Evening, The conference call for the presentation of Banco Popular Group as at September 3035, is about I hand it over to Francesco Saviotti, CEO of Banco Popular. Mr. Saviotti, you have the floor. Thank you, and good evening.
Well, as usual and for due to the lateness of the hour, I'll try and be brief. Nonetheless, I'll dive in on the most important items. Go to Page three please, where I'd like to say something about our commercial performance. In fact, during the course of the presentation, I'll dive deeper into the details of other items. As far as medium to long term lending is concerned, total new lending amounts to 6.7 percent billion euros I.
Roughly 68% higher compared to nine months 2015. And in October, we have achieved EUR 1,300,000,000.0, so 50% growth in the private sector, 47% growth in small business and 70% growth in mid corporates medium to long term lending. Indirect customer funding is increasing 7.1% higher since the year end 2015, specifically thanks to the growth in assets under management driven by the mutual funds and CCAP component, which have grown on average by 15% consumer credit. We have exceeded EUR 25,000,000 fees, thanks to the 17% increase in our Ducato products. Cars issued is going very well, 168,000 cards issued in nine months.
And I would say that also banking accounts are doing fairly well. 41,000 new accounts were opened or better that's the total between new accounts opened and accounts closed at the October. We brushed 45,000, 38,000 being retail accounts. And within retail accounts, 10,000 are affluent retail accounts. And that is really an interesting result.
Talking about our P and L, we have closed the nine month period with a positive result of EUR $350,000,000. This time, the fair value option was against us and was unfavorable by EUR 8,000,000. Net of the fair value option, we have a net result of EUR $342,000,000 result, which is due to also the negative contribution by the leasing department by EUR 88,000,000. As usual, income statement on Page seven shows a number of nonrecurring items, the most significant one being Italy's tax assets being booked in the first quarter, 85,000,000 is a positive amount. And then in the second quarter, we had to charge our P and L for incentivized exits of EUR 2,400,000.0.
Those were necessary to allow other 70 an additional 70 fellow colleagues to resort to the Solidarity Fund. An old su of former Popular Italian dating back to 02/2004 02/05 was closed and we had to debit our accounts by €14,200,000 And we have also sold the Luxembourg business. The closing will be done as soon as the ECB provides The ECB has already reviewed the proposal and by the end of the year, they will give us the final approval. On Page seven, again, you may see under a provision for risk and charges, the €23,000,000 being represented by the cash provision for the full year 2015 for the single resolution fund, which came into effect in 2015.
The total would be EUR 32,900,000.0, but 70% is being treated as a commitment to pay and hence does not entail any charge to the P and L. On Page eight, we start talking about NII. Here you see an increase on a yearly basis of 1% mainly due to a reduction in the cost of both wholesale and retail funding. And here you can see a reflection of our policy that led us to focus on less costly forms of funding. The quarterly decline is instead due to the decline in the customer spread by seven basis points, which is attributable partly to the reduction in the EURIBA rates, but more specifically to the fierce competition at the the local area the side of lending, which led to a further nine basis points decline in our asset spread.
Likely you know that a particularly aggressive initiative was launched by the main bank in the country. And incidentally, I am not here to neither judge nor comment on the policy implemented by other banks plus the CEO is a dear friend of mine. Nonetheless, we are bearing the brunt of this aggressive initiative as well as the rest of the market that was literally invested by this landslide initiative that forced us to really react with our core loyal customers to give them more favorable terms. So the whole structure of our customer spread was pressurized downwards and we had to reduce, like I said, the customer rate. We are reacting in a particularly aggressive way.
We are very active in the market with initiatives that based on indications I have already collected for the month of October and the first few days of November, initiatives, like I said, that would generate an NII in the fourth quarter that will be closer to the second quarter NII compared to the NII we reported in the third quarter. The market down, in spite notwithstanding the EUR 500,000,000 issue of Tier two bonds that were placed in July, our liability spread improved by two basis points. On Page nine, you see commissions where you see a decline of 1.4% decline year on year, an extraordinary performance of our sales network in selling products, in assets management products specifically to our customers. Great contribution was also given by other sources of fees and commissions, consumer credit was extremely attractive as well as guarantees released and custodian banks activities. During the quarter, we reported a decline of around 9% in fees and commissions.
But let me say that this is a temporary decline. As you know, our program, our policy implies quarterly fees of $350,000,000 So we are lagging behind our schedule, if you wish, by about EUR 25,000,000. But in the month, in the current quarter, we are already regaining some ground. We're selling more. And we are selling on a daily basis between 40,000,000 and €50,000,000 worth of products, which is going to bring us back to our usual levels.
