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 After the initial presentation, we'll have the possibility you'll have the possibility of asking questions. I will now hand it over to Mr.
Pironallo, the IR Manager. Thank you. Good evening, and welcome you all to the first quarter presentation result presentation of Banco Dipliano. Before handing it over to Mr. Castagna, remember that there is going to be a Q and A session for analysts, our financial analysts, and you will find the presentation on the website under the Investor Relations section.
Good evening. Good evening, everybody. And I hope this is the last conference of the day. It's such a tough and busy day with lots of results, I hope you will be satisfied with our results as well. This is the first quarter of Banco BPN, 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're a new bank, and we have to start working as if we've always been one and only one bank. And at the same time, we have to try and achieve satisfactory results, which we did. And I really have to thank and all BancoBPN, the people who were able to obtain good results in this quarter. On Page four, the executive summary. Net income of BRL 117,000,000, supported in particular by core income.
The core income came in at plus 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 marked synergies under the plan have not kicked in yet. And of course, we will feel the positive effect of synergies more. The the headcount the 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 plus 19.4% increase in operating income to EUR $438,000,000, thanks to the fact that many balance sheet items have increased. Site deposit first, which went up EUR 7,000,000,000 year on year, more or less. And also assets under management have increased EUR 4,300,000,000.0 year on year. Then new loans to corporations and households, 15% year on year. And both with respect to corporate loans and household loans, New loans of BRL 4,800,000,000.0, and the target is to exceed BRL 16,500,000,000.0.
So we, as 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. And certainly, we have to talk about the strong improvement in the risk profile that we were able to obtain in the first quarter. Net nonperforming loans went down by 2,200,000,000.0. Percentage wise, we went from 15.3% in March to 13.6% this year. The plan started was based at 15.7%.
And by '9 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 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 an l r LCR above a 160% and SFR above a 100%. But, again, unencumbered eligible assets in March BRL119 billion, now they are in excess of BRL22 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 expect the derivatives of some temporary buffers regarding negative effects on common equity. For example, the risk weighted assets on defaulted assets and the exposure at default of retail retail exposure default gave way to temporary require request, sir. 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. And in that case, we will able to recover the advanced negative portion referring to new to the new models that are expected to be rolled out.
And, of course, this includes also the the CET one, includes also the net income for the first quarter. You know that in in addition to net income, it also includes the PPA that will referring to the merger. And, again, the necessary authorization application was sent and obtained. Key highlights, core income, net interest income plus commission plus 7.5% total income. So also, r and f income are included, and, they make a negative, contribution in the plan.
We expect it to have a a decline within this sleeve, and then, of course, total income are reduced due to this component, plus 2.8%. We are on Page six. Operating cost, minus 4.7%. The profit from operations, plus 19.4 On Page seven, we are talking about nonperforming 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, sub 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 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. And in April, we completed the 50% closure of the total number of branches that are expected to be closed by under the plan, and we've closed a 170. We've got the kickoff of the cost optimization project.
We have a cost optimization unit that will be set up that we are analyzing is analyzing all the cost components in order to define new possible positive effect that can be derived from administrative expense under the plan. And we also kicked off a task force devoted to the development of the omnichannel and digital banking project main framework and also short roads or in roads 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 bank assurance strategy.
This is the next step by June. And then on July 23, we are going to have the changeover or the migration to the IT systems. Also with respect to the IT system integration, we are on schedule. Then 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 with 1,800 people with a 140,000,000 savings, and it was already changed into 2,100 redundancy and a 170,000,000 worth of savings. We by the end of 2016, beginning 2017, we've already generated synergies of about 20,000,000. Another EUR 20,000,000, EUR 18,000,000, 20,000,000 will be generated over this year with the exits you see on the bottom of Slide number 11, more than EUR 100,000,000 will be generated in 2018. And the final 25,000,000 in order to adapt to 170,000,000 under the plan are going to be generated and achieved in 2019. Let's now see some key balance sheet items.
The direct funding, a 107 a 107,000,000 billion. Sorry. And as we said at the beginning, we have a much more cost beneficial component. In fact, we declined the most expensive components, whereas we increased the the more favorable ones on-site deposits. On a quarterly basis, we started to switch away from expensive funding sources.
