Welcome and thank you for joining the MPS Group 2Q24 and 1H24 results, and financial target update, and business plan 2024-2028 presentation. 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. Luigi Lovaglio, Chief Executive Officer and General Manager. Please go ahead, sir.
Thank you very much. Good morning, everybody. Welcome to Monte Paschi's first half results and business plan presentation. Today, I will first highlight some key achievements after six months of the year, and then walk you through our evolving journey that combines technology with the human touch, inspired by a strategy that always revolves around our customers. So let's start from financial results. Net profit after six months at EUR 1,159,000,000, of which EUR 827,000,000 in Q2, that includes a positive net tax effect of EUR 450,000,000. Solid improvement in the operating performance is visible in gross operating profit that crossed EUR 1,100,000,000, increasing by 18% compared to last year, and supported by EUR 555,000,000 profit of the second quarter. The result was driven by almost double-digit growth in revenues year-on-year and effective cost management that enabled us to practically absorb the impact of labor contract renewal.
Cost-to-income ratio has further improved to 46% versus 49% in first half 2023. Revenues above EUR 2,000,000,000 in the first half and higher by almost 10% compared with last year, thanks to strong growth in both net interest income, up by 8.3%, and fees income, up by 9.8%. This growth is driven by a 20% growth in wealth management fee. Operating cost under control, and they remain at EUR 925,000,000 in the first half. They are marginally growing, and this is the combination of the effect of ongoing optimization of non-HR costs that are dropping by 6.7%, that are almost offsetting the impact of labor contract renewal. On the volumes, in saving, the growing trend is confirmed. Commercial savings are up by EUR 6.5 billion, and this is a trend since the beginning of the year, and by EUR 2.7 billion in the second quarter.
We are reporting a growth both in deposits and assets under management. Net non-performing loans remain substantially stable versus the end of the previous year, and this is a full reflection of the market trend. As regards asset quality, cost of risk at 52 basis points after six months, in line with the guidance. Gross NP ratio at 4.6 and net at 2.4, slightly up, but then we will elaborate on that. The NP coverage improved to 49.8 and is up by 70 basis points versus December 2023. We are keeping and confirming our strong liquidity position with LCR about 160 and net stable funding ratio about 130. Counterbalancing capacity is now above EUR 33 billion. Finally, fully loaded CET1 ratio in June at 18.1%, at the top of the banking system.
That includes first half net profit net of dividend, assuming a payout ratio increased to 75% from the previous guidance of 50%. We are keeping a significant buffer compared to the Tier 1 ratio's regulatory requirement. Now, let's go quickly through more details of our results. As I mentioned, net profit after six months at EUR 1,159 million. The result is higher. There is an important contribution in terms of net positive impact on tax, but just, and you will see later in some slide, as I mentioned last time, tax assets are assets of this bank, and they will become more and more important, more and more visible in the coming years. So it's not a one-off. It's an important positive component that is part of our balance sheet.
The contribution of the second quarter to net profit to EUR 827 million, we have the EUR 450 million tax positive net tax.
If we make a comparison in terms of homogeneous entities, we can see the dimension of the growth of our pre-tax profit is in terms of double-digit. Gross operating profit, as I mentioned, we crossed in the second quarter EUR 1 billion in terms of income, and then we reported a flat trend in terms of cost. As a combination of the two, we have a gross operating profit at EUR 555 million.
As a result of this positive trend, we are further improving our cost-to-income ratio. If we look at the dynamic year-on-year after six months, we crossed at the end of June the EUR 1 billion of gross operating profit, thanks to EUR 2 billion of revenues that are up almost 10%, and a marginal growth in terms of cost that was capable to absorb most of the impact of the labor contract renewal. After six months, cost-to-income is down to 46%.
Now, let's look at net interest income evolution. In the second quarter, net interest income amounted to EUR 585 million, almost at the same level of the previous quarter. And year-on-year, we are crossing the EUR 1 billion in line with the guidance, with a growth that year-on-year is up by 8.3%. As is visible on the slide, we are resilient in terms of spread despite we are paying more deposit, and we are keeping in a good position also the overall lending rate. Now, let's move to the volumes. We are substantially flat from the beginning of the year. It's important to mention that if we look at the recent statistic in terms of market share, anyway, the bank is keeping growing. So despite we are decreasing, we have to say that we are decreasing less than the market. Positive trend in terms of savings.
Overall, we are, as I mentioned at the beginning, crossing for more than EUR 6 million. We have more than EUR 6 million in additional savings from the beginning of the year, and the quarter was quite positive with almost EUR 2.7 billion. The trend of deposit for us is quite important, as I was mentioning, but as well, I would like to remind that this action we put in place in the first half of the year were aiming at increasing the base for further conversion of deposit, especially of retail, to value-added products like asset management, bancassurance.
Now, we are using the tactical approach from now on, and this process started already in July, and we will be very selective, trying to make some privileging decision in terms of price more than in terms of volumes, as we believe we have enough buffer to organize our commercial action for conversion in asset management. Now, Govies, I will go very quickly. We are keeping overall banking book portfolio is basically stable, and we keep, and it's visible in our policy to use the portfolio just as support to liquidity. Majority of the portfolio is in what we call amortized cost portfolio. Now, fees and commission, I think, is a very positive message coming in this quarter because the first one was an exceptional quarter in terms of fees and commission, and we are replicating almost at the same level also in the second quarter.
