Good afternoon. This is the Chorus Call conference operator. Welcome and thank you for joining the Banca Generali first quarter 2022 financial results conference call. As a reminder, all participants are in listen only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. At this time, I would like to turn the conference over to Mr. Gian Maria Mossa, CEO and General Manager of Banca Generali. Please go ahead, sir.
Very strong and very positive of the recurring net profit, up by 43% year-on-year and closing at EUR 53.2 million. As I said, this is the result of the contribution of all the repricing initiatives in the banking, insurance and asset management space. This has in part compensated the negative effect of the market. In terms of variable net profit, instead, you see a lower contribution, comparing year-on-year basis at EUR 15.1 million, basically driven by lower performance fees. Page six. Let's start from net financial income. From this side, only positive news. The quarter stayed at EUR 22.5 million of net interest income. It's the strongest quarter over the last five quarters. The trading gains stand at EUR 4.6 million, with yield on net interest income at 0.6%.
Of course, thanks to the new scenario of the interest rate, here we are more confident on the result of the full year. We closed last year in the range of EUR 83 million, and now we review our target for overall contribution of net interest income at around EUR 100 million. It means an increase of almost, around 20%. Moving on, next page. Page number seven, where is the focus on the total gross fees. Total gross fees are in line, of course, with the recurring net profits. You have the recurring components very strong double-digit growth year-on-year. A slight reduction quarter-on-quarter, while variable fees, as you can see, down by almost 88% on year-on-year basis.
Total gross recurring fees on total assets stands at 1.17%, in line with our targets announced at the investor day. Next page. Now we will enter the gross fees. Two main components, the management fees and the other fees. Management fees close to EUR 210 million. Again, also in this case, double-digit growth year-over-year. The average managed assets down just 1%. The average quarter-on-quarter. Profitability here is at 1.43%, and it's again in line or even higher than the target we announced during our investor day. You remember very well we set a target above 1.41% because we had very conservative projection to the market dynamic. Unfortunately, now the trend is even worse than what we previously expected.
Thanks to all the initiatives we launched last year, we continue to stay above this target and we continue to be positive to achieve all the targets we announced. Page nine. There is a new representation of other fees. You have, as you well know, four main components. The red part of the bar is about entry fees. Entry fees has two main components. One is about structured products and certificates, and the other one is the traditional banking fees. So it's more cyclical as a component, down from EUR 9.2 to EUR 8.8. Second block is about brokerage fees. More resilient to the market volatility is at EUR 11.3, so pretty constant. And then advisory fee and other banking fees. Advisory fees is confirmed the same level as last year.
This is up, thanks, basically thanks to new contracts, while other banking fees are almost stable over a year. The overall margins and profitability of other fees, recurring fees is around 0.17, in line with the average of 2021. This is about revenues. Now move on to the cost side. Page 10. This is a new representation of the total payout ratios. Let's start from the FA network. You know, we have the two main components, the ordinary payout and the cost of growth. Ordinary payout stands at 35%. That is slightly lower than the threshold we set during our investor day. It was 36%. You see also a lower cost of, let's say, growth.
This is an example of how efficient is our model that the cost of growth is strictly connected and correlated to the quality of the net inflows. Now stands at 10.0%. The overall payout ratio to the net is about 45%, while payout to third parties is pretty stable over time. You know, we do expect a level around 6%. Overall, here you have the two components. One is brokerage, and the other one is about third-party asset managers. Overall, payout ratio below 51%. Let's say that in a very challenging scenario of the market, I do not expect significant acceleration of the payout. In case of normalization of the market, we think that the range could be 52%-53%.
Moving on, let's say, other costs, the internal cost of the bank, operating costs. Here you can see that on the left you have the total operating costs with the breakdown of the core components and others. In the others, you have the one-off as well as the sales personnel costs. Sales personnel costs are a little bit higher. This is about the relationship managers or banker employees, and this is due to the incentive scheme for the great result of the last year. While the core operating cost is up by 5.9%, also once having included the cost for growth and the BG plan project in Switzerland. On the right, you see the breakdown of the core operating cost, and the first block is about the Swiss project, BG Suisse.