And it's not gonna 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 site deposits. I'm counting for 51.8 percent of this extended core funding, and now they account for more than 60%. And, of course, the most ex 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 the new checking accounts are being opened quite favorable in under favorable terms. And the net positive balance is 28,000 new checking accounts had having been opened by now. Assets under administration, again, under indirect funding, a very good result over the quarter, plus 1.5. In particular, assets under management, plus 7.6% year on year. Here again, we have a good result of assets under management that drive also fees and commissions, as you said in the beginning, especially with respect to funds and fee transfer, which increased by 135%, respectively.
But 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. 2,000,000,000 have already come due, and this year, 5,000,000,000 will expire. Next year, 7,000,000,000 approximately will come due. The average cost of funding, in particular, for 2017 is 2.5%.
For longer maturities, it is slightly higher, between 2.53%. But again, this is the potential saving we can obtain on the cost of funding this year and next year. And here, we are supported by our robust liquidity position, especially the BRL 22,000,000,000 worth of eligible unencumbered assets on Page 17. These are high quality securities because more than 97% are government bonds. EUR 21,500,000,000.0 under TLTRO two.
We've practically reached the maximum take up with the latest auction, March auction. And 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 of even though we are still more or less in line with last year. 3,000,000,000 less in the Italian government bond sleeve in March, 4% was the diversification in other government bonds, whereas now it's almost 10% with respect to government bonds or investments outside of Italian government bonds.
So we are talking about French, Germany, and, US. The portfolio has been reset balanced from available for sale to held to maturity. Now we have a 15,000,000 in available for sale and 10.5 in held to maturity, 1,800,000,000.0 in held for trading. The modified duration of the Italian government bonds in available for sale is two point five years. Customer loans, 19.
On the left, you see the bar chart, sir. And by taking a look at it, you might believe that the net customer loans have gone down. But if you take a look at the right box, sir, it's clear that the total decline in net customer loans was mainly driven by what we said before, which is a reduction in nonperforming loans. NPLs on an annual basis declined by 12.8% on a quarterly basis by 7.2%, whereby whereas performing loans went up of point 3% year on year and 1% quarter on quarter. So in line with the the projections for this year and under the plans.
In addition to the decline in nonperforming 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. And, you know that this is a business of the banks that we are really managing under a runoff process. And from percentage increase over the quarter loans split between households and the corporate, and you can see EUR 1,100,000,000.0 to households and 700,000,000.0 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 Center Central Italy and 5.7% in the South.
Then 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 segmentation and the spreading of our risk, is given by the fact that corporate that account for 62% of our exposure, the average ticket is less than €300,000. 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 at 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 it was a consolidation, but practically, it was considered from an accounting point of view as a merger of BPM into Banco.
Again, these purchase price is measured at fair value, and it has to be posted to income on March 31. We carried out all the necessary debt will exercises. And the transitional measurement. I say transitional because we have twelve months time under the IAS to have a final measurement of PPA. So the possibility of making adjustments will remain for one year time.
And it was summed up to the net income, 100 and 800,000.0. So the net income for the period is is 3,264,000,000.000. This figure, in any case, has to be reconsidered with respect to the CET1 of the two banks on December 31 before the merger. Overall, they had 81,000,000 worth of CET1 in addition to what the new bank has to do today. So we did not increase our capital considering the bad growth factor, but we maintained the both the capital and the CET1 levels similar to the two banks.
In the future years, we are going to account for reversal reversal of that income statement of this bad will bad will. They will not impact characteristic items, but on 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, also, we will be able to perform very well in terms of credit quality. So interest income. Net interest income on a yearly basis, it went up by 0.4% driven by the 2016 TLTRO that we did not we had not recognized. So we recognized it one off in the first quarter this year.
However, if we carry out a quarterly comparison, on quarter on quarter, we have a plus 5.7%. Again, without considering the 32,000,000 from the TLTRO effect. Consider that the net interest income, although it was affected as of this year of contribution for the PLTRO, 18,000,000 for the first quarter. It has been affected by a lower contribution effect of the securities portfolio of EUR 11,000,000 roughly. Net interest spread trend, good news here.
