Good afternoon. This is the Chorus Call Conference operator. Welcome, and thank you for joining the Banca IFIS Full Year 2022 Results Conference Call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. At this time, I would like to turn the conference over to Mr. Frederik Geertman, CEO. Please go ahead, sir.
Thank you, welcome everybody to our full year 2022 results call. I'm here with my team, with Martino Da Rio, the investor relator. We will make a short presentation, then we'll gladly take your questions. Today is a special occasion. We present the first year of our business plan, we hope you will appreciate that we are quite pleased with the way it's coming along. I will start going through the presentation. I will take you directly to page 4, where we present the core net income. We are at EUR 141 million net income, 2022. That's a record excluding the PPA. It also means we achieved the 2023 business plan target of net income a full year in advance of the business plan.
The business plan stated EUR 137 million for this year, and we're posting EUR 141 million. We're well above the EUR 120 million net income guidance that we had given. That included some prudent assumptions in terms of macro environment. Reason we are posting EUR 141 million is that we have strong performance from all profit centers that more than offset the negative one-offs that we upfronted in 2022. In Q4, we made EUR 22 million provisions in the NPL business due to an adverse regulatory change, the so-called Decreto Aiuti, which increased the threshold for capturing the pensions at EUR 1,000. We also posted EUR 7 million provisions for potentially lower NPL cash collection due to inflation.
That impacts as a negative revenue cost. I remind you that in Q1, Q2, Q3, we had made EUR 11 million prudential add-on provisions on the performing loans, adding to our prudential management overlay. On page 5, we dive into the fourth quarter. Net income of EUR 36 million, that's +8% Q -on -Q, notwithstanding the negatives, and +74% year-on-year. The negatives were EUR 29 million. One is the Decreto Aiuti, which I'd already mentioned, and the other is the potentially lower cash collections due to inflation. I state potentially, given that we are not really seeing that yet. Net revenue is EUR 192 million in the quarter. That's a +16% Q -on- Q and +25% year-on-year, driven by what we consider outstanding performance in commercial banking and in NPLs.
Factoring turnover in Q4, 8% Q-on-Q and 9% year-on-year, both excluding the factoring of invoices versus the public administration. New business in leasing, 47% year-on-year. We confirm record quarterly cash collections of the NPL portfolio another time, EUR 100 million, stable Q-on-Q, +7% year-on-year. Operating costs are at EUR 112 million, +20% Q-on-Q, mainly due to the increase in the NPL variable recovery costs. The overperformance that you see on the revenue side does translate partially into an increase in costs, in external costs. We'll get into that later. Loan loss provisions are EUR 29 million, including however, the EUR 22 million negative one-offs in the NPL segment.
The actual provisions on credit risk were still very low at EUR 7 million in the quarter. We confirmed the resilience and the quality of the loan book that we had illustrated to the market in Q3. You may remember we had a slide on high priority sectors or sectors that we take a specific look at, maybe because of energy costs or supply chain constraints. Page 6, focus on revenues. This is really the driver of the performance, and we consider it really encouraging. We have a +25% versus Q4 2021. How does this break down? Commercial banking, EUR 93 million. It was EUR 83 million in the third quarter, reflecting the positive correlations that we have connecting to the interest rates. The NPL business delivered EUR 83 million.
That was EUR 66 million in the third quarter. It's a net increase driven by judicial workout performance, truly outstanding, and the increase of the legal interest rate on the order of assignments that generated little increase in revenues, about EUR 6 million, EUR 7 million. Provisions against potential lower NPL cash collections due to inflation, which is a negative. The combined effect of this is that we go from EUR 66 million to EUR 83 million, another contribution to our surpassing the guidance. Non-core GNS at EUR 15 million and +EUR 16 million in the third quarter. Showing you a little bit more flavor on the commercial activity, page 7. Here we see the factoring turnover. We did +9% year-over-year. The market did +8%.
