This is the Chorus Call operator. We are now going to listen to the result presentation of Banco BPM. Please let me remind you that all the participants will be in listening mode and the official language is Italian. After the initial presentation, you will have the possibility of asking questions. If you need to contact the operator during the conference, press star zero. I will now hand it over to Mr. Castagna, the IR manager. Thank you. Good evening, and welcome you all to the first quarter result presentation of Banco BPM. Before handing it over to Mr. Castagna, remember that there is going to be a Q&A session for financial analysts, and you will find the presentation on the website under the investor relations section. Good evening, everybody, and I hope this is the last conference of the day.
Such a tough and busy day with lots of results, and I hope you will be satisfied with our results as well. This is the first quarter of Banco BPM, and we were extremely busy, not only with respect to the integration process and the need to accelerate the plan schedule. We basically do not even remember we are a new bank, and we have to start working as if we have always been one and only one bank. But at the same time, we have to try and achieve satisfactory results, which we did, and I really have to thank all Banco BPM's people who were able to obtain good results in this quarter. On page four, the executive summary, net income of EUR 117 million, supported in particular by core income. The core income came in at +7.5% compared to last year.
At the same time, we were able also to curb operating costs by 4.7%, even though practically the market synergies under the plan have not kicked in yet. And of course, we will feel the positive effect of synergies more, little by little, when the human resource and redundancy plan is going to start being operated and also the other steps will come in. Excellent operating profitability trend. We have +19.4% increase in operating income to EUR 438 million, thanks to the fact that many balance sheet items have increased. Sight deposits first, which went up EUR 7 billion year-on-year, more or less, and also assets under management have increased EUR 4.3 billion year-on-year. Then new loans to corporations and households, +15% year-on-year, both with respect to corporate loans and household loans. New loans of EUR 4.8 billion.
The target is to exceed EUR 16.5 billion, so we can say we are well on track with respect to this goal, even though the loan compartment and allowing loans to grow is really the most complicated thing, considering the backdrop. Then certainly we have to talk about the strong improvement in the risk profile that we were able to obtain in this first quarter. Net Non-Performing Loans went down by EUR 2.2 billion. Percentage-wise, we went from 15.3% in March last year to 13.6% this year. The plan started with 15.7%, and by 2019, we should get to 11.1%. So we are really well on track, and we are heading the right way. And we are well supported by net flows to NPLs that went down by 42.5%, and also inflows to bad loans from other impaired loan categories, which went down 44.9%.
We still can boast a robust liquidity position with LCR above 160% and NSFR above 100%. Again, unencumbered eligible assets in March, EUR 119 billion. Now they are in excess of EUR 22 billion. Capital position. Common equity is declining compared to the previous period. As we said, both with respect to the business plan and during the talks with investors, we also mentioned this during the first quarter. There has been a specific event that occurred that we expected, that is some temporary buffers regarding negative effects on common equity. For example, the risk-weighted assets on defaulted assets and the retail exposure of default gave way to temporary requests. We have already applied to the ECB, and we hope that we are going to obtain the authorization within the expected time, that is, by year-end.
In that case, we will be able to recover the advanced negative portions referring to the new models that are expected to be rolled out. Of course, this includes also the CET1, includes also the net income for the first quarter. You know that in addition to net income, it also includes the PPA bad will referring to the merger. Again, the necessary authorization application was sent and obtained. Key highlights, core income, net interest income plus commission +7.5% total income. Also, NFR income are included, and they make a negative contribution in the plan. We expected to have a decline within this sleeve, and then, of course, total income are reduced due to this component, +2.8%. We are on page six. Operating costs, -4.7%. The profit from operations, +19.4%. On page seven, we are talking about non-performing loans.
I already talked about the decline both in net flows and in NPL stock. On page eight, you see loans and assets under management, some details. I may say that key figures have already been touched upon in the initial highlights. The integration process, we are well on track. It's four and a half months have elapsed. We've entered and signed all the necessary trade union agreements with the phasing of the redundancy plan. We've practically finalized the NPL unit, and as we will see later on, it started cranking in and giving the first results, and we've had an important disposal of secured bad loans. In April, we completed the 50% closure of the total number of branches that are expected to be closed under the plan, and we've closed 170. We've got the kickoff of the cost optimization project.
We have a cost optimization unit that will be set up that is analyzing all the cost components in order to define new possible positive effects that can be derived from administrative expense under the plan. We also kicked off a task force devoted to the development of the omni-channel and digital banking project main framework. Also short roads or inroads that will allow us to implement this project as soon as possible. On page 10, this is a timeline or in any case, snapshot that we will show you every quarter to show you where we are along the process. We are well on track. The next steps, I know the market wants to know about this, is we are talking about June, defining the asset management strategy as well as the banc assurance strategy.
This is the next step by June. Then on July 23rd, we are going to have the changeover or the migration to the IT systems. With respect to the IT system integration, we are on schedule. Shortly, let's talk about headcount evolution. Again, we said that we would talk about the phasing and also the cost saving that we can obtain from this redundancy plan. We started with 1,800 people with EUR 140 million savings. It was already changed into 2,100 redundancy and EUR 170 million worth of savings. By the end of 2016, beginning 2017, we've already generated synergies of about EUR 20 million. Another EUR 18 million-EUR 20 million will be generated over this year. With the exits you see on the bottom of slide 11, more than EUR 100 million will be generated in 2018.
The final EUR 25 million, in order to add up to EUR 170 million under the plan, are going to be generated and achieved in 2019. Let's now see some key balance sheet items. Direct funding, EUR 107 billion. As we said at the beginning, we have a much more cost beneficial component. In fact, we declined the most expensive component, whereas we increased the more favorable ones on sight deposits. On a quarterly basis, we started to switch away from expensive funding sources. It's not going to sit on a checking account, but it's going to be switched over to managed assets. On page 14, you see how funding is changing. We went from checking accounts to sight deposits, accounting for 51.8% of this extended core funding. Now they account for more than 60%. Of course, the more expensive components are declining.
