Good afternoon, ladies and gentlemen. This is the Chorus Call conference operator. Welcome and thank you for joining the Banca IFIS first quarter 2023 results conference call. As a reminder, all participants are in a listen-only mode. After the presentation, there will be an opportunity to ask questions. Should you need, at any time, assistance during the conference call, you may press star and zero. It is my pleasure, and I would now like to turn the conference over to Mr. Frederik Geertman, CEO. Please go ahead, sir.
Good afternoon, everybody. Before we start the presentation, let me briefly touch on the news of a tragic event that has touched our controlling shareholder's family yesterday. Today, the board of Banca IFIS has approved our Q1 results with this spirit, that our best way to be close to the family is to continue doing our utmost best with dedication and professionalism. In this spirit, we present our results today. I will take you to page four of the presentation, where we have the executive summary. We post net income in Q1 of EUR 46 million. That's +31% year-on-year, confirming our acceleration. Revenues are at EUR 176 million. That's +8% year-on-year, driven mostly by performance in commercial banking.
Commercially, factoring turnover +17% year-over-year, excluding the factoring versus the public administration. New leasing volumes +22% year-over-year, cash collection of NPL portfolios at EUR 97 million, which is +7% year-over-year. We post operating costs at EUR 91 million. That's a +4% year-over-year, that means that the inflation impact, as we will see later in detail, was countered by efficiency and discipline and cost control. Loan loss provisions are at EUR 10 million, which includes another EUR 5 million of prudent add-on provisions against macro risk on the performing book, confirming what we believe is an outstanding risk to turn profile of the loan book. Deposits are stable and resilient. Average cost of funding is developing as expected due to the rate scenario at 2.24%.
Finally, capital. Up by 20 basis points. The CET1 ratio to 15.21% in support of our growth and of the dividend payout. On dividends, we have the EUR 0.40 per share to be paid on May 24th, 2023. Record date is May 23rd. Ex dividend date is May 22nd. Page five. Let's look at the revenues. As said, EUR 176 million. PPA is by now negligible. This comes off commercial banking revenues at EUR 88 million, which was EUR 74 million last year, reflecting our rates correlation, and especially, I would say, ongoing loan repricing. We include this quarter EUR 8 million capital gains on a number of direct and indirect private equity investments. These EUR 8 million come on the back of a long-term, continuous, and selective program of equity investments.
We consider it core business, and we consider them recurring maybe on an annual basis. You won't see them every quarter, but we expect this very selective and high-quality equity investment book fragmented, and done with highly professional partners. We expect it to continue to contribute periodically in a slightly longer term perspective. NPL revenues at EUR 69 million, more or less flat versus last year. Non-core GNS at EUR 19 million with a recurring and stable contribution to revenues. Page six, commercial activity. We have a nice factoring turnover increase, that's +70% year-over-year, where we exclude the factoring towards the public administration, whereas you know we have reviewed our business model following the application of the New Definition of Default.
What you don't see here is that we also have a acceleration of new customer acquisition that will support future potential. We are very much in love with this factoring business. Leasing +22% year-on-year. New business. Excellent commercial productivity. No change in small ticket focus, so these results do not come from large tickets. We see acceleration in equipment and tech leasing. You know we don't do real estate. You know we don't do nautical. We have a very good first quarter 2023, notwithstanding a peak that we had in the fourth quarter last year due to certain fiscal benefits, which led to a bump in the final quarter of last year. Which had actually led us to expect a bit less for Q1 2023. It didn't happen.
We have this nice growth. Automotive +26%. We continue to have a very nice presence with electric vehicle brands, and that's a profitable and very nice low-risk business. Moving on to NPL, page seven. There you see that we have cash collection of EUR 97 million in first quarter 2023. Similar to fourth quarter 2022. Revenues at EUR 73 million. Comment on that, if you compare it with the fourth quarter of last year, that included positive contribution of the release of some specific and very large newly acquired NPL portfolios that boosted both the recognition of revenues and variable recovery costs at the release. One-off.