That includes the factoring that we used to do for the public administration, where we basically reviewed the business model, or I should say drastically reduced, almost exited, the business of buying invoices of the Italian public health system. We considered the business not really compatible with the new definition of default. Continuing would have meant generating a very large amount of past dues. We decided it was not sustainable in this form. We are compensating that exit with other businesses you will appreciate. New leasing, truly outstanding, +47%. I want to underline here that it's excellent commercial productivity of leasing to SMEs. We did not make a change in our small ticket focus, so there are no large single transactions in there that need explaining.
We have a very nice acceleration in equipment and tech leasing, which is where historically our leasing business excelled, and where we really see the competence of the bank delivering this growth. You can see it also in the automotive part. We had a +31%, growing more or less as the market did. Most of the growth, as I've explained, we find it in the traditional equipment and tech leasing business. Describing what's coming out of this of this quarter and of this year, I should say, and really characterizing the bank, slightly more long term, slightly more structurally on page 8, I think we can now ascertain that IFIS represents a natural inflation hedge and that it's further accelerating a very solid commercial performance.
What do we mean by that? Well, firstly, we have clearly a positive interest rate correlation. Variable rates have historically been predominant in factoring, leasing, structured finance, and also normal lending activity. We have more than 85% of the customer loan book Euribor sensitive, so we benefit clearly on the interest rate side from what's happening on the rates. Additional to that, which in my opinion is specific to this bank and to our business model, is the inflation hedge. Not many businesses could state that, you know, the inflation translates in volume of factoring invoices, basically one to one. The inflation in prices of equipment, so capital goods, further contributes on the leasing side to the new underwriting. These are two elements that really help.
Keep in mind that when you think about inflation, you would normally have in mind the regular consumer price inflation numbers. In reality, what happens on the B2B side and on the capital goods side is that inflation tends to be higher than the consumer price inflation, right? Our invoices, which are typically B2B, they grow even more than the elevated inflation numbers that you already see. This is mechanical. Further inflation will lead to further growth and therefore a hedge in the factoring business. Add to that, nicely growing client franchise, active factoring clients increasing from 6,200 in 2020 to 8,100 in 2022. Quite impressive. Also in increasing retention, up 6 percentage points both years.
We're keeping our clients a little more, and we're adding clients, adding active clients. Many of them are also reactivating previously present relationships. Finally, digitalization. We had a slide on it last time. We won't go into it in such detail. I'll just remind you that we have 100% of our factoring clients now on our IFIS for Business platform. That means that we can increase turnover and volumes due to the digitalization at a modest cost increase. That translates into the numbers of commercial banking. Revenue's up 12.6% year-on-year, costs up 3.8% year-on-year. Cost to income growing to 49.8%. That's really the delivery of one of the promises, right, of the industrial plan.
Digitalization, process improvements leading to business growth with a less than proportional cost growth. That's, in our opinion, definitely an engine that can give us benefits in the future. Point 9 or page 9, let's take a look at NPLs. Confirms a very resilient and well-positioned portfolio. Small tickets are secured. It's a mechanical or statistical, I should say, industrial business. It's processes, it's digitalization, it's what we call the Legal Factory. It's even in the current environment, we see these collections growing and holding up at very elevated levels. We posted EUR 100 million cash collection in Q4, roughly the same as Q3. EUR 51 million extrajudicial, EUR 49 million judicial, leading to a P&L where the revenue growth offset the one-off negatives that we had envisaged.
We, let's start with the revenues, right? Point one, we had negative revenues posted one-off against the potential impact of inflation. We had announced that we want to be prudent. It's not really happening now, if you look at the cash collection, but we have adapted the models, and when you touch the models, you touch expectations of forward flows, and therefore you get a negative one-off, and that goes into revenues. We had also a + EUR 8 million coming out of the increase of the legal interest rate in the orders of assignment. I will admit that we haven't really factored that in when we made the guidance. Legal interest rates didn't move much in the last years. They were updated. I won't say it fell into our laps, but close to it.
We had an EUR 8 million one-off positive, and that was booked in this quarter. The EUR 22 million on the loan loss provisions, which are normally zero there, in the NPL business because of the business model we already discussed. Leading to a net income of EUR 4 million. Still, even with these phenomena, the bank posted a profit in the NPL business. Costs, EUR 32 million, you see a quite sizable increase versus third quarter. That was both the judicial workout and the onboarding and assignment of a very sizable newly acquired NPL portfolio that was executed in the fourth quarter. Page 10, costs. I go to the lower left part of the slide.