This is the first quarter in which we outperformed the Uriber. 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, sir, that this process is already reaping some results.
And, has really we proposed this table under finite rates, sir, 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. And again, they may feel the effect only as of the third quarter.
So it's quite obvious that branch networks have not been distracted by the organizational hindrances of the merger, 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, the EUR $3.00 4,000,000, we accounted for EUR 16,000,000 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 fact specifically high, but it was a plus 7.6%. And this reflects a good performance of Agosto Cato with the 32,400,000.0 that has been booked under net income from associates carried at equity, which witnesses the fact that customer credit is an opportunity that we are fully seizing.
On page 25, net financial results, again, we I talked about the fact that that we have to get used to these sizes in terms of results. Under the plan, we talked about EUR $240,000,000 per year at the end of the plan in terms of a decline in NFR, especially when compared to 2016, affected by also by the nonrecurring results that were obtained thanks to the fact that BPM is then going to be merged into was going to be merged into Banco. There were fair gains that had been generated on government bonds, and this had led to gains that were included in net in the net financial result driving it up as you can see on the slide on the right. Debt securities the disposal of debt securities classified in the AFS portfolio this quarter made a EUR 4,000,000 gain compared to EUR 70,000,000 gain in Q1 twenty sixteen, while net income from trading, hedging and dividends increased. The operating costs, here we have a number of runoffs, minus 1.3% on the yearly comparison.
The quarterly comparison, it's a little bit more complicated to carry out this comparison or the the calculations. There are two one off items. My one is a positive contribution. We recovered 27,000,000 worth of costs, and they refer to the DTA fees that were paid last year but that were recovered this year. Whereas, there is a negative contribution.
The six the 60,000,000 the to the SRF to the single resolution fund. Personal expenses, minus 4.5% on a yearly basis, minus 0.4% like for life on a quarterly comparison. If we exclude the one off contribution to the redundancy fund, considering that already 200 employees have brought the headcount down. And for 2016, we also have a decline in the valuable wages that have been reduced more than expected. Other administrative expenses have already been mentioned before.
And again, you will see here both the yearly comparison and a quarterly comparison year on year and quarter on quarter and they are 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 and quarterly comparison. But then, of course, there was an effect of the strong provisions made, in particular by the Banco Popularis.
Specifically, in the last quarter, I'd like to remind you that we have completed the provisioning or the provisioning increase for the tune of about 1,600,000,000.0 subsequent to the capital increase by EUR 1,000,000 made by the bank last year by the Banco last year with extra provisions that were completed during the year. Cost of credit even normalized with this one extra 1,600,000,000.0 extra went down from a 123 to 106 basis points, the cost of risk. And 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, minus 12.8% of net NPL. So that went down from 17.2 to 15,000,000,000, 16 2 last December.
In particular, in unlikely to pay down from 8.2 to 7.5. And then another 500,000,000 versus 700 is also the decline of bad loans. NPL net flows was already mentioned minus NOK $230,000,000. It went down by 24 42.5 inflows to NPLs, so this is say. Particularly good was internal workouts that allowed us to further reduce together with disposals the overall amount of NPLs, 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 5,200,000,000.0, but most of which for Banco Populari, which had a different policy compared with BPM. Well, the difference also compared with the majority of the other banks. So 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 VPN approach, which actually sees write off presetted in the account and allowance with allowance method. And this was also done for the financial community that sometimes was puzzled when they saw the such considerable write offs in particular in the past made by banks.
So 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 3,500,000,000.0 write offs were written back, and another part, about $506,100,000,000 were disposed off or they actually were removed with the the cancellations and other disposals. But we still have a few write backs in our books that by their very nature, we felt they could not be included as write off. 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 pressure. 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 four fifty basis points as an increase on the total NPLs year on year, 200 basis points quarter on quarter, about 140 basis points and 120 basis respectively, year on year and quarter on quarter for bad loans. But here, you have to consider that there were disposals for EUR 1,700,000,000.0 of bad loans, which specifically, given that the unsecured ones had been particularly provided for, this affected the declining coverage figures if we hadn't had the additional provisions that we actually made.