This element of direct funding is not only due to the fact that we are switching away from bonds, but also to the fact that new checking accounts are being opened under favorable terms. The net positive balance is 28,000 new checking accounts having been opened by now. Assets under administration, again under indirect funding, a very good result over the quarter, +1.5%, in particular assets under management, +7.6% year-on-year. Here again, we have a good result of assets under management that drive also fees and commissions, as we said in the beginning, especially with respect to funds and fee trends, which increased by 13% and 5% respectively. Also the portfolio management, so-called GPM and GPS fees increased by 3% each approximately.
The main fuel needed to grow less expensive direct funding and assets under management is the institutional bond and retail bond maturities set for this year and next year. EUR 2 billion have already come due. This year EUR 5 billion will expire. Next year, EUR 7 billion approximately will come due. The average cost of funding, in particular for 2017, is 2.5%. For longer maturities, it is slightly higher, between 2.5% and 3%. Again, this is the potential saving we can obtain on the cost of funding this year and next year. Here we are supported by our robust liquidity position, especially the EUR 22 billion worth of eligible unencumbered assets on page 17. These are high-quality securities because more than 97% are government bonds. EUR 21.5 billion under TLTRO II.
We've practically reached the maximum take-up with the latest March auction. We are now starting also to account the effect of the 40 basis points since we have already fulfilled the requirements for the end of the year. Securities portfolio, page 18. We started to decrease the Italian government bonds component, even though we are still more or less in line with last year. EUR 3 billion less in the Italian government bonds sleeve in March, 4% was the diversification in other government bonds, whereas now it's almost 10% with respect to government bond investments outside of Italian government bonds, and we are talking about French, Germany, and U.S. The portfolio has been rebalanced from available for sale to held to maturity. Now we have EUR 15 million in available for sale and EUR 10.5 million in held to maturity, EUR 1.8 billion in held for trading.
The modified duration of the Italian government bonds in available for sale is 2.5 years. Customer loans, page 19. On the left, you see the bar charts. By taking a look at it, you might believe that the net customer loans have gone down. If you take a look at the right box, it's clear that the total decline in net customer loans was mainly driven by what we said before, that is a reduction in non-performing loans. NPLs on an annual basis declined by 12.8%, on a quarterly basis by 7.2%, whereas performing loans went up 0.3% year-on-year and 1% quarter-on-quarter. In line with the projections for this year and under the plans.
In addition to the decline in non-performing loans that you can see on the box on the right, you should also take into consideration the natural leasing runoff, which went down by 15% year-on-year and 5.3% quarter-on-quarter. You know that this is a business of the bank that we are really managing under a run-off process. From percentage increase over the quarter loans split between households and corporate, you can see EUR 1.1 billion to households and EUR 3.7 billion to corporates. On page 20, we included a slide to give you a breakdown of net loans by customer segment and by geographical area. You see that 70% of our net loans are in Northern Italy, 22% in Central Italy, and 5.7% in the South. 28% of loans are granted to households, 7.5% to large corporates, and 61.5% to corporate customers.
In order to give you an idea of the diversification and the fragmentation and the spreading of our risk, it's given by the fact that corporate that account for 62% of our exposure, the average ticket is less than EUR 300,000. Before talking about the income statement, let me just stop a little bit to talk about the Purchase Price Allocation, because of course it does have an effect, even though it's a rather limited effect, in particular, with respect to the operating income on the income statement. The Purchase Price Allocation is a process whereby the purchase price of the acquired assets and liabilities of the former BPM perimeter are measured at fair value. Of course, this was a consolidation, but practically it was considered from an accounting point of view as a merger of BPM into Banco.
This purchase price is measured at fair value, and it has to be posted to income on March 31st. We carried out all the necessary goodwill exercises and the transitional measurement, and I say transitional because we have 12 months' time under the IAS to have a final measurement of PPA. The possibility of making adjustments will remain for one year time, and it was summed to the net income, EUR 116.8 million. The net income for the period is EUR 3.264 billion. This figure, in any case, has to be reconsidered with respect to the CET1 of the two banks on December 31st before the merger. Overall, they had EUR 81 million worth of CET1 in addition to what the new bank has today.
We did not increase our capital considering the goodwill effect, but we maintained both the capital and the CET1 levels, similar to the two banks. In future years, we are going to account for reversal of that income statement of this goodwill. They will not impact characteristic items, but on the Loan Loss Provisions, because in that case, we will be able to make use of Loan Loss Provisions, and this will make it possible for us to maintain our coverage ratios at high levels under the plan, and thus we will be able to perform very well in terms of credit quality. In interest income. Net interest income on a yearly basis, it went up by 0.4%, driven by the 2016 TLTRO that we had not recognized. We recognized it one-off in the first quarter this year.
If we carry out a quarterly comparison, quarter-on-quarter, we have a +5.7%, again, without considering the EUR 32 million from the TLTRO effect. Consider that the net interest income, although it was affected as of this year of the ordinary contribution for the TLTRO, EUR 18 million for the first quarter, it has been affected by a lower contribution effect of the securities portfolio of EUR 11 million, roughly. Net interest spread trend. Good news here. This is the first quarter in which we outperformed the Euribor. In prior quarters, when the Euribor would decline, our net interest spread would decline even more. In this quarter, Euribor went down two basis points, and our net interest spread declined by just by one basis point. This was driven by the containment of the cost of funding, whereas the loan spread declined by one basis point.