So practically, the level of commercial banking is slightly up by EUR 10,000,000, and the wealth management advisory fee has slightly down much more for the continuing fees, so in some way connected with the market, but there was a very positive also commercial action put in place by our team. So total fees after quarter-on-quarter are slightly up. And if we look at the overall fees year-on-year, we are growing almost 10%, reaching and crossing the level of EUR 730,000, with a very good performance at the level of wealth management advisory fee. This is what we want to keep, and as you will see in the next slides, we count a lot on this capability that we are implementing and benefiting in terms of revenues generation in the area of asset management, bancassurance product. Cost, excellent results.
Despite inflation, we are keeping the cost almost at the level of the first quarter. There was a very good level. Also, HR are flat. So overall, quarter-on-quarter, positive trend, and I believe is even more significant if we move on the first half, where practically we are completely absorbing the labor renewal of labor cost, so the increase of more than EUR 30 million in HR for this reason, with significant reduction on non-HR cost. Now, gross NP ratio. In this slide, as you can see, practically we slightly increased the NP ratio, and also the stock is increasing by EUR 100 million. But it's worth, and I believe it makes really sense to spend a few words on that.
If you look at the EUR 3.7 billion that we have at the end of June, a significant portion of that, and I will try to give some figures on as far as the split of this portfolio, we have almost EUR 1 billion that are secured by the state guarantee. We have almost EUR 700 million that are forborn mortgages, and we have almost another EUR 1 billion that are other real estate guarantee. Practically, we have only EUR 1 billion that is unsecured, and the level of coverage on this unsecured is about 70%. So as we were, I was already mentioned, now we can sell anytime portfolio we are ready, but considering the composition, we try first to find solution, especially for the retail mortgages.
I have to say the forbearance that we have already in place are regularly paying, and so we have a clear timetable where practically we expect this portfolio to go to bonis. And so we have really, we are paying a lot of attention in order not to destroy value also on this portfolio. From the next slide, you can see the cost of risk is in line with the guidance, and the coverage improved to 49.8%, and this improving is practically 30 basis points quarter-over-quarter, 70 basis points since December 2023. Funding, as I mentioned, next slide, we have a strong position on liquidity. We reduce significantly the reliance on ECB funding, and we keep a very high level LCR ratio and NSFR ratio as well.
Now, capital, I was already mentioned at the beginning, this is a bank that is capable to generate capital, and the reason is because we have a strong discipline in risk-weighted asset. We invest in terms of loans on customers that have a density that is lower compared to the average even that we have now. We are trying day by day to adopt an approach of housekeeping in order to optimize not only on credit risk, but also on the other side where we have allocated risk-weighted asset, and this is a trend that makes us confident can keep on going. So practically, despite we are increasing the guidance in terms of payout from 50%-75%, our capital is well above 18% and makes us confident that this is a level that can be maintained throughout even our new business plan.
Now, I will move on to the business plan 2024-2028. The good results of the first half are setting the base for the financial target. So the business plan 2024-2028. And in order to facilitate the financial target comparability, we provide you with an estimation to be considered for illustration purpose of 2024 projection. So what has been achieved is the first half according to also guideline that we gave, we make an estimation 2024, then in order to make comparable for the purpose of analyze the trend from 2024-2028, we are also excluding Monte Paschi Banque that is our French subsidiary for which we have a negotiation ongoing for the sale, and it's been already classified as discontinued operation. By the way, I think it's worth also to mention that we are speaking about less than EUR 20 million contribution to the gross operating profit.
So excluding this bank, the 2024 that we are forecasting is the starting point for the P&L projection of the business plan 2028. Now, the strategy of our previous business plan has worked very well. So we are going further than our financial targets and well before targets and well before the schedule. So we are evolving our way to do commercial banking to serve families and corporate business. We name this new plan Clear and Simple Commercial Bank, revolving around customers, combining technology with human touch. As you know, it's quite common to talk about client-centric organizations. We prefer to define us as a bank which is revolving around the customers as our clients represent our unique energy, and the better we serve them, the stronger we become and grow.
We aimed at enriching our business model sustainability through enhancing and innovating initiatives that are underpinned by digitalization and new technologies, leveraging as well on our strong historic franchise and talented people. And all that will be driven by our ESG culture. Now, let me provide you with some key financial targets of the plan, and then I will present the strategic and enhancing initiative that are supporting those figures. So a clear and simple commercial bank revolving, and I want to stress the revolving approach around customers will deliver a delta compared to the end of 2024 of EUR 155 million of fees and commission in 2026 and EUR 260 million in 2028. The cost-to-income ratio will remain at the level of 50. The cost of risk will decrease to 44 basis points in 2026 and 54 basis points in 2028.
The pre-tax profit will reach EUR 1.4 billion in 2026 and EUR 1.7 billion in 2028. As I was mentioning, our capital will be above 18% over the whole period of the plan. Now, let's move to our evolving journey. I will go very quickly at the beginning of the slide. First of all, why we are entering this new business plan? Because we surpassed business plan target for 2026. We need to update our financial target to 2026, even beyond to 2028. Now, I will not bother you with all the achievements, so I will skip the next slide. I will come to the second reason why we need to update our plan. Macro environment is changing. Industrial dynamics and customer preferences are new and needs have changed.
