Good afternoon. This is the close call conference operator. Welcome and thank you for joining the Full Year 2022 of Banco BPM Group Results. 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 Mr. Roberto Perognaglio, Head of Investor Relations. Please go ahead, sir.
Thank you very much. Good evening everybody, to be here with the presentation of full year results of 2022. As usual, before leaving the floor to Mr. Castagna for the presentation, let me remind that you can find the presentation on our website on the relation page and the Q&A section is reserved for only for financial hand. Thank you very much. I leave the floor to Mr. Castagna.
Thank you Roberto. Good evening, everybody. Thank you for being with us for the 2022 full year presentation of Banco BPM. We are very happy and proud to present this full set of very good results, which are basically our record in our six-year history since the merge between the two banks. We have reached a net income over EUR 700 million and adjusted net income of EUR 886 million. A ROTE of growing from 5.5%-7.4% with a cost income down from 56%-54%. A further reduction in gross NPEs down from EUR 6.4 billion-EUR 4.8 billion, reducing the gross NPE ratio to 4.2%.
Vis-à-vis the guidance we just gave you three months ago in November for the Q3 presentation, we are able to present a set of better results, starting, of course, from a better NII growing to EUR 2.3 billion versus EUR 2.2 billion, which of course, leave the total revenues to EUR 4.7 billion, always EUR 100 million better than we expected with the same operating cost and pre-provision income EUR 160 million better than the expectation. With the loan loss provision slightly below what we expected, we are able to present an EPS of EUR 0.46, vis-à-vis the EUR 0.45 that were our guidance in November last year. Also, very good and strong Common Equity Tier 1, well above our 13% guidance at 13.3%, including the effect of the Danish Compromise.
As we announced the distribution of 50% of our net profit will lead to a DPS of EUR 0.23, which is 21% better than last year. On page seven, I would like to give you a very quick remind of the last 6 years into the merger of the banks. We had basically three years of full restructuring of the bank, reducing NPEs from 24% - 9%, starting 2017 up to 2019, and also with a very effective cost reduction down EUR 400 million in the first three years.
Starting basically, apart from the 2020, which was affected by the pandemic, starting from 2021 up to Q3 2022, we presented a very steady improvement of our results, both in terms of core revenues and pre-provision income, always bettering, but with a very constant pace of results. Improving also our efficiency, thanks to the bancassurance deal that we performed this year and the effort we have done during this year in digital transformation and with a full ESG focused approach. In Q4, we, thanks to NII, we have a new acceleration in our trajectory.
We basically, thanks to these Q4 results, we are able to present core income at a level which is already better than our expected result in 2023 and 2024 of our current business plan at EUR 4.2 billion versus EUR 3.9 billion, expecting 2023, and EUR 4.1 billion, expecting in 2024. The same is for pre-provision income at EUR 2.2 billion versus EUR 1.9 billion, EUR 2.1 billion, with the loan loss provision already reaching the target of 2023, with a further room of bettering 10 basis points to reach the target 2024. With this set of results of Q4, we are even more comfortable in repeating our guidance of more than EUR 0.60 for 2023, increasing the EUR 0.49 which were originally targeted in our strategic plan.
Just to remember some of the move that we have done in terms of bancassurance, you know that we have already acquired Banco BPM Vita, consolidating line for line since Q3 in our budget. We are in the way to be recognized as the financial conglomerate, which is a precondition to obtain the Danish Compromise. We have concluded an agreement with Crédit Agricole in order to have a new joint venture for the P&C bancassurance business as soon as we will have also exercised the option to buy 65% of Vera Vita and Vera Assicurazioni expected by year-end 2023. In terms of digital, we have reached very good results. Starting from pre-pandemic, we were at only 11% of remote and digital sales.
We have already reached 35% with a target of 50% of our strategic plan for 2024. The same apply also for the transaction concluded by app, grow 3 x in the last three years. Also in terms of ESG-focused approach, we are very proud to announce that this year we have granted green new lending for EUR 11 billion. We have done very significant issuance of social and green bond from 2021 to Q1 2023, EUR 3.3 billion, which is the first issuer among Italian banks, already above the full target for the strategic plan 2021-2024. Also in terms of people and community, we have reached a lot of the accomplishments that we had in our business plan.
Let me just stress the new hiring of almost 750 people, 90% of which below 30 years. Also very important for us, the increase in women in managerial position, 15% year-on-year. As far as the numbers on page nine, let's concentrate on Q4 and full year results. In Q4, there was an enormous increase in NII, driven by the capability to keep the deposit costs very low in front to the new pace of Euribor. Commission were slightly below, which is quite normal in our Q4, and we believe that we can recover this previous pace starting from Q1 2023. All in all, net fee and commission and NII stands at 14.3% above last year.
Meanwhile, only NII was 31% above last year. Total revenues are still 10% above last quarter, with the pre-provision income after operating cost slightly above the Q3 at EUR 650 million, with pre-provision income 18% better the last quarter. After loan loss provision and fair value on tangible asset, we had a profit from continuing operation pre-tax at EUR 333 million, 14.3% better than Q3, and the net profit from continuing operation 15.8% better than last quarter, with a net income due to the lower contribution to the systemic charge in Q4, amounting to 93% better than Q3 at EUR 210 million vis-a-vis the EUR 109 million of Q3.
