the risk profile. As you know, the presence in our bank is especially in what we consider the richest area of our country even though now are affected the most by this contingent situation. I think that also we have to stress the credibility of our team, the capability to deliver a very performing track record well ahead of the schedule of the first business plan even in a very complex macroeconomics and regulatory environment. I think that the capability to delivery exceeding cost savings, derisking, generation without requesting additional funds to shareholders was maybe the main target that we reached during the first three year plan. But we also were able to build a strong capitalization.
We were able to terminate 2019 with a very solid profitability, which in a paved the way to a very consistent and credible four year strategic plan. We also would like to give you some flavor about what we are already doing and we will continue to perform in terms of sustainability of building a sustainable bank for the future in terms of digital omnichannel banking opportunity. Of course, you know very well that we have on Page five successfully completed the integration. I wouldn't go through what you already know. The launch of the digital transformation program is already in place.
We were able to complete the migration in a very short time frame. And you know very well that we were able to de risk and reorganize and simplify the bank organization in order to deploy the further step, which is the full digital transformation. Let me start from a solid point, the track record on capital generation. On the left of Page six, you see the implication and the need that we were able were obliged and were able to perform in order to build over the three the past three years the capital impact coming from derisking, regulatory headwinds and additional impacts that you very well know. The total absorption was more than 1,100 basis points in terms of common equity Tier one capital.
Notwithstanding that, we were able to present quarter by quarter a resilient capital position, almost in line with the 12% of common equity Tier one over the last three years, constantly improving up to 12.8% in the last quarter twenty nineteen. At the same time, the derisking allowed us to reducing to 52% from 162% the taxes ratio. And also, I would stress that this prudent approach allow us to significantly improve the MDA buffer, which has been enforced also last year and beginning of this year through the issuing of AT1 instruments. Of course, this is a further demonstration for allowing us a secure and constant dividend distribution for our shareholders. The main driver of the last plan were basically based on derisking and cost saving.
I would start from cost saving, which is on the top left side of Slide seven, in which we can see how we almost doubled the cost synergies of the original business plan. We reached the total saving for almost EUR 500,000,000 EUR $482,000,000, which taking in account the natural growth is around CHF 600,000,000 of cost synergies equal to 20% of the previous business plan. This shows how the flexibility that we have in driving the cost depending of the revenues capability that we, from time to time, are able to perform is one of the main tool that we were able and are still able to perform in order to be more flexible in terms of cost. Of course, most of this was done through the de risking that you already know. I want only to underline how also the UTP coverage during the three year plan was exceeding for 12 full point the coverage forecast of the initial business plan.
Just few words about the revenues of the previous plan. Most of the analysts ask for the unrealized revenues of the former business plan. We have tried only on Slide eight to show how most of the element, which didn't allow us to reach the performance forecast in the plan, were due by exogenous factors. Likewise, you're right, but going to minus €0.34 rather than plus 10 basis points, the GDP growth, which was much less stronger than what we forecast, the perimeter, which has changed due to the disposal of Gestielle of Banca Depositaria and others, the reduced contribution to NII from the strong reduction in UTP, than EUR 5,000,000,000 vis a vis the business plan. The residual CHF 300,000,000 in lower revenues are counterbalanced by the CHF 300,000,000 of cost savings exceeding the business plan.
Let's have a look on Page nine to the final results and the final target of 2019 balance sheet. As you know, we are back finally to the dividend distribution, 4% dividend yield. We have built up a solid capital position with an MDA buffer of almost 300 basis point. We have reached 5.2% of net NPE ratio with a solid liquidity position. Also in the commercial activities, would say there are signal of improvement.
Likewise, the constant growth in core performing loans, almost 3% year on year the increase in deposit and accounts, more than 8% year on year and the increase in asset under management even though lower than our competitors. This was done not forgetting our digital origin, especially driven by the WeBank knowledge and know how, both in the family banking customer on the left side and on SME customer, we have continued to develop updating on digital banking, both on the private, again, with the many WebBank app that we developed over the year, the many tools for purchasing directly on digital family and modern insurance and also on SME customer, which will be specifically the driving of the new business plan we are developing many instruments to have a fully digital offer for small business, which we'll go through this in the next page. Let me say also on Page 12 that we have we are deeply involved in our communities. As you know, we come from more than 10 previous Banque Populari, cooperative banks, which is strong routing into the territory. And we will continue to invest and to support our territory as we are doing also in this occasion.
And here, I just wanted to mention some of the many contribution we are trying to give to the community in terms of social support, arts work restoring sports and general need of our territory. I just want to remember that we have in our state already the possibility to give to the territory up to 2%, 2.5% of our profits. Let's pass to the current situation. On Page 14, we have an outlook of the current global economy we are facing. Of course, apart from the recent outbreak of the COVID-nineteen, the situation was, in any case, not very clear and safe.
Slowdown in global trade due to the trade war, uncertainty from U. S.-Iran tension, the EU economy measures taken in the last part of 2019 in terms of TLTRO renewal, quantitative easing restart in the measure of EUR 20,000,000,000 per year, potential economic fallout of Brexit. Likewise, the Italian situation, which was in the last quarter worse than in the full year 2019. Also, the regulatory landscape is not, I would say, favorable to the development in terms of potential lending to the system. The Basel IV implementing standards, the new guidelines on calendar provisioning, the guidelines in terms of new definition of default.
Likewise, the opportunity that PSD2 gives to new competitors, of course, make enough sense to understand that our industry is always in a very competitive scenario. The main assumption that we kept for the plan are the one that you see on the right side. As I was mentioning before, the only difference is given from the sustainability of the capital and the dividend distribution even in what we call the V shaped scenario. As you see, we have imagined a neutral scenario as a base case, but also we have tested this scenario vis a vis this reduction below zero of the GDP growth for 2020. The key point of the plan are developed in order to address key stakeholders' expectation.
Of course, in this page, we try to mention the major stakeholders of the bank, which are clients, employees, regulators, investors, rating agencies. The plan is done in order to fulfill what we think are their expectation vis a vis the further development of our bank. Of course, to build up a customer centric service model, highly specialized but as well highly digital, a steady growth for our investors of recurring earnings and sizable dividend stream a reduction in utilization of TLTRO, which is something that rating agency regulators would like to see in the next year for our bank, the robust capital buffer and a continued derisking in order to satisfy the target that also ECB is giving in order to for a normalized banking industry. Of course, not forgetting our employee, our people, we would like to continue a story of growth. We are very proud to be composed by many local, regional banks that have become together with the possibility to give opportunity also to our people and to attract talent from other bank to build up the third Italian bank.
This is the page. On Page 16, basically, you see the main drive and the main target of our strategic plan. We have an RoTE growing of four basis points from 6.8% to 7.2%, 40 basis points. Of course, I have to remember that the total revenues coming from 2019 were generated for a good with a good contribution from NFR and from the sales of some HTC govies, from some contribution, let's say, not forecasted from some of our stakeholdings. What is our target is to try to substitute with a more stable and recurrent core revenue scenario the target that we already basically have reached in 2019.
