Good afternoon. This is the Chorus Call Conference Operator. Welcome, and thank you for joining the Banco BPM Group Nine Months 2022 Results Conference Call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. At this time, I would like to turn the conference over to Roberto Peronaglio, IR Manager of Banco BPM. Please go ahead, sir.
Thank you very much, and thank you everybody for being here for this conference of the nine-month result of our group of Banco BPM. Before leaving the floor to Mr. Castagna for the presentation, let me remind that you can find the slide on our website in the investor relations page, and the Q&A section is reserved only for financial analysts. Now, I leave the floor to Mr. Castagna. Thank you.
Good evening, everybody, and thank you for being with us this evening. This round we are, I think, the last bank to make a presentation. I hope you will be happy to give us your attention for the time of our results presentation. I am very pleased to present these nine months results, 2022, with an eye, I would say, to the equity story based on the achievement of the past years and quarters, but also giving you a very positive outlook on the future. Let's start from the current results. Let's say that the nine months results are a record for our bank.
We have done an adjusted net income of EUR 652 million, very solid and strong operating performance in terms of cost-to-income at 54.2%, well above the 57% of 2023 target of our business plan. Also, in terms of commercial performance, we are still having very solid set of results with new lending up 20.6% year-on-year, and commercial banking fees almost 5% year-on-year. At the same time, also the de-risking and the asset quality are overcoming the results of the target 2023, and in this case, also 2024, with NPE ratio at 4.7%, and stock of gross NPE at EUR 5.3 billion, with EUR 1.1 billion less than that year-end 2021.
Net NPE ratio is down to 2.4%, with capital at 12.4% as Common Equity Tier 1 fully loaded and MDA buffer at 387 basis points. We will give you also some hint about the insurance business of BPM Vita consolidated for the first time line for line, together with some information about our commercial activity integrating digitalization and ESG. Let me only remind that the Common Equity Tier 1 without the contribution of the Danish Compromise would be 12.05, and the MDA buffer would be 353 basis points. As you know, we are in course of obtaining this kind of authorization with the ECB. Let's go to the numbers on page seven.
I would comment on year-on-year results, but we have on the left also the quarter-on-quarter that is better than the last quarter, basically in any main performance. Let's start from NII, EUR 1.59 billion vis-à-vis EUR 1.536 billion of the nine months last year. Also, so better than last year as well as the net fees and commissions that are better than last year at EUR 1.44 billion, vis-à-vis EUR 1.42 billion of last year. Altogether core revenues are at EUR 3.167 billion, 2% better than the results last year. In terms of total revenues, we go to EUR 3.5 billion, EUR 3.471 billion vis-à-vis EUR 3.424 billion of nine months 2021.
Higher revenues of 1.4% year-on-year, also taking into account the reduction of contribution coming from the TLTRO. Operating costs are down, slightly down. Even better, if you consider that for the first time we have consolidated also the cost coming from the BPM insurance, without which the like for like cost would be 1.4% lower than last year results. Loan loss provision much lower at almost EUR 400 million, 498. Last year was 673, leading to a profit from continuing operation pre-tax over EUR 1 billion. EUR 1 billion and 1 million, which is 27% better than the nine months 2021 at EUR 788 million.
After tax, the result is EUR 679 million, still 19% better than last year, and the net income is EUR 510 million after the systemic charge, which adjusted for the cost of risk and some other one-off item, lead the results of the bank to EUR 652 million, confronting with EUR 565 million of nine months last year. In terms of quarter, we ended with a net income of EUR 127 million, which adjusted is EUR 172 million. Let's pass to page eight.
What we want to reflect in this slide is the very positive approach that we have looking at the number that we have reached and the guidance we are able to give you for 2022, confronted also with the business plan of 2023. We are almost one year ahead in terms of results, of performance, of the main performance, if we confront the results of these nine months and full year 2022 with the 2023 strategic plan. In terms of total revenues, we have almost EUR 300 million more than the strategic plan.
EUR 4.6 billion is what we expect for full year 2022, of which almost EUR 2.2 billion will come from NII, with a strategic plan which was higher than EUR 1.9 billion. Operating costs are modestly higher than the 2023 business plan due to, of course, major cost in terms of administrative cost. We have a guidance of a bit higher than EUR 2.5 billion, respect to EUR 2.4 billion of the strategic plan, which lead to a pre-provision income higher than EUR 2 billion, vis-a-vis EUR 1.9 billion of the 2023 business plan.