And then something different concerns unlikely to pay loans in part for due cautious approach and also because of a bad well effect. We provide a specific coverage to them, and they went up by 400 basis points quarter on quarter and by over 700 basis points year on year. I believe this figure is our self explanatory. First of all, we are in line with our plan target by 62%. As a result of a mix, that was $48.86 for secured and unsecured and any way 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, we the unit is now working at full capacity. We carried out a segmentation of our customers attributing large portfolios, the important one that accounted for about 80% of our NPLs in value, and we gave them to our specialized managers. Bad loans, beg your pardon. We increased our outsourcing, the scope of up sourcing.
So the small positions that were given to third parties for credit collection, we considerably strengthened internal reporting, the definition of KPIs with targets given to individual managers. We started and in fact, we are about to complete the activity related to the disposal of secured positions in the Rainbow project for $720,000,000 worth of assets. You will know that we have made a short list. We are waiting for binding offers, and we hope by June to be able to complete the transaction. We are already working on what remains in residual part.
We still have about 2,000,000,000 of unsecured NPLs, which we would like to take care of in the second half of the year. As for credit collections or recoveries, you see to the right hand side, remarkable results, plus 50% year on year. Of course, there is we don't have an activity that allows us for a continuous increase, but we started off quite well, plus 52%, slightly above budget in terms of the expectations we had to cash collections or recoveries. An additional table compared with the presentation you saw last time over on that loan, and we have a similar one on page 34 on a UTPs unlikely to pay. You see that to the left hand side, the total is 11,000,000,000 for UTPs.
3.4 is the covering is the coverage. This is 31% we said before. The next exposure of $7500000000.0.1.4 is unsecured with a coverage of forty six percent and six point two, 80% of the total is secured with a coverage ratio of 26%. You see the pie of the breakdown by asset class due to collateral, about 30% is residential, about 25% is commercial, 15% industrial and so on. The geographical mix, geographical breakdown and fair value of collateral on net book value and the fair value of collateral cost adjustments on gross book value account for respectively 187164%, which considering a geographical breakdown and considering that over 50% of our are likely to pay restructured transactions on which often they 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.
So 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 this credit for ours. Coming now to Slide 35. This is further more complex, and therefore, I'll take some more time to walk you through it. As I said, negative buffers, temporary in nature, were applied considering an RWA on defaulted assets and ESG retail accounting for 54 basis points on the phase in result, which is eleven point five percent and fifty two basis points at fully loaded levels, 10.93%. These impacts, as we said, will be resolved with the release of the AIRB models for the BPM scope.
ECB failed that they would ask for this credential buffer. Frankly, we don't know what was done for the rest of the Italian banks. As far as we know, we I mean, we we we know our own situation, but we do not know whether the same thing, the same measure was adopted or will be adopted for other banks which are currently reviewing their models. Add to these two results, what we had already obtained today in terms of CET1 increase. So 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.
So 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. So 20 basis points in total on the increase of common equity Tier one fully loaded. So as at today, common equity Tier one is 1130% and safety is 1166%. Evidently, we included the income or profit for the period in this on this slide subject to ECB's approval.
And of course, this includes both the specific court component as well as the one concerning that will. Another positive element that 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 March 1 would bring about another 10 basis points of increase in common equity Tier one fully loaded. So over and above developments that that might have occurred, positive and negative, and but, of course, these are not choices that we can choose that we can make independently. But 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 of common equity Tier one exceeding 12% by year end. Page 36, I won't go into a specific detail of the P and L, the individual items.
You can do it yourself quite well. But we wanted to include here the reversal of the PPA effect. First of all, to show you that the loss from operation the profit loss from operation is minimally impacted at 6,000,000, so a neutral impact. Whereas you can see an impact on loan loss provisions, and it was calculated at 45,000,000. We believe that this can go 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 is sort of goes without saying after presenting our results. We're 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 then keep track of profits and P and L data.
And I believe that all the drivers that we had announced under the plan, that is to say, increase the assets under management deposits and the loans, though with different quantities and figures are always 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 take place would be taken later in the year. Then 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 robust very robust liquidity position and a capital position that considering what I said before, we believe will allow us to attain the targets under the plan and net income exceeding a 100,000,000, which certainly is higher than expected and is quite encouraging for us going forward. So that we can go out 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 and A session. This is the Chorus Call operator. We will now start the Q and A session. If you change your mind and wish to remove yourself from the question queue, then press star and 2. Please ask your questions into your telephone receiver.
