Good evening. This is the Chorus Call conference operator. Welcome, and thank you for joining the Banco BPM Group Q1 2023 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 0 on their telephone. At this time, I would like to turn the conference over to Mr. Roberto Peronaglio, IR manager of Banco BPM. Please go ahead, sir.
Good evening, everybody, in particularly for all of you that are linked from London, that today is a bank holiday. Before leaving the floor to Mr. Castagna for the presentation, let me remind that you can find the slide on the website on investor relation page. We will, following the presentation, we will have a Q&A section reserved to financial analysts. I ask to you to limit to two questions for analysts to leave the room for each other for the question. Now I leave the floor to Mr. Castagna.
Thank you, Roberto. Good evening, everybody. Thanks for being with us. I'm very proud together with my management team to present this Q1 excellent set of results, which allow us to lead our expectation and our ambition to a higher level vis-a-vis the previous guidance that we gave to the market, both in relation to the original strategic plan of end 2021 and also to the more recent guidance given during the presentation of the full year 2022. Let's say that we can foster many very good results. First of all, profitability. Net income growing 49% year-on-year to EUR 265 million, which of course is a very good point to imagine a growing profitability for the full year.
Also the capital strengthening is a very good news. We have 80 basis points of increase in capital in Common Equity Tier 1, which adjusted for Basel is 14.15%. Finally, we still are developing some very important initiative, which we already gave some hint in our previous press release, related to the boost in capital generation and profitability coming in 2023 and 2024 from the bank assurance and the payment and merchant acquiring transaction, which are on our target. Going to the guidance, we think we can be in the position to increase very much both 2023 and 2024.
we are prepared to deliver a guidance for EUR 1,140 million of net income for 2023, which means 75 basis point of EPS, which have to be compared with 49 on the original strategy plan and 60, which were given on February this year. as much as we can increase to 90 point of EPS for 2024. also in this case, compared with 69 basis point of the original strategic plan and the 75 basis point gave in February this year. This means basically that in 2023 and in 2024, we will double the net results of 2021 and 2022 respectively.
On page 7, again, some numbers, some figure about the increase of profitability, driven of course by NII, which grew 45% year-on-year, also together with the fees. The core income grew 23% year-on-year. Cost of risk is still very prudent approach shown by our bank in the past, we still assume that 51 basis point is a concrete figure to forecast for this year, leading to, again, net income of EUR 265 million, which again is 49% year-on-year increase, 26% on last quarter results. We already said about Common Equity Tier 1 increasing 80 basis point. The same was for MDA buffer, which is still very much important in terms of potential remuneration to our shareholders.
Finally, liquidity and funding, very good position. The total liquidity grew to EUR 41 billion, with LCR at 199% and SFR above 130%. Let's concentrate about the improvement of NII, which of course is leading the growing profitability. As you can see, we took advantage of any increase of Euribor in the recent quarter. In one year, we grew from minus 44, 54, which was the average Euribor in Q1 2022, and now in Q1 2023 was 264 basis point. In April is 317 following the ECB decision to increase the ECB deposit facility rate to 3.25%. The more recent Euribor is 5th of May is 3.28%.
In this respect, we were very good in maintaining at a very low level the deposit cost. As you can see, quarter- by- quarter, we grew only to 46 basis point the overall cost of our deposit, which in turn increased also of EUR 2.5 billion in April with respect to the results of March this year. This allow us to have a revised guidance also NII, which now we assume could lead to NII, total NII higher than EUR 3 billion in 2023, replacing the EUR 2.7 billion guidance of February. The previous guidance was based on a EURIBOR 2.5%.
This new assumption is based to the current EURIBOR, which is 3.3%, and observed the deposit beta, which is reduced from 46- 33%. Let's also say that the potential further impact for alternative interest rate scenarios allow us to imagine a further growth of EUR 300 million for 100 basis points of interest rate increase. On page 9, as we also announced in February this year, we think that the result we observe in Q1 2023 allow us to say that the previous strategic plan targets are completely surpassed. We are higher than the quarterly representation not only of 2023, but also of 2024 strategic plan.
As you can see, both in terms of total revenues, we are now at EUR 1.25 billion vis-à-vis the plan which assumed EUR 1.075 billion for 2023, and EUR 1.15 billion for 2024. The same is for core revenues, well higher than the 2024 business plan, as much as the pre-provision income, which is now EUR 610 million compared with the EUR 520 million of 2024 in the original plan.
s now at the same level we had, a bit lower than the level we had for 2024 in our plan, EUR 137 million versus EUR 145 million, as well as net income is much higher than the forecast for 2023 and 2024, at EUR 265 million, which, if we want to normalize the impact of the systemic charge that, as you know, are calculated on Q1 and Q3, if we assume that this would be annualized, the normalized result for Q1 would be almost EUR 290 million
Uh, not saying that, of course, we know that, uh, uh, this is, uh, the last year in which we should have, uh, the systemic charge from, um, uh, EU resolution funds, so most probably the whole impact of the systemic charge in two thousand twenty-four will not be there anymore. Strong capital position, and we said we have, uh, as usual, the two figure, uh, both for, uh, uh, December twenty-two and for March twenty-three. On a stated point of view, we grew from twelve point eighty-three of common equity tier one to thirteen point fifty-seven. Meanwhile, if we add the, the, uh, calculation about, uh, the application of Danish compromise, uh, we grow this figure from thirteen point 34 to 14.15 .