If you take the sum of operating costs and provisions, you see a progression of EUR 106 million, EUR 101 million, and EUR 108 million, also connected obviously to the volume of business on the NPL side. There's always this phenomenon of the seat and SRS that were booked as provisions in the third quarter and then released and booked as costs in the fourth quarter. In the fourth quarter, we had no net impact from there. The other operating costs, where you have the impact of inflation, right? Which was more than offset by a very, very disciplined, methodical, professional, I would say, activity of contract renegotiation and demand management.
We also have EUR 9 million of IT spending there in the quarter as we keep investing in the transformation project. We have the costs, the green bar, which are directly linked to the NPL recovery, time due to external lawyers, the external recovery servicers. There you have the effect of the judicial workout and this large portfolio that came in. Cost of personnel, substantially stable year-over-year. We're being quite prudent in adding headcount. It is growing, as was envisaged in the plan, but not at particularly elevated rates. Page 11, cost of risk. The actual classical cost of risk of our credit business is on the top left of the chart, in the dark blue box. We go from EUR 8 million to EUR 7 million.
We're not seeing any effect of slowdown in the economy, supply chain disruption, companies getting in trouble because of energy bills. We have shared with the market last quarter the rating breakdown due to the changes in the macro environment. Nothing more to add to that. A very gradual impact on the probability of default and almost absent increase of real defaults. I remind you that we have EUR 50 million provisions present against potential macro risk. That's the management overlay. Those are provisions on the bonus portfolio. They have various justifications, because as you know, even if you're being prudent, you can't just do what you want.
We have titles there, such as concentration risk, sector risk, everything that had to do obviously with the disruption that was caused in the energy markets and the war. That has been further increased this year. We had already had some in the COVID years. That's where a significant part of those EUR 50 million were first posted. Those were not taken back and booked as profits. They were left there. They were reassigned to macro risk, and that represents a buffer as we go on in 2023 and 2024 against potential downturn. On the bottom part of the page, the NPE ratios, a solid improvement. From 7.4, we go to 5.9 gross. Both elements decreased.
We have the loans versus the public health system. Those are past dues, right? These are loans that will be paid in the end. At least history shows us that these are fundamentally always collected. It may take time because sometimes you have to go through legal proceedings. We have further collected and also the benefits from some transactions. On the dark blue bar, you can see that the normal NPEs, right? The ones that come from our business have decreased from 5.3 gross to 4.3 gross. The net goes from 4.8 to 4.0. Page 12, the capital walk. It's also a We think a very positive development.
You may remember that in Q3, we had posted a CET1 ratio of in excess of 16%. We had taken the benefits of lower risk-weighted assets in the NPL business and another one-off. This capital was put to work in Q4. That's basically risk-weighted assets increase. Selective investments in financial and corporate bonds at an attractive risk return ratio in November, December. That was when the yields on those instruments was particularly high, even in our opinion, in fundamental absence of real risk. Those are very high quality issuers. We made a EUR 580 million increase in RWAs on that side. The peak performance in Q4 of the corporate exposures, another EUR 351 million.
The combination of those two things has led to our outstanding revenue performance in Q4. That more than offset the one-off. We consider a 15.01% CET1 ratio basically the consequence of the execution of our plan. We're quite pleased with the risk return reward that we are collecting there. Page 13. Our resilience. We have a solid CET1 ratio. We have total 2022 dividends of EUR 73.4 million. That's EUR 1.40 per share. We have in the board this morning deliberated to propose to the shareholders meeting EUR 0.40 dividends per share to be paid on May 24th, EUR 21 million.
