Good afternoon, ladies and gentlemen, and welcome to our first quarter results conference call. This is Carlo Messina, Chief Executive. Normally, I would be sitting in the same room with my colleagues, Stefano Del Punta, CFO, and Marco Delf rate and Andrea Tamagnini, Investor Relations Officer. Today, we are doing this virtually. Before I get into our results, I want to express my sorrow for everyone suffering because of the virus, which has also hit some ISP colleagues, and I feel especially close to their families. We are all personally touched by this pandemic in so many ways, and I hope you and your families are all safe. Let me add that I'm extremely proud of our quick response to the COVID-19 emergency. We immediately started an impressive set of concrete actions to care for our people and our customers, supporting families and companies, and ensuring business continuity.
We already donated more than EUR 100 million for the sanitary emergency, and we provide additional EUR 125 million from our Fund for Impact to reduce the socioeconomic distress caused by COVID-19. We are entering this extraordinary scenario as a very solid and efficient bank. We delivered an excellent first quarter, fully in line with our pre-COVID-19 outlook. In fact, we achieved the best Q1 since 2008 for net income, around EUR 1.4 billion when excluding provisions for future COVID-19 impact. It was also the best ever Q1 for operating margin. At the same time, while increasing profitability and efficiency, we further strengthened our balance sheet, improving our rock-solid capital position and deleveraging NPLs to the lowest level since 2009.
It is safe to say that we are well-positioned to continue delivering best-in-class profitability and to maintain a solid capital position, and to potentially distribute the suspended 2019 dividend when the time comes, and subject to the ECB recommendation, and to deliver a payout ratio of 75% for 2020 and 70% for 2021. I believe that in the current scenario, the combination with UBI Banca can create even more benefits for all stakeholders. In fact, only banks that can leverage strong economies of scale, high efficiency, a solid capital position, and high asset quality will successfully navigate the times ahead. ISP and UBI have similar business models and share similar corporate cultures and values. Together, we are stronger, and together, we have a great potential for growth. Let's now go through the presentation, and at the end, I will be glad to take your questions.
Let's now turn to slide three. Thanks to our solid fundamentals built over time, we are fully equipped for a very challenging environment. Our fully loaded common equity ratio is 14.5%, equal to around EUR 17 billion of excess capital. We have already leveraged more than EUR 35 billion of NPLs at no cost to shareholders. We have distinctive internal capabilities for proactive credit management, coupled with our strategic partnership with leading industrial players. We can rely on EUR 1.5 billion of additional buffers for future COVID impact. We successfully evolved towards a light distribution model with 1,000 branches rationalized since 2018 and significant room for further branch reductions. We have a strong digital value proposition, very much appreciated by our customers. We already have around 10 million multi-channel clients and 6 million using our app, recognized as one of the best in Europe.
We implemented a complete set of responses to mitigate the COVID impact on ISP people and clients, and to support the economy and society. Slide number four. Looking at Q1, we delivered excellent performance. EUR 1.2 billion reported net income. EUR 1.4 billion when excluding the provisions for future COVID impacts. EUR 2.7 billion operating margin, the best Q1 ever, and the best Q1 since 2007 for revenues. Our net interest income is resilient and benefiting from increasing and geographically diversified lending volumes. We delivered significant growth in revenues from financial market activities, which naturally hedge the impact of market volatility on our fee-based businesses, coupled with solid growth in insurance, driven by the property and casualty business. The positive trend is also continuing in April.
In Q1, we recorded a EUR 6 billion increase in household side deposit, EUR 18 billion in the past 12 months, which will fuel our wealth management engine in the coming quarters. With respect to assets under management, even in a very difficult quarter, we had positive inflows of EUR 500 million, and the positive trend is continuing in April with other positive inflows. We confirmed our high strategic flexibility in reducing costs that are a point of strength for Intesa Sanpaolo, with operating costs down 2.7%, taking cost income to 44%, the best in Europe. We further leveraged EUR 1.3 billion of NPL with the lowest-ever gross NPL inflow. Overall, our performance in Q1 was fully in line with our 2020 pre-COVID targets. More than ever, I want to thank all Intesa Sanpaolo people for their hard work in helping achieve these excellent results in this very difficult environment.
Slide number five. The Italian economy is resilient and can rely on strong fundamentals and strong government intervention. In particular, the wealth of Italian households stands at EUR 10.7 trillion, and the amount of debt held by Italian families remains very low. Italian companies have stronger financial structure than pre-2008 crisis levels. They are more profitable and better capitalized, and the export-oriented firms have become powerhouses over the past few years. The banking system is by far stronger than pre-crisis level, with higher capital and less NPL stock. The Italian government is providing extensive support. In Q1, the Q on Q drop in Italian GDP was smaller compared to other European countries, despite a longer lockdown period. Slide number six. For all these reason I just mentioned, Intesa Sanpaolo is well equipped to face the crisis.
We have solid fundamentals, we are very well positioned to continue delivering best-in-class profitability with minimum EUR 3 billion net income for 2020, assuming a potential increase in cost of risk up to 90 basis points, and minimum EUR 3.5 billion net income for 2021, assuming a potential increase in cost of risk up to 70 basis points. Maintain a solid capital position with fully loaded Common Equity ratio above 13%, that is 12% fully phased in line with 2018-2021 business plan estimates. Deliver a payout ratio of 75% in 2020 and a payout ratio of 70% in 2021. We have already deducted 75% of Q1 net income from capital ratios. We believe that the rationale behind our combination with UBI Banca is even stronger in the COVID-19 context, and that significant value creation can be achieved even if we acquire just 50% plus one share.
We have always demonstrated our ability to fully deliver on our promises, activating all available managerial levers. This is my personal commitment. Slide number eight. In recent years, we have more than halved the NPL stock while increasing the coverage ratio. We have increased our rock-solid capital base with Common Equity ratio up 1.5 percentage points since 2016. We achieved this through internal capital management while also paying EUR 13.4 billion in cash dividends over the past six years. We have continued to reduce cost-income ratio. Slide number nine. We are far better equipped than our peers to tackle the new environment. We have one of the highest capital buffers in Europe. We have a best-in-class risk profile. We are the cost-income leader in Europe. Slide number 10.
We are also entering this extraordinary environment at full strength with the highest ever Q1 operating margin and the best Q1 net income since 2008 when excluding COVID provisions. We can count on additional buffers of EUR 1.5 billion for future COVID impact. Slide number 11. Leveraging our top-performing delivery machine, we immediately responded to the COVID emergency with a complete set of actions to care for our people and customers, supporting the real economy and society, and ensuring business continuity. Slide number 12.
As a key priority, we immediately ensured safe working conditions for all our people and business continuity for our customers through a large and effective set of actions, including quick and efficient scale-up of remote working, with 95% of people in central function working from home. 95% of branches opened during the lockdown, back to 100% since yesterday, with revised opening hours and employees working on a rotation scheme. Ensured business continuity via the online branch, internet banking app, and ATM cash machines. We also extended free ISP health insurance coverage to include COVID. Slide number 13. We doubled down on our longstanding commitment to support society and the real economy, helping families and organization impacted by the COVID emergency. I'm very proud that our bank, our employees, and our management and board donated more than EUR 100 million to help fight the COVID sanitary emergency.