The evolution is fostered by the Q1 performance with 50 basis points, which of course will be reduced by the dividends and AT1 coupons of 28 basis points, but with further improvement both in the reserve post-tax of all to collect and sales on a positive dynamics of RWA as well as other positive impact mainly driven by the DTA on the HTM portfolio. Capital ratio will increase as well, Tier 1 to 16.5%, TCR to 19.3%, and again, a very comfortable capital buffer growing to EUR 544 million adjusted for Danish, with the Danish Compromise, with a fully efficient capital structure having filled all the boxer, bucket of AT1 and Tier 2.
Furthermore, we still have to deploy completely two action which you have been already informed either directly by us or through a press release we gave on the payment system transaction. Let's give you some more detail. We have still in place these two project. One is, as usual, bank assurance. We are in the process, after concluding the strategic partnership with the Crédit Agricole to getting the application for the Danish Compromise after having the recognition as financial conglomerate in March by ECB and before the closing of H1 2023, we will exercise the call option on the 65% on Vera Vita and Vera Assicurazioni, which would lead by year-end to the acquisition of our joint venture. This is something that you already know, of course.
What is fairly new is the project on the payment cards and merchant acquiring. We have, let's first of all give you some idea of the magnitude of this business. We have 140,000 point on sales. We have 4.4 million of payment cards, which nowadays give us a total transaction volume of more than EUR 20 billion in terms of issuing, EUR 13 billion in terms of acquiring, EUR 21 billion in terms of ATM. Showing an increase year by year, which is double figure, especially in terms of acquiring 23% or issuing almost 16%. These volume generate and PNL contribution in 2022, and again we are experiencing also in Q1 2023 double digit increase.
Gross revenues, let's say revenues pool of EUR 300 million, which after paid scheme, interchange, and processing fees, leave us with a pre-tax contribution of EUR 140 million, which is 14% more than the previous year. What we are trying to conclude is a transaction which will give a value potential of EUR 2 billion of net present value to this busine
ss through a long-term exclusive distribution agreement with a partner which would be aimed to preserve completely the running fee levels. Without conceding further margin to our, to our partner, with a consistent cash-in of an upfront component, creating additional room for shareholder remuneration with a mechanism enabling us to extract further value from future respected growth.
Not, again, like for the other product factory in which Banco BPM is always sit together with a partner on the driving seat. Likewise, in asset under management, consumer finance, bank assurance, we would like to have the same structure of stakeholders in participation also in the payment business. This would be a further strengthen of our profitability and opportunity to deliver more reward to our shareholders. We are in the final step of this transaction. We expect to have a term sheet signed by end of June this year. Let's go to some figure about our Q1 . I wouldn't go through all the numbers. You already said an NII is 45% more than last last year.
Very good also fees and commission are the same level of Q1 2022 and 7% above Q4 results. Another important figure is income from insurance business, which with the new IFRS 17 accounting standard, have a semi contribution of EUR 10 million in this quarter, vis-à-vis a contribution of EUR 40 million in Q4 2022, which took count of the revaluation of the govies portfolio of our insurance company. Of course, this like for like it would have been EUR 10 million if we would have applied IFRS 17 also in Q 2022, leaving to an even greater increase of profitability comparing Q1 2023 to Q4 2022.
Operating costs are basically in line 1.7, sorry, 1 below Q4 2022 and slightly above Q1 2022, 2.5%, showing of course the capability of the bank to take care of the inflation growing during 2022 and this Q1 of the year. Pre-provision income again 9% year-on-year growing. Loan loss provision 9% year-on-year, minus 25% on last quarter 2022. Leading to a profit from pre-tax of EUR 474 million, which is 20% year-on-year growth and 42% quarter-on-quarter.
Leading again to a final result of net income of EUR 265 million compared to EUR 210 million Q4. Which again, took advantage of the income from insurance calculated with the old standard, model and EUR 178 million in Q1 2022, which is an increase of almost 50% year-on-year and 26% quarter-on-quarter. Let's have a look to the component of NII. As I show you on Q1, year-on-year, of course, the growth is massive, 45%. If we go comparing Q4 2022 to Q1 2023, it appears to have only a 2.6% of increase.
If we eliminate the benefit of the contribution of TLTRO from Q4 2022, which was EUR 80 million, you can see on the right side that also excluding the effect of the one lower day, two lower days, sorry, affect Q1 2023 on Q4 2022, the NII increase quarter- on- quarter is almost 18%, driven of course by commercial activities, only slightly impacted by the increase of cost of wholesale funding. As you can see on the bottom side of the slide, we were able basically to maintain a very good discipline on asset spread, which remained at 1.53%.
Meanwhile, we took a very big advantage from the liability spread, growing 63 basis points quarter-on-quarter up to above 2 full point at 2.04%. Volume were supported by a very good customer base, a very qualitative franchise. We, as you know, since June 2022, we are not pushing for customer loans. We are trying to, of course, keep our pace, giving priority to the quality of our loans, and to the guarantee and collateral which can come together with our granting loans. You can see that out of the EUR 5.2 billion of new lending, EUR 1.3 billion were assisted by state guarantees.