Please also remember that this quarter was marked by an issue in the month of July of a lower tier two instrument. In August, as you know, there were a few employees working, many customers were on holidays. So this too, the summer recess too contributed to a depressed result. But at the end of this quarter, we'll report a result, which nonetheless is in line with our expectations. On Page 10, we see an increase in indirect customer funding that since the beginning of the year has been growing by 7.1%, the biggest contribution being given by assets under management plus 10.3% on a like for like comparison, thanks to the mutual funds and CCAP component, which in the first few months of 2015 increased by 15%.
The quarterly decline is not due to a more limited activity, but rather it's a decrease which is due to a temporary negative market performance, which like I said is temporary. On Page 11, we see the net financial result, a 20.5% decline, that's to say fewer lower capital gains related to trading. So this trading result had a was impacted negatively by financial markets performance that deteriorated because of the Greek crisis and also because of China's slowdown. Plus, we structured fewer Baca Letti investment products. Essentially, we sold the plain vanilla instruments.
BANCA ALLETE closed the quarter with a result, which is really marginal to say the least, slightly above EUR 5,000,000. But in October, in the first few days of November, Alethi will go back to normal. And we expect Alethi will close the quarter with a positive result of about 80,000,000 to 20,000,000. On the following page, we start talking about personnel. Personnel expenses are declining by 4.1 due to the fact that fewer nonrecurring charges have been posted, and that is due to the solidarity fund and incentives to pre retire that we reported in the first few months of twenty fifteen compared to
Last year, we posted charges equal to EUR 67,000,000. This year, the total charge was EUR 11,600,000.0. Net of these charges or costs, the 1.3% annual increase is due to some contractual wage increases that were defined under the previous national contract plus the changes in the variable compensation, which were compensated for by a decrease in the average headcount, which was reduced by five eighty nine full time equivalents. The end of period headcount number at the end of the quarter is steadily declining and it's fully in line with our targets. People will leave the company and these exits will take place during this quarter.
And in fact, the following page shows you a snapshot of the current headcount. In fact, here you see that two twenty five people have already left the company, five thirty six left and three eleven people were recruited. Two zero five additional people will leave the group in the next few days. But it's important to stress that we have set a target for ourselves. As at December 3136, we budgeted 16,882 FTEs.
Currently, as at December 3135, we will have reached this number one year ahead of time. And to be more precise, we will have 165 people fewer than expected because we will close with 16,717 FTEs at the 2015. Total operating costs declined by 5.2 year on year. On a like for like comparison, I. E.
Excluding non recurring items that were reported in the first nine months of 2014 and 2015, the decline is equal to 4%. Specifically, other administrative expenses decreased by 3.8% year on year. But once again, if we excluded the $7,000,000 write up that we reported 14 because we had reached an agreement with a number of vendors and thus we could write up the loans by EUR 7,000,000. The total decline would be 5.1% year on year. Amortization and depreciation show a decline of 11.8%.
But if we exclude nonrecurring loan loss provisions for real estate assets posted in 2014 and 2015 for 20 '17 and €2,000,000 respectively, would increase by 3.1% year on year due also to an increased capital investment in IT.
Now balance sheet, talking about funding, we can say that total direct customer funds year on year went down 6.66% due both to the reduction in the bond component and also to the decline in core deposits, which has been offset by re repos. However, if we include the liquidity generated by certificates in the direct funding, the stock increased by 1,800,000,000.0 year on year, then total direct customer funds increased by 1.5%. The year on year decline in bond related funding, 14.7%, is mainly driven by the approach we took to curb the cost of funding and also the greater propensity or the greater appetite by customers towards asset management products. On a quarterly basis, total direct customer funds are substantially flat, down by 0.3 due to the fact that the decline in core deposits has been offset by the increase in repos and in bond related funding. The decline in core deposits year on year 2.1% and the quarterly decline 1.9% is exclusively due to the planned and ongoing reduction of the more expensive funding component.
But with respect to core deposits, as it is checking accounts and certificates of deposit. It is worth mentioning that the EUR38.3 billion level, if we exclude corporate deposits, EUR5.8 billion, takes our total fund to EUR 32,500,000,000.0. This is the retail funding, which is the most stable, the less expensive. And it's the fund component that must really represent the foundation and the most important component for any bank. 16% of our funding is wholesale, 84% it's based on the it's captive.
And out of the 44%, 55% is core deposits. On Page 17, you have a snapshot of our liquidity. Let me say that our liquidity position is excellent. Practically, our exposure at the ECB is EUR 11,900,000,000.0, exclusively made up of TLTROs. The EUR 1,000,000,000 reduction compared to June is due to the redemption of the short term tranche.