We donated EUR 5 million to Ricominciamo Insieme project, collaborating with the Diocese of Bergamo to financially and socially support families. We are also sustaining families and companies with lending support. We made available EUR 50 billion in new credit in order to sustain companies and protect jobs. We were the first bank in Italy to suspend mortgage and loan installments for family and company. We did it long before the regulation came into force. At the end of April, we had already received some 430,000 mortgage and loan suspensions for around EUR 38 billion of value, out of which around EUR 24 billion for corporate and SMEs and EUR 13 billion for retail clients. We were the first bank in Italy to sign the collaboration protocol with SACE to provide support to large corporate and SMEs under the Liquidity Decree.
At the end of April, we had already received around 100,000 requests from SMEs for loans backed by a state guarantee for around EUR 3 billion. Finally, EUR 125 million from our fund for impact will be used to reduce the socioeconomic distress caused by COVID-19. We are convinced that after the sanitary emergency, and we donated EUR 100 million, we are now in an emergency from a socioeconomic point of view, and we want to support this in our country with another EUR 125 million. The most important support coming from private investors in Europe. In this extraordinary situation, we were able to guarantee, on slide 14, business continuity thanks to our strong digital capabilities. Specifically, we have around 10 million multi-channel clients, a half million increase in Q1 versus the last quarter of 2019, and 6 million of them are now using our app.
We almost doubled digital sale in Q1 versus last year's quarterly average. It is worth noting that these numbers reflect just one full month of the COVID-19 impact. Slide number 15. We are fully aware that the COVID-19 emergency will shape new trends. We are ready to leverage our competitive advantages. We are ready to benefit from the growing demand for health, wealth, and business protection by leveraging our leading position in insurance as well in wealth management. In a new risk environment, we will take full benefit from our strong internal capabilities for proactive credit management and from our strategic partnership with leading industrial players of the late stage. The COVID-19 emergency is rapidly shifting customer behaviors towards digital channels. We are very well positioned to serve them thanks to our best-in-class IT infrastructure and digital channel value proposition.
At the same time, this emergency is pushing towards a change in the approach to working. We are fully equipped to accelerate the digitalization of our employees' activities, as already demonstrated by the number of people smart working. In the new environment, society will need significant support. We will play our role beyond providing financial backing and confirming our leadership in ESG. Slide number 16. Italian GDP will be significantly hit, as in all Europe, by the COVID-19 emergency. It is forecast to decrease around 8% to 10.5% this year. In 2021, we expect a rebound of 4.5% to 7%, thanks to the solid fundamentals of the country and government packages to support business and households. This means a GDP loss of around 4% in two years. Let's now turn to slide 18 to enter the analysis of the Q1 results.
Q1 was affected by the COVID outbreak, and Italy experienced a strong drop in GDP and market volatility reached all-time high. With a large drop in stock and bond performance. The 10-year BTP Bund spread has widened. In this difficult environment, we delivered excellent results, and we are fully equipped to successfully navigate the challenges ahead. Slide number 19. On this slide, you can see the highlights of our strong Q1 performance. Let me take you through the following pages to give you some color. Slide 20. In Q1, we continued to improve across all key indicators. In particular, net income was 30% higher than last year when excluding COVID provision, and we have deleveraged more than EUR 6 billion of NPL on a yearly basis. Our common equity ratio improved by one percentage point on a yearly basis after deducting EUR 900 million for accrued dividend.
Our excellent performance allow us to create sustainable benefits for all our stakeholders. In particular, in Q1, families and businesses received nearly EUR 17 billion new medium to long-term lending, out of which EUR 14 billion in Italy. We helped more than 3,000 companies to get back on track, preserving around 15,000 jobs. Slide 22. Our strength allow us to contribute to the society we belong to. ISP is strongly committing to its role as an engine for sustainable and inclusive growth. On top of COVID-specific actions, which I described before, Intesa Sanpaolo is also ready to contribute with loans for EUR 50 billion to European Green Deal. Slide 23. In this slide that you know well, you can see just a few example of our work to support Italian society and, in particular, the acceleration of our support during the COVID emergency.
I want to highlight that since 2018, we have already delivered almost 10 million meals to people in need. Slide 24. As a result, we are the only Italian bank rated at the top of all the main sustainability rankings, and we are very proud of these achievements. Slide 25. Despite a challenging environment in Q1 with negative market performance in all asset class and the country in lockdown in March, we delivered growth in profitability, driven by an increase in revenues and a reduction in costs. Net interest income and commissions have been resilient despite lower interest rates and COVID impact. Profit on tradings more than doubled compared to last year, and April has been another good month for realizing traded profits. Insurance income grew about 7%, driven by solid growth in non-motor P&C revenues that more than doubled when including the component booked in commissions.
The positive trend continued again also in April. Operating income was up double digits. We have continued to be very effective at managing costs, with personal expenses down 2.3% and administrative expenses down around 6%. Depreciation is up slightly as we keep investing for growth. Operating margin was up 27%. Cost of risk, excluding the COVID provision, is at 40 basis points. Net income is at EUR 1.4 billion when excluding the provision for future COVID impact, and reaches EUR 1.6 billion when excluding costs concerning the banking industry, which largely consist of the full-year charges for the resolution fund. Considering the Nexi capital gain, we have already achieved more than 50% of 2019's net income. Slide 26.
In this slide, you can see that on a quarterly basis, net interest income has been stable, increasing by 0.8% when considering the different number of days in the quarter, thanks to positive dynamics on volumes. On a yearly basis, net interest income would have increased slightly when excluding the impact of accelerating TLTRO deleveraging on financial components. Net interest income was also affected by more than EUR 18 billion yearly growth in household side deposits that impacts net interest income in the short term, but boosts our wealth management engine for the future. We will continue to work hard to improve the commercial components while continuing to manage our revenues in an integrated manner and with the aim of delivering a positive EVA strategy. In the coming quarters, net interest income will also benefit from the increase in loan volumes registered in Q1. Slide number 27.
Assets under management decreased by around EUR 20 billion in Q1 due to negative market performance. In the same period, assets under management net inflow were positive for half a billion euro, despite the outflows in March. The net inflows turned positive again in April. April, again, positive net inflows. In Q1, family side deposit increased by EUR 6.3 billion, and this so-called sleeping money collected so far around EUR 80 billion in the past few years, together with the EUR 152 billion in asset under administration, will prove to be the fuel for our wealth management engine. Slide 28. We continue to be very effective at managing costs. The main sources of savings were head count reduction, real estate optimization, legal entities reduction, and a decrease in other administrative costs. We reduced the count by more than 2,800 on a yearly basis with room for further cost reduction.
We have already agreed and fully provisioned more than 2,000 voluntary exit. On top of this, we have received 1,000 additional application to be reviewed. Further branch reduction in the range of at least 1,000 on top of the 1,100 embedded in the business plan, and almost already done, are expected in light of the Banca 5 network scale up. Thanks to the strategic partnership with SisalPay, and in light of the change in customer behavior. Slide 29. We are proud to have a best-in-class cost-income ratio, and this chart illustrate our leading position in Europe. Number one in Europe. Slide number 30. NPL stock has continued to decline sharply with 18 quarters of continuous deleveraging. We have already achieved 88% of our pre-COVID-19 2021 business plan NPL deleveraging target.
