Ladies and gentlemen, good evening. Welcome to the conference call for the presentation of the Half Year Results of Banco Popular. At present, the participants are just going to listen in our listen modality then there will be a Q and A session. Participants that this conference is going to be recorded today Friday, 08/07/2015. Let me now hand it over to the CEO of Banco Popular, Mr.
Savioti. Good evening, everybody. So as usual, we start from the first slide, which is not slide number one of course. And I'm going to be very rapid because in the following slides, we will be able to get into greater detail. So with respect to slide number three, I'm just going to give a very rapid snapshot of performance highlights.
So we had €4,900,000,000 with 100% increase in profit from operations. But I would like to say that in that was medium term lending sorry. In 2014, we had extended €5,700,000,000 worth of medium term loan medium and long term loans. So this is already a significant result that we obtained in the first six months. Very good results in assets under management and administration.
A little less than €6,000,000,000 were underwritten with respect to mutual funds and CCAP, 1,600,000,000.0 of bank assurance products, 900,000,000 discretionary accounts or wealth management and EUR 1,800,000,000.0 in terms of certificates. Consumer credit plus 22%. Credit cards reported an increase by 100,000 units. Checking account, the delta between the opening and closing of checking account was 32,500 accounts. Now let's talk about the income statement.
The first half of the year closed with booked profit of €293,000,000 and management accounting the result of €290,000,000 due to the fair value option. This €290,000,000 amount this result includes a negative contribution by the leasing division of €55,000,000 which you find on chart six. In the following slide, you can see the nonrecurring P and L items for the first six months of the year. Now of course, we have Banca Italys as a tax asset with a positive contribution of €85,000,000 Then tax litigation that dates back to 2006 was finally completed. We actually won the appeal at the appeal court.
But then in at the superior court, we were asked to pay €17,700,000 plus due to additional incentivized exits. We have the €11,600,000 worth of charges and the same as the exit of other 70 people. And then a €6,500,000 charge that relates to the sale of our Luxembourg bank. In the first half of the year, the P and L had been charged of 23,000,000 This was the estimated amount for the single resolution fund. Now let's talk about the P and L line by line starting with the net interest income.
Net interest income has increased by 2.7% year on year and quarter on quarter in rates up by 3.8%, mainly as a result of the reduction in wholesale and retail funding costs, which reflects the fact that we have been focusing on less expensive funding sources. The customer spread amounts to five basis points it decreased by five basis points and this is due to an asset spread reduction of nine basis points, which was negatively impacted also by renegotiations on some major exposures. Whereas the liability spread is still recovering. And over the quarter, it increased improved by four basis points. On page nine, we see net commission income increased by 7.7%.
The branch network as usual was very professional and was able to come see to well reacted to the increasing demand for investments by customers in particular with respect to asset management products. We've seen a greater contribution also from other commission streams for example consumer credit, guarantees given and the depositary bank commission streams. Commission stream or the commission volume on a quarterly basis is well above the average of the twenty fourteen quarter. And we believe of course that in future quarters the increase will be more subdued. Indirect customer funding went up by 8.3% year on year driven by asset management.
Thanks to funds and figures, which increased by 17.5% year to date, showing that the positive trend which had started last year is still continuing. The quarter on quarter decline is due to the lower value of assets under administration due to the temporary negative performance market performance in June. The net financial result on page 11 went down by 26.1% due to the lower income generated by trading activities, which was impacted by the negative market performance in Q2. In particular, in June, when the Brexit crisis deteriorated. Banca Alecti generated a more contained result due to the fact that their structured product activity declined because the network over the quarter was more focused on asset management products rather than on structured products.
In any case, the quarterly average is still satisfactory is still good and to date is above the quarterly average reported in 2014. Operating costs, personnel expenses. Personnel expenses went up by 1.5%, but they increased because over the quarter we accounted for nonrecurring charges of €11,500,000 with the exit of 70 more people additional 70 employees, hadn't we charged this amount, we would have had a 0.2% reduction in personnel expenses, a slight reduction, but still and this despite the absorption of costs referring to the latest contractual increase agreed in the previous national labor contract. The average headcount decreased by five eighty five employees and the period end headcount saw a significant decrease of seven twenty nine resources year on year and 198 people quarter on quarter or in line with the expected downward trend. And in the next six months, we are going to have other access based on the incentive schemes and solidarity fund plans.