Then we have other unencumbered assets eligible with the ECB equal to €13,300,000,000 The haircut has already been carried out. And they are represented by a portfolio of unencumbered Italian government bonds. Let me highlight with respect to this aspect that the decline for 14.2% to 13.3% is not a structural decline. In the month of September, it has been characterized by important tax movements that have already been re transferred back on the October 31, the amount of these tax movements have already gone up to €14,500,000,000 talking about assets eligible with ECB. Talking about liquidity ratios, the coverage ratio is well above 100% whereas the next stable funding ratio hits the 95 level calculating according to the most recent rules of the quantitative impact study.
Page 18, here we have the maturity profile with respect to 2015. There is nothing left, no work comment. In 2016, we have $7,000,000,000 coming to maturity, 3,700,000,000.0 on the wholesale, 3,300,000,000.0 on retail. Whereas with respect to 2017, we have €8,100,000,000 of which 3,800,000,000.0 for wholesale and 4,100,000,000.0 for I'm sorry, 7,900,000,000.0 in total, 3,800,000,000.0 wholesale and $4.1 on retail bond maturities. During the year, we carried out three bank bond issuances, dollars 1,000,000,000 worth of covered bonds, which was really successful, dollars 1,000,000,000 worth of senior bond issues that in July has been oversubscribed four times and the $500,000,000 issuance that was closed recently, and we could close it right at that level.
But we ended up with 2,500,000,000.0 worth of issues or provisions. So what shall we do in the coming months? We planned additional bond issuances, and we're going to have a mix between wholesale and retail. And this mix will depend upon the market conditions. On Page 19, we see our treasury securities portfolio.
Let me remind you that the Board of Directors has set a cap of EUR 19,000,000,000. We reached already EUR 18,000,000,000 right now. It's $18,000,000,000 with an average maturity of three point seven years, three years and seven months. This portfolio, the makeup is 54% available for sale, 13% held for trading and 33% held to maturity. This portfolio at June 30 had a reserve for ESS government secured bonds equal to EUR 151,000,000.
On November of the total reserve was EUR $210,000,000, of which EUR 168,000,000 government bonds, 42,000,000 corporate bonds. The unrealized capital gain on government maturity portfolio in June was EUR $259,000,000 in as I said, June EUR $259,000,000 whereas on in September, EUR $2.50 I just got lost. EUR $2.59 9,000,000 million compared to the present situation. On Page 29, we see customer loans. The gross customer loans went down by 3.7% year on year and declined by 1.3% in the nine months period, 1.5% quarter on quarter.
If we exclude the nonrecurring items from loans such as the runoff of the leasing division and the decline in repo transactions, then the year on year decline goes down to 2.2%, The quarterly decline goes down to 1.1% whereas with respect to the nine month period, we report a growth rate of $524,000,000 which is 0.7%. In the nine months period, granted lot of medium to long term loans of €7,600,000,000 total, up by 68% compared to the same period last year. Let me talk about the trend of 4,100,000,000.0 in 2013 full year, EUR 5,600,000,000.0 full year 2014, EUR 6,700,000,000.0 first nine months of this year. In October, we've already reached EUR 7,252,000,000.000. The nine months growth breaks down as follows: EUR 1,300,000,000.0 retail plus 54% EUR 1,600,000,000.0 small businesses, 3,100,000,000.0 in mid corporate.
The nine months close with a cost of credit of $574,000,000 against the $1,600,000,000 in the first nine months of 02/14. The decline is primarily due to the significant reduction in the new NPL inflows compared to 2014. We've had this slowdown in NPL inflows by maintaining the higher coverage levels that had already been set in twenty fifteen twenty fourteen. The cost of risk is 89 basis points. Page 23.
NPL stock increased over the year by 4.5%, I mean year to year. It went down 0.8% year to date and increased by 0.7% quarter on quarter, including the sale of unsecured loans, $732,000,000 worth of gross accounting value excluding the write off that we finalized on the October 1, the year on year growth of gross NPL decreased to 0.9%, while we report a 4.1% decline year to date and 2.7% compared to June 2015. Net NPLs confirm their downward trend compared to year start, minus EUR 700,000,000, minus 4.7%. They are stable since year start with a slight increase in the quarter, which is now plus EUR 136,000,000. Let me highlight that the growth in gross debt loans continues to be lower than the ones reported by the tenant banking industry at large, plus 13.5% year on year against 10.3% and plus 9.1% in the first nine months of the year for the banking industry against power, which is 4.2%.
On the left,
What benefited us in setting up our low loss provisions, net NPL inflows in the first September 2014, we were talking about $3,023,000,000 In the first nine months of twenty fifteen, 1,731,000,000.000. And you see that exits are practically the same, seven twenty five and seven forty five and seven twenty nine. So should this situation keep on going this way, we are going to benefit from it. And October has already given important signals and important confirmations to this trend. Coverage of NPLs, of group NPLs, coverage is growing 45.1% at the September.