As a result, both revenues and costs increased and in that quarter, the NPL variable cost decreased by EUR 12 million Q-on-Q. It's very much a continuous performance, and we can compare it with the fourth quarter of first quarter of last year. Page eight, costs, EUR 91 million. On the green box in the middle, revenues related, you can see that we go from Q4 to Q1, from EUR 32 million- EUR 20 million. That's exactly the EUR 12 million of NPL costs that disappear, that were connected to the release of these large portfolios. I draw your attention to the blue box, the top one, where you see that we have year-over-year basically a flat performance, which means that we are offsetting the inflation impact with discipline and contract renegotiation.
That is actually a very, very robust performance on cost control. You also see it in the cost-income ratio that results from this. Page nine, risk. Loan loss provisions in Q1 are EUR 10 million. The natural, if I may call them like this, provisions, so the actual provisions connected to deterioration of the loan book came in at EUR 5 million. We added another EUR 5 million of add-on against macro risk. We believe we are done with these prudential add-ons for the time being. We'll see how it develops. You know, the total management overlay, right, against performing loans is now EUR 60 million. That means that we have more than a year's worth of loan loss provisions set aside for a macro scenario that might deteriorate.
NPE ratios, you can see that we are at 6.1% gross, 4.1% net. That includes a 1.6% of the application of the new DOD on the pharma portfolio. The total NPEs are more or less stable Q-on-Q. Actually, they decrease by EUR 7 million. The reason the ratio increases a bit is that we have the seasonality of the denominator. The total book in factoring from 31st of December to 31st of March decreased a bit due to the typical seasonality, and as a result, the ratio slightly increased. You know, you don't have to see an increase in flows in that. It's just a technical effect.
We have net of the Italian public health system ratios of 4.5% gross and 2.5% net. We expect from here till the end of the year to further significantly digest the 1.6% of past due effect due to the application of the new DOD vis-à-vis the Italian public health system. Very solid risk performance. I will now take you through three slides that we added this presentation because we wanted to, you know, pay a little bit of attention on what we consider to be a very interesting risk-return trade-off that is present in our balance sheet, right? Let's start on page 10.
We took our customer loan book, and we want to give you a picture of the residual risk, if you will, that is in there. EUR 9.8 billion total customer loans with the accounting definition, right? It's all in there. The first element is factoring, EUR 2.5 billion. That turns four times per year. It entails a double risk assessment, so both the client and the final debtor that pays the invoice. It's a very short book, so we can rapidly adapt sector exposure, and given how quickly it turns, it's highly unlikely that we would have surprises in there. Second element, leasing and rental. These are substantially all marketable assets. You will remember that we don't do real estate leasing, and we don't do nautical leasing.
70% of this exposure has underlying assets with remarketing contracts in place at defined prices, meaning that the residual risk in those loans is very, very, very limited. We go to medium-term lending, EUR 0.7 billion. Of those, 80% is state guaranteed, and more than 80% is in rating classes one to five. It's a very high-quality book. It could easily have been bigger, given our approach to long-term lending and to the quality of the clients we want to serve with it, this is the, the growth rate that we that we like to see. A question that sometimes comes up is the state guarantees. Are they solid? Well, it depends on how well you've documented your case, obviously.
It depends on how precise you've been with all the formal aspects of the acquisition of the guarantee. I want to share with you that the track record of Banca IFIS in the execution of these guarantees is 100%. Loans to pharmacies, EUR 0.8 billion. Those are mostly secured against the pharmacy itself. I don't have to explain that that's a regulated sector. These businesses are protected from competitors. As a result, the average loan loss provisions in that segment in the last five years have been roughly 25 basis points. Very high quality type of exposure. We get to sovereign bonds, well, the sovereign risk, of course, we'll return to it later, but that's basically the Italian state. We get to NPLs, EUR 1.5 billion. It's a book with an average ticket size of 12K.
Cash collection is 120% or more of the recognized revenues, has been like this for the past two years. You'll remember that in the appendix, we give the details. You'll also remember that the model collections were outperformed by the actual cash collections for more than five years in a row. Fragmented book, highly statistical business, long term performance, very stable. That includes shocks like COVID and the inflation that we had in the last 12 months. We get to point seven, others. Most of those are related to the financial bonds portfolio that we bought. Who are these counterparties? They're mostly global CFIs, and the vast majority of those bonds are senior. We have a little bit of tier two, and we had originally bought some AT1s that we sold before the Credit Suisse situation.