We deleveraged EUR 1.3 billion in Q1, and the gross NPL ratio is down by more than 10 percentage points since the peak of September 2015 to 7.1%, equivalent to about 6% according to EBA criteria. The net NPL ratio decreased to 3.5%. We recorded the lowest-ever Q1 gross NPL inflow. ISP has been able to deliver this impressive deleveraging at low cost to shareholders. The bottom line is this, we enter the potential COVID-related negative credit cycle in the most favorable possible condition. Slide number 32. 31, sorry. Our capital buffer versus regulatory requirement is roughly 600 basis points, well above our peers. These figures also includes a deduction of EUR 900 million for the 2020 dividends accrued in this quarter. Our fully phased-in Common equity ratio is at 13.5%. Slide 32. Our best-in-class capital buffer versus regulatory requirement has been further strengthened in Q1.
Slide number 33. When it comes to capital strength, Intesa Sanpaolo continues to be a European leader. In addition, we continue to apply a deliberate strategy of low leverage with a leverage ratio of 6.6%, the best in Europe. Slide 34. We have a best-in-class risk profile in terms of the ratio capital to financial and liquid assets. By this I'm referring to net NPL, Level two assets and Level three assets. Intesa Sanpaolo also enjoys a strong liquidity position with both the Liquidity Coverage Ratio and the Net Stable Funding Ratio above 100%, with around EUR 200 billion in total liquid assets. This situation, strong capital position, so rock-solid capital position, sustainable profitability, and the best business model are the reason why in all the EBA stress tests, we resulted as the clear winner. We start also this situation of crisis as the potential winner also in this situation.
Rock-solid capital position and resilient profitability deriving from a clear and strong business model. Now, let me give you an update on how the combination with UBI Banca is proceeding. Let's move to slide 36. When we announced our offer, we explained the solid rationale underlying the combination with UBI Banca. There are clear benefits for all stakeholders. The rationale is even more compelling now as we all face the challenges of the COVID recovery. At a time when strategic options are very limited, UBI Banca shareholders can choose to join forces with a stronger player in Italy and in Europe, a group that actively works to benefit its people, customers, shareholders, and the broader community. We are determined to move it forward, and we remain absolutely convinced that this is the best option for UBI Banca shareholders and for Intesa Sanpaolo shareholders. Slide number 37.
As you can see from this slide, we are fully on track to close the transaction by August. Slide number 38. The key message of this slide is that there is no change to the transaction terms. The exchange ratio remains 1.7 ISP shares for each UBI Banca share, despite the 2019 dividend suspension. This is a 28% premium for UBI shareholders, with an increase of 5.5 percentage point versus the premium announced in February. We will go ahead with the operation even if acceptancy is just 50% plus one share. We can achieve the vast majority of the identified synergies and de-risk UBI Banca's balance sheet at no cost to shareholders, even under these conditions. Following the completion of the deal, the remaining minority shareholders will not benefit from the premium which is incorporated in UBI's shares price today. Slide number 39.
In simple terms, this deal makes a lot of sense, especially now. In fact, only banks that can leverage strong economies of scale, high efficiency, solid capital position, and high asset quality will be able to successfully navigate the times ahead. In particular, we would generate significant synergies with no social cost. Negative goodwill from the transaction equal to EUR 3.9 billion will fully cover integration charges and additional loan loss provisions, meaning we can accelerate UBI's NPL deleveraging. As always, we do this only at no cost to shareholders. We will pay high dividends with a payout ratio of 75% in 2020 and 70% in 2021. Our solid capital position will remain, with a Common Equity Tier one ratio above 13%, and net income will be above EUR 5 billion starting in 2022. EUR 5 billion 2022.
Our proven track record in merging integrations shows that execution risk is very low. Let me now turn to the next slide, where I would like to take the momentum to review how we provide strong support to UBI Banca's reference territories. ISP has always dedicated a great attention to the local communities. We are the Banca del Territorio. UBI Banca's people, customers, shareholders, and communities can expect us to bring the same attention to the territories that matter the most to them. Let me name just a few of concrete commitments to UBI Banca's reference people, clients, and territories. We will create four new regional departments in Bergamo, Brescia, Cuneo, and Bari with high lending capacity and management autonomy, and the heads of the such new departments will be appointed from among UBI Banca people.
We will boost lending by an additional EUR 1 billion in the next three-year period with no reduction in credit granted to mutual customers. UBI Banca's own social initiatives will be doubled. UBI Banca's people will be able to remain where they are without a social impact. We will also hire 2,500 young people, half of them from the territories of Bergamo, Brescia, Pavia, Cuneo, and Southern Italy. The combination of Intesa Sanpaolo and UBI is a project that strengthens the two banks' local roots while offering benefits for our communities and all stakeholders. In conclusion, to sum up, we are well equipped and ready to face this challenging environment. We are ready to face this challenging environment.
We are a leading bank in Europe when it comes to excess capital, number one in Europe, low leverage, number one in Europe, and strong liquidity, among the best in Europe. We have a well-diversified and resilient business model, so a winning business model, leveraging on wealth management and protection with strong ability to deliver also results in financial markets. We have continued deleveraging NPL to a low stock with robust coverage at zero cost to shareholders. We have a limited amount of Level two and Level three assets best-in-class in Europe. We have a high strategic flexibility in managing costs with the best cost-income ratio in Europe. Furthermore, we can count on EUR 1.5 billion of additional buffers to tackle future COVID impact, while delivering one of the best first quarters ever.
For this reason, in the future, we are well-positioned to continue delivering best-in-class profitability with minimum EUR 3 billion net income for this year, minimum EUR 3.5 billion net income for the next year, maintain a solid capital position with common equity ratio above 13%, deliver a payout ratio of 75% in 2020, with 75% of Q1 net income already deducted from capital ratio, and 70% in 2021. We expect to continue reviewing and fine-tuning our outlook in light of the country reopening. Finally, let me remind you that we believe that the rationale behind our combination with UBI Banca is even stronger in the context of COVID-19, and that significant value can be achieved even if you apply just 50% plus one share. Thank you for your time and attention, and now I'm happy to answer to your questions.
Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, please press star for question. We pause for just a moment to allow everyone an opportunity to signal for questions. We will now take our first question from Antonio Reale from Morgan Stanley. Please go ahead. Your line is open.
Hi. Good afternoon, everyone, and thanks for the presentation. I guess my first question is on the guidance. I guess it's very difficult to have visibility on full year numbers in an environment like this. My question is, what are the assumptions behind your 90 basis points cost of risk for this year and 70 basis points for next? I've seen your GDP range, perhaps I think it would be helpful to understand some of the assumptions behind these numbers. I'm thinking of government guarantees, moratorium, where you think NPL ratios could peak, et cetera. My second question is, we've obviously seen a number of measures implemented by the government. Can you give us an update so far on what percentage of your loan book is currently on moratoria? What are the assumptions of how many of those will end up as NPLs when the grace period ends?
On the government guarantees, I think you mentioned EUR 3 billion as of end of April. What percent of the loan book would you expect to be ultimately on government guarantee by year-end? Very last question on risk-weighted assets. I saw the drop in the quarter despite loan growth. Can you just share what's driving this and how do you expect RWA to move forward? Thank you.
Thank you very much. Looking at our guidance, we decided to make an analysis that can give to the market the view of the management and the view of the bank for a clear outlook for the future. Not only talking about the quarter or the implication of 2020, but also looking at 2021. Because we are convinced that in analyzing and making the evaluation of the implication of this emergency, you have to consider the delta between the reduction in 2020 and the recovery in 2021. The majority of the provision will be related to Stage two. If you implement the moratoria and the guarantee on the state on the customers in Italy, the majority of the impact should be on Stage two.