So it's a very small growth in terms of target of revenues but boosted by an increase of 2% of core revenues. Of course, we will give you all the details why we think this is feasible for our bank. The same, I would say, applied to the cost income is reducing to 2%, but we have an enormous flexibility under this ratio. Of course, we wanted to build up a plan, which was not only on cost. And in doing that, we had to foresee investment in people, investment in IT, investment in bank transformation.
Of course, all this is very much linked, as we showed in the first business plan, to the capability to the bank to increase revenue stream. So I would say that the more certain figure is this costincome ratio because if not driven by revenues, would be driven by reduction in cost. Gross NPE ratio going down only with ordinary workout below 6% to 5.9%, cost of risk down to 51 basis points with the three main assumption that we have focalized for this business plan: two fifty basis points of MDA buffer throughout the entire plan EUR 800 plus million of dividend distribution over the plan 40% at minimum of dividend payout over the three the four year of the business plan. These three targets are fully confirmed under the V shaped scenario. On Page 17, you see the key four key ESG driven pillars for building these targets.
How do we get to a sizable shareholders' remuneration? Through a sustainable development of the core business, a digitally enabled operating model with high flexibility in the cost, a continued asset quality improvement and a further strengthening of the balance sheet. Let's start from the commercial model. As you know, we have not only reorganized our commercial network but also specialized our two main subsidiary, which are 100% owned by the bank. Banca Letti, on the left side, will be the driver for the wealth management growth, not only for their own private high net worth individual client, but also for what we call the affluent segment, which is the segment which include client from EUR 100,000 worth of deposit to EUR 1,000,000.
We have further segmented this segment in order to have a better business proposition for each cluster. Of course, in the family, we will foster also the development of robo advisor as visual intelligence in order to reach also the more numerous sizable target of family business even though, of course, this would be driven mostly by bank insurance and consumer loans growth. On the right side, you see the corporate and SME segment. We are already, I think, very well considered in terms of the corporate activity we have performed during these last three years. We want to strengthen this experience through a better and more integrated activity with our Inventerprise cluster, which is done by clients from EUR 5,000,000 to EUR 75,000,000.
This will be a sort of corporate driven activity in order to give also to midsized SME company the opportunity to grow into the capital markets activity, derivatives and so on. Meanwhile, for what we call the small business activity, you see that we have posted digital omni channel. We want basically to reach over the plan horizon a full digital offer and we are already at a very good point in order to reach the small business activity directly with the omni channel tools. Very quickly, but I'm really proud and happy to present also how we think we can develop this activity. I wouldn't comment all the data, but in my opinion, it's important to show you why we feel so confident.
Let's start from Wealth Management. Of course, a considerable part of our developing and the revenues generation will be done through Wealth Management Commission. We imagine to grow 6% of CAGR accumulated over the business plan, which means almost EUR 200,000,000 of more commission. This is only trying to reach the same level of ratio asset under management on direct funding, which characterizes our best competitors. On the left side, you see that we are still at 54% in this ratio and our best peers are much higher than us.
On the top of the right side of the Page 19, you see that our target is not to reach the percentage of our competitors, but we will be on target only increasing from 54% to 69% this important ratio between direct funding and asset under management. Of course, for family business, as I mentioned before, we have still a gap to complete vis a vis our competitor, driven mainly by the recent reorganization that we had in both this activity with the new partnership with Agos as far as the former BPM network and with Cartolica for all the bank insurance business. Another, I think, way to see this growth is on the bullet point three on the right side of the page. You see that already in the 2019, we were able to increase dramatically the product placement to our client. And I have to say that this is continuing also in the first quarter of this year, of course, making exception for the last week, but we are maybe overcoming the results of the last quarter twenty nineteen also in the first quarter twenty twenty.
And if you compare the growth, annualizing the growth of the last quarter twenty nineteen, the gap between what we have done and what is the target is much more realizable and achievable. I already mentioned that Bacaletti will be at the center of this business, not only because they will increase the number of private bankers. We want to increase 20% our private bankers team as well as we want to increase 10% our affluent relationship manager in a very rich segment of our clients. We have also, on the right side of Page 20, remember that we have CHF 9,000,000,000 already there in our customer account ready to be shipped in asset under management. This will foster since the beginning of the year our activity in this transformation.
We are also to double our investment center specialist placed in Banca Lecchi, but which gives support to the entire network. The two main drivers on the left side will be, again, specialization and technological scale up. As far as the retail activity, again, the focus is on bank assurance and consumer finance, again, due to the new recent reorganization of our network under AGOS and Catoliga joint venture. On the right, you see the selected KPIs, plus 25% on consumer finance gross annual production, which is a sort of repeated business of what we already do in AGOS, but of course, by the former BPM network. We have an increase of almost EUR 30,000,000 in the Non Life Bank Assurance Commission.
Again, this is only trying to reach the best practice of our competitors. And of course, foster all these with a reduction, the cost to serve and a better and a standard capability from generating digital analytics data in order to increase the multichannel marketing automation. We think that we will be able to reach €23,000,000.03 times what we currently do in terms of client interaction year on year with an hit rate, which should be doubling from 15% to 30% at the end of the business plan. Let's pass to the corporate. As I already mentioned before, this is maybe the cluster of clients in which we have already reached a very good target and consideration from the market.
Our market share has been increasing from the natural 80% to 10% during the last business plan. Our target is to reach 12% of market share over the plan horizon. As you can see, the growth in loans is in line, a bit lower than what we have already experienced over the last three years from 4.7% of CAGR for the former plan to 3.8% for this new plan. Of course, introducing, and we will see that on the next page, some new business line, which basically will foster the vast majority of the core revenues growth that you see on Page 22. All these, of course, boosted by the results we are already achieving in structured finance and in trade and as per finance and exploiting the strength of Banca Agros, which during the last years has been able to became the first player into the third party intermediaries on Italian bond market, the third player in terms of Italian stock market and certificates and has started in 2019 a very profitable and promising M and A activity, which amount for the first year of activity to 1,000,000,000 of business generated.
Just an explanation how we think to reach this result, again, as a strengthened client centric coverage model, we have increased the collaboration, and we will see the effect fully deployed over this year with Salesforce in order to have an upgrade on our commercial planning solution to offer to our customer based on the integration of information between the relationship manager and the product expert. Let me spend some word on the left of the Slide 23 for the partnership and the new business we were mentioning before. We have set up in 2019 an activity as per finance with the collaboration of the main banks or global banks, introduced into this business. We have developed EUR 400,000,000 of new activity only in one year. We think we can reach EUR 1,800,000,000.0 by the end of the plan.