As far as the full year, we have a 13% increase in NII, a 6% increase in NII and net fees and commission, with a further increase of total revenue, so almost EUR 200 million to EUR 4.7 billion, vis-a-vis EUR 4.5 billion in 2021. Operating costs were almost in line to EUR 2,539 million, we have a pre-provision income of 8.6% better of last year. Loan loss provision much better, EUR 200 million lower than last year, which leave our profit before tax to EUR 1.3 billion, versus EUR 920 million in 2021, which is a 42% better results.
After taxes, EUR 900 million is 35% better than last year. The full result net income is EUR 703 million, 23.5% better than 2021 results. Revolution, ROTE is on the adjusted data is 9.3% versus 6.9% 2021, with cost income going down to 54% versus 56.6% of last year. Let commence on page 10. The main factor for this increase, of course, is the strong rate sensitivities to support the growth that we have realized, but even more the faster growth we think we can be able to realize in the next quarters. As you know, the ECB level facility grew 300 basis points up to 2.5%.
We have currently a Euribor, which is in line with the facility. Our sensitivity went down to EUR 220 million - EUR 160 million, mainly because of the increase of deposit beta, even though as you can see on the right side of the bottom part of the slide, our cost of deposit is still very much below the beta that we consider in our sensitivity. We have a beta at 46%. Our deposit base is still at 37 basis points. All in all, the new guidance for 2023 for NII will be EUR 2.7 billion, higher than EUR 2.7 billion, EUR 200 million better than the previous one. We have still continued on page 11 to support our client.
We have increased 3.3% our core customer loans. The pace of the business plan is 3.1%, we are very well in line with our expectation. Even though, since H2 2022, we are very cautious in granting our loans to our client, preferring, of course, to be concentrate on the better client, quality of client and in loan guaranteed or by collateral or by guarantee of the state. The geographic distribution of our loans give you an idea of the quality of our asset book. 75% is concentrated in the North of Italy, 18% in the center, 5% in South and Island, and 1% in the rest of the world.
New lending was very high, increasing 17% from EUR 22.7 billion-EUR 26.5 billion, mainly due to the growth in corporate enterprises small business segment, which grew EUR 4 billion from EUR 18.5-EUR 22.8. A small reduction in the households from EUR 4.2 billion-EUR 3.8 billion, mainly due to the lower performance in Q4 for mortgages impacted by the increase of the interest rate. The safe profile of new lending is bettering also our asset quality book, increasing the lending reserved for low, medium risk to 96%, with only 3.4% in mid high risk and 0.6% to high risk, mainly, of course, collateralized or guaranteed by state guarantee.
Gross NP ratio down to 4.2% from 5.6%. In terms of net NP ratio, we are at 2.2%. With the EBA definition, we would be below 2% at 1.9%. The total de-risking of this year was impressive, including of course, EUR 1 billion of new inflow in non-performing. We were able to reduce EUR 2.6 billion, outperforming the guidance of EUR 2 billion we gave for 2022. Mainly, the vast majority are due to the workout activity. We also were able to reduce in Q4 a significant amount of single names disposal with no impact on cost of credit because of previous provisioning.
As you know, we have also up-fronted additional disposal for almost EUR 500 million in the plan horizon, which we are confident to be able to do in 2023, mainly bad loans and small tickets. Overlays grew to EUR 163 million from EUR 125 million of September 2022. On page 15, another clear evidence of the impressive de-risking and solidity of our capital position, comparing the figure before at the time of the merger and the current one.
As you can see, we started at 11.4 of Common Equity Tier 1, and now we are at 13.3, as well as the Common Equity Tier 1 buffer versus minimum requirement of MDA, it was 160 points, now it's 464, with an increase of more than 300 basis points. Excess ratio down from 160% - 20%. An impressive dynamics in reduction of NP, which started from EUR 30 billion, including the inflow in these six years. The de-risking was EUR 33 billion, leading to EUR 4.8 billion, which is the current NP situation. Let's go to some main figure of P&L. NII, again, a strong growth, supported mainly by the commercial spread.
Split the increase to EUR 724 million is due mainly to commercial activity with client and bond portfolio income, which experienced an increase in the yield. Of course, there is a reduction due to the TLTRO net results, which is negative for EUR 66 million, mainly due to the cost of deposit facilities. All in all, we think that EUR 724 million is also been impacted, if you want, from the older regime of TLTRO, in place until 22 of November. If we eliminate the advantage of this contribution for the first 50 days, the Q4 pro forma would be EUR 650 million.
The commercial spread grew more than 100 basis points, mainly due to the liability spread, which of course increase almost in the same proportion of the increase of Euribor from 33 - 141 basis points. Net fees and commission on page 16. Good results in terms of commercial banking activity, driven by fees on lending +15% year-on-year, payment service +9% year-on-year, credit cards +18% year-on-year. These results were able to more than offset also the higher cost of the Cards synthetic securitization, which impacted the negative for EUR 21 million. In terms of management, intermediation and advisory fees, we have a reduction of slightly below 5%, impacted also by the Q4.
As I mentioned before, the product placement activity for the full year 2022 was much lower than the record activity in 2021, in which we placed more than EUR 18 billion of product. This year, we stood at EUR 14.8 billion with a reduction from Q1 to Q4, from EUR 4.5 billion - EUR 3.1 billion. As I mentioned before, already in January, we grew again to EUR 1.3 billion. February started even better, we are confident that we can go again at a very good pace towards the record of 2021. Operating costs on page 17.