96% of these new lending was concentrated in the best rating classes, and 71% of the new lending was granted in the north of the country. Also very important to stress that out of our EUR 91 billion of loans granted to household and non-financial companies, 68% are either collateralized or state guaranteed. This percentage, only for the state guarantee, grow from 19% to 28% if we consider only the loan granted to non-financial companies, so excluding household. Another important figure is on the right bottom side. If we consider only the small lending to small SMEs, which amount to EUR 19 billion, 43%, more than 43% is under state guaranteed support, and only 3% of SME portfolio is in the high-risk rating class, of which 76% secures.
Net fees and commission, again, a very good results in line with Q1 2022, in which the first two months in last year were very good, not impacted by the war. We are very happy to grow again to that level of results. As you can see, Q4 2022 was much lower, 7% growth in Q1 2023. The growth that we are experiencing vis-à-vis Q4 is both on management and advisory fees, in which we grow 13%, and in commercial banking fees, in which we grow 2.4%, with a growth year-on-year on 5.3%. It's very important to remark that a good part of this contribution comes out of the product factory in which we are investing a lot, likewise, insurance product and payment services.
Costing, cost dynamics well under control, +2% year-over-year, notwithstanding the inflation rise, basically a bit below Q4 2022. Staff cost, I would say under control. We have considered, of course, a saving in cost due to the early retirement scheme, which we renewed for 2023 and 2024. We will have another 250 early retirement person colleagues, which were not considered in 2022, for which we have provisioned in 2023. Cost-income ratio down to 51%. We took advantage for a normalized pace of depreciation and amortization, which were inflated in Q4 2022. The insurance visit and cost, of course, are included in these costs, and amount only to EUR 2.7 million if you want 2023 for this year.
Let's go at page 18 to the cost of risk. We wanted to show you how our reduction in cost of risk goes together with the reduction of the NPE ratio. We are now down to 4.2%, which is 3.7% with the EBA definition, and almost around 2% in terms of net NPE ratio. Our 51 basis points are basically 30 basis points coming from inflows, also with a very good default rate, basically in line with our main competitors, 0.85%, and the remaining 20 basis points coming from the maintenance of the stock. This means that we continue to provision at least between 35% and 40% every inflow in non-performing loans.
Let's say that we have already increased to EUR 0.75 billion over the plan horizon, so 2023, 2024, the additional disposal for which we have already cost the risk front-loaded. We will split between 2023 and 2024 further reduction in NPE through this disposal. Meanwhile, our overlays is stable at around EUR 160 million. The cost of risk is declining, but we are increasing NPE coverage, notwithstanding a low default rate. As you can see, the total NPE go down to EUR 4.7 billion, almost evenly split between UTP and bad loans, with a net NPE of EUR 2.3 billion. The migration rates are maybe the best ever for our bank.
Default rate 0.88 vis-à-vis 0.94 last year, with a cure rate which is almost double the cure rate of 2022, which lead to a net default rate of 0.72%. On the bottom part of the slide, you see the increase in NPE coverage, which globally is growing from 50.4% of March 2022 to 50.6 of December 2022, to 51.4 of March 2023, which is split between UTP covered at almost 41% and bad loans 65% or 72% if you consider write-offs. Stage 2 loans maintained and almost at the same level of the previous year. Let me give the floor to Edoardo Ginevra for some slides about debt securities portfolio and liquidity and funding position.
Thanks a lot, Giuseppe. Good evening, everyone. On the debt securities portfolio, the total stands at EUR 36.2 billion as of the end of March, with 72% represented by amortized cost component for a total of EUR 26 billion. EUR 9.8 billion is the remaining part of the banking book at fair value at comprehensive income, very limited the amount of bonds for trading purposes, for EUR 400 million. In terms of the composition of this EUR 36 billion, EUR 5 billion, a little bit more, EUR 5.4 billion is corporate, EUR 13.8 billion is government bonds. A share of Italian bonds, Italian-related risk is stands at limited levels, it's confirmed at limited levels at 37.7%.
Bearing in mind that, the share classified to fair value at a Comprehensive Income, which is exposed to capital fluctuations, is as limited as 20%. The following page gives an idea of the usual relationships between the capital and the PNL trends attributable to the bond portfolio. As far as the reserves, the fair value Comprehensive Income reserves are concerned, we have seen an improvement of the net level from 626 as of the end of last year to now 538. This has been partially offset by the impact of hedging strategies, which led to a negative level of the Net Financial Result, EUR 34 million.
Having in mind that during the quarter, we went through an update of our hedging strategy so that we present at the end of the quarter a situation where the total sensitivity in terms of basis point value of the fair value of the comprehensive income portfolio is as limited as EUR 0.25 million, of which only 0 is the component attributable to Italian government. Liquidity and funding profile is even more solid than it was the case three months ago. SCR now up is 199%. The total of the liquidity cash plus unencumbered assets is almost at EUR 41 billion, of which EUR 23 billion almost is cash. EUR 33 billion of unencumbered ECB eligible securities, almost EUR 5 billion of other marketable securities that are unencumbered.
