Earnings Call: H1 2021

Aug 5, 2021

Good afternoon. This is the Chorus Call conference operator. Welcome and thank you for joining the Bancaifi's First Half twenty twenty one 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. At this time, I would like to turn the conference over to Mr. Fredrik Gersman, CEO. Please go ahead, sir. Thank you very much, and good afternoon to everybody. Thank you for being in the call considering it's August 5, and there are many conference calls for the results these days. Thank you twice. We hope to make it worth your time. We're presenting Q2 numbers that we think confirm and strengthen what we saw in Q1. We think they are constructive numbers and they are encouraging. We have a net income of $28,000,000 plus $8,000,000 versus Q1 on Page 4, which makes $48,000,000 total in the first half of twenty twenty one. Net revenues of $155,000,000 which is a peak in the last five quarters. Obviously, 2020 was a bit depressed for obvious reasons, but even going back to 2019, that's a nice number. If we exclude the PPA, we end up with $151,000,000 and that's a record for the bank, and we think it is a good indication of our ability to replace PPA with real core income. NPL cash collection, like the previous quarter, peaked at €89,000,000 so a record, and loan loss provisions at $26,000,000 including $14,000,000 extra provisions that we made both in NIMPL and in our commercial banking portfolio, where we find additional ways to, let's say, prudently account for a long term COVID impact. CP1 is 11.44, which is slightly down from where we were in Q1, 11.77, but it doesn't include first half twenty twenty one net income. So with a reasonable estimate of what dividends might be, right, you can add up probably some basis points and you can see that we're more or less stable, I would say. Without Scolera perimeter consolidation, 15.51 CET1 ratio. We think we are benefiting from a progressive recovery. So in the absence of any ugly surprises in the rest of the year, We provided guidance, which some of you asked me for the last quarter. I took some time at that point because I was a bit hesitant to give numbers so early in the year and also so early in my tenure, frankly. Today, we give a guidance and I'll comment on it a bit later when we get to the chart. I'd go to Page 5. Here we have the revenues. As said, dollars 155,000,000 total, dollars 1 151 excluding PPA. Both on the NPL side, we have a nice progression, plus 11% Q on Q, driven by further normalization of the courts, right? You remember that we had a bit of a backlog due to 2020 when they were closed. Also some management actions on productivity in servicing. We're having seeing the impact of quite some projects there in terms of how we organize the servicing and that's paying off. Commercial Banking, plus 15% Q on Q, that's also a very nice number. There are some impacts there of investments that we made that have paid off, but all the business units are progressing very nicely, 15% Q on Q. Page 6, a little bit of an update of on digitalization. You know that we like to talk about this. It's not because we fall in love with a project or something, but because we think it is long term very relevant for the bank. What this is, it adds distribution capacity with very low additional cost, and it also allows for volume growth with a very attractive marginal cost income ratio. So as these projects and these platforms go on stream, you can actually see it, right? You will be able to appreciate it in the numbers and that's why we think it's relevant and we want to keep you updated on how it is going. So on the left is just a reminder of what we're talking about. It's digitalization both of the client side and of the Vancai FIS internal side. On the client side, co factoring, it both benefits the client and its debtor, right? So it's really value chain digitalization. On Q1, we mentioned to you that we were operational with a few things, digital marketing, client onboarding and supply chain functions, which is mostly regarded debtors, right? We launched in July, and we have an ongoing rollout, full digital factoring, means that the clients that are have been onboarded are fully digital. It's not just uploading of invoices, it is the whole management of the credit, right? So including requests of delays, increasing of platforms, the whole after sales part and the whole dematerialization part, right, is included. And it's we think it is a really, really client oriented state of the art supply chain digitalization. On Q4, we have further plans, as you can see, right? We'll be integrating additional products, and this is an ongoing project, which is on track. Let me just tell you that in terms of digital marketing, we have an ever accelerating production of high quality leads, meaning that we have literally thousands of SMEs, which are being processed and are becoming progressively customers. Compared to 2019, we have roughly double the size of high quality leads. And Q on Q, we have roughly and sorry, against the 2020, we have a roughly 30%, 40% increase, meaning that also on the commercial side, the bank appears to have the capabilities to generate new customers. Enough about digitalization, I'll go to Page 7. Small focus on NPLs. As we said, dollars 89,000,000 cash collection, that's a record number, significantly higher than 2019 before COVID, obviously higher than 2020. Management action is both reducing the time frame of recovery of risky exposure. So where you have very uncertain repayment plans, push for Salvo Estralcio, as we call it