If we assume the same amount of loan loss provision, this bring us to a stated return on tangible equity, which is 1.5 point better than 2021, and already in line with the 2023 business plan, which stated a number of 7% for 2023. If we take the adjusted figure for 2022 guidance, we are even better than 2023, and this is maybe the best way to confront the two years because of course, in the strategic plan, there are no one-off, and so it's more comfortable with the 2022 adjusted. More than 8% respect to 7% of 2023.
This is of course mainly due to the trajectory of the Euribor growth, which give us a lot of opportunity also for increasing our project for 2023. Let's go back to the asset quality for a minute. We have already said on page nine, EUR 1.1 billion lower than the starting of the year, EUR 1.3 billion better than nine months 2021. The ratio are down to 4.7% compared with the final target in 2024, which was 4.8% . Also, in terms of net NPE ratio, we are at 2.4%, vis-à-vis 2.5% in 2024. If we consider the EBA definition, we are gross at 3.9% and net at 2%.
We still have some expectation on the de-risking of single names by year-end. Let's say that the total de-risking up to now, up to September, was EUR 1.8 billion. We think that we will exceed EUR 2 billion in 2022. Not considering, so still keeping a reserve of EUR 500 million of potential disposal for which we have already front-loaded the cost of risk in the first two quarters of 2022. Page 10 is a very important slide, in my opinion, which, because it gives you what the bank has done during this year, what the consistency of the results we have done can bring the bank in the future based on real facts.
We have again a very strong capital buffer which is almost 390 basis points. Let's say that we started with the merger to 160 basis points. We have to consider that at the starting point we had to face EUR 30 billion of NPE stock. During this year we have de-risked the stock to EUR 5 billion so EUR 25 billion of de-risking. Still we have been able to have an increase in the Common Equity Tier 1 of one full point from 11.4 to 12.4 without as you know any request to the shareholders.
All with our contribution and the capability to make some capital management action, which give us the strength to de-risk and reach a very fair situation in terms of capital, especially compared to the net NPE ratio, which net NPE exposure, which is EUR 2.7 billion compared to the EUR 60 billion with which we started the merger in 2017. This coupled with still a lot of opportunity coming from the strengthening of the business model, both for the consolidation of the insurance business. As you know, we have started from this quarter to consolidate BPM Vita. We have applied for the recognition of financial conglomerate status in order to obtain in the near future the Danish Compromise status.
As you know, we are also undergoing a beauty contest on non-life activity, for which we expect to be able to take a decision by year-end 2022. As far as the other branch of the insurance, which is the Vera branch, the joint venture with Cattolica, we expect potentially to define the call exercise by the first half of 2023 in order to have the opportunity to have a closing by year-end 2023. The integration process of the bancassurance business is underway. Of course, we still have to build up the profitability contribution, because we have only one quarter in our profit and loss. Also, in terms of digitalization strategy, we are having a step ahead.
We are overcoming the results that we had for 2022 in our business plan. We have created a strong SME management model with the new 135 specialized centers activated, especially in the North of Italy, with the more than 440 relationship manager relocated from the normal branch to the activity dedicated to SMEs. Also in terms of NRRP project, we have trained more than 1,000 colleagues in order to take all the opportunity coming from this unique challenge that we have, activating also a digital platform available to all our employees and dedicated to more than 13,000 customer targeted for this activity. In terms of ESG, we are going ahead with our program of issuing of green bonds.
We have had new green transactions in terms of new lending for more than EUR 7.5 billion. We have had increasing our profitability, improving our sustainability rating by two rating agencies. Let's go more in detail to some other details that give you the consistency of our performances. Also having a look to the business plan in order to have some comparison with our projection. Core revenues are up quarter-on-quarter 1.3% year-on-year. As you can see, we are improving each month the core revenue. Now we are at EUR 1.07 billion, which is already more than the average of the 2023 business plan, and very close to the 2024 business plan.
The cost income as well is better than the 2023, which was 57% and is very much close to the 53%, which was the target for 2024. Pre-provision income are very high, better than 2023 and 2024 at EUR 534 million. Also cost of risk is under control, even though we still have a prudent stance when we have to imagine potential situation of reduction of GDP in 2023. On page 14, NII, some details about. I already said that the year-on-year is +3.6%, quarter-on-quarter +4.5%. The evolution bridge of NII give you the real growth where it come from, the real growth from.
As you can see, the positive outcome come from the Euribor increase, both in the commercial activities, we grow EUR 55 million on the quarter and EUR 12 million. On page 15, still very important, we give you some guidance both for 2022 NII and 2023, starting of course from the new increase of ECB deposit facility of the last October 27, which brought the rate from 0.75%-1.50%.