We didn't have Credit Suisse, we had already made some trading gains on them before that situation arise. That's basically senior debt of globally significant institutions. We get to EUR 0.7 billion, the last element, structured finance. Ticket size, EUR 12 million, which is rather modest for a structured finance. Leverage, 2.7x EBITDA. We don't do much higher leverage. Commercial real estate risk, not material in there. Sometimes, we get questions about that. You know, if you look at all these elements, then you'll see that only about maybe 10%-15% of our loan book is actually direct unmitigated medium-term lending to enterprises. In this book, leverage and concentration risks are kept low, as we stated, and they're strongly reserved against. Remember, we have EUR 60 million management overlay.
We have mitigants basically on every category, sometimes more than one. Okay, if counterparty risk seems very benign, let's go to page 11. We take a look at other aspects that sometimes come up. And what we are asked about is duration and ticket size. Here you see the same categories, right? We start with factoring duration, you know, roughly a quarter of a year, as mentioned, with an average ticket size of EUR 300K. Leasing, very short-term book, 2.7 years is our average leasing duration. Ticket size, EUR 40,000 for the auto, for the automotive, and EUR 60,000 for the equipment leasing. There are two small ticket specialty finance is what we do. Rental ticket sizes are even lower. It's mostly tech, means PCs, copiers, printers, that type of business.
We have a ticket size of about EUR 7,000 on average. We get to medium-term lending. For us, that's lending that has three years average duration. There are two, quite short, with EUR 300,000 average ticket size. Moving on to the pharmacies. EUR 400,000 average ticket size, slightly longer, 7.5 years. That's the longest book that we have in the bank. It's about EUR 800 million, so it's less than 10% of our commercial lending. We have structured finance, EUR 12 million at five years. NPLs, EUR 12,000 per ticket. There are two very high fragmentation, and with a four years duration. The government bonds portfolio is classified as held-to-collect and is EUR 2.5 billion roughly in size.
You see that over 70% of our customer loan book has a duration shorter than three years. I think this is a very significant element if you compare us to classical commercial banks, considering that we don't have large retail mortgage books, we don't have long plain vanilla unsecured lending towards corporates. We don't have these businesses. Third element that we wanted to share, page 12, always on the risk return trade-off, is funding. Especially in the light of what happened to the US, let's take a look at our deposits. First thing to note is that from Q4 2022 to Q1 2023, the customer deposit breakdown, you see it on the left. Deposits were absolutely stable. They were stable at the end of March. I will add that they were stable in April, and they were stable in May.
Throughout all the turmoil, we had actually a slight increase in our customer deposits. How are they built up? You might ask yourself, once again, I'm thinking about the U.S., right? Are these corporate or are they retail? The answer is top right, 93% retail, more than 100,000 depositors. Average ticket size EUR 40,000. Are they protected by the deposit fund? Are they protected by the government or by the Italian FITD? You see the answer below 100,000, therefore protected 83%. Above 100,000, 17%. You might ask yourself, okay, are they sight deposits, right? Could they flow out? Only 16% of this book is sight.
17% has a 30 days notice period. The remaining 67% are deposits, actual time deposits, where we favor two year, three year, five year deposits. Therefore we have quite a long duration in that deposit base. Regardless of the point of view that you take counterparty risk, which was page 10, that we consider highly mitigated. Duration page 11, and concentration, so ticket size. Finally the way it's funded, page 12. We believe IFIS represents a very, very attractive risk return trade-off. Back to our normal flow. Page 13, capital. We post an increase of 20 basis points in our CET1 ratio. You can see the components. We have a negative. That's the phase-in of the transitional filters.
We have a positive, which is the seasonal risk-weighted assets decrease. We do not compute as always in this ratio, the fact of the profits, right? The retained earnings of the quarter. We compute that. We will compute that later in the year when we will probably make an advance payment as we've done this year. I would stop here with the presentation, and if there are any questions, I'm happy to take them. Thank you for your attention this far.