Do not forget that we enter into this crisis with 50% of our stock of non-performing loans, with a significant number of percentage in terms of investment-grade clients in the corporate sector, and with a corporate sector in Italy that is comparable to what you have in Germany. If you look at the situation of companies in Italy, their financial structure is comparable with the one in Germany, and also their export-related attitude today is probably much better and much stronger than the one that you have in Germany. Structural condition is good in Italy, looking at this point. Our expectation is that moratoria and the guarantee from the state can cover a significant part of what can happen into the possible migration between performing into non-performing. This will avoid a massive move from performing to non-performing loans. What will remain is the impact on Stage two.
This impact could be managed through, in our expectation, to a maximum amount, because we wanted to make a forecast for net income that could be conservative, we decided to post EUR 300 million as extra provision in this quarter, but to devote the Nexi capital gain that, I can remind you, in terms of gross, is EUR 1.2 billion of extra provision to this possible implication coming from deterioration in the market. We will monitor the situation, but the majority will derive from this impact. We made an analysis on sector, on looking on the different indication in different sectors, and at the end, our estimate is that it is likely that we will not exceed this amount of provision, and hopefully can stay also below this level of provision.
With our purpose to give also a net income guidance to the market, because we want to pay dividends, and our purpose is to pay dividend with the application of the 75% and 70%, you can have a clear view on what will be the dividends that you can derive from your investments in Intesa Sanpaolo. Analysis related to impact of moratoria, guarantee, sector analysis, stage one, stage two, migration, and strength of the starting point of the portfolio of Intesa Sanpaolo. These are the most important analysis. There will be a reduction in provision in 2021 because we will be in a positive GDP trend, remaining, in my view, in a conservative mood comparing to our asset quality. That are the most important area of analysis that we made on non-performing loans and performing loans impact coming from this emergency.
If we look at moratoria, today we reached EUR 38 billion of loans that are related to moratoria. The amount could increase in the next months. We do not expect such a massive number. In any case, we'll increase. On the impact on the so-called SACE full guarantee and impact, we are really at the starting point. We will see what will be the real request from clients in Italy, because my understanding is that in reality, the situation could be probably better than can appear now, looking at the first signs of lockdown. There are sectors like tourism, hotel, transportation, that can be impacted in massive way. In my view, there are a significant number of sectors that can rebound also in the second part of the year.
My expectation is that we decided to make a conservative approach, posting EUR 300 million and dedicated another EUR 1.2 billion coming from the Nexi capital gain in the next months. If you make net-net, the availability of results that we can use for provision is really massive and significant. Living with sustainable resilient profitability. Looking at risk-weighted assets, we had some optimization accuracy and some recovery of the guarantee in the loan book. This allow us to mitigate the impact on risk-weighted assets on credit. You know that we have a strong work that we, on a quarterly basis, made on in terms of collateral, recovery of guarantees, and this creating condition to have a positive impact on risk-weighted assets credit related.
Thank you.
Thank you.
Thank you. We will take our next question from Andrea Filtri from Mediobanca. Thank you. Please go on.
Good afternoon. I hope you can hear me. I have three questions. The first is on the lending evolution to the different types of customers, SMEs, corporate, mortgage, and consumer. If you could give us your outlook for these different types of lending going forward, and a comment on what types of margins you're expecting to charge vis-à-vis before COVID, including the fact that some of these will be government guaranteed. The second is on trading. You have posted a fantastic result this quarter. There is a lot more market volatility and higher sovereign spreads. Are you counting on radical changes in the Eurozone and EU policies, and if you have any comments on that side. Finally, if you could provide us the insurance solvency ratio at the end of March. Thank you.
Insurance solvency ratio is above 200%, it's 203%, the solvency ratio. Significant and very good considering also that we will continue to deliver a very good result in the sector that, in my expectation, could be really the start in terms of increasing results due to the property and casualty business, and especially in the health sector, driven by the acquisition of RBM that, starting from June, will give extra speed in terms of performance. That level of insurance solvency is all very strong. Looking at trading, I'm moving from the third to the second, the first. Looking at trading, we made, for sure, very good performance. We took benefit from volatility. We think that we will remain with a percentage of Italian government bonds, more or less in the range in which we are today.
That is 43%, 40%, 44% of the total amount of government bonds. We think that there could be some reduction in terms of volatility, but we have to monitor the evolution of the agreement between the different EU participants to the Eurozone. ECB made a clear effort, Commission is trying to do the best for solution, but they didn't reach a clear and final position on this call. I have to tell you that I'm, in any case, convinced that Italy has a significant strength in the saving of the Italian families, and also Italy can account of the Italian savings in order to manage the future needs for the public debt or to reduce public debt for the future. I'm not worried about the position, and I think that looking at market volatility, we can continue to have good performance.
As I told in the previous statement, April has been another very good month, especially in Banca Ifis. I'm pretty confident that with this environment, we can continue to deliver good performance also in this area. Looking at lending, it is clear that we had a trend in the first quarter. The trend in the first quarter made us with a good diversification between international loans and domestic loans with good profitability, because we made good results looking at net interest income in the first quarter, mainly driven by the asset side, because liability side made a negative impact arising from markdown and the growth of deposit base. Margin for the future will be mainly related to the kind of guarantees that will be applied.
Looking at guarantees and usage of TLTRO, it is clear that you will not have significant margins, but the volume effects could be much higher than what you can expect. My expectation is that net interest margin could be the real surprise of 2020, due to the fact that we have a stock embedded in the first quarter that is really significant, and we can, in any case, play a significant increase in terms of loans also with the guarantees. It is clear that with the guarantees, we'll have a level of pricing that could be lower than a normal credit. At the same time, the risk-weighted asset embedded will be really low. SMEs corporate consumer could be an area affected. Mortgage is also another area that can be affected from some amounts.
Probably, the real estate market and the embedded area related to this point could be affected. SMEs and corporate, depending on what could be the need in order to work for liquidity lack due to the lockdown, but also due to the fact that some players can decide to accelerate investments in order to be ready for the recovery in the export-related demand to be the champion. Do not forget that a significant part of companies in Italy can be leader also looking at export-related item. If you want to be a leader in the future, you have to start investment in this phase. There could be also demand coming from this champion. We need to have a clear view on this month, so May, because May could be a month important after the full lockdown.
We will maintain the market informed quarter by quarter on the evolution of this component.
Thank you very much.
Thank you, Andrea.
We will take our next question from Giovanni Razzoli from Equita.
Thank you. Good afternoon to everybody. A couple of questions on my side. The first one, I would like you to share with us what's your view of the regulators' activities so far. It seems to me that they granted the banks a lot of flexibility in terms of capital requirement, in terms of IFRS 9 adoption, and all those pro-cyclicality elements that may impact the CET1. Do you share this point? Would you expect something more from the regulator? This is my first question. The second one, in terms of the government actions. Here, you have also been pretty much clear in commenting what is the effect on the new non-performing flows of the government actions. Here, in this case, how do you see the government actions? Would you expect something more to come?
For example, we have seen that they are also considering some guarantees on the UTP. I guess that these actions had a material impact on the cost of risk component. I would like to have your comments here. The very last point. Back to the question on the trading performance that was quite strong. The headline number may suggest relatively strong volatility. Half of it comes from capital markets. That seems to me more a kind of client-driven activity. Shall we consider this item relatively replicable going forward as it is not so related to the market movements? Thank you.
