Good day, ladies and gentlemen, and welcome to the conference call of Intesa Sanpaolo for the presentation of the 2022 half yearly results, hosted today by Mr. Carlo Messina, Chief Executive Officer. My name is Nadia, and I will be your coordinator for today's conference. At the end of the presentation, there will be the question- and- answer session. To enter the queue for the questions, please press star one one at any time. I remind you that today's conference is being recorded. At this time, I would like to hand the conference over to Mr. Carlo Messina. Sir, you may begin.
Thank you. Welcome to our first half 2022 results conference call. This is Carlo Messina, Chief Executive Officer, and I'm here with Stefano Del Punta, CFO, and Marco Delfrate and Andrea Tamagnini, Investor Relations Officers. Today, I'm going to walk you through an excellent set of results for Q2 and the first half. First, let me say a few words on the overall situation we are passing through. Even if there are some elements of possible concern, like growing inflation, prosecution of Russia-Ukraine conflict, and unstable political situation, I remain positive, and my confidence is based on facts. First of all, the Italian economy is now much stronger than it was during the previous crisis, thanks to solid fundamentals.
Despite the level of government debt, which is high but sustainable, as in many other countries, Italian household wealth is one of the highest in Europe, coupled with one of the lowest debt levels. Italian corporates have stronger financials than in the past, with much lower leverage. The banking system is far more solid and better capitalized than during the previous crisis. Secondly, and even more important, our bank is now much better equipped to face challenging environments for multiple reasons. A best-in-class risk profile with NPL stock that is a fraction of the past. A far stronger capital position and top-notch cost income. In any case, we are aware that a strong rise in inflation is driving inequality in Italy, so that's the most important part of the negative consequences of the situation. In Intesa Sanpaolo, we are active with many solidarity initiatives.
To support our own people, so Intesa Sanpaolo people, we decided to provide a one-off contribution of EUR 50 million to mitigate the impact of inflation, so it's equivalent to EUR 500 each including, excluding managers or managers equivalents. Turning to our business. In the first half, we worked along two dimension. First, delivering excellent economic performance in the short term. Second, building a strong bank for the future by continuing to execute our business plan, which is well underway. In the first half, we delivered EUR 2.4 billion euro net income while provisioning EUR 1.1 billion for Russia-Ukraine. Excluding these provisions, we would have delivered our best first half since 2008. We confirm that this year we will deliver more than EUR 4 billion net income, assuming no critical changes to commodity supplies.
Even in a conservative scenario of posting 40% coverage of the entire Russia-Ukraine exposure, we will deliver net income well above EUR 3 billion. Regarding our business plan, I want to remind you that it is a real industrial plan that creates the bank for the next 10 years. All the key industrial initiatives are well underway, and I'm proud of the progress that our people are working so hard to deliver. In particular, our technology evolution is moving quickly with significant investments. The rollout of our new digital bank, Isybank, is well underway, including the appointment of key management and the set up of the tech delivery unit with 230 specialists that we hired in the market. Over the past two business plans, we have been a resilient delivery machine, fully equipped to face the most difficult global challenges with confidence.
Now we are improving also the technological area of our group. We are among the best banks in Europe for NPL stock and ratios, and we are very efficient. Our underlying cost of risk reflects our status as a zero NPL bank, and our Common Equity Tier 1 ratio is solid. Now let me provide the highlights of our results. Let's move to slide one. In the first semester, we delivered excellent operating performance, thanks to a well-diversified and resilient business model. We delivered net income of EUR 3.3 billion when excluding provisions for Russia and Ukraine. We achieved the best ever half year and second quarter for operating income and operating margin. Net interest income strongly accelerated on a quarterly basis. The second quarter was the best quarter ever for insurance income. We confirmed our high strategic flexibility in reducing costs.
Massive deleveraging has allowed us to reach one of the lowest NPL stock and ratios in Europe. ISP zero NPL bank status is driving a very low underlying cost of risk. Slide number three. Overall, we are fully in line with our EUR 5 billion 2022 business plan net income target when excluding provisions for Russia and Ukraine. Slide number four. Despite the challenging environment, we delivered high-quality results with the best ever half year for revenues and operating margin. Net interest income grew by 2.5%. Commissions were very resilient, and the decline is almost entirely due to performances. Profits on trading were very solid. Revenues grew by 1% and operating margin by 4%. Operating costs decreased by 2.5%.
We are being conservative in provisioning, and net income was almost EUR 3.6 billion when excluding costs concerning the banking industry and provisions for Russia and Ukraine. Slide number five. Q2 performance was excellent, with the best ever second quarter for revenues and operating margin. On a quarterly basis, net interest income strongly accelerated up 7%, more than compensating for the slight decline in commissions. Insurance income was the best quarter ever, up 16%. The total contribution from commissions and insurance income was up 1%. In a very difficult environment, demonstrating the resilience of our wealth management protection and advisory model. Net income was EUR 1.6 billion, when excluding EUR 300 million Russia-Ukraine provisions. Slide number six.
In this slide, you can see that net interest income accelerated on a quarterly and yearly basis, despite the impact from NPL stock reduction and from the strong increase in retained deposits, which is a valuable asset in the new interest rate scenario, and remains fuel for our wealth management engine. Let me remind you that the interest rate increase is a strong upside for us, because for a 50 basis points rate rise, net interest income can increase by EUR 900 million. Slide number seven. Customer financial assets were EUR 1.2 trillion. Short-term direct deposits increased EUR 16 billion on a yearly basis. Net asset under management inflows were EUR 11 billion on a yearly basis. The decrease in asset under management and asset under administration was due to negative market performance.
In the first semester, Valore Insieme, our advanced advisory service for affluent and exclusive clients, had EUR 8 billion in customer financial assets inflow. Slide number eight. We continue to be very effective at managing costs, down 2.5%, and depreciation is up as we keep investing for growth. Slide number nine. We are proud to have one of the best cost-income ratios, and this slide illustrates our leading position in Europe. Slide number 10. Thanks to the massive deleveraging, NPL ratios were the lowest ever. Our underlying cost risk stood at 27 basis points. Loan loss provisions were down compared to last year when excluding Russia- Ukraine. Let me remind you that we have EUR 400 million in generic provisions conservatively booked in 2020 for COVID still available for the future.