in Italy. It's still obviously a moderate use of tool. We will not use it where we will long term where we would long term leave value on the table. And on top of that, management action in terms of productivity, where you have to imagine, for instance, a little bit of extra judicial activity before the judicial activity starts, use of AI to weigh the propensity of payment and therefore prioritize those debtors that are going to give us more cash in the short term, some anticipation of those files that are subject to calendar provisioning, some preventive actions to ongoing payment plans to make sure that they're not discontinued. So a whole range of, let's put it this way, areas of sophistication, which leads, in our opinion, to a sustainable increase in cash collection. And that's really why I'm going into a bit of detail. We like to underline the sustainability of the approaches that we have. P. J. Moratoria, it's probably very much in line to what you've heard from the other banks. The Italian banking system is getting out of this moratoria phase. For most banks, including us, many clients are restarting their payments. We are now down 71% from the $799,000,000 that was the original exposure on moratoria. You have to remember that for those clients who asked, it was available to continue the moratoria until December on the capital side. The interest was the interest would have been would have restarted, but still we have only 29% of the clients, which are still in moratorium. We are assessing these as you can imagine, and we have a fairly benign view on what will happen with these remaining $233,000,000 So if you compare that with what we have on the right hand side of Page 8, right, $31,000,000 provisions, additional provisions on a sector by sector basis in 2020, another $8,000,000 in the Q1 of 2021, you may remember, another $5,000,000 in the Q2 of 2021, the bank is, as you can see here, actually looking for prudence, looking for long term prudence about the impact of COVID because as we've seen last quarter, the natural provisions remain very low. We will comment on it maybe a bit later. So we feel very comfortable with the overall picture. We think a minority of this $233,000,000 will, in the end, have problems, and we feel that the provisions that we've made are really adequate. Guidance, it was a request from some of you in the previous call. Let me be a bit precise here because it's a formal thing and Martino is watching me. So we benefit from a progressive recovery of the macroeconomic environment that we can read in the paper, that we can see with the clients, that we can also visibly see, right, in the economic activity that we see around us and also from the NPL normalization, right? On the basis of that, so without any ugly scenarios in terms of COVID, no harsh lockdowns, not in Italy, not elsewhere, especially U. S. And Europe, right, where we have obviously a market exposure. Lacking these negative developments that we don't expect, we expect a sound trend in revenues. We expect to make some further prudential provisions on the NPL and commercial banking portfolios. And on this basis, we think that we will end up with revenues between $540,000,000 $560,000,000 and the net income of $80,000,000 $90,000,000 this $80,000,000 to $90,000,000 This will take into account that Q3 is normally a bit slower. It's slower on the NPL side. It's also slower on the commercial banking side. So we have to expect like every year, right, a slightly weaker Q3. We're expecting on this basis, right, if these macro outlooks are confirmed, we're expecting a nice Q4. And if that happens, then this is roughly what will materialize in terms of economics, right? Capital ratios, Page 10. As you saw, a little bit of minor changes and then 49 basis points due to risk weighted assets increase. Now, of course, this is slightly negative as a perception because what you see here, you don't see the effect of the profits that we make because they're not included, right, in the CET1 calculation, but you do see the effect of the commercial activity because the risk weighted assets increase. They also increased, by the way, because there's a little change of perimeter connected to IGES. On that basis, we end up with 11.44. At the end of the year, when we will add in, right, the retained earnings, we can confirm that we will be between 11% 12%, and in my hope or aspiration, a bit closer to 12 than to 11. Obviously, there's the project of La Scolera's transfer to Geneva. If that happens and that is subject to the satisfaction of conditions precedent, then there will be roughly a 3 50 basis points impact positive 3 50 basis points impact on Bancaifi. In terms of timing, these conditions precedent, they can be met. I believe we the line was interrupted. So we're back. I will assume that you can hear me and resume the presentation. My apologies for the technical glitch. As we said, the transfer to Geneva of the holding company is subject to conditions precedent, and these will be hopefully met or in any case will be clarified between Q3 and Q4. We will present a plan in Q4 or if these condition precedents are not fully resolved by then, we may shift it to Q1 of next year, hopefully Q4. But once again, we don't think it would make a lot of sense to present a plan with this uncertainty around such an impact on the capital. And therefore, we'll wait for the situation to clarify it. As we said, we think the completion of this transaction is probable and therefore, we think it is opportune to wait. On Page 11 and 12, just one comment before I leave the floor to questions. 