We are leveraging on agreement with private debt investors in order to empower our originate to share this solution business for which we think we can increase our book of EUR 1,000,000,000. We are increasing partnership with the leader player in specialty finance on public administration for which we think we can double the business over the next three years with EUR 1,000,000,000 more of activity as well as we are in the moment to fully exploit what we have developed during the last months, which is the launch of a supply chain finance business solution together with the leading fintech owned by TIM Systems. For SME segment, as I mentioned before, we have many opportunities. This is maybe our new target for enterprises. The first indication on the left side is that we see significant room for growth in high potential areas.
Just to mention some example, we are we have an area in which we are very, very strong, close to 20% of market share like Verona, Novara, Alessandria, Lucca. We are very strong also in Milan. But just to make an example, few kilometers away from these stronghold areas, are very low penetrated. Just to make an example, Novara versus Cuneo or Torino in Piermont Verona versus Vicenza, Treviso, Padua in the Veneto region Luca versus Firenze in Tuscany Modena versus Bologna in Emilia Romagna. This is just to mention that, of course, if our organization has been enough good to reach this market share in this region, we are investing in new people.
We think we can I don't expect to close the gap, but for sure to increase the market share in the underpenetrated areas? We also think that this segment, due to the recent reorganization, full reorganization for this segment to exploit a better collaboration with our product specialists. And we'll although we are foreseeing not so big growth like we've seen we have seen in the corporate, we think that we can reach a 2.4% of core revenues, car growth vis a vis at almost 2% of customer loans growth. Also in this case, let me say some difference between the two main segment in the SME area. As I mentioned before, we have now set up a new specialized and vertical responsibility for enterprise from EUR 5,000,000 to EUR 75,000,000.
This will be driven by this new corporate driven activity in order to upsell the cross selling and the wholesale banking products. Meanwhile, we think on the small business, we are in the process to develop and deploy a digital omnichannel solution, which will allow us to reach all the more than 330,000 clients that we have in our book. Let me give you the first example of this partnership we are developing. We have recently signed a very interesting Open Banking, I would call it partnership with one of the main digital integrator, ERP Digital Integrated for SMEs, which is TIM system. We have a potential which is very, very big.
Again, vis a vis our 330,000 small business clients, we have a potential target customer of 1,300,000. Only 100,000 are already are common customer between us and TeamSystem. 200,000 are only BancoBPIM client. 1,000,000 are only TeamSystem client. What we want to do is to offer to all these client an experience for digital integration, invoice management, payments, financing and ERP solution.
This will go through a launch of a bundle offer, current account, integrated invoice financing, light ERP solution, value added services contributing not only to increase the customer base but also to grow and to increase the cross selling proposition. This was going through what I already mentioned before, the deployment of a digital supply chain financial services on the TIN System platform, which will be financed and funded both with funds and equity also by ourselves with our new proposed agreement. I think that this give you a bit the sense of the strategy that I already mentioned many times before for our bank to be partner with the best in class in the different client segment in order to offer either a state of the art specialization or a full digital service, minimizing the cost to serve and increasing the reaches of our target. Let's pass to the Page 28 to a transition to a fully omnichannel model and a paperless relationship with client. This is going through the omnichannel evolution I was speaking before, and you will see in a moment also the investment we will be devoting to this activity.
We have scaled up what we called before the customer center, which now will be our digital branch organization. We will strengthen and increase more than 2x the FTE and the commercial focus on these activities, which was in the first three years of the plan also due to the merger and the problem that we experienced mostly devoted to a reactive proposition to the client in the new digital branch. Of course, this will be inverted. We will have two third of the population devoted to deploy to client the digital solution and suggested by the CRM platform and only 100 people mostly in a reactive mode. This will allow us to reduce further the branch network.
I remember, we started the merger with 2,500 branch. We are now down to seventeen twenty seven. Our target is to reduce another 200 branch over the plan horizon, mostly branch which we call transactional. So branch with few people, mainly counter people, which, of course, do not contribute anymore also due to the interest rate scenario to the profitability of the bank. So our target is to offer an integrated omnichannel offer to our retail client, increasing instead the specialization into what we call the hub or the relationship branch, which are the bigger, the stronger and the one that are able to generate value added in the business proposition.
Of course, this will pass through also of our people in terms of, of course, turnover of new skill, IT skill or commercial specialized skill for which we will devote the majority of the new program for upskill our people. We have imagined in our business plan an evolution, which will bring to a reduction of the cost of the HR cost going down from €700,000,000 to €1,660,000,000 Of course, in this, the natural growth that we would have experienced we would experience if we include the new collective labor agreement and the investment for our people. But thanks to the voluntary retirement scheme and the ordinary turnover, we think we can reach a reduction also in cost of personnel. All our initiative will be devoted to specialist profile, both hired externally, both internally driven, which, of course, hiring also new skills as far as digital data scientists, security experts are concerned. Our investment.
This is, again, a tool of flexibility that we have for our business plan. Of course, in order to enhance the infrastructure and be able to offer a cloud solution to accelerate the time to market for our business, the data analytics tool, the automation tool to increase the partnership for an open banking approach, we have embedded in our plan a very strong increase in investment. We are passing through EUR $330,000,000 in the first three year plan to EUR 600,000,000 in the four year plan that we have had. And also the digital related investment will pass from EUR 90,000,000 in the previous plan to EUR $250,000,000 in this new plan. Globally, as you see on below on the right side of the slide, we will go passing increasing 40% the annual average investment in IT passing from EUR 110,000,000 to EUR 160,000,000.
Needless to remember that, again, this is a plan done for the growth. So if we will be able to experience the growth we are envisaging, this will be the linked and correlated investment that we will be doing also to prepare the bank for the future. We cannot stand with all fashion, product service, customer cost to serve proposition to our client, which is not enabled by full digital transformation. So we don't renounce to have a good investment plan. But of course, this investment plan will be used with the most possible flexibility in order to match the increase in revenues we will experience during the year plan.
A few words about the ESG holistic approach. Based on a solid governance. We would give to the Board and to the Risk and Control Committee the oversight of all our ESG strategy and governance. We will link, of course, the executive remuneration to ESG achievement. We will try to spread out the culture and the value of sustainability throughout our four key areas: environmental, clients, people, community.
I don't have to remember that, of course, this has been the base of our growth also during the past three years. Just to mention some of the main action we are already in place, we will develop furthermore. On Page 33, you see how we will be devoting to certificates, some rating in environmental area, how we will be reaching 100 of usage of renewable energy. We are almost there. We will still reduce CO2 emission.
We will devote to clients a series of investment for ESG a series of amount for ESG investment both directly through lending into specific area, both with the ACROS activity in both sides through a social bond issue by the bank and through the placement of ESG bonds in which ACROS is already one of the main player. In terms of people, we are again upskilling our people with increasing to 700,000 the day person formation. We will distribute over the for year of the plan, more than EUR 20,000,000 of grants to community programs, social and environmental. We will increase the corporate volunteering hours from 7,000 to 12,000. And last but not least, we will devote even more efforts to be a long standing partner with Italian Association for Cancer Research for which we have the sole banking support and for which we have started a five year partnership in 2019.