That's why we have worked to define the evolution of Monte Paschi journey, adding to our strategy that is a strategy very clear from the very beginning, starting from the business plan of 2022. And we are adding to our strategic clarity some enhancing and innovative initiative in order to make for our customer our way of banking with us much easier. And we want to provide them personalized advisory service for more complex needs. Now, the evolution of our journey is rooted in our, I mentioned, strategic clarity and is based on few initiatives. As usual, we like to be focused on few things, but to do what we plan to do in the best way we can. So first of all, there will be evolution of fee-based proposition. We will have a new dedicated service model for value-added activities.
We are going to enhance our retail lending solution, and we are developing two new verticals for small business. We're going to revamp our platform, operational platform, and then, and this is a message that has been passed through all the organization of the bank in a broader aspect of risk culture. We want to keep a zero-based approach to risk. We are confident that we can achieve all these initiatives, and we will successfully implement them because we have important enablers. First of all, our strong historic franchising and our brand. Second, our talented people and our culture, ESG culture. And third, the investment we are implementing in terms of digitalization and innovation via new technologies. I will go through the key action, and we selected some of them. So the evolution of fee-based proposition will be implemented through the enhancement of wealth management advisory capability.
We are going to be much more active and introducing non-life insurance offering in a sort of holistic coverage of client needs. We have built up a Widiba platform at scale through targeted hiring strategy, and we are strengthening the fee-based proposition for corporate clients, focusing particularly on transactional banking and even more sophisticated solution. The new dedicated service model for value-added activities will be based on new upper affluent segments, so we identify a new segment of upper affluent customers, new wealth management center advisory that we set up in order to develop a tailored investment solution. And then, and this is an important step in our organization, we want to tailor customer journey across multi-channels, ensuring them the same experience with evolved role of branches and face-to-face interaction.
So practically, digital remote channel will be developed in order to do through this channel simple transaction and to have a proactive offer of simple product while physical branches will be utilized more and more for client-facing value-added more complex activity. In order to give a concrete sense on how we are investing in digital and technological areas, we identify specific projects in terms of technological investment that are connected with what we want to do. So we want to give a strong concrete aspect to our investment in order to optimize the money we are putting inside and at the same time to create discipline for responsible achievement of the investment we are putting in place. So we are enhancing, further enhancing Athena that is a platform for several functionalities, and this is the next step, the upgrade we'll have to better support customer wealth planning.
We are going to introduce advanced analytics and also AI tools for better understand through behavioral scoring if we have hidden value clients that today we are not capable to identify. We are going to invest significantly in CRM for Widiba, and we are going to use, as I was mentioning, this digital hybrid channel like digital branch and modular platform for enterprise to enhance the role face-to-face interaction. The web collaboration remote advisory tool will be as well used to integrate the customer journey. Today, we have several processes that are end-to-end, but now we want really to step up significantly in this process in introducing remote advisory tool and also to develop much more our capability on onboarding to post-sale support.
All these actions and investments that are connected will bring us, will give a strong contribution to the EUR 260 million increase in total fees over 2024-2028, and of which EUR 185 million, so a significant portion, will come from wealth management and protection fees. The next area is the enhancement of our retail lending and development of new verticals for SME. So we are upgrading proposition for our SME. We focus on mortgage. Mortgage is an essential product that doesn't exist in a retail bank without a mortgage, and you should be a player, a top player, because the mortgage is a hook and anchor product that is ensuring acquiring full relationship across client lifecycle. We want to accelerate in consumer finance. And then on the side of small business, we are developing new specialized agri-food and green energy verticals for SME.
This is a sort of approach with tailored product offering and dedicated commercial organization. So we are going to have to open almost 80 centers. We have expert professionals that will go through a specific training in order to support customers in their planning, in their program as well, in everything that is connected with the chain of production, especially in the agri-food sector. Then we are going to enhance the product offering through the fast lending for micro-business. We set up a specific coverage on the micro-business area, introducing specific scoring as well capability to grant almost on time for this kind of company. Then factoring, that is one of the areas where we are particularly focused. We want to make end-to-end paperless activity and having as well a sort of digital factoring dedicated specifically for SME.
So investment on this area will be a sort of upgrade of what we have already for mortgage. We want also to explore opportunity with companies like Google in order to understand how we can leverage on their experience. We want to enrich a scoring system through advanced analytics for consumer finance. And then we have this direct digital workflow with the corporate client. And this is to goal supporting identification of the serving customer as well as prescoring processes for fast credit approval. All these actions that are improving our asset mix will help us in mitigating the decrease of interest income to EUR 80 million. At the same time, we will succeed in keeping substantially flat net interest income related to commercial activity over 2024 and 2028. From the operational point of view, it's clear that we have to invest in the platform, that operational platform.
So some additional organizational implementation on the area of G&A discipline in order to improve G&A discipline. We are going to set up, as already in place, but it will be probably at regime in the third quarter, a new central dedicated unit for project governance. We want to steer strategic investment and ensure timely execution in order to see that what we are spending will come back according to the original plan of payback. We are going to invest in order to strengthen our IT structure, so MIPS license hardware. And then we count a lot on our most important asset that are our people. So we are going to have a sort of natural generational change of the workforce with hiring talented professionals at the same time with broader upskilling training in order to utilize as the most we can the competencies of our people for value-added activity.