Following this pattern, our first half was the NII was EUR 1.039 billion, from which you have to deduct for calculating the second part of the year, almost EUR 100 million, both one and more than 100, almost EUR 110 million from the elimination of the special premium and the tiering. On the opposite, we have a contribution higher than EUR 200 million coming from the increase of Euribor. This should bring the second quarter to EUR 1.14 billion of NII contribution, which should bring in a total contribution of NII for 2022 of EUR 2.38 billion. With the trajectory, I will come back to the 2023.
The trajectory of the Euribor as I was mentioning before is already increased from the average of 2022, which was almost 35 basis points. We have 140 basis points in October, but our projection for 2023 is 200 basis points. Considering the sensitivity, considering the new regime of TLTRO after the decision of ECB to reduce the contribution of TLTRO reduced our NII sensitivity from EUR 360 million to EUR 220 million for each 100 basis points, we assume that in 2023 we can reach a total contribution from NII which will be higher than EUR 2.5 billion, which is almost 15% higher year-on-year.
Of course, the main drivers of this sensitivity come from the floating short-term and medium long-term rates on the loans, which have 57% of our total loans, and the very conservative assumption on the deposit beta, which is 41% vis-a-vis 11 basis points, which is the current cost of our deposit. On page 16, we go back to our very good commercial performance. We were quite cautious in approaching the increase of lending. We had a very good stance for the first six months. We already reached basically six months the total target that we expected for 2022, and the pace that we expect for the entire business plan, which was 3.2%.
We stay at EUR 102.9 billion, in line with the plan, but without pushing on loans. Let's give you some example. On the stock, we have extracted the small business exposure from our total loans, which is around EUR 19 billion. Of this EUR 19 billion, before COVID, we had a position guaranteed or collateralized for almost 50%.
Now, for this cluster of client, we have increased the total guarantee to 73%, increasing the state guarantee from 10% to 44%. Let me remind that in this category, which of course is one of the more riskier in terms of opportunity to increase the revenues in an inflation context, we have only 2.9% of SME portfolio classified at high risk, of which 78% is also secured. Let's go to the inflow. The new lending is higher 20% vis-a-vis last year, is EUR 20.3 billion, and was EUR 16.8 billion. The entire growth is with the corporate and enterprise. The household is still EUR 3 billion like last year.
The portion, the composition by rating class of these new grants is 96% into the best asset class, low to medium risk, only 3% in mid-high risk, and only 1% in client classified as high risk. If you extract the EUR 3.1 billion granted to the small business in the first nine months of the year, this amounts to EUR 3.1 million, of which 74% is secured, which 55.9% with state guarantee. We are strengthening very much the quality of our portfolio with all the cluster of our clients, both in terms of rating and in terms of guarantee. Total fees and commission. This is another very good results considering the backdrop coming from the reduction of asset under management investment pace.
As you know, this has experienced a reduction due to the market situation. We are almost EUR 2.5 billion lower than last year results in terms of investment product placement and this bring to have a lower result of 2.8% year-on-year. In terms of quarter, we had EUR 4.2 billion Q3 2021, EUR 3.9 billion Q2 2022, EUR 3.3 billion Q3 2022. It's also a normal seasonality effect because in August, as you know, the investment sales product is reduced very much.
All these negative effect has been recovered by the very strong performance of the commercial banking activities, which increased the total fee contribution 5% year-on-year and 3.4% quarter-on-quarter. The vast majority of this contribution comes from the lending fees, up 30%, payment service fees up 12%, trade finance related business up almost 11% year-on-year. Also, in terms of management, intermediation, and advisory fee, the negative performance of asset and funds and SICAV was almost covered, almost entirely covered by the positive performance of the sales of insurance products, certificates, intermediation of consumer credit with our Agos, and the strong increase in credit cards related products. All in all, a very comfortable 1% higher than last year.
The same reduction of almost 1% comes from the global cost with a major reduction in terms of cost of personnel and slight increase in terms of administrative cost, of course, almost entirely due to the energy cost inflation. The good results of 1.1% lower vis-a-vis last year would be even better if you do not consider the cost of insurance, which are of course included in this quarter and is not included neither in the previous quarter this year or in last year results. We can also say that we have almost completely terminated our early retirement scheme. We'll have further 80 people leaving the bank by year-end, so we will reach the final contribution to the reduction cost starting from 2023.
On page 19, cost of risk. Again, also conserving a very conservative stance, both in terms of increasing coverage and also in terms of provisioning. We have a cost of risk at 47 basis points core, which, including the one-off for further de-risking, reached 61 basis points in nine months 2022. Of course, very much lower with respect to 2021. As you can see, the vast majority of increase in Q3 performance is due to the coverage increase that you can see on the bottom right of the slide, which led us to increase the bad loans coverage 120 basis points, the UTP coverage 140 basis points, the total NPEs 160 basis points quarter- on- quarter.