Where
we will focus our effort for reaching this result? Of course, we have experienced, I would say, an exceptional performance in both disposal on the left side and workout on the right side during the last three years. We have been one of the four banks which mostly more reduced the stock of NPL. I have to stress that we did that on the vast majority of the stock held at the moment of the merger and without recourse to capital injection. On the right side, we stressed how we were able year by year to overperform the NPE inflows at least by EUR 1,000,000,000 in 2018 by EUR 2,000,000,000 of net NPE delta positive results.
And this was, of course, fostered by the UTP coverage, which increased 11 full points versus seven of our peers. The results that we aim to reach is 5.9% in terms of NPE gross ratio and 3% net through credit risk data warehouse to credit policy strengthening, monitoring and early warning system evolution, which has allowed us to detect earlier in the road map the nonperforming loans and a new dedicated UTP management approach, UTP into core and noncore activity. This will bring a reduction of cost of risk to 51 basis points, maintaining strong coverage ratios in the region of 60% for bad loans and 40% in UTP. These are the tools that we utilize for our asset quality reduction, bettering, sorry. Let me just say that on the rollout of new specialized management approach in UTP, we will be focalizing into a core portfolio with a focus on maximization of cure rate and repositioning in performing of these loans.
And on a noncore portfolio, which, of course, has a focus of maximization and speed up of recovery in line with the calendar provision. The global effect will be a reduction of the UTP stock of almost EUR 3,000,000,000 over the timeframe. Balance sheet. We still are working on bettering our balance sheet through a reduction and an alignment of our Italian govies on the total portfolio in the region of 40%, in line with peer's average, we have in mind a specific action not only to rightsize the balance sheet but also, of course, to foster the Common Equity Tier one increase with three kind of specific action. The first one is a reduction of 1,000,000,000 in our real estate portfolio, which will free up up to 20 basis point of common equity Tier $1,500,000,000 of which are already identified.
We will go through this disposal starting from 2020 but continuing over the time frame of the plan. We have, as you all know, the sale of equity participation of with an impact of 40 basis point coming from the potential reduction in AGOS and the disposal of Selma, Factorette and Profamily, which will free up 40 basis point of contribution, removing capital burden for these which will not consider strategic assets. Finally, we will start and we already started with the first one, a new dynamic activity on our book on our loan book, in particular with SME clients, no impact on client relationship and on NII with some synthetic securitization on the existing loan portfolio, which year by year should give a contribution from 15 to 20 basis point in terms of common equity Tier one. Let me ask you to give an eye toward optimization of the funding mix over this last year. Would say, we have closed very much the gap between us and our competitor.
And we will try to do that over the plan in order also to converging on rating agency expectation. As you know, we have started to switch from TLTRO funding to market wholesale funding. In doing that, we were able to reduce and close the spread differential with our competitor. We mentioned three example on the left side, which show the appreciation from investor of this new policy. The senior preferred reduced very much the gap vis a vis the BTP reduction and the same was for Tier two and Tier one product.
On the right side, we will give you the road map to reduce up to EUR 3,500,000,000.0 starting from EUR 21,000,000,000 the TLTRO in December 2023, the maximum take up vis a vis the EUR 16,900,000,000.0 has already reached in December 2019 is EUR 14,000,000,000 during the four year business plan. Finally, let's pass to the financial target and the capital work. We will start from 2019, 12.8% fully phased CET1 ratio. The key capital targets are on the left side, the main guidance in terms both MDA buffer, 2.5%, and the common equity ratio, more than 12%. In this case, we will also leverage on the further efficiency given by the CRD V directive from 2021.
And this will help us to reach 12.5% results in our plan for 2023, allowing us to distribute cumulative dividends for EUR 800 plus million over the plan horizon and with an average payout of equal or higher than 40%. Let me stress that these results will be confirmed both capital buffer and dividend distribution also under the V shaped economic scenario that we presented in the first page of the presentation. Going further, just a few minutes of your patience and I'm done. I think this 43,000,000 is a slide that most of you were expecting. This is done, of course, as usual on our side under very conservative assumption.
We are trying to give you the more transparent understanding of the headwinds impacting both on the upside of the slide on the common equity Tier one ratio and on the lower part on the Pillar two requirement. As far as the fully phased Chat one, we will have 90 basis point of impact in 2020, mostly driven by EBA guidelines. Needless to say that the large vast majority of these could be driven by the potential LGD waiver not given during the year or not. So this is the main aspect. 2021, very negligible.
2022, fostering and factorizing already in a fully phased mode the Basel IV framework for the year forward. So global cumulative offset of 200 basis points, this would not impact the capital generation, the capital buffer that we will continue to have for MDA, which will be consistently in the region of 300 basis point. If we go on the Pillar two scenario and we introduce also calendar provisioning, we have tried to give you a year by year impact starting from few basis points. In 2021, we are going up to a total consider a cumulative consideration of 60 basis point, which will be reducing after 2025. This 60 basis point will be potentially much more than compensated by the efficiency offered by CRD V regime.
So also for this, we don't think we can we think we can respect the guidelines also on MDA. Finally, the total wealth creation for our shareholders in the hypothesis of an 800 plus capital distribution, this will bring to a tangible book value increasing of EUR 1,200,000,000.0, which bring to a total shareholders' wealth creation of almost EUR 2,000,000,000 of total consideration over the plan horizon. I would say, just to conclude with four very quick consideration. First of all, this is a plan which is already, I would say, embedded in our kind of doing business with a strong participation with our colleagues, of our client, of our territory, strengthened by the standards we will continue to adopt on ESG. This is a plan that want to give an attractive remuneration over the years, growing over the years to our shareholders, fully confirmed together with the solid capital position with a V shaped scenario.
We want to stress the relaunch of the commercial profitability following both specialization from one side and fully omnichannel offer for the other part of our client. And finally, the enabler of all these will be the consistent IT and digital investment, which will enable the transformation of the bank and the sustainability in the future of the results we have presented to you. I am finished. Thank you for your patience. It was a very long presentation, but I hope it's worth to listen what we wanted to give to you today.
Thank you very much.
The first question is from Giovanni Razzoli with Equita. Please go ahead.
Good morning to everybody. A couple of questions on my side. The first one is slide number 44 because clearly, today, the market and the environment is very uncertain. So we need also to understand what is the now for the short term profitability of the bank regardless of the v shape, let's say, the your 0.3% GDP growth assumption for 02/2020. So that said that you are telling us that your tangible value will rise by 1,200,000,000.0, 02/2019, 2023 with €800,000,000, cumulative capital distribution and €770,000,000 of net profit in 02/2023.