Press star and 1 at this time if you want to ask a question. The first question comes from the attending 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 greater visibility to as to the bank's ability to maintain a high provisioning in order to accelerate the nonperforming loan sale disposal sale process. Sorry. So income statement.
Net interest income very well, net of one offs. We take the the first quarter level as a starting days for the next quarter. So you you believe that you're going to grow compared to next year. Then 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. Then considering the introductory remarks, these revenues, type of gains in income can be used to maintain a high provisioning level. So 2017 can be considered as still as a temporary year in order to accelerate the future disposal of nonperforming loans. And thus, maybe you will show that you can exceed the 8,000,000,000 target in terms of NPL sales under the plan. Then common equity tier one, I maybe I 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.
Mister Carreza, good evening. Net interest income first. Well, actually, we believe this has been the most difficult quarter because, you know, having to switch and having to communicate to to conflicting messages to the branch network was quite challenging because the liquidity position of the bank called for a strong support. And having to explain to the branch network that we don't want to pay too much It's not something that can be received immediately.
The same is for loans. Because here, again, if we 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. So 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. But again, I need some time to see the effects panning out.
If we start 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. Then upfront fees, 23% over total commissions. And here, again, we are trying to combine together two different processes. One was advisory fee based on product and the other based on portfolio, and we are converging on a portfolio based advisory fee for the new bank. And so here, again, over the year, we will have to bring together and much together things in order to bring to a slight decline of the upfront fee fees.
But the passion of the branch network is showing is quite encouraging. Then NPL sales. As far as NPL sales are concerned, we at least we want to comply with our business plan, both in terms of terms and volumes. Any opportunity we have to increase our profitability 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, and 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 in a under the circumstances that we have to convince both the market and the regulator that we are in a position to dispose the nonperforming loans. And 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 form a 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 plus theoretical plus 10 basis points, we did not include it in the pro form a. Then the ARB models.
Actually, I'd rather not answer to questions that actually involve the ECB, and we've submitted 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. And, of course, in the plan, we have included both the positive and negative effect. The target is 12, and we feel that we can confirm this target.
Timeline, by the end of the year, you think we will get this authorization? You know, again, also with respect to the timeline, I don't want to put the ECD under pressure or anybody else under pressure. We do expect to receive it by the end of the year, however. Thank you. Question from Andrea Virchelon of Ediron.
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. So we would need some guidance on the impact for both items in the coming months and years. So what way? We need a guidance. Actually, 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 be it will unwind. Well, 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. Now PPA, when it comes to Page 36, operating income, the impact is minimum. There's 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, 45,000,000, which accounts for the bulk of the EUR 34,000,000 difference in terms of net profit and net income before and after the PPAs. So if the PPA were one off, you were right. You would be right. We would have to act actually disclose them, I mean, on a net basis. But history teaches us in the past in a negative way and perhaps today in a positive way that PPA do not actually phase out in a quarter or in a year.
Indeed, you see that, for example, for the fourth bullet point, I guess, until the end of the plan. So we felt it was only right for us to give you guidance for the end of the plan. So we believe that those extra EUR 30,000,000 to 40,000,000, which we identified in the first quarter, In particular, for the for that item where there can be there will be use to increase our coverage will still be used at least until the end of the plan. So I don't know whether you prefer to have them included or not, but they are stable as they were when in the past mergers were based on goodwill and in bad will. So in those cases, reversals were negative, and no one ever asked to eliminate them because they're being stable.
They wanted to have them there. As for guidance concerning figures under the plan, consider that when we came up with a plan, we did have an idea of the amount attributed to the bad will and PPA as well as reversals, which is indeed factored in already in the plan figures. That is why I'm saying I don't know what it helps you more or less. In fact, starting from the next quarter, I wanted to not to disclose them anymore. But if you're interested, I will keep providing you with all the necessary details.