As you can see, the increase is from 0.4% to 1.5%, so a part of the growth of the core costs are linked to growth projects. For the other components, as you know, it's the first quarter. There are some seasonality, but we are confident to be in line with our targets. Of course, if the market remains challenged, we'll be closer to the lower band than the upper one. Page 12, the efficiencies of our machine, all the ratios are at top level in the market. You see a slight increase in the operating cost out of total assets just for the reduction of total assets. Then cost/income ratio, that once excluded the more volatile component is even lower than in the past, 40.4%.
To sum up the first part of the presentation, this is pretty impressive. The healthy trend of the recurring fees, as I mentioned, is strictly driven by the extraordinary job of optimization and efficiency of the price, or the pricing scheme of several products last year. Costs are under control. When we move below, let's say, the operating items, you see lower provisions for contractually indemnities for the network. We have updated, with an upward revision, the discount rates for the, let's say for the pension requirements, and this is, of course, has a positive effect. Last comment on the direct income taxes, at 22.7%. We had a target of 22%. It's slightly higher due to the lower than expected contribution of the Luxembourg business, strictly connected to the performance fee.
Now, there is a new chapter named Balance Sheet and Capital Ratios. Just to give you an overall picture, at page 15 of our balance sheet. Our balance sheet at the end of the first quarter stayed at EUR 17 billion or EUR 800 million higher than the end of the last year. This is driven basically by client deposits up by EUR 0.7 billion. You see as a consequence, the interest-bearing assets increase for the same amount. Some positive aspects of our balance sheet. First of all, the loan portfolio, the cost of risk first quarter was zero, and the NPL ratio of total loans stayed at 4 basis points.
For the financial assets, we have almost 60% of the portfolio that is linked to variable rates. You can see even better in the next page 16. If you look at on the bottom right of the page, you are pretty familiar with this slide. The duration of the portfolio is the overall duration stayed at 1.3. We are ready to take advantage of any acceleration of the interest rates. The last page 17, is about capital ratios. These capital ratios are based on the new dividend policy applied with the new business plan. You remember we introduced two different ranges.
The first one was about the recurring net profit, and it's in line with the previous range, with the previous you know three-year business plan, so EUR 70-EUR 80. Then we have widened the range for the performance fee in the range of 50%-100%. Of course, all the capital ratios are worked out with a very conservative approach, considering the upper bound of both ranges. Total capital ratios closed at 17.3%, with CET1 at 16.1%. All the liquidity ratios are well above the requirement provided by the regulators. Again, a very strong balance sheet, very conservative approach, ready to take advantage of any upward revision of the expectation on interest rates.
Already in place, part of the benefits of the recent increase of the rates. Now let's move on to the third chapter. This is about, let's say, total assets and commercial activity. Also, in this case, you will see some new contents. First of all, at page 19, there is a different representation of the total assets in the three traditional blocks. On the left of the page, you have the asset under management, the asset under custody, so stocks and bonds, basically, and the current accounts of the clients. Then there is another information. Extra information is about the asset under advisory that stays at 8.5% of the total assets. On the right, you see the focus of the asset under management in two main components. The first one is managed solutions.
The part of the portfolio, let's say, that is exposed to the market volatility, they stay at EUR 42.5 billion or, let's say, 1.7 less than the end of the year. You have a more stable results in the traditional life policies, staying at EUR 16.1 billion, where the decrease is driven by the, some maturities and some disinvestment. The overall contribution of assets under management on total assets stay close to 70%, and the overall contribution of managed solution is still above 50%. Next page, two deep dives. The part of the asset management products, both in-house and third party, and the deep dive of the insurance products. Let's start from the asset management products. You know we have two, let's call, in-house families.
The first one is about in-house funds, the second is about financial wrappers. What is encouraging and positive is that during these volatile moments, the financial advisors are more prone to increase delegation. You can see that the discretionary accounts, the financial discretionary accounts are more resilient to the crisis due to also positive inflows. You see the reduction of third-party funds and in-house funds is very similar, the reduction. It's about EUR 800 million for the third parties, and it's about EUR 500 million for in-house funds. On the left bottom of the page, the ratios. In-house funds out of total assets, 11.7%.