Nearly all moratoria have already expired, and NPL inflows remain very low, even lower than pre-Lehman crisis levels. Slide number 11. Gross NPL stock reduction was over EUR 4 billion in the first six months of the year and almost EUR 5 billion on a pro forma basis. For a total NPL reduction of EUR 54 billion since the peak of September 2015. The net NPL stock is now at just EUR 6 billion, and the net NPL ratio is 1%. As a result of this impressive deleveraging, NPL stock and ratios are now among the best in Europe, and our underlying cost of risk is in line with being a zero NPL bank. Slide number 13. On stage, you can see an update on our exposure to Russia - Ukraine.
The exposure represents just 1% of group customer loans, and also our exposure is decreasing and is already down by EUR 400 million since the beginning of the conflict at constant exchange rates, dropping EUR 1.5 billion when considering the provisions booked in the first semester. Slide number 14. Let me give you some more details on our Russia-Ukraine exposure. Only EUR 400 million in loans are currently under sanctions. Over 2/3 of loans to Russian customers refers to top-notch industrial groups featuring long-established commercial relationship with customers that are part of major international value chains, with a significant portion of their proceeds coming from commodity export. Our footprint in Russia is small, and our lending to Russian clients is very limited, below 0.2% of group customer loans. The cross-border exposure is almost entirely performing and classified in safe stores. Slide number 15.
ISP fully facing Common Equity Tier 1 ratio is 12.5%. This already includes EUR 1.65 billion of accrued dividends and a 100 basis points impact from the entire EUR 3.4 billion buyback authorized by the ECB. Does not include the 110 basis points of additional benefits from DTA. Deducting only the EUR 1.7 billion first tranche of the buyback, the Common Equity ratio stands at 13%, 14.2% including DTA absorbed. Slide number 16. Contributing to society has always been a key part of our DNA, and our excellent performance allows us to create sustainable benefits for all our stakeholders. Slide number 18. In addition to delivering excellent economic performance, we continued building a strong bank for the future by deploying our new business plan.
The plan is proceeding at full speed, and all the people of Intesa Sanpaolo are working hard across all the key industrial initiatives, which are well underway. The next slides provide an overview of what we have done in just five months. I'll give you some color on some of the most significant industrial initiatives. Slide number 19. The first pillar of the business plan is massive upfront de-risking, and we have already brought the NPE ratio to 1%, the lowest ever. We have also set up the new Anti-Financial Crime Hub. Slide number 20. The setup of Isybank, our new digital bank and one of the most important initiatives of our business plan, is well underway. Isybank Tech, the new delivery unit for Isybank development, is already operational with 230 dedicated specialists.
We hired the new heads of Isybank sales and marketing, digital retail and another 270 people working in this sector, who are already fully operational. We have already defined the Isybank offering structure and functionalities. Slide number 21. Several key initiatives to fuel our wealth management engine in the coming years are also well underway. We fully implemented a new dedicated service model for exclusive clients. We strengthened the advanced advisory service, Valore Insieme for affluent and exclusive clients. With EUR 8 billion customer financial assets inflow in the first semester, we leveraged 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 number 22.
We are accelerating our strong ESG commitment and 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 slide 26. The people of Intesa Sanpaolo. We have planned significant investments in our people, and many initiatives are already well underway. We are quickly proceeding with the renewal of our workforce, with 900 people hired since the beginning of 2021 and 850 people reskilled in the first semester. In the second quarter, we booked a one-off contribution of almost EUR 60 million so that we can give our people EUR 500 each to help mitigate the impact of inflation. Slide number 27.
Finally, let me remind you how we are supporting the Ukrainian population and our private bank colleagues with the implementation of multiple projects, including the donation of EUR 10 million to support humanitarian initiatives. Slide number 28. In this slide, you can see the four pillars driving our strategy to take the unique ISP model to the next level. We remain committed to our EUR 6.5 billion net income target in 2025, and we can do this even in the current challenging environments for multiple reasons. Our target was not factoring in any potential upside from an interest rate increase. We have flexibility in reducing costs, as continuously demonstrated in the past, and we have already achieved zero NPL bank status with a very low underlying cost of risk. Let's now move to slide 30.
Looking at the macroeconomic situation, all the main institutions continue to forecast a scenario with positive GDP evolution in Italy. In any case, if we compare our current position to where we were at the beginning of the last downturn, we are even better equipped to face challenging environments for multiple reasons. As you can see in this slide, our capital position is much stronger, and our NPL stock is a fraction of what it was in the past. Slide 31. Furthermore, our business model is more resilient and efficient, with commissions exceeding 50% of our revenues and cost income below 48%. On top of this, we expect an additional benefit from the interest rate increase. Slide number 32. At the same time, when compared to our peers, we are far better equipped to take the challenges ahead.
We have a best-in-class risk profile, we have a solid capital position with a large buffer versus regulatory requirements, and we are one of the cost income leaders in Europe. Slide number 33. And finally, let me remind you that Italian economy is stronger than in the past. The Italian debt is much more sustainable. Italian corporates are more resilient, and the banking system is more solid. Slide 34. And thanks to its solid fundamentals and world-leading household wealth, our economy is expected to continue growing, backed by strong government intervention and significant EU financial support. Slide number 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 the first semester, with strong acceleration of net interest income. We achieved the highest ever operating income and operating margin.
Costs were down sharply, and cost/income is best in class. NPL stock ratios are at record lows, and ISP is now a zero NPL bank with a low underlying cost of risk. We maintain a very solid capital position with low leverage. We already allocated EUR 1.1 billion for Russia - Ukraine, and we still hold EUR 400 million in generic provision related to COVID. Slide 37. To finish, let me turn to the outlook. All the business plan industrial initiatives are well underway. As proven again and again, Intesa Sanpaolo is an unstoppable delivery machine. We are committed to over-delivering on our promises, even in a challenging environment. This is thanks to all our people and to a strong and cohesive management team. In 2022, we expect to deliver best-in-class profitability, in line with our excellent first half performance.
We have already accrued dividends of EUR 1.65 billion in the first half, and we expect a minimum EUR 1.1 billion to be paid as an interim dividend this November. The outlook for this year will be fine-tuned in the coming months based on the impact of the Russia-Ukraine conflict. 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. The first half of the EUR 3.4 billion buyback is underway, and the second tranche is subject to the approval of the board by the time of the full year results. Thank you for your attention, and I'm now happy to answer your questions.
Thank you. Dear participants, we'll now begin the question- and- answer session. As a reminder, to ask a question, you will need to press star one one on your telephone and wait for a name to be announced. Please stand by. We will compile the Q&A roster. This will take a few moments. Thank you. Now we're going to take our first question. The first question comes from the line of Andrea Filtri from Mediobanca. Your line is open. Please ask your question.
Thank you. The first question is on NII sensitivity. We've seen the EUR 900 million, but it's always a bit hard for us to reconcile. I would ask you if you could please provide us the NII boost of Intesa Sanpaolo if you were to adopt the forward rate curve on the current-
Oh, yeah, I cannot hear you very well. If you can repeat and speak slowly, please.
Yes. Is this any better?
Yes. Yes, better.
Okay, sorry. NII sensitivity, we have seen EUR 900 million, but it's very hard for us to reconcile from outside. I would ask you if we could please have the NII boost at Intesa Sanpaolo if you were adopting the forward rates curve on the current balance sheet at zero pass through. The second question is if you could elaborate what conditions would you need to see in order not to undergo the second leg of the buyback? Thirdly, congratulations on the initiative to support your employees during the current challenging inflationary environment. I don't think we've seen any other bank doing that so far. I wanted to ask you if you see any pressure on the cost side going forward if inflation stays elevated. Thank you.
Andrea, I will respond. I will give you an answer on the second and third question. Then I will leave Stefano Del Punta to give you the details on sensitivity so he can enter into more technical details. But just on the first question, my point is that you have to look at the past Intesa Sanpaolo. Looking at the figures of back in the days at Sanpaolo in the past with the level of interest rates much higher than this, you can have the evidence in practice what can happen in a bank that has a significant market share, and that can maintain a degree of control on the evolution of net interest income. On this point, I will ask Stefano to elaborate.
Looking on the conditions for the buyback, I'm fully committed to deliver also the second tranche of the buyback. It is clear that we are today in an environment that not only for the Italian political situation, in which I have to tell you, I'm not worried at all. I think that Italy, in any case, has such strong fundamental and any kind of parties or coalition that will win the election will be obliged to deliver the NextGenerationEU funds program.
Especially if the coalition will be the results of the portion of the Italian families that has a lot of money and don't want to lose their money and wants Italy to remain with a clear focus on Europe and with the possibility to remain one of the best country in euros. I have to tell you, I'm not worried at all. Looking at the Italian political situation, I'm not worried.
What I have to consider, and that's the reason why we need the board of directors to move in further evaluation in the second part of the year, is this kind of attitudes of the ECB and supervisor to give this negative comment on the evolution of the real economy, also considering in scenarios the possibility of a recession. If and that's not what we are seeing, and that's not what we can consider as likely looking at the corporate side and the family side in Italy.
Because all the owners of companies in Italy and the majority of households apart from the inequality area, so the area that are affected by the situation and probably poverty is really one of the most important area that we have to consider in the future in this country. The majority of the other players that we are used to talk with directly or through the network branches are not negative on the evolution. They are ready to invest money. They are ready to work for diversification of sources of energy, to work on renewable sources. There are a lot of attention in Italy to investment.
That's the reason why I think that this attitude to consider the recession as one scenario that has a high degree of probability is not what I consider the most likely scenario. In case of a recession, we have to be in a position to consider also what kind of implications we can have in terms of performing the share buyback. At that point, we would make evaluations also considering the timing of a possible recession. If you look at the expectations of the ECB, they are talking about a possible recession in 2023, but with a significant rebound in 2024. We will see what will be reality.
In case of not having a recession, I'm fully committed to pay also the second tranches of the buyback. In case of a potential recession, you can consider just the possible postponement of this situation. That's what I think we have to consider for the future. Again, I have zero signal in Italy of potential recession in our country. Possible slowdown, but for sure what we have today also in conversation with the key part of the real economy society in Italy is not recession, the likely scenario in our country.
On your third point, so salaries, I think that this situation has forced all the CEOs of the most important organizations to consider their bank, their company as a family. In a family, in difficult conditions, you have to be close to the person that can have a need of support. This is a situation for all the people that has a salary that is not equivalent to a managerial salary. I think that it is something that we have to give to our people in order to allow them to reduce the impact of this scenario.
This is something for granted, so it is not a component in a formal way of the salary but it is something that we consider as very important. I have to tell you that I hope that this kind of situation can be transitory, so can be only the spike of one year time. Otherwise, we will have to consider some form of compensation also in next year. That's my point. We are a company that is performing very well, delivering a significant amount of net income, a sustainable net income.
I'm pretty sure that it is part of the social responsibility of a CEO to be close to the people working within the organization that has a salary that is not so significant. That's part of our commitment. On net interest income, I will leave it to Stefano.
Yes. Andrea, I understand that your question is on the sensitivity. The sensitivity of course that we calculate is calculated in a very standard way, is the way I think most of the banks calculate that is on the balance sheet. It's been around EUR 900 million. This is pretty stable. Actually it's a little bit less now because some of that sensitivity has already been captured by interest rate as it moved. Okay. It is of course the 50 basis points above the forward rate standard curve, so to speak, standard formula.
Of course, if you look at the sensitivity at 100 basis points instead, that is lower than it was back in March, because that has been already captured partially by the movement that we have recorded in the low, let's say, across the money market curve in anticipation for the move that ECB did in July. You will see also the fact that our net interest margin is increased. Also the financial components are increased. Of course the sensitivity is always taken as a theoretical increase in net interest margin for 150 or 100 basis points of perfect parallel shift of the curve, but the curve never moved in a perfectly parallel way. A portion of the sensitivity has already been captured because, of course, part of the curve has already moved up.
The biggest part, of course, will come now that ECB is moving the short-term interest rates, and will come of course from the fact that on the current account we will continue to pay zero, while instead on the asset side will increase. I don't know if this answers your question, but I mean, it's a pretty simple formula.
Thank you, Andrea. We are going to take our next question. Please stand by.
Okay. You can go on the next question. Thank you.
The next question comes from the line of Azzurra Guelfi from Citi. Please ask your question. Your line is open.
Hi, good afternoon. I have a couple of questions. One is on the NPLs. You continue your de-risking, and now you are almost already at the level of the target for the end, the plan for your net NPL ratio at 1% versus the target of 0.8%. How do you think this will support already your cost of risk in 2023 or it will be if in case of a recession it will be more of 2024, where we'll see all the positive benefit, also in light of the fact that you have released already some of your overlay. The second question, if I can, it's just a little bit of detail on your NII.
I've looked at the sovereign, and it seems that quarter-on-quarter you have actually decreased the amount of government bond, and I was wondering whether this is something that might change in the second part of the year, given the development of the spread as well. If you can comment on what's your strategy on TLTRO. Clearly you have liquidity, so that would be just something to continue to support the NII. If I may, sorry for the noise. I promise I'm inside. Just a clarification on the interim dividend. You are talking about a minimum of EUR 1.1 billion, which if I calculate it correctly, is 70% of the minimum net profit of EUR 3 billion that you give in case of a much tougher scenario.
Would you consider paying only on half of the year, let's say half of the full year profit, when we come to the third quarter or it will be proportional to the amount of profit that you have already accrued by then? Thank you.
Thank you. Looking at the NPL, we are obviously at the level of being a close to zero NPL bank. This means that our cost of risk is mainly related to new inflows. The cost of risk embedded in our current situation is for sure a cost of risk that could be also for the next years in the range of 30 basis points looking at the current conditions. It is likely that the conditions can be probably with some form of slowdown. It is likely that this best case of maintaining a cost of risk very low could not be the case in the next years.
I do not see any significant increase exceeding 40 basis points or 45 basis points also in an environment with a slowdown in terms of GDP growth. What I think is very important is that according to this situation, we will have such an amount of net interest income in excess that our net income generation will be in significant acceleration also in case of a slowdown in real economy. In case of a recession in 2023, for sure there could be some form of peak in terms of cost of risk in 2023 or 2024, depending on the timing of the potential recession.
Again, due to our credit quality, our expectation is that in any case, we will remain between 50 and 60 basis points also in case of a recession. Again, the increase in net interest income will more than compensate this impact and a possible reduction in the trend of our commission. Net-net, in any case, what I'm seeing is an increase in the potential of medium-term value creation for the group in comparison with our original plan also in scenario that can be considered as slowdown. Also in one-year recession, I think that we can deliver very good performance looking at the increase in net interest income. Looking at government bonds, we reduced the government bonds portfolio. We made disposal also, realizing capital gain.
That this is a dynamic approach in terms of our corporate investment banking activity and treasury activity. The level of this portfolio will move according not only to the condition, the potential to have net interest income, but also on the potential of deriving possible trading income to the movements of the portfolio. What I can tell you that I do not expect the portfolio to increase in comparison to the current level. Looking at the final question on interim dividend, the real amount of interim dividend will be fixed in November. We will have the timing, the clear evidence of two points.
The first one is our ability to further de-risk the Russia-Ukraine exposure. At that time, in my view, we will have a clear understanding of our possibility to de-risk the exposure that we have towards mainly, obviously, Russia. In time, we will have also some evidence on slowdown in real economy in Europe and in Italy, because as you had occasion to see in just in today's news on the GDP dynamics, Germany and Italy are suffering a lot.
We are not happy obviously because Germany in any case is a key pillar of Europe and there's a lot of interaction also with Italy, France and we are delivering very good performance in terms of GDP, but we have to consider also the dynamics in Germany. At this point, we'll have another trigger that we will consider in November. At the timing, we will be in a position to have a clear understanding of what could be the final outlook. My expectation is that also in a worst case scenario this amount of interim dividend can remain the real minimum level that we can pay because my expectation is that it is possible to improve these figures.
We will have to check these two points. Exposure and the dynamics in Europe, not only Italy, but especially in Germany.
Thank you, Azzurra. Now we're going to take our next question. Please stand by. The next question comes to the line of Andrea Vercellone from BNP Paribas Exane. Your line is open, please ask your question.
Good afternoon. I've got three, one on NII, one on risk-weighted assets, and one on Russia. On Russia, can you just give us an update about the size of the equity of your local subsidiary as of Q2? On risk-weighted assets, can you give us some comments on the drivers of the decline quarter-on-quarter, given that loans have actually gone up. Can you remind us of the regulatory headwinds that you still have to take between now and year-end, if any? Finally, on net interest income, can you disclose the current size of the structural hedge that you have? Can you comment on the rationale for increasing it in Q2?
If I'm not mistaken, you had already increased it in Q1, judging by the higher contribution to net interest income, which you show in your slides. Also finally, you mentioned in the answer to the previous question that the sensitivity to 100 basis points increasing rates has declined quarter-on-quarter. It will be in the interim documents, but we don't get them yet. Can you just give us the number?
Starting from Russia, the equity value of our participation today is zero, in the sense that it is completely devalued. We have no more exposure in terms of equity to the Russia, to our Russia subsidiaries. On risk-weighted assets, we had some benefit in terms of risk-weighted assets working on collateral and on recovery of guarantees. Then we have some positive coming from some model adjustments in terms of probability of defaults. We had an impact of 10 basis points in terms of regulatory impact in this semester.
We expect to have another 20 basis points in the second part of the year that we think can be compensated by our accuracy work on the risk-weighted assets total amount of the group. We will remain with 30 basis points during 2023, and those in this case there will be a possibility to compensate. Do not forget that we have a significant amount of DTA that we will recover within the period of the business plan. On net interest income, I will leave again the floor to Stefano so he can elaborate more technically on sensitivity.
Yeah. The size of our structural hedge related to the core deposit has increased the size of the hedged components. Basically, we now hedge almost entirely our core deposit base, because at a certain point we have jumped to the conclusion that the interest rate curve, so the forward rates were more than correctly anticipating the actual future expected move obviously. Actually, in our view and market at a certain point was overshooting, so anticipating too much and too fast increasing interest rate by ECB, and we decided to increase the hedge deposit base. This also, of course, is reflected in the increased contribution from hedging that you can see in our presentation, and Mr. Messina has already gone through that slide.
In terms of the sensitivity to 100 basis points, that actually has decreased from about EUR 1.6 billion back in March to about, EUR 1.2 billion now, EUR 1.4 billion now. Decreased by about EUR 200 million. This is the part that has already been captured basically by the movement of interest rates outside the very short term. I hope this answers your question.
It does. Thank you very much.
Thank you. Dear participants, as a reminder, if you wish to ask a question, please press star one one on your telephone keypad. To ensure everyone has the opportunity to ask a question today, please limit yourself to just two questions. Thank you very much for your understanding. We're going to take our next question from Giovanni Razzoli from Deutsche Bank. Giovanni is open. Please ask your question. Giovanni, your line is open. We proceed to the next question. The next question comes to line of Britta Schmidt from Autonomous. Please ask your question. Your line is open.
Yeah. Thanks for taking my questions. Two questions, please. One was on client behavior. What are you seeing on the lending side with customers reacting to the environment and also the outlook? Are you seeing any activity of customers drawing more on their overdraft or credit cards and personal loans? In the investment space, can you give us a bit of color on the trends in net new money, customers switching or taking out funds, and some guidance as to how you expect that to develop until the end of the year? The second question was on the overlays. I think in the last quarter you said that you didn't expect to use any more overlays this year.
You haven't used any in Q2, but can you confirm that you don't expect to use any this year? Thank you.
Sorry, Britta. Could you repeat the second question? Because the line was not good, and I didn't understand the question.
Sure. The question was related to the overlays. You've got EUR 400 million left. You haven't used any this quarter, and I think in the last quarter you mentioned that you didn't expect to use any more for the rest of this year. For sure we expect that this remains the case and that you'll carry the overlays through to 2023. Thank you.
Okay. Looking at the lending and what we are seeing the market, as I told at the beginning of my presentation, the Next Generation EU are considered really an opportunities in the field. This is the trend of growth in terms of loan book that we are seeing today. Between 0% and 2% probably is something that is underestimated, the real potential of investments that a number of companies want to consider.
The first part of this investment probably will be self-financed with that because this company has a lot of money placed with the banking sector. We do not forget that, during the COVID period, a significant number of companies placed a lot of deposits within the banking sector. The first part of the investments will be, in my view, financed with their self cash flow, then they will have access to the banking sector. So my expectation is that in terms of lending, also in an environment with some kind of uncertainty today in terms of political situation, but the attitude of the corporate sector remain very positive.
Also because, especially if you look at the export-related sector, the kind of diversification of the Italian real economy is really very positive in a situation like this, especially if you compare with Germany that was much more relying on Asian counterparties or other counterparties that are more affected by this situation. The SMEs, the export-related companies in Italy, in my view, are placed in the best way in order to continue to have significant cash flow. With the point of attention, as I told in my previous answers, that the German situation for us remain very important.
If Germany can enter in some form of recession or some form of reduction of speed, we can have an impact also in the corporate sector in Italy, mainly the portion of the sector that is in the north of Italy and northeast of Italy, and are more correlated with the German situation. Looking ahead, my view is that the attitude is positive and we can see further increase in terms of demand of loans coming from companies. In terms of overlay, we have these EUR 400 million that are in a standby situation.
Again, what I consider very important is where to have a clear view on the future evolution of the GDP because I was surprised by the very positive results of this quarter in Italian GDP. We have to consider also that it is likely to have further positive trends in the third quarter due to tourism. In Italy today it is not possible to find a place in which to try to have holidays, so that there is a boom in terms of real economy related to tourism in our country. I think that also that the first quarter will be positive.
The final point of 2022, in my view, on average for all 2022 will be very positive, probably with a slowdown in the fourth quarter. We will have to consider what kind of implication can have this slowdown in terms of 2023. Also considering the shortage, the potential shortage of gas. I think that in case of a shortage, manageable through some form of reduction, we will not enter into a recession. In that case, probably the amount of EUR 400 million will be in any case enough to face also some review in terms of future probability of defaults.
If the reduction of GDP will be massive, in terms of expectation for 2023 with a rebound in 2024, what we have to consider would be the average trend of the next two or three years. Also in that case, my expectation is that we will not have to place further significant amount. We will see. My expectation is that will not be significant the amount that we will have to place also in case of a recession in Italy for 2023.
The situation of having such a very low level of non-performing loans net is very positive from our side because at the end we will have all the cash flow available to face the potential increase in terms of cost of risk, maintaining the possibility of increasing net income in comparison with 2022. That's our expectation.
Thanks.
Thank you, Britta. We're going to take our next question from Domenico Santoro from HSBC. Your line is open. Please ask your question.
Hi. Good afternoon. Thanks for the presentation. A follow-up on NII and a question on fees. On NII, I mean, the direction now is clear, it's gonna be positive, but I was just wondering whether you can help us to isolate the minus and the plus, going forward, especially from the third quarter. In particular, how much money you're gonna lose on the TLTRO side, whether this is gonna be compensated by the impact from rates. Third, you mentioned the notional on the hedging. Would be helpful also to understand what's the reference rate. Since this has been a tailwind so far, I wonder whether from now on, instead will be a headwind to NII.
Just a detail on the financial components, whether there was any impact from time value in the second quarter, given that the new flow NPE have just slightly increased. The fee line held up very well in the second quarter, has seen collection and payments increasing. I just wonder whether there was any repricing or any impact and more or less, and more broadly speaking, sorry, on your ability going forward to compensate asset management in case this continue to be under pressure with other parts of fees. Thank you very much.
Thank you. I will start from the fees and commissions point because on net interest income, we can elaborate on the different components, but the trend is clear. We will have such an increase in terms of net interest income that you will see a growth and a significant growth in terms of revenues from this portion of economic figures. On fees and commissions. We have to manage in a more defensive approach. We want to try to defend the level of revenues and try in any case to accelerate the amount of fees and commissions also in an environment that is not so positive looking at the implication for fees and commissions.
If I can just give you some point on the commercial side, M&A and advisory fees and wealth management. Looking at the area of commercial, we think that on a yearly basis, not considering some quarterly variation, but on a yearly basis, we will have a significant increase in this amount due to volume and pricing. These two area can bring a positive evolution of the commercial side. On M&A and corporate investment banking fees, our expectation is that we had good performance in these two quarters. Probably the third quarter we will have some reduction in terms of trend.
In the final quarter, we can have again a peak in terms of contribution from these fees and commissions. Looking at wealth management commissions, the main driver will be from one side, the insurance areas. This will continue to give positive contributions in the next quarters. On the other side, what we call the Valore Insieme is this kind of advisory tool that we use in order to manage the sum of deposits and assets under management of our clients. We continue to increase quarter by quarter, giving us a positive contribution in terms of fees and commissions. Net-net, this is an area that we want to defend.
My expectation is that we can continue to have good results in defending this figure. Probably we can have a reduction in the third quarter and a rebound in the fourth quarter. We will see what can happen also in the dynamics of the market. We are not relying on performance fees, so that will remain for 2022 a negative impact in the total amount of our fee and commission income. I'm not so negative also looking at this component of our revenue. For sure this is not the option for growth for the end of the year in 2023.
Net interest income will be the option for growth because what we expect for net interest income is to have a clear acceleration in 2023. During the second part of 2022, we will have positive trend with a reduction in terms of contribution from TLTRO and an increase in terms of contribution from markdown. With a clear trend in which these two areas, the combination of the two, one positive, one negative, will in any case give us a potential increase in terms of net interest income. Probably we will have also a reduction in terms of negative contribution of the excess liquidity that we have in our figures. Volume will continue to bring a positive contribution.
At the end, our expectation is that quarter by quarter we can see increase in terms of net interest income. 2023 will be a year in which we can have really an acceleration and a significant acceleration in terms of growth of net interest income. On this point, we will give a clear outlook in November, in which we will have a view that can also consider the real increase in terms of EURIBOR that ECB will decide in the next months.
Thank you, Domenico.
Thank you.
The next question comes to the line of Anna Benassi from Kepler Cheuvreux. Your line is open. Please ask your question.
Good afternoon. Thank you for the presentation. My question is again on NII. I hear all your comments. I hear the moving parts. But still, I don't reconcile why you have kept the EUR 3 billion-EUR 4 billion net profit guidance for this year, given the H1 results also affecting Russia, actually increasing the coverage, the use of overlays, and more importantly, the speed at which NII has moved in Q2. I would have expected at least to see the lower part to disappear. I hear you want to wait November, but making all the calculations and also including what you said on contingency plan on cost, eventually, I believe that the range should have been changed.
On the politics, you were commenting that any coalition that will win the election is not a challenge or a worry for our country. That's good, and particularly from you that have such a knowledge of the country, have such an important position to judge that. Actually, my question on that is about what we read on the Sole 24 Ore. Is your knowledge to be put at the service of the country? Given we hear you could be a candidate to become the Minister of Finance of our country, which is gonna be good for the country, but may be a bit less so for Intesa. Thank you for any comments you are prepared to give on that.
Sorry, I think that this point on the Ministry of Economy is something that I think it is absolutely something that will not materialize in any case. I am really fully committed to executing the business plan, and I am a CEO, I am a manager. When you are used to deal with thousands of people, motivating people and working for a managerial approach, it is unbelievable that you can be transformed into a politician or a ministry, also technical ministry. I will continue to manage this organization. This organization is my family, and I demonstrated also with the support that I decided to give to my people in terms of EUR 50 million for inflation.
I think that is fundamental in your life to be happy on the work that you are doing, and I'm really happy on the kind of work that I'm living in this organization. I think that Intesa Sanpaolo needs to have a clear execution of business plan, this business plan, not only because we have to deliver in terms of net income, but also because we are transforming in a technological way this organization. It is probably something that is underestimated by the market also because now there is a lot of view of something that is coming from very negative news, Russia, Ukraine, recession, inflation, political uncertainty in Italy.
What we are doing and what we delivered in these six months is really an unbelievable improvement of our technological area, working with Thought Machine and hiring super smart people from the market in order to increase the price to book of this organization. In the first part of my job, in this, when I was appointed CEO, I decided to work with all the people of Intesa Sanpaolo into transforming this organization into a wealth management and protection company and giving to the people of the bank the dream and the ability to realize, to become a leader in Europe in terms of reputation and market cap.
Now, I think that we have to continue to invest in this area, but the second part of the story in terms of potential re-rating of the group, and this will start starting from 2023, is when we will demonstrate how we will be able to transform also the technological approach of the bank. Believe me, I will continue to be the CEO of this organization for this business plan, and if my shareholders will continue to support me also for the next business plan, and also if my people will remain proud to have me as their CEO. Zero probability to do something different.
Coming back to the point on net interest income, the implication on net income and the kinds of correlation that you can have in terms of the delivery of the net income that we realized in this first six months and the kind of outlook, I have to tell you that from a mathematical point of view, we have potential for extra delivery in our forecast in a number of items that we have considered.
I think that this is not the timing to give some improvement in terms of guidance because I consider that for a company like us to deliver a net income of EUR 5 billion in case of no negative news in Russia, Ukraine, and to deliver well above EUR 3 billion is something in case of some further deterioration, is something that could be the best way to enter into 2023, that if we will not have a recession will allow Intesa Sanpaolo to give a really significant increase in terms of net income.
Also with the recession, we'll be in a condition to increase net income in comparison with 2022 due to the increase in net interest income that we will have in 2023.
Thank you.
Thank you. Actually, there was a previous experience, and that's why I asked.
The next question comes from the line of Ignacio Cerezo from UBS. Your line is open. You're more than welcome to ask your question. Thank you.
Hi, good afternoon. Thank you for the presentation. Thank you for my questions. A couple of quick ones. I know it's a small base, but if you can kind of elaborate actually on why it is the first time that we see UTP inflows rising a little bit and interrupting the trend actually of declines we have seen in the last two to three years. And then the second one, if you can elaborate, give us a little bit of color basically about the execution of the synergies coming from UBI's merger. I mean, we've seen branches going down. The employee numbers basically are more stable in the last two, three quarters. I mean, costs are going down 2%-2.5% actually.
Yeah, just putting the synergy execution in context with obviously higher inflation, et cetera, around the total expense number. Thank you.
Sorry, could you repeat the second question? Because the line is not very good, so I didn't understand. On the first one, I understood that we were talking about the unlikely to pay and the.
Yes.
The potential increase that we had in this quarter in comparison with the other quarter. Second question, I did not understand. Sorry. So what-
No, the second one was the execution of the cost synergies coming from the merger with UBI, how that is progressing. How do we need to think about it actually in terms of spending synergies? We've seen the number of branches going down more clearly than the number of employees. Again, just a little bit of color basically on how that is progressing. Thank you.
Okay. Sorry. Now I understood. On unlikely to pay, there's a trend of credit quality, you have a level that could be considered the real, the minimum level that you can have in an organization with EUR 500 billion of loans. It's clear that in this environment, and also if you compare this, the situation of our unlikely to pay the dynamics with some positive cycles in the past in our country. The level of UTP that we have today and the inflows that we are seeing from performing loans is very at the minimum.
We will have, in any case, some movements that could be 200 more, 200 less, but the level is so low that it is difficult to remain at this level without any kind of movements. My expectation is that we can remain, in any case, with a very positive inflows coming from unlikely to pay, apart from the case of a potential recession. Also in that situation, in case of only one-year recession, the expectation of the ECB, 2025 to be in a worst case scenario, a year in which, due to gas shortage, you can have a reduction in GDP and then a rebound.
In that case, we think that our net NPA ratio can move from 1% to 1.5%, but at the end will not change in a significant way the structural condition of our group. In this quarter, we had also two unlikely to pays coming from the Russia exposure. This amounted to an amount of EUR 400 million. But again, also on this point, these are not companies that are performing with negative cash flow. This is the implication of the sanctions that are not allowing these two companies to pay their cash flows to us. It's something related to the situational framework and not the cash flow positions of the company.
Due to Russia, this is the situation. In Italy, we think that we can have some further slight movements in terms of UTP dynamics apart from the recession, but we are really close to the minimum. Looking at the synergies, the majority of the synergies today are coming from the administrative expenses, from the closure of branches, but also from people because we had the exit of people in the range of 2,500 people in one year time. We expect to have further 1,000 people in the second semester of this year and then another 4,350 people in until 2025.
This will be realized in the next years but a significant portion of the exit is being completed will be the impact of the exit of 2021, 2022 in 2023. That will be a year in which we will have the majority of this component. In terms of synergies on administrative expenses, we had a delivery also in 2022. The second part in 2023 will allow us to compensate for the potential increase in terms of inflation of some areas of cost. We will maintain a dynamic with a negative trend due to synergies coming from this sector.
On the other side, on revenues, just let me tell you that we had some slowdown in terms of delivery of synergies due to the fact that the environment is not in favor of wealth management and protection increase of volumes. At the same time, we maintain a significant potential upside coming from the retail deposits of UBI. This is something that will give us significant opportunities in terms of net interest income and these figures are already embedded in the sensitivity that we gave to the market. A portion of this is derived from the UBI deal.
Thank you.
Thank you, Ignacio. The next question comes from the line of Hugo Cruz from KBW. Your line is open. You're more than welcome to ask your question.
All right, thank you. It was just a clarification on the interim dividend. I heard what you said about Russia and the macro that introduces some uncertainty. If you didn't have that, those situations, I mean, how would you like to think about the dividend? I ask that because, you know, the minimum you're promising this year seems to be in line on a payout basis as a percentage of first half profits with the interim you paid last year. You know, is that the way we should think about it, a payout ratio on first half results or payout ratio on the first three quarters? You know, if you could share your thoughts on this, it'd be great. Thank you.
On interim dividend, we will try to use a rule of the game that is to have a clear outlook for 2022, and then to make 50% of the outlook and to apply 70% payout ratio on that figure. For the time being, to give to the market our clear intention to pay interim dividend, I am confirming that we will pay an interim dividend subject to board of directors approval, obviously. That's my intention to propose the interim dividend is to try to give to the market what we consider a minimum level.
Because in all the different simulations we made on potential impact also of negative situation that can happen during the second part of the year, this level of EUR 1.1 billion of interim dividend can be considered likely to be realized. The final definition of this figure will be realized, as I told, in November. Because in November we will have the figure of an outlook that could be absolutely reliable. In our expectation, and then at this point, we will fix the amount of the interim dividend that I can tell you that, for the time being, I consider the EUR 3 billion.
The amount of this net income is really the minimum that we can consider in terms of potential results for 2022. If the outlook can be EUR 4 billion in November, we will decide to make 50% on the outlook that we will submit to the board of directors at the timing, then we will increase the final figures that we will give at the market. For the time being, we think that we are on the conservative side.
Very clear. Thank you.
Thank you, Hugo. The next question comes from the line of Andrea Lisi from Equita. Your line is open. You're welcome to ask your question.
Hi, good afternoon. First question is, if you can elaborate on your approach to reserving for exposure in Russia and Ukraine. Second one is, based on your experience, at which level of your EURIBOR is it likely to observe a repricing on deposit? If your sensitivity already include that. Thank you.
Sorry, can I just make a summary on your question just to understand if these are the questions. The first one was on Russia and Ukraine, what is our strategy? The second point is what will be the potential implication of an increase in arrivals on our figures.
No, on repricing.
No, on repricing of deposits. Yeah.
Yes. On pricing of deposits. Okay. Looking at Russia, the strategy is to realize a clear de-risking on our exposure. We are fully committed to reducing the exposure to Russia. That's part of our commitment starting from the beginning of the war with Ukraine and with the position of all the Western countries. The effort that we are doing in order to reduce our exposure is obviously limited by the sanctions framework that is increasing the number of counterparties that cannot be used in terms of potential buyers of assets or of loans.
We are continuing to work in terms of this kind of attitude, but we are in a sense looking also at potential medium-term, because the majority of our exposure in terms of cross-border are with top player, the top player in Russia and expiring starting from 2025, 2026 and 2027. I have to tell you that it is difficult to say that we can lose in terms of potential cash flow to this company that is probably one of the best company in terms of potential cash flows not only with Europe but also with Asia, with India and with all the other counterparties that will have the opportunity to buy the products that this company is producing.
I have to tell you that our effort is to reduce in our local bank. We made a complete evaluation of the equity value of the participation. We hope to be in a position to complete, but in any case, the potential to lose further money is only related with some reinforcement on sanctioning framework that can prevent us to have a reimbursement of our credit, of the different installments of our credit. I do not consider this really likely. On your EURIBOR, I will ask Stefano Del Punta to give you all the details.
Indeed, certainly up to zero, so to speak, there's no repricing of deposit, obviously. The models, the theoretical models say that probably above zero, you can figure out the repricing of deposit on average of about 10% of the increase of EURIBOR. I have to say that, my personal experience, I'm pretty old now, and being a treasurer for a long time before being CFO, is that, in order to reprice deposit for deposit to be repriced to have any sense.
For clients to attract clients or maybe to take clients out of another bank, the interest rate that you need to pay a deposit must be material. Okay. No one is moving EUR 10,000 from one bank to the next bank for an interest rate that is less than, I don't know, 1%. Practically speaking, I think that the repression of deposit will remain minimal until interest rates become meaningful in terms of what and the actual money that I'm talking about retail here, of course. Now, on corporate side, it's totally different. The answer is theoretically you can figure out 10% of increase in the yield, but I think that it's gonna be much less than that until yield gets to, let's say, 1%.
Thank you.
Thank you, Andrea. The next question comes from the line of Delphine Lee from JP Morgan. Your line is open. You're welcome to ask your question.
Good afternoon. Thank you for taking my questions. My first question is just, sorry, just to follow up again on interest rate sensitivity. If you don't mind, I'm sorry if you have already commented on this, but why is the sensitivity now lower by EUR 200 million to EUR 1.4 billion for a 100 basis points increase? Just wondering why that is. And then the second question around the IFRS 9 provisions, I don't think you've taken any increase for stage one, stage two in the quarter. So if you don't mind just sharing your macro assumptions and probabilities for the different scenarios and especially the severe ones. Thank you very much.
On the macro assumptions on our scenarios, I will give you what I consider the likely evolution in terms of Italian GDP and the other parameters that we can consider. I will ask Stefano Del Punta to elaborate more on net interest income. The GDP assumption that we are considering today, especially looking at what we receive today as the trend of GDP, is that in Italy we can have a GDP exceeding 3%, GDP growth exceeding 3% in 2022.
We think that this level could be a level that has invaded not only the first semester growth, but also the tourism growth we are seeing in our country. Until September, we will have a lot of tourism giving momentum to the GDP growth. In the last quarter of this year, the expectation is that we can turn into a slowdown, and at the end it is likely that we can have more than 3% GDP growth in 2022. For 2023, our expectation today is that the GDP can be between, be between 1% and 1.5%, 1.6%.
These are the range between 1% and 1.6%, depending on the exit point on 2022. This can be considered a conservative assumption in terms of GDP growth for Italy. Also in 2024 and 2025, we can have about 1% GDP growth in our country, close to 1.5%, more than 1%. That's our view on the GDP evolution in the country in the next years. For EURIBOR we think that it could be increased also in the second part of the year. We will see if it is another 50 basis points in the second part of the year.
In 2023, there could be further increase in EURIBOR, but not exceeding 1.5%-2% in the medium term. That's more or less our expectation in terms of macro assumption. With this assumption, we will have significant growth in terms of net interest income, and we will defend the commissions. We will have a potential slight increase in cost of risk. We will have an increase in net NPE ratio, but at the level that we maintain us within the best performer in Europe in terms of NPE ratio. With the net income generation, there will be really in significant acceleration comparison with 2022.
In any case, we will confirm that 2025, with potential of exceeding our net income expectation for the original business plan. Now I will give the full.
On the sensitivity of the reduction in credit. Unfortunately, again, the line is quite difficult. But my understanding the question was about the reasons for the decrease of the 100 basis point sensitivity of net interest margin from 1.6% to 1.4%. Well, the reason is, as I said in the previous answer, that part of that has been already cashed in. So, if our sensitivity in March was X and now we have a higher net interest margin, is because interest rates have already moved.
The short-term interest rate didn't move yet because ECB only increased the deposit rate in July, end of July. Of course, all the rest of the curve up to one year, et cetera, had already been moved before. Part of that sensitivity can be cashed in, and this is why our net interest margin in the second quarter, net of the reduction of the NPL effect, is almost 150 basis points above the one that we registered in the first quarter. There is a slight impact on the 100 basis point sensitivity, which is more formal than substantial, due to the fact that we have repaid EUR 70 billion of TLTRO in June.
This was a short-term TLTRO that would have expired anyway before December, so we decided to repay. Of course, on the formula, on the theoretical formula of a parallel immediate increase of 100 basis points, this reduces a little bit the sensitivity. In actual terms, has no impact because, as I said, the curve never move suddenly and overnight 100 basis points up or down. Okay. Most of the decrease is because we have cashed in part of the sensitivity we had in March.
Great. Thank you very much. Thank you. Delphine? The last question comes from the line of Giovanni Razzoli from Deutsche Bank. Your line is open. Please ask your question.
Yes, good afternoon. Can you hear me now? Hello? Can you hear me?
Yes. Go on.
Okay. Thank you. Sorry for this question. It may annoy you, as it's probably that you've already got thousands of questions on NII. In order to conclude clearly, the scenario has improved compared with the last 10 years. It seems to me that you do have in your hands a mid- to single-digit growth for NII in 2023. I know that you don't want to give guidance. You've been quite annoyed in the past for this kind of question, but I was wondering whether my, you know, understanding is more or less correct. Thank you.
This is a point we prefer not to give any kind of guidance, especially for 2023, in which probably we will be in a position in November to give more figures also because we will be at the end of the budget process. It is something that is a bottom up approach also, not only top down approach. Believe me, I think that the growth in terms of net interest income would be really massive during 2023. I don't want to give you single digit, double digit or other figures, but I can be really positive on the dynamics of the net interest income in 2023. The evidence also with the people in the field is that the potential is really massive.
That's the reason why I think that also not only the mathematical sensitivity is important, but also looking at what was the situation a number of years ago of our net interest income. Today the market share of Intesa Sanpaolo is so significant that we are in a position to work with our clients, trying to give them the majority of the benefits coming from the market situation, especially in wealth management products. The amount of the volume of retail deposits and of loans that can be repriced is so significant that our expectation is to have really a significant growth in terms of net interest income.
Okay. Thank you very much.
Thank you.
Thank you, Giovanni. There are no more questions, and I would like to hand the conference over back to your speaker today, Mr. Messina, for closing remarks. Please go ahead.
Yes, thank you. I think that in this presentation and in question- and- answer session, we tested all your points of attention on the outlook of what could be the next phase of a number of items related to net interest income, fees and commissions, cost of risk. These areas are the same in which all the people of Intesa Sanpaolo are today focused in understanding how it is possible to extract the maximum value or to mitigate the potential difficult situation that can arise. I can confirm to you that we are not upgrading our outlook.
I do not consider the safe part of the story to make an upgrading quarter by quarter of the outlook. I'm pretty confident and totally confident that we can deliver very good results for 2022, and we will pay sustainable dividends, both in terms of cash interim and in terms of buyback. Thank you very much.
That concludes our conference for today. Thank you for participating. You may now all disconnect. Have a nice day.