Good afternoon, ladies and gentlemen, and welcome to the conference call of Intesa Sanpaolo for the presentation of the first half 2021 results, hosted today by Mr. Carlo Messina, Chief Executive Officer. My name is Simon, and I'll be your coordinator for today's conference. At the end of the presentation, there will be a Q&A session. To enter the queue for questions please press star one at any time. Today's conference is being recorded, and at this time, I would like to turn the call over to Mr. Carlo Messina. Sir, you may begin.
Good afternoon, ladies and gentlemen, and welcome to our first half 2021 results conference call. This is Carlo Messina, Chief Executive Officer, and I'm here with Stefano Del Punta, CFO, and Marco Delfrate and Andrea Tamagnini, Investor Relations Officers. I'm very proud that even under stress from the pandemic, we achieved excellent results. We delivered a net income of EUR 3 billion, the best first semester since 2008, and this puts us firmly on track to deliver a full year net income of minimum EUR 4 billion. We strengthened our rock-solid capital position and delivered even more NPL deleveraging, leading to the lowest NPL stock and NPL ratio since 2007. We successfully completed the merger with Italy's number four bank and performed Italy's largest ever branch disposal while experiencing multiple lockdowns. Our people were very busy, but ISP never stopped being a delivery machine.
My appreciation goes to all those who made this possible. Our resilience and our solid capital position, underlined by the results of the EBA stress test, make ISP one of the best-positioned European banks to pay high and sustainable dividends. In May, we paid EUR 700 million cash dividends, and in October, after the end of the ECB dividend ban, we will deliver an additional EUR 1.9 billion cash distribution from reserves to reach the total 75% payout for 2020. We also confirm a 70% payout ratio for this year, with an interim dividend of EUR 1.4 billion to be paid in November. We have already accrued EUR 2.1 billion of dividends in the first half of the year. Let's dive into the details of our results and turn to slide one. We had an excellent first half.
Net income was up 18% on a yearly basis, and looking at Q2, net income was EUR 1.5 billion, making it the best second quarter ever. First half operating income was the highest ever, thanks to best ever commissions. Net interest income grew on a quarterly basis, and the growth in customer financial assets added an additional EUR 44 billion to fuel our Wealth Management engine. Operating costs were down 2.3%. We further reduced our NPL stock by EUR 1.6 billion and had the lowest ever first half NPL inflow. NPL ratios are down to 3.1% gross and 1.6% net according to EBA definition. This performance puts us in a position to upgrade our outlook to a minimum net income of EUR 4 billion for the full year. Slide number two.
While delivering excellent results overall, in Q2, we set aside more than EUR 300 million pre-tax as an additional buffer to strengthen the future sustainability of our results. With EUR 200 million for additional provisions on specific NPL portfolio to further accelerate deleveraging, and EUR 125 million to strengthen insurance technical reserves against current and expected gaps between claims and premiums. This is thanks to the one-off benefit of EUR 460 million coming from the realignment to book values of the tax values of certain intangibles introduced by the Italian legislation issued last summer, which allows for the recovery against an upfront cash payment of the past amount provisioned in the P&L at the full tax rate. Slide number three. ISP is well prepared to succeed in the future, thanks to our solid fundamentals built over time.
The Common Equity Ratio is well above the regulatory requirement, even under the EBA stress test adverse scenario. We allocated more than EUR 6 billion pre-tax as a buffer to succeed in the coming years. We carried out impressive NPL deleveraging, and we are an efficient Wealth Management and protection company with EUR 1.2 trillion in customer financial assets. The combination with UBI will deliver synergies of over EUR 1 billion per year. We have successfully evolved towards a light distribution model and have a strong digital proposition, an important enabler for future gains, as well as keeping us competitive for our customers and attractive for new talent. On top of that, we are proud of our role as the engine of sustainable and inclusive growth, and we remain fully committed to supporting the transition towards social, cultural, and environmental improvement. Slide number four.
Our solid fundamentals will allow us to continue delivering best-in-class sustainable profitability. Rewarding our shareholders remains a priority. As already said, for 2020, we paid EUR 700 million cash dividends in May, and following the end of the ECB dividend ban in October, we deliver EUR 1.9 billion additional cash from reserves. We confirm a 70% payout ratio for this year, with an interim dividend of EUR 1.4 billion to be paid in November.
We have already accrued EUR 2.1 billion of dividends in the first half. We are the engine of Italian social economy. In addition to our direct support to Italian society, EUR 1.5 billion out of the total EUR 4 billion dividends we pay this year will go directly to families and individual investors, as well as to charitable banking foundations that are our shareholders, sustaining their inclusive action to support social and cultural projects and people in need.
To this, we can add the real economy benefit from the fact that the majority of our institutional investors receiving dividends manage families and private investors' money. Slide number five. After 18 months strongly impacted by COVID, the Italian economy is recovering. The National Recovery Plan, strongly focused on investments and reforms, will provide additional support for the rebound. In this context, ISP will provide more than EUR 400 billion to businesses and households to support the recovery plan. Slide number seven. Despite the challenging environment, we delivered the best first half net income since 2008, and the best second quarter ever. Slide number eight. Let's take a look at the points of strength that will drive Intesa Sanpaolo in the future.
In recent year, we reduced the NPL stock by more than 2/3, and we further increased our rock-solid capital base, while also acquiring UBI and paying EUR 15 billion in cash dividends. Slide number nine. While reducing NPL stock and strengthening capital, we also increased the already high share of revenues from commissions and insurance income, which now stands at 52%, and we further improved the cost-income ratio. Overall, we have a unique, resilient, and efficient business model. Slide number 10. We are far better equipped than our peers to take on the challenges ahead, and we have a best-in-class risk profile, one of the highest capital buffers, and we are one of the cost-income leaders in Europe. Slide number 11.
I'm very proud to highlight that while delivering the best first half since 2008, we rapidly and successfully completed the merger and integration of UBI Banca and the largest disposal of banking branches ever done in Italy. This is even more impressive if you consider that most of this was done working from home. Slide number 13. On this slide, you can see the highlights of our strong performance, but let me give you some color on the following pages. Slide 14. In the first half, we continued to improve across all key indicators. In particular, net income was 18% higher than last year, and we deleveraged the NPL stock by more than EUR 15 billion on a yearly basis. Our common equity Tier 1 ratio improved significantly. Slide number 15. Our excellent performance allows us to create sustainable benefits for all our stakeholders.