In this case, it could be very useful also to consider the overall in-house funds, so summing up also the financial wrappers, and you see that the result is at 22.8%. On the right, we already commented on traditional life policies. The overall exposure of the bank to insurance products stands at 32%, and especially in these moments of the market, and is one element for our ability to over-perform the competitors in this scenario, stands at 32%, and the insurance wrappers are close to EUR 11 billion. Also in this case, you see that these kind of products are less impacted by the crisis. Now, the same representation of the total assets is in at page 21 for the net inflows. You know very well these numbers. We already announced to the market.
First quarter, in terms of net inflows, are almost in line with the first quarter of last year, EUR 1.5 compared to EUR 1.7. With a more conservative approach mix, with the banking assets is twice the level of the first quarter, so EUR 0.6 compared to EUR 0.3. The asset management component is well diversifying the different solutions, which is another element of strength of our bank. To have the opportunity to offer different solution in a more volatile context. Page 22, positive information because the contribution coming from the existing network is in line with the past, EUR 1.1.
What is below the targets or below the results of the last year is the contribution of new recruits, but just because transferring assets in this moment is a little bit more complicated than in normal times. Outflows are in line with the historical levels. Recruitment trends, first quarter lower than the same period of last year, 33 new colleagues. We will see that in April we have accelerated the recruitment activity. Page 23, this is a deep dive on ESG solutions. It's another point of strength of our offering. We are at EUR 6.3 billion. You see that this kind of asset class is more resilient, just down by 0.2%, thanks to an increasing penetration of these solutions.
Increasing penetration is also driven by constant positive net inflows, up by EUR 200 million in the first part of the year. Page 24 is the breakdown, the communication of the results. In April, again, EUR 500 million, very sound and solid, with 60% coming from asset management products and with a negligible contribution of banking's assets. Very good quality business results. In terms of breakdown, well-diversified. In terms of new recruits, as you can see, in April, we insert 17 new colleagues. The result year-on-year now stands at 50 new private bankers. Page 25, there is a focus on our financial advisory networks.
Another very strong element of Banca Generali is the constant growth of numbers of financial advisors without penalizing the quality expressed in terms of asset and portfolio average. You see we continue to increase the sales force. This is driven by recruitment, of course, but even more by very low churn rate and very high retention rate. Bottom line of the page, you see the numbers of teams. We continue to increase the number of teams. This is very important also for succession planning goals. This stands at 13% of the total assets with a portfolio average of teams of around EUR 85 million. On the left, you have the breakdown for size, portfolio size of our financial advisors who are wealth managers.
Bankers with more than EUR 50 million stand at 36% of the total assets. Now, moving on, the last section that is about business update. Before commenting the business update, let me say that the quality of financial advisors in this situation matters more than in normal times, so we are confident to properly manage the trust with our clients. All our financial advisors are very focused on their relationship with our clients, even at the cost of losing some opportunities. It's really important to stay close to the clients in this moment and being very focused on our strategy for the next three years. At page 27, you see a sum up of what we announced during our investor day.
Basically three clear pillars, starting from our vision, increasing, constant increase of the value services, the focus on innovation and sustainability as an engine to everything we do. Clear guidelines and very concrete action. As I said, we are almost ready to launch the first dedicated affluent client product, and I'm at page 28. This is about a new product based on ESG approach, so it's about people, it's about our planet, and there is an automatic engine to reduce the risk exposure of our clients. It's a very well-diversified portfolio with a risk engine mechanism, and this is well thought for an affluent client.
As we introduced during our investor day, the offer will be more and more targeted on specific kinds of clients. Again, sustainability is an important part of our strategies. In this case, the product is 100%. It does not mean that it is exposed to 100% of the beta of the market because we built a product with an engine to reduce exposure to clients during higher volatility periods. Last but not least, I want to leave you before opening the Q&A session with three main messages.
