Good morning, ladies and gentlemen. Today's conference call will be hosted by UniCredit's CEO, Mr. Andre O'Cel and CFO, Mr. Stefano Porro. Today's conference call is being recorded.
At this time, I would like to hand the call over to Mr. Andre Oertchel. Sir, you may begin.
Thank you. Welcome to all participants. As you know, I joined UniCredit as CEO 3 weeks ago. Given the brevity of my tenure And having not been CEO of the bank for these results, I will make some short remarks before passing over to Stefano To take you through the key features of the Q1 2021. Firstly, I would like to take this opportunity To thank all my colleagues for the hard work, for the commitment that has delivered these results and to the resilience That they have demonstrated during this recent transition.
This is a strong quarter, driven by excellent fees, Buoyant, mostly client related trading, seasonally low loan loss provisions with write backs And a good cost discipline. These four factors have more than offset the continued drag on NII. Although They may not be able to compensate to the same extent in the coming quarters. The weakness in net interest income is partly due to Exogenous factors, but also to the bank strict cost strict risk appetite in 2020. The impact of these factors will continue for some quarters, also relative to our competitors.
Reindiverating net interest income, building our top line and delivering strong organic capital generation Our key priorities for the team. This will be done with strict risk discipline and hence we need to recognize Mr. Andre Orchel. My focus now during these first 100 days is on getting to know my colleagues And the business strengths and weaknesses in order to design a new strategic plan that we will present to the market in the second half of this year. My ambition through this plan is to move UniCredit decisively away from a phase of significant and retrenchment to one that delivers sustainable returns above the cost of equity across the cycle.
We have a strong foundation, capital position, asset quality and liquidity position, A franchise with a resilient and recognizable brand and some exceptional talent that can deliver far above the current level Mr. Andre Oertchel. Once empowered to achieve a common objective. I'm most focused on 3 themes. Firstly, putting clients Mr.
Andre Orchel. At the heart of all we do, our clients and the communities they are part of are the reason we exist. And this aim is consistent with our We will incorporate it in all our decision making, full processes and everything we do, establishing it as part of a UniCredit DNA. Thirdly, we will reduce complexity. Mr.
Empowering colleagues within a clear risk and control framework. We will simplify the way we work together, Strengthening our three lines of defense and creating a thriving business. However, any transformation of this kind Mr. In an institution, the size and complexity of UniCredit will take time. A disciplined process to address this is key.
I'm determined to see it happen as soon as possible. Such is its significance to both our success And our culture. Whilst these three core themes are guiding our strategic path, there are many other topics That we will address in the new plan. With respect to M and A, it is not a purpose in itself, But I do see it as an accelerator and a potential improver of our strategic outcome, where it is in the best interest of our shareholders and where we have full confidence in our ability to execute. Finally, I would like to take this opportunity to reiterate UniCredit's ongoing support to all of our customers and colleagues as they manage the consequences I'm truly looking forward to engaging directly with all of you over the coming months.
But for now, Stefano will take you through our Q1 results. Stefano, the floor is yours.
Thank you, Andrea, and good morning, everyone. Let's turn to Slide 4. In Q1 2021, UniCredit delivered an underlying net profit of €900,000,000 This strong performance reflected a rebound in revenues Mr. Despite the ongoing impact of lockdowns on client activity in the quarter as well as a lower cost of risk, Our revenue performance, up 7.1% year on year in the Q1 'twenty one, is particularly noteworthy. It reflected the highest quarterly fees in over 5 years and a rebound in trading income, which Together, more than offset some further weakness in net interest income.
Our record fees where, thanks to a very strong performance in investment fees, testament to the strength of our distribution network. Revenues Also benefited from a contribution from our recently renewed agreement with Sia. Combined with our continuous strict discipline on cost, which fell 3.1% year on year, We delivered significant operating leverage this quarter. This can be clearly seen in the costincome ratio, Which fell 5.4 percentage points year on year to 51.5%, The lowest level in more than a decade. Our cost of risk dropped to 15 basis points in Q1 2021, benefiting not only from seasonality, but also some write backs.
The cost of risk for full year 2021 is now expected to be less than 60 basis points on an underlying basis. That is excluding regulatory headwinds. The strength of the balance sheet can be seen in our extremely healthy capital position. We closed the quarter with a fully loaded CET1 ratio of 15.92%, implying an MDA buffer of 689 basis points. This is another record for the bank.
Given the strength of our balance sheet, the bank is well positioned to grow with our customer as the economies in which we operate emerge from lockdowns and fully reopen. At the same time, we are also returning capital to shareholders. Both the AGM and the ECB have now approved the ordinary share buyback of €179,000,000 which is expected to be completed by the end of the 3rd quarter. Combined with the cash dividend, the ordinary distribution represents a total yield of 2.3%. If we also include the extraordinary shares buyback planned for later in the year, then the total yield increases to about 6%.
Let's turn to Slide 5. To maximize the time available for your questions, We have further streamlined the results presentation this quarter, moving some of the slides from the main section into the end next. Mr. Andre Orchel. I have already commented on our significant operating leverage, record low cost income ratio and very low cost of risk Andrei, the quarter.
So let me highlight 2 other features impacting the underlying net profit this quarter, the details of which Can be seen on Page 22 of the Annex. First, systemic charges. As a reminder, the majority of systemic charges are always booked in the Q4. This year, they amounted to €620,000,000 An increase of 15.3% year on year. This reflected a higher contribution to the single resolution fund That resulted from the system wide expansion of customer deposits last year.
For the full year, We expect total systemic charges close to €1,000,000,000 2nd, profit on investment. In this line, we recorded a loss of €195,000,000 largely due to €5,000,000 negative mark to market adjustment on our remaining 20% stake in YAPI. The gross NPE ratio was 4.8% at the end of the quarter. The quarter on quarter increase of 0.3 percentage points was largely due to the introduction of the new definition of default this quarter. Mr.
Our tangible equity reached €15,700,000,000 an increase of 2.3% over the prior quarter, Mainly thanks to the return earnings as well as a reduction in defined benefit obligation resulting from a higher discount rate. Let's now look at the profit and loss in more detail, starting with group NII on Slide 7. Net interest income was down 3.1% quarter on quarter. If we adjust for the 2 fewer days in the quarter And the nonrecurrent TLTRO free catch up payment in the prior quarter, then net interest income was down by 1%. Mr.
This quarter, like the prior one, was characterized by MAX's excess liquidity in the system. This impacted our NII in 3 ways: 2 negative, 1 positive. First, lower loan customer rates. Further reduction in key market rates Continued competition contributed to lower customer loan rates in all divisions. Commercial Banking Italy also saw further growth In its guaranteed loan book.
Such guaranteed loans are good business given they are lower risk and capital consumption. But remember, They are written at lower rates than normal loans of an equivalent maturity. Lower market rates also contributed 2nd, continued weak demand for credit. Mr. Average loan volumes fell quarter on quarter, albeit at much smaller rate than for quarter 'twenty.