You may remember that in Q3 we had already paid EUR 1 per share, that was paid out on November 23rd, leading all together to EUR 1.40 dividends on these 2022 numbers. Stable funding, Liquidity Coverage Ratio in excess of 500%. That's 5 times the legal minimum, the regulatory minimum. Net Stable Funding Ratio in excess of 100% comfortable. We have EUR 2 billion TLTRO that's expiring in September 2024, won't be a relevant issue in 2023. We're going to repay that. We have developed our funding plan for the next 2 years. That will be repaid both by asset and liability transactions, working on the mix and quantity of funding, and also gradually reducing some of the Italian government bond portfolio over time.
We issued, as you know, a successfully EUR 300 million senior bond in January 2023 with a 4-year maturity. The NPE ratio I have already discussed. We have NPEs at EUR 173 million. They decreased by EUR 9 million Q-on-Q, compared to the capital position of EUR 1.5 billion. I think that number speaks for itself. Looking ahead, page 14. Compared to the plan that was presented only a year ago, even if the environment today is really completely different and it feels like a much longer time ago, what are we seeing? In 2022, we had a business plan that stated 4% growth. The actual was 3.9%. A bit more in the first part, a bit less in the second part.
The business plan said in 2023 that we would have a 2.8% growth in the coming year. We have worked out a guidance that I will soon comment, assuming, as most observers and institutions, a lower growth given the whole macro environment. Our current assumption is 0.4% Italian GDP growth. No contraction, slight growth, and most forecasters are more or less in that range between 0.4%-0.6%. Those are the numbers that you see. Inflation. The business plan assumed 1.5%. We were actually even quite on the high side back then. The actual was 8.4%, as is known. For 2023, we had a visit 1.4%, and we assume next year 5.8%.
These are of course annual averages. We assume a slowdown in inflation through the year of 2023. Euribor, business plan assumes -0.5. We had 2.1 average. It assumes for 2023 -0.4. We're assuming 3.1, slightly below the forward curve. As you know, we are positively correlated to Euribor, if it will go faster, then we would have a, you know, further increase of revenues. We also had some adverse change that we had discussed, right, in 2023. You know, this year in 2022, I'm sorry. This year we more than offset the adverse regulatory impact.
Looking ahead in 2023, we see this environment where fundamentally the economy will grow less, we'll have a significant inflation, and we have the Euribor at a further growing level. Where does that lead us? page 15. Obviously delivering the second year of the business plan in the first year poses questions on what you assume, right, as you go into the second year. We're giving a guidance, increasing it to EUR 160 million. The business plan said EUR 137 million. The assumptions that are in there on the macro side, I just discussed on page 14. I would add to that, no significant deterioration in the macroeconomic conditions relative to these numbers, right? No major contraction, no real disruption. Continued stable inflation and further pickup of rates.
Evolution of funding cost and spreads in line with market expectations. Funding is obviously more expensive now. It's not just a question of base rates, it's also a question of the spreads that issuers are paying. Of course, we're assuming no major adverse regulatory changes. On those basis, using the drivers of higher net interest income and very prudent provisioning, we give a guidance of EUR 150 million for next year. Very pleased to be able to, you know, share with the market such a foster and more rewarding evolution of the business plan than we had initially imagined. I'll leave the presentation at that. You see on page 16, we have more detailed numbers. They're the usual appendices. I urge everybody to flip through them.
We give a lot of detail and transparency on various businesses, on rates, on pricing, on NPLs. So do flip through them. I am available for questions that you may have on these numbers. Thank you for now for your attention.
Thank you. This is the Chorus Call Conference operator. We'll now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. To remove yourself from the question queue, please press star and two. Please pick up to receive an asking questions. Anyone who has a question may press star and one at this time. The first question is from Manuela Meroni with Intesa Sanpaolo. Please go ahead.
Good afternoon. Thank you for the presentation. I have 5 questions. The first one is on your 2023 guidance. Your new guidance is for EUR 150 million. If I look at 2022, you already made EUR 141 million, including EUR 40 million of, let's say, non-recurring elements. Adding it is EUR 43 million tax non-recurring elements, I can add to EUR 167 million of net profit in 2022, excluding one-off. I'm wondering if your EUR 150 million guidance for 2023 is a little bit conservative. The second question is on the cost of funding.