The first one, and this, to me, very important, is that we confirm of all the strategic and financial targets of the next three years, and you see at page 29 a representation of the three first level targets we shared together in February. Second, recurring earnings growth. It's very healthy, and it's working pretty well. Of course, the impact of the market is negative, but we have been working significantly to offset at least part of this downside pressure, especially in terms of margins. The third is that we have a very strong historical track record in managing these kind of moments, and both thanks to a more diversified portfolio, and second, that is very connected to the first one, the quality of our professionals.
Now I leave the floor for your questions. Thank you.
Thank you, sir. Excuse me, 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 your question, please press star and two. Please pick up the receiver when asking questions. The first question comes from Luigi De Bellis of Equita SIM.
Yes, good afternoon to everybody. I have some questions. The first one on the banking and recurring gross fees, solid trend across all business line. What do you expect for the other quarters and the full year 2022 for the main blocks? The second question on the NII, can you provide a sensitivity to interest rate and with the current interest rate curve, a guidance, also for 2023? The third question on the items below the operating line, can you provide us a guidance for the net provision and contribution to banking funds for 2022? The first question on the net inflows. We have seen, for Banca Generali in the industry a resilient performance so far, despite the negative performance on financial market.
In your view, why this time is different compared to the other past correction of the market? If I may, the last one. On the performance of your clients, very tough equity and bond market in Q1, can you elaborate on the performance of your products to customers in Q1, 2022, and what kind of reaction and how are you managing the relation with your customer in this tough time? Thank you.
Thank you. Let's say that I start with some answers, and then I leave the floor to Tommaso. Gross fees. In terms of margins, considering the market at the end of April, I continue to be optimistic to stay above the target we announced during our investor day. If I remember, it's about 1.41%. Of course, if you have in mind a new leg of negative performance will be hit, but we have an advantage that our portfolio is very well diversified. Think of the traditional life insurance, think of the discretionary financial wrappers, as well as the discretionary insurance wrappers, the significant buffering of current accounts. Of course, we'll be hit. We will be hit, but I think that we.
In terms of performance, I answer also to your fifth questions. I think that we are, in relative terms, performing better than the average of the market. The overall performance is just around -5%, -6% at the end of April, and it's the equivalent of the performance of 2018. It's, of course, numbers are not good. Of course, there is also dispersion of these numbers. Comparing with, let's say we run competitive analysis, and we are better positioned, especially in a part of the discretionary financial wrappers and of course, also for the insurance contribution. In relative terms, if you think of important clients, it's all about relative terms, not the absolute terms, and there is a plus.
Let's say that we are still in the situation in which it's the relationship with the clients is manageable because, I mean, we have the threshold of -10 as an average, as a situation of a critical situation, so we are pretty distant from that situation. We continue to consider this a correction. We can continue to dedicate time to the relationship with existing sales force and the existing clients, and part of the time to develop new business. Why the inflows are, in relative terms, stronger than the past? Because, let's say we are getting more and more used to such a correction of the market. Also, we are better organized to dedicate the right time to the existing clients and to commercial activities.
By the way, we are planning several initiatives for June and July. Say also about the quality of the bankers. Remember that the commercial banks sold a lot of asset management insurance products with lower advisory in terms of not only transparency, but also less prone to see the clients, explain what's happening. The maintenance of the portfolio is crucial in this moment. If you can go to clients before clients call you, this makes the difference, and this is how we are approaching our clients. In terms of other fees. The gross fees, we say management fees, margin should be pretty stable.
Of course, the net interest and fee, the net inflows, the mix will depend mostly from what you expect from the market. Again, the mix in April was good. Let's see what's going on, what will happen in the next months in terms of performance. In terms of other fees, positive in terms of brokerage fees, positive in terms of advisory fees in the way that are a little bit more resilient than management fees, but will be hurt, of course. Banking fees are, of course, positive. Let's say, front fees, structured products certificates could be hurt in case of adverse moves of the markets. Overall, I'm still positive. I think that we can stay at the same level of last year.
