Good afternoon and welcome to the BFF Banking Group First Quarter 2025 earnings call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touch-tone phone. To withdraw your question, press star and two. Please note this event is being recorded. I would like to turn the conference over to Mr. Massimiliano Belingheri, Group CEO, and Giuseppe Sica, Group CFO. Please go ahead, gentlemen.
Hi everybody. Thanks for joining us today for the reporting of our first quarter results. There are three more important events happening in Rome. I appreciate that you are here with us listening to our results. We are pleased to report a good start of the year in many respects, with adjusted net profit of EUR 35 million, which aligns with our target despite the high rescheduling on the factoring portfolio, which is where we are deferred and will be recovered in the following quarters. Factoring had a strong start of the year with profit before tax up 9% year-over-year on loan book, which has grown at 5% year-over-year. Italy is being back in growth with a double-digit growth of 10% +, and we report the highest level of volumes in the first quarter in the history of our group.
At the same time, because we did not collect as much in terms of NPI in EUR 40 million in the first quarter, we continue to accumulate our balance sheet reserves. We had an increase of over EUR 81 million compared to June when we changed the accrual account. The strength of the business continues also in terms of liquidity. We have EUR 8.5 billion of deposits and a loan-to-deposit ratio of 68%. On the important issue of past due, we continue our work to reduce the stock of past due, which is down 5% from December. Importantly, we have EUR 190 million, which is 15% of the stock of past due in the full periods, which is expected then to come off the past due calculation over the next quarter. That is more than double the level that we had a quarter ago. We continue also to contract.
The contagion invoices are now down by an additional EUR 25 million compared to the previous quarter, another EUR 100 million reduction since the recent situation. Capital, therefore, continues to increase. We have a CET1 ratio of 13.7%, which is above our target, but significantly is above the level we had before we reclassified the portfolio in June of last year. Other important things to note: our bond portfolio swung in positive territory with an improvement of EUR 70 million year-on-year. We had to collect a very good sense of the future profitability of that portfolio and we expect to launch our deposit gathering activities in Greece at the end of this quarter. If we move to page four on the details of the balance sheet, worth highlighting the loan book at EUR 5.8 billion, which is as recognized for the first quarter. The bond portfolio continues to shrink following our strategy.
As I mentioned, we have a positive market margin now of EUR 12.5 million compared to - EUR 67 million of last year, given the dynamic on interest rates and the credit spread of Italy. Deposits continue to accrue in transaction services, and therefore we have managed outflows in our online deposits that we manage as a buffer in terms of liquidity. We are fully compliant with the MREL requirements, and you see the difference in our bonds issued, which has a very big impact also on the net interest income of the group. The capital generation has been strong, as I mentioned, with 143 bips of capital generated in the last quarter. In terms of P&L, core revenues is just below first quarter of 2024, driven by EUR 12 million of rescheduling, which is the third revenue for the following quarters.
We have a reduction in the cost of funding by over EUR 20 million, despite EUR 7 million of cost for the MREL issuance, which we think is a positive indication of also how flexible our funding structure is. The group's PBT is below last year, but we've seen a good growth of the factoring and lending portfolio and factoring and lending profitability, despite the lower rates of rescheduling in parts of the stream. I leave the floor to Giuseppe for the presentation and include the presentation.
Thank you, Max. I will now move to slide six, where we show the key economic trends for the Factoring & Lending division. A few messages. First, gross interest income is down year-on-year. However, this is mainly due to higher reschedulings, which are expected to be recovered throughout the year. This is despite lower interest rates. Second, other income is stable year-on-year, and importantly, includes EUR 3.8 million of recovered rights. Third, and importantly, gross yield on average loans has decreased less than the FPI reference rate, with MRO rate down 1.45% versus the gross yield down 98 basis points. Obviously, cost of funding is down as well. Moving to the bottom part of the slide, total FPI and recovery funds are up EUR 124 million, or 11% year-on-year.
Off-balance sheet funds, which are part of our deferred profitability, are up EUR 81 million since June 2024, that is, post step-up of the accrual rate. Moving now to slide seven on factoring and lending loan book and volumes. The group loan book is up 5% year-on-year. Importantly, Italy's loan book is up 10% year-on-year, reflecting higher volumes, on which I will comment in a moment. Spain is down. This reflects the payment due to cash injection by the government at the end of 2024. Finally, on the loan book, let's highlight France, which is starting to be material for the group, with significant potential for further growth. Moving to volumes, these are up 4% year-on-year and represent a higher first quarter ever for BFF.