11, remember that 2Q 21 figures includes the P and L and balance sheet impact of the acquisition of IGES. P and L is not so material for Bancaifi's. Balance sheet impact, you see it on customer loans, on funding. You also see it a bit on risk weighted assets. So that's something to remind yourself of when you look at the numbers. And on Page 12, the only comment I would make, it's a breakdown by business line, is that all of them are contributing nicely to net income. And in terms of business activity, all of them are progressing Q on Q nicely. So we are quite encouraged by the capability of the bank to benefit from the macro environment that progressively improves and normalizes. Thank you for your attention this far. I would make myself available for your questions. Martino is here too. So in case I'll need some assistance, he will jump in. And I'm happy to take your questions. Thank you for your attention. Excuse me. This is the Chorus Call conference operator. We will now begin the question and answer The first question is from Christian Carrese of Intermonte. Please go ahead. Hi, everybody. Thank you for the presentation. It was very helpful. I would start from the guidance on total NBI, the net banking income. Looking at the number you provided, we should assume some decrease in the second half. So if you can elaborate a little bit on the trajectory. I understand the seasonality in the Q3. In particular, I would focus on NPL business because it was the performance was very good in the Q2, flat compared to Q2 2019 with a very high collection rate. I was wondering what do you think could be the run rate on an annual basis of the NPL division? Should you assume in the area of EUR 240,000,000 to EUR 150,000,000 revenues on this division? The second question is on operating cost and the positive trend in NPL business saw some also some pickup in cost related to the division due to the collection, variable cost. Can you give us some outlook for the second half of the year? And on digitalization process that will be part of the new business plan and you already started to implement, should we expect some extra cost related to the digitalization in the second half of this year? The third question is on cost of risk. You made some provision in the factoring business due to high vintage over the portfolio. You did also on the NPL business. You checked 50% of the NPL portfolio with limited impact in terms of provision, if I'm not mistaken, around €9,000,000 in the quarter. Looking at the full year figure, we expect to do some extra provisioning to free up some resources for 2022 profits? And finally, the common equity tier on ratio is not including the first half of profits. Is it correct? So assuming that contribution, the common equity would be more or less similar to the previous quarter, 10 basis points lower than previous quarter. Could you can you give us an update, if any, on the process for the Scogera holding and so on, all the new organization? On that end, the dividend and finally, sorry, on the dividend, you already made an accrual of the 2019 dividend. It's not in the common equity Tier 1. We know what ECB decided on the dividends. So if you can give us an update on total dividend to be paid after September 2021? Thank you. Yes. Thank you. Thank you, Christian, for the questions. Let me first of all do the easy one, right? So CET1, I confirm, it doesn't include the profits, okay? And yes, if you make a reasonable assumption on payout ratio, then capital would be CET1 ratio would be more or less flattish, right? Not materially moving, staying above 11.5%, right, which is where we'd like to be comfortably. Dividends, another easy one, so I'll just take that out. Yes, 2019 dividends is booked as a debt. So you don't see it in the CET1. It's like it was already paid. What's going to happen there? Well, what the authorities said, ECB and Bank of Italy issued a press release just a few days ago on the subject. And the message is, please be prudent, and we are going from a general guiding guidance, yes, on the authorities side, you would call it indication probably, right? From a general policy of no distribution or very limited distribution, we're going to a specific policy, right, where we will talk to the banks and we will take a forward looking view around their capital situation and how their dividend their intentions of the dividend will compare with the capital situation. So it's slightly delicate for me to talk in the place of the authority, so I'll avoid it. Let me say it like this. We will have this conversation, obviously, with them during the month of September, I assume, right? And we're not expecting but once again, I can't talk for the authority, but we are not expecting any issues around the 2019 dividend, especially given the way it's already accounted for, right? So and then I look at Martino, that's $1,100,000 I believe, right? That's $1,100,000 per share, which is sitting there and that in case we don't get any objections, that's going to come right after September 30. Cost of risk, you asked us whether we were maybe had the intention to maybe have a little extra sacrifice in 2021 and maybe free up some extra profit in 2022. That's not very elegant. My CFO is looking at me disapprovingly. No, let's say that we are very prudent. We are very prudent. You just entered the group, so you want to look at the long book. You need some time. Yes. I agree, Christian. I agree. Let me put it this way. I promised no kitchen thinking, and I reiterate the promise, okay? So