So basically, this means that in 02/2022, there will be something like €1,200,000,000 of cash flow generation, which is squares of something like €400,000,000 of profit average per year, which is likely below consensus as my estimate. I was wondering whether my calculation is correct and if you can provide us with a guidance in terms of net income for 2021 or whether this calculation is more or less consistent with what also you have in mind. Another clarification, 70 basis points of impact of Basel IV, I was wondering whether it's fully phased or phased in. I think it's phased in, but if you can please clarify these. And the very last question, I was wondering whether you may consider the, proposed to the next, general meeting, the introduction of an interim dividend payment as a way to reinforce your view about the improvement in the risk profile and the capital position of the bank and also give to the market a signal that you are really confident about the evolution of your earnings profile going forward regardless of the V shape scenario?
Thank you.
Many question. Let's start from the plan results. Of course, it's easy to have the last year of the plan. It's less easy to have the assumption under the first three years. I would say that, of course, as you can imagine, the first year of the plan, there would be also some extraordinary cost for the reduction of personnel.
And this, of course, will impact. But I would say that, of course, during the time plan horizon, you will have also a reduction of HTGS reserve. So there will be many things that you cannot consider, of course, having only the final results. So let me say that it will be a progressive growth in terms of shareholders' wealth creation starting from 2020, which will be in line. Of course, again, we have also V shaped the scenario, which, of course, is more negative in this aspect.
So it's difficult to give you some guidance in this having in mind what we already explained, but will be progressively increasing up to a solid results in 2021, 2022, 2023. The Basel IV 70 basis points are fully phased. And sorry, maybe I didn't get to the interim dividend. Let's say that I wouldn't have expected the question today because everybody is very negative about the outlook. But let's say that if this situation is going ahead, as we hope, normalizing very soon, I think we will have the time to talk about more frequency of dividend and so on.
I don't think today would have been very credible to talk about that.
The
next question is from Fabrizio Bernardi with Fidentiis. Please go ahead.
Hi, everybody. There are few questions on the capital base. I'm not getting right the moving parts of the common equity in the sense that you mentioned a tangible equity up once for €2,000,000,000 while you mentioned only 40 basis points of capital generation from ordinary business. So I'm I don't know why it's so small. Maybe I'm looking at something different.
Secondly, can you elaborate a bit more on the 130 basis points of capital benefit from balance sheet and capital management measures. I mean, in this 150 basis points, do we have something related to Agos Ducato or to Anima or whatever you may have? Or is something that you could, let's say, do if, the regulatory headwinds are effectively 200 basis points. So to me, it seems that the 200 basis points are very a very tough number for a bank, for a for a domestic bank like Bank of VPN. So I'm wondering if this is a sort of a worst case scenario or is, let's say, the base case.
And last but last question is about the payout. You say that the payout of 40% is an average payout. So should I get something like zero in 2020 and one 100 in 2023 or there is a floor that you would like to respect? Thank you.
First question, a bit complicated, very technical. Of course, there is a difference in the growth of the positive elements of Common Equity one vis a vis the growth of the tangible. Just to make an example, we have a difference coming from the net profit is already inside the common equity Tier one, but it's not in the tangible. This accounts for CHF 300,000,000. There is, as I mentioned before, to Razzoli, a reduction in the HTCS reserve.
There is an increase in the intangible. So it's difficult to square this number together. Of course, the 40 basis point of business development take account also of the organic development of the RWA. In terms of balance sheet and capital management, of course, we don't mention anything that we didn't say directly to you. So what we announced was a potential you know that there is a put of worth 10% of AGOS capital, and this, of course, is inside and the potential disposal of the other activity product factory I mentioned before, which basically brings no profitability material profitability to the bank.
This makes the 40 basis point I mentioned into this action. Of course, they are doing the conservative. I mentioned many times that I still believe in the possibility to have some sort of exemption for the LGD, what we call LGD waiver, but we wanted to give you a scenario in which all the potential negative impact also coming from very positive action like the reduction of NPE comes on board. And if this happens, happens in this year. After this year, we don't have any other material checkpoint with ECB.
For the payout, I would say more the opposite, meaning that, of course, the lower the net profit, the higher could be the payout vis a vis maintaining the global commitment to distribute 800,000,000 plus.
The next question is from Andrea Vercellone with Exane. Please go ahead.
Few questions. The first one is on the default rate. So you mentioned that your 2023 targets are still consistent even if we have a drop in GDP in 2020. And, on the slide where you mentioned the default rate, I don't remember the number, you expect the default rate to trend down over the plan horizon from 1.2% currently. My question is, however, if we do have a a recession in 2020, what do you expect the default rate to be in 2020 and 2021?
Flat, still down, up, a bit of guidance on on that would be helpful. Then a few clarifications also on this slide with the, capital headwinds and also the one with the sources of capital. On sources of capital, you talked about AGOS before. So my understanding is you have assumed you are gonna exercise the put. Did you value it at that price, or you made some other assumptions?
And if I'm wrong in understanding that, please correct me. Same, I would like to know what assumption, if any, you have made on the Corvea insurance agreement, which expires in 2021, if any. And also on the slide 43, Basel four framework, why have you got 20 basis points in 2020 when Basel four doesn't kick in in 2020? And also on the AIBA guidelines line, you mentioned that the 60 basis points in 2020 is sort of a worst case scenario if you don't get an LGD waiver. Can you comment what happened to the 40 basis points prudential buffer that you already made specifically for this issue?
Because basically, 60 plus 40 is 100 basis points, so it's pretty big. Thank you.
Thank you, Mr. Vercellone. Let's start from the more difficult one also because, of course, we are still in the middle of considering we were very simplistic, I would say, in saying a V shaped scenario for 2020. But amongst this scenario, there could be end of emergency in April, in May, in June, in September. So let's say that in the different scenario, we elaborated at the end of the plan, there would not if this is the case, there would be not a material change in the cost of risk global cost of risk, of course, through a different phasing of the number.
I don't have a number because I don't have a proper scenario for that. The put, of course, as you know, we have already embedded the put price at basically EUR 1,500,000,000.0 of total consideration for AGOS. We have embedded what we feel is a fair market value of the AGOS business right now or, let's say, in a normal situation. COVEA, as you're rightly saying, will expire in 2021. Basically, for our plan, it was neutral, not because this couldn't lead to some capital gain, but because we imagine to go to the same percentage, let's say, of the Catolic Bank Assurance Agreement.
As you know, we have 19% in Cobea, 35% in Catolic. So we have hedged these two situation. Rightly enough, you saw that there is a Basel IV anticipation. This is due to the AMA standard that we will we have decided to go by this year. As you know, the AMA as far as the AMA is concerned, we had a very peculiar situation for which we had the former Banco on an advanced model and the former BPM on the standard model.