Mr. Most of the drop was in Corporate Investment Banking, where our corporate clients continued to enjoy very liquid balance sheet. All the division, Bar Corporate Investment Banking, however, reported growth in their end of period balances over the quarter. Mr. Of note, Commercial Banking Italy reported highest end of period lending volumes since Q4 'nineteen.
3rd and positively lower term funding costs driven by lower credit spreads and market rates. Faced with excess liquidity in the system, we have continued to work hard on repricing deposit below 0. This includes Negotiating excess liquidity fees where local regulation prevent the charging of negative interest rates. Mr. An economic upswing will drive, with some delay, a recovery in the demand for credit, a progressive reduction of the excess Liquiding client accounts and deposit gets spent or invested as well as an improvement in our lending mix As we normalize our credit risk appetite.
However, until the system wide excess liquidity is drained, Mr. Andre Oertchell. Customer lending rates are likely to remain under pressure. Looking forward, as we move through the rest of full year 'twenty one, Mr. Some headwinds could still affect NII until a sustained economic recovery takes hold.
Let's turn to Slide 8. Mr. Fees delivered an extremely strong performance despite the ongoing lockdowns and a tough year on year comparison. Mr. Remember, Q1 'twenty saw a limited impact from lockdowns and one of the strongest 1st 2 months on record.
Mr. Fees in the Q1 'twenty one were up 4.3% year on year and up 12.2% quarter on quarter, Resulting in highest quarterly fee income in over 5 years. The continued recovery in fees Quarter on quarter from the middle of last year, despite ongoing lockdowns, reflects the benefits on our digitalization strategy. Let's look at the component parts of fees in more detail. Investment fees generated all of the year on year increase in total fees.
Mr. Upfront asset under management fees were very strong, thanks to Rabo's sales activity in the network, Mr. With Commercial Banking Italy recording its highest gross sales since 2018. Financing fees have continued their recovery from The lows seen in Q3 'twenty and are now only 1.8% below the level of a year ago. Strong activity within Corporate Investment Banking largely offset continued subdued levels of credit protection insurance, The latter reflecting weak consumer finance activity.
Transactional fees remain the weakest Of the free fee components relative to pre pandemic levels. While they've also rebounded quarter on quarter, They remain 3.5% lower year on year, reflecting a tough year on year comparison to a positive one off a year ago. It also reflects continuous subdue client activity in GDP sensitive subcategories, most notably cards In terms of outlook, let me some general remarks. Investment fees Are expected to continue to benefit from liquidity rich clients shifting deposit into asset under management, subject to markets remaining buoyant. While for financing and transactional fees, we expect client activity to pick up from second half twenty twenty one onwards, Mr.
Andre Orchel. With the pace determined by the rate at which restriction is and GDP recovers, with the ongoing rollout Of mass vaccination programs across our key geographies, we are cautiously optimistic That the worst of the impact of lockdowns on client activity is now behind us. Let's turn to Slide 9. Mr. Trading income in the first quarter was very strong at €639,000,000 up €466,000,000 year on year, thanks to a supportive client activity.
Client driven trading was solid, Contributing €381,000,000 up 87.1 percent year on year, excluding the volatile XVA component. This strong performance came mainly from fixed income. Net recover from a Q1 of 2020 That was negatively affected by the market turmoil at that time as well as from GAIS on fair value valuations. Mr. Non client driven trading income also performed very well, up €109,000,000 year on year, mainly thanks to treasury.
Trading income, excluding Exway, in the quarter was well above our quarterly Andre Oertchell and CFO, Mr. Andre Oertchell. Andre Oertchell. Andre Oertchell, an average per quarter excluding X Way, but is expected to normalize for the rest of the year. The higher contribution from dividends, up 9.7% year on year, was mainly thanks to other equity and financial investment, But these were only partially offset by a lower YAPI contribution, reflecting the reduction in the stake in the Q1 'twenty.
Let's turn to Slide 10. Our continued focus on cost efficiency resulted Incas falling 3.1 percent year on year and 1.8% quarter on quarter. This resulted in a quarterly costincome ratio of 51.5%, our low risk in over a decade. Mr. HR costs were 4% lower year on year, mainly thanks to faster than expected FTE reduction With FTEs down 2.3% year on year and lower pension cost in Commercial Banking Austria.
Mr. Non HR costs were down 1.7% year on year, mainly thanks to lower travel and real estate expenses, Partially offset by higher advertising and marketing costs. COVID-nineteen has had a limited impact On our cost base year to date, in the Q1 of the year, we had EUR 15,000,000 Ocovid-nineteen related costs, mainly for security and real estate expenses. This was €4,000,000 less than in Q1 2020. For the full year 2021, we confirm our guidance of flat costs relative to full year 2019.
Let's turn to Slide 11. Our stated cost of risk fell to 15 basis points in Q1 'twenty 1, Made up of 18 basis points of specific LPs, less 3 basis points of release from overlay LPs. The low cost of risk reflect the usual seasonalities in the Q1, which is typically Well below the average of the year as well as the proactive classification of files done last quarter and some write backs. These write backs mainly relate to some individual files in the Corporate Investment Bank Division. Nonetheless, Mr.
Andre Orchel and CFO, Mr.
Andre Orchel. Recent handset
quality experience, including more authority expirations, suggests that the outturn for the full year cost of risk May be better than our current expectations. Our full year 'twenty one underlying cost of risk guidance is therefore now expected to be below 60 basis points, equivalent to loans loss provision of less then €2,700,000,000 This guidance includes modest overlay provision through the rest of full year 2021. Let's turn to Slide 12. In the Q1 'twenty one, the group delivered a strong underlying net profit of Ms. 883,000,000.
If we look at the profit distribution across the group in the quarter, you can see that our diversified business model Mr. Andre Oertchell, underpins our stability at group level, notwithstanding the variety amid of lockdowns across our markets. All the business division except Commercial Bank in Germany added double digit underlying return on allocated capital, and all business divisions were profitable. The contribution of Commercial Banking Italy, CE and Corporate Investment Banking, in particular, Mr. This resulted in underlying net profit of €385,000,000 in Q1 'twenty one.
The lower LLPs in the quarter also had a positive impact on underlying return allocated capital, which stood at 16.3%. CE is a resilient contributor to group's profitability. In the Q1, it delivered an underlying net profit of €209,000,000 up 69.7 percent year on year, underpinned by lower LLPs and continued cost discipline. The Corporate Investment Banking division benefited from higher revenue growth in the Q1. This was mainly thanks to the highest quarterly fee income since 2015 and a sound trading performance year on year, Mainly driven by fixed income and treasury.
Combined, this led to an underlying net profit of €408,000,000 Before going to the next slide, let me remind you that the majority of the systemic charges are always booked in the Q1. This quarter, they amounted to €620,000,000 reflecting a higher contribution to the single resolution fund Mr. Andre Oertchell, that resulted from the system wide expansion of customer deposits last year. Let's turn to the balance sheet, starting on Slide 14. In the Q1, the gross NPE ratio for the group, excluding non core, increased to 4.1%, Primarily due to the introduction of the new definition of default as per EBA guidelines.