Like for likes, I mean, excluding the cost associated to the insurance, we have almost matched the cost of 2021, notwithstanding the inflation dynamics, thanks to the staff costs. In staff costs, thanks to the early retirement scheme, we were able to reduce almost EUR 70 million the cost of the staff. Meanwhile, we grew EUR 40 million in other administrative expenses, especially as cost of energy and maintenance, inflated cost. We have a one-off cost in D&A, especially in Q4, which is not replicable in future quarters and should lead again towards EUR 70 million per quarter the pace of the D&A cost.
If we add to the banking business cost the insurance cost, we grow from EUR 2.524 billion or EUR 15 million to EUR 2.539 billion. We are coming back to cost of risk. The core cost of risk is very similar to last year. It's 52 basis point versus 55 last year. In absolute terms, there is a reduction of 23%, mainly to do the contribution of the disposal that we have done during these last two year. Let's say that out of these cost of risk, only half of this is related to cost of inflows of new NP.
Meanwhile, the rest is the maintenance of the portfolio and the cost of the reduction in the volume of NP. The default rate, as you know, for 2022 was very comfortable at 0.94%, basically the same of 2021. Danger rate almost the same at 10% with a very remarkable workout rate, which was almost 30%. If you exclude some single name transaction operating in December, it's 22.7%. Still a very good pace of workout considering the reduction in volume that we have NP. Coverage ratio increased in terms of bad loans in one year of 620 basis points.
There is instead a reduction due to the disposal of single names in UTP from 44% - 40.3%. This comes together with the reduction of the vintage of UTP of 25% from 4.4 year - 3.3 year. All in all, total NP registered an increase of 170 basis points year-on-year. Some indication about some structure and quality of our portfolio. After this intensive activity that we had in the quality of our loans, we have that now the total of our household non-financial companies, which is EUR 91 billion for 67.7%, is either collateralized or state guaranteed. Precisely 19.4% is state guaranteed.
If we exclude the households, only relation with the non-financial companies, this rate increased to 28%. 28% of our non-financial companies loans are guaranteed by the state. If we even better, if we go to, let's say the potentially more risky loans to small SMEs, in this case we build this from 10% of state guaranteed to 42% with a total collateralization at 72.6%.
We have also concluded our early engagement campaigns on the company affected by the increase of energy and raw material. It was a very good output, because out of around EUR 10 billion of related to 7,400 clients, 90% of these are in the better classes of our portfolio, have not experienced any problem from the increase of this cost.
We have classified prudentially EUR 1.8 billion at Stage 2, but there were EUR 2.5 billion in September, so we are already experiencing some exit from Stage 2 to Stage 1, and we have classified only EUR 150 million or at MP, which is a default rate in this category of 1.5%, which is of course above the total default rate, but is completely under control. Let me give the floor to Edoardo Ginevra for some consideration on funding bond portfolio and capital.
Thanks a lot Giuseppe, good evening everyone. On funding and liquidity, page 20 on the top left, shows the intense activity that we had as issuer and especially in the green bond category, where we have been the top issuer in Italy during 2022. The total of our issuances reached EUR 2.75 billion, of which more than EUR 2.05 billion with green features. This has also continued during the first month of this year with an issuance of a senior preferred, again with green features for EUR 750 million. Rating agencies have provided a positive recognition of our progresses during 2022, with DBRS upgrading our main ratings by one notch in October.
Fitch, giving us the first rating in the first part of this year, and Moody's also in May 2022 upgrading all the main ratings throughout the respective ratings. In total, our funding position is characterized by almost EUR 104 billion of current account and deposits, of a position with ECB, which is delta of EUR 26.7 billion, net position of EUR 14.5 billion. Worth also mentioning that on average, in January, our net position has been around EUR 5.6 billion because of the optimization of treasury activities. Liquidity position is made up of almost EUR 38 billion of cash and unencumbered liquid assets, of which EUR 21 billion is ECB eligible.
Liquidity and funding ratios are well above the comfort zone with SCR above 190% in progress versus the September 2022, and CFR above 100, meaning requirement of 100%. Page 21, position in terms of debt securities portfolio. This has increased in December at EUR 34.9 billion, but this has been concentrated in the amortized cost component, which rose from EUR 21- EUR 25.5 billion. Composition of this increase is focused especially in core Europe with Italy playing covering a smaller part. The amortized cost component, which is fully hedged, fully covered, protected from any capital impact, is now at 73% of the total. On the right part of this slide, you also see that the share of Italian govies remains below 40%.
It's at 36.7%, whilst the rest is 63.3% non-Italian govies. Bearing in mind that at the beginning of our journey in end of 2016, more than 99% of the portfolio was made of Italian govies. Page 22, some color about the capital and P&L impact of the bond portfolio. In stability. Overall, the level of the markets at the end of December was very similar to the end of September, this explain the fact that reserves stayed more or less at the same levels, at EUR 626 negative. The progress in January, the net level, for example, as of the end of January was EUR 550.
Net financial result was slightly negative for EUR 9 million, this because in the stability, with the stable level of December, we didn't have any longer the impact that we had in the previous quarters of hedging contract that created positive income as opposed to the negative behaved negative trend of reserves. Also with an influence of such items as Nexi, which as you know is kept at fair value and contributes to the net financial result. The contribution of the various geographical areas to the level of reserves is shown in the pie chart on the left, in the bottom, with Italy contributing for only 15%, 52% made of core EU govies, US 21% and 12%.