Excuse me, this is Chorus Call Conference operator. Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star one on their touchtone telephone. To remove yourself from the question queue, please press star two. Please pick up the receiver when asking questions. Anyone who has a question may press star one at this time. One moment for the first question, please. The first question comes from Manuela Meroni from Intesa Sanpaolo. Please go ahead.
Yes, good afternoon, thank you for taking this time for this conference call today. I have four questions. The first one is on the cost of funding. You reported a significant increase in the cost of funding in this quarter from 1.49% to 2.24%. I'm wondering if this increase is in line with your 2023 guidance. How do you expect the cost of funding to move going forward? How much has the cost of deposit increased quarter-on-quarter? The second question is on the deposit. Your deposit has remained stable quarter-on-quarter, and you mentioned that also they are also stable in April and May. What are you expecting going forward?
You will accept some deposit outflows to keep the cost of funding under control or on the contrary, you are expecting to gather some deposits from competitors. The third question is on the TLTRO. When and how do you plan to renew the TLTRO? Finally on unrealized losses or gains, what is the value of your fair value to the Other Comprehensive Income and as you collect reserve as of today? Thank you.
Okay. Thank you, Manuela, for your questions. Cost of funding. Yes. You mentioned the numbers, right? We went from 1.49% roughly to 2.24%. That was exactly as expected, I would say. The increase was in line with our expectations. We expected it to increase from roughly 1% in 2022 to 2.5% in 2023 on average, right? We assumed the stabilization of funding costs and spreads. We also assumed the wholesale market to remain open at least in certain windows, but with a higher cost of new issues, right. That's more or less what we, what we see, right.
The increase of roughly 75 basis points, right, Q on Q, that came from the forms of funding that reprice in the short timeframe, right. Debt versus banks, TLTRO, which was retroactively changed, as you know, right, the terms. Finally, you know, securitizations. The increase of the costs of deposits, right, was roughly 30 basis points, and that's been mitigated by the term base, right, the term deposit base. Now you ask me for an outlook. What we generally do is we do not like to pay at the top end of the range. You will see we will try to be slightly above the middle, right? We try to be attractive, right?
We certainly don't want to be the market leader in terms of what we offer, given the reputation of the bank, given the history also of this book, right? These are clients that have been with us for years and years. Many of them renew. We do not want to want to be at the top end, right? Expect this to increase a bit more, but in a very gradual way. Keep in mind that on the other hand, right, On the asset side, right, we have... I think it's more than 85% of the loan book that's EURIBOR sensitive, right?
Actually what's been happening until now is that, you know, this whole rate scenario and also the spread scenario worked in our, in our favor. Keep in mind that on the asset side, we don't just benefit from the rates increase, we benefit significantly from a price increase. We've increased the revenues on the factoring book. It's in the appendix somewhere. You can look it up in the last year by, in the order of 100 basis points. It's quite huge. Therefore, is it as going as planned? Yes, it's going as planned. Revenues are better than planned. Cost of risk is better than planned, but cost of funding is exactly as planned. That market is more challenging as is obvious. The deposits, are they stable? Do we foresee them being stable going forward?
Most definitely, yes. We don't have any indication that they wouldn't be. It's also quite dynamic because, you know, if you see that the market becomes a bit more demanding in terms of what you expect then, what they expect, right, to, to get for their money, then, you know, you can increase prices. We manage it quite, in, in quite a delicate way, right, month by month. When we review the, the offers of the, of the, of the rates that we give to clients, no, there haven't been any outflows at all. As you've seen, we haven't. You know, there are some easy things that you can do are relatively easy. We could go after corporate deposits quite easily, for instance, right?
You saw the very limited component of corporate deposits in the, in the book. We don't feel the need at present, but there are some things that we might, you know, if needed, right, we might go and activate. TLTRO, it expires in September 2024. We're going to repay that by substituting in part. By the way, the cost benefit of TLTRO is rapidly eroding, right? It's not going to be a huge deterioration of the cost, unfortunately. You know, if you look at the glass half full, it means that we're not gonna have a very significant PNL impact once we, once we substitute that. Partly also, we're going to pay for it gradually reducing the Govvies portfolio, right? We'll do one and the other.