I will start from the last one. On trading performance, for sure capital market is also benefiting from clients' activity. Difficult to say what can happen in the next months. I can give you reality. April has been a very good month. Again, with significant realized profit during the month and significant activity in terms of capital market. We have also to consider that if there will be some recovery in terms of wealth management proposition, probably there could be a reduction in the component client-driven on capital markets. It is the typical historical evidence. There could be some correlation. Do not ask me why there is this correlation. I can give you some hypothesis, but the evidence is this.
In case of a significant recovery in wealth management activity, this can happen if the stock market can rebound, if the Bund spread can be in a trending down evolution, probably you can have a reduction in terms of capital market activity. For the time being, not for the level that you have in the first quarter, my expectation is that this sector can give us a positive result. It is by definition a sector that has some kind of volatility, it is difficult to make a clear outlook in this area. April has been a very good month also looking in this respect. In terms of government action, I think that our government made all you can do in a situation in which you have a public debt like the one that we have in Italy. Not easy to do something more.
Probably they can work on some intervention, so-called [Non-English content] , not giving only guarantee of debt, but also giving money to the companies. On UTP, probably they are studying this point. My perception is that it is not easy to say that they can complete this area of analysis. If they succeed, this could be absolutely something very important, because UTP are performing loans. Performing in the sense that they can move the performing loans. The purpose of the state should be to maintain into the performing area, because there are people working. Thousands and thousands of people are working into companies that are in UTP. This could be, in my view, a priority of the government. I cannot tell you if they can have success in trying to analyze something in this area.
By definition, this area is an area in which if you work hard in order to allow them to come back into business, you can give a significant boost to the GDP growth in the country, but especially to save employment in a situation which in the next months, there could be some significant social problematic situation, not only in Italy but in all Europe deriving from the reduction of GDP. Looking at the regulators, for sure, they are acting in a very tough way in order to reduce procyclicality, to give flexibility to banks. My expectation is that they can continue this very good job that they are doing.
My expectation is that, especially at European level, looking at SSM, ECB, they can continue this very good job that they are doing in order to make stabilization and not to put emphasis on the negative side, but to try to move all the sector into the positive side. My expectation and my relation with these counterparties is positive. My perception is that they are fully aware of what can happen into the market if they try to accelerate the procyclical impact of this negative trend. My expectation is that they will do all the best in order to reduce this impact. We think that in any case, there will be an impact. Another reason why we decide to place EUR 1.5 billion on a yearly basis in order to face this very tough environment with a potential increase maximum until 90 basis points for this 2020 year.
Due to our strong efficiency, strong ability to have a resilient business model, we can remain easily with a net income well above EUR 3 billion in 2020 and EUR 3.5 billion in 2021.
Thank you.
Thank you.
Our next question comes from Domenico Santoro from HSBC.
Hi. Good afternoon. Thanks for the presentation. Hope you are all okay, and also my colleagues as well. Just a couple of follow-ups. First of all, on the target in terms of net profit, does the EUR 3 billion at least net profit include also an allocation of the Nexi capital gain to potential further provisions for the economic situation, and whether this is already included in the 90 basis points? Reason why I'm asking, we have seen, of course, your Spanish colleagues charging much more in the quarter, more than EUR 1 billion for the large. I'm just wondering whether you're going to book an additional part, which is more than update, if my understanding is correct, once you have the input from the ECB in the second quarter. The second question is on capital.
Can you please tell us what could be the impact, positive, from the measures that the European Commission has approved last week, especially the SME Supporting Factor and the others? Whether you expect in the second part of the year, when you have more visibility on the situation, some risk for the assets inflation, because you're going to potentially update your PD, LGD in the portfolio. Can you also mention whether you're going to take up more in terms of TLTRO at the end of June? What could be the maximum allotment? Thank you very much.
I want to start, in this case, from the target, to make clear the position on our EUR 3 billion minimum level. We talk about minimum because we talk about exactly on the allocation of Nexi. Our expectation is that it is useless to be so bullish, in the sense negative, in the first quarter, in which we have not the clear scenario coming from ECB, and they gave us a clear indication that they will give us, in June, the implication of the scenario that we will have to use in order to make the provision for the Stage two in the second quarter.
We want to give a clear understanding of the situation, because we will have an impact for sure, and we think the EUR 300 million is the right amount that we can place, but we will have another amount in the next months. We decided that this amount will be in all our analysis that we made, also stressing some condition, this amount could not exceed EUR 1.2 billion. We decided that we can allocate Nexi capital gain in order to face this point, expressing condition we can leave us to a maximum 90 basis points. If you remember, when we made the deal on Nexi, we made a clear statement to the market.
We will use only a portion of this capital gain in order to increase net income, because a portion of this will be used in order to increase sustainability of results of the company. We are perfectly in that situation. We need to have Nexi capital gain in order to improve sustainability of results of the company. If we place EUR 1.5 billion extra provisions in 2020, believe me starting from 2021, there will be another year in which there could be an impact, but mitigated by the positive GDP. In the next years, we will have benefit coming from these extra provisions, so increasing sustainability for our results. The allocation of Nexi is included in EUR 3 billion. That is why I can tell you absolutely that EUR 3 billion is absolutely conservative. My expectation is that we can do better than this.
On this point, I prefer to stay on the conservative side, giving indication to the market. Again, because through this amount and through the payout ratio, you can also calculate what kind of dividend we expect to give to our shareholders. The Nexi capital gain for us is a clear jolly that we will use during the second and the third quarter in order to increase provision for an amount that could be maximum EUR 1.2 billion deriving from the Nexi capital gain. That's a position on Nexi. On capital position and the implication of the new analysis coming from the administrative sectors, we will have a benefit on this point.
We need to have some more weeks in order to make the perfect analysis on this point, and we will make the clear disclosure on this, that is positive, and we will have in the second part of 2020. I think that in our case is only another factor that can increase our already very strong excess capital that will remain very strong and in excess of what all the other European peers have communicated, also paying the 2019 dividend. If you pay 2019 dividend, you remain Intesa Sanpaolo with a position of MDA buffer exceeding the one of all the other European peers. In any case, on this point, we will make disclosure in the next months as soon as we have more analysis in place.
In looking at Tier one, we can reach the amount of EUR 85 billion-EUR 90 billion, and we will decide if we can take more, and this will depend also on the amount of loans with the guarantee of the state that we will receive in terms of demand during the next month.
Thank you very much. Thanks for the answer.
Thank you.
We will take our next question from Benjie Creelan-Sandford from Jefferies. Please go ahead, sir.
Yes, good afternoon, everyone. Looking at the back of the presentation on the sovereign bond holdings. It looks like they are stable quarter-on-quarter. If we look at the balance sheet, total financial assets on the banking book appear to be up about EUR 10 billion quarter-on-quarter. I was just wondering if you could give any more detail on what kind of assets those are, presumably that's corporate bond exposure that you have increased in the quarter. I guess, just in terms, again, going back to the cost of risk outlook and the 90 basis points. You've obviously pointed to the 8.5%-10.5% GDP decline in Italy this year. Can you give any sense of the sensitivity to your cost of risk assumptions to any change in the GDP growth outlook, both this year and in terms of the rebound in 2021?
Thank you.
Thank you, because the point on sensitivity on GDP, in my view, is very important. That's a point in which it is clear that what is very important is the sensitivity on the delta between 2020, 2021. The real point of analysis in our bank and the analysis that we made, and we will continue to make in the future, because it is clear that if you have another two weeks of lockdown or another month of lockdown, analysis could be for sure different. If you have sectors that can be impacted in a tough way in the next months, it is clear that you have different impacts. We made some reserve in the analysis of the 90 basis points, also considering some further points on some area of lockdown.