Meaning that most of the level of the reserves, 85% basically, is attributable to pure rate effect and not to credit effect. Capital sensitivity has been significantly reduced in the end of the year, declining from 2.6 - 1.2 million per basis point, with negligible contribution of Italian govies as well, also shown here. Capital position, now page 23. We had given a guidance by, in the end of, in the previous quarter, to end the year at 13% after Danish compromise, performance for Danish compromise, and this has been more than respected, as shown by the capital work in the top part of the page.
We closed the quarter at 13.3, actually starting from 3.4 adjusted CET1 measure adjusted for Danish compromise. Basically, team performance contributed for 36 basis points. Dividends, negative contribution for 20 bips. Balance sheet management, mostly, synthetic securitization, positive contribution for 22 bips. Other mixture of elements, 7 bips. The total before Danish, 3.5%. After Danish compromise, it is 13%. The impact of Danish compromise, you may remember it was conservatively estimated in 34 bips, three months ago. Now, after the conclusion of the PPA process on Banco BPM Vita is quantified in 51 bips.
On top of these elements, there are additional 33 basis points from the removal of the current provisioning deduction, which went from the market in December after the swap, the conclusion of the SREP exercise from ECB in 2022. The total now is 13.3, or 3.8 stated before the Danish compromise. Again, 13% has been reached even before the removal of the current provisioning reduction. Few comments on the remaining part of this page. Tier 1 and total capital are well above minimum requirements, respectively at 15.6 and 18.6. The buffer, both with respect to the minimum capital requirement is the CET1 requirement. With respect to the total capital requirement is 464 basis points. In this case, again adjusted for the Danish compromise, with all the buckets of Tier 2 and Additional Tier 1 feed. I give the floor again to Mr. Castagna for the conclusions.
Thank you Eduardo. Very briefly, the page 24 is related to the recap of the very good results of this year. Net income at record level, both adjusted and stated. A very good trajectory in NII, which will lead to an increase in our forecast, reflecting also the increase in pre-provision income and in the net results. Cost income down as well as cost of risk with the core cost of risk at 52 basis point. We continue with the de-risking, reducing at the level we already anticipated the stock of NP, and we are very comfortable around 4% and 2% in the net NP ratio. Also capital was better than expected, as Roberto mentioned, at 13.3%.
These allow us to reach the EPS of EUR 0.46, which is slightly better of the November guidance and EUR 0.23 of DPS. Let's go on page 25 to remark the guidance and the outlook for 2023. We think that with some potential further increase due to the interest rate, we can have some better performance in net interest income. Meanwhile, we think that net commission will be broadly in line with 2022. We have also adopted prudent assumption to NFR results because of the lack of the contribution of disposal of govies that we had with the positive reserves in 2022. Meanwhile, now the situation is the opposite.
We are recovering, of course, we are having better results impacting the Common Equity Tier 1 from the govies, but we do not expect a contribution, a consistent contribution in profit and loss. As far as the contribution from bancassurance, of course, 2023 will be important, but due to the different extraordinary transaction which will lead us to buy the 100% of Vera and then start the new joint venture with Crédit Agricole, we feel that the most important part of the contribution will come, as we expected in our strategic plan, in 2024.
Operating costs, we will do our best, considering the inflation, and the new contract, labor contract which will be in place in 2023 to contain the inflation, at least at half the level of the inflation expected, we think we can be able to contain the cost increase of below 3%. We had also some prudent approach vis-a-vis to the cost of risk due to the potential increase in the default rate due to the macroeconomic assumption. Again, we see some upside from a better macro environment, which could be possible if the forecast for the GDP and the default rate will be better than we expected a few weeks ago as it looks.
We feel confident in giving, again, our guidance of EUR 0.60 for 2023. We also feel that these elements can allow us to give you some long-term sustainable P&L piece of growth. On page 26, on the left, we see the roadmap we have done this year and last year. The forecast for 2023 increasing the EPS from EUR 0.49 - EUR 0.60. We also think that due the key drivers that now looks like able to support a better macro scenario with a strong NII, a cost of risk normalization. As far as we are concerned, that full bancassurance deployment, we could be able to increase also the strategic plan guidance for 2024 from EUR 0.69 - EUR 0.75.
This pace of increase could be extended also to 2025. The management team is very confident as we were when we announced the guidance for 2022 and 2023. Now, of course, we will, we have also the renewal of the board in April. In the second part of the year, it's possible that we will review officially the business plan we have out until 2024, possibly extending to 2025. Again, the long-term outlook for now, for the time being, allow us to give some better guidance already in advance. I have done with the presentation. If there is some question, I leave the floor to you.
Excuse me. This is the conference call conference 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 your question from the question queue, please press star and two. Please pick up the receiver when asking questions. The first question comes from Antonio Reale of Bank of America.
Hi, good afternoon everyone. It's Antonio from Bank of America. I have three questions, please. One on NII, the second one on your EPS guidance for the full year, and lastly on capital returns. The first one, on deposit betas, please. You're market leader in parts of Northern Italy, and you've decided to sort of take a conservative stance with respect to deposit beta using a 46%.
Can you tell us what you're seeing from competition and what you're seeing from your client base when it comes to deposit pricing, where deposit betas are today in your portfolio, and give a sense of the upside to your NII estimate? I see slide 15, you provide the liability beta, which I don't think is a good proxy for deposit beta. If you can share your evidence so far, that would be very useful. Just checking, doing back of the envelope numbers using your slide 10. On a Euribor of 3% and deposit beta that is close to 40%, you'd be close to an NII number of about EUR 2.9 billion. I'm just wanting to check if it's something that resonates with your figures. That's my first question.