Again, it depends mostly on what you expect from the market side. For the sensitivity of the net interest income to interest rates and the comments on, let's say, the non-operating lines, I hand over to Tommaso. Thank you.
The first question was about net interest margin. As we said before, the guidance for 2022 is to increase the net interest of around we expect 20%. In the range of EUR 100 million in absolute terms. The sensitivity that we gave is around EUR 70 million of increase in net interest margin. If we test an increase, a sudden increase of 100 basis points of the curve, a parallel shift upwards. Of course, going forward, in 2023, we expect to have a further benefit because our duration is very short. We have one year and three months.
This means that basically after one year all the book is repriced. Also the lending part is exposed to variable rates. We have an important benefits also in 2023. We don't give a specific guidance, but we expect further important benefit also in the next year. For the net provision, well, our guidance, we expect to stay in the range of EUR 35 million-EUR 37 million by year end. The contribution that we expect on resolution funds is around EUR 15 million-EUR 16 million per year. This is our internal forecast. I think that was all.
Thank you very much.
The next question is from Giovanni Razzoli of Deutsche Bank.
Good afternoon. A couple of clarifications on my side. One is on NII. I was wondering how much of the 12 basis points increase in the asset yield that you recorded year to date is related to the impact of inflation-linked securities. As we haven't seen that much of increase in short-term rates so far, going forward, if the expectation on Euribor were to materialize, this 12 basis points of increase may rise further. The second question, back to your comments on NII, my perception is that you are very well positioned to a steepening and to a parallel shift of the yield curve. Now we have seen a steepening. In the future, we'll expect a parallel shift. I was wondering whether my understanding is correct or not.
The last question on the impact of the rising rates environment on your commercial policy. I was wondering whether the rising rates that we've seen so far, especially in the, you know, five, 10 year tenor, offers you more commercial opportunity in the future. For instance, I don't know, some products that were out of fashion last year now become more attractive, like, I don't know, class one products and multi-class certificates. Also, becomes more, for clients, more interesting to switch out of deposits into asset under custody, so especially more managed assets. My point is this environment creating opportunities also in terms of fees rather than price for, you know, the potential negative impact of the NAV of fixed income funds? Thank you.
Thank you. Let me start from the second question, then I will introduce the first one, I will hand over to Tommaso. Let's say that in a competitive landscape, we are the best positioned to take an advantage from any increase in the interest rate. I would say at least for three main reasons. The first one is about advisory. When you start having positive interest rate, it's easier to provide an advisory service paid by the client. And we have, you know, we developed robo for advisory. We have a very, very strong competence center in the bank. Let's say that we have all the instruments, the capabilities and the professionals to accelerate the advisory service, the advisory fee model. Second, we are best in class in certificate.
You are right, of course, if we have higher spread and higher rates, this is the place to be for the certificate. As you know, I'm very conservative in accelerating the overall weight of certificates. I prefer to maintain a sort of constant exposure and to negotiate on the secondary and then working both on the secondary and primary markets. Again, we have a competitive center. Third, even more important. We haven't discussed yet, but if you are convinced of any permanent increase, or to say, of the interest rate, traditional life policy is the place to be. You know how difficult was to transform our commercial approach from a traditional life policy driven proposition just to, you know, attract clients to a, let me say, an advanced advisory fee model.
If you have in mind, let's say, at least a normalization over the years, I see tremendous opportunities from, starting from next year for net inflows, first of all. For all these reasons, at this level is a great opportunity. It takes time. It needs some stabilization of the market, because the first message we have been giving to the client, to the financial advisors to stay as close as possible to the existing clients. In terms of net interest income, you are right. There is a portion of portfolio that is about inflation-linked, boosted by what's going on. But the real effect, the strongest effect will be in the second quarter.
In the first quarter it is a tiny contribution. For the details, Tommaso will give you more flavor of the.
Yes. We have, I have to say, as an exposure to inflation link around EUR 20 million. We had a benefit in the first quarter of EUR 3.5 million in terms of higher interest margin. Of course, we expect that in the second quarter we will have a further improvement in terms of benefit that we can have from the inflation link exposure that we have. If you look at our exposure, we think that of course the benefit must be will be major in the future because the parallel shift is not what is really happening in the market. The short-term interests are still negative.