Mr. Underlying asset quality is broadly stable. The new definition of default also led to a decrease in the coverage ratio to 54.3%, mainly due to a mechanical effect Mr. As the newly included loans had lower coverage ratio owing to their lower riskiness. Our underlying asset quality remains sound with no material impact from COVID-nineteen yet.
Using the BBA definition, the group NPE ratio excluding non core net of the new definition of default is in line with the average of other European banks. Let's turn to Slide 15. We continue to focus on the non core rundown. The process remains well on track despite the Q1 being seasonally quiet. Gross NPs in the non core We are down €100,000,000 reaching €3,600,000,000 The financial impact of the non core and group performance for full year 2021 is minimal And the net economic risk embedded in the non core rundown remains close to 0.
The CMD 'nineteen profit and loss guidance is confirmed And the overall non core portfolio is provisioned to sell. We confirm the full run off of the non core by the end of 2021, Mr. Andre Orchel, and CFO, Mr. Andre Orchel, with the majority of the rundown expected in the second half of the year. Let's turn to Slide 16.
Our fully loaded CET1 ratio sits at 15.92%. This is 689 basis points over our MDA level, a record for the bank And an increase of 78 basis points over the quarter. The MDA buffer continues to exceed our current market cap. The increase in our MDA buffer across the quarter is a function of both higher CET1 and lower risk weighted asset. Points to note.
First, retained earnings and a lower defined benefit obligation, the latter thanks to an increase of the discount rate account from most of the increase in CET1 capital this quarter. 2nd, the buyback That forms part of our order and distribution in 2020 has now received authorization from both the ECB and AGM And as there are 4 being deducted from CET1. This amounts to 5 basis points. 3rd, The more than €10,000,000,000 decrease in risk weighted assets over the quarter was driven by several effects such as the shift to lower risk density loans, Mr. Including guaranteed loans in Italy.
See the annex on Page 47 for more details. 4th, regulatory dynamics provided small tailwind for the 2nd quarter running with negligible effects Mr. Coming from PD rating migration. Looking forward, regulatory headwinds are confirmed at less The negative 1.4 percentage point in full year 'twenty one. This includes Mr.
TRIM and PD rating migration. Please remember that the rating migration will revert over time as GDP recovers through the cycle. Mr. Our MGA buffer in full year 2021 is expected to remain above 400 basis points. Mr.
Let's turn to Slide 18. Thanks to our very strong balance sheet and the commitment of our team members, We remain well placed to keep supporting our clients whatever the environment. As always, Mr. The health and safety of our employees and customers comes first. Assuming a progressive Economic recovery over the year, the pace of which will be determined by the rate at which massive vaccination programs allow execution to ease And subject to continuous stability interest freight, full year 'twenty one revenues are expected to be broadly in line With the most recent company compiled consensus, net interest income will likely face headwinds, While transactional fees and trading will likely benefit from tailwinds, Full year 'twenty one costs are expected to be in line with full year 'nineteen levels.
Our Our full year 'twenty one underlying cost of risk guidance is now expected to be below 60 basis points, Equivalent to loan loss provision of less than €2,700,000,000 The overlay provisions that we took in full year 2020 under In the credibility of our guidance, as some of these overlay provision will be used in full year 'twenty one Mr. Andre Orchel and CFO,
Mr. Andre Orchel and CFO, Mr. Andre Orchel
and CFO, Mr. Andre Orchel. Our recent asset quality experience, including more authority expirations, suggest Mr. The outlook for the cost of risk may be even better than current expectation. The underlying net profit for full year 2021 is expected to be broadly in line with the previous guidance.
With a rock solid balance sheet, we can also continue distributing capital to shareholders. Our ordinary distribution policy going forward is confirmed at 50% of underlying net profit, With the cash dividend being accrued at 30%, both the AGM and the ECB have now approved the ordinary share buyback Based on full year 2020 earnings, which is expected to be completed by the end of the third quarter. Together with the cash dividend, the combined €447,000,000 ordinary distribution for full year 'twenty Represent of total yield of 2.3%. If we include the €652,000,000 extraordinary share buyback as well Plan for later in the year and subject to ECB approval, then the total yield for 2021 rises to about 6%. As Andre has confirmed, the bank is developing a new strategic plan.
We expect to present it to the market Andre Orchel sometime in the second half of the year. With the restructuring of the bank successfully delivered, the focus is now on growth in profitability. The overriding objective is to deliver sustainable returns above the cost of equity over the cycle. Now I will hand over to Jorg Pytner, Head of Group Investor Relations, for the Q and A session.
Good morning, everyone. As usual, if you would please be so kind as to limit your questions to a maximum of 2 each. Also, I'm sure you will all have lots of questions about the bank's new strategic plan, but it would be premature to address these today. Many thanks. Mr.
Thank you, sir. We will now begin the question and answer session. Sebastian. The first question is from Giovanni Razzoli with Deutsche Bank. Please go ahead.
Good morning to everyone. I will stick to your guidelines. So I'm not interested in the future, but rather in the past of UniCredit. If you can please provide us with an example of what you consider the blockers and obstacle that you have mentioned in the press release that prevented You from adequately serving your customers. So I'm just interested in a couple of examples of what were these Elements, if you can share with us.
And the second question, I've seen that you have significantly and further increased your cash balances on a quarter on quarter basis To more than €110,000,000,000 that is 5 times above the average of the last quarters in 2020. So I was wondering whether this huge liquidity I mean, a reduction in this huge amount of liquidity cannot support going forward more the NII Visavis the relative prudent guidance that you have provided us. Thank you.
Thank you, Giovanni, and Welcome to this call. Maybe on the cash balances, we'll have Stefano answer that. And then just a quick question on the obstacles. Do you mean the obstacles to the NII growth? Or because or you said to serve your customers?
Can you just specify that?
No, no. I referred to the press release. You mentioned that there are blockers and obstacle that prevented you from adequately settling your clients. So can you share with us what are you referring to, if
you can provide some examples?
Okay. Thank you. Stefano? Yes.
So thank you, Georg. On cash balance, you are right. Please take in consideration that cash balances Has been affected also by the new take up of the TLTRO 3 because we took €12,700,000,000 more. The total amount of TLTRO free that we have now is €107,000,000,000 As a matter of fact, On top of what we have for the tiering, we have slightly more than €100,000,000,000 deposit to ECB. What we are expecting following the dynamic of the lending on one side, but also the dynamic of the deposit On the other hand is that such cash balance can be reduced over time, especially when we will have a sustained recovery.
In relation to blockers and obstacles, We were referring to the fact that currently, our main focus for Mr. Andre Orchel. The strategy will be focused on client technology and simplification. As we know, we have already invested Technology and we are also increasing the amount of investment per year. This year, we will arrive to €1,100,000,000 on investment.
This will Facilitate the interaction with the client and with the facilitating interaction with the clients through different channels. The other point is simplification. So the other focus is simplifying our processes in order to be quicker and more effective in servicing clients. Latva Naslex is Connected with the normalization of our risk appetite that we have already mentioned before, we applied a very strict Underwriting discipline during 2020, with the sustained recovery taking hold, We will normalize our risk appetite framework during the course of 2021.