Over the quarter, the reclassifications from unlikely to pay to bad loans of two highly covered exposures determined the decrease in the cash coverage of unlikely to pay loans from 26.8 to 26.1%. However, at the same time, it resulted in an increase in bad loan coverage from 58.1% to 58.3%, including I mean, if we consider coverage, including collateral guarantees, we get up to a coverage of 96.4% for bad loans and 86.8% coverage ratio for unlikely to pay loans.
Thanks
to the high number of loans secured by collateral, which is 76.1% for bad loans and 75.4% for unlikely to pay loans. On the right, again on Page 24, you can see that the share of loans, of secured loans out of total net NPLs And by the way, this is not updated because they refer back to December 2014. We're going to find the updated data with the year end report. In any case,
we
are leaders with an 87% coverage against an average of our peers. We're talking about UBI, ISA, Intel, Sao Paulo, UCG, BPR, BPM and Carije. That goes from 85% to 80%. I mean, the average is 80%. Page 26, there you see the leasing division.
We keep on saying that it's in runoff and it's downsizing. In the first nine months of twenty fifteen, this loan portfolio has been reducing by €432,000,000,000 more after the €6,000,000,000 decline reported between 02/2014. So you see that the $6100000000.06200000000.0 dollars breakdown as follows, dollars 3,200,000,000.0, 3,300,000,000.0 are ex Italy's and the rest pertains to release. But what I would really like to highlight is that as of December 3130, we've reduced by €5,000,000,000 approximately the outstanding amount and NPLs have remained the same, dollars 3,900,000,000.0 on 2010, 2010, but then there have been slight changes, but they remained at 3,900,000,000 at September 3035. The coverage, which includes collateral guarantees, is above 100%.
The accounting book coverage is 34%, one percentage point more compared to the 2014 and eleven percentage points with respect to the end of 02/2009. On Page 28, we see a snapshot of capital ratios for our group. They have been growing compared to June 3035. Common Equity Tier one phase in goes up to 12.7%, whereas the fully loaded Common Equity Tier one ratio is 12.2. The increase is due to the profits that have been posted in quarter and a decline in risk weighted assets, mainly due to the credit risk counterparty credit risk and market risk EUR 1,700,000,000.0, including credit risk and counterparty risk EUR $5.00 5,000,000 market risk.
And with respect to the fully loaded ratio, the increase is also related to the increase in AFS reserves. If we include the effect from selling of $950,000,000 unsecured bank loans and the effect from the sale of the stakes held in Istituto Centare Banque Populari, ICVTI and in ARCA, the fully loaded common equity Tier one ratio increases up to 12.8%. In addition, this ratio does not include the positive effect from the burnout coming from the sale of the Visa Europe, and that the amount has not been defined yet, but we believe that it's going to be it's a range between EUR 30,000,000 to 50,000,000. Total capital ratio is 15.8 phase in and 15.6 fully loaded. But if we consider the pro form a, it's going to be 16.3%.
In this chart, we wanted to include the fact that between March and May 2015, we've sent the application for a model change on our PD and LGD for both corporate and retail, and we are still waiting to receive the validation from ECB's joint supervisory team. Now we expect to be able to put the new parameters in place and to implement them either from December 2015, which is unlikely, or starting from March 2016 which is most likely. This chart brings me to the end of my presentation and I am more than willing to answer to your questions and curiosities.
To questions and The first question is from Mr. Alberto Cordara. Good evening. My first question concerns NPL's evolution. I mean, even though we exclude pro form a data for new issues of nine fifty million, I think that the trend that you are reporting is better than the industry with a year on year growth of 4.5%.
Other banks are reporting 15% growth. So I'd like to know why you are performing better than other banks in terms of NPLs growth or lack thereof compared to other banks? Well, I believe that the new NPLs are fewer than other banks because we have been digging so much into the portfolio and cleansing it so much that the residual portfolio is definitely better. Plus the loans that we have been granting as of January 2009 is really paying off in terms of cost of credit. We are really reaping remarkable results, thanks to our new lending policy.
If you in fact consider loans granted from the first few months of 2009 up until September 30, where we have a cost of credit, which does not reach 30 basis points. It's lower than 30 basis points. And I'm not just talking about the new customers. When we renew a loan to a customer that was already part of our client base, we consider that as a loyal customer that started working with us back in 2009 and we revised certain rates. And that way, no habit toll is being taken on new business.
So the new business we grant is not just so to speak. And we will continue going down this road. If the inflows are the one in will continue reflect what you've seen on page 23, I believe that the cost of credit as well will continue being reasonably limited. Thank you.