we won't do anything ugly. And when I gave the guidance, the guidance will it includes the assumptions we have today, right, on a little bit of further caution that we want to put in, okay? So that's so if you take a look at the numbers we gave and you think a little bit how many provisions more or less, right, you would expect, right? These provisions would include what we think we will do as further caution, right, as we work through the remaining 50% of the NPL portfolio, which we still need to do, okay? So it's housekeeping really. And it's getting obviously, I mean, you need a rationale when you do these things, right? You can't just do them because it's comfortable, right? You need a rationale. And therefore, we found the rationale in terms of classification of these NPLs, right? Which category are they in? And maybe can we be a little bit more prudent there given long term unemployment, given the value of guarantees, given some long term COVID effects, right? But it's not endless, of course, right? Actually, if I look to the loans under moratorium, I would expect no deterioration in terms of not major deterioration in terms of default rate. I agree. I agree. I agree with you. And if you look at what's coming in, in terms of cost of risk naturally, right, you take our cost of risk of this quarter, you take out the $9,000,000 and the $5,000,000 right? You end up with a fairly low number, around $12,000,000 And Q1 was also similar, right? So what's coming in naturally in terms of cost of risk, right? Not just in Ephys, by the way, you see this in other banks too, right? It's still very low. And I think we can carefully start to conclude that everything that was done in terms of liquidity, moratoria, government intervention, banks intervention has, in fact, had the desired effect to decouple GDP contraction from NPL flows. It seems that the GDP contraction was obviously there, but the NPL flows are still very much subdued. And if you look at how the businesses are coming out of the moratoria, we don't expect something particularly ugly, right, given that there was a healthy book to start with. This is very important. It all depends on your starting position, right? So yes, fairly subdued cost of risk, more or less in line with the Q1, Q2 for the outlook, right? A little bit of extra investment from us leading to the guidance that you've heard. Digitalization, your other question, digitalization and then I get to the guidance, right, on especially on revenues, which you started with, right? I'm working my way back. Digitalization, well, it's mostly CapEx. So don't expect an increase in costs due to that. That's just projects that are there. They are budgeted. Most of it goes to CapEx, so you wouldn't even see it right away fully in the cost line, right? So nothing particularly relevant there. You've seen an increase in cost that is, in fact, very much connected to the increase of activity, right, the increase of NPL activity. What you may expect in terms of cost in the second half of the year is that if the Scolera transaction is completed, we will have some success fees on the advisory side and those will be visible in the costs, right? So you have a little uptick, right, in costs, but only in the case, right, we have a full success on the Scolera transaction. Otherwise, nothing is due. So in that case, we would have, on the one hand, some advisory fees paid on a success basis, but on the other hand, we would have 3 50 basis points of capital. Once again, the guidance takes this into account, right? Finally, 1st half versus second half revenues. What to expect? Well, 2 things, I think. Why is the second half a bit weaker than the first half, right? Because we're not multiplying by 2, obviously, you did the math, right? Because of Q3 and some of that is on the NPL side because you don't have the courts for part of the month in August, right? So and that stuff is just mechanical. It this just happens, right? Also in terms of commercial banking, there's always a little bit of apologies once again that we seem to have issues with the line. I'll continue, Christian, to answer your question. So Q3, right, slightly slower because of the courts and because of the commercial banking things. And also, we have expect roughly $5,000,000 of PPAs of PPA, which is slightly lower than what we had in the first half, right, where it was $16,000,000 So all this together leading to a slightly lower revenue in the second half. Cash collections, let's I mean, this is just an estimate expect for the reasons we said, Q4, that's similar to Q2. Q3, that has the typical dip, right? If you look at the previous years, you can do the math, right? I hope I answered your questions. We are more specific than this requires a crystal ball, I'm afraid, Christian. So Very clear, very clear. Thank you. Okay. Thank you. Thanks for your question. The next question is from Manuela Meroni of Intesa Sanpaolo. Please go ahead. Good morning and thank you for the presentation. A few questions from my side. The first one is on the loans under Ambrasoria. What is the default rate of the loss that you are expecting from those loans? The second question is on the guidance for the loan loss provision that is embedded in your €80,000,000 €90,000,000 in your guidance net income. So what is then what are the loan loss of you that you have embedded in that guidance? 