In the comparison with the ECB position leads to highlight that the total encumbered eligible asset is EUR 43.6 billion, either pledged in ECB or pledged for other activities such as repos. The nominal exposure to TLTRO III is after the anticipated reimbursement in December, is now at EUR 26.7 billion. The net ECB funding position went down to only EUR 4.7 billion with an SCR level debt from the current amount of almost 200%, may go as down to a little bit above 140% after we complete the TLTRO reimbursement plan thanks to a limited recourse to refinancing operation through ECB.
This very solid liquid position is also the result of the deposit base of the group, more than EUR 100 billion, EUR 101 billion as of end of March, of which 80% represented by retail and SME, so a fragmented deposit base. The guaranteed level is EUR 58 billion, and the average size of such deposits is as limited as EUR 22K, EUR 32,000.
Worth noticing that the overall amount of our direct plus indirect customer funding went through constant increases throughout the quarter from EUR 199 to EUR 202. Managerial data as of April goes up as to EUR 105, with an increase of indirect funding from EUR 91 to EUR 96.6, flows of more than almost EUR 2.5 billion in the Q1 , with instead level of core direct current account and deposit, more or less stable between the end of December and end of April, using managerial data. For the conclusion, let me hand over again to Giuseppe Castagna.
Thank you, Eduardo. Just one page, refilling the guidance for 2023, 2024. Let's say that the current profitability, the deposit base and cost, the capital position, the cost of risk allow us to really be not even more prudent about our ambition. The management team feels very comfortable in assuming this new guidance, which basically will double year by year, 2023 and 2024, the performance of 2021 and 2022. Basically, we think we can increase the RoTE of 2021, which was 5.5- 11%, as well as the 7.4% of 2022, up to 13% in 2024.
If we will assume the same Common Equity Tier 1 of 2022, which was around 13%, the RoTE of 2024 will be around 14%. This will goes together with, of course, doubling the remuneration for our shareholders, which was a bit more than EUR 600 million in the previous two years, 2021 and 2022. We will grow, doubling up to EUR 1.25 billion in 2023 and 2024, with an increase of more than EUR 600 million and a cumulative, representing a cumulative market cap of 22%. This new guidance will lead to a PE of only 4.8 x 2023 and only 4 x the 2024 results.
With an yield, which will be well above 10% in 2023 and a region of 13% of, in 2024. Let's say that this new guidance leave the room together with the capital management action that we presented to generate room for even additional shareholder remuneration, for which of course, we will be even more precise during the course of the year, both with the quarter presentation, also with the presentation of the new business plan, the new strategic plan 2023-2025. Thank you. Of course, Eduardo and myself will be available for a Q&A session.
This is the Chorus 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 yourself from the question queue, please press star and two. We kindly ask you to use the handset when asking questions. Anyone who has a question may press star and one at this time. The first question is from Antonio Reale from Bank of America. Please go ahead.
Hi, good afternoon. It's Antonio from Bank of America. I have two questions, please. One on the use of capital strategy, and secondly on deposit betas, net interest income, please. The first one on capital, you have good visibility on the outlook for earnings. Your CT1 ratio is above 14% if you include the Danish Compromise. You know, you come from a long journey of cleaning up the bank and implementing cost initiatives. I think you're increasingly shifting the business towards capital-like activities like payments and insurance, and the organic capital generation that you referred to in the upgraded guidance means you have a lot of flexibility when it comes to using some of this capital going forward.
I wonder how you're thinking about this capital use between, you know, bolt-on M&A, investing in product factories, increasing shareholder remuneration, more restructuring. Just I'd like to hear your thoughts and where your priorities stand. Could you remind us any visibility you may have on regulatory headwinds to come? My second question is on net interest income. If I understand correctly, you assume that deposit beta in your NII guidance for 33% for this year. You have a relatively large share of your funding coming from retail, which has proven to be quite resilient in terms of deposit betas.
Can you talk about what your deposit beta is today for the group, and how you get to 33% that you assume, and particularly the trajectory between now and year-end is particularly important. Whatever you assumed as your end-of-year deposit beta, Q4, because if 33% is an average, I'm not sure it is, but if it is, it implies quite a big increase. And I'd like to understand that better as it's key to understand what the sustainable part of NII in 2024. Thank you.
Thank you, Antonio. Let's say that capital, of course, we have a forecast which is very much encouraging. Let's say that we still have to foster the capital management action, the potential growth coming from Danish Compromise for Vera Vita. At the same time, we said also in the last session that we expect some headwinds in terms of the new model, all in all, we feel very comfortable. Again, end of this process in 2024, we think we will end up higher than 14%. This, of course, is not our target in terms of leaving at this level the capital, but give us together with the very comfortable MDA, the possibility to really consider eventually an increase in remuneration of our shareholders.
If you remember, we always say that at the level of remuneration realized in 2021 and 2022 was not that useful to talk about increasing the remuneration for our shareholders. Nowadays, we feel that is the moment to go farther and to, again, with the business plan we will present, to give also a different possibility in the capital remuneration. Of course, everything will be possible. We know that there is difference between saying that we will increase the payout or maybe consider a buyback. Let give us the time we need in order to fix all these numbers, but for sure, what we've shown with profitability and capital growth is a very good buffer of capital to be distributed.