This carry, right, might become a bit smaller. It might also become a little bit more remunerative, right? It will become a bit smaller. We have a very detailed plan in place, quarter by quarter for the substitution of the TLTRO. We're not going to wait until September 2024 to pay back everything. We're going to do that progressively. We've just gone through, I think I can say this, we've just gone through also like most of the other Italian banks, an exercise with Bank of Italy exactly on this issue, and it's given us the opportunity to really plan in detail and to think it through also with the board. It's there, but it's definitely a, you know, a manageable, a manageable issue, we think.
I will confess that I didn't get your fourth question, so do you mind repeating it?
Yes. I would like just to understand, how much are the analyzed capital gains or losses embedded in your Govvies portfolio as of today?
Okay. You're asking about the value of the fair value O CI and how to collect reserves today. Okay. You're referring to capital gains. I guess you mean capital losses. I'll give you some flavor. The duration of this bond portfolio book is about two and a half years. Any negative resorbs, any negative reserves will absorb over the next 24 months, right? The potential capital impact, right? If we were to mark to market, which I think is your question, right? We don't give the number explicitly, but I will say this, that it's significantly below 10% of our book equity. Okay.
We had in the US, I think 25%-30% to give you an element of comparison.
Thank you. The next question is from Elena Perini, from KBW. Please go ahead.
Yes, hello to everyone. A couple of questions from my side. The first one, in 2021, you reported a net income of EUR 101 million, and for 2023, you target EUR 150 million. How much of this increase is driven by interest rates? Do you expect your profitability to decrease as the interest rate decreases, as the quality deteriorates and the proprietary portfolio shrinks due to the TLTRO loan payment? The second one is, what are the main risks that we expect in the coming quarters? In which sectors do you expect the higher asset quality deterioration? Thank you.
Thank you, Elena Perini. I'm gonna give you some broad flavor on what you asked for, because the really attributing the increase of a P&L to these single sources, it's kind of a theoretical exercise. I'll see if I can get close to what you need. You mentioned we had an increase of the profits, right? From EUR 100 to EUR 150, right? In 2023 as a guidance at least, right? Of course, we're in Q1, but, you know, with the EUR 46, I think we're well underway. I think first of all, you can break it down like this. Roughly, you know, 50% is in commercial banking, right? Roughly 30% is in the NPL business.
Roughly 20% is in governance and services, right? Let's take a look at commercial banking, and then we get to your question on rates, right? Actually, if you take a look at what happened, roughly half of the increase in profitability of commercial banking comes from volume effects, therefore, you know, commercial productivity. The other half is revenues effect, right? That's a combination of rates and prices. I wouldn't even attribute, right, the other half all to EURIBOR, because a significant part of the contribution there actually came from the increase in spreads. What we make the customer pay. NPLs, we have an increase in profitability. Well, for one, remember that in Q4 of last year, we had a negative one-off in the NPL business, which was we took the hit, right?
All in one, we're not foreseeing to have that again, right? That's an element. The second element is that we are progressively through efficiency and specialization, automation, process improvements, et cetera, et cetera, offsetting negatives that you have in the market. The negatives are maybe slightly more challenging prices as we buy or the inflation effect on the voluntary repayment plans, right? If families are challenged at the end of the month to pay the bills, you can imagine that they have less, right, to dedicate to the repayment effect. We're keeping up, and you also see that with respect to the cash collection, right? We're managing through productivity, specialization, improvement, and it helps, certainly helps, you know, being the market leader in our segment, having the scale, right? We're offsetting this.
Finally, the GNS part. That's the increase also of the size of the proprietary portfolio, right? You'll remember we made a rather timely, if I may say so myself, right, investment into a strategic portfolio of financial services players, right? You asked me for the main risks, right? What you expect as in terms of risk development in the coming quarters? Let me say something up front first. We've been going through at least four quarters now, where the dialogue with the markets has been about macro issues, right? We came out of COVID and everything normalized, and we had a short window of optimism, and then, you know, Ukraine and macro and inflation came, right? Every quarter we say, so far so good, right? That's what I will say today, right?
So far so good. 'Cause we have central banks that urge us to be cautious. We have expectations for the GDP that are actually slightly improving, but still, you know, low growth in Italy. We do not see today risks in the credit book or also in preparation of this, right? Customers that are telling us my business is significantly slowing down, right? I don't see orders. Factoring is quite sensitive, as you can imagine, right? The development of the turnover of the businesses. There's nothing there.