I'm wondering what are your assumptions in terms of cost of funding, and what is your strategy on the TLTRO , so if you are going to repay it in 2023? The third question is on the asset quality. Have you seen any early sign of asset quality deterioration? Do you expect the increase of interest rates to affect the ability of corporate to pay their loans? What is the cost of risk included in your 2023 net income guidance? The fourth question is on the regulation. Do you expect further changes in the regulation which may impact the company? Last question is on the corporate bond portfolio that you just purchased. I'm wondering what is the yield attached to these EUR 500 million portfolio.
Yeah. Manuela, very clear. Thank you. On the guidance, I guess that's the key question. Let me phrase this... Considering, you know, all the moving parts. Okay. First of all, we are in a quite complex macro scenario without real historical references, right? We exit from a global lockdown, and we enter into supply chain constraints and an energy shock as we move out of there. We have central banks making statements that are certainly, you know, strong in terms of their determination to fight inflation. It's not clear whether they will be able to bring it down to their target of 2%, right? Without, you know, maybe overshooting causing a slowdown. They are draining liquidity very quickly.
We still have this geopolitical complexity, let's put it like that, which is not only present in Europe, but also in formation of macro blocks, right? With reshoring and supply chains potentially being redesigned, right? With some cost impact. In an environment in which central banks are clearly talking to the banking system and saying, "Take into account the very serious deterioration of the risk environment," right? "Prepare for it." In which all this liquidity is drained, we have to, I think, do two things. The first is, and I'll get to the number that you ask later. The first is we have to assume that loan loss provisions will increase.
We have statistical ways of estimating that, so that's a formal process. Rating deterioration leading to cost of risk is something that, you know, banks are statistically quite capable to estimate. We're assuming that. We also have to assume that, you know, something may go maybe slightly more challenging, right? Business growth, right? We're assuming obviously a further development of our commercial activity. When revenues of companies don't increase as much, then, you know, that means market share growth, which is obviously something that, you know, you cannot take for granted too much. I remind you that in the business plan, we had a 7% growth of our business annually, CAGR, right? In an environment which certainly is going to be more challenging than what we had imagined, right?
Based on these assumptions, we give a guidance of EUR 150 million, right? If you assume a better macro environment, or significantly higher arrival scenario, then that number may be actually increased. In the current environment, we think it is a balanced and responsible increase from 137 to 150, and we do in that number, take into account an increase in cost of risk, very significantly increase. You asked how much, roughly? I'll get to your question right away. We assume that the cost of risk in 2023 will be similar to the one of 2022, but with everything caused by real cost of risk. It's like the one-offs, the prudence that we overlaid in 2022 would be replaced by actual cost of risk.
Cost of funding, we assume an increase of roughly x 2.5. The interest that we pay on the right-hand side of the balance sheet, so the negative interest rate cost, would go from round about 100 basis points to round about 250 basis points. You can see how strong the impact of the rate environment is. Of course, you also have the beneficial impact on the 85% of the asset side that's positively connected to the base rates. On the liability side, we have the impact, and we assume a certain spread impact.
Cost of funding in the last months has been elevated, not just because of the rates environment, also because of the spreads environment. First of all, we don't assume to repay it in 2023. We assume a gradual repayment in 2024. We'll prepare for that in 2023, and that's certainly one of the elements that constitutes an increase in cost of funding because you have to prepare for the repayment. You have to put yourself in a liquidity position where you're comfortably able to repay the TLTRO gradually. We're also going to sell, much less than half, but in any case, a part of the government bonds portfolio. Asset quality iteration, I answered. Adverse regulation. We don't have any news, right? We don't expect it.
We don't have some big number in there of EUR X million, right, connected to adverse regulatory effects that we wouldn't know how to, how to predict in any case. There's no particular issue on the table today. It may happen, but, you know, if it does, we'll see. Yields of the bond portfolio, that was bought at an average yield of about 6%. If you consider that these are truly high quality issuers, mostly senior but not only senior, we also bought some Tier 2 and a very small amount of AT1s at very, very wide spreads in those months. It was actually a way in which having the capital, having the liquidity, we benefited from a situation which on the liability side would constitute a cost, right?