On zero-based approach to risk, I think I already mentioned at the beginning. We are covering all the areas: underwriting, monitoring, and education. It's clear that last but not least, we have in mind to be much more effective in a proactive management of our NP. As I mentioned before, also we are disposed if our action will not be very effective. So digital investment, advanced analytics, digital automation, hybrid channels, enhancement, as I mentioned, upgrade of network services, hardware, and licenses. For the risk, we are discussing with some companies in order to enrich our algorithmic capability, especially for retail. We want to introduce and to reinforce the usage of AI-enabled scoring system as well as early warning or early workflow management with advanced analytic technology. So the cost will be almost flat despite inflation, despite increase of the labor contract.
The cost of risk, as I was mentioning, will decrease from 54 basis points to 44 and 34. Gradually, we are going back to what we believe is a normal level for a bank as Monte Paschi. Now, I believe it's useful with this slide to recap how our model will work. It's a sort of virtuous and sustainable circle which feeds itself. It can grow and reward stakeholders through the investment and valorization of human capital. We increase efficiency. We enhance value-added activity. We control our balance sheet and we approach a zero-based risk.
Then it's a sort of natural results. We have sustainable earnings generation. This is a circle that we want to keep and to maintain year- by- year because it's the way how we ensure the future to our bank. As I mentioned, important growing fees and commission, EUR 125 in 2026, EUR 216 in 2028.
And the interest will decrease, but fees and commission will offset the decrease. So operating income will be up EUR 5 million in 2026 and EUR 216 million in 2028. Cost-to-income at the level I mentioned, cost of risk 34 bps important for net profit, EUR 1.4 billion in 2026, EUR 1.7 billion in 2028. Now, let me just a bit underline this slide because it's clear that, as I mentioned, there is a sort of natural and positive cycle that is generating additional capital. So in 2024, we expected to have a net profit according to the guidelines we gave at the beginning of the year, EUR 1.3 billion. We increased the guidance of payout ratio from 50% to 75%. It means that we are going to have more than EUR 150 million cash dividend. And we will keep a CET1 ratio of 18%.
So just for illustration purpose, we are saying that if we assume in the calculation a dividend similar to this 75%, we are going to have throughout the period of the plan a CET1 ratio above 18%. There is another aspect that I will mention at the beginning that I would like to underline, even if it's not visible, but we are getting closer to the period where this asset of the bank will become visible. This CET1 ratio doesn't yet reflect the benefit CET1 level of the off-balance sheet and the on-balance sheet tax loss carryforward DTAs that there will be around EUR 2.4 billion at the end of the business plan. This level will be fully captured progressively after 2028. This is capital.
In this position, it's clear that we have in front of us a significant strategic opportunity for value creative alternatives as we have in our cash more than EUR 2 billion of capital in excess. Clearly, based on this estimation, this is just a calculation, but it's something that is logical and rational that can happen and can verify. And this EUR 2 billion is if we assume a sort of 14% CET1 ratio as a final target. Now, a few words, as I was mentioning, investment is crucial. We are going to invest an important amount of money. It will be EUR 500 million because without investment, it's difficult that we can implement all the changes we want to implement in the bank. So part of the money, around EUR 180 million, will be invested on commercial business enhancement through AI.
WIDIBA, as I said, is really one of our goals to build up and to speed up the growth of this asset that is very important for us. So EUR 40 million WIDIBA. Then we are going to improve our technological operational platform, almost EUR 100 million. On risk, zero-based approach, we are going to invest around EUR 30 million. And overall, the upgrading of the operational architecture and enhancement of the system will require more or less EUR 80 million. So security and cyber are as well important as are important the regulatory requirements, so other EUR 60 million. So on this EUR 500 million, we can say that more 80% of this EUR 500 are just for change.
Change in the way we do bank, change in we process transaction, and change also in the way we are thinking. So two important levers.
One area, as I mentioned, technological investment, but the most important and the most powerful of our enablers are our talented and committed people. We believe that we have still a lot of potential that we can unlock, and we want to do it through dedicated program for reskilling, and we plan to reskill more than 1,000 people. We want also to recruit and onboard the new resources with distinctive capabilities, a sort of natural generational change of workforce. All these resources will be dedicated to deal with most of them with customers. So the platform innovation and the digital branch where we have a sort of team that will act in a remote way and with digital attitude.
Then we want to make stronger, and we need the skills also, the IT capabilities, wealth management evolution, new relationship manager, and specialized verticals, new professional for agribusiness and green energy. The bank can count on important academy that is something that is working quite well. So we are going to sort of step up our academy with advanced training, continuous upskilling of all employees. We have a lot of program, and we are going to increase significantly the hours of training for each employee. Clearly, we will keep on the incentive scheme throughout the plan. We introduced last year for the first time incentive scheme and the variable part of remuneration connected to the results. Then we are going really to make a successful plan of succession in order to make and give to our people a clear perspective of development and growing internally to our organization.
Now, let me go quick through this tree. So we are just using this slide because it's a way, in a simple way, how we are designing to explain how we are designing our distinctive way to do banking. So we are leveraging on our strong franchise, our brand, our people, our territories, and leveraging on that, we are revolving around our customer with a journey that has practically three different moments of truth. One is the face-to-face in branch, the second is the hybrid channel, and the third one is the fully digital. We want to provide our customer with the same experience. Combining technology with human touch at the end, on the top of the tree, starting from the roots, is Monte Paschi, a bank for family and businesses that want to be a best in class in the territories where we operate.