3rd question is on the non performing loans business. You bought a relatively low amount of non performing loans. In the first half, How many non performing loans do you expect to buy in the full year? Then on the SME business, the trend in SME business has been quite strong in the Q2. What is the outlook for the SME business going forward? Then on the PPA, how much is the remaining PPA? And what is the expected time frame to for the reversal of it? And finally, you have been in Banco Ephys for a few months. Have you got any negative surprise or something that actually is below your expectation? Or maybe you had some positive surprises, just a feeling about that? Thanks for the last question. I'll take it last, okay? I'll do the other ones first. So thanks, Manuela. Very precise questions. Okay. So the Moratoria, we have an exposure at the end of Q2 that's left of $233,000,000 And on the basis of what we hear from the clients and all the dialogue that's ongoing, if I have to give you a number, I would say 10% of these remaining, dollars 2.33 could go bad. Obviously, lots of this is in leasing, so we have the equipment, right? We have the hardware that we finance. Some of it will be mortgages, so we would have the guarantees. So not all of that will be lost, obviously, which is why, as I mentioned before, right, if you compare it to the provisions that were made last year and this year, we feel comfortable, right? And 10% is roughly what we expect. And in speaking to colleagues at other banks, it's more or less what people think. It's a really benign outcome if you think about it. It does depend on your book. So if you go into this situation with a bad book, then I think that might be a different story. But I think that banks that you know, including your own, for being having a good risk culture, right, are going to have this type of number. This is what we expect. Guidance for LOPs as a consequence, right? If I have to give a number and remember, we're giving ranges, right? So you put the range around this number, right, that I'll give you. I think $80,000,000 would be a reasonable estimate for LPs for the full year. 8.0 could be a bit less, could be a bit more. And this would take into account a little bit of further investment in prudence as we said, right? So it would take it into account. As we said, naturally, it's coming in what's coming in is quite low. So and I'm not expecting any real change on that in the next quarters if the whole macro situation doesn't change dramatically, right? NPL purchases, so first half of the year was a bit low. That's just timing of the auctions and it's a little bit lumpy, right? So there was one that was fairly sizable, where we had partial success. So we bought a piece of it, but not everything in terms it was just a matter of pricing, right? We have currently in excess of $3,000,000,000 that we are actively looking at today. And we and on the basis of that, we expect that we will make our planned purchases for the year. So it's not going to be a lot more, but there's not going to be a lot less either. Of course, when we talk about these things, we're talking about auctions and you can't know obviously the result until it's done. SME outlook going forward, much the same as now. So further, I think, strengthening and improvement. Every time we see an update of the statistics, I'm sure you read them too, you see a further increase of the pickup of GDP of Italy, right? It was 5 comma something. Now we're talking about 6%, right? So I think there's an overall strengthening of the GDP outlook. And on that basis, we expect things to be roughly as they were in Q2, maybe slightly better, but for us, basic continuity, right? So a bit of seasonality Q3 and a good Q4. That would be my expectation if nothing ugly happens on the COVID front. Your question on PPA, I'll give you the precise numbers. What's left is 43,000,000 dollars We expect to consume about $20,000,000 this year. Remember, we already consumed $16,000,000 And it's one of the reasons why I just mentioned, right, that the revenues in the second half are going to be slightly lower because we expect to have a further $5,000,000 more or less this year, leading to a total of $20,000,000 in $20,000,000 in 2021, okay? If we have to guess, 2022 would be in the region of 10% probably, right? So that stuff is going down. But as I said, I think one of the important things of the numbers we see coming out of the bank is the fact that core revenues are replacing PPA in a very convincing manner. Finally, negative surprises. I guess I'm boring, but I can't be more entertaining than just saying what I said in the previous quarter. It's I also see it in the numbers. It's a very resilient business. No ugly surprises, not even in going through the NPL book as we mentioned, right? So there are opportunities to do some good housekeeping, but no ugly surprises. We completed the team. We had 2 vacancies. They were vacancies when I arrived, so nobody was sent away. On the COO, where we hired Mr. Fabio Lanza from a large Italian bank and Head of HR, where we hired Mr. Mauro Baracca from another large Italian bank, 2 very senior leaders that we're really happy and proud to welcome on board. The team is now more or less complete. We're looking at some specific functions still, but that's going nicely. I have to say, the bank is very solid in its know how. It's focused on certain businesses, and it does tend to do these well, which is very nice situation to work in, obviously. I think the team dynamics, which is something maybe for the analysts less important, but for me and my colleagues, probably very important given that we live in this situation, right? So I guess the team dynamics are becoming very positive, very pleasant, very