Very good also, the default rate still 0.9%, as much as the danger rate below the target of the plan, and a very good workout rate higher than our expectation at 24%. Some further information about the prudent approach in our loan portfolio management. Again, almost EUR 19 billion of loan guaranteed by the state, which is more than 17% of our total portfolio. The average guarantee for this amount are 84%. On the bottom part, you see the differentiation between stage one and stage two. Also, in this case, we had a prudent approach, increasing, changing our model, for stage two consideration, increasing the global amount of stage two, rising from EUR 11.2 billion to EUR 13 billion.
Some update about an early engagement campaigns that we activated already in Q2, and we had another round in Q3. vis-à-vis the borrowers particularly exposed to energy raw materials intensive sectors. This engagement campaign, of course, is aimed at detecting at a very early stage any potential disruption or problem for our clients, anticipating also the early warning that we already use in our normal activity. We had a one-to-one approach with clients, which represent a total exposure of EUR 9 billion, higher than EUR 9 billion. As you may remember, in June was EUR 6 billion, so we increased the parameter of this campaign.
Up to now, up to October, so considering also October, the add-on to the EUR 55 million of classification done in Q2 has increased only of another EUR 47 million in the last four months. Again, the conservative approach was also in staging because we increased EUR 2.5 billion of this perimeter, the stage two portfolio. Let me give the floor to Edoardo Ginevra to have some consideration on funding, liquidity, and capital.
Thanks, Giuseppe, and good evening to everyone. Page 21 shows the intense activity that we still have, confirming similar issuances in the first part of the year. In July, a green senior preferred EUR 300 million private placement. In September, green senior non-preferred over EUR 500 million. In general, contributing to a very solid level of funding, 84% of total funding being represented by deposits of EUR 103 billion, and with EUR 36.4 billion of cash plus unencumbered liquid assets. Liquid and funding ratios are well above the minimum required by the rules, with LCR at 179%, and NSFR above 100%.
For LCR, this is subject to some potential reconsiderations for future projections, given that in the new rate environment, the cost of the liquidity buffer has been increased, taking into account the new level of rates. Rating agency assessment are maintained at a very comfortable level. DBRS has increased our rating in October by one notch. Now we are BBB. Fitch has assigned to the bank and confirmed the BBB-, so investment grade as well. Moody's upgraded one notch in May, as we communicated in the previous presentation, to Ba1. In general, this positive assessment are supported by the evolution of asset quality, profitability, operating efficiency and capital position, together with the strength, the recognized strength in the franchise and in a liquidity and funding position.
The following page shows the evolution of our bond portfolio, which has been reduced to EUR 31 billion as of the thirtieth of September, of which 68% at amortized cost, and with a progressive reduction of the share of Italian govies, now declined to 36%, contributing to the level of diversification at a much higher pace than was originally included in our strategic plan, a target that we have announced in the plan was lower than 50%. Worth also reminding that most of Italian govies are classified at amortized cost. The share of fair value through other comprehensive income being as low as 22%. Just to remember where we were in 2016, Italian govies were 99%, 64% of them at fair value through other comprehensive income.
This also introduces in the following page to help in reading data on the evolution of reserves. Fair value through other comprehensive income reserves are now -EUR 628 million, but this is the reflection of, first of all, a market risk much more than a credit risk phenomenon, and the pie in the bottom of this page on the left explains why Italian govies contributing only for 13% of the reserves impact in the nine months of this year. Second has to be considered as a transitional temporary phenomenon, given that the figure of the net negative reserve is subject to pull to par, which is worth well above EUR 100 million per year in the years to come.
Net financial result is positive for EUR 75 million, and significant part of it is attributable to the contribution of fair value through other comprehensive income-related component, more than around EUR 40 million, which are mostly attributable to option hedging. Finally, capital sensitivity remained at similar levels as it was three months ago. Government bonds having a BPV total contribution of EUR 2.6 million, and with EUR 300,000 only attributable to Italian govies, so negligible impact. Turning to page 24, the evolution of our capital is shown in this page, providing a number of very important drivers that need to be commented. First of all, the performance, which gives a positive contribution of 21 basis points, net profit of the quarter minus 14 basis points from dividends and 81 basis points.
3 basis points is the combination of the various residual elements, including RWA, DTAs, and so on and so forth, leading to a first subtotal of 12.9. Twenty-eight basis points is the negative contribution of net reserves. 19 basis point is the contribution coming from the acquisition of 81% of BPM Vita, which took place in July, and which has been here reported and estimated using a prudent approach, assuming the Danish Compromise, leading the total to 12.4. Without the Danish Compromise, the stated level of CET1 is at fully phased at 12.05. Phase-in is at 13.5%. Fully loaded capital position and well above minimum requirements.