Being that by 2022, every bank should go to the standard. Basically, we agreed with ECB that we wouldn't go further in our request to go to validating the model for the new bank, and we will anticipate of about two years the effect of the switch into standard. And this, of course, will cost 20 basis points. But it's only an anticipation or if I should have given you the total consideration without this, would have been the same 200 basis point only with the phase in different in 2022? I think I have answered two.
No. Eva guidance, the 40 bps buffer you had booked. What happened to that?
Sorry, it's already there. Again, into the guidance, we already consider that we have 40 basis points of, let's say, potential advantage. And this is the estimation we it's quite polarized, this decision. Either you get a sort of neutral results from de risking we have done or having being so massive. Again, we showed that we have reduced more than 75% our book if no Levi would be taken on our LGD perspective, the amount would be higher than 40 basis points, which are already embedded in our 12.8%.
What makes you then change your view? At the time, you had put this 40 basis points, assuming in your estimate at the time, that that would have been enough to cover this specific risk. So does this mean that your view has changed, and now the risk can cost you up to 60 basis points more. I just don't understand why it was supposed to be kind of neutral two quarters ago and now it's 60 basis points.
No. First of all, six is not only related to the LGD waiver. So it's a part of the 60 basis point. I think we have gone through really specifically into each items. And of course, we can also give you some more detail, but I think it's quite detailed.
The only consideration I can know, it's not my opinion that counts a lot. Of course, my expectation is based on the previous behavior vis a vis Italian banking system and what I can consider in a very conservative assumption, a negative approach. So it's not my opinion that counts, frankly speaking, but it's, at the end of the day, ECB decision. So in order to avoid to be, again, let's say, realistic in a so important presentation like the business plan. And then maybe at the end of the year, being obliged to say, I didn't reach what I wanted.
I prefer to be conservative nowadays and hopefully take advantage of some different decision.
Okay. Thank you.
The next question is from Domenico Santoro with HSBC. Please go ahead.
Hello. Hi. Good morning. Thanks for the presentation. Just a couple of ones from my side.
First of all, the 200 basis points impact from regulation on capital, is does it I mean, does it affect 100% risk weighted assets or there is also a component of which going through capital accrued against capital? This is the first question. The second is on asset management phase in particular. I hope you don't mind me asking a question on the current situation. Of course, I mean, your plan is leveraging on asset under management growth more or less volumes of 6% more or less, if I'm not wrong.
Do you have some data point to understand whether even with your branches being open, do you have a significant deceleration of sales in Asset Management over the last couple of weeks? And then a question on OTP. I mean, your plan leverage on the possibility of reducing significantly, UTP. Thanks very much for giving us the, impact from calendar provisioning. I'm just wondering whether you might consider some sort of extraordinary deals in case the market scenario is different from the one that you imagine in the plan.
And can you help us to understand because, of course, the market scenario is now what accounts. What should go I mean, qualitatively or quantitatively, what should happen for your OTP now turning into nonperforming? Can you give us a sort of idea sensitivity, what should happen in terms of GDP growth, what should happen in terms of probability of default? Thank you very much.
Hello, Laura. So sorry. First of all, thank you for the question. So I can stress also another point for the answer to Mr. Vercellone, which I forgot, just to mention that it's not that the people change mind, but unfortunately, there are things that happen that make change decision.
First of all, of course, there is it's omnicomprehensive. The headwind is not only credit. As I mentioned before, there is MA. There is market risk. There is basically, everything is inside.
So you don't have other potential impact. Second, asset under management, 6% growth. Let's say that before the last week effect, we were doing the pace that was much better than last quarter twenty nineteen. I wouldn't like really to anticipate results, but was consistently better than last quarter twenty nineteen. Frankly speaking, apart from three, four days in which we have experienced a reduction in pace, yesterday, for instance, was a quite normal day.
So of course, there is not a normalized situation. But again, our banks are open, our activity driven, but our CRM is online. So we are doing business as usual, basically, with the constraint of the red area zones. But for the rest, I think, for us, it's four or five branch involved. For the rest, of course, we are experiencing the reduction in business.
But again, we don't think this could last for more. UTP, of course, in a business plan, we want to go in what we call an ordinary situation. So we were very determined to say that this is a result that can be reached without extraordinary activity. Needless to say that we would not close our eye and ears for the next four years. We were ready to discuss and to look at any potential activity, which will allow us to accelerate the pace that we have forecasted for the next years.
As I mentioned one month earlier, without significant capital losses in terms of profit and loss in capital. As I mentioned, we have spent eight 100 basis point in order to rebuild our capital for the sale, for the disposal up to now without having any material advantage in terms also of LGD. So let me say for LGD, why now there is more uncertainty? Let's consider that we are the only and first bank to be examined under the Articles 500. This means a new experience for us, but means also a new experience for ECB.
So we are all work with a change model in terms of what was done before. And of course, each of us is trying to make the counterpart understand how the Fed should be. But again, things changed. The Article 500 was a material change and we are still considering together with ECB the potential effect of this application. Maybe I lost?
No. Apart from I was I was told that you were asking what driver could increase the danger rate. This is the question.
Yes. What should happen in a way for some of your UTP to turn significantly materially into nonperforming? Three minus three, minus 4% of GDP probably in 2014?
Yes. I can imagine also a prolongment of the scenario we have for a gas. So of course, if the scenario is going to affect also 2021, for sure, will be a material contribution in the next year to the nonperforming. We have experienced the same for other reason under other situation. Let's say that I would not consider for the time being any possibility of this kind because, again, everybody say also OXE, the major investment bank, the analysts and so on, the most probable situation, again, is a V shaped scenario, not a prolonged scenario over the year.
It's clear that this if this would happen, we would be obliged to change the assumption on the plan to present in due time what are our new assumption.
Okay. Thank you. Is there any impact from regulation filtering into your capital, core capital, especially with the assets?
No. All the impact, of course, are including also the shortfall and any potential impact from a different balance sheet situation.
All right. Thank you.
The next question is from Jean Noyes with Goldman Sachs. Please go ahead.
Hi there. Good afternoon. I just wanted to ask a few detailed things and then maybe a broader topic question. The first one is, could you please tell us because you said that you have a €2,000,000,000 increase in tangible equity that I guess is the net of everything. Can you tell us what in that is there are the one offs and what is the underlying profitability?
I would also want I also wanted to ask whether you will smooth the dividend in that if you have, for example, restructuring charge in 2020 for argument's sake, whether you'll pay 40% of payout ratio, give or take, on the stated profit or on the if you have underlying ex restructuring charge? I also wanted to know whether you'd be able to share what tax rates you've assumed throughout the plan. And then more broadly speaking, that's obviously a stand alone plan and fair enough. The question is now there is a resumption of M and A activity in Italy, and I just wondered whether you felt that Banco BPM has a need to respond to the intesa will be announced, well, let's say, intention to one-sided intention to merge. Thank you very much.