energetic. We're working on the plan, right? So we'll see when we will be able to present it, but it's coming along. Today, we had a Board meeting where we discussed guidelines with the Board and we got some nice feedback. So no, I'm sorry, I don't have any negative surprise to share, but I have on the contrary, I have a bit of optimism to share. And hopefully, we'll be able to translate that into convincing numbers. That's a good answer. Thank you. The next question is from Irene Rosette of Stifel. Please go ahead. Yes, hello to everyone. A couple of questions from my side. Can you please share what you are seeing in the NPLs market also in terms of pricing? And then on Corporate Banking Division, we saw a strong progression of revenues. Could you elaborate on that? And what do you expect going forward? Thank you. Thank you. Yes. So NPL markets, let me tell you first what I don't expect. I don't expect a tsunami of NPLs being brought onto the market. And therefore, I don't expect prices to go down, right, because of an excess of supply and investors not being able to absorb it. I don't expect that at all. So I expect a market that is, in terms of offer of NPLs, more or less stable, including a bit of offer on the secondary side, which is becoming more relevant. There are currently some options now on the secondary side, for instance. And I expect competition. So I think the environment is getting a little bit more challenging. And in terms of what it means for us, if you stand still, it's like you walk backwards, right? So what does it mean? It means that you have to invest in technology, processes and capabilities in order to retain your ROE in this business. We are planning for a challenging pricing environment, and we're very comfortable that we will be able and that we are able to remain very profitable in the NPL business in this environment. But I think there is competition, right? And we are preparing for competition. And if you're a leader in a very specific field, as we are, then that's actually could even be seen as good news, right? So that's on the NPL market. Corporate Banking, yes, the progression is a couple of things. It is so commercial dynamism in factoring. And it's also the small business government guaranteed loans where we're having and small corporate, right, where we're having a very good progression that's building up stock, and that stock is contributing to the obviously, to the P and L, right? So you have this situation where on the asset side, right, you keep seeing the stocks increase and therefore, right, your over time, your interest margin will increase. Another thing that helps is that our cost of funding is improving. The cost of funding is improving in the market in general because of overall conditions, but there's been a very, very active program that's been ongoing now for, I guess, at least 1.5 years in our capital markets team. That involves restructuring of securitizations. It involves smart issuance of financial instruments. It involves restructuring of existing lines. It involves gradually increasing the retail cost of funding, which we are reducing cautiously reducing every quarter and which continues to hold up very well in terms of volume. So another thing that's really helping on the corporate side is that given that we're able to keep the prices up, all the cost of funding benefit is adding to the P and L. And that's a very encouraging dynamic. I mentioned it once again, sorry for the interruptions. We'll make sure that this doesn't happen again. I really apologize. So I mentioned this in the previous call. I think many people underestimate the importance of the space that exists in cost of funding, right? So if you're capable of keeping the prices up and given that we serve small companies, it's very important because the dynamic is not there if you serve large corporate, right? Given that we serve small companies, we are able to keep the prices up. And therefore, all the cost of funding benefit comes to us. And that's really encouraging, right? So that's, I think, an answer to your question about the development of the revenues. Also, I mentioned commercial dynamism at the start, right? I'll give you the progression of factoring turnover in the last 3 months, right? April, 8 70 May, dollars 9.60 June, dollars 11.40,000,000 Well, that's the you would expect it in the quarter, right, because it normally it accelerates towards the 3rd month, but that leads to an average that is a lot higher than Q1, right? So it's as I said, you see the economic activity in the country picking up and we're surfing that wave, if I may use the expression. Did I answer your question, Irene? Yes. Thank you. Thank you very much. The next question is from Andre Alisi of Equita. Please go ahead. Several questions from my side. The first one is on the guidance. If you can tell elaborate on the continuous margins you have assumed in defining your guidance? Then the second question is on the extraordinary provision you take on the NPL and the commercial banking, if you can provide more color, especially in NPL side on an NIM write offs, so which position are there? And why do you made these provisions? And is so I understood that it is reasonable to expect other write offs in this portfolio. And so when do you expect to complete the assessment of the portfolio? The other question is on the factoring business. I saw that in the quarter, differently from the previous one, the loss provision were high. Can you spend reason for it? I think that there are maybe there is some extra provision