Contributing broadly to society has always been a key part of our DNA. You can see this in our robust support to the real economy and our strong ESG focus. Slide 16. As you know, we immediately responded to the COVID emergency, and we continue to do so with a complete set of actions to care for our people and customers, support the real economy and society, and ensure business continuity. Intesa Sanpaolo has a duty to leave a positive mark on broader society and to support the transition towards social, cultural, and environmental improvements. Slide 17. In this very challenging moment, we remain committed to being the engine of sustainable and inclusive growth. As part of our ESG program aimed at consolidating our leadership around ESG climate topics, we are investing in ESG training for ISP people and corporate clients.
You can go through the details on the next page, but for the sake of time, let's now move to slide 19. In this slide, you can see that we are the only Italian bank at the top of the main sustainability ranking. Slide number 20. In the first half, while merging UBI and despite COVID, we delivered excellent performance driven by high quality earnings. Commission grew over 13%, more than compensating for the decline in net interest income. Profits on trading were solid and fully realized. Revenues were up 2%. We have continued to be very effective at managing costs with administrative expenses down 5.4%. Operating margin was up 6%, the best first half ever. Gross income reached EUR 4.3 billion, up 38% when excluding the Nexi capital gain.
We have been very conservative in provision as we maintain the December 2020 macroeconomic scenario without taking into account the recent improved forecast. We use more than EUR 300 million from the Q2 one-off positive impact from intangibles realignment as a buffer to further strengthen the sustainability of our results. Net income reached EUR 3 billion, which becomes EUR 3.3 billion when excluding costs concerning the banking industry. Slide 21. Q2 was the best ever second quarter for net income. In comparison with the same quarter last year, commissions were up almost 18%, reaching the best ever Q2 results, and operating margin was up double digits, thanks to revenue growth and cost reduction. Gross income was up 80% when excluding the Nexi EUR 1.5 billion. On a quarterly basis, net interest income trajectory became positive after five quarters of steady decline.
Commissions increased more than 2%, insurance income increased by almost 15%, and net income was stable at a record high level. Slide 22. In this slide, you can see that on a quarterly basis, net interest income increased by 2.2%, mainly due to positive dynamics on spread. On a yearly basis, the decrease was due to financial components that were affected by the reduction in the size of the securities portfolio as a consequence of the integrated management of ISP and UBI portfolios, and by NPL deleverage. The commercial component is growing thanks to positive dynamics on both volumes and spread. Net interest income was also affected by a strong increase in retail direct customer deposits, which impacts net interest income in the short term, but boosts our Wealth Management engine in the coming quarters and years. We'll continue to manage our revenues in an integrated manner to create value.
In this respect, I can anticipate that due to the huge liquidity we have, we will be very selective in our new bond issue plans for the second part of the year. As you will see in the next slide, in the first half, we recorded strong yearly growth in commissions, which more than compensated for the decline in net interest income. Slide 23. The first half was our best first half ever for commissions. We did this while successfully merging UBI and despite COVID. Slide 24. Customer financial assets increased by almost EUR 100 billion on a yearly basis. Assets under management and net inflows were positive by more than EUR 8 billion in the first half of the year.
In the past 12 months, we recorded an extraordinary increase in corporate and household deposit, which will fuel our Wealth Management engine in the coming quarters and shows once again the resilience of Italian companies. Slide 25, we continue to be very effective at managing costs while we keep investing for growth. Slide 26, we are proud to have one of the best cost-income ratios. This chart illustrates our leading position in Europe. Slide 27, NPL stock has continued to decline sharply with 23 quarters of continuous deleveraging. Slide 28. As you can see in this slide, loan loss provision declined by over 50%. The annualized cost of risk is down to 43 basis points. We recorded the lowest ever first half NPL inflow, with Q2 being the lowest second quarter ever for gross inflow.
As I said before, we have been conservative in provisioning, maintaining the December 2020 macroeconomic scenario in our models without considering the improving outlook, which would have implied a benefit of EUR 200 million. Slide 29. Our fully loaded Common Equity Tier 1 ratio is 15.7% on a pro forma basis, including DTA absorption, which will compensate for the future Basel IV impact. Our capital buffer versus regulatory requirements is well above our peers, our fully phased-in Common Equity Tier 1 ratio is 14.4%. Slide 30. Our best-in-class capital buffer versus regulatory requirement increased by 80 basis points on a yearly basis. Slide number 31. When it comes to capital strength and leverage, ISP continues to be a European leader.
Slide 32, we have a best-in-class risk profile in terms of the ratio of capital to illiquid assets. ISP also enjoys a strong liquidity position and almost EUR 120 billion in excess medium long-term liquidity. Slide 33. Last Friday, the EBA published the results of the stress test, which showed a good outcome for ISP despite the very severe stress applied for Italy. Even in the adverse scenario, ISP capital position is well above the requirements of the supervisory authorities, and in all the three years of the scenario, we do not trigger any MDA restrictions. Slide 34. If we compare ISP to the other top listed European banks, we are clearly one of the winners in the EBA stress test adverse scenario in terms of capital buffer. Slide 35.
As you can see from this slide, the adverse scenario, that also stressed the risk-weighted assets that we sold to BPER Banca in the first semester without considering the related benefit on capital, has a manageable impact on ISP, thanks to a resilient business model, a solid capital position, high-quality loan portfolio with a low risk profile, a well-diversified trading portfolio with low exposure to volatility risk, and strong contribution from stable income, and limited operational losses driven by cautious sales model unexposed to legal risk. I want to highlight that we do not have any MDA restriction, even in the adverse scenario. In the EBA exercise, we fully paid Additional Tier 1 coupons in the incentive schemes as normal in each year. The impact on capital reflects this. Peers with MDA restriction cannot fully pay Additional Tier 1 coupons or incentive schemes in the adverse scenario.
Without the restrictions, their capital position will be lower, and the peer average capital impact will be 505 basis points, with ISP gaining two positions in the rank. In summary, the EBA stress test confirmed that ISP is a very low-risk bank, even in a very severe scenario for Italy. Slide 37. In closing, let me recap the key points that demonstrate the sustainable strength of Intesa Sanpaolo. Our resilient and profitable business model out-delivered even under continuous stress from the pandemic, and while successfully completing the merger with UBI Banca. First half net income was EUR 3 billion. This was the best first half ever for operating income and commissions. Costs were down significantly, and our cost income remains one of the best in Europe. We strongly reduced our NPL stock. Our capital base is well above regulatory requirements, even under the EBA stress test adverse scenario.
The UBI Banca combination was completed quickly with great success, and synergies will reach EUR 1 billion per year. ISP is fully equipped to succeed in the future, and on track to deliver a minimum full-year net income of EUR 4 billion. Our resilience makes ISP one of the best-positioned European banks to pay high sustainable dividends. We distribute EUR 1.9 billion in additional cash from reserves in October, following the end of the
ECB dividend ban, meeting the 75% payout ratio for 2020 envisaged in the business plan.
For 2021, we have already accrued EUR 2.1 billion towards our 70% cash dividend payout ratio for this year's net income. We expect to distribute EUR 1.4 billion of this as an interim dividend in November. Intesa Sanpaolo is an unstoppable delivery machine, and let me thank all the Intesa Sanpaolo people once again for this. Now I'm happy to take your questions.
Thank you.
Thank you very much, sir. As a reminder, ladies and gentlemen, it is star one on your telephone keypad to ask a question on today's call. We'll now move to our first question over the phone, which comes from Delphine Lee from JPMorgan. Please go ahead. Your line is now open.
Yes. Good afternoon. Thanks for the presentation. I'd like to ask, first, on net interest income. At the start of the year, you mentioned that NII this year could still be potentially flatt-ish. With a 3% decline so far in the first half, do you think this is still achievable, and could you maybe point us to what tailwinds could we have in the second half, or how are you thinking about the second half outlook for NII? My second question is on the interim dividend. Can you maybe just explain a little bit the rationale for maybe not paying a little bit more than EUR 1.4 billion, which is just below 46% payout ratio? Is it just out of prudence? Is there a call from the ECB for prudence? Just trying to think about the rationale for that. Thank you very much.
Thank you. On net interest income, what we think can happen in the second half is an increase in comparison to the first half. That's our expectation. If we look year-over-year, it is a challenge to be flat-ish. My target is to work in order to have good dynamics from the commercial components of the net interest income on the spread component and on the government bonds yields components. On the other side, the real question mark is the dynamic of deposits. You see that quarter-by-quarter, we are increasing the deposit base, and this means that we have to put extra efforts in order to try to manage the increase in net interest income. I consider this positive on the structural basis on what I think is the point of strength of Intesa Sanpaolo.
Wealth Management, so in the future, deposits can be moved into Wealth Management. In the short term, this point remains the most important question mark for the dynamic of the net interest income. At the same time, the deleveraging, so the reduction non-performing loans, will continue to bring some negative on net interest income. The net expectation is to continue to have growth in the second half in comparison with the first half. On the total dynamic year by year, we have to look for the dynamic of deposits and also the other point of the managing of total revenues and not line by line by the Corporate Investment Banking. If they decide to make some capital gain on the portfolio, there could be some reduction in net interest income.
We have to check. At the same time, what I consider really positive is the trend of commissions that, by definition, will more than compensate any possible negative dynamic driven by increasing deposits of, or by disposal of government bonds by corporate investment banking division. Net, I hope to be in a position to deliver a flat-ish dynamic year-over-year. Looking at interim dividend. When you work for the first time on the item of interim dividend, because this is the first time that we decide to pay interim dividend, I have to give you in full transparency my view. My view is that in a year like this, it is much better to work on the forecast of net income and on that base to derive the dividends that can be paid as an interim dividend.
On this point, let me tell that we think that the very conservative approach that we can have on net income is to realize minimum EUR 4 billion. I didn't consider fair to pay more than the 70% on the expected net income for the year as interim dividend. It's my decision. It is not something related to the ECB. I think that on this point, it is much better to be linked to the full year base. Also, because as I told in the first quarter results conference call, I'm preparing the new business plan. I'm working this year in order to create condition for the new business plan. In the next six months, I will evaluate all the levers that it is possible to use in order to reinforce the sustainable profitability for the future.
I'm not managing Intesa Sanpaolo in a short-term view. I'm managing Intesa Sanpaolo in a view of medium-term results. That's the reason why I think that it is safe to remain in a position to look at the forecast for the years and not the short term, and also aiming in the short term, meaning the six months results, a spike due to the one-off that we use partially. In any case, it's something that I consider more fair to work on a yearly basis and not only looking at the six months.
Great. Thank you very much.
Thank you.
Thank you. We'll now move to our next question over the phone, which comes from Antonio Reale from Morgan Stanley. Please go ahead. Your line is open.
Hi, good afternoon, thanks for the presentation. I just have a follow-up on net interest income, and then two questions that are kind of related. The first one is, I remember part of the optimism behind the previous NII guidance was really reliant on a recovery of loan demand in the second half of the year. Now, volumes in the quarter were flat. Can you share with us what you're seeing in terms of loan demand across different products, and where do you see most opportunities to grow the loan book, in the second half of the year? That's my first question. The second question is kind of connected. You've mentioned you've de-risked your balance sheet significantly, I wonder if that allows you now to go up the risk curve.
In particular, I'm thinking about consumer finance, for example, which is simply the product, one of the few where, for a number of reasons, you've had a relatively low product penetration. To what extent the integration of Credito Italiano can give you a platform for you to reach your natural market share, and can you just help us quantify the potential impact from this, if that makes sense. Lastly, looking at slide 11, you've reiterated your pre-tax synergy guidance of above EUR 1 billion. You've talked about 80% saving in 2023, about 50%, if I remember correctly, in 2022. I wonder if you can be more precise now on your expectations for 2021. You've acquired the operations of UBI and you've defined the final perimeter. That's my question. Also, if you can talk about upside risk on the synergies from product factories, that would be a great addition.
Thank you.
Thank you. The line was not perfect. I hope to be in a position to answer to your question in the right way. On net interest income, the dynamics, and the possibility to have a second half increase in comparison to first half, was considered probably optimistic, if I understood correctly. I think that we will have contribution from spread because we increased the TLTRO III in June. We increased by another more than EUR 10 billion, the drawdown of the TLTRO III so we can have a benefit in the third quarter and in the coming quarters deriving from this. In terms of volume, there is a recovery in Italian real economy. We are not talking about something that there can be 10% increase in volume.
I think that starting from this quarter, we can have some increase in the volume of loans. At the same time, we are accelerating in the conversion of deposits from deposits into Wealth Management products. The real point of attention is that we are converting EUR 4 billion, and then we have an increase of EUR 5 billion coming as new money. That's the kind of acceleration. If we continue to make conversion, and we will not have an increase in deposit, it is possible also to have another increase in net interest income coming from the reduction of deposits, and this can be positive in this environment. On the government bond portfolio, there could be some increase in the portfolio. We are not talking about EUR 20 billion, but in any case, there could be some increase also in the portfolio.
I think that we can try to play the game of a second half increase by definition, and try to compete for plenty dynamic. We will see at the end of third quarter. It is not easy, but we want to try this and try to have these results. We will see during this quarter if this is something that we can achieve. As I told you, deposits remain the most important areas in which we can try to have some positive. On de-risking and consumer finance, I want just to elaborate on de-risking. We are continuing to reduce non-performing loans because we think that non-performing loans is an area in which today we are for sure best practice.
If you want to look for the cost of risk in the future of the new business plan, my intention is to maintain provisions that are linked mainly to net inflows. Not on extra coverage during the different years for the vintage of non-performing loans that can increase the amount of provision to economic figures. That's the reason why I'm really concentrating on making a clear analysis on the non-performing loans portfolio that can have some impact on provision for the future. If we are in a position to identify other non-performing loans that can create for the future impact on economics during the business plan, we will try to work in order to realize further deleveraging. On the other side, this will allow us to move into a more dynamic that can allow an increase in loans.
Consumer finance is really an area in which we have an under-penetration in comparison with other peers. Prestitalia can be a player that can accelerate our growth in this sector. We will give the figures during the presentation of the new business plan. For sure, this is a platform that we can use in order to accelerate the growth in consumer finance. Looking at synergies with UBI, in 2021, we think to have in the order of EUR 100 million, EUR 150 million synergies coming from UBI. The first year is probably the one we are accelerating, and we will have on cost synergies. In the first semester, we had EUR 30 million of synergies related to personal cost and EUR 30 million related to administrative expenses. We think that at the end of the year, we can be between EUR 100 million and EUR 150 million.
The acceleration will be in 2022 and in the next years, as you correctly told.
Perfect. Thank you very much.
Thank you.
Thank you. We'll now move to our next question over the phone, which comes from Christian Carrese from Intermonte. Please go ahead. Your line is open.
Hi. Thank you for taking my question. The first one is on, again, net interest income. I see some improvement in terms of spread, commercial spread in the quarter. I was wondering what is the reason, maybe lower state guaranteed loans. If you can elaborate a little bit on that. What do you expect for the second half of the year, or let's say, also 2022, given some consolidation in Italy taking place? The second question is on cost of risk. Default rate was quite stable in first half. What do you expect in the second half? Usually you use part of the positive one-off to offset or to free up some resources for following years.
You are in the process to present a new business plan in February. I was wondering, the EUR 460 million positive tax one-off, if you have in mind to do some extra provision, for example this year. Thank you.
Thank you. On net interest income, the dynamic is mainly due to the positive of this quarter, is mainly due to the spread and is mainly TLTRO III. That's the component. On the other side, we started with investment in financial portfolio, and volumes maintained a flat contribution considering the days that we had in this quarter. The dynamics of competition in Italy from this point of view can bring some impact on markdown. The most important part of the pressure on the spread side, on the asset side, was due to the guaranteed loan and the conversion into the guaranteed loan with the repayment of short-term debt from the companies. I think that at the end, we are close to the end of this process. I think that looking at this point of view, there should not be significant threats during the second semester.
Looking at cost of risk, the run rate of our cost of risk is today between 20 and 30 basis points, probably close to 20 basis points. We are adding some extra provision in order to accelerate NPL disposal. As I told, NPL disposal means lower provisions in the future, lower provision during the business plan. My expectation is that the run rate should more or less remain in the range of the one that we had in this semester. It is possible that we can add something in order to accelerate the deleveraging during the second part of the year. We will monitor the situation. In any case, also considering the reinforcement of the risking for the group, my expectation is that we will not exceed, in any case, the 60 basis points that we gave to the market in last quarter.
Today, the run rate is not absolutely 60 basis points, but is 30 basis points. That's the real trend of the group. In any case, what I would consider important is the trend of provision in the next four years and not in this semester. That's what I will remain concentrated in the next semester.
Thank you.
We now move on to our next question over the phone, which comes from Andrea Filtri from Mediobanca. Please go ahead. Your line is open.
Yes, thank you for taking my questions. I'll just follow up from what you just elaborated on. Cost of risk. You've already told us that you have refrained from releasing macro overlays, which would have benefited for around EUR 200 million. Can you explain us the dynamic and the mechanics and the timing that kind of restricts your ability to shift the usage and the allocation of overlay provisions across accounting years. What will you have to do by the end of this year, and what will you have to do by the end of next year, regarding the overlay provisions made in 2020, so that we can better understand when these could hit PNL in the form either of allocation or of releases.
Secondly, on risk-weighted assets, there is a EUR 6 billion reduction in market risk, quarter on quarter, that's taking us close to the bottom on this front. Can you explain us the dynamic there? What's happening? On capital return, ECB itself was expecting banks to start paying out dividends referring to 2020 and 2019 profits. Will you update the market on dividends regarding 2019 profits later on? Finally, just want to understand if you're charging negative interest rate via fees, and if you can quantify this for us in Q2, and on how many deposits you're charging these fees. Thank you.
Negative interest rates, not significant. It is not significant for us. It is something that we do not consider strategic. On capital return 2019, I was clear and transparent in the first quarter presentation, and I told to the market that 2019 will enter into the capital plan of the new business plan. We decided to consider this in the capital plan for the new business plan. That was clear to the market starting from last quarter, so it is not a surprise. Looking at market risk, the way in which the risk-weighted assets related to market risk are calculated is based on something that is the historical series of volatility in the market and also dimension of portfolio.
In this quarter, we had a reduction of this impact deriving from the fact that this quarter was the one in which we had the entering of some positive phase and reduction of volume that we made six months ago. It's a mechanical impact coming from the reduction of volatility and reduction of volume of portfolio. Looking at cost of risk, you have to move in analysis on the scenario and impact coming from on a yearly basis. If you are in a condition to have something extraordinary like last year with the COVID, you have to change the scenario, and you have to increase in the case of negative. In case of positive, you have to change the impact on generic provision.
In this case, related to this semester, we decided to postpone in the second part of the year the inclusion of the recovery of GDP in the future that we will have according to the last trend of dynamic of GDP in Italy. We have some flexibility on this point, some quarters of flexibility, and we will see at the end of the year. It is likely that this will be changed at the end of the year. We will see what's going to happen.
Is it fair to understand that the overlay provisions related to the macro scenario tend to come first or to be more automatic or mechanical than the ones that you have made with the more accurate analysis of each sector and so on?
Sorry, I didn't understand there because my line is not good. Could you repeat?
Yeah. No, I would just wanted to make sure I understood correctly. Is it fair to say that therefore the component of overlay provisions related to the micro scenario is more kind of automatic and mechanical, whereas the component of overlay provisions related to the more specific analysis made on the sectors, et cetera, allows you more flexibility to postpone it over time?
Yes.
Okay. Thank you very much.
Yes, absolutely. John?
Thank you. We will now move on to our next question over the phone, which comes from Azzurra Guelfi from Citi. Please go ahead. Your line is open.
Hi. Good afternoon. A couple of questions from me. One is on the fees. When I look at the breakdown of the fees, the improvement has come mostly from the asset management and the credit cards. Can you explain a little bit this increase in the credit cards, and what's the outlook for fees for the second part of the year? Net inflows were quite strong in the first half. The second one is on the moratoria. The moratoria continue to expire. There has been a bit of a deterioration in the default rate, which probably was expected. It is just to see if there is anything that you want to flag on that, and how do you expect the residual of the moratoria to develop in the second part of the year. The last one is just a clarification on the dividend, if I can.
You are accruing, if I understand well, EUR 2.1 billion of dividend in your capital, and not just the interim dividend, right? Thank you.
Yes, Azzurra. We made the deduction from the capital for an amount of EUR 2.1 billion dividend. We made the accrual of the dividend in using the net income of the semester. Looking at the interim dividend, we will pay 60% of the forecast EUR 4 billion net income, and we apply 70% to EUR 2 billion, more or less, as a proxy of 50% of net income forecast. The real money that is in our Common Equity Ratio, that is in the future availability of our shareholders is EUR 2.1, it is not EUR 1.4. Looking at moratoria, the default rate is 1.9% today. With a slight deterioration in comparison to the first quarter. It is likely that in the next quarter, there will be some limited further deterioration. Our expectation is not to exceed, in any case, between 2% and 3% during 2021.
We are checking the situation, but I consider this as a very positive dynamic from the moratoria, and not consider a significant threat to our results. Only 3% of these amounts of moratoria is related to high-risk clients in high-risk sectors. I have to tell you that my expectation is that we can have a deterioration, but not so significant. That's the reason why we think that the expectation on the cost of risk that we made in the first quarter is really conservative. We want to maintain the flexibility to have an approach on 2021 in order to create condition for increasing profitability starting from 2022.
This is our expectation. We will work on the different loan book and non-performing loans portfolio in order to identify what could be the areas in which we can have an impact in the future, and try to assess this problematic within the end of 2021. That's full transparency from my side on this point. Looking at fees, we had a rebound in all the commercial activities, so not only Wealth Management. That's linked to the reduction of lockdowns and the starting some form of investments from companies and families. Our expectation is that this can continue to be positive. Looking at the asset management mission is remain and will be of net income generation.
Domenico Santoro from HSBC. Please go ahead, your line is open.
Hello. Hi. Good afternoon. Thanks for the presentation. A question on fees. I wonder, given the message that we got from the other entire wealth manager, this is going to probably be another record year in terms of performance fees. Can you give us the update for performance fees of your asset management company as of today, or any indication whether they're going to be higher than last year? That would be useful to factor the seasonality in Q4. Given also that these performance fees are paid 100% back to PMs, I just wonder whether we should include also the same seasonality on cost, and whether your -2% is something that we can model also for the end of the year in terms of cost, given that my understanding is that synergies from UBI left are quite minimal.
Going forward, a step beyond 2021, can you give us an idea? We know how much are the synergies related to UBI Banca, it would be nice also to understand a bit direction in terms of cost, because I see much variance in terms of consensus, mid-single digit, high single digit. It would be very useful for us to model profitability. A question on capital. From last call, I remember that they were mentioned something like 30 basis points of regulatory headwinds for 2021. I just wonder whether there is an accrual of this already in this quarter, and how much is left for the second part of the year. Thank you very much.
Starting from the impact on capital, we think that we can probably confirm this dynamic and probably could be better in 2021 if something can be moved in 2022. We will see at the end of the year. In any case, with the range absolutely manageable from our side. Looking at the fee performance, then I will elaborate on cost, because it is something that is probably more strategic, and I understand that will be from your side something to better understand the position for the future for the group. On performance fee, we had, in the first semester, EUR 120 million of performance fees with an increase in comparison to last year that was more or less EUR 40 million of performance fee in the first semester. Second semester could be a good semester also looking at performance fee, depending obviously on market conditions.
If market conditions continue to be positive, we can exceed the performance fee of last year. It will depend on the real dynamics of the market, but also from this side, our expectation is to have some positive. If you allow me, I have to tell you that what I consider really very important is the positive answer that we are receiving from our clients in conversion of retail deposits. That's a real positive in the dynamics in our commissions. You know that in our business plan, our expectation is to work on the EUR 100 billion of extra deposits that we received by the clients in the last two years. That's something that I think can be, in a significant part, it converted into Wealth Management in the next year. We are testing these attitudes of the clients, and the results are positive.
That in my view is really positive for the future. Looking at the cost base and the dynamic of the cost base, for sure there will be seasonality in the trend of cost. That's something that is physiological in the trend of the cost base. We think that the dynamic of cost could be something that will move into a negative trend. For the future, there could be a negative, so a reduction of cost in absolute terms. We have the cost synergies on UBI, but we have also a significant areas of further reduction in terms of cost base related to reduction of branches, reduction of real estate, reduction of IT costs, and reconversion of IT costs. That's what we are working on in the business plan.
Business plan will be for sure based on some continuity on the real point of strength of the group and the managing of Wealth Management. Very good results that we had in cost reduction will be two component strategic in the plan. The other part of the story is the trend in terms of reduction of cost of risk that is linked to reduction of non-performing loans. That would be the other part of the story strategic, and that's the reason why we are working hard in order to reduce future impact coming from the stock of non-performing loans.
Thank you very much.
Thank you.
Thank you. We'll now move on to our next question over the phone, which comes from Hugo Cruz from KBW. Please go ahead. Your line is open.
Hi. Thank you. Just three quick questions. First, on the P&L, if you could give guidance for the tax rate in the second half. With the new plan, can you confirm that the EUR 5 billion net income is still the starting point for 2022? You're talking about cost cutting. Is there a risk that we could see, or should we be assuming material restructure charges or one-offs from the new plan? That's it. Thank you.
The tax rate in the second part of the year will be the usual one. We will not have nothing extraordinary. We will move between 28% and 30% tax rate. Our expectation is not to have other positive or one-off in the tax rate. Looking at the profitability for 2022, for sure, EUR 5 billion is the minimum level. We are working on the preparation of the plan in the sense of creating condition for accelerating net income growth for the future. I have to tell you that the point of profitability is linked with the cost of risk, that's in revenues. On the cost base, we are in a position to benefit from a significant portion of synergies coming from UBI. The possibility to have significant integration charges is limited during the second half of the year.
We will have probably something, but not so significant. There could be something if we find some smart way of managing non-performing loans, there could be something on the cost of risk. Integration charges should not be something that will increase in a significant way. That could be something, but not EUR 1 billion. That's for sure. Okay.
Thank you.
Thank you.
Thank you. We'll now move on to our next question over the phone, which comes from Britta Schmidt from Autonomous Research. Please go ahead. Your line is open.
Yeah. Hi there. Thank you. I think you kind of just answered one of my questions. Just to confirm, you expect cost of risk to be in the region of 60 basis points unless there are additional charges for additional NPL disposals, whether you can just confirm that? My second question would be, what sort of volumes are we talking about, and how do you think this will impact net interest income going forward? The third question I have is one on IFRS 17. When do you expect to apply this, and have you given any consideration to what sort of P&L or potentially CET1 impact that might have? Thanks.
Sorry, I didn't understand the third question. If you can repeat, because I didn't understand the third question. Sorry.
The third question was on IFRS 17 on the Insurance business, where the accounting is going to be changed under IFRS, where a compensation margin is going to be accounted for, which could impact. There is a bit of management discretion as to how much you want to show as a change in P&L versus change in equity of the Insurance business.
Yes. Okay. Looking at the first question, that is very important from my side, because as you understood correctly, we are working in order to reinforce profitability for the future to possible further deleveraging on the non-performing loans portfolio. The 60 basis points is the cost of risk, including further deleveraging. That's the level of cost of risk, including further deleveraging of the balance sheet, further reduction of non-performing loans. That's more or less the level that we think we can achieve. If we're not in a position of making further disposal, cost of risk can be probably lower than this. That's our expectation. We are working in here, but not for the sake of reaching 2% of non-performing loans ratio, but because we are selective on the non-performing loans portfolio that can have a negative impact during the business plan period.
On looking at the net interest income, the volume effects could be positive. That's our expectation from both sides. The low side, and we think that we can have a recovery of the loan book during the second part of the year, is linked to the acceleration of the GDP in the country, the fact that companies are coming back to investments, looking at the fund coming from NextGenerationEU as a positive levers for growth. Initially, there are a lot of companies that are starting to enter into the investment mode. They will use a portion of deposits, and they will use credit granted by then. We think that this can be positive for the volume.
At the same time, if there will be a reduction of deposits, both from the corporate side, but mainly from the retail side, we can have a positive on net interest income. We will see. We make the monitor, and we will tell you quarter by quarter the evolution. On IFRS 17 on Insurance business, we don't think to have a significant impact. We are still working on what could be the allocation on equity, on profit. Could be probably something that it is not significant in terms of impact for our group. That's our expectation. In the next six months, we will make the final analysis, but first results of analysis are not significant, and this will be part of the new business plan and the solvency ratio and the capital allocation of the insurer business in the new business plan.
Thank you. Can I just follow up on one point? Regarding further NPL deleveraging-
Yes
Do you expect this to have a meaningful impact on net interest income?
Sorry. I don't think that this can have a significant impact. It will depend on the size, but in any case, we can consider not significant in amount. That could be EUR 50 million. That's something that is absolutely manageable. We will see what is reality, because we are still checking in the different portion of NPL what could be the best solution for the further reduction of non-performing loans. Consider that we will have to work probably also on unlikely to pay portfolio. This means that we will have to enter into a more in-depth analysis. My expectation is not to have a significant impact on net interest income. At the same time, we will have a significant benefit on future provisions and on shortfall for the futures.
Great. Thanks a lot.
Thank you.
Thank you. We'll now move on to our next question over the phone, which comes from Patrick Lee from Santander. Please go ahead, your line is open.
Hi. Good morning, thanks for taking my question. I have one on dividend and one on your asset management fee income outlook. Firstly, on the dividend, you commented earlier on that the interim dividend of EUR 1.4 is kind of a conservative assumption based on full year net income, with it being roughly half your expected full year income. Hypothetically, if your actual outcome is, let's say, much more positive, would you consider a much bigger final dividend than the EUR 1.4 billion, or would you stick to some sort of a 50/50 split between interim and final dividend as a matter of principle?
In that context, I think that given that many banks are now considering share buyback as an extra tool for capital return, and with your capital obviously quite comfortable compared to your own target, would you consider buyback in the medium term as a supplementary way to return capital over and above the cash dividend? The second one on fee income. I think you kind of partially answered that. I guess, you saw a very big increase in financial assets over the last year with strong corporate and retail deposits, and in turn that helped strong inflows into asset management. If economic recovery is as strong as you're expecting, corporate starts to draw deposit to invest, consumers start to spend. What sort of reversal would you expect to see in this?
I guess in the context that you saw EUR 8 billion of inflow in the first half, which is around 4% of AUM. In a more normal world, what would you consider as a more normalized level of inflow in your asset management business? Thanks.
Thank you. Looking at the dividend, this year, we want to maintain this approach because this is a year of transition between the old business plan and the new business plan, and the year also affected by COVID and by UBI integration. It is something, and I am very happy that all the community consider normal that Intesa Sanpaolo can deliver such a strong net income generation of such results. Believe me, we made a lot of work in order to be sure to have a contingency plan to manage this organization to be a leader in Europe. This year has been a very tough year due to the COVID and integration of UBI. I think that it is safe for the shareholders to have, in this year, 50% first semester, second semester.
Starting from next year, we will elaborate in the business plan, and we will declare the policy and the rule of the game for the interim dividend for the future. Probably this will not be the rule of the game for the future for the interim dividend. We will decide in the new business plan. On share buyback, I prefer to pay cash dividend. That's my personal view. You know that I consider a priority to pay dividends. That's a clear point of myself and of Intesa Sanpaolo. I think that there is also a social responsibility in paying cash dividends, if you are an organization like Intesa Sanpaolo, we have a lot of shareholders, international shareholders, that are, at the end, the retail investors that are investing in mutual funds.
At the same time, we have also foundation, and without our dividends, the foundation cannot give money to the community, cannot give money to poverty, cannot give money to hospital, cannot give money to social activities. There's something fundamental in the way in which we manage the social responsibility of Intesa Sanpaolo in paying the cash dividends. There are a significant number of retail investors, retail shareholders, that need this money also to make consumption. I think that cash dividend is something that, for a company like Intesa Sanpaolo, is the best way to run an organization, to have a clear understanding of the kind of shareholders that you have. At the same time, share buyback can be something that we can consider for the future because that's absolutely something that can make part of the analysis of the new business plan.
I cannot exclude that in the new business plan, we will use also share buyback. My first reaction is that cash dividends could be the preferred one, but share buyback will be part of the analysis. On fee income, the line was not so good, so I hope to have understood correctly your answer. The fee income generation of this quarter is based on a significant amount of inflows coming from, mainly deriving from, retail deposit conversion. There is also a component related to commercial activity, as I told in previous question- and- answer. The main driver that I see for the future is the inflows, not only the net inflows that are the EUR 8 billion, but the gross inflows.
The possibility to work with the money of our clients, also in converting from a kind of investments in bonds, mutual funds, converting into balances, mutual funds, or moving from an investment into insurance into another, provided that clients want to move the portfolio. That's the main areas in which I see the possibility to give the right product to the right client. Without forcing and entering into something that can create some operational risk or reputational risk for the bank. The delivery machine that we have in terms of conversion of retail deposits and moving this money to Wealth Management and protection products is, and will be, the point of strength of Intesa Sanpaolo.
Great. Thank you.
Thank you.
Thank you. We'll now move to our next question over the phone, which comes from Ignacio Cerezo from UBS. Please go ahead. Your line is open.
Yeah. Hi, good afternoon. Thank you for the presentation. Two questions from me, please. The first one is on payouts and capital in general. Your capital position is obviously very strong. You seem to be able to maintain it through quarters, basically, without suffering any erosion, basically, on it. Your earning generation is improving. I know you have a high payout, actually, but do you see some merit in increasing the payout to even higher levels? We're seeing some peers in Europe paying up, actually, up to 100% or even above 100% payout. Not just for 2021, but also in coming years. The second question, a bit more detail on the wholesale funding savings you mentioned before. I can see that you have around EUR 4 billion maturities of debt in the second half.
Actually, maybe Stefano can quantify how much can you save from that in terms of net interest income for the next 12, 24 months. Thank you.
On the wholesale funding, I will leave the floor to Stefano. I want just to point out on the payout ratio. On the capital position of the group and the capital plan, so payout ratio and the different amounts, for sure, we will have a minimum capital level. It will not be a target, but it will be a minimum capital level. This means that we define the payout ratio and the dividend policy according to the fact that we will have a minimum level of capital. Today I cannot tell what could be the level of payout, because in reality, we have to finish the work on the plan. What I can tell you is that we will have a minimum level of capital, and that will be something also part of our risk appetite framework.
We will move into something that is more based on minimum capital, and then we'll elaborate on excess capital. The capital position is strong, and believe me, I think that for the majority of you, it is clear and this point is completely with you. The inclusion of DTA in our Common Equity Tier 1 ratio for the next years is really something that is a point of strength for us to have possibility to have the recovery of the DTA, because we will enter for sure in the new business plan in the Basel IV environment. That will be a plan, a Basel IV plan, that it will be by definition for all the competitors, a Basel IV plan, and we have already an instrument in order to mitigate or to compensate the Basel IV impact through the DTAs.
Now, Stefano Del Punta, if you want to answer on the offset funding question.
Yes, thank you, Carlo. Of course, you see the liquidity position of the bank. I think your point is very well taken. Clearly, we will be very selective in accessing the market in the next months. Let's say our original business plan at some EUR 3, EUR 4 billion of issuances in the second half of the year. Certainly, unless there is an explosion of new loans, I would say that we're below that. Very selective. For the following years, of course, we will have to see the business plan. Everything will be revised in the context of the business plan. I cannot give you guidance now. In any case, we will remain very selective in general. The saving can be significant.
Thank you.
Thank you. We'll now move on to our next question over the phone, which comes from Andrea Vercellone from Exane. Please go ahead. Your line is open.
Good afternoon. Two questions from me. The first one is on income from insurance. Can you explain why it dropped relative to last year, both in Q1 and in Q2? Was there anything special last year, or was there less commercial activity this year, given that it's a nice product to sell? Just a bit of color on that. The second question, it's on associated impacts of NPL disposals. In the past, there's been never any impact on the contracts you have with your servicers, Intrum and Prelios. Should we assume that that is the case also going forward, i.e., you can pretty much sell whatever you want, and it doesn't trigger any penalty that you have to pay to your partners? Thank you.
Yes. We think that it is a smart approach to try to involve the partners, that's an area in which we rely a lot on Intrum and Prelios, also in terms of possible disposal. That's a way in order to mitigate any kind of discussion. In any case, we do not see significant impact in case of transaction that will not involve our partners. As I told you, I think that they are able to work with us, and I think that we can rely on the support of both Intrum and Prelios also in this action of reduction of non-performing loans. Looking at the Insurance business, the Insurance business had a dynamic that was from one side affected by the change of perimeter.
The UBI insurance companies that we consolidated in this quarter had a dynamic very positive during last year, and probably some negative dynamics in the first quarter of 2021, and now positive in the second quarter. There's a mix of dynamics that is affected by this factor. The second point is that the first semester of last year benefited, sorry if I use this word for something that was really dramatic, but from the lockdowns. During lockdowns, you cannot have claims. It is difficult to say that you can have a negative impact coming from the insurance means that now we are back to normality or semi-normality. There could be some lower contribution from the Insurance business.
In any case, this remains a significant point of strength in the ending of the Insurance business of the ex-UBI will increase the scale of the group and also the amount of net income of the insurance company.
Thank you.
Thank you.
Thank you. We'll now move to our next question over the phone, which comes from Alberto Cordara from Bank of America. Please go ahead. Your line is open.
Hi, good afternoon. I have two questions. The first one related to a conference that you had in Italy, where you have been talking about EUR 400 billion of loans that you can make available to the Italian economy in the context of the recovery that we are going to see. I would like to ask you a bit more about this. I know that maybe this is preluding a bit the business plan, but this was, in my view, a very interesting comment. How we should see loan growth moving forecast and in connection also with the recovery plan? The second question related to the fact that I saw that you changed your guidance for this year, from over EUR 3.5 billion earnings to over EUR 4 billion. Previously, you also gave a guidance for over EUR 5 billion of net income in 2022.
I just wanted to know if this guidance still holds. Thank you.
Yes, Alberto. Beautiful, your title on the research, "Buy the Original." I like very much. As usual, you made the first, when I was appointed the CEO on a different planet, you are very good also in title of research. Looking at the EUR 400 billion loans that we can give to the real economy in Italy, for sure, there's a linkage with the acceleration of the NextGeneration plan in the country. You consider that out of this money, EUR 150 million can devoted for families and for small business, another EUR 76 million for green circular economy, another EUR 60 million for infrastructure, transportation, urban regeneration, then EUR 20 million for hospital research. This means that the linkage with the NextGenerationEU will bring us to have an acceleration of this money starting from the second part of the year and moving into the 2022.
That will be probably the area in which we can have an acceleration, and the main portion could be between 2022 and 2024. These are the timing in which I think we can be in a position. We are starting with companies in Italy to support them in making selection of projects in which they can participate in Italy. We are setting a machine and organization within different divisions that can support companies in order to be ready to enter into investments arriving from NextGeneration EU. Looking at the net income, I have to tell you that I'm really preparing the over-performance, considering the EUR 5 billion in 2022. That's for sure.
My purpose is to create condition in order to over-deliver on our promises as usual. Looking at the plan, all the work that we are doing during 2021, we create benefits during the plan, but especially in 2022. I hope to be in a position to present a plan with an amount of net income in 2022 that could be higher than EUR 5 billion.
Fantastic. Thank you very much. Thank you, Carlo. Thank you.
Thank you. Thank you, Alberto. Bye.
Thank you. We will now move on to our next question over the phone, which comes from Andrea Lisi from EQUITA. Please go ahead. Your line is open.
Hi, good afternoon. Just a quick clarification on the net income guidance. I was wondering to understand if in defining your previous guidance that was well above EUR 3.5 billion, did you really anticipate or factor in the benefit from the intangibles realignment or not? Thank you.
The guidance is including the one-off. The net income is absolutely including the one-off. The real point of analysis, as I explained during this call, is the kind of ability that we have to reinforce profitability in 2022, and that will be the main target of the next six months in my organization. I want a complete, full due diligence on the non-performing loans portfolio and on the loan book portfolio because I want to be sure that the provisions in the next business plan will be really linked on new inflows of non-performing loans and not on the stock of non-performing loans.
Thank you.
Thank you.
Thank you. We'll now move on to our next question over the phone, which comes from Fabrizio Bernardi from Bestinver. Please go ahead. Your line is open.
Hi, all. A very quick one. Sorry to bother you with this. I lost part of the call, so you may have already answered this. I was wondering whether you may have any very residual interest in domestic M&A, especially looking at the banking assets that may become shortly available, including, let's say, seaside and/or mountains areas, or maybe you are now definitely out of this game after the UBI deal. Thank you.
We made the right move because we had the possibility to make the acquisition of the best company in Italy, apart from Intesa Sanpaolo, with the best quality of people, because the UBI people, I have to tell you, are really strong. I think that in Intesa Sanpaolo, we will have a lot of value through the action of people coming from UBI. Having said that, we made the right move at the right timing. First, move to Europe, but now for us, the game is completely closed, and so we do not see any kind of possibility in domestic M&A.
Thank you. It was a smart move. Thank you very much.
Thank you. Thank you very much.
We'll now move on to our next question over the phone, which comes from Giovanni Razzoli from Deutsche Bank. Please go ahead. Your line is open.
Thank you. Good afternoon. A question on the dividend, very quickly. If I'm not mistaken, over in 2021, you are going to pay about EUR 0.21 of dividend per share between ordinary interim and reserves. If I look at the guidance of net profit for next year, and also I add the top-up of the interim dividend that you're going to pay next year, this EUR 0.20, EUR 0.21 seems within reach also for 2022, which would leave Intesa Sanpaolo with a 9% dividend yield also for next year. That is one of the highest in Europe. I was wondering whether I'm missing something or whether my calculations are correct. Thank you.
You made the right calculation, and I'm completely with you, and as I told in previous call, paying dividends is also a social responsibility for a company like Intesa Sanpaolo.
Thank you.
Thank you very much.
Ladies and gentlemen, this concludes today's question- and- answer session. Mr. Messina, I'd like to hand the call back over to yourself, sir, for any additional closing remarks.
Just thank you again for being with us today, and may you and your family stay well. Thank you. Thank you again.
Thank you, sir, and thank you, ladies and gentlemen. This does conclude today's call. Thank you very much for your participation.