It's practically a future-ready way to do banking. Clearly, that should be deeply rooted in our strong ESG culture. So we are just providing some examples. Green product for individuals. We mean Green Mortgage, sustainable linked loans, and green loans. We want to support small businesses in the green energy transition, as we said, particularly in the agri-food sector. We are going in the area of wealth management, offering product ESG solution. On the social side, we want to further strengthen the social role of the bank, financial education programs, microfinancial solutions. It's clear that we cannot do all these things if we don't instill inside the bank and we spread around the bank the culture of ESG.
We can do it across planning, compensation system, risk management models, and as well career paths in order to offer as well flexibility options and career paths dedicated for women in leadership roles. Now, let's now move on financial targets. So the overall macroeconomic assumptions are the one of Prometeia. Probably there are some differences, and I believe we were quite conservative, at least at the moment, to formulate a plan in terms of a rebirth 3 months in 2025, but we will not change better to be a bit conservative. Now, these are the financial targets recap. So we are going to have sustainable revenues with improved mix in 2026, almost at the same level of 2024 with the change of the mix. In 2028, we're going to have and to cross EUR 4 billion.
The cost will be slightly up to finance and development that we will have in place. Gross operating profit will increase already at the level of crossing the EUR 2 billion in 2028. Provisions will decrease. Net operating profit will increase. Pre-tax profit will benefit also reduction of systemic charge. So at the end, as I mentioned, we will already mention we will reach around 2028 to EUR 1.7 billion. All the KPIs will go in positive direction. And let me just underline the CET1 ratio again, 18.5% in 2028, and the statutory ratio at 13.3%. Clearly, if we think about the adjusted, if we consider the 14% capital, it will be much higher. Operating income will grow, CAGR 1.4%. Core interest income will go down, but will be completely offset by fees and commissions. The other income are mainly dividend of AXA and some trading revenues.
To simplify and to make much more visible the efforts that we have in place in terms of dedicated lending, the net interest component related to the commercial activities that are negatively impacted, especially in the first two years, will be practically offset in the period 2026-2028, where volumes that already are visible between 2024-2026 will practically offset completely the impact on interest rate, as well as the dynamical rate will help on that. In terms of volumes, we are going to grow. In selected segment, mortgage is our priority. Consumer loan is our priority. This means connecting with the two verticals, our priorities. Tactical approach on large corporate lending just to get fees generation products. Commercial savings will go up, and we will pay attention already in 2024 to optimize as much as possible a trade-off between volumes and price, but they are expecting to grow.
In terms of fees and commission, we are going to have a significant growth on wealth management product that will have a pace faster than the other product. So at the end, we are going to generate, as I mentioned, EUR 260 million, and a significant portion of that will come from the wealth management product. Just a focus on wealth management. So the projected sustained growth in wealth management practically is visible and is supported by the indirect funding growth. We are going to have almost more than EUR 20 billion with the important contribution that will come from asset management product that will grow by EUR 17 billion. Now, a simple bridge for fees and commission. We are growing in several areas, so there is no quick and faster driver, growing driver.
It's clear that the upper affluent, all the segment of affluent on which we are going to be very much focused, will give an important contribution, as well as the private banking customer and family office that we have. So it's quite easy to connect the delta increase in wealth management product with the initiative we have in place. So we want to be more and more a fees-based organization capable to lead in ESPNL and the growth commission through top-class services to our customer that needs advice in terms of investment product. Now, WIDIBA. So WIDIBA, first action we are in place is the growth of network. So we are accelerating the recruiting with focus on particular geographical area, and we want to further upgrade some digital channels, even if WIDIBA has a very front-end top-class among the best even in Europe.
We are going to have a sort of focus, distinctive value proposition, especially for the private segment. We want to extend the product range. And then I think there will be a sort of coordination in terms of overall strategy of investment with our wealth management advisory center. Advisory, the financial advisor, we almost will be more than 200. Total asset will grow by 62%. The share of asset management total will increase by 20% to 58%, and the gross commission will increase from EUR 80 million to EUR 146 million. Then the net clearly is impacted by what will be paid to the financial advisor. Cost, as I said, cost will be almost completely under control with two different drivers.
HR connected with remuneration incentive scheme as well, labor contract increase, while non-HR cost, we really try to do our best in order to offset the higher cost that we are going to have for investment and for inflation with efficiency, additional efficiency that we want to introduce. The prestige will increase because of the investment. Bridge, very simple to explain. So the increase of HR is much more connected with the incentive scheme and the total remuneration connected with the national banking contract. On other costs, non-HR costs, we have EUR 11 million in the first two years of inflation. We have EUR 9 million that we spend for the bank transformation. Optimization of the action will help in offsetting more than 50% of this cost. And this will be the same in the second part of the plan.
Now, on non-performing, just it's a bit overcrowded this slide, but I think it's important, as I was mentioning before, to spend a few words now because we have a gross NP stock of EUR 3.7 billion. As I mentioned, practically we have EUR 1.1 billion that is unsecured and EUR 700 million that are forborn. So we count in improvement of collection ratio rate and the cure rate, but part of this will be initially achieved through the stock that we have already of mortgages, retail that are most of them the part of forborn are regularly paying. At the same time, from the repayment of the guarantee from the state for the loan, the EUR 1 billion that we have already in the stock.