also there, if you can elaborate on that. And also another point is, obviously, a bit difficult to answer, but in this quarter, you had a strong benefit from dividend and trading and so on. So what is a reasonable level for the next quarters? And very last question on the capital position. In case there is the regulatory change in the risk weighted asset of NPL, what is the impact we expect on the CET1? Thank you. Yes. Well, thanks for those. So, Andre, I'll take them in the order in which you post them. Guidance on margins, I would say flat. As I mentioned before, we're quite happy with the pricing capabilities. I don't think we have lots of space to further increase. I think we'd be happy to keep them where they are. Obviously, if your cost of funding decreases and you keep your prices flat, then your margin is expressed in that way, right? So against cost of funding, it might widen a bit, right? But expect it to be flat, okay? Extra provisions, why and what categories? As I said, we are looking at in the context of not wanting to underestimate what's going to happen and what has happened, right, in the country in terms of real macro statistics, right, in the retail side, right, which is where at the end of the day we have exposure with the NPL business, right, because we have exposure to families, we've started to look at what could be some long term impact that we're not seeing in the cash collection now, right? So this is basically assumptions that you make on what will happen in the future, right? What could be some long term impact of the situation? And what you then do is you take loans that are placed in a specific category where they get a specific model, right, you question whether they should be in that category or maybe they should be in another category, right? And the classic one would be okay. Does this person have a job, right? Because if he has a job, then the legal road probably is worthwhile. If the person does not have a job, right, then the legal road doesn't get you very far, right? Now, of course, judicial collections have a certain model, which is a bit richer than the nonjudicial collections, right? So you ask for some flavor, that's the type of stuff you do in order to inject prudence in the way you allocate, you manage your NPL portfolio. It led to, you allocate, you manage your NPL portfolio. It led to, as we said, dollars 9,000,000 What we expect further, we have a fairly good idea of what to expect, and the guidance we gave you includes it, right? When will it be done? Before December 31, 2021, we'll have it all done and sorted, right? So on factoring, I believe you asked for the provisions this quarter. They were slightly higher because we did a similar exercise there on the older vintages. Those are within the factoring divisions, those are the older loans that were purchased towards the public administration, right? Now you can take the view that sooner or later, even if you have to go to the highest court in the country, you're going to get the cash, right? Sometimes you have to go to the highest court in the country. And in Italy, that requires years years, right? From a purely legalistic standpoint, we could take that position and therefore say we're going to get to the end, right? So even if we have to wait another couple of years, right, we're going to get to the end and we're going to get to the cash. From a prudence point of view, you're going to say, well, some of these are really a bit dated. Why don't we start assuming that the success rate might be a bit lower and make some provisions? And then that's in the factoring division, but what you see is that approach, right? And it's relative to loans visavis the public administration. Trading dividends and other stuff. Well, we had some we had, in fact, some contribution, yes, on those elements. But I want you I would argue that these are core revenues, first of all. I mean, it's not like selling a building, okay, that we did that, of course, right? And we had a very nice contribution to the P and L from it last year. We have equity investments, and a couple of those equity investments, 1 in particular, had a transaction that was made it necessary to recognize, right, revenues from the holding that we have from the equity holding that we had. So you can't explain you can't expect them probably to be recurring every quarter because they're a bit lumpy. But I would say that they will be recurring every year, right, on a slightly longer time frame because it's core business, right? Once again, it's we have equity investments. We make investments in funds. We make investments in companies. We do it selectively. We do it through our structured finance team. When we see really nice situations and we get invited in, we have the flexibility to do it, then we do it. Maybe sometimes quicker and more decisively than larger, more structured banks that might run into all sorts of policies, right? We that's the advantage of being a little bit agile, I would say. So what to expect in the next Qs? Do not expect a repetition of Q2. But when you take an annual look, I think it's reasonable to expect Ephys to have these types of contributions periodically. Risk weighted assets from the different risk weightings of the NPLs. Yes, so there is this ABA process that is ongoing. I think at the end of September, they will finish the period in which they take market feedback or feedback from market participants. It looks like there's not going to be a lot of objection, right, because it helps, obviously, the NPL market. And from a regulatory point