Italy is up 10% year-on-year, improving the trends already observed in the fourth quarter of last year. Poland is also significantly up. I will now move to slide eight on payments. The number of transactions continues to show a positive trend and is up 4% year-on-year, with an increasing component of instant payments. Revenues are slightly down year-on-year due to some flat fee metrics, while deposits are down mainly on lower check settlements. Important for us, moving to security services on slide nine, a few relevant points. First, assets under deposits have now reached EUR 75 billion and are up 21% year-on-year. This is reached thanks to commercial initiatives. Second, global custody assets under custody are close to EUR 130 billion and are up 9% year-on-year.
These positive trends are actually reflected in revenues, which are up 15% year-on-year. Importantly, for our business model and for our growth, we have also recorded strong deposit growth to EUR 3.8 billion, or 28% year-on-year. This reflects commercial initiatives and client asset allocations. Slide 10 on our cost space. Cost discipline is confirmed with OpEx and GNA up only by 4%, mainly due to a slight increase in GNA and ongoing investments in the business. Looking at the various divisions, Factoring & Lending OpEx and GNA are up 2% year-on-year. Payments 3% year-on-year, mainly related to ICT costs and investments for growth. Securities Services and corporate centers, where most of our investments are concentrated, are up 6% year-on-year. Any variable remuneration is to be assigned only after the removal of Bank of Italy funds.
Slide 11 on our balance sheet. We confirm that funding remains ample, with a loan-to-deposit ratio of 68%. Importantly, for the future, there has been an increase of EUR 70 million of our mark-to-market on the exit-collect portfolio. Going a bit more in detail, funding costs are below average reference rates, which are a blend of Euribor and Driver. Since first quarter 2024, we have issued EUR 600 million of MREL- eligible securities, and this covers all our MREL needs. We have no ECB funding to be refinanced. As Max said, our ETC portfolio continues to go down in line with plans. SFR and SCR are both up since December, with SCR up 25 percentage points despite the growth of the loan book. Slide 12 confirms the low-risk profile of the company. The slide is full of numbers, so let me follow the key messages on the slide.
A, NPEs are down to EUR 1.8 billion. This is driven by an ongoing reduction of the total past due. B, 95% of our NPE exposure is represented by public administration, with NPEs represented almost exclusively by municipalities in conservatorship. Following the communication already done in January 2025 on one specific case, we are underway with further appeals to the European Court for Human Rights to obtain central government obligations to pay. The cost of risk stands at 4.2 basis points. Slide 13 gives a bit more of detail on past due. Contagion invoices are down another EUR 25 million in the quarter. There has been a 25% reduction in the past due driven by collection, proven, by the way, the rotation of our portfolio. New debtors from bonus in past due is only EUR 11 million in the quarter, with EUR 74 million of exposure to debtors in past due going back to bonus.
The new past due is really driven by contagion only. Fourth, exposure in Q4 is more than doubled since Q4. I will now move to slide 14 on capital generation. Our CET1 is above pre-credit reclassification level at 13.7%. This is despite a 50% increase in RWA and 65% RWA density. Capital generation in the quarter is 143 basis points, and total capital is also up similarly to 16.7%. As I mentioned before, all MREL requirements affected from January 2025 of quarters with ample buffer. Finally, you probably ask questions anyway, the dividend policy is confirmed, subject to the listing of the dividend bank by Bank of Italy. Let me now hand back the floor to our Group CEO for his final consideration.
Thank you, Giuseppe. This was a very clear presentation. We leave a few takeaways for this presentation on page 15. We are off to a good start this year, now with our expectations. Good momentum in the factoring and lending business, with double-digit growth in Italy, and with an increase in embedded profitability of the off-balance sheet funds. We continue the steady reduction in total past due and the contagion invoices. The new past due are almost entirely driven by the contagion effect, with a significant increase of the part of the portfolio which is in full period, which in terms of outlook is very positive for the continued reduction of the past due and increased efficiency of our RWA density.
We've translated a good core capital generation with a CET1 which is now fully restored to the level that we had before the reclassification of last year, and therefore positions us well for the future. Thank you again for joining us today, and we welcome your questions, which we will answer now.
Thank you, sir. We will now begin the question- and answer session. To ask a question, you may press star then one on your touchstone telephone. If you're using a speakerphone, please pick up the handset before pressing the keys. To withdraw your question, press star and two. The first question comes from Tommaso Nieddu of Kepler Cheuvreux.