On the other side, we don't think there is any M&A, which again, can give us the same remuneration. We think that we have this situation again in bank assurance and payment system, but both will bring us capital, so are not negative for capital. On top, we think also will grow our profitability. All in all, very confident to increase the remuneration policy. Beta, we are a bit tired of exercising ourself on imagined forecast on the beta. We were not that good in the previous two occasion. Very prudent approach, so we prefer to say that observed beta is 33%.
We think that is something feasible for us. We don't know what the market reaction will be in the next months, depending also to the Euribor movement. If the Euribor will stay more or less the level as it is now, we think that this is very feasible to maintain also due to the fixed rate deposit cost, which represent almost 80% of our deposit base, only 20-22% linked to floating remuneration. That's all, basically.
Thank you.
The next question is from Giovanni Razzoli from Deutsche Bank. Please go ahead.
Good afternoon to everybody. two questions. One clarification about the possible, you know, improvement in the shareholder remuneration policy. You've been pretty clear in saying that part of the proceeds from the payment system will be returning back to shareholders. As the term sheet is expected to be signed by June this year, can we assume that a part of this capital will be returned to shareholder already next year? Early next year with the 2023 dividend payment, it is, you know, a reasonable timeframe on top of what you have already said about the, you know, EUR 1.25 billion of cumulative dividends for 2023 and 2024, based on the 50% payout and the revised targets. The second question is on your, you know, funding structure in the medium term.
I would like to know your thoughts about what is in the medium term, the funding mix of the bank like Banco BPM. Do you think that, you know, sooner or later, and if so, in what timeframe, the bank should start again if it should start again to issue time deposits, repo or term deposits so that the cost of funding increases because of a change in the mix? Do you see this scenario in the medium term? Thank you.
Thank you, Giovanni. As I mentioned before, we are confident to have a term sheet signed by end of June. Of course, not the final contract, which most probably will take more time. Let's hope, end of 2023 or maybe beginning 2024. In any case, of course, whatever will come from this transaction in terms of capital boost, will be of course in 2024 in terms of potential shareholder higher remuneration. For the funding structure, I would like Edoardo to take the call.
Yes. Of course, the key point to be monitored is the maturity during 2024 of the TLTRO lending funding facility. As we said in the presentation, this will be addressed by using flexible and available long-term instruments, also those provided by ECB, as Madame Lagarde said very clearly last week, to make sure that we can stay at a very comfortable level of LCR, such as 140% or in that region. Having said this, turning to the specific product and instruments, we of course have in the radar some evolutions such as, for example, retail bonds.
Other ones may be introduced and used from a tactical with a tactical approach to optimize our funding structure according also to the evolution of depositors' preference. Up to now, what we have observed was a very stable behavior of depositors, and as Giuseppe had just clarified in the previous questions, an observed beta which was much below the level estimated by statistical models.
Thank you.
The next question is from Noemi Peruch from Mediobanca. Please go ahead.
Good evening, thank you for taking my questions. The first one is on guidance. The increase in net profit guidance for 2023 is very clear the contribution from NII, but I was wondering whether you also reviewed the guidance on the other core lines, such as fees, cost and cost of risk. Shall we still assume flat fees, a cost of 3% and cost of risk about 50 basis points. I have another question on deposits. Could you give us some color on the competitive landscape on deposit that you are seeing and that you are expecting for the future, and also the dynamics you see in the market when it comes to deposit outflows to govies, asset under management, bank bonds or repayment of loans.
Thank you very much.
Okay. For the first one, I will try to answer. Basically, the only main line I think would be the fees and commission. We think that 1.9 is a potential forecast, which we think we can reach. Let's remind that starting from Q2, we will have some less remuneration on two important aspects. One is the commission applied until March, due to the negative interest rate, which starting from April, we will recognize again back to our client, and a slight increase in the securitization due to the reduction of RWA. These are the two negative. Of course, all the others, both commercial and also I would say in bank assurance and management are growing.
More or less 1.9 could be a figure that you can refer to. Deposit, I'm not sure if I got your question, let's say that we are growing in deposit base, both in direct and indirect deposit. We are in the very comfortable position to make our client happy, because if they want to stay in current account, we are happy to accommodate them with the current deposit cost. We are also very happy to switch into asset under management as well as we had a big increase also in asset under custody with the BTP issue
For instance, the Eni issue that we placed with our client. On top there are certificates and so on. Basically, the aim is to make what our client wants, and this is bringing to a total increase of our deposit base, adding direct and indirect deposit.
Thank you. The next question is from Christian Carrese from Intermonte, please go ahead.
Thank you for the presentation. Congratulations not only on net interest income, but also fees. I think that you made one of the best results among peers, EURONIA. Just a few clarification. One on capital. If you can elaborate on the 35 basis points coming from risk-adjusted optimization and others. If you can guide us on the bridge coming from the agreement with Crédit Agricole. Also, the other moving parts, Vera Assicurazioni. I suppose you have now the number of the own funds of Vera, so you should know the negative impact on capital coming from the exercise of the call, if you can elaborate on that. Second, on costs, 250 additional layoffs in 2023.