If you will look at Tier 1 and total capital at 14.6%, respectively, and 17.5%, RWA declining to EUR 61.7 billion. Buffer, MDA buffer, and also the buffer versus the total minimum capital Common Equity Tier 1 requirement is slightly below 390 bps. Fully efficiently utilized, given that we have filled in total both the tier, the Additional Tier 1 and the Tier 2 buffer. The final conclusion on the highlights of this performance, before we giving back the floor to the CEO, confirmed in the quarter delivered the delivery track record that we have shown consistently in the last few year and since, especially since the announcement of the plan, leveraging on the strength of this bank.
The operating performance shows the highest level of net income in nine months at EUR 652 million. The growth in core revenues 2% year-on-year. Pretax profit above EUR 1 billion +27.1% year-on-year. Cost income at 54.4. Cost of risk 61, but most important, core cost of risk at 47 basis points. Asset quality is ahead of the strategic plan target. This bank is now at 4.7 gross NPE ratio and 2.4 net NPE ratio, with the default rate fully under control. The solid capital position I just commented with the 12.4 of CET1 assuming the Danish Compromise and 387 basis points for the MDA buffer. Some final conclusion about the outlook of 2022 and 2023.
We already anticipated something during the presentation on the previous slide, but I think it's very important to update the previous guidance that we gave you, taking into consideration the new NRRP boost and also the new regime under the TLTRO. Already considering the negative effect of the recent decision from ECB. In any case, the total revenues, previous guidance was EUR 4.4 billion, now is EUR 4.6 billion. Operating cost was 2.5, is now above 2.5, which lead to a pre-provision income, which was 1.9 billion, now is higher than 2 billion.
More important, profitability, earnings per share up to $0.45 from higher than $0.40, and adjusted higher than $0.50, with a payout which still remain at 50% and a forecast on Common Equity Tier 1 always in the region of 13%. Of course, the contribution and the boost of NII, as I mentioned before, with the sensitivity which helps our bank in a double figure growth, should lead with a flat GDP at zero and an average Euribor at 2% to an expected EPS forecast for 2022 of higher than $0.60 for our bank, per share. I remember that in the business plan was $0.50 targeted for 2023. We are very happy of the results, but we are even more happy about the forecast that we can give to you.
The management team is very cohesive, very experienced, I would say, in changing the situation that happened in the market in the positive, the best positive opportunity for the bank. I think the equity story of this bank shows quarter- by- quarter and year- by- year this capability from our management team. Thank you very much. Now we leave the floor to you for the Q&A, if you want to start.
This is the Chorus Call operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. To remove yourself from the question queue, please press star and two. We kindly ask to use handsets when asking questions. Anyone who has a question may press star and one at this time. The first question is from Noemi Peruch of Mediobanca. Please go ahead.
Good evening, and thank you for taking my questions and all the details you provided on NII. On the latter, I just have one follow-up question, which is, what MREL issuances you have included in your guidance for 2023. Then I have two other questions. One, if you could just update us on your decision to whether or not to sell your merchant acquiring business. The last one is on common equity. If you could share with us the main drivers that will lead you to reach above 13% by year-end. Thank you very much.
Okay. Thank you, Ms. Peruch. Let's say that we are having many requests, inquiries to, on the merchant acquiring business, but nothing is decided. As you know, we are very much involved now and committed to try to get the best possible decision related to the bancassurance. We have had very little time to consider also the merchant acquiring, but could be for sure one of the opportunity that we could decide to exploit in 2023. Maybe for NII and capital, I give to Edoardo.
Yes. Thank you, Giuseppe. MREL issuances, sorry for capital, first of all, let me say that we are on one hand, of course, continuing in our actions on optimization on the level of assets and on the RWA efficiency for the absorption of such assets. On the other hand, the assumptions, the key assumptions that we have made explicit are that this is, this 13% accounts for the Danish Compromise or is adjusted for the Danish Compromise. Secondly, that we assume the level of bond yields to remain unchanged versus the previous year. Concerning the level of issuances that you specifically refer to MREL, here we are talking about around EUR 2 billion of new issuances during 2023.
Yeah. On capital, yes, we need also to complete the PPA process for BPM Vita, which has been acquired in the second half of this year and is expected also this to contribute to total capital at the end of the quarter.
Thank you.
The next question is from Giovanni Razzoli of Deutsche Bank. Please go ahead.
Good afternoon. To everybody, a couple of clarifications on my side. It seems like you have incorporated the sensitivity to the assumption for NII in 2023, as you are factoring a 2% arrival at EUR 2.5 billion for next year.