I would like to point out that this process is already reaping some results, had we proposed this table under FINAC rates, we would be up to five basis points. Net fees and commission. This is a significant result that has been achieved by our branch network. Let me remind you that branch networks have been forging ahead as of day one, because from a practical point of view, they were the least affected by the merger. They are still operating and doing business based on the original branch networks. Again, they may feel the effect only as of the third quarter. It's quite obvious that branch networks have not been distracted by the organizational hindrances of the merger, but they are really forging ahead and are enthusiastic to support the new bank's project.
On a yearly comparison, the brokerage management and advisory service fees have increased significantly, also under the quarterly comparison. This quarter, in the EUR 304 million, we accounted for EUR 16 million were performance fees. In this slide, we also wanted to highlight the good contribution of consumer credit, even though in terms of sheer volumes, absolute volumes, it was not specifically high, but it was a +7.6%. This reflects the good performance of Agos Ducato, with the EUR 32.4 million that have been booked under net income from associates carried at equity, which witnesses the fact that the customer credit is an opportunity that we are fully seizing. On page 25, net financial results, again, I talked about the fact that we have to get used to these sizes in terms of results.
Under the plan, we talked about EUR 240 million per year at the end of the plan in terms of a decline in NFR, especially when compared to 2016, affected also by the non-recurring results that were obtained thanks to the fact that BPM was going to be merged into Banco. There were fair gains that had been generated on government bonds, this had led to gains that were included in the net financial result, driving it up, as you can see on the slide on the right. The disposal of debt securities classified in the AFS portfolio this quarter made a EUR 4 million gain compared to EUR 70 million gain in Q1 2016, while net income from trading, hedging, and dividends increased. Operating costs. Here we have a number of runoffs, -1.3% on the yearly comparison.
The quarterly comparison, it's a little bit more complicated to carry out this comparison or the calculations. There are two one-off items. One is a positive contribution. We recovered EUR 27 million worth of costs, they refer to the DTA fees that were paid last year but that were recovered this year. There is a negative contribution, the EUR 60 million to the SRF, to the Single Resolution Fund. Personal expenses, -4.5% on a yearly basis, -0.4% like-for-like on a quarterly comparison. If we exclude the one-off contribution to the redundancy fund, considering that already 200 employees have brought the head count down. For 2016, we also have a decline in the variable wages that have been reduced more than expected.
Other administrative expenses have already been mentioned before, again, you will see here both a yearly comparison and a quarterly comparison, year on year and quarter on quarter, they're affected by these two one-off elements. As for the rest, I would say that they are in line with the like for likes, both for the year and for the quarter. Coming now to loans and Loan Loss Provisions. Evidently, there is a significant decline of Loan Loss Provisions, both compared with the first quarter and the fourth quarter, so yearly comparison, quarterly comparison. Of course, there was an effect of the strong provisions made, in particular by the Banco Popolare, specifically in the last quarter.
I'd like to remind you that we had completed the provisioning or the provisioning increase to the tune of about EUR 1.6 billion, subsequent to the capital increase by EUR 1 million made by the Banco last year, with extra provisions that were completed during the year. Cost of credit, even normalized with this EUR 1.6 billion extra, went down from 123 to 106 basis points, the cost of risk. In this category, we also took advantage of the reversals on PPAs, which allowed us to maintain coverage ratios for individual NPLs particularly high. On page 30, you see the percentage reduction we already mentioned before, -12.8% of net NPLs that went down from EUR 17.2 billion to EUR 15 billion, EUR 16.2 billion last December. In particular, in Unlikely to Pay, down from EUR 8.2 to EUR 7.5, another EUR 500 million versus EUR 700 is also the decline of bad loans.
NPL net flows was already mentioned, -EUR 213 million. It went down by 42.5% in flow to NPLs, that is to say. Particularly good was internal work out that allowed us to further reduce, together with disposals, the overall amount of net NPLs. Before showing you coverage data, I'd like to digress a bit to talk about write-offs. You will remember that the sum of write-off of Banco and BPM put together accounted for about EUR 5.2 billion.
Most of which for Banco Popolare, which had different policy compared with BPM. Rather different also compared with the majority of the other banks. We had the need to decide which of the two criteria we were to use, and in line with what was common practice in the banking industry, we decided to adopt the former BPM approach, which actually sees write-offs pre-setted in the account with allowance method. This was also done for the financial community that sometimes was puzzled when they saw such considerable write-offs in particular in the past made by banks. Write-offs were included again in the nominal exposure and included in the calculation of the coverage ratio, in line with what we had also done when announcing the strategic plan and the disposal and NPL coverage plan authorized by the European Central Bank.
By effect of this, most about EUR 3.5 billion write-offs were written back, another part about EUR 500 million and EUR 600 million were disposed of, or they actually were removed via the cancellations and other disposals. We still have a few write-backs in our books that, by their very nature, we felt they could not be included as write-offs. We're on page 32 now. It might appear a bit complicated, but I will describe it. Again, there is a comparison with nominal and book coverage ratio. If you want to look at the nominal ones to have something consistent with today's figures, the coverage increases on individual NPL categories, both for the total and for individual categories, are indeed quite sizable.
In particular, we have about 450 basis points as an increase on the total NPLs year-on-year, 200 basis points quarter-on-quarter, about 140 basis points and 120 respectively year-on-year and quarter-on-quarter for bad loans. Here you have to consider that there were disposals for EUR 1.7 billion of bad loans, which specifically, given that the unsecured ones had been particularly provided for, this affected the decline in coverage in figures if we hadn't had the additional provisions that we actually made. Something different concerns Unlikely to Pay loans. In part for due cautious approach because of a bad will effect, we provided specific coverage to them, they went up by 400 basis points quarter-on-quarter and by over 700 basis points year-on-year. I believe these figures are self-explanatory.