of view, I think it would it's absolutely counterproductive to keep it the way it is. I would want to help the NPL market without penalizing any purchased NPL. So yes, they would go down from 150% risk weighting to 100%. We expect it to happen within the year. And if it happens, it's a further roughly 60 basis points for Ephys. So Switzerland, 350 plus 60 would be 410. Obviously, it's not in the bag. I have to add it every time I mentioned it, right? So the regulators hasn't fully confirmed or deliberated this different risk weighting, And there are conditions on Switzerland. So it's not in the bag, but we can look at 3.50 plus 60 roughly. I hope I answered your questions, Andre. Very clear. Thank you. Thank you. The next question is from Simorita Quiriosi of Mediobanca. Please go ahead. Yes. Hi, We don't hear you very well, Simonetta, sorry. Can you hear me now? This was a bit too much. Okay. One second. This is good. Okay. Can you hear me now? Yes, perfect, Gimenez. Thank you. Okay. Good. Sorry. So the first question is on the Corporate Banking and Lending division. That is becoming a major contributor to your P and L and also the main driver of loans growth. Could you help us to understand, well, the drivers of this growth and being related to state guaranteed loans, if this portfolio will basically continue to grow or remain in the next year or we will see a runoff of these assets? And the second question is on capital. The outlook is potentially very, very positive from the NPL risk rating and the transfer of La Scolera in Switzerland. So my question is, you will have hopefully plenty of capital. Could you help us to understand how you will employ this capital in terms of growth? So in which segments do you expect to have the highest growth and to recap the dividend policy going forward? Thank you. Yes. Thank you, Simonette. Very clear. So okay, first of all, do keep in mind that when you look at the growth of the corporate banking, right, you're looking also at an injection of IGES, of the IGES book, right, which is which we were quite happy to take because it's really in line with what we do, right? So we got a couple of 100,000,000 of state guaranteed MCC loans, right, from IGES. And therefore, the growth that you see is not all organic, right? In terms of the use of the state guarantee in order to develop business, yes. It's been relevant in the last quarters. We will continue to use it. Can we be 100% sure that it will remain like this, that the programs will remain in place? No. But on the other side, there are additional things that are coming in, like for instance, super bonus and that sort of stuff, 110% depreciation and that sort of stuff, right, or the traction, I should say, sorry, right, for tax reasons. So there's a whole business that is really mushrooming now around the capturing these tax benefits, right? And that's driving, once again, a lot of loan growth. So you can't count on one thing, but there will be other things coming up, right? There are already other things coming up. So I would say, yes, state guarantee is a growth driver, but there are other things coming in. And we have a business of catering to small businesses and small or mid corporates, right? And I'm quite sure that we will find ways to serve them that will continue to allow us to develop the corporate banking division, right, the commercial banking division well. What we will not do, I mentioned at the previous call, is enter into plain vanilla corporate banking. Sorry, Simonetta, we're back. What we will not do, I mentioned in the previous call, is enter into corporate banking, plain vanilla corporate banking as pricing is really not and the remuneration of capital there is really too challenging. In terms of capital, where to grow? Let me say a few things about this CET1 addition that may come in. First of all, we are running numbers now, and the bank as it is, is creating capital. It's adding capital. So suppose we wouldn't have it, could we write an attractive 3 year plan? The answer is yes Because once again, the bank is creating capital fairly quickly, and the bank is quite efficient, I would say, in the generation of risk weighted assets. So let's suppose that it does come in. What would this extra amount of capital mean? It would mean, I guess, reduction of the risk profile. It could mean indirectly reduction in cost of funding. It could mean that we have a little bit of extra security around a reasonable dividend policy, right? A little bit of extra buffer around a reasonable dividend policy that would be generous, I would say, in any scenario because it's the nature of the bank, right? It would mean a little bit more, yes, engine for growth, right? So we could push a bit more in the businesses that we will elect in the business plan as businesses were to push. And these will be businesses where we make money. So we're looking at accelerating in places where we make money. It would also mean to have the option, the flexibility to do some tactical acquisition, right? Once again, no transformational M and A, no, forgive the term, stupid acquisitions, right? But a little bit more flexibility. I think that's the way you should read the extra basis points that are coming in. Thank you. I think there are no more questions. So I think what's left is thank you all for your time and attention and for your questions. We will be for those that are going on holiday, happy holidays. We will be obviously in touch in the next quarters. And once again, thank you for your attention in this call. Good afternoon, everybody.