What I actually see as a scenario, but if everybody can have their own ideas about it, is that what's very relevant is that the central banks are still, or at least in Europe, clearly on the book of fighting inflation and draining liquidity, right? We must expect it's going to have some macro impact. I would expect the economy to grow very modestly in our country, and we might expect some financial... I'm not sure if we can call it shocks or in any case, more uncomfortable situations as the liquidity is drained from the market. Now I would set against this the three slides, right? That we presented earlier.
Profitable bank, short-term maturity of the, of the loan book, 15% CT1 ratio, stable deposit, very significant management overlay against the performing book. We're looking at this with a lot of confidence. And I will say again, you know, we've been talking about risks for a long time now, and for quite some time, we haven't actually seen them bite. I'm not going to sit here and say that they won't, 'cause I don't have a crystal ball, but I will say that we continue not to have concrete, tangible, quantitative indications of issues.
Thank you.
Did I answer, Elene?
Yes. Thank you. Very clear.
Thank you.
The next question comes from Christian Carrese from Intermonte. Please go ahead.
Hi. Thank you for the presentation. Look, first question is on cost of funding. Looking at the slide 12, if you can break down the cost for single deposit for Rendimax, German and so on, corporate and so on. Second, on cost of risk, you kept making some overlays, EUR 60 million up to date. Assuming the macro scenario you just gave to us or a modest growth in 2023, would you expect to release at a certain point those overlays or to keep them for 2024? Finally, on the net interest income overall, looking at the structure of your asset and the liabilities, when do you expect net interest income to peak? Thank you.
Yeah. Yeah. The third one is the trickiest. I'll start with, you know, the cost of funding by source, right? I'll give you some broad numbers, right? Interbank cost of deposits, right? In all the various forms, right? Including repos and such, roughly 2.5%. That's Q1 2023, right? This stuff evolves obviously, right? Don't set this in stone, please, right? TLTRO, roughly 2.4% in Q1 2023. A broad average of all the deposits, 1.5, roughly, %. We have the bonds, which you can work out for yourself, right? They're publicly traded. The management overlay in cost of risk. Yeah. That's now EUR 60 million, right? If the macro scenario is...
You said if it turns out as you expect, I would say officially, I still expect a downturn, right? You know, that's what we planned for, and, you know, that's what we're gonna assume for now, right? You may have heard from my words that I'm not seeing issues yet, right? I don't want to go into too confident, right, wording on what might happen in the second half of the year, right? Let's assume that things don't deteriorate drastically. In that case, we're sitting on EUR 60 million of macro risk that obviously sooner or later, also our auditors are going to ask us how we're going to deal with that. Because you can keep this as long as you have concrete, prudential reasoning for keeping it.
Sooner or later, if it's not consumed by provisions, it's going to flow back to the P&L. I wouldn't probably expect us to start doing that in 2023, 'cause the whole point is to look forward and be a bit cautious about how the year might develop. If you were to ask me when that question becomes relevant in a benign scenario that we cannot take for granted, I think that question will pop up sometime in 2024, roughly. Finally, net interest income, when do you expect it to peak? Actually, I'm not sure I would like it to peak. This is going to be various elements, right? It's going to be a rate scenario. There's going to be a pricing scenario. There's going to be a volume scenario. Because you mentioned the net interest income, right?
You're looking for the end result of all this stuff, right? The end result of all this stuff is also in our hands. We have 15% CET1 ratio. That means we have 15.2, right? That means we have space for underwriting nice risks, and we like to put the capital to work. An counterbalancing effect might be that we grow. We have, until now, a very reliable track record in terms of increasing prices. You know, in a scenario in which liquidity becomes less freely available, and that's clearly been signaled by the central banks, and in which the offer of credit is not so easy, right? As it's been. One of the things we can do is work on price. We get to the rates finally, right?
One of the things we might do is take countermeasures in the structure of the balance sheet or in financial strategies to offset a reduction in the rates of the curves. You finally have the effect of the rates itself, right? Unmitigated, regardless of all the three things I mentioned, right. What might be the impact? There you get into an expectation on what's gonna happen on the rate scenario. Here we'll add a very, you know, personal feeling, and I might be mistaken, of course. There are curves on the market with... right? That represent rates, so you have to look at that with a lot of respect. Personally, I'm not so convinced that the rates will crash in the near future at all.