First question is on capital ratios. On the slide, you show a 34 basis points negative impact on the disposal of the portfolio. But in the news release, you said that these were unsecured debt loans and had no bad impact or negative impact. So did I miss something in between? Second question, now you are starting to post a positive contribution by your equity shareholdings.
And
from Agosto Cato as well, how are your relationships with your partners in Agosto Cato? And then in the last conference, we left understanding that everybody is talking with everybody else. Has there been any progress with respect to the denitualization? And are there any significant events that took place in the meantime? So first answer, 34 basis points refers to the sale of unsecured PAT loans, which have given LGD attached.
If the provision that was outstanding is greater than the LGD, then it's going to erode the capital shortfall. Our capital shortfall was positive, and this was eroded and so we went back to a negative capital shortfall. And this is the type of charge we had because we've increased our capital shortfall with respect to the sale, but only because in this case, the coverage was peculiar with respect to these loans that were vintage loans that were very old. And this is the main reason. But with respect to our P and L, there has been no impact.
Even though, to be honest, we've had negligible or modest positive effect. With respect to our shareholdings, equity shareholders, Alkos is performing very well. You know that in the past, we've gone through very difficult times with this shareholding. In the last year or more, we've improved our relationships and our dialogue with the other partner. The CEO is a banker.
We're working well. We have increased the sale of consumer credit products. Our commission stream is increasing. And we are also getting dividends. We are renewing the various agreements expiring at the end of this year.
We are happy. I believe they are happy as well. And we hope that this type of result, which is quite significant I may say, because if you take a look at AGO's results, 200,000,000 minimum, we have 39% of it, so we are pleased with this. And next year's budget is as positive. Then with respect to possible M and As and business combinations, they are progressing.
We haven't changed our idea. Now you know this better than I do. It's you know, you have to talk a lot and discuss and go back talking, but we are really working on it and in a rather aggressive way. We're talking with a lot of people. But we do have a number of specific instances we are focusing on.
But we believe that we have to do the right things and we are sure that we are going to be successful. I forgot one thing. Do you think you might have a threesome transaction? Know, threesomes were quite fashionable some time ago, but now they are not as fashionable. You know, technically speaking, of course we can have that, but they might become a bit more tricky and difficult.
Mr. Ricardo Rovre has the next question. Yes, good evening everybody. Just one question about capital. So looking forward, you talked about the 12.2% and then you listed a number of disposals on Page 28.
And we go to pay we get to 12.8. But in some previous calls, Mr. Sabioti, and correct me if I'm wrong, I think you have updated your models and you have indicated a negative impact. I remember something between 5,100 basis points. But could you please correct me if I'm wrong?
And also, you please tell me, even though that's not extremely significant, the likely impact during 2016 of the sale of the ECBPI stake. Think I've never talked about 100 basis points. That would worry me extremely weak and with withstand even more than 100 basis points. But I think that based on our estimates, we may be closing in a range comprised between fifty and seventy basis points. To the best of our knowledge, the Visa sale earn out, which is expected to happen in the 2016, should generate between EUR 30,000,000 and EUR 50,000,000, as I said earlier, which in basis points is equal to 10 to 12 basis points.
Okay. Operational risks. The AMA approach with the recalculation of the new criteria, have you already assumed any likely impact of the new AMA approach? Well, we think there would be a modest difference of about twenty, twenty five basis points.
Next question, Domenico Santoro. Good evening, Mr. Sadiocchi. Let's talk about NII. You talked about the adjustments in the fourth quarter that would have the net interest income in line with the second quarter.
Can you expand on that? Then the NII message for 2016 in the past call was not positive. In another conference call, mean, your colleague was saying that the net interest income would be stable considering the carry trade contribution. You have a number of important maturities on sovereign bonds next year. So I would like to understand what you can say on this aspect.
Now the net interest income is always rather volatile first quarter on fourth quarter quarter on quarter. And if you take into consideration the last eight quarters, we see that there are changes in volumes. And what is the cause of these margins volatile I mean, net interest income volatility? There is an interesting slide you showed that I would like to see again for next quarter. And then on Slide nine, you were talking about not so much on Stage one because you don't have a capital deduction, but stage two, the second one, which should be a bit more painful with respect to bad loans.
As far as IFRS nine, this is something that we are not even taking into consideration to date because this is going to come into effect on 01/01/2018. And of course we have to get ready for that. There's no doubt about this. But of course, we can understand the position for that point in time when the time is right. But it's too early now.
In January 2018, the IFRS nine will come into effect, and so we will talk about this later on. As to net interest income, that's true. Over the quarter, we had a decline, and I explained why. This was not caused by the decline in Europe or two basis points in on a quarterly basis and four basis points on a monthly basis has carried up. But this was mainly driven by the aggressive approach or aggressive stance taken by the leading Italian bank, which has really strongly impacted the market and actually obliged us to take a defensive stance.