The sensitivity should be applied, in my perception, on the delta basis deriving from the negative GDP of 2020 and the positive of 2021. In our case, -4 basis points. If you make some stress on this analysis, in case of positive, you can have a recovery in terms of provisions, especially in 2021, if the rebound is much higher than the one that we have considered. For 2020, my expectation is that with 90 basis points, we are fully covered also from a worst case scenario, apart from a significant further lockdown in the country in the next months. In that case, we will need to make further analysis in order to evaluate what could be done. Always related with a possible rebound in 2021. That's the reason why I'm focusing on the delta basis.
On the delta basis, if you have from minus four into minus six, my perception is that there could be limited extra provision that you can need in terms of the provision, especially in the two years, 2020, 2021. You can have an impact, but not so significant. What can happen is 2022, in which we can have another amount of provision related to this situation. For another two percentage point, my expectation is that you can have another EUR 100 million, EUR 200 million in two years' time, but no more than this. If you have a lower impact in terms of four percentage point, and you stress, and you say that at the end you can go to two percentage points, again, you can have positive on the provision, a much higher positive in 2022.
It is also clear that we are making analysis on the model. We will give you a more clear view on this sensitivity in the next presentation for the next quarter results. Your point is completely right. Sensitivity is very important. What we are doing is using the delta on the two forecast negative and possible rebound in 2021. The condition of extra provision, due to the fact that we think that we are being really conservative in using EUR 1.5 billion extra provisions in our figures, we think that this can be enough. Because the amount of state guarantee, theoretically, is massive. Again, this is another part of the story that we will check month by month. The amount of the intervention, 40% of the GDP, is really impressive. We have to check if reality is equivalent to the project.
That's for the basis points. On the sovereign bond holding, we had an increase in some sovereign bond, we will also increase in some corporate and financial bonds. There could be some increase deriving in this quarter from this holding. The majority of the impact that we had on Common Equity is deriving from the OCI government bond, in which there has been also a breach of correlation between the AAA country and a AA country like France and the other, like Italy and Spain. That was another reason. On financial assets, if you want all the figures and disclosure, Investor Relations teams is at your disposal to give you all the figures that you need to make analysis.
Thank you.
Pleasure.
We will take our next question from Alberto Cordara from Bank of America.
Okay. Good afternoon. From my side, a couple of questions. The first one related to efficiency. You already have a very good cost-income ratio, as you detailed in the presentation. Is there more room to improve your cost line? What is the degree of flexibility that you have in doing that? How much of a potential further cost line improvement is included in your current guidelines? I just want to know if you can put something else on top of your current guidelines. The second issue relates to your offer on UBI. I think you explained very well the rationale. Banks today need more scale, more efficiency. They're coping with a tough environment from an interest rate standpoint, and more importantly, from an asset quality standpoint. All of this is very clear.
What is probably less clear, particularly to international observers, is why there is a group of commercial including foundations, that are seemingly opposing the deal. I think it would be helpful if you can explain to us and explain to international investors why this is taking place, because again, from the outside, that may not look immediately something clear and understandable. Thank you.
Thank you, Alberto. We can start from efficiency. That is the easy way in which I can elaborate. Efficiency in Intesa Sanpaolo is a clear North Star. We think that efficiency is the key factor of success of our organization. We have, for sure, more room to accelerate in terms of cost reduction, and do not forget that last year we had 2,800 people leaving the organization. This first quarter, we had roughly 1,000 people leaving the organization. Embedded in the personal cost of the organization, there is a significant number of possible reduction that we consider as potential for increasing people in other areas, such as insurance, artificial intelligence, and other sectors that can need to have a marginal reinforcement, because we are talking about -4,000 people, and the hiring of people could be in the range of 500 people.
Today we are reducing the hiring of people. We are stopping the turnover. We think that also in view of the UBI possible transaction, in general, also on a stand-alone basis, we want to better understand the implication of this new scenario on our activity. I think that at the end, there is one area that gives us a clear indication that digital and remote working and ability to work, reducing the need of real estate building, and on the other side, reducing the number of branches. With the SisalPay agreement, we had already planned of further reduction of branches. This situation gave us a clear view of two business model. One is the mass market, and the other one is personal, affluent, and private. On personal, affluent, and private, you need to reinforce your activity into the branch.
You can call branch private banking branch, personal and affluent branch. People in Italy need to have contact with people. We received a request for meeting also in this because in the lockdown period, because people want to be sure that they are giving the money to a person with whom they can have a clear relation, a clear understanding of each other through a meeting. On the other side, on the area of mass market, we think that we can really work on an extra plan of reduction of branches, leveraging on our superior ability of giving digital implication on business. This will bring us to work on analysis of related to our program. Cost base today is one of our business activity. The cost management sector that you know is in charge of this area is delivering fantastic results.
We think that we can do more, but not only as contingency plan that will bring us positive in case of reduction of revenues, but also from a structural point of view. This is an area which I'm working in order to prepare a new phase of cost reduction for the group. Looking at UBI, believe me, I'm really in a condition to say that it is difficult also for me to understand why there is such a strong opposition, because you can have an opposition to a deal because you think that you can have more money. There could be physiological opposition to deal. In the case of core shareholder, it is a very strong opposition, and I have to tell you that I prefer not to give you my idea on this point.
I think that at the end, also these shareholders will understand that in this situation, in which the environment is very tough, Intesa Sanpaolo, we have to consider EUR 1.5 billion of extra provision in 2020 and consider also the increase of provision in 2021, a reduction in comparison with 2020. For sure, in increase considering the current situation, it is difficult that a second tier in the market can have much better perception than a first tier in the market. Not intending that the second tier is not positive, but I'm talking about dimension, the scalability, the profitability, resilience of our figures. All the banks in Italy will be impacted by this situation.
I think that be together with a strong player can give to the shareholder, will be a much higher probability to have significant dividends and also upside in the future. Today you have the correlation of UBI shares with the Intesa Sanpaolo shares. I think that the core shareholders can have a benefit in moving into Intesa Sanpaolo and benefiting from a clear trend in terms of profitability and dividends. That is why we decided to change the dividend policy that we made and disclosed to the market some months ago, in which we think that it is not fair to give a message that we can pay a fixed dividend to the UBI shareholders.
Now we are entering into the same guideline that we are giving for the Intesa Sanpaolo shareholders, it is 75%, 70%, and we think that UBI shareholders can also benefit from the payment of 2019 dividends, that it is absolutely my intention to propose for a payment. We will see the position of the ECB. We have a great respect of the ECB and SSM, and we absolutely need to have their approval. My intention, also looking to the capital position of the bank, the simulation of the impact, is that we can be in a position to pay this amount of money at the end of this emergency. Believe me, I have full respect for the core shareholders of UBI, and I will respect their decision if their position will remain negative towards the transaction.
Thank you very much. This is a very important point because, as a matter of fact, when I look at your pre-impairment profitability, it's so much higher than the rest of the sector, and particularly with respect to the domestic bank. Forgive me, but I just want to ask you an additional opinion. Leaving aside this situation of UBI, do you expect that we are going to see much more consolidation in Italy? Again, when I look at domestic banks, a higher cost of risk may make it quite easy for them to report losses in the current environment. Leaving aside this specific case, should we expect the Italian sector to consolidate more in this period or in the next few years?