Can you give us a guidance for the full year? Thank you.
Okay. Thanks for your questions, Mr. Carrese. It's Edoardo Ginevra. On the capital work, I think it's helpful to add that most of what you see in the improvement on RWA dynamics is the evolution of the credit component, the credit risk component, where we are able to optimize capital absorption from some of our items. Also, there has been a small reduction in market risk, in RWA from market risk. For the Vera, the good news is that the level of the own funds is low, at a low level, and it's been crystallized as of the end of 2022. We need to take into account for the overall impact of the exercise of the call, a number of items which are not yet final.
First of all, some adjustments due to the recent adoption of IFRS 17. Secondly, what will be the impact of the net profit that will be recognized as a component of the price for the stakes in Vera Vita and Vera Assicurazioni. Putting together all these elements, we believe that the impact will be quite manageable, and at the end of the day, positive, taking into account the application of the Danish Compromise. Speaking on your second question, costs. Both the combined effect of the last part of the previous early retirement scheme and the new one will lead to a further reduction of EUR 20 million-EUR 25 million of cost to labor for 2023 and EUR 15 million-EUR 20 million further in 2024.
This of course, without considering the increase of costs related to the national contract, which of course we are not prepared to comment, due to the negotiation in place. We are making room in order, of course, not to have a big effect from the component of the national contract. I would say that the figure that you have with the saving I mentioned to you and the application of the contract should give you a final figure which is not that different from EUR 2.6 billion.
Thank you.
The next question is from Domenico Santoro from HSBC. Please go ahead.
Hi, good afternoon. It's Domenico at HSBC. Two questions. First of all, can you tell us what's the level of NII implied in your guidance for...
Sorry, Domenico, that's all. Domenico? Maybe the line was down. It's down.
The line is still up. Maybe he's on mute.
We can go on, and then we will let Domenico again, if he's able to reconnect.
The next question is from Marco Nicolai from Jefferies. Please go ahead.
Hi, everyone. Thanks for the presentation. The market is pointing to a rate cut in the future, maybe even at the end of 2023. Can you give us some color on, you know, where you see NII in 2024 compared to 2023? Maybe also a little bit of color on the delta in terms of EPS in your guidance for 2024 compared to 2023, and also, your numbers point to a return on tangible equity extremely attractive for 2024. Do you think this type of profitability is something sustainable also for future years? If you see, you know, ECB cutting rates in the future, how can you offset such a negative NII impact? Thank you.
NII take account also of some aspect we are considering about the contabilization of certificates. Of course, we think they could be part of a higher cost of deposit for this component. It's possible that we will switch this negative effect from NFR to NII. All in all, we feel that 2024 could be a bit better than 2023, but slightly better. Yes, not taking in consideration for 2023, of course, what I say before, in terms of certificates. If, of course, we would contabilize the effect of the certificates in NII, this will lead again to the number that we gave as a guidance.
In terms of EPS, I would say the main aspect will be from bank assurance, as you know, cost of risk, commission, and of course, the higher contribution from the product factory. Both, asset under management activity included the bank assurance, owned 100% and also the payment system. Let's also have in mind that, as I mentioned before, the systemic charge in 2024, will not be there at least for the part related to the EU fund. RoTE very attractive. As I mentioned before, you have to wait, of course, in order to get 25, the business plan. We are not really now in the position to give you how much would be.
Last time we gave a guidance in which we say that a further increase of more or less 10 basis point of a piece would have been possible. I guess that you have to wait for the presentation of the business plan to have the 25. I am happy that we are asking for something in 3 years' time. I think we are very consistent in giving 23 and 24 precise guidance.
Thank you.
The next question is from Andrea Lisi from EQUITA. Please go ahead.
Yeah. Hi, thank you for taking my question. The first one is on capital, in particular if, given the current environment, the fact that you have further improved your asset quality position and so on. You have changed in some way the CET1 threshold at which you're happy to work with, and if you can disclose it in case, and if we have just spent some regulatory headwinds going on during the year. The second one is just a clarification on systemic charges that in the Q1 this year were lower than previous year. If you can anticipate which amount of systemic charges do you expect during this year.
Just, as a comment, if the talks you have also with the regulator and so on, is it, is there the chance that at one point, the level of systemic charges could be increased again in the next years? I don't know, maybe for improving the level of insured deposits and so on. Just a comment, qualitative view on that. Thank you.
Thank you. Yes, we feel we are a pure commercial banking, very rooted on the territory, very basic commercial activity. We feel that we are very consistent in our results. We have shown year by year that even in the worst situation, we didn't need any capital increase from the market. We were able to manage our action in terms of capital management to give the right value to our product factory. We feel very much comfortable not including that, of course, on the future years, we will have also the positive effect of the DTA, which of course will increase even more the capital. We feel that again, this yet to realize, but we feel that this kind of Common Equity Tier 1 is very much comfortable for us.