Default rate will decrease, having in mind that the default rate 2024 has been affected in the first half of the year now a little bit less from mortgage and retail mortgage due to the impact of interest rate in the installment. And now we practically have a position where out of 100, only 50% of our mortgage have a variable rate in place. So we believe that there are all the conditions to reach the goal that we have in mind by decreasing the stock and at the same time adopting also the approach of selected disposal that anyway is our backup in the case we are not successful achieving the optimization of the portfolio. The coverage that is the important indicator of this slide on the right, top right, bad loans 71%, UTP 40%, and the overall average is 55%. And net NPE ratio 1.7%.
Now, Andrea, maybe he's better.
Thank you. Thank you, Luigi, and good morning to everybody. Our funding strategy is clear, and I would say simple. We plan to issue approximately EUR 11 billion bonds in the planned period from 30 June up to 2028 versus around EUR 9 billion reimbursement, which will allow us to increase our wholesale funding component from EUR 10.2 to EUR 12.4 billion. This strategy has four drivers. First, we plan to increase the covered bond size by issuing more than what expires. In this way, we will fund our retail mortgages' growth. On senior preferred bonds, we plan to issue just slightly more than it expires in order to keep good buffers on the MREL requirements. As regards to subordinated bonds, we plan to issue less than what it expires or will be called at the redemption call dates.
In this way, we will optimize our capital structure given our excess total capital. Finally, we will replace some ECB funding with bilateral repo transactions . In this way, we will achieve the following. We will have very good buffers, around 2% on MREL-TREA . We will reduce the ECB exposure. We will have LCR at 160% and NSFR over 140%. Now we come to the slide on DTAs, which is a very important slide. Why is it important? First of all, the update of our financial targets and their progressive achievement will allow us to progressively write up our off-balance DTAs on tax loss carryforwards so that the bulk of our off-balance DTAs will be written up during the period. In this way, we will be able to keep a very low tax rate during the planned time horizon.
But even more important, the usage of our tax loss carryforwards DTAs over the period will allow us to generate capital since we will be able to progressively reduce capital deductions by using tax loss carryforwards DTAs. We will therefore be able to generate almost EUR 1 billion in the planned time horizon by using DTAs on tax loss carryforwards , thanks to our sustainable taxable base. On top of that, as already mentioned by our CEO, we will still have EUR 2.4 billion of additional capital to be generated in the following years linked to tax loss carryforwards DTAs. Moving to the next slide, we are showing the bridge of Common Equity Tier 1 ratio from 2024 to 2028. Some remarks. We start from a very solid capital base, 18.1% expected year-end. We have a strong capital generation.
You can see in the bridge 5.2 + 5.7 percentage points in the period driven by our expected net income. We expect very manageable RWA dynamics. As anticipated in previous calls, for us, the CRR3 impact will be positive so that we will expect lower RWAs by EUR 1.3 billion with first application. Then we will have a small impact linked to the update of our IRB models for around EUR 0.8 billion of higher RWAs, which will be fully offset by the positive impact of CRR3. So even considering a 70% payout ratio net profit, which is the level we factor in our projections for the purpose of the capital bridge, we will land at a very strong 18.5% Common Equity Tier 1 ratio in 2028.
Let me remind again the additional EUR 2.4 billion capital to be generated thanks to the usage of tax loss carryforwards DTAs in the following years. Finally, let me hand over to Luigi for the concluding remarks.
Thank you, Andrea. Just one slide that I think is showing the evolving journey of Monte Paschi from renaissance to the future. Two years ago, I was presenting the plan, and we were speaking about legacies of the past. Then we achieved what I already mentioned, a so-called renaissance and whatever it is. And now we are a bank, clear and simple, revolving around customers, combined technology with human touch. It means that we are ready for the future. Thank you very much. We are happy to answer your question.
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 touch-tone telephone. To remove yourself from the question queue, please press star and two. Please pick up the receiver when asking questions.
The first question comes from Azzurra Guelfi of Citi. Ms. Guelfi, your line is open, madam. Guelfi, do you have your line on mute?
The next question is from Giovanni Razzoli of Deutsche Bank.
Good morning to everybody. Thank you for the presentation. Just a couple of very quick clarifications. If I see on this slide that you are mentioning EUR 1.9 billion of distributions from 2024 to 2026, which means more or less EUR 950 million in the next two years. So I was wondering whether shall I read this correctly?
So basically, you do see a globally stable distribution to EUR 950 million in 2025, 2026, and clearly 2024. That's my first question. And the second question is on the potential impact on the sale of Monte Paschi Banque. Am I correct in saying that the disposal would be neutral or slightly negative on your CET1 ratio? Thank you.
Sorry, we missed your second question. So sorry for that. Giovanni, can you repeat it?
Yes. If the disposal, I mean, you mentioned that you are engaged to dispose of Monte Paschi Banque in France. I was wondering what could be the impact on the CET1. I assume that the impact would be neutral or slightly negative, but if you can clarify this. Thank you. Okay.
Thank you, Giovanni. I will take the two questions.
On the first question, as mentioned, we are factoring in our projections at 75% payout ratio on net profit for the purpose of the projections. So you can easily derive the amount in euro, which again are projections. As regards Monte Paschi Banque, the P&L impact is already factored in the first-half results. So it's there. While the positive capital impact of a few basis points, we will get it most likely by year-end when the bank will be sold.
Thank you.
The next question is from Ignacio Ulargui of BNP Paribas.