Of course, they hold true for the long, long term from 2020. For the time being until 2019, considering and assuming that these are the figures that we're talking about, these figures will remain consistent until the end of the time of the plan horizon So it would be correct to include in the net interest income EUR 22,000,000 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 different 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 obviously is offset. Net interest income in the coming quarters will see reducing a winning effect of the 21,000,000. But in terms of operating margin, the contribution is quite negligible. The only contribution that will remain there and quite sizable 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 Bernardo, Cirentis. Good evening. Two obvious questions other than the first quarter.
First question, Ulypol and bank assurance business. We are reading on newspapers that apparently, Ullipol today should already decided or opted out of a joint venture with you with within the bank assurance sector, but then there was a denial. But can you clarify on this matter? And you've talked about EUR 700,000,000 on Banco's balance sheet. I've seen that based on the current market values, the valuation could be different.
Can you just give us a little bit of color? And then 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 sixteen months since the merger was first announced, and Gestielle is just talk I mean, it's just bouncing about.
And, you know, can you give us a little bit of color or guidance on this? It would be better for everybody. Only power and bank assurance. I've also read newspapers, so I do understand why you're quite perplexed. As announced, we have the a put option is expired.
We we have a maturity by the end of the year. The put option has to be exercised by June. And, of course, by June, we will have to decide what to do. By the way, there are excellent relationships among the parties. And, again, I would not make any additional remarks.
But as I said at the beginning, by June, we'll decide what is going to happen. Then with respect to valuations, if you see our valuation, it's easily it's easy to it's quite transparent. It's more or less 300,000,000, and it accounts for 50% stake. And but then, of course, evaluation 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 Uniphall not be renewed, the beauty contest is going to be launched. And we do have a number of eligible participants. Of course, our partners, Aviva and Covia. And in the meantime, expressions of interest by others have arrived, but we'll have six months' time to decide who the new partner might be.
Today, however, Unipo is here, and we'd be very happy to keep on partnering with him, but we cannot decide this before an agreement is entered. As far as Anima is concerned, why did you talk about Gesiele? I share what you said with Anima, and I'm quite frustrated about this more than you might be because, of course, given this is the majority shareholder, we expected that greater interest would be directed to the Pioneer transaction. And then we started talking about putting the two companies together, of the apparently, would have would be the leading manager, but then they did change their mind. And we're still trying to understand whether they are interested or not.
But, again, this is not the only alternative at hand. We have a number of alternatives, but I I don't understand what you said about Justiele saying it wasn't faring well badly. Justiele is performing very well. No. That's not what I meant.
You are holder, Jessielle, and you have a stake in Anima. So I wanted I would like to understand on which you want to really bet, so to speak. On the one side with Anima, you have pasta. We we always said that it is most unlikely that they will remain split and will remain in both of them. We will have to rationalize this business, putting them together or deciding what to do.
But we have to talk with our partners and the shareholders. Anima's shareholders are quite willing, but still, we have to understand what will happen with the shareholding, whether past 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 Costa, 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. You know, these are all assumptions. We cannot discuss it here in a conference call. There are shareholders who want to decide what to do.
The I mean, the the top management or the board has just come into offices. So we have to see what just give some time to decide what to do. There are a number of possibilities and opportunities. You know, unfortunately, it took a longer time than expected, but it's not up to us. Neither the Pioneer transaction nor the fact that Pepse 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 plan timeline, we should find an agreement. I won't insist. Next question comes from Alveso Cordara of Bank of America Merrill Lynch. Good afternoon, mister Castagna. I have a question.
On PPA, I would agree with Mr. Vercellone because typically, Italian banks have so far actually gave us PPA in a separate line. And 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 and I adjust it for the two contributions of the TLTRO, the one of this quarter and the one coming from the last six months of last year, then I would just get to a net interest income, which on a like for like basis would be about 12,000,000.