Many customers, not only ours, but also customers of other banks have been contacted with personalized letters with loans with a discount of 45 basis points for offers. We're talking about unsecured loans, floating rate with up to seven year maturity with a discount of 45 basis points. When you have a lot of customers coming and showing you these letters and asking for their rate to be adjusted even though they are loyal customers and they are core customers which are not going to leave the bank. In any case, they are asking to have more favorable terms. So we have in order to defend ourselves, we have to change the interest rate structure for many customers.
So we are reacting by again being aggressive on the market. We set up three developer teams that are already operating on three different areas. We are setting up additional task forces. We increased the calls and visits to a given type This is not these are not customers under the rating one to three, but rather from four to six with respect to the rating.
And we are already posting results. In October, we are already talking about an increase in terms of millions compared to September. So we believe that by the end of the year, the three eighty seven million that are in line with the first quarter results are going to improve and that we are going to close the year with more than acceptable results. This is my visibility today. This is what I see today.
But of course, we're getting organized to set up a budget. On Friday, we will start with our budget meetings. These will not be top down, but we are going really to talk directly with territorial divisions and departments that have direct contact with the territory and with customers and understand what type of activities and approaches are implemented by competitors and we will have a better visibility on the future. With respect to the end of the year, talking about this year, I'm reasonably confident. You might remember that at the beginning of the year, I said that we would close the year with 1% or 2% increase on net interest income.
To date, we have reached 1% increase. Now should we fail with the activities I just mentioned? Probably, we are going to report a slight decline. However, I'm confident that by the end of the year, we are going to reach a satisfactory result, in any case improved compared to the third quarter. So okay, you are moving on, on the risk curve.
As you said, though, we've talked with some customers. In order to have advance on receivables, I cannot grant a 0.7 or a 0.12 rate. Need to maintain a given margin and we're talking with customers. We are bringing this home. I mean, we are successful in doing this and I'm keeping my fingers crossed.
New contacts gave favorable results. We have new customers that have been won over in these three areas where we have the three task forces or teams of developers, business developers. So we have to keep going. Consider that we are not over with our cost of funding containment. We still have some room for maneuver and we're going to be active on that.
So on the one side, we have this new lending approach. And then we act on the cost of funding. So by the end of the fourth quarter, we should close with a better net interest income compared to the third quarter. In 2016, considering what you said, considering carry trade that is going to go down because you have very important maturities, as you said, what is the cost of funding guidance you can give us for next year? It's too early.
I mean, based on depending on whether what I just said is going to come through, that will be one guidance. And however, if by the end of the year, the targets we've set for ourselves are not going to be delivered, the guidance is going to be different. If taxes are going I mean, if the tax rate is going to be reduced Are you going to have a DTA impairment? And what would and as far as IRS is concerned, what will be the consequences?
This is something we have to take into consideration because we believe that what you are saying is an assumption that should not come true. There are a number of actions that are being taken. We have to wait and see. Undoubtedly, should the entire tax mechanism be confirmed as proposed, we would have to charge our income of a big amount mitigated by the benefit that we would have year on year since the tax rate would be reduced from 27% to 24.5%. Thank you.
Mr. Christian Carrese has the first question, the next question. I have a question about commissions. What is there any room for you to increase commissions in view of permanently low interest rates? Do you have room for increasing asset management products?
And what about banking fees in 2016? Can you give us some guidance as far as your expectations? And also, BET Bank and Asset Management Company, these two projects, did you receive any indications? The new co could buy up to EUR200 billion of gross debt loans with a value of 30% to 40% on face value. Should this be the case, you be forced to increase provisions, maybe using some of the capital gains that you hinted at during your presentation?
Do you expect a further provisioning before the end of the year so that having this coverage, you can sell a bad loans. Mr. Carreza, good evening. Bedbank, nothing new there. We all take into account the fact that the asset management company can actually be established.
But so far, to the best of my knowledge, at least as far as I myself am concerned and Banco is concerned, I do not know whether other people have different pieces of information. So to the best of my knowledge, I have nothing to say about this so called bank and asset management company. Should the asset management company be established? And to set it up, should we be forced to sell impaired loans or bad loans below market value, then I would not be interested. I mean, what's the point in doing that?
If an asset management company would allow me to reduce the level of NPLs at acceptable conditions, I would go for it. But if this is not the case, why would I do it? I am not selling at the current market conditions because that would hurt my regular shareholders, ordinary shareholders and registered shareholders because we have loans that are backed by collaterals and properties that are exceptionally valuable. And thus, I wanted to preserve that value. So I believe in due course, we'll go back to normal.