Hello, and good afternoon. Thank you for taking my questions. I have a couple of questions. The first one is on volumes. There were good numbers. Obviously, we were also comparing with the easy comps, but I wanted to focus on France. Where do you think we could see the region in the next few years? Yeah, if you can give us some colors on that. The second question is on the accrual period amount. Looking at the amount, this is much higher than in the last quarters. Theoretically, I understand that as more as you are going to collect your contagion portfolio, the more past due should be reduced. Is there something more behind that? Can you give us more color on that as well? Thank you.
Thank you. Thank you for the question. Looking at volumes, I think, yes, we're off to a good start. France is providing support in that growth. It's a very small market for us at the moment, but it's really a country which has struck a very high expenditure in goods and services, with a portion of those expenditures which is paid late. Importantly, a lot of our customers already work there. Now, we have these results without even a physical presence in the country. We are delivering at the level we were expecting, with a branch opened there. We think, actually, compared to our expectations, the market can actually deliver quite a bit, particularly once we will have now the ability to open the branch there. In terms of the past due, you correctly pointed out two key things, which also Giuseppe highlighted before.
The first one is the past due in full period at EUR 190 million. That is a substantial increase compared to the ones we had in the previous quarter, which will then translate into a lower level of past due going forward. The second aspect I would like to highlight is on page 13, the second to last part, EUR 11 million of new past due generated in the quarter. That is not the contagion invoice. That is the total past due of new debtors generated in the quarter, which actually indicates, confirmed what we said always to the market, which actually structurally our business model is unchanged on the front book. We are actually dealing with a backbook issue, which is getting solved steadily, and should restore a level of undergrade density, which is more in line with the real risk profile of this business.
Thank you.
The next question is from Manuela Meroni of Intesa Sanpaolo.
Good afternoon. Good evening. Thank you for taking my questions. The first one is on the rescheduling in collection. I'm wondering if you can share with us what are the reasons behind this high rescheduling in collection that we read in this quarter, and if the starting point for the second quarter would be the level of NII plus these EUR 12 million that was the rescheduling impact in the quarter. The second question is again on the past due trend. I think that it was a very good sign that your past due declined, and these are just EUR 11 million of new past due from debtor from bonus to past due. I'm wondering if you expect such a trend to continue also in the next quarter. The last question is on the dividend ban. I'm wondering if you have some information about the potential removal of the ban. Thank you.
On the dividend ban, we have no news to continue. We've got a good line of communication with Bank of Italy. We communicate to the market as soon as we have. I think the good thing is actually the restored capital position, which gave us a good buffer of capital, which I think is quite reassuring, and also the undergrade density, which we improved over the last quarter. In terms of past due trend, we continue to operate to reduce the past due. We indicated that a lot of the activities that were put in place in the last year take a bit of time to play out. I think we expect an acceleration proportion of the release of the past due over time, also simply for a mathematical reason, which is highlighted actually on page 13.
Because you need only 1% to have the assets in past due, actually the reduction of the contagion invoices is a disproportionate effect when those get reduced towards the end of that 1%. We have always said it is not going to be a linear trajectory, and that is why we expect things to improve even better in the following quarter. We have a lot of work on that aspect. The rescheduling collection, remember, we do not control when the debtors pay us. It is basically their decision. Depending on the choice they make in terms of paying certain invoices or not, if the invoice is at least our expected collection date, then we set a new collection date to keep the IRR of the portfolio constant.
You cannot necessarily add that amount of rescheduling to the next quarter, which may take 6-9 months to collect, but it is an amount that gets recovered. In a sense, it keeps the profitability of the business at a pretty good level. Actually, we did not highlight it. We did highlight, but I think this is an important point, the fact that in terms of spread in the recurring interest rate environment, we have improved the yield of the portfolio, as it is not a given. It is something worth flagging. Again, it provides a support for the target that is given to the market.
Thank you.
The next question is from Andrea Lisi of Equita.
Thank you for taking my questions. Good afternoon. The first one is related to the 2026 guidance you provided in February. Just if you confirm it, you can confirm it or provide an update on that, and if you can provide some more color on the trajectory for this year. In particular, I want to ask you on volume growth and loan growth that are showing the signs of recovery, but in some way are still below which was the original target in the plan that was a growth, in terms of CAGR, if I remember well, of about 10%. Just to understand, when do you expect in the current market environment to come back to that level, and/or if this level is still a reasonable CAGR that we can imagine over the next few quarters, the next few years? Thank you.