6% on more than EUR 500 million investments, you can work out the numbers, right? We think it was a very, a very good trade for us. Most of that is in held to collect, so that will benefit, that will make us benefit over the years from these yields that we have locked in. It's not something that will disappear. I think I got them. All right, Manuela?
Yes. Thank you very much. Very clear.
Thank you.
The next question is from Irene Rossetto with KBW. Please go ahead.
Yes. Hello to everyone. Thanks for taking my question. I have a few. The first is if you can provide us with the expected evolution of the purchase price of the NPLs, and if you see prices going down. The second is what is the impact in terms of cost of funding of the change in the terms of the TLTRO. The contribution of higher interest rates in the fourth quarter, and your sensitivity to interest rates. What was the driver of the strong revenue performance in the NPLs in the fourth quarter? Why operating costs picked up in the quarter. Finally, do you expect to pay interim dividend in 2023? Thank you.
Yeah, I got them all except the first one. Could you please repeat your first question?
Yes. If you can provide us with expected the evolution of the purchase price of NPLs and if the issue prices going down?
Thank you. Okay, I'll start with that one. Pricing of purchased NPLs. You would expect in a market that has higher cost of funding, and that may potentially also produce more NPLs, a decrease in the price. It's not happening yet. We're seeing quite some transactions where yesterday's prices, as I would describe them, are still being practiced. We tend to be disciplined, so we reached our purchasing objectives last year in a slightly different mix. Meaning that we also bought on the secondary market, some portfolios, at what we think are much better conditions, certainly, you know, in what respect, in respect of the way our models work. Looking forward, it's really hard to make a prediction. I think logically the NPL price should go down a bit.
You have to take into account that, you know, somehow inflation will impact the ability of the debtors to repay. You have to take into account that the costs of these also specialized, the funding costs, also of the specialized players, are going to impact. Not really happening yet. Vibrant NPL market, there are some good news in there as well, right? I mean, from a macro perspective, if you for a second forget about IFIS, the fact that there are still so much demand for Italian NPLs, I think is a good thing for the Italian banking system, and is a good macro message for the country because we still see a lot of capital being committed to these projects also abroad, and that therefore comes in here and that helps the bank deleverage.
vibrant market, no real slump in prices. Logically, you would expect some decrease. That's not happening yet. Impact of the TLTRO. I think what you mean is what's the impact of societies becoming more expensive this year? If that's your question, I'll answer. If not, you can correct me at the end. The impact of the change that was made to the TLTRO conditions by the central bank, retroactively, by the way, I should say, is roughly EUR 15 million in 2023 compared to what we had written in the business plan, right? That's something that's in our numbers and that partly offsets the positive Euribor correlation.
One of the reasons why we have a guidance of EUR 150 million, obviously, has to take into account that EUR 2 billion over funding has retroactively become more expensive. The contribution of the interest rates environment in Q4. That's an easy one. That was roughly EUR 10 million. I'll give you the sensitivities again. We gave them in some earlier calls. If you assume for a second, which you can't, but if you assume for a second that TLTRO is not impacted by Euribor at all, right? You take it separate, then 100 basis points in the interest rates parallel on the curve for Banca IFIS is between EUR 30 million and EUR 40 million additional revenues.
If you assume, which is technically not really true, but if you assume that TLTRO follows Euribor, okay, then it's reduced to EUR 15 million-EUR 20 million, roughly. What are the drivers of NPL performance in Q4? Well, we had a nice progression of revenues, as you saw, right? From EUR 66 million-EUR 83 million. Of that, judicial workout performance contributed EUR 18 million, and then we had another 6, 7 impact from the legal interest rates on the order of assignments. When you look at costs, that is something that we are actually studying. We are keeping a very nice overall revenue production and cash collection in this division, with a slightly different mix. Less extra judicial, more judicial.
Part of that is idiosyncratic, as they would say, so specific to IFIS, because we had a bit of a slowdown in extra judicial when we made some changes to the business model there with the external with our external partners. Part of it is probably connected to debtors having a bit less free cash at the end of the month, energy costs and such. The consequence is that if we substitute extra judicial collection by judicial, then for every euro we collect, we get a bit more costs because judicial collection is very certain, but it's also a bit more costly.