On the details, Giovanni, there's I'll probably repeat this more often today. We ask for a little bit of patience, And the strategic plan will be in the second half of twenty twenty one. Next question, please.
Next question is from Antonio Reale with Morgan Stanley. Please go ahead.
Hi, good morning, everyone, and thanks for the presentation. It's Antonio here from Morgan Stanley. First of all, welcome to Andre and best of luck To you and your team going forward. I have a couple of questions and one clarification, if I may. It's allocated EUR 3,000,000,000 over EUR 3,000,000,000 underlying net profit guidance for 2021 and compare it to consensus, there's a large gap that needs To be closed.
If your guiding program is still in line with consensus costs, you've reiterated your commitment. My question is where exactly you think the bridge between your underlying profit and consensus estimates comes from? What are the levers there? That's my first question. The second point is NII.
NII has been and continues to be a source of debate. Do you think P1 2021 is a tough quarter for NII. So you think the worst is behind us. And how do you expect the contribution from the rest interest income to evolve For the rest of the year, it would be great if you could discuss sort of the outlook and the risk appetite that it entails on the new business for Mr. Your key regions, Italy, Germany, Austria, CID and CIM.
And lastly, the clarification is really on the M and A comments from Andrea in the opening remarks. And you can decide sort of to address it or not. But you know exactly that investors are concerned about the risk of buying destroying deals On one hand, on the other, they acknowledge the benefits that come from consolidating fragmented markets. If I understand your opening remarks Correct. You seem to suggest that any M and A deals not only need to show financial discipline,
but also have strategic fit, which
I think implies an industrial rationale. What can you say further to sort of alleviate concerns here And we are sure, worried investors about the risk of our disruptive deals, if any. Thank you.
Mr. Thank you, Antonio. With regard to M and A, I mean, I can just repeat what you said because we have nothing to add at this point in time, but maybe Mr. So he said with respect to M and A, it is not a purpose in itself, but I do see it as an accelerator and a potential improver of our Strategic outcome, where it is in the best interest of our shareholders and where we have full confidence in our ability to execute it. So I think every word of that obviously was chosen carefully, but we have nothing to add.
And again, for more Strategic details, we would ask for a little bit of patience. I hope you understand. Then on the underlying net profit and the GAAP Stefano will answer that. And then for NII, we'll hand over to Wouter. Stefano?
Thank you, Jorg. In relation to the GAAP versus the consensus. So I will start in relation to revenues. So we have guided for revenues Broadening in line with the company compiled consensus that is slightly above €17,100,000,000 What do we mean is that level is a midpoint, so we can be slightly up or slightly down for a few €100,000,000. In general, we are expecting to see still some headwinds on the NII until Mr.
We will have a sustained economic recovery. The pace of this recovery will be determined the rate at which The mass vaccination program allow our extraction to ease. In relation to the fees dynamic, we are expecting A good dynamic of investment fees, taking in consideration the market situation and the Mr. We are expecting some tailwinds on transactional fees that will pick up, especially in relation to cards And payment, when we will have the easing of the restriction. And finally, also on the trading side, we are expecting some tailwinds.
In relation to the cost of risk, we have already commented before. We are currently having Being a difference in comparison with the consensus, taking into consideration the amount of provision that we recognize in 2020 And the amount and the dynamic of the asset quality that we are seeing nowadays, we are confident that we will be Having a below 60 basis point underlying cost of risk for TUTA 2021.
Wouter on NII. Yes. Thank you. Good morning. On NII, I mean, the weakness in net interest income is Partially due to exogenous factors, but also the bank's strict risk appetite in the past.
I think the impact All these factors will continue for some quarters. But we also know that there's going to be an economic upswing, and that will drive, Mr. With some delay, a recovery in demand for credit, also a progressive reduction of the excess liquidity in the system As our deposits get spent or invested as well as an important improvement in our lending mix as we normalize our credit risk appetite. Mr. However, until the system wide excess liquidity is drained, customer lending rates are likely to remain under pressure.
Western Europe and Central Eastern Europe. In Western Europe, I mean, we will see higher loan volumes and more flexible a more profitable business mix, Thanks to a normalization of our risk appetite, and that will compensate tighter client rates also because of increased government guaranteed loans. In Central Eastern Europe, we're expecting constant growth on loan volumes driven by the efforts of new production And more stable commercial spreads. Looking forward, as we move through the rest of the full year 'twenty one, Mr. Andre Orchel and CFO, Mr.
Andre Orchel. Some headwinds could still affect NII until a sustained economic recovery takes hold, The pace of which will be determined by the rate at which vaccination programs allow restrictions to ease.
Thank you, Wouter. Next question, please.
Thank you. The
The next question is from Domenico Santoro with
Thanks for the presentation. Two questions from my side. One is on asset quality. And I apologize again, the second is on the NII. I see in the division database that you reduced the that you released some generic Some of them have been probably switched to increase the coverage of unlikely to pay.
Is this string in terms of generic provision related to a better evolution quarter over quarter for the moratorium loans? Because I see Stage 2 loans down. And I wonder how much of the COVID overlay set aside the last year I've been already used in this quarter and maybe there might be some release going forward to understand a bit Your guidance on loan loss provision, which is significantly better compared to before. On the other side, on the NII, I mean, your message here, we understand very well what are the moving parts, but it's also a bit more negative compared to the other banks. So I remember the last time that you guided for NII to trough in the Q1 also because of the Eastern Europe.
But Eastern Europe is Starting to improve quarter on quarter. So I just wonder whether there is a specific difference of the run book of UniCredit compared to the other banks, Specifically in Italy, whether it's the drug more significant that potentially might mean that the drug from rates and the repricing It's much slower, and that is because of the pressure that we're going to see also over the next quarters.
Thank you.
Thanks, Dominique. We'll start in reverse order. So on the NII and what takes us or what sets us apart potentially from Competitor Stefano will answer that and then T. J.
On the asset quality. Stefano? Yes. Thank you, Domenica, I would differentiate between Sea and Western Europe and more specifically Italy and Western Europe. As you have correctly pointed out, in CE, we are already having increase in the NII for around 1 percentage point because We closed at €450,000,000 €550,000,000 €10,000,000 up.
As a matter of fact, in Central Eastern Europe, We have been able to reprice down the client rates on deposits significantly. Currently, the demand of credit is still subdued in comparison with the potentiality, but we are confident that When the economic recovery will be in place, we will go back to higher growth rate On the lending side. In Italy, I think it's important to mention the impact on the client rates that are From the state guaranteed loans. If you look at the client rate dynamic in Italy, we have lost In the last quarter, around 7 basis point because we have moved down from 216 basis point Mr. 2 0 9 basis points.
This is also due to the contribution of the state guaranteed loans. This realization effect will be there for a while. We are seeing a low demand for this type of Credit. Having said that, progressively during the year, we will improve the business mix because we will have The increase of loans in Italy with higher loan rates in comparison with state loan guarantee. To give you the flavor, state Mr.