So 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 pressures on on NII, NII, credit market, etcetera. 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 bps that you mentioned, then another 10 bps that you mentioned, IFS is now higher by 10 basis points, and I get to 11.75. And then from 11.75 to 12, there's only 25 bit basis points. So the adoption of internal models for BPM accounts for a positive effect of the near 25 basis points. I believe it is more. So 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 car technology is rather soft. Well, thank you, first of all. Well, net interest income, you're not too happy about it? Well, I would disagree given the current market environment where we have a lower contribution of the securities portfolio year on year of 32,000,000, 11,000,000 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 that I tried to describe before when Karivre asked his question on the reduction of cost of funding, the 5,000,000,000 that we have of securities maturing today, EUR 7,000,000,000 next year, our commercial policies concerning our branch network. So I have to actually base what I say on practical things. Then people believe that doing banking means determining the contribution of individual items. But 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 savings and maximize the cost income ratio. Frankly speaking, in such a situation where we start I mean, given what 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. So frankly speaking, I'm 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.
Well, we have now have already said so or you follow us closely so you're 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. I can hardly I mean, 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. So 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. Again, because I don't want to run the risk of being proven wrong because something was was done 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. So 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. And of course, if there is an improvement of that, we will be we will only be happy and it will help us get rid more quickly of all our problem loans. But but the question on interest income was actually made in understanding whether I mean, we saw this increase this quarter and maybe we can see a decrease next quarter, and that would not be that nice. But you've been following us very kindly and carefully, so I didn't, I mean, take it as a controversial question.
But I have to say that the TL hero continues. Of course, there is a one off, and we said it clearly concerning 2016 or the '16. Whereas the rest is stable from then on, we believe we can only do better. But then this is my own feeling. Thank you very much.
Next question, Ricardo Rogare, Mediobanca. 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 believe I thought the coverage drop off process has complete has been has been completed, but if I follow the figures, it doesn't seem so. 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 port value could be 300,000,000, but maybe I really got it wrong. Third question, we go back to what mister Cordara said previously.
I'm a bit puzzled with risk weighted assets. The 2016, they stood at a certain level. Now they went up EUR 3,000,000,000 due to the buffer you were required to set in. Then we'll have internal models that might stay and bring it down by five. And then those 3,000,000,000 RWA due to the buffer are going to be eliminated, or will those 3,000,000,000 stay there and will then be offset against the internal VPN model?
Last question, withdrawal, the right of withdrawal. Maybe I missed something in in the meantime. Can you tell me whether there are anything new happened in the meantime? Mister Rodriguez, we've completed the top off. Well, actually, the top off is the commitments under the business plan.
We said, a, we are going to sell 8,000,000,000 worth of NPLs. And we said by while we do this, we would set in various coverages. And so while we sell, we just we decided to provide for these loans depending on whether they are secured or unsecured loans. And therefore, this process will stay for the entire business plan life. Of course, we see that loans are turning into nonperforming loans at a much slower rate.
And I never said that the top up process would be one off. You know, the one off portion was just to hit a given level, and that way we would attain that, and that's fine. But depending on the the disposal we're 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 coverages, so they're focusing on these aspects, and we'll keep on doing that.
And the reversals are quite helpful. Uniphone, you probably got it wrong. I said that we have a 300,000,000 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. And then as to the future history, we'll have to see how things are going to develop. And with Uniper, we'll have to see whether we will have to to dissolve the joint venture or anything.
Soon as a press release should be published because something was decided today at the board, but lawyers are still working on it. In fifteen, twenty minutes, a press release should be published on this matter. But, 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 so we'll you'll know everything. Then risk weighted assets and internal models. Again, I don't want to throw figures out.
You know, I keep to my job. And 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 or the certification validation of internal models together with the other ones, but then they decided to split them. And probably at the end, we will we are going to have an overall validation that is going to cover the entire models. And, of course, these are not questions that you can ask to the supervised entity. You have to ask the regulator.
But I don't want to put pressure to anybody, and I want them to work, at their own pace. And 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 Gurra Guelsi of Citigroup.
I'm sorry I got to the call a little bit late, and I don't know whether the question has already been answered. On past dues, can you give us some guidance of on past due flows and recoveries in that area? And also on risk weighted assets, the banks Bankers 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? When past due in absolute terms, as you will know, accounts are very little, fortunately enough.
And there too, flows fortunately are quite good given what they are because the stock is very low. At the March, it was about 180,000,000. No. No. I'm sorry.
I'm sorry. Actually, I referred to unlikely to pay. I'm so sorry. I'm sorry. It's been a long day.
Okay. Okay. I'm sorry. I'm sorry. Okay.
UTPs. As you saw, they went up I mean, the coverage ratios went up dramatically. And indeed, it is important to focus on this. I provided a description, I know whether you were listening, of the increase both in terms of nominal value of 400 basis points. That was on Page thirty two and seven hundred basis points year on year.
I said that most of this effect is due to IFRS three and BPM UTPs turned into the bank. And then I also gave some indication of coverage level 31%, 46% for unsecured. And then I also provided a some disclosure on page 34 on the value of collateral for UTPs. So what was your question exactly? Flows from past due to well, flows are going very well.
Minus 33%. So from past due to UTP was not included, but we have for the figure is minus 33%. Very well. Thank you. Next question from Hugo Cruz with JPW.
Hi, thank you. I have three questions. Trading income, do you have guidance on what's the normal level of trading income you should be per quarter? And second, you gave the evolution of net NPL flows year on year. You give the evolution for gross NPL flows as well?
And 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. But I would like to know how much PPA do you have in the plan targets? You mentioned those, I think it was 30,000,040 million euros positive post tax per quarter. How much is that already reflected in the plan targets?
Thank you.
Income, you mentioned that the the the Gobbish portfolio or the
No. No. In in the in the revenues, you know, you you have, you know, you booked 33,000,000, you know, including the the SEO in the quarter, which is quite a low number compared to to previous quarters. So I would like to know if you have a kind of I
say that the slide represented the new normal because, of course, the numbers that we have we were used to see in 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 €240,000,000 coming from net financial results. So I would say that this figure could be the real figure you can expect, of course, depending also from the evolution of the market. But I would say that it's most of this figure that you have to take in account than the previous one. On the NPLs evolution, we are very encouraged from the decline of the inflows that, of course, is dramatically decreased. So we feel that we can have always less job to do in order to sell and to work out the NPLs.
But for the time being, we have a big bulk still on our asset and we have to work on it. And 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 3,000,000,000 sold during the 2017. In terms of workout, 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. So I imagine an evolution of stock, which is decreasing both for lowering flow sell and workout and a better return due to the cash income and the provision increasing provision that can lead to good price on sales. As far as the PPA, if I agree if I understand that you say that you agree with your colleagues, but I am not I will 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, so no problem at all.
Yes, that would be great if you could. Can you also tell me the positive the guidance you gave on the positive benefit, was that guidance already reflected in the business plan targets? Or did it change since then?
Of course, in the business plan, there was a guidance, but I wouldn't say that May, we had a clear idea of the potential PPA and reversion. So for sure, it's not completed incorporated in the business plan. If I should give a number, I would say two third. But 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.
Line of the the the ordinary business, as I mentioned before many times, is completely irrelevant.
Okay. 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 over a 100 basis points parallel shift in terms of your NII?
We have done a sensitivity, basically linked to the Euribor going to the floor. So on 40 basis point, we have a figure which is around 110,000,000. So if if it were go to if it were to
go to zero from minus 40, is that what you're saying? Exactly. It is the assumption. It would add a a 110?
A 110. Okay. You haven't done the 100? I don't have right now, but I can I can give you of course, it's it's not the same progressive because when you talk to zero, it's not the same thing? We we can give you some more details.
Great. Thank you very much.
Next question from the Financial General Andre Grenley, Omeric 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 100,000,000 worth of subordinate debt that is going to come due by the end of the year. And then there is a little star saying with the footnote saying that they include the calls. And 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 Populana. Second question, withdrawals. The maybe my Medibanco calling made a similar question.
So if the bank, as I believe, limit the right of withdrawal as it happened, for example, in UBI, should then a rule be implemented by the consultant that was discussed on newspapers at the 2016. 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, but you're really a clear voice 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 if 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, but there was really the law was lacking. There was a total void as with as with respect to this issue. And, of course, in the meantime, we have to act with our shareholders. So the decision we made, it takes all these these elements into consideration because there is no longer the old law that allowed us not to exercise the withdrawal right.
But then we have this interim period. We have this nowhere land in the meantime, and we have to do something to our shareholders. But 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 then, thank you all.
Have a good evening. See you next time. Good evening. This is the Chorus Call operator. The conference call is over.
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