Hi. Good morning. Thank you for taking my questions. I have just two questions. I mean, first one is on the dynamics on the lending growth and that exciting that you are willing to gain throughout the plan. I mean, have you contemplated any kind of margin pressure for the market share gains that you are targeting, or do you expect the market to grow similarly to what you are expecting in the plan? Second question is if you could update us a bit on what's your thoughts about the legal risks going forward and whether you have contemplated an incremental release of provisions throughout the plan. Thank you.
Okay. Regarding the trend in terms of volumes, it's clear that, as I was mentioning before, throughout the cycle, we have the two-fifth year that the market will practically be flat or down. The second two years, the market will go slightly up. What is going up is slightly, not significantly, but constantly up are mortgages and consumer lending.
So we believe that we can grow in this sector because we have still a significant penetration number of customers in our bank. And we believe that, especially because also our customers, and so we have also an approach that is connected with a cross-selling view, and we see what is happening up to now. We will be competitive, but we don't need really to go by far below what would be the average of the market. So in other words, we don't expect that in order to grow, we will penalize our spread. On credit litigation or whatever we want to use, and I have to admit that I'm not using this word since a few months. So sometimes legal risk is something that is becoming less familiar, touching wood.
We were saying already that in a conservative way, and we are a bank that was always very conservative, as I mentioned, because all these kinds of issues are professionally managed by our lawyer and by our chief accountant. So we kept conservatively part of the reserve, and we believe that what we kept, sooner or later, can also go to a contribution to our P&L. It's just a matter of time. So absolutely, we don't expect nothing negative on the opposite. Any positive on it? No, you know, conservative approach means that it's better to count on what you have for certain. And we have just to wait. We have to stress our organization and our commercial attitude in order to deliver the plan without any extraordinary item. And if it happens, it's more than welcome. But we count on ourselves.
Perfect. Thank you very much.
The next question comes from Noemi Peruch of Mediobanca.
Good morning. Thank you for taking my questions. I have two. One is on your rate sensitivity on page 43. The rate impact there, it showed at EUR 119 million when you assume basically in the period 100 basis points of lower rates. So my question is whether we should consider this new impact as the new rate sensitivity or whether you also included there other factors. And then a question on tax loss carryforwards . You mentioned EUR 1 billion absorption in the plan. I was wondering if you could give us a bit of more color on the timing throughout the plan. Thank you.
Okay. Ciao. I will take the questions.
As regards to the interest rate sensitivity, actually our interest rate sensitivity, which is being reduced now in the neighborhood of EUR 130 million for minus 100 basis points, is a sensitivity of the whole balance sheet to a 100 basis points parallel shift of the curve. So it is somehow theoretical, but in this case, we are looking at the sensitivity on commercial volumes of a shift which is not parallel of the curve. So this is the sensitivity which is applicable in the scenario that we expect will materialize on our commercial volumes.
Then on the DTAs, basically since the usage of DTAs on tax loss carryforwards comes after the usage of DTAs on the usage of convertible DTAs, and this is going down, you can expect an acceleration of the usage of DTAs on tax loss carryforwards starting from EUR 100 million plus roughly this year and growing over time. Thank you. The next question is from Hugo Cruz of KBW. Hi. Thank you for the time and for the plan. Just two questions. The IRB model updates, when do you expect that to happen? And second, any plans to consider buybacks as part of the 75% payout target or on top of that payout target? Thank you. So as regards to IRB models, we expect the RWA impact by year-end 2025.
F or the time being, we are focused on dividend.
As we said, we have in front of us a lot of opportunities, and we will try to capture the best interest of our stakeholders.
Thank you very much.
The next question comes from Andrea Lisi of Equita.
Hi. Good morning. Thank you for taking my questions. Three on my side. The first one is on deposits. We've seen good growth in deposits. It is consistent with your strategy. Just to know the split between sight deposits and term deposits and so the impact on NII expected from this increase in deposits. The second question is on fees. Maybe I missed it, but if you can provide us the indication of upfront fees in the quarter and what are the assumptions on upfront fees and visas in the plan. And the very last question is on your plan. In particular, you said that you want to introduce non-life insurance offering. Just to know if you have already identified the partner or if you are still looking for it or something else. Thank you.
Okay. Majority of our deposits are at sight. Practically, the current moment is mainly focused on at sight. We started last year also to offer some term deposits. They are growing, but I have to say majority of our cost is connected with current account where we have majority of our deposits. So we have to say that probably we are thinking also to better enlarge the offer of term deposits. But for the current, for the time being, despite we are going probably to have higher volumes in the future, anyway, it will not affect the cost overall.
On the opposite, as I mentioned before, as we reached a level very important of deposit, we are from now on paying even more attention to the trade-off. So we want to grow, but what we call with residual deposit on current account and also on corporate business, this platform, the national platform on which we are investing, it is an upgrade of what we have now. We are sure it will enable us to have much more residual deposit from corporate customers as we are going to increase the turnover with them. As far as the level of upfront in this quarter, more or less, they are flat quarter- on- quarter because practically we are going to have and we are going to have the slight decrease was connected much more with continuous fees.
There is no particular trend and no particular action in order to push the front. Practically, we have, if I remember well, the amount 64, 64 is the same level. In the plan, we have a conservative approach in terms also of inflow. Clearly, we want to improve the net flow, and we believe that we can do also by leveraging on our Athena platform, and we'll better fix and better make us understanding as well the customer, the profile, and the way of investment. Also, the investment center will help in better decline, which are the preferences of our customer. So overall, we will keep more or less the same ratio between the upfront and the management fee.