The second one, on your EPS guidance for 2023 and 2024. You got it to above EUR 0.60 in 2023, and you flagged that you have an ambition to be at EUR 0.75 in 2024. If I take your NII guidance for this year with your comments on asset quality, can you just help us with that bridge in 2023? Because again, based on what you said, it sounds like you're gonna be above that EUR 1 billion of net profit this year already. I just wanted to check some of those numbers with you. Lastly, just to understand your message on capital returns. I think you have good visibility on earnings. Your CET1 level is close to 14%.
Your NP ratio is below 4.5, which is a remarkable achievement. I wonder what prevents you from increasing shareholders' remuneration here. You've not shied away from being more ambitious on this point in the recent past. I wonder what we need to see or what you need to see to increase dividend payout or introduce share buybacks. Thank you.
Thank you Mr. Reale. Starting from NII, I hope to have understood your question. We say that we have reduced the static NII sensitivity from 120 -1 60 because of the beta, deposit beta assumption, which of course meanwhile the interest, the Euribor go up, of course are a bit more aggressive than before. Now we think that the beta, the new beta could be 46%, vis-a-vis 40% that was in the previous forecast. The current level of cost of deposit is very much below because we are around 35, 37 basis point. As far as the competition, of course there is some few requests for increased deposit, but remuneration on deposit.
Please keep in mind that we have almost three quarter EUR 75 billion, EUR 20 billion, which are very much spread out in our retail customer base, with no major volume at stake. We are following very closely the corporate and institutional, but up to now looks like all the banks are keeping the same attitude to leverage on a deposit cost, which is up to now at a very low level, and we expect it to remain at this level for the next months. We will, if the interest rate will go even higher, there would be some impact, but in any case, lower than the advantage of Euribor in price.
In terms of guidance, now, we already gave some update in September on 2023 because as you know, we have out a strategic plan targeting 2023 and 2024. Of course, now we are a bit more confident because of NII and also of the global scenario. You will remember that a few months ago there was a much gloomy attitude towards the macroeconomics in 2023. Now we are beginning the second month of the year, we still don't see major inflow in NP. We still see a good attitude in our client to invest, to borrow money. We feel that at least for the first part of the year, this shouldn't change.
We are a bit more confident that of course having a prudent approach, of course, in terms of cost of risk, so this on the other side could be interpreted as a buffer for potential increased results. This could be a good, even a solid part of our forecast for EPS. This time we are also, I wouldn't say updating the plan because this will be done formally when we will review the plan, but given the situation as of today, we feel that we can increase the expectation for same pace of growth also for 2024 and going ahead. Again, it's still not a review of the business plan that we will most probably do by the end of the year. Capital return, again, this is step-by-step approach.
In the business plan we had 40% of return for shareholders. Now we increase to 50%. Let's maybe 2023 could be a good year to change our policy. Let's check and see if we can reach these results, and we will take a decision during the year.
Thank you.
The next question is from Giovanni Razzoli of Deutsche Bank.
Good afternoon to everybody. A couple of clarifications on the capital work. The removal of calendar provision deduction should come automatically, so shall we take them as a grant that you already applied for them, or shall we still wait for some, you know, regulatory steps? Another question again on the capital and on the regulatory, it means that most of the banks adopting the IRB models are recording in these days. What do you expect in 2023? We remember that you still have some adjustments in the last few years, so I was wondering whether there are any, you know, plans, projections on something for changing the input parameters of the IRB model as a result of some regulatory pressure.
Again, another question and the last one, on the 2022-2023 guidance, I will try to rephrase what the colleague is saying. You're basically, let me put it more simple. You're basically guiding a net income from more than EUR 2.5 billion to more than EUR 2.7 billion, which gives us something like EUR 150 million of higher, you know, pre-tax profits, given or take. The EPS guidance remains above EUR 0.006 as a net line number, but in my view should become more than EUR 0.007 of EPS or else be equal. Is my understanding correct, or is there something that we have to add, and so not everything is equal? Thank you.
Hello. Good evening Mr. Razzoli. No, it's not automatic. As you know, we were the only bank to, basically, I think the only bank to deduct the calendar provisioning from the Common Equity Tier 1. Meanwhile other banks choose to have a slight increase in the P2R. We are in the Q2, In Q4, we are doing the same approach of the other banks, we have decided to, with the SREP, we had the impact on P2R, and of course we are recovering on Common Equity Tier 1. As you can imagine on the impact of P2R, there is also the relief that is not 100% but 56% because of the different mark.
No authorization is needed for these kind of things, but we think we will stay the same way. The first time we didn't know what the other banks would have done. Now we are at the same level of the others. I didn't get exactly what you mean for a much higher tax rate. Of course, there is an increase in Euribor. We are considering in the guidance only 50% of increase in Euribor, which already applied basically because it's 250 basis points. Of course, as I mentioned before, if there would be some more increase, we have to consider this increase. That is only a guidance. You know, the inflation is going some way. The GDP will go some other way.
For the time being, we think that we have a solid base to say that we can reach the 60 basis points. Of course, as I mentioned before, we have from one side some room in NII and in cost of risk. On the other side, we have to be very good at replicating the commission at a higher level and to keep the cost at the same pace of 2022.
Thank you.
The next question is from Christian Carrese at Intermonte.
Yes. Good evening. Thank you for taking the questions. The first one on net interest income. I was wondering if you can elaborate a little bit on what kind of loans growth you have in your projection. If you had to take the net interest income in fourth quarter net of TLTRO effects, so the around EUR 650 million as a starting point for 2023. The deposit beta, I maybe I missed the data. If you can tell us what is today the deposit beta. The second question is on cost of risk. I saw that the coverage ratio UTP went down this year.
If you can give us an idea of the cost of risk, because I didn't get if you are planning a cost of risk flattish compared to last year, maybe the core cost of risk around 50 basis points, or if you can give us an idea, a figure on that, and if you want to keep some buffer to maybe to rebuild some coverage on OTPs. The third question is on fees. We read on paper the proposal on a potential ban on this month. If you have done some homework to see what could be the impact, and if you can change the model, maybe in to become more advisory fee to offset any potential impact from that.
Finally, in some rumors on internal models update by ECB, we saw some banks, some relief this quarter. You have done some securitization to boost capital. What are the regulatory actions that you have in mind for 2023? Thank you.
Lots of questions. Good evening Mr. Carrese. Yes.
Good evening.
The first answer is, yes, you have to. If for having a proper quarter, you have to reduce by EUR 80 million the contribution of 2000 of Q4. At the level of Euribor that was during the Q4, which was consistently below the current Euribor. Deposit beta, it does not change basically every day, as you can imagine. We just in the possibility to have further increase, when we were doing the presentation, we had 50 basis points of increase, then there is a forecast to add 50 basis points. We thought it would have been prudent to increase the deposit beta to 46%. Cost of risk, as I mentioned before, we have.
Maybe on loans growth, what you expect?
Yes. You're right. You're right. You're right. You're right. Sorry. Loan growth. No, we do not expect a massive loan growth even though, you know, we are very well-based in order to increase our loan book. Basically even though as in 2022, we have not pushed, especially in the second part of the year to grow. We have been able to grow more than 3%, which is basically in line with the business plan. We will be much more attentive to the quality of our asset. Again, for very good client for, we will continue for sure to have all the opportunity given by the guaranteed loan, but we are not pushing either in terms of being aggressive or in terms, even more in terms of asset spread.
We'll be very attentive first to the quality of the portfolio, secondly, to the contribution of the portfolio. I would say that it's impossible for us not to grow, but we wouldn't push to grow a higher pace as of today. Cost of risk. We have assumed in the macro environment a deteriorating of the potential inflow of NPE. We think as of today, which that is a prudent approach, but nevertheless, we think it's prudent to consider that the default rate could be higher. This again will be a potential upside if the situation continue the way it is right now. 50 is a normal cost of risk, but I wouldn't say that in our consideration we have considered 50 basis point. I don't have an answer for the impact of the fees if they change the regulation.
Maybe on the asset quality, do you want to increase the coverage duration on the unlikely pay, or do you think it is an adequate level, the current one?
UTP, we grew, we wanted to be more or less at 40%. We grew at 44 beginning of the year, end of last year because we had the Argo transaction to perform in Q1 2022. It was something that immediately went down to 40% again, and we are now considering this coverage to be good also because we don't have that much UTP to dispose. We have just to work out. Again, we have some potential disposal to do, but we imagine more on the bad loan side and on the small ticket. I wouldn't expect a major increase in UTP. May I go ahead?
Yes. Yes. Thank you.
For the fees, the new potential, new rules on the fee, frankly speaking, we don't have any sensitivity because it's still under discussion, something that we don't know if really will be applied. We have to consider, of course, in that case, how it works in the different business of life insurance or asset under management. We have, I think, nowadays, all the means to be able to switch to better situation, whatever regulation could happen. Frankly speaking, we don't have yet any forecast on that. Sensitivity we have done on the future year is, of course, with the current rules.
What else? Model update by ECB, we have done, of course, you know, some securitization this year. We will do our other securitization also next year. Because as you know, the effect of securitization lasts for a couple of years, so, as soon as you start in two years, you have also some basis point coming back. For sure in 2023, we will continue to do securitization. Because as you were mentioning, there is this flavor or possible edge in the, on the model. We are on the way, we are confident that we have been approved our model well very recently after the merger. Of course, we are well aware that ECB is again doing another spec of level playing field. We will see what happens. I think we have enough room to be safe on the, on this respect.
Thank you very much and congratulations on the results.
Thank you.
The next question is from Noemi Peruch of Mediobanca.
Good evening. Thank you for taking my questions. I, my first question is on NII and again on deposit beta. I just wanted to check whether the 46 deposit beta was also applied to your 2023 guidance or just the sensitivity. On the deposit, in decreasing deposit beta, did you change it because, based on historical data or your future strategy on deposit pricing? I have a question on fees. If you could give us an estimation for the potential impact of the removal of the deposit fees linked to negative rates for 2023. Also, I wanted to ask on insurance, was there a one-off in Q4, or can we consider the Q4 as a run rate for 2023, of course, before the buyback of Cattolica? Thank you.
Yes. Good evening Noemi. Good morning, Ginevra. On deposit beta, we applied to the approach for 2023, basically using a model where beta is consistent with the figure we disclosed in this presentation, which is quite more conservative, much more conservative than the recent historical experience. Nothing comparable to what we have observed in our cost of the deposit base throughout the most recent quarters. For insurance, what happened was that we needed to restate the insurance contribution because we were forced to apply the IFRS 9 rules for the calculation after the fact, following the fact that we haven't been granted the financial conglomerate yet. The financial conglomerate is a sort of rationale for getting an exception that allows you not to apply the IFRS 9.
Applying the IFRS 9 led us to restate the accounts. In general, I think that what we achieved throughout the two quarters, so the total of the H2 of this year is a good guidance to understand what can happen in the near future. Noemi, I take again, the floor. For the fees, the estimates of the maneuver we have done to give back to our client the impact of negative rates is around EUR 50 million. On top of that, we have other fee for the new securitization we have done, which will be another EUR 20 million every commission. When I say that in our guidance fees will stay flat, that means that we have to recover at least this EUR 70 million.
Thank you.
The next question is from Manuela Meroni of Intesa Sanpaolo.
Yes, hello. Thank you for taking my question. The first one is again on your guidance on 2023. You confirm your over 60% guidance, while the NII is increasing by EUR 200 million in terms of guidance. I'm wondering just to understand if there are some elements of the P&L that you expect to be weaker than originally planned, or if we have to read these over EUR 0.60 guidance as well above EUR 0.60 guidance, EUR 0.60 per share. The second question is on IFRS 17. I'm wondering if you expect any impact on your insurance business from that.
Thank you. Yes, of course, the guidance of NII is higher than the previous one. We didn't have at that time all the different contribution, for instance, for NFR, which is very much reduced the, because of the reserve, negative reserve. So it's very difficult to consider a contribution of EUR 200 million for 2023. That's why we have a prudent approach on that as well, as I mentioned before, a very prudent approach on cost of risk. Basically, we have possibly some room in NII. We will see if this will bring to something better than our guidance. Again, the guidance was one month ago. Two months ago.
I think that is, already an increase of EUR 0.11, vis-a-vis, the business plan. We think it's very comfortable guidance for our investor with some room if the macro situation remain, as it is, as well as it will be in 2024 and in 2025. Sorry for the second question. I didn't get it.
I think.
Maybe Eduardo.
Yeah. On the second question, for insurance. What happened this year reflects the fact that we have acquired 100% of Banco BPM in July. Until that date, for the H1 we only included 19% of net profit in our accounts. Next year, 100% of Banco BPM will be included, and this is fully factored into our guidance for 2023. On top, as far as the Vera JVs are concerned, that guidance reflects conservatively the contribution from 35% of these two shareholdings. If we exercise the call and we start owning the full amount of the Veras for the remaining part of the year, for example, let's say second half, this will be a positive support, additional support for our guidance. Did I answer the question?
Thank you.
The next question is from Andrea Lisi of EQUITA.
Yeah. Hi, thank you for taking my question. The first one is on the indication you give for 2024. If the assumption on market rates are the same than in 2023, so Euribor at 2.5. The second one is just to understand so that the Stage 2 loans decreased from EUR 13 billion - EUR 10.9 billion. If you can provide some color on that or why this movement and if it had a positive impact on loan loss provision in the quarter. Thank you.
For 2024, I would say the environment is the one that we are experiencing right now, so the potential increase of factor, further 50 basis point. Of course, a macro scenario, which will be, let's say close to zero in 2023, with an increase in 2024. The positive impact on this quarter for MLPs on Q4.
I observed. Yeah, sorry.
Basically, it's almost on the average of the other quarter. I didn't see a particular.
No, just saying, observing that the Stage 2 loans decreased. Just to understand the reason why that if that generated some release of loss provision in the quarter.
No, no, there is no recovering of any provision. I would say in the Q1 and Q2, we had EUR 150 million per quarter, then EUR 194 and EUR 185. Quite consistent, I would say.
Okay. Thank you.
The next question is from Hugo Cruz of KBW.
Hi. Thank you for the time. I have three questions. First, on trading income, it's been very volatile. Can you give guidance for the recurrent level that you can generate to trading income if we ignore the impact of Nexi stake? Second, on the bank insurance revenue. Perhaps I had some problems in my connection, but I didn't actually get your guidance for 2023. I did hear that that guidance does not include the benefit of exercising the call options later in the year. It'd be great if you could give me, you know, what's the target revenues that you have in your guidance for 2023, but also if you have, you know, the full run rate of the bank insurance business, assuming an exercise of the calls.
My third question is on operating costs. You said you expect to keep the costs growth below 2% year-over-year in 2023. You know, that's below inflation. You know, there's an uncertainty around what would be agreed with the unions later in the year. Why are you confident that you can keep costs growing below 2%, and what levers do you expect to use to get there? Is it further redundancies? Are there any investments in that happened in 2022 that are not gonna be there anymore in 2023? Any color here would be very helpful. Thank you.
Okay. concerning trading income, of course, very difficult to provide an estimate. It depends a lot on the market environment. What happened during 2022 is not to be assumed as regular guidance because we took in the trading incomes some benefits which were related to the hedging of the trend in survey comprehensive income results. Let's say that we tend to be very prudent in defining the target for trading income during this year and for a level which is that has been included in the guidance that is extremely conservative, very lower than the average you have observed in the previous years during the previous years of the history of the bank, of the recent history for the bank.
For bancassurance, probably the best thing to say is to provide guidance on the contribution on the overall contribution to P&L in terms of net profit, which is I would say because for revenues and costs, it will depend on the exercise of the call for the variance. The order of magnitude of the contribution to net profit is between EUR 30 million and EUR 40 million.
That EUR 30 million-EUR 40 million is that assuming the full, the exercise of the call options or not?
It's not presuming the exercise of the call option and also including the full result of the non-life. The actual result will depend on the timing of the exercise of the call and on the timing of the closing of the agreement with Credito Cooperativo.
All right, thank you.
I think your last question was on the operating cost. I said, frankly speaking, I said below 3% and not 2%. Again, it's a very, it's an effort not so negligible, considering the current situation. We have, before, of course, the renewal of the national contract, we still have some buffer in the normal cost of staff. And, as you know, we have had some increase in cost of energy which already affected 2022, and we hope that will be lower in 2023. All in all, with the strict cost control, which we were very able to do during this year, we think we can limit to half the inflation rate at full cost of our general cost.
Okay, thank you.
The next question is from Adele Palamà of UBS.
Yes. Hi. Good evening. One clarification on the contribution from bancassurance. EUR 30million-40 million is net, and it's just including Banco BPM, Medita, and the 35% of Vera Vita. Do you have that figure if you exercise that option on Vera Vita? If I remember correctly, please let me know if I'm wrong. During the business plan, you had given sort of a contribution on around under EUR 25 million. That was in 2024 for the whole bancassurance changes. How we need to look at the guidance? I mean, if you can maybe split between revenues and costs, if you will exercise the option on Vera. Can you give us the amount of overlays that you have?
On capital, the regulatory agings that you are expecting for 2023, 2024, actually like all the various moving parts that you're expecting on the capital, specifically regulatory agings, the other moving parts that we should expect in the capital? Thank you.
Okay. Let me try to reply. Very difficult to say what will be the full impact of Vera Vita of the exercise of the call of Vera Vita. For sure will be positive, no expectation on the guidance we provided. I believe that the overall management of such impact, assuming an exercise date early July, or sorry, exercise closing date early July is around EUR 15 million, something of the order of magnitude.
This will happen in 2023 or in 2024?
No, I'm saying, I said if we exercise the call, this is when the closing happens in July, this will be 2023 additional order of magnitude of EUR 15 million in terms of net profit.
Okay. In 2024, which is Vera Vita we should expect? It is except five.
In 2024, let me come back to the 125 guidance that we provided in the plan that is confirmed. This 125 guidance that we provided in the plan is split, as we said in the previous quarter, in 85, I think for life and around 40 for non-life. If we retain the full amount of life, 85 + 1/3 of the 40, that is the non-life, this leads to EUR 100 million in terms of the total.
This is just revenues, correct?
Please.
This 125 .
Net profit. No, this is from associates, revenues from associates, so it's almost equivalent to net profit. It's already taxed.
Okay. Okay.
The next question is.
No, sorry. I think there were a couple of additional questions.
Oh, I apologize.
This is easy because Ms. Palamà , you see the amount written on page 12, EUR 163 million. On regulatory headwinds, as Mr. Castagna said, it's part of regular interaction with ECB. Of course, we are confident that given the relatively more recent date of approval or internal models, so we can withstand to comments and that the ECB is expected to provide on our PD and LGD calculations.
Okay. Sorry if I can do a follow-up on the cost of risk. You said 50 basis point is sort of our ramp rate guidance, like a long-term guidance for cost of risk. What are you assuming in your guidance for 2023 and 2024 of cost of risk?
We provided 48 in the plan more than one year ago, which was the long term.
Yeah.
This was consistent with the target of the ratio, which was 4.8, which has already been improved in the closing, the closing date of this year. We expect to stay below the guidance of the plan in the long run, of course, in 2024, like for like. For next year, the guidance is very much more prudent because we are still willing to observe what will be the impact of the recent turbulences and energy cost increase and so and so forth on the default rate. We keep a prudent stance, and as we said, this could be an area of potential upside should more mitigated and favorable environment materialize.
Okay, thanks.
The next question is from Marco Nicolai of Jefferies.
Hi. Most of my questions have been answered, but maybe a quick follow-up on the Danish compromise. I might have missed this, but when do you expect to get it? Is it by end of this year? Secondly, if I'm not wrong, there was still a dividend to be paid by the recently consolidated insurance company, that could actually, if paid, have a positive impact on capital. Any update on this?
For Danish compromise, we are targeting currently end of this year. Of course this will depend on timing from ECB. We are much confident that the first step, which is the financial conglomerate recognition, is about to come very soon. Depends on decisions and on the process that will be followed by ECB. Bearing in mind that Danish compromise is a kind of very, how to call it, ad hoc process, which has not so many precedents in Europe. ECB tends to be very careful and take this time for the whole assessment for the authorization. On the other hand, given that this is an area where integration has proceeded and we have integrated all risk management, internal controls, planning and so on, we are confident at some point it will come.
As I said, the target, the current date we are targeting respectively is by end of the year. Special dividend from BPM Vita. This is partly related also with the Danish compromise discussion. We decided given the market turbulence not to proceed with the distribution of the dividend in third quarter, and we are keeping that capital in BPM Vita, which still negative, highly capitalized. I think they are at 270 or 260 of ratio, if I'm not mistaken. The dividend may provide capital increase before the Danish compromise. After Danish compromise, it's much more limited because the most of the benefit will be obtained in general by the more favorable DTA treatment as opposed to the reduction of the participation.
Okay thank you.
Gentlemen, at this time there are no more questions registered.
Okay. Thank you very much, to all of you for being with us, and I look forward to meeting with you in person in the next few weeks. Thank you.
Ladies and gentlemen, thank you for joining. The conference is now over and you may disconnect your telephones.