Yeah, I think I would definitely not put a date on a peak, and I would also not put a peak as a given, Christian. This bank is versatile. It has a short book. It has a history of adapting quickly. It's commercially a very lively organization. We've gone through the last years with significant changes, and the bank's always been nimble. Let's not assume that things will peak. Hope I answered your question, and hope you can at least partially agree with me.
Yes. Thank you.
The next question is from Andrea Lisi from Equita. Please go ahead.
Hi. The first question is on volumes, in particular on what are your expectations on volumes and loans and going on if you feel some signs of slowdown by companies, if there is lower credit demand and so on. Just your feeling on what are you perceiving in the market and your expectation on the origination going on. The second question is on the NPL market. That seems quite weak in terms of transaction, at least in the first quarter. If you can provide us some indication in terms of pipeline, deals that are on the market and et cetera, which are your expectation going on. Last question is on the dividend policy.
The chairman announced a potential increase in the dividend. When is it reasonable to see something on that? Which kind of form Payout share can assume for 2023? Will it be an increase in the payout or is it possible as a combination of cash and buyback? Thank you.
Thanks, Christian. On volumes, I'm gonna give you an outlook. I think I can speak reasonably on an horizon of, you know, the end of the year, right? I wouldn't go further. I expect a modest growth on most on most items that you saw on the slides, right? On most categories. Factoring, overall a slight growth, but especially growth in the SME segment and maybe a bit less Or a negative effect from pharma, right? We expect a decent growth of SME factoring, also helped by inflation. You have to remember that, you know, as you have inflation, the invoices grow, right? If the invoices grow, the turnover grows. If the turnover grows, our revenues grow, right?
Couple percentage points increase in factoring, which will be a net effect of a nice increase in SMEs and the negative of the pharma book. Lending all in all, single-digit percentage growth. We control that pretty much. I mean, that's been a very, very thoughtfully managed business in terms of price. It is our opinion that if companies today ask you for three, four years loans, right? They should pay the marginal cost of money today. The marginal cost of money today, for us, is a mix of what we pay for bonds and what we pay for deposits and what we pay on the other sources, right? It's expensive. Medium to long-term lending to companies, whether it be guaranteed or not, should be expensive.
Therefore, we've been very, very thoughtful in managing the growth of the book. Would be quite easy to grow quicker, but we'd have to release a bit of the rigor on pricing, and we're not really keen to do that. Leasing. Leasing is going wonderfully. The book will grow, I don't know, couple percentage points there to 5%, something like that, I would give you as a range, right? Structured finance, same, right? That's actually very easy to grow, right? It just means taking bigger cuts of the deals that come by, right? We like this EUR 10 million, EUR 12 million, EUR 15 million average deal size, right? We like it because that. We think it is in line with our size, right? Obviously we don't have the balance sheet of a global SIFI, right?
We need to fragment the risk. All in all, moderate increase in volume growth in 2023 without having to make any assumption on, you know, particularly aggressive acceleration commercially. It's coming in nicely now. Once again, we don't hear from the clients, not even in leasing, which is capital goods, right? We don't hear from the clients that there's a dry up in their demand for our products. NPL market, Q1, you noticed a few transactions, I confirm. We actually did two very nice ones in April, so we'll report on that in Q2. We have our pipeline, not overly worried by it also, because as you know, right, this P&L is formed by a large extent on the stock, right?
We expect to be active, we expect to be bit careful with prices. We let some things go in the last weeks because we thought the conditions weren't good for us, which is a polite way of saying that the portfolio was a bit expensive. Other things we bought, and there's a secondary market, which is interesting and it's giving more and more opportunities. Not so worried about the purchase of NPLs. We'll keep you updated on that as the quarters come by. Finally, I was expecting it, the dividend policy. Yeah, our chairman announced a that he has initiated with the board a reflection on this subject.