Thank you. Let's see if I understood well the first question. We were mentioning EUR two billion of, let's say, wealth creation that is split between dividend paid and tangible book value. Of course, the remaining part, the EUR 1,200,000,000.0, would be the part excluding the distributed dividend policy. These But
the one off.
Sorry? The one off. Yes, yes. This, of course, could be affected in 2020 by one off. Let's say that our target is to be able to respect the €800,000,000 plus considering also the one off in 2020.
As I mentioned maybe in last month presentation, we don't give guidance, of course, for profitability for 2020. But I already mentioned that we would consider the dividend distribution for 2019 as a sort of floor also for the year coming, so it's included in 2020. Very interesting question. Thank you for having this question in the fifth question, which is M and A. Basically, no, I don't think we have to respond to anybody because we are doing our road map, of course, on a stand alone basis.
Let me allow me not to comment on transaction who are live in this moment on the market and their regard to other to our competitors. We will we basically only think that we can have the time in the next few months to show the main target that we want to reach. We think we have already demonstrated to the market that we could be very, very good in cost saving, in de risking, in capital generation and so on. We want to show that we have a sustainable profitability generated by core business. This is the main strength of our bank and unfortunately due to many reasons.
First of all, the merger secondly, the accident we went through with Diamond and so on, we were not able to show this trend to the market. My goal is starting from 2020, COVID-nineteen, allowing to show that this is very consistent and this is the real strength of our bank. If I can put together this strength with what we already showed, I think we can have a good future also on a stand alone basis. If you ask me, if you think that the market is going to consolidate even more, of course, you know my answer because I already say that I see a market which is more consolidated. The only things that I can say that, of course, I hope to participate to do this consolidation, I would say, from the bottom and not from the top, let's say.
What does it mean from the bottom but not from the top?
My English, this is very poor. I mean, I hope that this consolidation comes from many midsized banks that put together rather than, let's say, a no style transaction.
Thank you. Very good. Thanks. The
next question is from Antonio Reale with Morgan Stanley. Please go ahead.
Hi, good afternoon and thank you for the presentation. I have a few questions from my side. You'll forgive me, one of which is slightly provocative, but I just want to hear your thoughts. So you've disclosed a cumulative two sixty basis points of regulatory headwinds between 2020 and 2023. Now if I understand correctly, that's about 65 basis points per year, which is exactly your organic capital generation before dividends are paid according to consensus at least.
So one could argue that, so in order to pay to have a payout of 40% or above, you would need to see a repricing, significant repricing of the asset spreads, sell some equity stakes, which you're doing and hope that the macro environment doesn't derail. How shall we think about that comment? I mean, how should we think about the sustainability of that dividend payout going forward? So that's the first question. And the second one, if I look at Slide 43, I see you talk about calendar provisioning being more than compensated by CRD5 relief.
But you would that's implying that you have enough 81 outstanding for you to see a reduction in the LR2R. Are you factoring in another issuance of 81 in the plan targets? And is this included in your estimates? That's the second question. And lastly, if you could perhaps given the IFRS nine regime, could you please provide sensitivity to loan loss provisions for many changes to GDP growth, please?
Thank you.
Okay. Thank you, Mr. Reale. No provocative question. Thank you for your question.
I would say, of course, the plan is revenues growth plan. So of course, we have embedded on a long term scenario of four year a progressive growth in all the aspects of the bank. As you could have seen, the majority coming not from NII, of course, but from Wealth Management Commission and generally from commission and from some new business opportunity coming from partnership. These are the two drivers. For the rest, it's a cost to serve exercise in order to have all our, let's say, mass market client to be served even more by digital with the digital approach.
In saying that, again, you can see the different results we are embedding in the plan. I would say, just to simplify, the more concrete is the increasing of commission in Wealth Management. But of course, there is also a repricing in four year. This is another reason why we went for four year. In four year, we have the time basically to reprice all our loan book.
We have EUR 20,000,000,000 per year for EUR 100,000,000,000 loan book. So it's four fifth of the book will be reprised in four years, which we already started with. So again, it's an exercise which is not easy, but it's something that we feel possible also, of course, with an external growth in terms of market share. So we think we can, both for geography and for some specific attitude of our bank, to grow in the enterprise, in some area, which is not nowadays very well dealt by our bank. 81% with yes, for the 60 basis points, we were the first midsized bank to issue an 81 in April, which was done just because we wanted to taste the market also on this side.
We were very successful in the last one in January with very good results. We are expecting over the plan to increase the AT1 a port in order to exploit and, let's say, arbitrage very well at the best the capital requirements with subordinated instruments. So that's why we think it's possible for us to reach just to be frank, we have more AT1 in the plan assumption than we need in terms of capital. Security provision, I think if you are only related to the V shaped scenario, I think is more provision of €100,000,000 on the overall plan.
The
next question is from Noemi Perock with Mediobanca. Please go ahead.
Good afternoon. I have a couple of questions on capital. Do the 200 bps headwinds include also the SME supporting factor? And you're planning $15.20 bits from securitization a year. What asset will this involve?
And what are your expectations in terms of revenue loss from this? And do you have a pre preliminary feedback from the SSM about the application article one zero four a to offset claim that provisioning? And finally, could you please disclose your MRAR requirement and the date on which you should be compliant by? Thank you very much.
Okay. Thank you. I hope to understood all your question. Yes, the SME support effecting is embedded in our plan. I heard this morning that something more could be done by European Commission, but of course, we are waiting.
And it's embedded what is already decided. So it's a part of the plan. As far as securitization, the SMEs business, in order to have a very fragmented book building is SME loans. Basically, as I mentioned before, there is no interest NII impact, but only the payment of, let's say, a commission in order to have insured the first loss, which is not in terms of NII. The MREL requirements are fully matched with our plan, with our funding plan.
We will we didn't go through, of course, the different instruments we will issue starting from this year. This year would be the one with less buffer in terms of MREL requirement growing further very much over the plan horizon. Why this year has less buffer? Because, as you know, certificates are considered inside MREL requirements, but only if issued by the parent company. In our case, we have certificates up to now and for the 2020 will be the same issued by Bank Acros, which doesn't meet the Marelle requirements.
So for the first part of the year, we will not consider certificates under MREL. For the second part of the year, we will rebuild our capacity through issuing certificates by Banco BBM.
Thank you. And do you have, by any chance, any preliminary feedback from the SSM regarding the CRD V?
Basically, we didn't ask specifically for us because as far as we understand, CRD five will be applied by for everybody starting from 2021. So we asked, of course, verbally this question to ECB in a recent visit to Frankfurt and we will say that they are considering this generally speaking, of course.
Thank you.
The next question is from Christian Carrese with Intermonte. Please go ahead.
Yes, good morning. I have four questions. The first one is on asset quality evolution. You said that the V shaped scenario would cause €100,000,000 additional provision over the plan. I was wondering if the deterioration of the macro scenario would be worse than expected.
Would you take into account the possibility to reduce the MDA buffer expected over 300 basis points by the end of the plan to accelerate NPL or OTP disposals. So question is on unlikely to pay. Again, if you can elaborate a little bit on the team and the division to to speed up the internal workout. The third question is on contingency planning. In case revenues will revenues evolution will be lower than expected due to macro, deterioration.
If you can give us an idea what are or what could be the action to reduce cost, faster? And finally, the outlook on 2020 in terms of fees, I know that it's quite uncertain, the current scenario, but do you expect fees to be more or less in line with the fourth quarter or maybe to be better than the trend? Thank you.
Thank you, Mr. Carrese. Okay. Again, of course, you can imagine that during the last days, we were elaborating a different scenario in order to comply with the more credible presentation possible, but also our fantasy have some limits. So we decided to give what is nowadays considered the most probable option, which is an impact in 2020 and a rebound from 2021.
Any other scenario, of course, is not considered inside the plan. We can elaborate in many scenario. Of course, we will come more public when we think that the scenario is over and maybe we should elaborate a new one. But this, I think, could happen only if this current situation and this sanitary condition is going to last for the next three, six months, I don't know. So let's check before I think there is also on our side a sort of moral obligation, again, which is also confirmed by what I was explaining before.
We are not experiencing strong reduction in the activity of the bank. We are working, let's say, even though in a very strange scenario, but in doing business as usual. So I don't have numbers for many other scenario because I don't have many I have too many scenario to confirm. Let's say that I think both of us can be quite cautious in saying that the recession scenario for 2020 up to now is enough conservative to examine a business plan of four year duration. Internal work out, as I was explaining, is if you go back to the page in which we I only pointed out the workout
So in the deteriorated asset, of course, there is a lot of work that starts much before starting from the credit policy, going through the data analytics for monitoring and experiencing a robust perception of the deterioration of credit through the securitization insurance on this side of the book loan. So there are many maneuver we are doing. And I think our number are really credible in order to give you a clear idea of our potential target reach. Contingency plan, again, in a normal OV shaped scenario, we will be able to confirm the target and of course, in term of cost income to adequate immediately the cost expenses to the revenues. So again, if you see the third year of the previous plan, we have experienced extraordinary reduction in cost because we were prepared to do that.
The same will be also for this business plan. We have investment. We have a lot of upselling technological upselling. We have investment on our people, all things that can be done quarter by quarter, semester by semester, year by year. So we are almost in control of the cost expenditure.
And this is the best insurance for us to comply with the cost income. Again, 2020, again, the scenario, I cannot expand anymore because otherwise, I would be one of the thousand of people who declare about what will happen, not knowing exactly the solution.
On MDA buffer, would you be prepared to reduce the MDA buffer to accelerate NPL disposals?
Yes, sorry, I missed this question. Yes, I would say we have also other tools. We have a lot of unrealized capital gains. We have more opportunities to deploy during the plan. I'm sure you have seen that our guidance is two fifty basis points of buffer, and we are above 300 basis points.
So we can use as much tools as we can in order to accelerate should the global situation suggest, like it was in the first three year plan, a more dramatic and immediate reduction.
And just a final question, if
I may, on the tax rate embedded in the plan?
Is a normal tax rate maybe apart from the stakeholders, of course. When we will reduce the stakeholders, there will be an advantage in fiscal advantage, but it's quite negligible considering the plan horizon.
Thank you.
The next question is from Hugo Cruz with KBW. Please go ahead.
Hi, thank you. And apologies if this has asked, but does the plan assume any DTA benefits, I guess, not through the P and L but against capital? And then in terms of the synthetic securitizations, is there an impact of that, I assume, on your NII or elsewhere in the P and L that is already reflected in the plan? If there is, if you could give guidance on that amount, it would be great. Thank you.
Thank you, Mr. Krutz. DTA. So of course, there will be an impact on the net profit reducing part of the DTA. On capital, we will have a marginal reduction in the effect of capital.
Will be partial, think, 100,000,000, 150,000,000 of impact on capital, in particular, into those in RWA will be an effect higher than the Capital One. No, I already answered before. The securitization we are building up are with the commission paid to, let's say, to the first loss insurer rather than NII contribution.
All right. Thank you.
The next question is from Alberto Cordara with Bank of America. Please go ahead.
Hello. So my question is in page 39, you are saying that you will align the share of Italian govies on total security to 40% in line with PSE average. My question is if you can tell us what does it mean in terms of ratio to Tier one capital? If you can give us a view of the absolute value of the reduction. And I assume this is entailed in your assumption regarding the pressure on NII, But if you can be specific and tell us how much NII will you lose as part of these actions.
Then I wanted to come back to a question that just my colleague Ugo, asked you regarding the commissions. So the commission that you pay on the first loss, will it go as a negative in the commission line or somewhere else in the P and L? And I don't know if you can quantify how much this will amount to based on your plan. And finally, very last question, in Slide 37, you're showing that the default rate is moving down from 1.2% that you are calling this year. I don't know if you can give us a bit of an idea of what is your assumption regarding the end of plan and default rate.
And I know this is an impossible question to answer, but whether this year, shall we expect a rebound, an upward rebound of the or or the default rate or not? Thank you.
Okay. Meanwhile, I have some precise answer to the first question, which was very articulated. Let's start from commission paid. Yes, I confirm, are under the commission line. The default rate, I think, over the plan horizon is going in the region of 1%.
As you mentioned, it's an impossible answer to your question, understanding what could be the effect of the deteriorating of a more deteriorated scenario rather than the one we presented. In the one we presented, again, there is a global impact of EUR 100,000,000 over the plan horizon. So unfortunately, I don't have other figures to give you. In terms of govies sorry, into what is this, the reduction? Okay.
Proportion of common govies on common equity tier one, one point eight, more or less, which will be stable over the plan horizon. Of course, we have embedded this reduction in the NII, taking account that, of course, there is frankly speaking, during these days, we already embedded also the new yield of the govies in our forecast, which is, I don't know if temporary or not, but it has changed since some weeks ago. I have to say, sorry, about NII. Yes, that NII is, of course, contributing negative in terms of yield, But of course, the funding of govies is up to now has been very favorable and there's a reduction in cost of fund.
Okay. Sorry. Just very briefly, on the commission that you pay on the securitization, can you disclose us what is the amount that you have in the plan? Is it possible to quantify that? Or you don't have the number?
Of course, it's much lower than the NII contribution. It's a part of it, depending on the size, could be variable between 5,000,000 to €10,000,000 I would say.
Okay. Thank you very much.
Mr. Castagna, there are no more questions registered at this time.
Okay. Thank you very much. Thank you for being with us today. Again, thanks to all my colleagues. Thanks to the people who is working in order to reestablish a normal situation.
We will work every day in order to help on our side to have also the opportunity to confirm the business plan number. Thank you very much.
Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.