That will not happen in the very near future. But the important thing is that the new economic cycle is on the upside. So the real estate market will be on the upside too. And these properties will thus be revalued upward. And so far, we can do nothing at the current property's value with the only exception of a few clusters of properties here and there.
But when you have a €20,500,000,000 worth of nonperforming loans to really enjoy significant benefits, you have to sell from 3,000,000,000 to €5,000,000,000 NPLs, which you would be doing only if the prices which you can dispose of them is reasonable. Plus, if it is necessary to make additional provisions, no problem. We can engage in additional provision, but we want to we'll not do anything for free or we will not just give away NPLs at, you know, at fire fire sale price because these NPLs are backed by valuable properties should we be selling them at the current conditions or as a proposed offer the conditions would be destroying value. As far as commissions, you have always attended our calls, so I'm sure you remember that our organization allows to generate EUR $350,000,000 per quarter. This year, most likely, we will exceed €1,400,000,000 because the €350,000,000 multiplied by four equals €1,400,000,000 Things boomed in the first quarter, $350,000,000 were reported in the second quarter.
The third quarter, because of the fact that July was dedicated to the lower Tier two bond issuances, August, a month of holidays and September, we went back to business, but we were kind of less active and we shared the EUR 20,000,000, 25,000,000 worth of commissions. In due course, like I said, we will regain ground because we have already started selling both in September and in October, and sales have increased in terms of ticket, in terms of amount and in terms of number. We are growing by 45,000,000 to $50,000,000 per day in terms of daily sales of products. So this would put us back on track with our targets. So what are we going to do?
Looking forward, we'll prepare a budget next Friday. And that budget will be rooted in the real conditions. That's to say, we believe that in spite of permanently low interest rates, we'll be able to stick to the good level of fees and commissions that we have reported so far. Well, my question was essentially aiming at understanding whether you are going to implement a policy as aggressive as your competitor, as you said. You were talking about assets under management and limited room for maneuver there in terms of margins.
But during the conference call, you talked about the margin of maneuver you have in terms of customer spread. So I was wondering whether you would act on it. Well, on the old business plan, we had expected we had planned growth in the Wealth Management business, which accounts for a limited capital charge and generates a steady flow of healthy flow of commissions. We engaged in this kind of business, which is being taken care of by our General Manager together with Alekis General Manager. So it's I mean, it's reasonable to think that this will result in a positive outcome, not in the very near term, but 2016 will probably mark the year of additional commissions generated by these sources.
Thank you.
Next question, Matsa. I would like to talk about fees, but the other side of fees. I saw that you've had an increase in guarantees, rather high increase. What is the customer profile that has been so active? And do you believe that the level you reached is sustainable also next year?
Second question, what do you think about outsourcing to sort of manage the NPL problem? And then new loans, new lending, you've talked about the risk curve and that you are moving along the risk curve. Do you think that you will maintain the same levels as this quarter? Last question first. We've made this decision because we believe and by the way, let me clarify, we're not just leaving the other rating classes aside, but we're not focusing on them.
And we are going to work less on them on the short term. We are rather going to focus on the rating classes four, five and six, which are regular borrowers that you wish or regular counterparties with our group. But again, we are going to pay much attention to creditworthiness. We've been doing so for many years. And as you may have heard before, the initiatives we've implemented as of 2009 drove the cost of credit down quite a lot for these type of loans.
The very fact of focusing and paying more attention to the rating classes four, five and six, And of course, it goes without saying that our relationship managers know how to assess their customers' creditworthiness and therefore I am quite confident. As to nonperforming loan outsourcing, I don't see what kind of benefit we could get from it. We have no problems managing non performing loans. Within our group we have an ad hoc function that manages these NPLs. I'd give my NPLs to someone if he'd pay for them or take part of them over.
But, you know, talking about outsourcing is certainly not part of our assumptions or assessment. What we're doing is we are clustering our nonperforming loans. And this might help us to bring the NPL stock further down. We have no certainty. But a couple of EUR 100,000,000 can already be considered.
As to guarantees issued, you know, that we've strengthened our foreign offices. We have a number of commitments I mean, we have commitments that have been developed, and then we have a number of activities with respect to guarantees issued. And these activities may probably improve and develop further in the coming years. The next question, Andrea Biccellone. I have three questions
concerning numbers and data. And then one question about M and A. Tax, it's very low amount of taxing that you're paying. Do you have any nonrecurring item to report? And also personnel expenses, extremely good level.
Do you think you can retain this very good level of personnel expenses in the months to come or in the quarters to come? Or are we to expect personnel expense increase? And then a question about capital. Increased the valuation of the stake in BCCP from EUR 2,000,000,000 to EUR 2,150,000,000.00. Is that due to the fact that you're going to close that deal at a higher price and you are already certain of that?