In fact on page 13, you see that by the 2015, we will have full time equivalent employees of 16,717, whereas the target was 16,882, which however is the target expected for the December 2016. So in December 2015, we are already going to hit the 2016 target one year ahead and still with 165 full time equivalent employees less. With respect to other costs other expenses, we've reported a 6.1 reduction in other administrative expense. However, if we exclude non recurring items reported in the first six months of 2014, the decline amounts to 3.7%. In particular, the other administrative expenses went down by 3%.
But in this case, should we strip the R7 million reduction in liability that we had reported in 2014, the reduction would be equal to 5%. Amortization and depreciation was down apparently by 20.4%. However, excluding the €17,000,000 worth of nonrecurring impairments on real estate that was carried out in 2014, they actually increased by 3.7% due to higher IT investments. Let's now move on and talk about our balance sheet. First of all, let's concentrate on total direct customer fundings where we have a reduction of 1.9% year on year and that is mainly due to the reduction
So the bond component was partly offset by an increase in repos and partly by a €1,900,000,000 increase year on year in the stock of certificates. The progressive decrease in bond funding is a specific choice is due to a specific choice we made. We put in place measures that were meant in fact to reduce the overall cost via the replacement which is still underway. The replacement of this type of funding with another type of funding which is less expensive plus we have put in place a call of the bonds. So the reduction of 1.5% in core deposits is mainly due to the current decrease in time deposits.
Please note that the weight of wholesale funding is equal to 16% essentially in line with the year end figure. On page 17, you see a snap snapshot of our liquidity, excellent liquidity position for the group where we have an exposure to the ECB, which is equal to €12,900,000,000 €1,700,000,000 more than March, because we drew an additional €3,200,000,000 worth of TLTRO, which is currently a total of €11,900,000,000 But at the same time, we cut back on the short term component by €1,500,000,000 Please note that the further unencumbered assets eligible for refinancing with ECB are well above EUR 14,000,000,000 and they are essentially made up of Italian govies. As far as Basel III liquidity ratios, LCR is well above 100%. We are we stand at 164%. The net stable funding ratio is 95% and it is calculated based on the most recent rules of the quantitative impact study.
On the following page, you see the maturity profile for 2015. As you can see, we're faring very well. In fact, we have $1700000000.01300000000.0 for wholesale bond maturities, 400,000,000 for retail bond maturities. And in the second half of the year, we'll be calling EUR 500,000,000. The last call to complete, which will be the last call date that will round off the plan we had prepared.
Let me once again make you notice that we placed a seven year covered bond worth €1,000,000,000 which was priced at the mid swap rate plus 28 basis points and we placed it on the institutional on the wholesale market. It was very well received. In fact, it was oversubscribed by 2.5 times the initial amount in July. We placed a five year senior bond of €1,000,000,000 priced at the mid swap rate plus two forty basis points once again oversubscribed 4.5 times the initial amount. So by the end of the year, we think we'll issue additional we'll make additional issues bond issues.
Let me remind you that as far as the retail market is concerned, we placed a lower Tier two seven year bond worth EUR 500,000,000. As to COVID, on page 19, you see that nothing changed much over the quarter. Our portfolio is essentially made up of Italian government bonds with a residual average of three point nine months. As of July 31 as of July not June 31, the reserve the AFS reserve for Italian government bonds was equal to million growth compared to minus EUR14 million as at June 30, while the unrealized gains on government bonds in the held to maturity reserve amounted to €71,000,000 as at July 31 compared to $2.00 €1,000,000 as at June 3035. Moving on to page 21.