Loan guarantee rates are around 1%, while the average of the stock is around 200 basis points. This normalization of the risk appetite will clearly also involve the dynamic of consumer financing that will increase during the course of 2021.
Thank you. TJ? Thank you, Joerg. Mr. Domenico, on the asset quality, I think, firstly, as already mentioned by Stefano in terms of the cost of risk, 1 for Q1, the seasonality.
And remember, we have done very proactive classification in Q4 last year. And there are some write backs. And these write backs have very little to do with the moratoria because the moratoria, The one only outstanding are in Italy. And in Germany and in Austria, the moratoria Mr. The morator has expired in Germany and a little bit a tiny amount left in Austria.
These are the two areas where we have seen basically the write back, which we expect to be so called Non recurring and there were no specific default at all in Germany or in Austria. And our recent asset quality experience on moratoria Has been actually better than what we have forecasted and assumed in our assumptions. So we still expect Our cost of risk, as mentioned earlier, to be below 60 basis points.
Thank you, TJ. Maybe if Stefano wants to add a little bit from the balance sheet side on the staging.
Yes. Duenco, you asked for the movement in Stage 2 loans. So as already highlighted by Mr. Jay, the Stage 2 loans reduction is primarily deranging from movement of position in Germany For around €6,000,000,000 Having said that, there is also an important element to be considered in relation to the new definition of default. As you remember, In the Q4 'twenty, we have already recognized the LLPs in relation to the application of the new definition of default.
These LEP were allocated to the performing portfolio, while now have been reallocated to the non So that's the reason why there is also a slight decrease of the coverage of the Stage 2 portfolio.
Thank you. Next question, please.
Understood. Thank you.
The next question is from Jean Noyes with Goldman Sachs. Please go ahead.
Hi. And thanks for allowing me to ask some questions. I just wanted to ask on capital. So we've had many, many quarters Of very strong capital build, in particular, when you consider the headwinds That UniCredit had described in the past, regulatory headwinds, procyclicality, etcetera. The surprise continues to be meaningfully positive, Suggesting that there is also tailwinds as much as headwinds.
And I just wanted to understand whether you'd be willing to update us With what you think is the capital path from here, the size of the headwinds and maybe some of the tailwinds that are apparent in your evolution? So that would be my first question. And my second question is on the comment about reenergizing and essentially restarting the loan engine. I just wanted to understand whether you believe essentially the sector or client breakdown of where you plan to be more active. Is it going to be more, let's say, in large ticket corporates or in Germany, in Italy, CE or is this consumer Finance, mortgages, etcetera.
I'm just trying to gauge of the speed and the type of loans that you want to do. And also, I would like to understand whether It's with existing clients where you'd like to have a bigger share of wallet or whether you'd like to branch out a bit more than you have in the past. And maybe a clarification. I know it's 2 questions, but just you say you want to target ROE above COE. Could you just tell us what you believe your COE is, please?
Thank you.
Thank you, Jean Francois. I'm maybe tempted to count a little bit different. So on the 2.5 questions, I think the clarification, I mean, we shouldn't comment on our cost of equity, but I think it's I mean, you can see what the market implies, and you knew what our old targets were. So I think it's Mr. It gives you a directional sense of what we mean by that.
Obviously, with the details of the target level, Mr. We ask for the patience for the new strategic plan. Now on the loan engines, Again, I'll pass to Stefano for what we can say here. Obviously, also that one has an element of sort of spoiler alerting Mr. The strategic plan, which we won't do, but we'll see what we can say on that.
And then on the capital path from here, Mr. Wouter will answer that. Stefan?
Thank you, Jorg. So in relation to loan dynamics, We are expecting to have higher growth and acquisition of market share in consumer financing In all the geographies, especially in relation to Italy and Central Europe. Currently, also the dynamic of residential mortgages is positive, especially in Italy, Where we have reached a market share on new business of around 14%. In relation to corporates, Mr. We will maintain our strict underwriting discipline and the attention to originate Two clients with a higher return on allocated capital.
Having said that, we are remaining supportive On all the geographies, so both Central Eastern Europe and Western Europe, from this perspective, we are We're also presenting to have more an increase of our share of wallet. In general terms, the dynamic of our Lending will also be depending on the credit demand from the clients that in some segments and countries for the time being In relation to the cost of equity, it has been already So we will give also more clarity in the presentation of the Capital Market Day of the plan. And now I leave the word to Wouter in relation to the capital evolution.
Thank you, Stefano. Fairly quickly on that. I think there's 2 main components To be looked at, 1st of all, is the regulatory headwinds. And we have been guiding well below 140 basis points for this year. And I propose that T.
J. Will detail that in a minute. The other element and that has been an important driver of our capital relief is the risk weighted assets reduction That we have seen basically as a result of our business evolution. And we expect that even when the economy picks up again, That we will see that business activity grow again, loan volume being picked up. Also even when the guaranteed programs, especially in Italy will come to an end.
That benefit to our risk weighted assets will also gradually disappear. So My expectation is that some of the gains that we have seen on capital, especially in risk weighted assets and for this quarter that was 52 basis points, That will gradually reverse if and when the business volumes pick up. But I hand over to T. J. On the regulatory headwinds.
Thank you, Walter. As Walter mentioned, we confirm our regulatory headwinds guidance to be below 140. And remember, Mr. You have to look through 'twenty and 'twenty one to take into contact 140. In the original team 23 plan, we were Expecting about 50 basis points in negative in 2020 and 50 basis points in 'twenty one.
And last year, because of the CR quick fix, we actually registered a positive 20. So a lot of these are Timing deferral. And clearly, there are indeed some true benefit from the so called CR quick fix. We won't go through all of the components. So from that point of view, we in terms of the TRIM effect, we are in line With what has been announced by EBA.
And then clearly, EBA guideline will be coming through with a lot of model submission Mr. Where the regulatory compliance is from January 2022. In terms of tailwind, clearly, depending on the economic environment, Clearly, we're seeing a lot of positive momentum. So to the extent that This translate into better economic activities. We can see some of the PD scenario that we're expecting maybe not as high as we expect, but we expect to start reverting from 2022 only, not Mr.
The second half of this year. Thank you.
Thanks, TJ. Next question, please.
The next question is from Adrian Chigi with Credit Suisse. Please go ahead.
Hi, there. This is Adrian Chigi from Credit Suisse. Thank you for taking my questions. Two clarifications from my side. Can I please confirm that YAPI remains noncore You're looking to divest before 2022?
And apologies going back to the capital headwinds, I understood the 140 basis points headwinds include the combined 2020 and 2021 headwinds. Is it fair to say that the remaining 2020
Well, thank you, Adrian. Because it's clarifications which always challenge my ability to count, I'll take these 2. So the first one, we can confirm. YAPI remains Non CorSo remains a strategic investment. I think on the reg headwinds, what T.
J. Was what T. J. Meant by saying You need to look at this 'twenty and 'twenty one combined is that where we had time shifts for delays in modeling, They were shifted between the 2 as well as for the PD migration. That's something that is an effect That's driven by the 2 years together.