First of all, we are in line with our planned targets, about 62%, as a result of a mix that was 48/86 for secured/unsecured, net of disposals, which meanwhile have taken place. Let me now focus on the NPL unit, which we presented in the previous quarter results announcement. Clearly, the unit is now working at full capacity. We carried out a segmentation of our customers, attributing large portfolios, the most important one that accounted for about 80% of our NPLs in value, we gave them to our specialized managers, bad loans managers. We increased our outsourcing, the scope of outsourcing, the small positions that were given to third parties for credit collection. We've considerably strengthened internal reporting, the definition of KPIs with targets given to individual managers.
We started, in fact, we are about to complete the activity related to the disposal of secured positions in the Rainbow Project for EUR 720 million worth of assets. You will know that we have made a shortlist. We are waiting for binding offers, we hope by June to be able to complete the transaction. We are already working on what remains, the residual part. We still have about EUR 2 billion of unsecured NPLs, which we would like to take care of in the second half of the year. As for credit collections, recoveries, you see to the right-hand side, remarkable results, +50% year-on-year. Of course, we don't have an activity that allows us for a continuous increase, we started off quite well, +52%, slightly above budget in terms of the expectations we had for cash collections or recoveries.
An additional table compared with the presentation you saw last time over on bad loans, we have a similar one on page 34 on UTPs, Unlikely to Pays. You see that to the left-hand side, the total is EUR 11 billion to UTPs, EUR 3.4 billion is the coverage, this is 31% we said before, with an active exposure of EUR 7.5 billion, EUR 1.4 billion is unsecured with a coverage of 46%, EUR 6.2 billion, 80% of the total is secured with a coverage ratio of 26%. You see the pie of the breakdown by asset class and use as collateral. About 30% is residential, about 25% is commercial, 15% industrial.
The geographical mix, the geographical breakdown and fair value of collateral on net book value and the fair value of collateral plus adjustments on gross book value account for respectively 187% and 164%, which considering the geographical breakdown and considering that over 50% of our Unlikely to Pay are restructured transactions on which often there are certified industrial business plans and constant checks, not only on the way the company is managed, but also on reimbursements, payment of installments and interest. We believe that with this level of coverage ratios in the geographies I described, and with this level of collateral, we have a guarantee of potential recovery of these credit profiles. Coming now to slide 35. This is sort of more complex, and therefore I'll take some more time to walk you through it.
As I said, negative buffers are temporary in nature and were applied considering an RWA on defaulted assets and EAD retail accounting for 54 basis points on the phase-in result, which is 11.5%, and 52 basis points at fully loaded levels, 10.93%. These impacts, as we said, will be resorted with the release of the A-IRB models for the BPM scope. The ECB says that they would ask for these prudential buffers. Frankly, we don't know what was done for the rest of the Italian banks. As far as we know, we know our own situation, but we do not know whether the same things, the same measure was adopted or will be adopted for other banks which are currently reviewing their models. Added to these two results, what we had already obtained to date in terms of CET1 increase.
To these 20 basis points you can see here, let me just focus on the fully loaded part that you see represented in the bar to the right-hand side. These 20 basis points refer to the dividends which were meanwhile paid out, and the associates and the turning of DTA in tax credits that have an overall impact of about six basis points plus 14 of our associates, 20 basis points in total on the increase of Common Equity Tier 1 fully loaded. As at today, Common Equity Tier 1 is 11.13%, and phase-in is 11.66%. Evidently, we included the internal profit for the period on this slide, subject to ECB's approval. This includes both the specific core component as well as the one concerning bad will.
Another positive element, this concerns more volatile activities, as you can see in the last bullet point. Also, the incremental trend in the AFS reserves compared with the 31st of March would bring about another 10 basis points of increase in Common Equity Tier 1 fully loaded. Over and above developments that might have occurred, positive and negative, but of course, these are not choices that we can make independently. Apart from these mixed impacts, which we believe to be of a temporary nature and that will have to be reviewed when the internal models are validated, we can confirm our guidance for Common Equity Tier 1 exceeding 12% by year-end. Page 36. I won't go into specific details of the P&L, the individual items. You can do it yourself quite well. We wanted to include here the reversal peak of the PPA effect.
First of all, to show you that the profit and loss from operation is minimally impacted, EUR 6 million, so a neutral impact. Whereas you can see an impact on Loan Loss Provisions, and it was calculated at EUR 45 million. We believe that this can benefit us also in the coming quarters because it will allow us to take advantage of this reversal to maintain coverage ratios high on our NPLs. Coming now to the conclusions on page 38. I believe this sort of goes without saying after presenting our results, we are absolutely satisfied with the first quarter, not only because of the figures and the results that we obtained, but also for the work that was done by all our colleagues in the bank. They actually were quite passionate working at this integration process.
It's not easy to manage at the same time a one-off project and keep track of profits and P&L data. I believe that all the drivers that we had announced under the plan, that is to say, increase in assets under management, deposits, and loans, though with different quantities and figures, are all taking place. Cost is under control. We haven't yet actually been able to benefit from cost synergies that will come from some action that will be taken later in the year. The integration process is well on track.
We also see a strong improvement in this risk profile and in the coverage ratio for our NPLs, a very robust liquidity position and a capital position that, considering what I said before, we believe will allow us to attain the target under the plan, and net income exceeding EUR 100 million, which certainly is higher than expected and is quite encouraging for us going forward, so that we can go on with the same energy, strength, and determination with this integration process that we all strongly believe in. With this, I thank you, and I'll start the Q&A session. This is the conference call operator, will now start the Q&A session. If you wish to ask a question, press star one on your telephone. If you change your mind and wish to remove yourself from the question queue, press star two.
Please ask your questions into your telephone receiver. Press star one at this time if you want to ask a question. The first question comes from the Italian conference call by Christian Carrese of Intermonte. Please, sir.