We take a look at customer loans where we reported a decrease of 2.6%. That's in spite the loans made during the quarter were quite significant compared to the results we reported in 2014. In fact, as I said earlier, at the beginning of my presentation, we lent BRL 4,900,000,000.0. As far as retail customers are concerned, we reported a 54% increase. Small business increased by 76%, while the meat corporate increased by 122%.
On the following page, which is page 22, you can see the cost of credit risk 85 basis points compared on an annualized basis compared to 137 reported in 2014. As you can see also loan loss provisions are plunging compared to 2014 minus 40%. And that is thanks to the remarkable decrease in inflow into new NPLs. And all this confirmed all this take place while we retain the very high level of coverage we reported at the 2014. On page 23, you see once again a snapshot of the evolution of NPLs.
They go up by 6.6% year on year, but precisely because of the significant reduction in the inflow of new NPLs minus 66% as you can appreciate on the left hand side of the table. And thanks to the fact that $2.00 €5,000,000 worth of unsecured debt loans, which we sold in the second quarter, we report a decline of €311,000,000 precisely minus 1.4% in the first half of the year. Coverage compared to June 30 increased as stocks went down and thus we can say that the net NPLs declined on an annual basis by €586,000,000 precisely minus 4%. And in the half year period, they declined by €141,000,000 minus 1%. Gross bad loans increased year on year by 12.3%.
What I wish you to notice that our growth is and continues to be lower. The number of debt loans we report is still lower compared to the Italian banking system. In fact, based on the latest data provided by at the May by the Bank of Italy, there was a plus 14.9% reported by the banking system and a plus 5.5% in the first five months of the year compared to our growth the growth of our debt loans, which was just 1.9% in the first five months. So the coverage of the group's NPLs is strengthening despite the good levels we have already achieved in 2014. And in fact there was a slight decline compared to March 44.9% in June compared to 45.1%.
That is essentially due to the fact that as I said earlier unsecured debt loans worth $2.00 €5,000,000 were sold in the second quarter. Coverage including real I mean collaterals keep growing and it's equal to 98% for bad loans and 85.8% for unlikely to pay loans and that is due essentially to the fact that there are very many loans that are backed by collaterals 76.9% for bad loans and 74.4% for unlikely to pay loans. We keep reiterating and I will reiterate it once again that the group's coverage level has to be considered in the light of the buffer of collaterals of secured loans compared to total loans. And in fact, if you take a look at the average for our peers, we have a much better level at 87% compared to an average of 80%. In the following page, you see a greater degree of detail.
It simply says that loans that are backed by collaterals is equal to 76.9%, while when we talk about unlikely to pay loans assisted by collaterals 74.4%. Debt loans are covered by 45 by 58.1%. Real guarantees are covered by 45.9%. Unsecured loans have a coverage of 82.9%. So as you can see the same applies to unlikely to play loans where we have collaterals.
Excluding collaterals we have a coverage of 22.9%. Loans that are instead not secured by real by collaterals have a coverage of 38.1%. On page 26, you see a snapshot of the leasing division. We are still downsizing the portfolio. In the 2015, the portfolio was cut back on by €352,000,000 minus 5.4% after the decrease that we reported already in between twenty two thousand and nine and 2014 of 5.4%.
The gross NPLs are at €3,800,000,000 minus 2.4% at the end of the first half twenty fifteen and minus 1.8% in the second quarter twenty fifteen. And this is the lowest level reached since 02/2009. So I would like to reiterate once again that we cut back by €6,000,000 or over €6,000,000,000 our outstanding loans and NPLs went from €3,800,000,000 went down thus allowing us to say that the activity the recovery activity we are doing are actually paying off. As far as accounting coverage is concerned, we confirm the 33% coverage. But if we add collaterals, we have a coverage of 103%.
Even though in spite of incorporation of an average haircut of more than 20% for underlying collateral value. So there is an additional buffer to cover outstanding risks. On page 28, you see a snapshot of our group regulatory capital ratios and our capital position. You know that the ECB assigned us a Tier one common equity ratio of 9.4% as of the 06/30/2015 Under phase in, we are at 12.2% with a total capital of 14.2%. This is due mainly to a reduction in risk weighted assets in Q2.