So now you should say you shouldn't assume 90 bps in the rest The year, but you should expect in the remaining of the year, a total of rack headwinds that will, together with the plus 11 you had in the first quarter, Remain below 140. Next question, please.
Thank you
very much.
The next question is from Christian Carrese with Intermonte. Hen. Please go
ahead. I have two questions. The first one is on Lending volumes and Mercado, I understand that net interest income will still be under pressure In the coming quarters, I was wondering in Italy, in particular, what could be the impact from the expansion of the moratorium to year end 2021 in terms of loans and the spread. And I feel that looking at the capital position now maybe It's worth to look at higher loans growth to boost revenues rather than O'Cel Capital Base. The second question is for Mr.
O'Cel. I I was wondering what are the areas, both geographically and in terms of business in which UniCredit needed to strengthen Its position in our view because the CEO, the previous CEO stressed the desire to create value for shareholders by allocating Capital to buybacks rather than acquisition. But we saw some regulatory changes, for example, in Italy. I'm referring, for example, to DTI conversion in the event of a merger. So make these changes Could make M and A deals more appealing than in the past?
Thank you.
Thank you, Adrian. I think on the second one, unfortunately, as we asked before, we have nothing to add what he said. So he Basically said that M and A is part of a toolbox where it's in the best interest of the shareholders and where it makes sense Financially and strategically and then obviously on any more details that we need to defer to the second half of 21. But the first one, for sure, we can answer. So the impact of moratorium on loan spreads lending volumes, maybe Stefano wants to take that.
Yes. Thank you, Jorg. So just to remember, which is the amount of loans under Moratorade 12 €16,000,000,000 in Italy. 3 out of 16 are 2 individuals and around €13,000,000,000 are So currently, there is no impact to the NII that are being from this portfolio because a matter of fact, we are still accruing The interest related to this portfolio. In general, as you were commenting in other situation, We are expecting the full trade for the enterprises part around 6%.
This is already embedded in our expectation in evolution for the NII. For the remaining portion of the portfolio, The portfolio will remain performing. As a consequence, we are not expecting to have an impact from the dynamic of the NII. The dynamic of the net interest income of Italy, as I was alluding to you before, will be more impacted by Mr. And overall increase in the new production of consumer financing in a reduction of the portion of the lending They are having from state guarantee loans that especially in the 2nd part of the year will be substituted by other topology of Loans both towards smallmedium enterprises and the corporates that will have a higher client rates in comparison with Mr.
Andre Orchel and CFO, Mr.
Andre Orchel. Thank you, Stefano. Next question, please.
Sorry, when
I asked
you just no answer on M and A, An additional one off revenues on trading income in Tarsipra. The first quarter numbers were much higher than the previous quarterly guidance. Can we expect a more proactive approach going forward on this line? Or should the Q1 results be considered as sort of a one off?
Thank you, Adrian. And it's, I guess, fair enough if you don't get an answer to one question to get one extra, but maybe Stefano on the trading.
Yes. You have a lot. The trading dynamic of the Q1 was really a strong one also in relation to the client driven part of our trading result. The overall situation like the one connected for investments fees is favorable When we are looking to the dynamic of the markets, we need to bear in mind that our trading activity is fundamentally deriving from the clients' activity. So in general, we are expecting a normalization of the trading contribution to the revenues That is around €350,000,000 per average.
Having said that, considering the general market situation And the pickup of the activity from the client side, we might expect tailwinds also in relation to the trading. Thank you, Stefano.
Adrian, does that count as an answer or you want another one? No. Next question, please.
Our next question is from Alberto Cordara with Bank of America. Please go ahead.
Hi, good morning. From my side, a clarification on asset quality. So when I look at the NPE trend, these were up by 5.5 Same quarter on quarter. So I just wanted to know what part of this increase is due to the new definition of default? And also what we should expect as an NPE ratio for the end of the year.
And the other issue that I noted in asset quality is that your coverage is down And this is down by 160 bps. So also if you can help me understand that. Then I'm going back to A couple of points just for a clarification of these questions that have already been asked to you. The first one is on regulatory headwinds that are less than 140 bps. But we see particularly in this quarter that guarantee loss can help pushing capital quite a lot.
So Is it possible to have a net figure, I. E. The BRL140 bps minus the loss that you're going to refinance And you're going to push under the guarantees. What is going to be the impact for the year? And then another clarification on that, I think there was Confusions because I heard that the traffic in Q1, I think you never guided for a traffic in Q1.
I think Your guidance, if I remember correctly, was for G and I to be weak in the first part of the year and to recovery So I just wanted to check with you if this is still correct, if we should see some Improvements in the second half or a stationary trend or what we should expect? Thank you.
Thank you, Alberto. Just because you call it a clarification, we still count it as a question, but maybe 3 is the new 2. So the asset quality and the impact of DoD on the ratios and coverage and NPE, TGA will take. And then I think, Mr. Stefano on the other 2.
TJ?
Thank you. On asset quality, first of all, when we when you look at the overall Headline of this 4.8, once you really look at the NPE ratio for the group excluding noncore because we have stated that noncore will be one off by end of the year. And from Q4, the increase to 4.1 As shown in one of the asset quality page, I think, Page 14, this is all primarily due to the DoD. Mr. Andre Orchel.
The $1,200,000,000 a large part is in DoD. And to that extent, given that we are going to run off in the non core, You can expect clearly that we, as mentioned earlier, our so called NPE ratio, looking at the group EBA definition like, Which today is about CHF2.8 trillion and CHF2.7 trillion DoD is in line with European average. Secondly, the coverage is nothing more than mechanical on the so called DoD. These are Mr. Files that are actually reasonably quite good quality, some with high coverage.
So when you automatically move those Into the MPE, the OTP side, you will see the coverage basically be lowered. So it's nothing more than a mechanical effect. And remember, among all of our peers, we have one of the highest coverage
Mr. Thank you, T. J. Stefano?
Yes. So in relation to regulatory headwinds and state guaranteed loans. So as already mentioned before, The amount of regulatory headwinds impact to the capital that we're expecting is less than 140 basis points. Among this impact, We do have the EDA guidance impact, especially on low default portfolio, including the TRIM effect, Change to the models and the PD Procyclicality. As highlighted by TJ before, depending on the overall Composition of the portfolio, so the portion secured and secured during the year, including the amount in relation to State guaranteed loans, we might have tailwinds.
So the overall quality of the composition of the portfolio can impact not only The overall risk density that we are including in our work in the business volume side, but also The impact they are having from what we are calling regulatory headwinds. The final impact that we will have will depend on the Evolution of the portfolio during the next months. In relation to the state guaranteed loans current, we are €19,000,000,000 in Italy, €20 €5,000,000,000 at group level, we are expecting to be above €20,000,000,000 in Italy by the end of June. In relation to NII, you are right. What we are expecting currently are headwinds To the NII, they are having fundamentally from the rates development that we were commenting before.
Having said that, we are expecting to have a contribution to the NII, that I mean from volumes that will Increase, especially during the 2nd part of the year following the recovery pace That will accelerate in our opinion, especially in the 2nd part of 2021.
Thank you, Stefano. And of course, Alberto, you'll be given 5 extra days compared to the 90 days annualized NII In the Q1 as well. Next question, please.
The next question is from Hugo Cruz with KBW. Please go ahead.
Hi. Thank you for the time. Just a quick question on Commercial Banking Italy fees. The growth was very, very impressive. So
AUM and Francisco are up 52% year on year. I was just wondering There's any kind of one off effect in the year, perhaps any pricing plans. If you could explain that, it would be great.
Maybe Stefano on this one.
Yes. So on fees, you are right. Mr. Andre Oertchell. The performance is really, really strong, especially in investment fees.
We are up 21% quarter on quarter and 15% year on year. The overall amount of gross sales that we had in the group Is around €4,000,000,000 more what we have in the last quarter 2020. We have not In the quarter specific one off, we do have a positive contribution from upfront fees in investment fees side. So the general performance is fundamentally depending on the general market situation that is a stable one, The behavior of the clients on the other hand and also the commercial effectiveness of our network. Mr.
The overall evolution of fees that we are expecting for the full year will be dependent On the stability of the market situation and the behavior of the clients in relation to the management of the asset under management portfolio on one hand. But the situation that we are seeing currently is positive And the dynamic of April is similar to the dynamic that we've seen in the Q1. The other element to be taken into consideration, as I said before, And the connected impact on the client activity on cards and payments.
Thank you. Maybe just to add, Hugo, because you mentioned also maybe performance fees or one offs, that one was only €2,000,000 in the Q4, and that's the only quarter where we have So completely immaterial on that performance.
Next question is from Patrick Lee with Santander. Please go ahead.
Hi, good morning everyone. Thanks for taking my questions. I have one on cost of risk and one on revenues. Firstly, on the 60 basis point cost of risk guidance, Notwithstanding the seasonality of the Q1, as you mentioned, there still means quite a big deterioration for the rest of the year. So let's say, maybe 75 basis points run rate for
the rest Can I ask you if
you have implicitly factored in some release from the SEK 2,200,000,000 taken last year? And how
do you think about the mix of
Specifically, on revenues. Thanks for confirming the total revenue should be amongst consensus. If I look at the NII consensus, I think to make NII consensus will require some sort of improvement in the run rate from the Q1 level.
I know that
a different moving parts of margin pressure remains a negative so far. And I think in the context that UniCredit has in recent quarters said that the disparity to expand into the higher margin consumer finance segment. And you mentioned that a few times today. Is that something that has started in Q1 or has it started in Q2 so far? And I guess from a broader perspective, how important is this readiness to go up the risk curve in the context of making your revenue target?
Thank you, Patrick. Maybe just a clarification from my side. I think I'm owed 1, 2. We said revenues In line with the company compiled consensus. We didn't say each component of the revenue is in line with company compiled consensus.
So It's the 17.1%, give or take, that we referred to, but maybe Stefano will answer On the NII component and the business mix. But before we do that, maybe T. J. On the cost of risk guidance and any potential releases from Overlay is booked in the
past, Tidjane. Yes. Thank you, Yoh. Patrick, on the cost of risk, clearly, Q1 is, as we already mentioned, seasonally low. And last year, remember you remember very well, we took A large overlay the 2,200,000,000.
As we clearly go through the year, particularly More so in Italy, because the moratorium have not yet been fully expired. We expect a lot of the so called overlay to come in to compensate And we are very, very comfortable with How this is done? And clearly, there could be some timing differences in terms of when the moratorium might be pushed out by Italy, but we expect this to be fairly limited. So we confirm Basically, the so called cost of risk to be below 60% for the year.
Thank you, T. J. And Stefaan?
Yes.
So the dynamic of the NII during the year is dependent by several factors because, as you know, it It depends from dynamics of volumes and rates on the asset side, commercial loans, the dynamic on the deposit side, More than in terms of not only in terms of volumes, but also in terms of rates and the non financial, The noncommercial component of the NII. In relation to the noncommercial component of the NII, we are not expecting Mr. A significant drag to the NII because the investment portfolio contribution will be lower, but Will be compensated by a lower cost of funding. So the driver will be on the liability The continued re pricing of the current accounts. We are doing well, especially in Germany and Central Asia Europe, this trend will continue.
In relation to the lending side, consumer financing It's important, but it's not decisive. We will increase our market share in Commercial Banking Italy and in Central and State Europe, Mr. But in countries like Germany or fundamentally CIB that are contributing To the NII of the group, in an important way, that dynamic is an important one. It's more important the dynamic Of the loans in terms of volumes and pricing towards corporate. In relation to Italy, Out of around €130,000,000,000 of commercial loans, bear in mind that the consumer financing are around €10,000,000,000 Fair to be said that the rate is around 600 basis point And we are reacquiring market share, but it's not the only decisive element for the dynamics Having said that, within that, we will have a higher contribution from the NII that are being from volumes.
And as Alai said before, the point of attention that can create headwinds even more on the of the average Customer rates, especially on the corporate side.
The next question is from Andrea Lizzie with Equita. Please go ahead.
Hi, thank you for the call. Just A quick one, wondering to understand better if your guidance of cost of risk at 60 below 60 bps Already includes the postponement potential postponement of the plan for the moratorium in Italy to the end of the year or if it is considering the current situation?
Andrea, and sorry again for the quick glitch that we had
on the call. So please bear with us. This one is for T. J. Okay.
Thank you, Yoh. Andrea, Just a quick reply sort of to you. Our cost of risk, clearly, as I mentioned in one of the earlier comment, The moratorium extension we think will have limited impact because this will be an opt in So call, that's what we expect. And then we will specifically look at the so called UTP and forbearance Mr. To classify some of those into the right category.
So there will be some timing shift, but we do not expect It doesn't to be anything significant. So we still confirm our cost of risk below 60.
Thank you, TJ. Next question, please.
The next question is from Andrea Filletri with Mediobanca. Please go ahead.
Thank you. A question on fees and one on cost of risk. On fees, you touched on that before, but if you could please Make explicit the contribution of upfront fees and performance fees in Q1 And how much tailwind do you expect from these for the rest of the year? On cost of risk, Is your cost of risk guidance including any use of the overlays? And if so, how much?
And it seems like banks are guiding cost of risk down, seeing no asset quality deterioration And even having write backs, while the ECB is commanding prudence on Future NPLs and governments are extending support measures and moratoria. Can you just explain us how you square the circle? Thank you.
Thank you, Andrea. We'll start Stefano on the fees and Terrence from upfront fees and then TJ on cost of risk.
Yes. Thank you. Andre, on upfront fees, the contribution of upfront fees to the overall fees Was just above €300,000,000 during the Q4 'twenty one. That was Connected with the €17,000,000,000 gross sales of assets under management product that was highlighted to you before. The average gross sales that we have in 4th quarter 2020 and 4th quarter 2020 was around €13,000,000,000 So the overall dynamic of upfront fees will be dependent on the dynamic of the gross sales.