If I look at slide number 15, am I reading correct that assuming another 50 basis points, we should add something like EUR 100 million of higher NII to the stated target? Then on the deposit beta, also there, it seems like you've been very prudent because your peers have incorporated that level only for a higher level of Euribor. I was wondering whether you can share with us what was this sensitivity of the deposits in the past, if you have a kind of, you know, historical series to share with us. Second question, is it correct to assume that the underlying cost of risk in the third quarter is stable at around 55%? You said that you increased the coverage of bad loans and the UTP.
Is that increase only related to the future disposal to EUR 500 million, or is it something, you know, to build additional buffers for the macro downturn? Related to that, can you share with us what is the amount of provisions overlays that you have on balance today? Final question, can you remind me what is the impact of the call option on Vera Vita for 2023? Thank you.
Thank you. Here we are. Of course, I understand that it's not that easy to make square the sensitivity with the forecast of increase of Euribor. I'm not sure that the more you go ahead, the more you receive the same amount of money. I heard about also my colleagues who are in some difficulties, but I would say that EUR 100 million is a prudent approach for considering another 50 basis points. In terms of deposit, what can I say? We were of course at 2-3 basis points when the interest rate, you know, the Euribor was negative. We have almost EUR 8 billion-EUR 9 billion which are sort of floating, so linked to the Euribor.
The rest is still at the level in which we were before. The total is now the average, as I mentioned before, 11 basis points. Nowadays, we are in the region of 14, 15 basis points. Very much below the 41 of the sensitivity analysis. The cost of risk, yes, 55 is including, 60 basically is including what we already have provisioned in order to have started the de-risking. We still are having. We think it's only fair to have a very good EPS projection considering a prudent approach on cost of risk.
We will see if our approach is more prudent or not vis-à-vis other competitor, but we feel comfortable in giving you this kind of guidance and maybe trying to be better if the situation will be like this year at 1% default rate. The overlay right now I think are at 125 basis, EUR 125 million, so slightly below EUR 140 million, which were in June.
Thank you.
Maybe for the call option of Vera Vita.
For the call option of Vera, the data that we are using now are approximated based on the current level of own funds of Vera and on the current level of net equity in the Vera. What could be the fair value comparison. I have a total amount measured by January 25, when Basel IV comes into play, which is minus 17 basis points. To be fair, this minus 17 basis points includes already the new weighting of Basel IV of the Danish Compromise, even in BPM Vita. There is part of this impact is due to BPM Vita. The net to Vera is around 10 basis points.
Thank you.
The next question is from Christian Carrese of Intermonte. Please go ahead.
Hi. Good evening. Thank you for the presentation. I have three questions. The first one on the guidance you provided on 2023, the EPS above $0.60. I was wondering what kind of assumption have you got in terms of cost of risk? If I'm not mistaken, you are assuming a GDP flattish for 2023. What are the assumption according to this to this scenario, and if you have also an adverse scenario with a severe recession? The second question is on capital. If you can clarify the bridge to reach the 13% Common Equity Tier 1 fully loaded by year-end.
In particular, I assume you need some benefit from the P&C business disposal, and maybe also there was some excess capital on BPM Vita that you can release, or if there is any capital headwind, tailwind that could help to reach that target. Finally on net interest income, the guidance you gave for 2023 is based, just a clarification, is based on current rates, or you are looking at the forward curve by year-end for 2022. Just to understand what kind of upside that you have on that number. Thank you.
Thank you, Carrese. Good evening. In the first question, you are even more demanding than the ECB, I would say, because you want to know in advance all the details. Let's say that what I was mentioning before, that our bank being normally very much more prudent is also reflected in the cost of risk of 2023. The assumption $0.60 is not with a massive reduction of cost of risk, I would say, which is with a cost of risk which is implied in a zero growth. Common equity one, I think we have already responded with Edoardo, is there are no other disposal. There is no other potential component.
We think that we can reach 13 with the full impact of the Danish Compromise plus some, of course, profitability of the quarter and some further optimization. In terms of NII, we think that we are based, again, on 200 basis points, so it's a bit lower than the curve, the forward curve, and only a few basis points more than the current Euro rate situation.
The target 2023 is assuming what kind of a Euribor by year-end 2023?
An average of 200 basis points.
Okay. Thank you.
The next question is from Andrea Vercellone of BNP Exane. Please go ahead.
Good evening. One question and one clarification. The question is on your EPS target, both 2022 and 2023. I just wanted to make sure that these are clean EPS, so you have not included anything related to the possible disposal of the P&C or part of the P&C business, merchant acquiring and so on in either year. The clarification is on the sensitivity, the EUR 220 million for 100 basis points. Do you provide that guidance with the starting point, Euribor rate at 0.75 as it was in September or the current one at 1.5?