In terms of guidance, frankly, we made a pretty clear statement. The performance is highly well-expected in the four-month guidance we have given. We have no more than that to say. We think we are off to a good start, and we continue to deliver against these growth targets. In terms of volumes and loan growth, remember, you are seeing in a portfolio that shows quite quickly. You need to look at the long-term trend, and not a single point in time may not be necessarily the best representation. For us, what is important is that we are seeing strong growth in volumes across many geographies. We have a good pipeline. We have a rejuvenated, re-energized sales team. We think there are plenty of opportunities. Remember, it is also a team that has changed the leadership around that in the middle of the quarter.
We think actually, because we're looking at, in a sense, the past, something which is already six weeks old, if you want, in terms of numbers, we expect to see positive results also for the organizational changes and the upgrade of the team we've made. Sorry. Advance. Again, we confirm the targets we have given in terms of growth.
The next question is from Simonetta Chiriotti of Mediobanca.
Hello, good evening. A couple of questions from my side. The first is on the trend in volumes that was very strong in Italy, especially in the NHS segment. The question is, if there is, as I suppose, an impact of the large contracts that you have announced last year, possible to give a color of how much comes from that large contract? On the contrary, the PA segment is not so brilliant. If you could comment what is happening there and also in Spain. The second question on the rescheduling impact, which was negative above last year. You did not provide this data previously. If you could help us to understand this dynamic. Thank you.
Yes. On public administration in Italy, I think that's driven mostly by the lower volumes that we've seen around utilities. In Spain, the volumes have been driven down, have been driven mostly by a contract that we have lost, but was a contract which has a fairly low marginality with a relatively limited amount of API interest. Therefore, profitability for us was not very significant. In terms of profitability, Spain is actually above budget for us. In terms of the rescheduling, if we have given the details, we've also given changing in the accrual rate, that number, the bigger impact on the net overall recovery, so it's better to provide it split. It's simply, as I mentioned before, the question of Andrea's effect that we haven't collected some older invoices which we're expected to collect in this quarter, and it didn't happen.
For us, we take a very prudent approach to accounting. So we take the same internal rate of return, assume a new collection date, and take a provision on the revenue level, which keeps the IRR constant. In the recurring interest rate environment, it means actually we're deferring it more than proportional to profitability.
Thank you.
As a reminder, if you have a question, please press star then one on your telephone. The next question comes from Giovanni Razzoli of Deutsche Bank.
Good afternoon. Two very quick questions. The first one is, if you can share with us how much of the decrease in risk-weighted assets is related to lower operational risks, because it's mentioned in the press release. The second question, again, on rescheduling the EUR 12 million. There has been a postponement in the payment schedule. I was wondering what was driving this, if it's normal in your opinion, and what makes you confident that you can recover this in 2025 in the next couple of quarters. Thank you.
Yes. In terms of the recovery, next couple of quarters is really a mechanism of accrual. We are keeping the accrual rate constant and very close to the P&L. We expect to collect those receivables in the following quarters.
Just to interrupt you, but your voice is very noisy. Can you speak louder? Because I struggle to understand.
Sorry. We were reaching out with some paper in front of the meeting. Thanks for letting me know. What I said, in terms of rescheduling, that amount is then spread out over the expected collection time of the invoice, which is usually a few months later, so that gets in the interest rate in the following quarter. Therefore, the actual collection. If, for instance, we collect earlier than our expected collection time, then that amount actually goes to the P&L immediately. That is how the mechanism works. In terms of the impact on RWA, leave it to Giuseppe to answer.
It's around 40 basis points in the reduction of, so the increase of common equity is rounded to operational risk decrease. And it's expected to remain constant over the next few quarters.
That's also important in terms of operational risk, because remember, the way the mechanism works is very much linked to reported profitability. After 2025, we'll lose, in a sense, 2022, where we had one-off effect of the accrual of the EUR 40. Even going forward, as Giuseppe mentioned, besides this year, we should actually have this benefit persisting over time, even with an increase in profitability.
For any further questions, please press star then one on your touch-tone telephone. This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Belingheri and Mr. Sica for any closing remarks.
Thank you. Thanks for joining us tonight and for the questions. We welcome the opportunity to talk to you in the future. Thank you very much.
This conference has now concluded. Thank you for attending today's presentation. You may now disconnect.