Good evening, Mr. Castagna. First of all, congratulations for your results. These are excellent, the best for this quarter across the Italian bank. Even more significant, even more remarkable because they reflect the bank's ability to generate a solid pre-provisioning income and gives a great visibility as to the bank's ability to maintain a high provisioning in order to accelerate the non-performing loan sale process. Income statement, net interest income, very well, net of one-offs. Should we take the first quarter level as a starting base for the next quarters? You believe that you're going to grow compared to next year? Fees and commissions. Other than performance fees, what other fees have been recognized over the quarter, and how sustainable the commission stream is for the quarter?
Considering the introductory remarks, these revenues, this type of gains and income can be used to maintain a high provisioning level. 2017 can be considered still as a temporary year in order to accelerate the future disposal of non-performing loans. And thus, maybe you will show that you can exceed the EUR 8 billion target in terms of NPL sales under the plan. Common equity tier one. Maybe I missed this, but after the first quarter, you would have an additional 10 basis point contribution from the NSFR, and this would be reabsorbed only through Banco BPM or also through other effects?
Mr. Carrese, good evening. Net interest income first. Well, actually, we believe this has been the most difficult quarter because having to switch and having to communicate two conflicting messages to the branch network was quite challenging because the liquidity position of the bank called for a strong support. Having to explain to the branch network that we don't want to pay too much for deposits, it's not something that can be received immediately. The same is for loans, because here, again, if we are combining the two banks, in the last five years, loans have not increased in volume, and here, maybe it is even more difficult to convince the branch network that we are really determined to increase our quality loans.
If we can take this as a starting point, this process, especially with respect to the decline in the cost of funding, is now well on track, and maybe the second quarter will be more tell-telling. The most important maturities are from May onwards with respect to maturing bonds, and this will give way to the savings I mentioned before. As far as loans are concerned, we are heading the right way. We want to stay the course. A number of commercial actions have been launched, target market shares that have been allocated and assigned to each branch and each manager. Again, I need some time to see the effects panning out. If we take this result, we can see it as a starting point for the future, net of any extraordinary or unexpected events that might take place. Upfront fees are 23% over total commissions.
Here again, we are trying to combine together two different processes. One.
Advisory fee based on product and the other based on portfolio, we are converging on a portfolio-based advisory fee for the new banking. Here again, over the year, we will have to bring together things in order to bring to a slight decline of the upfront fees. The passion the branch network is showing is quite encouraging. NPL sales. As far as NPL sales are concerned, at least we want to comply with our business plan, both in terms of turns and volumes. Any opportunity we have to increase our profitability and capital in order to increase our provisions and thus make it easy to dispose our NPLs, we are certainly going to seize the opportunity.
This is a three-year plan, I'm even more convinced and confident that the three-year target is achievable over the first year, even though, as I said, we have a strong motivation to bring home a positive result over the first year. However, objectively, we are still under the circumstances that we have to convince both the market and the regulator that we are in a position to dispose the Non-Performing Loans. Therefore, we will just keep on consistently along this course as the NPL coverage is reflecting. On the one side, we decided that it was necessary to include in the pro forma data the 20 basis points because of events that have occurred, but that then will remain. That is the gain from associates. As far as, even though we have a theoretical plus 10 basis points, we did not include it in the pro forma.
The ARB models. Actually, I'd rather not answer to questions that actually involve the ECB, we've submitted the application to see the model certified and approved last month. Let's wait and see what they'll do. Let them do what they have. Of course, in the plan, we have included both the positive and negative effect. The target is 12%, we feel that we can confirm this target. Timeline, by the end of the year, you think we will get this authorization. Again, also with respect to the timeline, I don't want to put the ECB under pressure or anybody else under pressure. We do expect to receive it by the end of the year, however. Thank you.
Next question from Andrea Vercellone of Exane.
Good morning. Good afternoon, in fact. I have one question on PPA, which is considerable in terms when it comes to net interest income and Loan Loss Provisions as you specified. We would need some guidance on the impact for both items in the coming months and years. What way? We need a guidance. Shall we need some guidance, and can you give it to us? In order to make it more readable, I would ask you not to talk about figures before PPA, but after PPA net, because the PPA effect might be volatile and sooner or later it will unwind. In point of fact, we do have some guidance on page 21 on the last bullet point, but I take advantage of your question to provide some guidance now and also to differ a little bit on this.
PPA, when it comes to page 36, operating income, the impact is minimum. There is an impact on net interest income, but then it is reversed by either items above the profit or loss from operations. The real impact is on the reversal of LLPs, EUR 45 million, which accounts for the bulk of the EUR 34 million difference in terms of net profit and net income before and after the PPAs. If the PPA were a one-off, you would be right. We would have to actually disclose them on a net basis. History teaches us in the past in a negative way, and perhaps today in a positive way, that PPAs do not actually phase out in a quarter or in a year. Indeed, you see that, for example, for the fourth bullet point, it gets until the end of the plan.
We felt it was only right for us to give you guidance for the end of the plan. We believe that those extra EUR 30 million-EUR 40 million, which we identified in the first quarter, in particular, for that item, where they will be used to increase our coverage, will still be used at least until the end of the plan. I don't know whether you prefer to have them included or not, they are stable as they were when in the past mergers were based on goodwill and then bad will. In those cases, reversals were negative, and no one ever asked to eliminate them because they being stable, they wanted to have them there.
As for guidance concerning figures under the plan, consider that when we came up with the plan, we did have an idea of the amount attributed to the bad will and PPAs, less reversals.
Which is indeed factored in already in the plan figures. That is why I'm saying, I don't know whether it helps you more or less. In fact, starting from the next quarter, I wanted not to disclose them anymore. If you're interested, I will keep providing you with all the necessary details. Of course, they hold true for the long, long term as from 2020. For the time being, until 2019, and considering and assuming that these are the figures that we're talking about, these figures will remain consistent until the end of the plan horizon. Question. So it would be correct to include in the net interest income EUR 22 million per quarter, given stable PPAs, more or less in all quarters under the plan until the end of the plan. Is that correct?