Thank you, and good evening, Mr. Vercellone. No, the EPS is compared with the business plan of 2023. We don't have any action one-off, any particular contribution from capital management transaction, but just, you know, line by line, the projection of this new environment of Euribor projected to the figure that we have reached up to now. We feel that basically, there is no one-off at all. It's a-
Mm-hmm.
The current situation projected to one year ahead with the new interest rate environment. Edoardo, for sensitivity?
Yeah. Sensitivity is being calculated using the models as they were in September. They are not updated with an evolution in interest rate. Just but the key sensitivity of the sensitivity, if I think to the deposit beta, the increase in the deposit beta from June to September was 3 basis points, which is worth EUR 30 million of sensitivity, just to give a ballpark.
Okay. Thank you.
The next question is from Adele Palama of UBS. Please go ahead.
Yes. Hi, good evening. I have one question on the asset quality detail slide. I see there's a decrease in performing loans. Can you explain what is driving that decrease on the gross performing loans? On TLTRO, sorry if you already mentioned it, but what's the plan, I mean, for the repayment? Are you planning any early repayment of the facility? On the deposit beta, can you please remind us what's the deposit beta behind your 2023 guidance? Last on LLPs, for the quarter, what's the amount of one-off in the total LLPs that you reported this quarter? Thanks.
I hope I understood all the question. Please, clarify if I am wrong in answering. No, the ratio, maybe, is because there is a decreasing bonus related to the repos activity, of course, not to the client, because you have seen that we are increasing the line for the client activity. This should be the underlying factor. TLTRO, we didn't, of course, as you know, it's very recent, the decision, so of course, we are changing all our plan, but it's very much possible that we wouldn't have any need for postponing the duration of the TLTRO. By year-end, we think that we can reimburse a consistent slice, I would say above EUR 10 billion, possibly, of TLTRO. Data behind 2023 is what I mentioned, 41 basis point.
LLP is one-off. No, in Q3 there is also only the. Yes, some of course, we have also always some maneuver on, you know, calendar provisioning impact, and also on increasing the coverage of our NPE stock. Is that all right?
The EUR million amount of that, one-off LLPs?
I wouldn't say that is a one-off, but it's around EUR 30 million.
Okay. That's all. Sorry, if I can add another.
Previous one. You mean the previous? Sorry, Adele. You mean the previous, the one in the first and second quarter?
No, no. The third quarter.
In this quarter, again, is not a one-off, but is some more provision due to the calendar provisioning and the increasing of coverage.
Okay. Sorry, if I can add another question, and apologies if you've already mentioned it, but are you planning to increase the govies portfolio? I mean, not specifically on Italian govies, but European govies, given the fact that has been down even this quarter.
Yeah. We are currently analyzing the various alternatives in the new rate environment and in the new TLTRO funding. We may proceed to very tactical investments, especially concentrated in amortized cost to exploit opportunities for carry.
Okay, thanks.
At low duration, low BPV.
The next question is from Marco Nicolai of Jefferies. Please go ahead.
Good evening. Couple of questions from me. First is on insurance. Given that the process of buying back the insurance is now well underway, how do you feel about the targets that you gave during the strategic plan, in terms of insurance business contribution to the PNL? And do you have, at this point, any idea of the potential synergy you could extract from the integration of these, two JVs? Also, you had EUR 14 million contribution to PNL from BPM Vita this quarter. What shall we expect from this line going forward? Is this kind of, you know, a target level, or we could expect even something more? Another question on the M&A strategy.
Also in light of the recent capital increase of Monte dei Paschi, I picked up obviously a few comments in the press on this, but if you could just give us an update on your view on M&A strategy going forward. Also if you could give us an update on Agos and how you see the consumer lending behaving in this inflation environment. On one side, inflation could be a positive, let's say, in terms of consumer lending, because volumes are kind of inflated as well. But at the same time, this is true only if consumer spending holds up. How do you see this trade-off, and what do you see for Agos contribution going forward? Thank you.
Thank you. Insurance. Of course, now, we have only one quarter in our balance sheet. Of course, we have to consider the full year, and we still feel that apart from the situation driven also by the performance of the bonds and the reserves of the insurance company, which are now performing very well. Likewise, I would say the bond in our portfolio in terms of valuation, but the level of contribution is still the one that we mentioned in the plan that is around EUR 29 million for BPM Vita, I think, per year. We can confirm that the level is this one.