We always say that an MDA above 300 basis point is comfortable for our business. Systemic charge is just because this year to the Italian banks, I think to all the Italian banks, the request was lower from EU. In relation to our stake, we got this reduction in terms of request. Again, we think that next year, having reached the top level, we wouldn't have any more impact from these kind of systemic charge.
Thank you.
The next question is from Hugo Cruz from KBW. Please go ahead.
Hi, thank you for the time. Just really wanna get a clarification on capital and the timing of the new business plan. When do you plan to announce the new business plan? Did I understand correctly that any decision around an increase in the dividend payout or any potential buybacks will only be made in 2024? Is that correct? Finally, just again, another clarification on the Danish Compromise. Do I understand correctly that the Danish Compromise and the Vera deals, the Vera deals will be a positive impact on top of the current performance that already includes the impact of Danish Compromise. Is that correct? Yeah, that's it for me. Thank you.
We will share our answer with Eduardo. If I got exactly what we're asking, the timing of the business plan will be second part of the year, most probably the last quarter of next year, in order to get this year, sorry, in order to get precisely the pace of the Euribor and what will happen in terms of ECB decision. We again, in terms of capital contribution from the transaction we are dealing with, we think this could materialize in between year-end, the beginning of next year, if we talk about payment system. That would be also the right timing for announcing whatever increase in terms of maneuver for further remuneration to our shareholders. Danish Compromise, if I got...
Let's have Eduardo give.
Yeah. If I understood correctly the question, the Danish Compromise, we will have, of course, two separate steps. At least this is our understanding of the process in our conversations with ECB. One step is the Banco BPM Vita, which is exactly the impact we highlighted in our presentation. The second step will be after the acquisition of Vera Vita, so the exercise of the call option, with Cattolica Assicurazioni. As far as Vera Vita is concerned, we expect this impact, so acquisition plus application of Danish Compromise to be positive in the sense that this will tend to increase, likely at least, the capital position of the group.
Yeah, I think that in the second step, after you know, you do the Vera deals, you know, there was a press release before you talked about 13 basis points capital. That's on top of the Danish Compromise.
Hugo, I'm sorry, we don't understand the question. Sorry. It's very difficult to hear your voice.
Sorry. Okay. I'll just want to understand the second step after getting the Danish Compromise. The second step, you're still expecting a positive impact, correct?
So, so the, um, the second-
The second one.
Yes, yes. At the end is also the impact of the second step is positive once the Danish Compromise is taken into account.
Okay. Thank you very much.
Yeah.
The next question is from Manuela Meroni from Intesa Sanpaolo. Please go ahead.
Yes. Thank you for taking my question. The first one is on the NII. Can you share with us the assumption that you have made in terms of interest rates in 2024 that are based on the basis of your net income guidance? When do you expect the NII to reach its peak? The second question is on the risk-weighted assets. I'm wondering if we can expect a further reduction of the risk-weighted assets going forward, and what is the guidance of risk-weighted assets at the end of the year? Lastly, a clarification, the guidance for 2023 and 2024, embed, say, 50 basis point cost of risk in both year. I know that it has already been asked, but I didn't get the answer.
Thank you.
Sorry. Yes, Manuela. Thanks a lot for your questions. Concerning the level of interest rates, as we said in the presentation, the expectation for the overall average level of Euribor this year is in the area of 3.3%. With a growing path, meaning that we assume this will be in the area.
I would say, 350, 360 end of the year. I'm talking about this year. For the next year, we expect a moderately downwards trend, leading to an average level slightly below 350 basis points, which leads to the guidance which Giuseppe was describing earlier. RWA pass, we expect to experience some inflation in our overall level of RWA due to the outcome of the discussions we are having to ECB, with ECB in the current period. We confirm that this will be fully manageable with our organic capital generation. No significant negative impacts expected from regulatory headwinds. For the cost of risk guidance, I leave the word, the floor to Giuseppe.
On cost of risk, I would say, you know, we are a bit surprised by the big reduction in cost of risk that we are experiencing on the market. Basically, we are getting the same inflows in terms of default rate of the other bank, which is quite comprehensible, taking into account our geography and routing network. This by definition brings to, let's say, 25 - 30 basis points of additional cost, which means to cover new UTP from 35- 40%. Of course, the percentage of the guarantee of the state could a bit reduce this amount, the region of the provision is the one I told you.
On the other side, the remaining part is related to the maintenance, I would say, of the NPE, which means, on the positive side, to go back to positive, to non-default, and on the negative side, to switch from UTP to bad loans, which in turn, would mean another 30 basis point, 30-35, depending collateralized or not, in terms of cost of risk. All in all, as we said, two years ago, 45-50 would be the normal cost of risk. We feel that our portfolio is enormously bettering. If, as for the beta, we will experience a better situation in the next quarter, at least we are covered, that our expectations are not that far lower than what we are doing right now.
Thank you.
The next question is from Andrea Virtellone from BNP Exane. Please go ahead.
Good evening. The first one is just a clarification, I guess non-numerical, on the on personnel costs. I just want to know if you made any accrual for the banking contract in Q1, or there's none. The purpose of the question is to see if you book nothing, of course, everything will be booked later on. The second is again, a qualitative question on the transaction you are exploring in the payment business. Can you give us some color as to how do you square the comment that you plan to, on the one hand, maintain the current level of fees linked to this business, and on the other hand, also book an upfront component linked to this transaction?