We've had a reduction by BRL1 billion of BRL1 billion due to counterparty risk and a reduction of millions in operational costs and then the DTA reduction, which were turned into tax credits for €06,000,000 whereas market risks increased by €493,000,000 Instead in the fully loaded the CET1 ratio fully loaded is equal to 11.3% down compared to the same item on March 31 as a result of the AFS reserve reduction, which over the period had a negative impact of 68 basis points. However, if we include the positive change in the AFS reserve that was reported in July and amounting to 46 basis points And the impact of the sale of the stake held in Isisu Pocentrale Banque Popular Italiana ICBPI, plus 62 basis points. The CET 1 ratio fully loaded increased to a pro form a of 12.4%. With respect to the total capital ratio, considering the lower Tier two for €100,000,000 level of initiative goes to 15.7. Now we wanted to highlight and so I will reiterate this right now that we sent model change request on the PD and LGD corporate and retail.
And we are still awaiting for the validation of the joint supervisory team of the ECB. We have no idea when we are going to receive this validation. We believe that the new parameters may come live as of the prudential reporting of December 2015. This led me to the end of my presentation and I will be more than happy to answer to your questions. We are now going to open the Q and A session.
You. Again, we are now going to open the Q and A session. First question. Good evening. I have two questions for you.
First of all, loans at €5,000,000,000 in the first six months of the year, which means €2,500,000,000 in the second quarter. If we consider the loan stock in the value segment, I believe that compared to the first quarter you've reported a slight slowdown. Do you share this view? And would this be due more likely to the fact that your branch network has a lower appetite with respect to the new products? Or is there a lower demand?
And then the second question I've been asking it to all the Populari banks. It has to do with the demilitualization process. As part of the governance change, do you wish or are you going to rather to set a permanent limit to the voting rights for shareholders? And from your point of view, would the setting of such a limit involve right to withdraw that might be exercised by the members of the Board of Directors? With respect to lending to granted loans in the second quarter, we extended slightly fewer loans, but not that much less.
It was €2,500,000,000 in Q1 and it was €2,400,000,000 in the second quarter. And actually in June, we reported a slight slowdown in the granting of new loans, which was had nothing to do with our own choice, but just because of declining demand, a more sluggish demand. So even today, it's a bit lukewarm. Loan applications we receive are more similar to what happened in June than to what happened in the previous months when we had more applications coming in. With respect to your second question, we haven't made any final decision yet with respect to any constraints or limitations to voting rights be it temporary or permanent.
We've talked it over, but this is going to be postponed to the Board of Directors meeting that we are going to hold on September 15. Only then are we going to make a final decision. With respect to the write off withdrawal, I don't think this has should it come in place in our bank, I don't think that we are going to have any problems. I believe that if any there will be a few. And in any case should any such right be exercised the group is not going to face any capital problems.
Next question comes from Ms. Azura Guelph. Good afternoon. I promise I'll speak slowly. I have two questions.
Pricing and net interest income, Ms. Zura, please you remember that when you speak fast, I'm too old, I cannot keep pace with you. So please speak slowly. I know I plead guilty. Anyway, please stop me if I am wrong.
Net interest income went up on in the quarter, but volumes did not increase. So your margin improved. I see that your customer spread changed and declined specifically. So I would like to have more information about financial income, which I believe was responsible for this growth. As far as 2015, you talked about you gave us a guidance of between 8,100 basis points.
You made 85 in the first half. Are you still comfortable with this lower end of the range, especially in the light of the reform, which the government has recently passed? Well, let me take your second question first. It comes natural for me to confirm the lower tier of the range I had communicated to you considering the current situation, the current economic cycle, considering that flows are limited. You may have noticed that we reported a 66% reduction.