Probably in the year 2026, 2027, when we are going to have the remote channel working a bit more, there could be a sort of slightly growing trend for upfront fee compared to the wealth management that, as you know, depends a lot also from the market on the market. And as regarding non-life insurance, thank you. Sorry, I forgot. I apologize. Non-life insurance in our plan, we have an inertial growth, important growth, but with inertial in terms of organization. So we plan to go ahead with the current situation. Clearly, as we said, as we have a lot of capital, we are keeping open eyes and try to understand if there are opportunities to further enrich the fee-based business that we have, thinking about also to some opportunity for insurance factory. Very clear.
Thank you.
The next question is from Fabrizio Bernardi of Intermonte. Sorry.
On top of the question made one second ago, I would like to understand if on the back of the free capital position you have in this business plan that goes to 2028, there is the buyback of the JV with AXA? And in case, if you can give us a number about what I think could be a cool option to buy back the remaining part of capital that now is in the hands of AXA. Thank you.
So thank you for the question. I will try to be a bit clear on that. We put in the plan what depends on us. And this is the sort of philosophical approach, and this part of the clarity on the strategy. So if we'll appear an opportunity to incorporate the joint venture, it will be a positive impact. We'll have a positive impact on our plan.
So as I said, it's something positive that as we cannot count, it doesn't depend on us. We are not considering the current stage. Sorry. On top of this, given that you are a contributor to Anima and you have a 0% stake, this is a bit misleading in the sense that you are giving somebody else some fees. So I was wondering whether Anima is also a potential partnership that you could reconsider given that in the past you had 10%. I have to say that when we start thinking about financial issues, I'm a little bit weak. I'm focused exclusively on commercial things. So at the current stage, honestly, we are entering in a plan that is quite challenging for us, but it's also exciting because we have wonderful people that are our really strength in the network.
So to be honest, we are at the current stage completely focused in dealing with customers. So we'll see if there are opportunities, as I mentioned, we are going to capture, but it's not the kind of focus that we have.
Thank you.
The next question is a follow-up from Ignacio Ulargui of BNP Paribas.
Hi. Thanks very much again for taking my questions. I have one more on costs. And you have mentioned throughout the presentation several times your willingness to replace the headcount. I mean, should we contemplate any kind of relevant cost-cutting initiative in form of restructuring charges? Should we contemplate that in the plan or the plan just looks to the normal replacement of headcount? Thank you.
We don't plan particular action on that. As I mentioned, we are going to hire professionals. It's clear that we have a natural turnover in the bank.
So we are trying to have a good trade-off between what is the natural turnover and the people we are hiring. And we believe that also with this in mind, we can be quite effective and to have a gradual optimization of our organization. We have to say, as I mentioned before, that we plan to have more than 1,000 people thanks to the introduction of some technological instruments, and digitalization will be in some way reskilled and can be utilized in value-added activities. So from cost, we move much more to revenues, clearly with the period of training. So what we are going to optimize is much more the composition between back office, front office, than a sort of action in order to implement a sort of exit, another voluntary exit from the bank.
Thank you. Very clear.
The next question is a follow-up from Giovanni Razzoli of Deutsche Bank.
Good morning. Thank you for taking my additional question. Shall I read correctly your target that the strategic option to pursue value-added alternatives, is it correct to assume that the share buyback in the future could be a way to be considered a value-added alternative to as usage of your more than EUR 2 billion of excess capital? I just want to have your personal view. Thank you.
I think almost I answered previously to this question. It's clear that we are a normal bank. So if you go ahead with an important excess of capital, you don't have opportunity, then you have to optimize. But honestly, we prefer to utilize capital for growing, investing, and to capture opportunity that the market can present and to have a strong position in any of these opportunities.
So mathematically or arithmetically, you can make all the exercise that I think is possible to foresee, but it's not what is current stage on our table.
Thank you.
The next question comes from Manuela Meroni of Intesa Sanpaolo.
Yes. Good morning. Thank you for taking my questions. I have a follow-up on the redeployment of your capital. You clearly have a very high excess capital. It's clear that you would like you could potentially buy back the joint venture in the insurance business if there is an opportunity. Could you please share with us what could be the potential impact on your profitability targets and Common Equity Tier 1 targets if you are able to take this opportunity? And are there other areas in which you might be interested in redeploying your excess capital? And the second question is on the asset management growth.
You're assuming a + over 9% compound growth in the assets under management. I'm wondering what is the effect of the new inflow and what is the performance effect that you are embedding in these numbers? Thank you.
Okay. So clearly, we cannot disclose the potential impact that we have on our capital. If we buy the 50% of the joint venture, what we were saying, and I like really to stress on that, our position of capital and our capability also to be active in the bank insurance sector makes us in the position that this option will generate additional value for our company. And I think is what I can say. So if we do tomorrow, as I said, we'll have a really important positive impact on us.
As a reminder, if you wish to register for a question, please press star and one on your touch-tone telephone.
Once again, for any questions, please press star and one on your telephone.
For any further questions, please press star and one on your telephone.
Mr. Lovaglio, there are no questions registered at this time, sir.
So thank you very much, and thank you for participating in this overstatement to our presentation. See you in November. Thank you very much.
Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephone.