Good afternoon, ladies and gentlemen, and welcome to the conference call of Intesa Sanpaolo for the presentation of the 2022 first quarter results, hosted today by Mr. Carlo Messina, Chief Executive Officer. My name is Marion. 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. At this time, I would like to hand the call over to Mr. Carlo Messina. Sir, you may begin.
Good morning, ladies and gentlemen, and welcome to today's conference call on our first quarter results. 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 want to start by thanking our shareholders, especially the foundations and our international investors, for supporting my reappointment as CEO for another term. I guarantee that I will work nonstop to lead ISP through the current challenging environment, and that we will emerge stronger than before, just as we did in all the previous crisis. This is the first quarterly call since the launch of our new business plan, and I'm proud to say that the plan is proceeding at full speed with our people working hard to deploy the key industrial initiatives, which are well underway.
The new plan moves us into the future and creates a bank for the next 10 years. Before diving into our Q1 results, I want to express my personal sadness for the devastation caused by the invasion of Ukraine, and I hope that we will soon see an end to the war. As a group, we immediately activated a crisis unit to oversee activities in Russia and decided to end all new financing and investments in Russia. These actions are in addition to the group's strict compliance with sanction regimes. We are very close to our colleagues at Pravex Bank in Ukraine. Most of them are still there, even if ISP has helped many of them move to other countries, including Italy. In a few minutes, I will give you more details about our actions to help our colleagues, the families, and other people affected by the war.
I would have been very happy to avoid another demonstration of ISP ability to overcome difficult global challenges, but here we are, and ISP is demonstrating once again that it's solid, resilient, and well equipped for future challenges. You can see the proof in our Q1 results. We delivered EUR 1 billion net income while provisioning EUR 800 million for the Russia-Ukraine exposure. Excluding these provisions, we would have delivered our best quarterly net income since 2008. In light of the Russia-Ukraine conflict, we revised the outlook for 2022 on a prudent and conservative basis. That's how we always manage ISP. This year, we will deliver more than EUR 4 billion net income, assuming no critical changes to commodity supplies. Even in a very conservative scenario of posting 40% coverage on Russia-Ukraine exposure, we will deliver well above EUR 3 billion net income.
We remain committed to our EUR 6.5 billion net income target in 2025, and the same goes with, for the buyback and for our 70% payout ratio for each year of the plan. Strong value creation and value distribution will continue to be our priority. Intesa Sanpaolo and its long-standing and cohesive management have always delivered on their commitments, and they will do so this year and in the coming years. Slide 1. In Q1, we delivered solid operating performance in a challenging environment, thanks to a well-diversified business model. We delivered net income of EUR 1.7 billion, the best quarter since 2008, when excluding provision for the Russia-Ukraine exposure. Operating income and operating margin strongly accelerated versus Q4. Net interest income grew over 1% on a quarterly basis when adjusting for the different number of days.
A second-best-ever Q1 for commission and insurance income. We delivered significant growth in revenues from financial market activities, which once again represented a natural edge to the impact of market volatility on our fee-based business. We confirmed our high strategic flexibility in reducing costs, down 3.2%. Massive deleveraging has allowed us to reach one of the lowest NPL stock ratios in Europe. Overall, the excellent performance in Q1 was fully in line with our EUR 5 billion 2022 net income target when excluding the provisioning on the Russia-Ukraine exposure. 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 moment. Let's now move to Slide 3.
In February, we presented our 2022-2025 business plan based on four pillars. One, massive upfront derisking, slashing cost of risk. Two, structural cost reduction enabled by technology. Three, growth in commissions driven by wealth management protection and advisory. Four, significant ESG commitment with a world-class position in social impact and strong focus on climate. The plan is proceeding at full speed with all our people working hard across all key industrial initiatives, which are well underway, as you can see in the next three slides that give you an overview of what we have done in only two months. For the sake of time, I'll give you some color on some of the most significant industrial initiatives underway, moving directly to Slide 7.
Looking at the first pillar of the plan, massive upfront derisking, we achieved almost EUR 5 billion gross NPL stock reduction in the first four months of the year. This is equivalent to the impact of dimension of volumes of Russia-Ukraine exposure. We reduced non-performing loans in four months for an amount equivalent to our exposure to Russia and Ukraine. We have delivered this result, and we have deleveraged for 26 quarters in a row for a total NPL reduction of almost EUR 55 billion since the peak of September 2015, and we reduced EUR 10 billion in one year time, in the last year. The NPL stock is now lower than EUR 6 billion, and the NPL ratio is at just 1%. Due to the fact that we have a very limited Level 2 and Level 3 asset, we can consider it.
We can be considered really one of the best bank of Europe. Slide 8. As a result of this impressive deleveraging, NPL stock and ratio are now among the best in Europe, and our underlying cost of risk is already in line with being a zero NPL bank. Practically speaking, we are similar to a Nordic bank. Slide 9. Moving to the second pillar of our business plan, structural cost reduction accelerated in this quarter, with operating costs down 3.2% on a yearly basis while investing for growth. Cost-income ratio improved further at 46.3%. Slide 10. The setup of isybank, our new digital bank, and the digitalization of the group are well underway. We created isytech, the new delivery unit for isybank development, with 190 dedicated specialists.
We hired the new head of isybank and the new head of sales and marketing digital retail, who are both already fully operational, and we are quickly developing the new isybank cloud-native technology platform in partnership with a leading fintech company. Slide 11. The new tech infrastructure will be progressively extended to the entire group, including our international network, and we are all working on that. Technology is becoming one of the strongest part of Intesa Sanpaolo. Slide 12. Looking at the third pillar, growth in commissions driven by wealth management protection and advisory, we can count on more than EUR 1.2 trillion in customer financial assets, growing almost EUR 50 billion on a yearly basis. Short-term direct deposits saw a EUR 28 billion increase on a yearly basis, which will fuel our wealth management engine in the coming years.
In Q1, we registered an increase of EUR 5 billion in retail short-term deposits. The decrease in assets under management and assets under administration in Q1 was entirely due to market performance. In fact, even in a challenging environment, we continue to have positive inflows. In Q1, we recorded EUR 3.8 billion positive net inflows into assets under management, and net inflows were positive by EUR 16 billion on a yearly basis. Slide 13. Several key initiatives to fuel our wealth management engine in the coming years are well underway. We fully implemented the new dedicated service model for exclusive clients with over 4,000 relationship managers deployed in almost 500 advisory centers. We strengthen our service model for ultra-high-net-worth clients, introducing new features for their advisory tools.
We leverage our own asset management and insurance product factories to enhance our commercial proposition with the development of multiple new products and continuous enhancement of the ESG offering. Slide 14. Looking at the ESG, our social commitment remains strong, and we are accelerating our support to address urgent needs, including mitigating the potential impact of the Russia-Ukraine crisis. In particular, we are signing new partnerships to double our intervention to support people in need, and we increased support for youth education, and the setup of our social housing projects for youth and seniors is underway. Slide 15. As a demonstration of our capacity to quickly respond to urgent social needs, we immediately implemented multiple projects to support the Ukrainian population and our Pravex Bank colleagues.
We donated EUR 10 million to support humanitarian initiatives in favor of the Ukrainian population, and almost 300 colleagues have been welcomed by the international subsidiary banks division outside Ukraine. We arranged to host, in apartments in Italy, more than 200 colleagues and their family members. Slide number 16. Last but not least, our people were our most important asset. We have planned significant investments in our people, and many initiatives are already well underway. In particular, we are proceeding at full speed with the renewal of our workforce, with 700 people hired since the beginning of 2021, and almost 400 people reskilled in this quarter alone. Slide number 17. In this slide, you can see a reminder of the four pillars driving our strategy to take the unique ISP model to the next level.
Our commitment to shareholders distinguish ISP, and we remain committed to our EUR 6.5 billion net income target in 2025. We can do this even in the current challenging environment for multiple reasons. Our target was not factoring in any potential upside from an interest rate increase, which is now much more likely to happen. We have a very high flexibility in reducing costs, as we continuously demonstrated in the past, and we have already achieved zero NPL bank status with a very low underlying cost of risk. Slide 19. On this slide, you can see the highlights of our strong performance. Let me give you some color on the following pages. Slide 20. In Q1, we delivered the highest quarterly net income since 2008. A net income of EUR 1.7 billion when excluding provisions and write-downs for the Russia-Ukraine exposure.
Slide number 21. Once again, despite the challenging environment, we delivered solid performance driven by high-quality earnings. Net interest income grew by 1.3% on a quarterly basis when adjusting for the different number of days in the two quarters. Commission grew by 1% on a yearly basis when excluding performance fees, and growth in insurance was solid, driven by the P&C business. Profits on trading was very solid and fully realized. Revenues grew by 8% and operating margin by almost 50% versus Q4. Let me highlight that in Q1, as usual, we manage revenues in an integrated manner. Operating costs continue to decrease, more than compensating the slight decline in revenues on a yearly basis. We have been very conservative in provisioning and booked more than EUR 800 million for the Russia-Ukraine exposure.
Net income was more than EUR 1.9 billion when excluding costs concerning the banking industry and the provision for the Russia-Ukraine exposure. Slide 22. In this slide, you can see that the net interest income was up over 1% on a quarterly basis when adjusting for the different number of days, also due to positive dynamics on spread. After many quarters, net interest income is also up on a yearly basis, thanks to the commercial component and aging, and despite the impact for the NPL stock reduction and from the strong increase in retail direct customer deposits, which impacts net interest income in the short- term but boost our wealth management engine in the coming quarters and years. Short-term retail deposit increased by almost EUR 15 billion on a yearly basis, of which EUR 5 billion in Q1.
Let me remind you that an interest rate increase is a strong upside for us because for every 50 basis points rate rise, net interest income can increase by more than EUR 900 million. Slide 23. We have continued to be very effective at managing costs with the best-in-class reduction in administrative expenses, down 6%. Depreciation is up as we keep investing for growth. Slide 24. We are proud to have one of the best cost-income ratios, and this slide illustrates our leading position in Europe. Slide 25. NPL inflows were very low, down more than 40% compared to the fourth quarter, with nearly all moratoria already expired and only EUR 600 million still outstanding. Our underlying cost of risk stood at 18 basis points, in line with our zero NPL bank status.
Loan loss provisions were down in Q1 compared to last year when excluding the additional EUR 800 million in provision for the Russia-Ukraine exposure. In Q1, we released EUR 300 million in generic provisions, a portion of the residual EUR 700 million conservatively booked in 2020 for COVID, which leaves us with EUR 400 million still available for the future. Russia. On this page, you can see an update on our exposure to Russia and Ukraine. As you can see, the exposure is limited. It represents just 1% of group customer loans. Furthermore, exposure is decreasing, and is already down by EUR 200 million since the beginning of the conflict, by EUR 1 billion when considering the provisions booked in Q1. Slide number 27. Apart from being limited and decreasing, let me recall some highlights on our Russia-Ukraine exposure. Only EUR 400 million in loans are currently under sanctions.
Over 2/3 of loans to Russian customers refer to top-notch industrial groups, featuring long-established commercial relationships with customers that are part of major international value chains, with a significant portion of their proceeds coming from commodity exports. Our footprint in Russia is small, with just 25 branches, and our lending to Russian clients is very limited, below 0.2% of our group customer loans. Nevertheless, we have been very conservative in provisioning, and in Q1, we allocated over EUR 800 million for the Russia-Ukraine exposure, with almost EUR 650 million on the cross-border exposure, which is entirely performing and classified in Stage 2. I repeat, we have stopped any new investments in financing Russia since the very beginning of the conflict. Slide number 28.
ISP's fully phased Common Equity Tier 1 ratio is 13.6%, not including 110 basis points of additional benefit from DTA that we will recover in any case. These are something like capital increase that we will have for sure in the next years. Without considering the impact from the buyback to be approved by the ECB. I will elaborate on this point, I think, during the question and answer session. In Q1, the Common Equity Tier 1 ratio was impacted by 10 basis points of regulatory headwinds out of a total of around 60 basis points expected in the business plan horizon, and by 20 basis points from Russia-Ukraine risk-weighted assets inflation. The impact from Russia-Ukraine risk-weighted asset inflation will be recovered if the crisis is positively resolved or if we move the exposure to Stage 3.
Slide number 29. Contributing 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 number 13, we are accelerating our strong ESG commitment with a world-class position in social impact, a strong focus on climate, and a leading position in the main sustainability indexes and rankings. You can go through the details in the next three slides, but for the sake of time, let's move to the final remarks. Slide 34. Before looking at the future, it is worth recalling that we are far better equipped than our peers to take the challenges ahead and to capture growth opportunities. We have a best-in-class risk profile, also including our exposure to Russia and Ukraine. We have one of the highest capital buffers, and we are one of the cost-income leaders in Europe.
Slide 35. The Italian economy remains resilient and is expected to continue growing at a sustained pace, thanks to positive fundamentals backed by strong government intervention and significant EU financial support. In particular, the wealth of Italian households stands at EUR 10 trillion, and the amount of debt held by Italian families remains very low. Both households and companies hold a high level of savings since the start of the pandemic. Italian SMEs quickly recovered after the COVID emergency, with historically low default rates maintained even after the end of moratoria. The banking system is far stronger than in the past and played an important role in mitigating the impact, the economic impact of the COVID emergency. Slide 36. Let me now recap the key points that demonstrate the sustainable strength of Intesa Sanpaolo.
Our resilient and profitable business model over-delivered even in Q1, with the best ever quarterly net income when excluding the provisions for the Russia-Ukraine exposure. Operating income and operating margin accelerated strongly versus the previous quarter. Costs were down sharply and cost income is best in class. Massive deleveraging continued, reaching around EUR 5 billion in the first four months of the new plan. NPL stock and ratio are at record lows, and ISP is now a zero NPL bank with very low underlying cost of risk. We maintain a very solid capital position with low leverage. We already allocated over EUR 800 million for the Russia-Ukraine exposure, and we still hold EUR 400 million in generic provision related to COVID. Slide number 37.
In conclusion, in February, I outlined a strategy to take the unique ISP model to the next level and create a bank for the next 10 years. At the core of this strategy is value creation and distribution, guided by a strong sense of purpose to benefit all our stakeholders and society more broadly. Taking into account the input from the Russia-Ukraine conflict for 2022, we will continue to deliver best-in-class profitability with more than EUR 4 billion net income, assuming that there will be no critical changes to commodities and energy supplies. Well above EUR 3 billion net income, even with a very conservative assumption of posting 40% coverage on all Russia-Ukraine exposure.
We remain committed to our EUR 6.5 billion net income target in 2025, and to a 70% dividend payout in each year of the plan, and an additional EUR 3.4 billion capital return through buyback, with additional distribution to be evaluated year- by- year, starting for 2023. As proven in the past, Intesa Sanpaolo is an unstoppable delivery machine, and we will over-deliver once again on our promises, even in a challenging environment. This thanks to all our people and to a strong, long-standing, and cohesive management team. Thank you for your time and attention, and now I'm happy to answer your questions.
Ladies and gentlemen, if you wish to ask a question at this time, please signal by pressing star one on your telephone keypad. Please ensure the mute function on your telephone is switched off to allow your signal to reach our equipment. Again, please press star one to ask a question. We will now take our first question from Antonio Reale of Morgan Stanley. Please go ahead.
Hi, good afternoon, everyone. It's Antonio from Morgan Stanley. Three questions, please. My first one is on the share buyback approval. If I'm not mistaken, the ECB process should be up to 90 days, and I assume you must have submitted your request immediately after the presentation of your business plan on February the 4th, which means we should be really a few days away from the deadline. I'm wondering what's going on. Last time we spoke, I think it was mid-March, you were confident buybacks will go ahead. My question is, has anything changed? Do you foresee any issues with the buyback approval? That's my first question. My second question is on costs and IT investments for which you seem to retain some flexibility, and we've seen it this quarter.
I realize that some of the IT investments, and you've talked about it, are to position the business for the medium run. I wonder to what extent does the visibility of returns on such investments change enough for a bank like yours to reconsider, resize, or delay some of these investments? I think you had something like EUR 5 billion of IT investments over the plan horizon. Can you remind us the phase-in of these investments, and how much flexibility would you have eventually? My last question is on your Slide 37 on the outlook.
Could you please talk a bit more about the assumptions and the delta between the different levels of profitability for 2022, particularly the driving assumptions in each of the scenario, and what do we need to see for you to bridge the gap between the well above EUR 3 billion and above EUR 4 billion net profit? Thank you.
Thank you very much. After my answer to your question, I think that we can stop the question and answer session, because I think that these are really the most important part of what I can elaborate. Starting from share buyback, we submitted to the ECB the proposal for the approval in the 1st of April of this year. It was not the day after the presentation of the business plan, but was the 1st of April. We need to have 90 days to receive the ECB approval, so within 90 days. We are waiting for an approval that we should receive within June. That's the timing for the share buyback.
I have to tell you that that considering the very low risk profile of the group, I think that we are in a very good position to be considered in any case one of the best player in Europe. Because after the completion of the disposal of EUR 4 billion non-performing loans, and as I told in my previous point on the presentation, we reduced by EUR 5 billion in four months the stock of non-performing loans. Today we have a stock of non-performing loans that is comparable to the real best-in-class in Europe.
Due to the fact that we have zero Level 2, zero Level 3. We are a really risk-averse company, so we can confirm that 12% fully phased-in capital ratio is well exceeding our need of capital considering the risk profile of the group. My expectation is that in the next months, we should receive an approval. As soon as we receive the approval, we will start with the share buyback. In any case, we have to wait until the ECB approval. That's the real position on share buyback. Looking at costs and IT, it is true we have a significant number of investments to be realized during the next business plan.
The run rate of this capital budget could be in the range of EUR 1 billion and half per year relating to the IT investments. We do not need for the time being to make any kind of postponement or delay of investments. We have a number of other significant contingency plan on the cost base, so we can continue to reduce the cost base without touching in any case what we consider strategic for the future of the group.
Because as I told during the presentation, the technological improvement of Intesa Sanpaolo in the setup of isybank, and believe me, we are really creating something special in this world with Thought Machine, is fundamental also to upgrade the technology of the IT system of Intesa Sanpaolo, and this will happen in 2023. I don't want to stop this area because this is fundamental to realize an industrial upgrading of Intesa Sanpaolo moving into a fintech company and transforming Intesa Sanpaolo from an incumbent into a challenger. That's my industrial focus. That remain my industrial focus. Just to complete and moving into the outlook, I want to tell you that the Russia-Ukraine situation is really dramatic. It is a humanitarian tragedy. It is something unbelievable.
My job as CEO is to move into the industrial action to find solution and to deliver business plan, and it is what we are doing in the bank. Only 200 people are working on Russia-Ukraine situation in my organization. The other 90,000 people are working hard in order to deliver the business plan, and that's what I consider really fundamental for the bank. We have an exposure of gross pre-provision lower than EUR 5 billion. This is a credit exposure for me. That's my job as CEO. I'm dealing with credit exposure. We reduced EUR 50 billion of non-performing loans in the last year. We reduced EUR 5 billion of non-performing loans in four months. We are now moving into managing EUR 4 billion with some reputational implication.
That's something that we have to consider, some compliance, so we have to move according to sanctions. My job is to recover money, and that's what I'm doing. Coming back on the outlook, the outlook is that starting from an outlook confirmed of EUR 5 billion, more than EUR 5 billion, because we exceeded our expectation in terms of net income in comparison with the original budget, delivering EUR 1.7 billion of net income. The run rate of the group is well above EUR 5 billion in terms of net income pre-Russia situation. Now we have a clear provisioning that we made in the first quarter, so you have to move EUR 5 billion minus the amount of net income that is related to the implication of Russia.
We can consider some minor provisions if the trend could be more or less stable, continuing what's happened in this months. Due to the fact that we decided not to have, in our forecast, any benefits from EURIBOR increase that can for sure happen in the second part of 2022, we can have some minor slowdown in terms of performance fee, commissions performance fee. That's what we have elaborated to create a EUR 4 billion, above EUR 4 billion outlook. That could be EUR 4.2 billion, EUR 4.4 billion, EUR 4.5 billion, we will see. That's implication.
The cost of risk embedded in this outlook is for the run rate excluding Russia and Ukraine, and considering that now we have zero non-performing loans, and all the non-performing loans has been provisioned in 2020 and 2022 in a significant way, we will have very limited cost of risk related on the stock. We will remain with the cost of risk embedded with the new inflows, but not exceeding 25 basis points. That's the reality for Intesa Sanpaolo. The real economy in the country is not so bad because there will be impact on poverty, on inequality, and that's for sure.
The majority of the Italian companies are with a strong liquidity cash flow position, and I'm not worried at all for a possible significant deterioration of real economy environment in my country. Moving to the second part of the outlook, the more conservative one, I want just to tell you that our exposure to cross-border in Russia, you know that on local presence we have negligible figures, and we are considering in a different way to other peers, the total amount of loans in the country, and not only the amount of equity that for us, again, is absolutely negligible when considering the exposure to the country, and the total amount of loans in Russia local presence is EUR 600 million. On the other side, we have a cross-border exposure that is EUR 3.8.
This three cross-border exposure, if you consider the amount of provision already done, it is EUR 650 million, it is net EUR 3.2 billion. EUR 3.2 billion, and out of this exposure, more than 80% of this exposure is related to the Number 1 company in gas, the Number 1 company in palladium and nickel. All the strategic needs that Europe continue to have and will continue to have. Our expectation is that moving into a 40% coverage on all these cross-border exposures means to be in a real worst case scenario, because it is unbelievable that Europe can avoid to receive gas, palladium and nickel from the most important player in Russia.
That's the evidence that they will continue to give us, and they will receive cash flow. In any case, these companies will have a lot of value, intrinsic value, because we remain the provider of gas, palladium and nickel for all the world. Not Europe, will be India, will be China. Expiring in 2027, our loans. Believe me, we have been really conservative in all our figures. Because we do not want to sell smoke to our investors, to our shareholders. We want to remain on the conservative side in all our analysis. I think that the position of Intesa Sanpaolo is that we will be ready to make the share buyback as soon as we receive the authorization of the ECB. We will pay 70% dividends on a significant net income.
As I told you, our exposure in Russia, it is not an exposure that can be considered a significant risk exposure apart from the decision not to receive more gas, palladium and nickel in the next two years from Russia. That's the fundamental of the group is moving in terms of cost of risk at a run rate of 25 basis points, because we have between EUR 5 billion and EUR 6 billion net non-performing loans, so theoretically and practically zero this impact. What I can tell you, these are the outlook that I consider really conservative, and we can do much better than our outlook in the next months.
Very clear. Thank you very much.
We can now take our next question from Andrea Filtri of Mediobanca. Please go ahead.
Thank you. One question on fees and one on capital and shareholder remuneration. On fees, why the relatively light fees in the quarter? What drives the growth in the other net fee and commissions income line in the quarter and year-on-year? On capital, do you think that the current uncertainty is commanding a CET1 above the 12% target of the plan on a temporary basis? Are you considering to potentially postpone the share buyback until you have more macro and geopolitical visibility? Will you pay dividends on reported profits or excluding the impact on Russia and Ukraine? Thank you.
Andrea, we will pay dividend on the net income of the group, the stated net income. Looking at capital, I do not see any kind of reason to change our perspective. As I told in my previous answer, I consider the exposure to Russia as an amount of performing loans that can become Stage 3 loans and believing only for a marginal part. Because the majority of this exposure is much better than a significant part of loans being placed in most of the European banks. Having in mind this is an amount of NPLs. Our non-performing loans is at the level.
If we used to be at 13% fully loaded, so 12% fully phased in an environment in which we add EUR 60 billion of non-performing loans, believe me, I can stay at 12% with EUR 6 billion of net non-performing loans. I do not see any kind of reason. From a managerial point of view, to maintain extra buffers in excess of this 12%. The excess capital is also to be considered as the elements that you can use in a situation like this. You.
If we used to have 14%, now we have 13.6%, and remaining with, do not forget, with more than 100 basis points in DTAs, and we are a unique case of DTAs due to the different merging process that we made in integration of Italian banks, we remain with a significant buffer in terms of capital position. No need to change the position of the capital target from a managerial point of view. If from a regulatory point of view, there will be something that will be applied on all the banking system, we will respect the indication of the supervisor. In terms of fees, sorry, Andrea, but if you can repeat your question because the line was not so good, and I didn't understand where.
I didn't understand very well your point.
Yeah, thank you. Just if you're seeing any specific slowdown, given the tailwinds from last year, I was expecting even stronger fees. I wanted to ask you the detail of what is driving the material growth in other net fees and commissions income. That's the line that you give in terms of breakdown on a quarter-on-quarter and year-on-year basis, because that is the part that is growing the most within the fee income line.
This point, are you meaning from EUR 58 million- EUR 73 million? This is the line that you are considering?
I am looking at.
Between 239.
Slide 77, and I'm talking about the line, EUR 263 million in the quarter, from Slide 77.
More from 2040. Let me. On this point, I have not with me the specific figures, but Marco Delfrate, Andrea Tamagnini will give you all the details on this point. Let me give you some point on this element of fees and commissions, because it is clear that we are a wealth management company. If in a wealth management company, you have no performance fee, and you compare the situation of the fees with the quarters in which you had the performance fee, you can see a slowdown or a reduction of fee and commission production.
If you look at the same quarter, so the first quarter of last year, in terms of generation of fee and income from wealth management, we are increasing the dimension of the fee and commissions. There is also another point that I want to stress, for you and for all the analysts that are with me in this call, is that we decided to place, during the first quarter, products that are more related to liquidity and protection. Because we started the beginning of the year with some uncertainty on the appointment of Mattarella, Draghi. You remember the first months of 2022.
We decided to maintain for our client an approach that could have been conservative in order to allow them to move in something more positive, having a clear view on what could have been the structural condition of the country with Draghi remaining the head of government. I have to tell you that at the end also, we decided to continue also during the period of the war, starting from the end of February. Also during March, we continued to the placement of product with very low commissions in order to maintain protected our clients. At the same time, in our budget, I thought to rely also on performance fees.
That was the original forecast in the budget. During this quarter, we decided to maintain an approach conservative in order to allow our clients to make decision not under uncertainty. In April, we continued to have positive net inflows. We continue to have an approach that is conservative towards our clients. I have to tell you that what I consider important is to maintain the pool of wealth of our clients with us. This wealth continue to increase, and so we are ready in case of a stabilization of condition and a change of uncertainty to move into something that can be more positive for the clients and also for the bank.
Not forgetting that maintaining retail deposits in an environment in which there will be for sure an increase in interest rate, will not prove to be negative for the bank, and you will see in the next months and probably in the last six months of 2022. For the other points, Marco and Andrea will give you all the details.
Thank you very much.
We can now take our next question from Britta Schmidt of Autonomous Research. Please go ahead.
Hi there. Thanks for taking my questions. Could you perhaps provide us with a little bit more color on the how you arrived at the amount of provisions that you booked for the Russia and Ukraine exposures, and also whether you are looking at any exit strategies from this book, how difficult is it to deliver it? And does the level of provisioning or exposure has anything to do with any ECB approval of a buyback? And the second question will be on the provisions ex Russia, which are running at 18 basis points, which is far below your initial guidance. What IFRS 9 scenario, macro scenario update impact do you expect for the rest of the year? And is there any sort of leeway to end the year a little bit better than the initial 40 basis points guidance?
Thank you.
Sorry, I lost the second part of your question. Could you repeat please? Because the line is not good.
Sure. It was around the provisions ex Russia, which are currently running at only 18 basis points. What do you expect here for the full year? Also specifically, what do you expect for the IFRS 9 macro scenario update throughout the year?
Yes, okay. Thank you. Looking at the Russia, Ukraine and the provisioning, there's nothing related to the share buyback. We decided to do this because we consider this as country risk. That was the analysis that we decided to do, because if we go line by line, and especially on the cross-border client by clients, the quality of this client, the generation of cash flow, and the fact that they are performing, and the expiring date is in some years time, we probably could also have considered not to make provision. We decided to move into a country risk approach, so moving into loss given default, probability of default, and so related to the situation.
We decide to make a theoretical analysis. Now we are in a position to understand what will happen in the sanctions framework, because this will be very important to understand the next steps. We will enter into a case-by-case approach. The fact that, as I told you, the majority of our exposures in cross-border is mainly related to gas, palladium and nickel, can leave us in a position of considering a very limited need to increase provision, or in case of significant disruption or acceleration of the sanctions framework to move into a 40% coverage ratio, moving a portion of these clients into Stage 3.
Looking at the local presence, I don't know if I have to move into an approach like other peers. I have only to consider the equity that for us is really limited and with significant devaluation that we made in this quarter. If you move looking at loan to customer, we have EUR 600 million and EUR 150 million in Ukraine, and we decided to post EUR 150 million of provision related to country risk exposure. Then we will see what can happen. The real target is, as I told you, to manage these loans as all the loans that we have in our portfolio.
Especially in Stage 2, when we put a credit in Stage 2, we try to accelerate for more recovery of smart solution in order to reduce. There is a clear limitation in terms of counterparties with whom it is possible to work, because the majority of this counterparty could be under sanction. We are working and the expectation is that this amount can be reduced in the next quarters.
Maintaining this approach of significant looking in, not in a negative way to this exposure, because I think that at the end we are used to manage significant exposure, and this is, in my view, not so significant, especially for the quality of the names that we have, and especially related to the fact that Europe needs to have gas, palladium, and nickel. That's my point on this exposure.
Coming back on the cost of risk, excluding the Russia exposure, the underlying cost of risk, maintaining this trend of real economy dynamics, and also moving until a possible reduction in terms of the speed of GDP in the country, but remaining with a positive GDP in the range of 1.5%-2% GDP positive. I can tell you that our expectation is that we can have a cost of risk that could be only related to the inflows, and this can be part of 20-25 basis points. That's our expectation on the basis of our information as of today.
That's the reason why I'm really confident on the possibility, in case of need, to make provisions in case of reclassification to Stage 3 of a portion of our cross-border exposure to have significant room to maintain significant profitability. The expectation of the group is looking at the quantity of corporate deposit that we have, the dynamic of the corporate deposit, the money that a significant part of the owners of SMEs companies has with our banks, that the situation in the country, apart from, as I told, the need to be ready to work on poverty and inequality affecting a portion of Italian families, like in all the countries in Europe and the USA, because the working poor are affected by inflation.
The majority of the corporates can reduce cash flow, can reduce profit, but they will remain with positive cash flow and with a significant amount of deposit placed with the banking sector. My expectation is that we can remain in a safe position, looking also the embedded cost of risk that we have in our country.
We can now take our next question from Delphine Lee of JP Morgan. Please go ahead.
Good afternoon. Thank you for taking my questions. I just have three quick ones. Just first one to come back on the share buyback. Just wondering if you could explain why you waited until April to ask for the approval. Is that just because of the uncertainty of what was going on with Ukraine and Russia? Can you just confirm that you don't need to see a decline in the Russian exposures or clarity on the Russia losses to get the approval for the buyback? Secondly, could you just to come back on the interest rate sensitivity, just provide a bit more, you know, color on what happens once, you know, the ECB deposit rate goes above 50 basis points? Does the sensitivity materially declines?
Also, if you could provide also the sensitivity for your capital, what happens on the OCI side with rates. Then just lastly, do you have any kind of sensitivity on provisions, on cost of risk to different GDP assumptions, that you could just you know provide? Thank you very much.
Sensitivity on GDP, I have to tell you that the only moment in which we can be affected by a spike in the cost of risk will be a recession. If we enter into something that is unbelievable for the time being, we can have a spike in terms of cost of risk. The cost of risk, apart from Russia, can have a spike and can move above 40-50 basis points. This can happen only in case of recession in the country.
Coming back on the share buyback, we decided to submit, on April, the share buyback request because we made a number of analysis for the board of directors of the bank related to the impact of the Russia and Ukraine exposure. Demonstrating that the situation of the bank was absolutely in line with the expectation that the only point for us could have been a reduction in terms of net income generation, only in the case of a significant reduction in net income generation. Moving from above EUR 5 billion to above EUR 3 billion, only if there could have been a stop to the gas, palladium, and nickel to Europe, that is something that I consider absolutely not likely. We decided to present the approval.
We do not need to make any kind of reduction of exposure to receive the approval from the ECB. If you consider also the reclassification that will not happen, but of EUR 5 billion in Stage 3, we will move to the situation of the end of 2021 for Intesa Sanpaolo. Before reducing by EUR 5 billion the non-performing loans in the last four months. This is reality for Intesa Sanpaolo. Now if you consider this, we will have the same non-performing loans ratio as the best player in Europe, but without having the Level 2 and Level 3 exposure. We remain, in any case, one of the best bank and very low risk profile in Europe.
Looking at your second question, we will not have any kind of impact to our reserve when ECB will increase the interest rate because there is a hedging on this portion, and so we will not have any kind of impact on the capital position. We can confirm that the sensitivity is EUR 900 million for an increase of 50 basis points. The reality is that the position of the group is that for an increase of 100 basis points, we will have an increase in terms of net interest income between EUR 1.7 billion and EUR 1.8 billion.
It's an amount that looking at the acceleration in terms of increase in EURIBOR that we are seeing from forward expectation, I think that will happen sooner than our expectation.
When rates, ECB deposit rates goes above, you know, 50, 100 basis points, does that sensitivity start to decline materially?
Are you meaning an EVE problem? Do you think that this could be an EVE problem? I don't know if we will have to check because we will have to make the calculation in the new situation, looking at the reaction of the different clients. If you look at the past, looking at the situation of some years ago in which we used to have interest rate well above 1% in terms of ECB interest rate, the sensitivity more or less was the same level. But on this point, I cannot be so sure. We need to wait until the first spike in terms of interest rate, and then we will be more precise on this point.
Thank you so much. Thanks a lot.
We can now take our next question from Andrea Vercellone from Exane BNP Paribas . Please go ahead.
Good afternoon. I just have one question left. It's on Russia. Can you make any comment on your off-balance sheet exposure? Do you see any risk associated to that exposure, or you have MAC clauses that would prevent those credit lines to be drawn anyway? Just to give us a bit of visibility on that point as well. Thank you.
Zero risk.
Okay. Thank you.
Thank you to you.
We can now take our next question from Alberto Cordara of Bank of America. Please go ahead.
Hi, good afternoon. Just a clarification. When in the outlook you are talking about EUR 4 billion of earnings or EUR 3 billion in the extreme case, you write off 40%, do you include any assumption on rate or not? So just to be absolutely clear. Also, another couple of questions on capital. I don't know if you answered to this question, but if you can provide us the sensitivity of capital to a change in the BTP to Bund spread. Also what capital benefit should we expect from the long-term incentive plan? Thank you.
Yes, Alberto. The sensitivity on capital is for each 100 basis points increase, 25 basis points sensitivity. That's a sensitivity on the BTP Bund spread. The second question on capital was?
The share to.
Yes. LECOIP should be between 25 and 30 basis points. That should be the increase that we can have due to LECOIP. Looking at the outlook that is above EUR 4 billion and well above EUR 3 billion, so it is not 4 or 3, it's above 4 and well above 3 billion, there is no contribution from rates. Zero contribution from rates.
Okay, very clear. Thank you very much.
Thanks, Alberto.
We can now take our next question from Giovanni Razzoli of Deutsche Bank. Please go ahead.
Good afternoon. Two quick questions on my side. I was wondering whether you may consider an additional utilization of the residual amount of provisions overlays in the next few quarters. The second question relates to the interim dividend. Can we assume that if the situation does not deteriorate in the next few months, so there is no ban to the energy supply, the core revenue generation of the bank remains stronger than the first quarter? Would you be in favor, as a CEO, to propose to the board the payment of an interim out of the 2020 earnings? Thank you.
Yes, I will propose an interim dividend. Looking at the overlays in the figures that we have considered to the market, there is no usage of the overlays. In the outlook, zero usage of overlays.
In the next few quarters, right.
We can now take our next question from Benjie Creelan-Sandford of Jefferies. Please go ahead.
Yes. Good afternoon. Thank you for taking the question. Just a quick follow-up on the net interest income outlook. In terms of the guidance this year, you're not embedding anything for a higher rate. Just wondering whether that's a conservative approach in terms of the guidance or whether you think just because of the lag effect in terms of how the rate increase feeds through, that there will be no material benefit to net interest income this year. Maybe just give a bit more color about in terms of that sensitivity, the EUR 900 million, the timing of how that feeds through.
Just around that EUR 900 million sensitivity on the 50 basis point move, I mean, that looks to have come down versus last quarter, which was lower than the guidance in terms of sensitivity at 3Q as well. I was just wondering whether there's anything particularly behind that. Are you changing something in your positioning of the balance sheet, which is reducing that sensitivity? Or is it just you know, sort of refining the model of the outlook? Any color there would be useful. Thank you.
It used to be EUR 1 billion, now is more than EUR 900 million. There could be a limited component of the medium-term sensitivity related to the fact that we can have a positive on the hedging side. You can see a portion of improvements on the hedging side, and we will have also a positive forecast on the hedging side that will be added to the sensitivity that you are considering of EUR 900 million. Because if you look at the hedging, you see a positive of EUR 33 million. On an annual basis, our expectation is that figures can be increased quarter- by- quarter.
If you add this with EUR 900 million, you can come back at EUR 1 billion sensitivity. The hedging facility is more related to the medium-term interest rate than on the short-term interest rate.
Looking at the outlook, not considering the positive coming from the EURIBOR on the short- term, our expectation is that we can remain on a flattish net interest rate, probably with some probability to have an increase of net interest rate due to different dynamics, because we will remain with a negative coming from TLTRO, a positive coming from volume, a positive coming from medium-term spread on liability sides, a positive on the hedging facility, a positive coming from the financial portfolio, and the negative coming from the reduction of non-performing loans. This is all not considering the EURIBOR increase. If EURIBOR will increase in the second part of the year, we can have a clear increase in interest rate.
That could be the starting part of what we can have in a significant way starting from 2023.
Great. Thank you very much.
Thank you.
As a reminder, it is star one if you do wish to ask a question. We can now take our next question from Andrea Lisi of Equita. Please go ahead.
Hi, good afternoon. Just two quick question. The first one is on the govies portfolio. Given the movement in interest rates and in the spread, are you considering to increase the size of your portfolio? The second one is, if you can provide some color on the trading revenues in the quarter, which were really robust, and if you can provide some indication of a sustainable level for them. Thank you.
Thank you very much. This is a good question because trading is being considered as very low quality income for this quarter. I can confirm you that all is realized, but also we are continuing to deliver very good performance because there is an industrial machine that is set in Banca IMI that is devoted to realize this trading income, especially when during the commission side, we are not working for, and we cannot receive performance fee on the commission side. Trading is and will remain a significant contributor to our figures, not at the same level of the first quarter, but we expect also a good second quarter and a good contribution for the full years coming from these figures.
In terms of dimension, the expectation is that difficult to increase the amount of Italian government bonds. We have the possibility, as you know, to move into 50% of the total portfolio being of Italian government bond. Today, we are below 40%, but our expectation is to remain more or less this level in terms of percentage. In Banca IMI, they will move according to the need to realize revenues, considering the combination of net interest income and trading. But marginal movements in our expectation for the time being.
Thank you.
This does conclude the Q&A session. I would now like to hand the call back to Mr. Messina for additional or closing remarks.
Yes, sorry. A clarification of Andrea Filtri question was the amount of commission was due to corporate loans. They are classified in the other commissions, the commission related to corporate loans. In conclusion, I want to reaffirm my position that I'm managing this organization for the next 10 years' time, transforming the bank into a leader in technology. I'm devoted to realize the industrial plan, and the 90,000 people of Intesa Sanpaolo are devoted to realize this. We are very sad for the tragedy of the war. From a managerial point of view, the impact of this crisis is something related to loans, exposure to loans.
We reduced, in the last years, EUR 50 billion of loans, in just, in the last four months, EUR 4 billion of loans. Believe me, we will be able to manage this situation, and we will exit as usual, stronger and stronger from this situation, generating net income and a lot of dividends and share buybacks for our shareholders. Thank you.
This concludes today's call. Thank you for your participation. You may now disconnect.