No, it would not be correct because individual items may have different impacts of a different size. My remarks were category-based, so I had stopped at income profit or loss from operations, and I don't think you will see great surprises because, after all, it did offset net interest income in the coming quarters. We'll see a reducing and winning effect of the EUR 21 million, but in terms of operating margins, the contribution is quite negligible. The only contribution that will remain there, and quite sizable there too, although I cannot give you specific details, will be on the coverage ratios. Evidently, we do have figures concerning net interest income, too. If you're interested in that in particular, it should go down by 30% in the coming quarters. Thank you.
Next question, Fabrizio Bernardi, Tirrenese. Good evening. Two obvious questions other than the first quarter. First question, Unipol and Bankassurance business. We are reading on newspapers that apparently Unipol today had already decided or opted out of a joint venture with you within the Bankassurance sector. Then there was a denial. Can you clarify on this matter? You talked about EUR 700 million on Banco's balance sheet. I've seen that based on current market values, the valuation could be different. Can you just give us a little bit of color? A question on Anima. We've asked often Anima, they won't answer, but apparently Anima has submitted to you the procedure or the modality they would want to pursue for this type of transaction. It's 16 months since the merger was first announced, and Gestielle is just bouncing about.
Can you give us a little bit of color or guidance on this? It would be better for everybody.
Unipol and Bankassurance. I've also read newspapers, I do understand why you're quite perplexed. As announced, a put option is expired. We have a maturity by the end of the year. The put option has to be exercised by June, of course, by June, we will have to decide what to do. There are excellent relationships among the parties. Again, I would not make any additional remarks, as I said at the beginning, by June, we'll decide what is going to happen. With respect to valuations, if you see our valuation, it's more or less EUR 300 million, and it accounts for a 50% stake. Of course, a valuation is underway. Everything has been planned and programmed.
If we cannot come to a mutually agreed figure, as it is the case under these circumstances, a procedure will be carried out through which the share will be valued. Should our agreement with Unipol not be renewed, a beauty contest is going to be launched, and we do have a number of eligible participants. Of course, our partners, Aviva and Covéa. In the meantime, expressions of interest by others have arrived, we'll have six months' time to decide who the new partner might be. Today, however, Unipol is here, we'd be very happy to keep on partnering with him, we cannot decide this before an agreement is entered. As far as Anima is concerned, why did you talk about Gestielle?
I share what you said with Anima, I'm quite frustrated about this, more than you might be, of course, given this is the majority shareholder
We expected that greater interest would be directed to the Pioneer transaction. When we started talking about putting the two companies together, Poste apparently would be the leading manager, they did change their mind, and we're still trying to understand whether they are interested or not. Again, this is not the only alternative at hand. We have a number of alternatives, I don't understand what you said about Gestielle. Saying, was it selling well, badly? Gestielle is performing very well. That's not what I meant. You are a holder, Gestielle, and you have a stake in Anima. I would like to understand on which you want to really bet, so to speak. On the one side, with Anima, you have Poste. We always said that it is most unlikely that they will remain splitted, and we will remain in both of them.
We will have to rationalize this business, putting them together or deciding what to do. We have to talk with our partners and the shareholders. Anima's shareholders are quite willing, still, we have to understand what will happen with Poste's shareholding, whether Poste wishes to be a leading project manager, so to speak, or not. We have a number of assumptions. We may sell one or the other, and after that, we are going to focus our efforts and attention on the remaining branch network. The change of management with Poste implies that at the end, we don't know whether the possibility of going for Anima is still feasible or not, because according as far as I understood, with Poste, it all depended on the expiry of the shareholders' agreement with you. They were waiting to see the shareholders' agreement expire to transfer Anima to Poste.
These are all assumptions. We cannot discuss it here in a conference call. There are shareholders who have to decide what to do. The top management or the board has just come into office. We have to just give them time to decide what to do. There are a number of possibilities and opportunities. It took a longer time than expected, but it's not up to us, neither the Pioneer transaction, nor the fact that Poste changed its governance and there was a top management reshuffle. Again, in one month or one month and a half, by June, as I said in the planned timeline, we should find an agreement. Okay, I won't insist.
Next question comes from Alberto Cordara of Bank of America Merrill Lynch. Good afternoon, Mr. Castagna. I have a question. On PPA, I would agree with Mr. Vercellone, because typically, Italian banks so far actually gave out PPA in a separate line. When PPA is negative and is not separate, when it then becomes positive, it is combined with the other items. In my opinion, it better remain separate consistently with past practice. As for the results. Net interest income. I'm not too happy about it because if I take away PPA, I adjust it for the two contributions of the TLTRO, one of this quarter and the one coming from the last six months of last year, I would get to a net interest income, which on a like-for-like basis would be about EUR 12 million.
In point of fact, the underlying suggests that there is pressure on NII. Apart from the results for the first quarter, can you clarify a bit what we might expect to see in the coming quarters, in particular for pressures on NII, credit market, et cetera? Coming now to your guidance on capital. You emphasized that you believe fully loaded to be above 12% by year-end. But if I put together the different pieces, I believe that your guidance is conservative because I start from 10.93, which is the current level. Then I add to that 52 basis points, which is the temporary effect, which should come when after models are approved. Then the other 20 basis points that you mentioned, then another 10 basis points that you mentioned. IFRS is now higher by 10 basis points, and I get to 11.75.
Then from 11.75 to 12, there is only 25 basis points. The adoption of internal models for BPM accounts for a positive effect of a mere 25 basis points. I believe it is more. I wonder whether I'm missing something here, whether there are subsequent effects coming from the possible application of TRIM or other But I believe your guidance, based on current knowledge, is rather soft. Thank you first of all. Net interest income, you're not too happy about it. I would disagree given the current market environment, where we have a lower contribution of the securities portfolio year-on-year of EUR 32 million, EUR 11 million quarter-on-quarter, and TLTRO evidently is a figure which cannot be stable going forward forever. But it is there now, and we know that it will remain stable for the coming quarters.