Of course, it's completely going to change the total contribution that we gave in 2024, which when we did the plan was done including 100% of both the company incorporated into our bank. Of course, if we will decide to sell the P&C to some of the current bidders, we will give you a new guidance on the total contribution coming from the standalone business driven by ourselves and P&C business driven by the joint venture. Of course, our consideration is that if we go with a very competitive and professional in the bank insurance business is because we want to accelerate the results that we were forecasting when we did the plan.
Possibly what we lose in terms of contribution from the 100% will be compensated as much as possible by the speed of the pace of the joint venture driven by a professional insurer. Then M&A, and frankly speaking, I don't have anything to add to what I have said for many times, many years. I am very happy that MPS did its capital increase successfully. I'm sure that now they have to work on their business plan. Of course, I cannot say anything other than we were not interested before, we are not interested now, and we go ahead in our roadmap that, as I mentioned in the future that I expressed to you, we feel is very successful also on a standalone situation.
Agos, this was a record year for Agos, so up to now, things are doing very well. Of course, there is a bit of slowdown vis-à-vis the first half of the year due to the increase of Euribor. But at the same time, of course, as you were mentioning, this also the inflation give some opportunity to, you know, to invest in consumer goods. I think we don't have yet, of course, figures for 2023, but we expect a year which is at least like the one we had up to now.
The next question is from Luis Garrido of Bank of America. Please go ahead.
Yes, good afternoon. Thank you for taking my questions. I have two on capital, if I may please. Just on the Danish Compromise, do you have any visibility for when you might be getting the approval? You booked a benefit of about 30 basis points now. Before the approval, you hinted there might be a greater benefit in the fourth quarter. Is that right? How much benefit and by when exactly? That's the first question. Then the second question I had is, on your capital target and how you communicate around them. In the second quarter, you mentioned the 13% fully loaded guidance by year-end, including the Danish Compromise. You also mentioned, this MDA buffer target above 420 basis points by the end of the year. This is no longer in the slide now.
Should I take it that guidance is gone? If it is, what is the MDA buffer level that you feel comfortable with, going into a recession? Thank you.
Just on a general point, I will leave to Edoardo the precise number. We feel very comfortable, of course, both with 13% and 420 basis points. This is not something that we would like to have as a target in the future. It's very much, I would say abundant, especially if you consider the 420 basis points. We think this is our guidance for the full year, you know, going ahead, it's possible that we can use this capital. This is what we feel we can get by year-end.
On the level of buffer, the 15% target we gave is fully consistent with the buffer that was provided in last quarter. We thought the market was interested only to the capital, but we can confirm also the other guidance. For the Danish Compromise, what we have put now is a conservative estimate of the benefit of the Danish Compromise. The technicality behind the fact that we needed to have an estimate is that we haven't completed yet the PPA process for the stake in BPM Vita. Once this will be concluded, which is end of next quarter, we will be more precise in including a more accurate estimate of the benefit from the Danish Compromise. On timing, this is not under our control.
What we can say is that we submitted in June, July, sorry, the application for the financial conglomerate, which is a prerequisite for the Danish Compromise. We feel that the conditions for the financial conglomerate are, can be easily verified, so it's just a matter of, process management from the viewpoint of the various supervisors involved, which is not only ECB, but also, IVASS, the insurance authority. After the financial conglomerate status is granted, then, the organizational requirements, on the Danish Compromise, which are related to the ability of the bank to prove that it controls, in full the insurance, manages the risk, has a clear grip on the key processes.
This can be proved very easily from our perspective, at least because actually since the day one of the acquisition of BPM Vita, the company entered seamlessly into an integrated approach with the group adopting homogeneous policies, committees and risk appetite framework. We are not in a position to provide commitments for the supervisors. We are only in a position to provide confidence that the requirements are met.
Understood. Thank you.
The next question is a follow-up from Andrea Vercellone of BNP Exane. Please go ahead.
Good evening. Sorry, one more. I'm referring to the slide 23. Maybe this one helps answering all of the questions on 13% at the end of the year. Can you give us an update on your reserves on debt security at fair value, the number that is now relative to the -EUR 628 million as of the end of September?
Yes, thanks, Mr. Vercellone. Actually, let me first clarify that the 13% is based on an assumption that reserves are not changed, that the bond deals are not changed. In general, we don't have control on the further evolution of the financial market. We can commit the 13%, if there are no negative trends in the future level of reserves. What's happening in October is that we are very close to this, to the level that we are showing here, the 6%-8%, and the number that we have today is, I think.
Gentlemen, there are no more questions registered at this time.
Thank you, everybody. I'm glad that you would have all the information we were providing. Of course, Mr. Peronaglio and IR team is available for any other clarification. Thank you and good evening.
Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones. Thank you.