Or am I losing something? Am I missing something? And then a question about the M and A activity. Mr. Saviotti, to close a good M and A deal that is solid, that is strong from the point of view of the business model and the business plan, well, if to close such a deal, a new rights issue would be required.
Would you go for it or would you reject this option? I'll take your last question first. At present, it's unthinkable. But I think that if it is necessary, I would go and talk to the board of directors, and they would say, yeah. Of course.
They would pass the resolution. Every time I needed them, the Board of Directors has always responded and has always given their approval. But so far, I don't think a capital increase, a new rights issue is necessary. As far as the Cooperative institute stake is concerned, we have reported 2,250,000,000 because this is what we reported to the ECB. My tax sitting by my side and he is saying that the tax amount is low because the contribution given by companies posted at the equity with the equity method is extremely low in the last quarter.
So there is no tax charge. But if you eliminate that or that contribution, you would be perfectly in line with the regular tax level. Now personnel expenses, me anticipate a piece of information to you. Well, considering we did better than our budget because based on our budget targets, we should have reported EUR 1,400,000,000.0 while our expenses will be well below that amount. We will charge our accounts by closing within the level of 1,400,000,000.0, and that will allow us to lay off an additional 200 or two twenty FTEs by resorting to the Solidarity Fund.
Thank you.
Next question, Alberto Cortona. Sorry for this follow-up. This last asset is very interesting. Product factories are back to profitable compared to last year's trend. Can you give us a yearly or quarterly guidance with respect to product factories?
And with respect to costs, again, this was a surprise. What can we expect for next year based on the current trend? What can we expect next year with respect to cost dynamics? Well, next year with respect to cost evolution, we expect to have fewer personnel expenses. And since in front of me, I have the Head of Operations, maybe a few million less with respect to administrative expenses and G and A expenses.
However, they've gone a long road, so we are not expecting any miracle with respect to cost. What about the other questions? What was it? Associate, dollars 39,000,000 this year, they're really faring very well. Well, we're going to be very strong there because we are performing very well with AGOS, Pocolar Edita and Gaviva.
So next year, we're going to have a good outcome, a good result. AGOS is going to even overperform compared to this year. And we hope that all our projections are going to come true. But in any case, also with respect to dividends, in the past, we've gone through such a distressful period and it was so painful. So let us believe and speak to our conviction that in the coming year, we're going to receive and to reap dividends.
The next question, Jean Nguyen.
Hi. Many of the questions have already been answered and thank you for that. I just wanted to ask you about the 34 bps impact of the NPL disposal in October. And I'm sorry, but I would like to get a little bit of a more detailed answer. And essentially, what I'm trying to get to is to gain certainty that of the 20 odd billion euros gross impaired loan that you have on your balance sheet, if you ever dispose of anything else, there wouldn't be any similar hits because that's actually a big hit for a €1,000,000,000 portfolio out of about 20,000,000,000 or so.
So I just try to understand the mechanics and whether we are safe going forward, if that's okay.
Now
the translators were asking that if you have to if you have a follow-up for your questions, please don't stand so close to the microphone because it was rather difficult to understand. You were asked about the 34 basis points in any case. The 44 basis points are due to the following. We sold million worth of unsecured debt loans. These were loans of €15,000 to €70,000 that has been fully provided for.
They were extra covered. So the provisioning was higher than necessary as we applied the LGD for that specific segment. So since provisions were higher, when you sell them, what happens? It's going to lead to a capital shortfall. As I was saying before, in the past, we had a positive capital shortfall in excess of BRL40 million.
By selling these bad loans, capital shortfall were negative by BRL180 million. Dollars So today we have a negative short capital shortfall of $114,000,000 but this is not what happens every time. Otherwise, you know, if our provisions were so high, we would not even be talking about nonperforming loans. We would be better off. I mean this was just pool of unsecured loans, old loans that we decided to dispose of.
And at the 2014, we had decided to set them in a separate cluster and we did that. $250,000,000 were sold in June and then €150,000,000 nominal value has been sold now in October.
Okay. So if just to make it simple, do you have many other portfolios where you have an excess of provisions versus your model and whereby selling them could result in the same impact going forward? Are we done with this type of impact now?
No, We don't have other portfolios, portfolios. We have other clusters, BRL 152,000,000 that we could sell and that are the remaining part of the portfolio that is similar to the one we sold. And the provisioning is rather high even though it's lower than the one we already sold. Actually it's a high provisioning.
Excellent. Very clear.
If we find an interested purchaser, we will sell these 152,000,000.
Many things. That's very clear now. Thank you so much.
I know. I didn't want to be diplomatic. I am sincere. I just say what are what what things are. There are no other questions.