Let me add that I'm convinced that UBI Banca is a good medium-sized bank with a good management. I have full respect of Victor Massiah and what they are doing in UBI. It is clear that if you have a situation in which you have a thunderstorm, probably you can be safe in a strong company, in a strong situation. It is true also for the other banks, medium-sized bank in Italy, because all the CEOs of the medium-sized banks in Italy, in my view, made a very good job because they succeeded in reducing non-performing loans. They increased the coverage ratio, especially other banks increased coverage ratio, made very good jobs in terms of business model.
At the end, dimension is dimensions, if you generate like us, more than EUR 4 billion in a normal situation, you can remain to generate more than EUR 3 billion after having posted EUR 1.5 billion of provisions. With the cost of credit, that for our standard is a very high cost of credit, 90 basis points. Other player in the market can have a difficult situation in their figures if the increase is so high. If you look at figures also from our other players in Italy that announced EUR 900 million of provision, there is a clear view on the big player in the country that the impact should be significant. If the impact is significant, the medium-sized bank can have an impact also then. I hope that they can remain in profitability, because at the end, stability of the system is also positive for Intesa Sanpaolo.
There could be some other consolidation move in the country possible, you have not to forget that there has been a lot of talking about consolidation, the reality is that if you have two CEOs, one will have to lose the place, the history of Italy, this didn't happen. That the reason why there was no merger between two medium-sized bank in Italy, because all the two CEOs want to remain CEOs of the company. At the end, this is a clear point of difficulty in making transaction. You have also to add another point. If you want consolidation, you need to create condition to reduce Non-performing Loans, the only point is to make capital increase. Do you think that the market would prefer to have a merger with a big player?
Also the other shareholders, because at the end, other shareholders will understand that any kind of transaction different of this will means to have a capital increase. To have a capital increase, it is not enough 20% of the capital. You need to have 100% of the capital. In my view, consolidation could be theoretical away, but it is difficult, especially in this environment in which you will need, by definition, a capital increase if you want to consolidate medium-sized bank.
This is extremely clear. Many thanks. Thank you.
Thank you to you, Alberto.
We will take our next question from Britta Schmidt from Autonomous Research.
Yeah. Hi there. I've got three questions, please. One, just returning to your comment on TLTRO III, where you said that it depends a little bit on the loan growth that you see also under the government guaranteed loan program. What is your expectation for loan growth under the program, for 2020? Given that the terms of the TLTRO III are quite attractive, would you not consider increasing your government bond portfolio, on that basis? The second question I have is on legacy NPLs. Have you seen any impact on your workout trajectory from the lockdowns that we've seen, and what should we expect here for 2020 and 2021? Lastly, can you give us a little bit of an insight in how fees and insurance income has behaved in April versus, let's say, January and February? Thank you.
Looking at fee and income, January and February has been the best months ever. We had two very strong months. You probably remember that my guidance has been at the end of the year that we can have an increase in net interest income due to the increase in loan book, and we delivered the increase in loan book and the increase in the commercial part of net interest income, but also that we expected an increase in fee and commission due to significant conversion. We had the conversion in the month of January and February, a negative month in March, but the combination has been, in any case, a positive on a quarterly basis. April is again a positive month. We think that the insurance product business could be the one that can bring us positive results in 2020, especially life insurance, apart from property and casualty.
That is a clear engine for growth. No doubt that this will be an engine for growth for Intesa Sanpaolo, but we think that we can have some positive on fee and commissions. The real point is that my expectation is that it is difficult to have performance fee, and it is difficult to have a fee coming from more or less EUR 20 billion of reduction that we have in terms of performance. The commissions is an area in which we are still making increase in terms of net inflows, but the amount of commissions coming from the reduction of stock is such that we will have an impact in terms of commissions on a yearly basis if the market will continue at this level.
If spread can trend down below 200 basis points, there could be probability that the stock performance in the market could be better, and then we can have again, some really positive on fee and commissions. At the same time, we think that we need another contributor that is corporate investment banking, because we have the positive contribution in terms of net interest income, but looking at commissions, the lack of deal creating a lack of commissions, but we are working also in this area. My expectation is that fees cannot be an engine for growth, can be an engine in terms of defense of results. That's our target today in terms of fee and commissions. Looking at NPL, the impact from lockdown is really limited on NPL, because in March, I have to tell you that at the end, the impact is really negligible.
My expectation is that with the combination of moratoria and the combination of the state guarantee, the only portion that will be affected could be hotel, tourism, transportation, something that in Italy is important, but it is at the end, less than 2% of our loan book. Also at European level, oil and gas, but again, in our book is zero point four. The total impact, excluding public guarantee and moratoria, in my view, is really limited. Looking at TLTRO, we will not use it for government bonds, for increasing the government bond portfolio. We think to have a dimension that is the right one. Our expectation is that we can have some reach in terms of composition, but the measure should more or less remain the same. The increase in TLTRO can be devoted only to increasing of loans, and especially the one relating with the state guarantee.
Thank you. We will take our next question from Antonio Falcone from Exane.
Good afternoon. Two small questions. The first one is on trading in the quarter. I was just wondering if there's any contribution in that very good figure from fair value of liabilities. If there is, if you can disclose how much. The second is on risk-weighted assets. Directionally, going forward 2021, 2020, later on in the year, do you believe that the impact of negative pro-cyclicality on your loan book, so PD and LGD worsening, will be bigger than the positive impact of the government-guaranteed loans, which are zero risk-weighted, or vice versa? Thank you.
On this point of risk-weighted assets, we think that it could be a compensation. Our negative pro-cyclicality will not be so significant because we have, through the cycle, PD. We will not very positive in case of positive dynamics, but not very negative in case of negative dynamics. My expectation is that we can have more or less a combination of the two, and so we should not have a significant inflation in terms of risk-weighted assets. We will monitor the situation, but my understanding today is that it is, in any case, likely that they can be compensated. Our expectation is that there not should be a significant negative impact coming from both of them. Looking at the trading income, there is a component coming from the fair value of liabilities.
On the total amount of trade of the profit, the profit is realized only coming on fair value, but we decided to take a very positive stance on this fair value on liabilities. The majority of the results is realized, like the one that is the result in April, in which this component of fair value is still there, and the evidence is our prudent stance, and we increased the realized proportion of the portfolio. We think that this result can be considered as a good contributor, a structural contributor to the results of the group.
Thank you.
Our next question comes from Ignacio Cerezo from UBS.
Yeah. Hi, good afternoon. Three questions from me. The first one is if you have a ballpark figure in terms of where the NPL ratio can go from the 7% you posted in Q1. The second one is whether you expect any fee contribution from increased lending under the guarantee. The third is curiosity of why you haven't changed your loan loss estimate on the UBI deal. You're still targeting the need for EUR 1.2 billion net of tax loan losses. Considering the change of environment, I was wondering why you haven't changed that number yet. Thank you.
Looking starting from NPL, we want to confirm our NPL plan. There should not be significant impact in terms of reduction. Our expectation is that we can go at 6% in 2021, and it can be close to 3% in terms of net non-performing loans. We are still making all the analysis because we know that it is not easy, and we think we made probably one of the best job in comparison with all the other European peers in making a clear disclosure and giving to the market possibility to make analysis with us on this point. We are still working on the assumption. We have to see reality of lockdown.