You have the legal costs, the stamp duty, the whole court system and everything. That's, you know, long term, one of the things that we are looking at in terms of, you know, the health of the NPL division, how to make sure that we keep the economics as they were. Finally, your fifth question. Sorry, can you restate it?
The fifth was why operating costs picked up in fourth quarter, I think you partially explained early with the judicial in NPL. The final was if you expect to pay any interim dividend in 2023.
Okay. Yeah, sorry. I wrote it down, but I couldn't decipher my own handwriting. Interim dividend, yes. We did it once. We think it's a market friendly thing. We noticed many leading banks do it. We started this year, and we are definitely planning on, if conditions permit, if the conditions allow it, which we definitely assume, to make that a recurring event. Yes, in 2023, I would assume that in second half of the year we'll pay an interim dividend. Yes. Payout ratio, in case you're wondering, is stable at roughly 60%.
Thank you.
Good.
As a reminder, if you wish to register for a question, please press star and one on your telephone. For any further questions, please press star and one on your telephone. The next question is from Giuseppe Grimaldi with BNP Paribas. Please go ahead.
Good afternoon, everybody, thanks for taking my question. It's just one basically quick question on the cost of funding. Basically, you were guiding for 2 x higher cost of funding. I just wanna understand if it is compared to 2022 levels or 200 basis points, 250 basis points in general. Maybe the second one is on the factoring business as you are phasing out to the public administration, where you are in the process. I mean, you have completed the phase out or you are still doing it at the moment?
Thank you. Yeah, very clear. Cost of funding, yes. In reply to your question, that was relative to 2022. Once again, negative interest costs going from about 100 basis points in 2022 to about 250 basis points. Slightly higher, actually. That comes both out of base rates and assumptions on what we do in the retail part, right? There's obviously also the TLTRO impact, right? That hits quite strongly because we have assumed further rates increases by the central bank. As you know, as they increase the refinancing rate, then the TLTRO conditions now follow. In theory, the business plan, right? Would have said - 50 basis points, right? Originally. That's looking more like 250 basis points, 300 basis points, right?
Next year. So all that feeds into the x2.5 weighted average that I mentioned. Factoring versus the public administration, where are we in the process? We are. We haven't fully exited. It means that we are still purchasing some invoices of those counterparties that do not typically lead to past dues, so more disciplined payers. We have stopped purchasing invoices from those counterparties that lead to past dues. The portfolio is running down. I think what's left is less than half of what we had, probably around two-thirds has by now been collected, and the rest will go through a very slow and winding process as we, as we work through it. We may accelerate this bit with further transactions if we see opportunities.
As we said on the NPE ratios, we've classified those as past dues. One of the drivers we had of the reduction in the NPE ratio is that we also worked quite hard on the ones that we generate on the commercial side. We had some big positions going back to [inaudible]. We had some transactions where we sold. The aggregate went down nicely. Not only the public administration went down, but also on the commercial banking side. It's not a complete exit of the business, but it's certainly a very different business than the one we had, where originally the premise of that business was that the customer would pay late and that you would apply penalty rates of 8%.
That's still possible, but you have to classify them. From an aesthetic point of view, if you allow me this term, having all these past dues on our balance sheet, we thought it was not opportune, right? Once again, every player in this business is making his own assumptions on the application of the new definition of default. This one is ours. We classify. It's very technical. We can't speak for other players, but this is our position, and we, in terms of sustainability and the type of businesses we want to be in, we thought this was the right decision.
Thank you very much.
I think I got them both, right?
Once again, if you wish to ask a question, please press star and one on your telephone. Mr. Geertman, there are no more questions registered at this time.
Great. It's, I think close to five to three, so we have stayed within the hour. I thank my team for the support in the presentation and for the whole year. We're very pleased, as you might have heard, and very confident about our ability to move forward with our plan. I thank you all for your trust and your support and for your time in this call. Good afternoon to everybody.
Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.