Actions which I tried to describe before when asked his question on the reduction of cost of funding, the EUR 5 billion that we have of securities maturing today, EUR 7 billion next year, our commercial policies concerning our branch network. I have to actually base what I say on practical things. Many people believe that doing banking means determining the contribution of individual items. In fact, banking activity means actually energizing a network that on a daily basis has to produce fees, to give out loans, to try and manage at best people's savings and maximize the cost-income ratio. Frankly speaking, in such a situation, given where we started off four months now, I highly focused on this, and I have to say that I feel particularly upbeat, positive. If I were to make a forecast at four months, I would never imagine reaching this point.
Frankly speaking, I am quite positive. We only have upsides, and we believe that we can actually bring them to fruition. As for your other question, saying that I'm more conservative than you are. We have already said so. You follow us closely, so you are aware of this. I can only come up with my assumptions, prepare my plans, and then wait and see what the regulator decides to do. It's difficult for me to assume every time based on past performance, other banks, different regulators, possible future expected behaviors, in particular in the very short term. I believe I can easily set aside in this case and say, I announced a 12% guidance for the first year and then up to 12.9% in the three-year period, and I can confirm that.
Because I don't want to run the risk of being proven wrong because something was misdone in one quarter or in another. I'd rather give you, I'm not saying medium-term guidance, because this is year-end, but at least not on a quarter-by-quarter basis. Again, I feel I can say that with that, I'm in line with my plan, and I would be pleased with what we have attained. Of course, if there is an improvement on that, we will only be happy, and it will help us get rid more quickly of all our problem loans. The question on interest income was actually made at understanding whether, we saw this increase this quarter, maybe we can see a decrease next quarter, and that would not be that nice.
Yes, you've been following us very kindly and carefully, so I didn't take it as a controversial question. I have to say that the TLTRO continues. Of course, there is a one-off, and we said it clearly concerning 2016, as for the 2016. The rest is stable from then on, we believe we can only do better. This is my own feeling. Thank you very much.
Next question, Riccardo Rovere, Mediobanca.
Good evening.
I have a couple of questions and then a couple of clarifications. First question on coverage ratios and the cost of credit. This quarter, with or without the PPA, practically it's above 100 basis points, 125 net of PPA. Coverage ratios are increasing. I thought the coverage top-up process had been completed, but if I follow these figures, it doesn't seem so. Let me understand what's happening here. Second question. I'd like to have a clarification on Unipol. If I got it right, you said that the book value could be EUR 300 million, but maybe I really got it wrong. Third question. We go back to what Mr. Cordara said previously. I'm a bit puzzled with risk-weighted assets. At the end of 2016, they stood at a certain level. Now they went up EUR 3 billion due to the buffer you were required to set in.
We all have internal models that might say, bring it down by 5, and then those EUR 3 billion RWAs due to the buffer are going to be eliminated, or will those EUR 3 billion stay there and will then be offset against the internal BPM model? Last question. Withdrawal, the right of withdrawal. Maybe I missed something in the meantime. Can you tell me whether anything new happened in the meantime?
Mr. Rovere
We've completed the top off. Well, actually, the top off is the commitment under the business plan. We said we are going to sell EUR 8 billion worth of NPLs, and we said while we do this, we would set in various coverages. While we sell, we decided to provide for these loans, depending on whether they are secured or unsecured loans. Therefore, this process will stay for the entire business plan life. Of course, we see that loans are turning into non-performing loans at a much slower rate. I never said that the top-up process would be one-off. The one-off portion was just to hit a given level, and we've attained that, and that's fine.
Depending on the disposal we are going to carry out, the fact that we are going to fulfill given coverage ratios that are really the normal practice on the market, we will keep to them because we want our bank to be solid. We don't want to give the impression that we do not have appropriate or adequate coverage, we're focusing on these aspects, and we'll keep on doing that. The reversals are quite helpful. Unipol? No, you probably got it wrong. I said that we have a EUR 300 million share posted to our financial statements because I was asked about the valuation, and the only figure I can give is the valuation that has been posted in our financial statements. Then as to the future history, we'll have to see how things are going to develop.
With Unipol, we'll have to see whether we will have to dissolve the joint venture or anything. Soon, a press release should be published because something was decided today at the board, lawyers are still working on it. In 15, 20 minutes, a press release should be published on this matter. Again, since we don't have a clear view as to the new entity, we've waited at least the first quarter to define how things stand with the withdrawal, and soon you'll know everything. Risk-weighted assets and internal models. Again, I don't want to throw figures out. I keep to my job, then there's a regulator who decides procedures, terms, rules, and defines them. I'm sorry, I cannot be precise. I cannot give you a precise answer to these questions, but I cannot talk on behalf of the regulator.
It's up to them to require or not to require. We ask them to obtain the validation of internal models together with the other ones, then they decided to split them. Probably at the end, we are going to have an overall validation that is going to cover the entire models. Of course, these are not questions that you can ask to the supervised entity, and you have to ask the regulator. I don't want to put pressure to anybody, I want them to work at their own pace. I will just stick to the guidance I gave you one year and a half ago, and as I said, I stick to that. Thank you very much. Thank you.
Next question comes from Azzurra Guelfi of Citigroup. Please. Good afternoon. I'm sorry I got to the call a little bit late, I don't know whether the question has already been answered. On past dues, can you give us some guidance on past due flows and recoveries in that area, also on risk-weighted assets? The bank's advanced model is the least conservative of all Italian banks. Do you have an idea of what the risk could be, in particular for SMEs on asset risk?