So I really believe we can say we can keep the cost of credit at this level. As far as NII is concerned, have to say that there is a 3,000,000 to 4,000,000 contribution given by our trading portfolio, but all the rest is just due to the policy we have implemented. So volumes did not grow excessively as you correctly pointed out. But we worked on the cost of funding because the cost of both retail and wholesale funding as I said in the course of my presentation decreased and this allowed us to achieve this good NII. Andrea Vercellone, next question.
Good evening. I have a few questions. The first refers to the change in internal models. And you were saying you are still awaiting for the validation or the authorization by the joint supervisory team. Can you give us any guidance with respect to the impact this might have?
The second question refers to ARCA. There's been newspaper articles saying that Banco Popular has practically exercised its right of withdrawal with respect to its shareholding in ARCA. If this is true, can you explain why? And do you have any price guidance? Third question, personnel expenses.
Net of the Solidarity Fund charge, they've gone down quite significantly quarter on quarter. So I would like to understand whether this is a sustainable trend or whether there have been nonrecurring positive items this quarter. For example, the transfer of valuable or carry forward of variable items. With respect to your business plan with respect to headcount, do you expect that also next year you're going to report a significant number of exits? Or did you just do this ahead of time and at this point you're just going to sort of drift on?
Not only do I expect to report additional exits next year with respect to our employees, but I believe that they are going to exceed the 70 FTE employees we've reported this year. I expect to see 150 exits next year without increasing personnel expenses, which are still going to be within the limits we've set last year. There are no nonrecurring or strange positive items or any type of switch that any kind of bonus that was not distributed. Everything was just ordinary and regular. As far as RCA is concerned, I confirm we exercised our right of withdrawal, which is the support subject to the counterparty's ability to or possibility of having the necessary funds within the time the defined time.
With respect to the model change application, I can say that my Chief Risk Officer and the Head of Risk Manager have their own view. They believe that we are within 50 basis 60 basis points, points. I'm a bit more conservative. I would talk about from 60 basis to 70 basis But since we are at 12.4, I am not that concerned considering that the 12.4 does not include what I've just told you I. E.
Basis points that I will obtain by exercising my right to withdraw in ARCA. So whether they are 60%, 70% or 80% in any case, our common equity Tier one fully loaded is good and gives rise to no concerns. With respect to ARCA, is the right of withdrawal against ARCA? So the buyer is ARCA? Yes, that's it.
I confirm what you're saying. And what is the reference price? Well, I just skipped this altogether. I just told you that I would obtain a good level in terms of basis points. So it's up to you to make your own Next question comes from Mr.
Carlos De Grande. Good evening. I'd like to go back to page 28 where you describe your capital ratios. Could you please tell us more about the changes quarter on quarter from 11.6% to 11.3% since your assets are declining? And also what is the capital contraction concerning those 30 bps on a like for like basis?
What was the change? Well, as far as risk weighted assets changes, I told you earlier that the decline in risk weighted assets was due to the counterparty's credit risk reduction of EUR 1,000,000,000 operational risks EUR $342,000,000. DTAs turned into tax credit EUR 106,000,000. Market risks negative impact of EUR $493,000,000. This we also should take into account the sale of the Tutto Centrale delle Banque for Polari.
We should also consider that we beefed up our AFS reserves and that implies a cost of about 68 basis points and we managed to regain only 46 of them. And so we came up with a pro form a figure of 12.4%. Thank you. Next question, Domenico Santora. Just one detail I would like to get.
22,300,000.0 worth of loan loss provision. What is the reason for these provisions? This is something we've stacked ahead of time. We've provided we've set aside these provisions for possible, but not probable, not likely risks. It's a sort of contingency.
We wanted to be prudent. I'm not going to detail or itemize what are the various reasons why we did that, but consider it just a prudential measure that may always be useful in the future. There are no other questions. So let me now hand it over to Mr. Saviolti for his final remarks.
Well, there is little I can add other than saying that my people and I are satisfied with this result. We are satisfied, but we don't want to lay back. If the economic cycle is going to remain stable at this level, I'm not talking about a boom, but a more relaxed level, Pancou is going to keep generating good results. Thank you.