Usually what we've seen in the past from competitors, they book a capital gain, and then they lose fees, but you seem to be suggesting, that you will go ahead with both components, which would be rather positive, but it's a little bit puzzling. Thank you.
Thank you, Andrea. No, personal costs, of course, we did not accrue any anything for banking contract. As I mentioned, we have some room to accommodate the banking contract with the reduction in cost of personnel that we are fostering through the early return scheme. Of course, we have also some cautious approach in our budget. For payment business, thank you for your question. This is exactly why we consider this transaction very, very good for our bank and can allow us to extract a lot of value because the way we are dealing with our counterpart is based not on the, let's say, giving back further EBITDA, which will be a reduction for us and an upfront in terms of capital gain.
We are trying to make a real joint venture in which we can still participate with the relevant stakeholding to the new product factory, in which of course, we can put all the business we have now already dealing with our partner. This would bring to a considerable upfront coming from a potential partner. On top, of course, we will continue to increase the revenues from sharing because of our stakeholding in the product factory. The base is to maintain the level of profitability as it is, to get in any case a good upfront, and to still increase through the stakeholding participation in the product factory our profitability in this business.
Is a, is a, uh-
Thank you.
I know that is unprecedented, but we are trying to do that.
Thank you.
The next question is from Delphine Lee from JP Morgan. Please go ahead.
Yes. Good evening. Thanks for taking my questions. I just want to come back to net interest income. Just trying to understand your guidance for 2024, which is going to be slightly better than 2023. On the other hand, you seem to be losing 100 basis points in rates. I'm just trying to understand where the improvement is coming from, and also what is the deposit beta assumption you have for 2024 compared to the average 33% you have in 2023. The other question is in terms of sensitivity is if you could give us a sensitivity to 1 percent of the points increase in deposit beta, how much that is in NII EUR million. Thank you very much.
I try to elaborate. We didn't say we are losing 100 basis points in rate. What I said answering to the previous question was that we expect a slightly moderate reduction in the overall level of the rates next year compared to the end state as of December. Meaning that on average, let me be very clear, the level, expected level of Euribor and average for 2024 is slightly higher than the expected level of Euribor average for 2023. Beta, I think was a question raised earlier. End of the year level of beta is around 40%, a little bit above 40%, compared to the current average level of 33 we used to project the overall guidance for the year.
day, given that we expect a slightly overall stable level of interest rate, it doesn't. It's not, beta does not have the same relevance it has to explain the numbers for this year because it's a derivative of something that is quite stable. Hoping this helps clarifying. In the sensitivity, if I got correctly the question, the sensitivity is in the current calculated, starting from the current level of rates as of end of March this year, what happens in case of an increase of 100 basis points using a beta which is consistent with our current observed 33% level. So it gives you an idea of what can happen differentially from the guidance we provided if the level of rates goes into an expected direction.
Great. Basically the rates are slightly higher in 2024. The deposit beta is higher. How do you manage to grow your NII, just to understand this? Is that volumes? Is that or your asset trade are improving or anything on your investment portfolio?
The beta is not a driver of the increase in of the delta in NII in 2024 because more or less the level of rates is stable. It's the overall impact is driven by repricing of the back book of loans, by the refresh in the level of bonds, of outstanding bonds that progressively mature and are replaced by new ones, and the moderate increase in overall the volumes, but nothing that has to be expected as an outlier compared to the previous trend. That's more or less the overall story.
Thank you very much.
The next question is from Adele Palama from UBS. Please go ahead.
Yes. Hi. Good evening. Thank you for taking my question. One clarification on the Single Resolution Fund. Like, what do you assume for 2024? If you can give us like the benefit that you will have. I mean, I understood that you are assuming that that level will decline in 2024. I just want to understand the benefit versus 2023. That's it. Yeah. Thank you.
Again, we say that, we have reached the top of the request from EU. The demonstration is that this year was already lower than we expected. Without any extraordinary components happening in the market, we assume that for 2024, the EU SRF is 0.
that is the common assumption.
Of course, we still assume that we will have the contribution to the Italian mechanism for the guarantee on deposit.
That is, that assumption is included in 2024 guidance, like in targets?
Yes, it's included.
Okay. Sorry, can I add another question? In the 2024 target, which is the run rate for the insurance results that you are assuming?
For the insurance, we started from the previous assumptions that we included in the plan, which was of a total contribution to net profit, EUR 125, 400% of stakes in insurance. We readjust, bearing in mind that we are going for the sale of the stakes in the non-life, in the P&C, in executional agreement with the Crédit Agricole Assurances. The adjusted contribution is in the area of EUR 100 million.
That include Vera Vita as well?
That includes?
Vera Vita.
Vera Vita.
Vera Vita, of course. Vera Vita, yes. The full contribution for the year of Vera Vita.
Okay. Perfect. Thanks.
For any further questions, please press star and one on your telephone.
I don't know, Mr. Santoro is back. I would leave room for his question. Otherwise, of course, I have to thank you all for being with us. Of course, in the next few days we will be around to further in-depth discussion about this set of data. Thank you very much.