Well, past due in absolute terms, as you well know, accounts for very little, fortunately enough. There, too, flows fortunately are quite good, given what they are, because the stock is very low. At the end of March, it was about EUR 180 million. No, I am sorry. Actually, I referred to Unlikely to Pay. I am so sorry. It has been a long day. Okay. I am flushed. I am sorry. Okay, UTPs. As you saw, the coverage ratios went up dramatically, indeed, it is important to focus on this. I provided a description, I do not know whether you were listening, of the increase, both in terms of nominal value, 400 basis points. That was on page 32, and 700 basis points year-on-year. I said that most of this effect is due to IFRS 3 and BPM UTPs turned into the Banco.
Then I also gave some indication of coverage level, 31%, 46% for unsecured.
Then I also provided some disclosure on page 34 on the value of collateral for UTPs. What was your question exactly? Flows from past due to Well, flows are going very well. -33%. From past due to UTP was not included, but the figure is -33%. Very well. Thank you. Next question from Hugo Cruz, KBW.
Hi. Thank you. I have three questions. Trading income, do you have guidance on what is the normal level of trading income you should book per quarter? Second, you gave the evolution of net NPL flows year-on-year. Could you give the evolution for gross NPL flows as well? Third, on the PPA, I understand your comments. I would prefer, I think like most of my colleagues, that you show a net number, just the one line of PPA, because for me it is a one-off. I would like to know how much PPA do you have in the plan targets? You mentioned those, I think it was EUR 30 million-EUR 40 million positive post-tax per quarter. How much is that already reflected in the plan targets? Thank you.
In income, you mentioned the GOB is portfolio.
No. In the revenues, you booked EUR 33 million, including the FVO in the quarter, which is quite a low number compared to previous quarters.
Yeah, sorry.
Kind of what makes you think it's a normal level?
I said that the slide represented the new normal because, of course, the numbers that we were used to seeing the previous year, and this is also what we announced in the strategic plan, of the three-year strategic plan, there was a reduction end of the plan of about EUR 240 million coming from net financial results. I would say that this figure could be the real figure we can expect. Of course, depending also from the evolution of the market. I would say that it's most this figure that you have to take into account than the previous one. NPLs evolution, we are very encouraged from the decline of the inflows that, of course, is dramatically decreased. We feel that we can have always less job to do in order to sell and to work out the NPLs.
For the time being, we have a big bulk still on our asset, and we have to work on it. As you know, we can work on it either by selling, and we are doing it quite consistently with respect to the more than EUR 3 billion sold during 2017. In terms of work out, I announced the figure that we are having that are helping both to reduce the stock and also to increase the cash recovery, which is higher 50% respect to the previous years. I imagine an evolution of stock, which is decreasing both for lower inflow sell and work out, and a better return due to the cash income and the increasing provision that can lead to good price on sales. As far as the PPA, if I understand, you say that you agree with your colleagues, I have not any preconcept.
I'm just saying, this will last for three years. If you wish, I can give you always with the best transparency possible, either the result with the PPA or without, no problem at all.
Yeah, that would be great if you could, but can you also tell me the guidance you gave on the positive benefit, was that guidance already reflected in the business plan targets, or did it change since then?
No. Of course, in the business plan, there was a guidance, but I wouldn't say that May last year, we had a clear idea of the potential PPA and reversal. For sure is not completely incorporated in the business plan. If I should give a number, I would say two-third. Again, due to the fact that most of it comes from the reversal on cost of credit, at least as long as we will have cost of credit to reduce, we will utilize also this mean in order to cover the top line.
Perfect. Okay. Thank you.
Top line of the ordinary business, as I mentioned before many times, is completely irrelevant.
Okay. Thank you very much.
Next question comes from Victor Galliano of Barclays. Please, sir.
Thank you. Thank you very much for the call. Just a quick question from me on interest rate sensitivity. Do you give any guidance on what the impact would be of 100 basis points parallel shift in terms of your NII?
We have done a sensitivity basically linked to the Euribor going to the floor. On 40 basis point, we have a figure which is around EUR 110 million.
If it were to go to zero from -40, is that what you're saying?
Exactly. It is the assumption.
It would add 110.
110.
Okay. You haven't done the 100 basis points?
I don't have right now, but I can give you. Of course, it's not the same progressive because when you top to zero, it's not the same thing. We can give you some more details.
Great. Thank you very much.
Next question from the Italian channel, Andrea Grige lli, Amber Capital Investment. Go ahead. Good evening. Thank you for accepting my question. I would like to ask something on funding. I can see on the slide that you have EUR 100 million worth of subordinate debt that is going to come due by the end of the year. There is a little star with a footnote saying that they include the calls, I would like to understand whether these are the perpetual issues that can be already called now, and whether you are referring to the same situation that was in place in Banco Popolare. Second question, withdrawals. My Mediobanca colleague made a similar question.
If the bank, as I believe, might limit the right of withdrawal, as it happened, for example, in UBI, should then a rule be implemented by the Consulta as it was discussed on newspapers at the end of 2016? I wonder what would happen if the limitation of the right of withdrawal should be considered as unconstitutional, whether you might step back from this decision. Let me try and answer. With respect to calls on the TLTRO, we gave no indications. You're really a clairvoyant because, again, here, a press release should be published this evening. Let me not say anything in advance because they're still working on the press release. If it's not happened, it hasn't been published one yet. Again, we'll tell you what will happen with those that come due in June.
As to the withdrawal, we have been working on it with our lawyers. The law was lacking. There was a total void with respect to this issue. Of course, in the meantime, we have to act with our shareholders. The decision we made, it takes all these elements into consideration because there is no longer the old law that allowed us not to exercise the withdrawal right. We have this interim period, we have this nowhere land in the meantime, and we have to do something with our shareholders. In any case, the limitation will really involve a very few shareholders. Ladies and gentlemen, there are no further questions at this time. Very well. Thank you all. Have a good evening. See you next time. Good evening. This is the conference call operator. The conference call is over.
You may now disconnect your telephones. Thank you.