I will say what I can say because the reflection is ongoing, and I think it would not be opportune for me to rush. We will probably finish off this work with the board in Q2, which means that we will give certainty next time that we speak on our next earnings call. I would rather not place the payout ratio in your Excel spreadsheet, but what I would say is that it will be better than it's historically been. That was the whole point. That it will be progressive. Higher net profit means higher ability to pay out. The perspective that we're taking is: What are the retained earnings that the bank needs to grow responsibly over the next years?
Therefore, if the net profit exceeds, right, a certain thresholds, then the payout ratio can increase. Expect it to be better, expect it to be progressive. It's also nice because if... You have to also plan for bad years, right? I mean, we're not expecting it, but you know, policy should be a long-term instrument, right? You also want to plan maybe for a situation in which there are bad years. The fact that it's progressive helps, because if the profits are, for some reason, right, are low, then, the payout ratio will be adequately corrected. Not improved at least, is what I should say, right? Expect it to be more explicitly defined next time that we talk. I hope this is at least something, Andrea, okay?
Thank you. Very clear.
Any other question, Andrea?
No further.
The next question is from Simonetta Chiriotti from Mediobanca. Please go ahead.
Good afternoon. A couple of questions from my side. Going back to the NPL segment, do you think that purchases by GBV in line with 2022 can be a base case for this year? The market is particularly bullish in all segments, so I was wondering if you think that last year volumes can be matched. Second question on the banking part, on corporate banking. If I look at the net revenues on average customer loans ratio in factoring and also in leasing, I'm referring to slides 18 and 19. It is decreasing with respect to year-end. The reason that is mentioned is higher cost of funding.
I'm wondering how is the pricing playing here? Are you increasing also the commission portion of your revenues? That is quite important in factoring. Are you pricing your loans based on variable rates plus spread? If you can help us going through the underlying drivers of this ratio. Thank you.
Thanks for those questions. Can we match the gross book value we bought in 2022? Not necessarily. I mean, we might, but we might not. I think if we want to make those types of numbers, then we need to look at sizable transactions on the secondary market, which may be there or may not be there, right? I think 2022 was a particularly significant year. We bought some jumbo portfolios. That doesn't happen every year, but it doesn't need to happen every year, right? It's. As we said, it's stock business, right? Do we expect the gross book value to be met, what we did in 2022? Well, we have a pipeline, and some more stuff may come in. I'm quite optimistic.
Even if it would turn out a bit lower, we would be entirely comfortable with that. Okay? You know, since you asked about gross book value, a lot of that depends on the secondary market. On the banking side, our net revenues on average customer loans, don't look too much on quarter by quarter evolution, I would say. What I would, what I would suggest is that you take a, you know, a slightly longer term view on it that excludes seasonality. What is happening there? There are two mechanisms. One is the factoring mechanism, where you reprice the stock. Okay?
You basically, you write to your clients altogether, and you tell them that, due to the changes in conditions, you need to have legal reasons to do it. It's the Italian terms, it's giustificato motivo, right? You write to them that you're changing the terms of an existing contract. That's quite reliable. It's quick, because it goes to the whole stock. Yes, in answer to your question, it touches both interests and commissions, because commissions in factoring are, it is true, quite a relevant element of the revenue mix. In terms of medium to long term lending, it's different, right? Because you have a stock, right? Which is priced in a certain way, and then you have the new flow that you build on top.
First of all, consider the duration of these portfolios. You saw them, right? three, four years, right? two and a half years leasing. Imagine roughly that we replace one-third of the stock per year. You can just look at the durations, and you can work out the math yourself, right? Imagine that as we replace that with new volumes, the new volumes go in at new prices. Order of magnitude of the spread increase. I'm not talking about the rates, I'm talking about the spread increase. In the last year on medium-term lending, order of magnitude, 100 basis points. Okay? It's not peanuts. I think this would more or less cover it. If you have any other questions, I'm listening.
No, no. It's okay. Thank you.
Okay.
Mr. Geertman, there are no further questions at this time.
Good. Well, it's five past five, and it's been a, I'm sure, a long day for everybody. You might have other calls, I'm not sure. I guess we will leave it at this. We thank you very much for your attention, and we will keep you updated on the news of the bank, and we hope to hear you all again in the next earnings call in Q2. Thank you.