The benefit that we will have going forward will be much higher. This is how we structure our balance sheet. Also because we have to remember that on the liability side, we have that also the current account are a fixed rate at zero. We don't have any automatic review of the interest rate of the clients. The mark up and mark down will increase in the next quarter.
Thank you.
The next question comes from Angeliki Bairaktari of Autonomous Research.
Good afternoon. Thanks for taking my questions. First of all, a question on an article that came out by Bloomberg a few weeks ago with regards to some trade receivables that you have distributed to some of your customers. There was an article that alleged that customers were sitting on potential losses on those trade receivables. Considering the history of last year, you know, Banca Generali buying back the securitizations with underlying healthcare receivables from the same arranger, if I understand correctly, could we see a repeat of that this year? If your customers are facing significant losses, would you consider stepping in and actually buying those trade receivable securitizations this year? That's my first question. Second question, I understand that the management fee margin declined by four basis points.
You mentioned that around 2 basis points of that was due to a more cautious allocation out of equities and into flexible funds. Can you give us the percentage of your managed assets currently split into equities versus flexible and balanced and versus fixed income funds at the moment? Where do you expect the equity exposure to land? I remember a few quarters ago, obviously the market was very different. You were guiding for an increase in equity allocation within total managed assets. Is it fair to now assume that there could be a further decline in equity allocation in the second quarter? Thank you.
Thank you. First of all, on the securitization side, let's say that based on the information provided by CFG, let's say the situation, the critical situation as we can define that, it seems restricted to two specific exposure to Sudan and Cuba. There is no any intention of the current situation to consider any repurchase of the assets. Again, just two different stories, at least with the information we have today. I in this moment, I'm fully committed to manage a reduction and a market effect of -EUR 3.4 billion. Our attention is mainly there.
It's an asset class, the trade finance, and this can be subject to market volatility. At the moment, CSG has confirmed that is very limited to these two countries. In terms of asset allocation, this is a very good question because you know you are right in the whole industry and the whole market increase equity exposure over the last two years both for commercial activity, but even more important for the market effect and the equity exposure today stands at close to 27%, between 27-27.5%. Consider that this is the overall exposure, so out of 100%. Consider that this is a number worked out at the end of April.
May started very bad. I don't know exactly the numbers of today. The flexible products, I don't know whether Tommaso has the. Because we are, we work out the overall equity exposure. I think that if you. Because the discretionary accounts, for example, almost 50% are variable. We have different structure, different flexible products, both in-house and third parties. Now we are looking at the number. If.
The alternatives.
The alternatives. Yes, we have structured alternatives and flexible and balanced. I don't have in this moment the overall exposure. We will give you the details, after the call. I'm sorry, but I have in mind the overall asset allocation, but working out the equity exposure, so, of the underlying.
Thank you. If I may just follow up on the management fee margin near term. I hear your guidance that you don't expect this to fall below the 141 basis points target or floor that you indicated with the business plan in February. In terms of second quarter, if we assume that the markets are, you know, at the current levels that we see them in March, which are obviously below, sorry, in May, which are obviously below March, is it fair to assume that there could be another leg down from the 143 basis points that we saw for the first quarter?
No, the 1.43 has been worked out with the market condition as of the end of April. Okay, there are one week of downturn in May, but let's say that is a pretty up-to-date with these numbers. Tommaso, if you want to give.
Because the first quarter there is, I mean, this effect, because it's the quarter. There is an effect of almost one basis point linked to the [audio distortion] affecting days that we have in the quarter. There is some seasonality in the first quarter that will be recovered in the second, in the third, and in the fourth. We don't expect effectively to have a change in terms of profitability in the second quarter, at least with the present market condition.
That's very clear. Thank you very much.
Gentlemen, at this time, there are no questions registered.
Okay, thank you for participating in our conference call and hope to see you soon. Thank you. Bye.