We have to see reality of impact of guarantee, because what can happen in Italy is that there is also a majority of owner of companies that has a lot of money, so probably they would not need to have state guarantee. We have to see the evolution. Our perception is that we can continue reduction in terms of stock of non-performing loans, in terms of reduction of non-performing loans ratio. On fee contribution from state guarantee, there could be, but it could be not so significant. Our expectation in terms of fee contribution, again, comes from a recovery in the second part of the year from wealth management. It's coming from, for sure, property and casualties business, and also from corporate investment banking business. From state guarantees, not so significant.
In terms of provision, we decided to start from the analysis that we made on the implication of the scenario on the different sectors and the implication of moratoria and guarantee, the implication of the quality of our stock, the amount of non-performing loans, the possible migration of different from performing into non-performing loans. We made a very significant analysis, especially in the chief lending office area and the chief risk office area. The results is the amount of extra provision needed. What we need is to have the final point in June from ECB, because you know that they will give a scenario. They asked not work from possibility. We asked to make a top-down approach, but to change with their scenario.
We decided to put EUR 300 million just to give the evidence that the portion is still there, and we are moving in the right direction. We decided to make an allocation with a clear Board of Director resolution, because today Board of Directors decided that the allocation of the Nexi capital gain could be devoted to provision if needed. If needed, it would be lower. Nexi can be used for other sustainable items or could be used for net income. That's the position of the bank. We think that this job is a clear job of best practice of transparency in terms of information with all our shareholders.
You know that when I decide to take a commitment, this is a clear priority for the organization. I wanted my investors to have a clear framework on what could be the evolution in this difficult context. On the other side, also for UBI investors, I think that it is very important to understand the future of Intesa Sanpaolo and what could be the implication of becoming investors of Intesa Sanpaolo in this very difficult and tough environment. I can confirm that also for these shareholders to become Intesa Sanpaolo shareholders could be a unique opportunity.
Thank you.
Thank you.
Our next question comes from Delphine Lee from JPMorgan.
Yes, thank you. Thanks for the presentation. I just have one question, actually. It regards capital. When I look at your slide 91, just wanted to understand a little bit, it looks like in your 14.5% CET1, you have this quarter a slightly bigger benefit from DTAs, and also a smaller impact from IFRS 9 transitional adjustments. Just wondering if you can explain a little bit the difference and the mechanics. Thank you very much.
On the analytics, I have to tell you that probably it is much better if you enter in touch with the Investor Relations people. I can tell you my view on what happened on the capital position of the bank this quarter, in which we had a negative component deriving from, as all the other European banks, coming from the COVID impact on the market dislocation. This had also implication on the DTAs, and I don't know if this is a component that can make an explanation to your request. On this point, Marco Delfrate and Andrea Tamagnini can give you all the figures that you need. My point is that for IFRS 9, we had a portion on the phase-in, because you remember that on the fully loaded, you had to consider the impact that you had not in the phase-in.
Due to the fact that you had another year, you had to reduce the impact on the fully loaded, adding the impact on the phase-in. On this point, as I told you, Marco and Andrea are at your complete disposal.
Okay, thank you.
Okay.
Our next question comes from Anna Benassi from Kepler Cheuvreux.
Hi, good afternoon. Several question already asked. I would like to come back to the offer on UBI Banca. I agree that your position looks stronger and stronger, and your commitment looks stronger and stronger, too. I'm trying to understand if the offer could be changed in any way, not in absolute terms, but maybe in the mix of instruments. I mean, like shares and introducing some cash. The other thing is that you write in the presentation that assuming 50% platform share ownership, you will be able to proceed with all the integration actions. The question is, then a large minority component in the bank cannot interfere with the given the overall action you can implement in the integration plan. The other point, you said also several times that your will is to pay the 2019 suspended dividends.
If we look to that, if we assume the full amount, then the UBI share is trading at 50% premium to the offer, which is, in fact, again, very strange. Excluding them is still a 5%. Can you clarify on the dividend side, if you will have to start from scratch? I mean, you don't start from the EUR 0.19. You can, in October, propose any type of amount? Just because I don't know what is possible or not, given the new ECB guidance. Finally, being asked about the contingency plan and cost, but I'm more curious to understand if the client experience in these two months on the online and going in the branch by appointment, that I think is really big piece of news, in Italy, can bring medium term, a sizable cost savings for different behaviors will imply obvious different organization.
Thank you.
On the last question, my understanding and my perception, subject to the analysis, is that we can have a sizable reduction in terms of cost, especially for the mass market. For this area, I think that at the end, there could be a lot of value in reinforcing the digital kind of relation with the clients, reducing the branches and the real estate embedded into the branches, and this means a clear reduction of cost. At the same time, as I told you, I think that we have to reinforce places, branches in which you can have meetings with people in order to manage their wealth and their insurance, especially for the health and the houses. My view is that we can have, really for the future, in the next plan, a strong reduction of cost in terms of business model.
Looking at UBI Banca, we will not change our offer. No possibility. Zero possibility. It's from the first day that I'm telling to the UBI shareholders that I'm fully convinced that this is the best option for them, and again, at the end, I'm the CEO of the Intesa Sanpaolo shareholders. I have to mix between the two situation. My expectation is that we will not change our offer. We will deliver 50% plus one share. We will realize the integration of the IT system that is fundamental in order to make the substantial merger for the company, because you can have a substantial and physical and legal entity merger. If you realize the IT integration, you can have the possibility to exploit the majority of the synergies.
At the same time, making the consolidation, you can use the badwill in order to increase coverage and make disposal of non-performing loans of UBI. You will have the impact on the consolidated, and you will have the impact on the individual. The UBI bank remaining will have all the increase in terms of provisions in order to make disposal of non-performing loans. The minority shareholders can interfere in the physical merger, but I have to tell you that I'm ready also to maintain the bank for the first period in order to make integrational system, making the right job in terms of appointment of the new head of regional division, give the power to the people, motivate the people, and then make evaluation of physical merger. As soon as you have the IT integration, you can have the majority of the synergies you can derive.
Using the badwill, you can have also the integration charges expensive, integration charges already embedded in the figures, and also the increase in coverage embedded in the figures. At the end, the majority of the actions will be absolutely available to Intesa Sanpaolo also with 500 plus one share. If minority shareholders want us to reinforce the linkage with the territories, with their presence as minority shareholders, renouncing and decide not to have the premium for the share. Renouncing to the premium, we will be happy to maintain them as minority shareholders. On the same time, on 2019 dividend, my intention is to pay dividend, but not because I'm crazy, but because I'm the value creator for my shareholders, adding a clear attitude to make efforts in order to reinforce the community and the country in which I'm operating.
I want to remember you that we were the only one to make such a donation in the country. We were the only company to give money to clients in the country. Also we have shareholders like foundation, like retail, that need to have dividends in order to make something positive for the country or in order to survive in the situation of difficulty in the country. It is also clear that I can understand the action of SSM, of ECB, and if they decide us not to pay dividend, we will not pay dividend by definition. My target is to try to pay all the 2019 dividends. My capital ratio also with the total payment of dividend will remain in excess with all the other European players.
As soon as I'm in a condition of cover the extra risk of COVID, I will try to pay dividend with full respect of SSM and ECB, it is clear that it is absolutely conditional to their position in the future. Okay.
This concludes today's.
Sorry?
Question and answer session.
Okay.
This concludes today's question and answer session, and I will now turn the conference over to Mr. Messina.
Again, thank you for being with me and with us today, and may you and your families stay healthy. Thank you very much.