Currently, In April, as I was highlighting before, the performance is a similar one. Having said that, we do see Mr. A year of decline that can change over the course of the year, but the overall market situation and liquidity Situation is favorable from this perspective. There is no meaningful impact from a performance
Thank you, Stefano. T. J, on the cost of risk?
Thank you, Yoh. Hi, Andrea. On the cost of risk, clearly, the overlay that we took in full year 'twenty, It underpins our credibility in terms of the guidance we have given. And in fact, to the extent that The higher default will materialize. Some of these overlays sort of will be used.
So we already A factor a lot of proactive classification. And what the ECB is looking for is to make sure that despite this Mr. Any extension of Moratoria that we look through the so called underlying client because they could be have other so called Mr. Influence, where either forbearance or so called Mr. The EBA classification, we will probably have to classify into the regulatory Not the normal OTP, but regulatory as an intermediate stage to the OTP.
So this one, we are fairly comfortable in how this dynamic sort of works. So between the overlay we took And what we expect this year, we already we are doing what ECB expect out of us.
Yes. But sorry, I wanted to understand how much of the 2020 overlay do you Expect to draw out in the 2021 guidance of below 60 basis points.
Well, Mr. We don't give this breakdown, but clearly, some part of this will come overlay to the macro releases that We'll have in a stage 2, the stage 1 that we will also see. So not all of the 2.2 will be used for this year.
But below 6, yes, obviously, net Mr. Of any of such potential releases? Yes. Before we go to the next question, could I please ask Patrick Lee from Santander to tell us, Mr. Because he was the original victim of our cut in the technology, if there was parts of the answer that we still owe you because you couldn't hear us, Mr.
Patrick?
I actually missed a bit on the revenue bit in terms of the Mr.
I think I mentioned you mentioned a few
times about consumer finance being a key project that you would think about when the economic environment I think I asked the question, how important is the readiness to go up to this curve in making the revenue target?
Yes. Maybe if Stefano can quickly repeat that. And again, sorry for the technical inconvenience.
Yes, absolutely. So I was commenting to the Fed that the overall dynamic of the NII is dependent from the commercial dynamic on The asset side, loan rates, where also consumer financing can play a role. The dynamic on the deposit side and the connected client rates And the noncommercial component. The noncommercial component is expected to, let's say, not have Mr. A significant contribution to NII as a delta because we will have a lower contribution from the investment portfolio that will be compensated by a lower cost of We will keep on working in order to reprice on the liability side, so on the deposit side.
On the asset side, it will be a function of volumes. We are expecting an increase of the volumes In all the geographies and division, especially in the second part of the year when the economic recovery will be sustained. In relation to consumer financing, we are expecting to have a higher market share and as a consequence, a higher contribution, especially in Commercial Banking, Italy and Central Having said that, important to consider that in Italy, Commercial Banking Italy is having an average And the contribution of Consumer financing to this stock is around €10,000,000,000 So we will increase our market share. The consumer financing rate is 6%, We'll positively contribute, but he's not the main contributor to the dynamic on the NII. Also, the volumes towards corporates We'll play an important role in this, taking in consideration the exposure towards corporate SME, Medium and Large Corporate that we have in a different division of the group.
And from this perspective, the demand is still subdued That we are seeing in managerographies and as a concern of that will be one of the main point of attention to be a look at in the next quarters.
Thank you, Stefano. And again, Patrick, apologies. It won't happen.
Thanks for coming back.
Next question, please.
The next question is from Delfin Lee with JPMorgan. Please go ahead.
Yes. Thank you for taking my questions. I've got 2. So My first one is to come back on capital. Your CET1 ratio is now close to 16%.
Just wanted to understand, Well, are you still sticking to medium term 200, 2 50 basis points? Or is that It's going to stay meaningfully above that level in coming years. And is there any chance that we could see more buybacks Post September, beyond the EUR 652,000,000 which you have already announced to basically reduce the EBITDA gap. This is Mr. Your long term target.
My second question is for Andrea. I just wanted to ask About remuneration. So I understand that you have a payment which is coming of 2 payments. I just wanted to understand The timing of those two payments of shares and also ask whether you intend to buy Mr.
Andre Orchelle, and CFO, Mr.
Andre Orchelle, are using your own money?
Hi, Delphine. Andrea is actually not Here, so he can answer that question, but we can take that one offline. On capital, maybe Wouter? Yes. Very quickly that.
On capital,
we confirmed actually our CET1 MDA buffer target range that continues to be In the range of 200 basis points to 2 50 basis points. So no change in that guidance. And as to additional buybacks post September, There is no decision whatsoever. So you have seen that we have obtained the approvals for our buybacks in the AGM, The ordinary one of €179,000,000 that will be completed by the end of Q3. The extraordinary one, The capital distribution of €652,000,000 to which you referred, that's fully in share buybacks.
For that one, we have obtained AGM approval, but obviously the other steps have all to be seen after the ECB's decision in September. So No additional decisions from our side on that.
Thank you.
Okay. Thanks.
Next question?
The next question is from Ignacio Cerezo with UBS. Please go ahead.
Yes, hi. Good morning. Thank you for the presentation. 1 on cost of risk and one on the net interest income. On the cost of risk, If you can elaborate actually where you think we're shifting a little bit of a loss recognition into 2022 from this year given the Especially of the monetary schemes, etcetera.
Or if the macro develops the way people are expecting, we can actually enter The phase where cost of risk can be below or could be a normalized level? So that's the first question. And the second one, more in detail. If you can remind us on the government bond holding maturities you have this year and next year and the yields on those maturities.
Thank you. The first one will be answered by T. J. And then Stefano on the bond portfolio. T.
J?
Thank you. On the cost of risk, in terms of the extension on the moratorium side, We are clearly already very proactive even from last year. And this year will continue, even if the Italian moratorium Get extended, particularly to the opt in only on the capital side. We will be looking to, as per the guideline by ECB Mr. In terms of using whether it's the so called OTP test On measurement, the forbearance and to make sure that as much as possible where it makes sense to classify them as regulatory sort of UTP.
So in that context, we think the spillover into next year would be fairly limited. And Your second part of the question in terms of growth, clearly, we expect normalization of the world economy, including in Europe to gather momentum. So we can expect we have built in this scenario in terms of cost of risk next year. And clearly, it depends on how fast the European economy sort of recover to the pre pandemic level,
Mr. Thank you, Stefano.
Yes. So in relation to the investment portfolio, The size of the investment portfolio group level is around €140,000,000,000 The average rate of the Portfolio is slightly above 45 basis points in terms of rate. Due to which of the Italian exposure, It's around €45,000,000,000 Of this €45,000,000,000 I think that we will have Rollover, so maturity of this portfolio around 10% during the next year And around 40% in the next 3 years. So as a consequence of that, we need to reinvest Around 40% of the investment portfolio in Italy in the next 3 years.
Thank you, Stefano. If I understand correctly, at the moment, we don't have additionally registered questions. If someone wants to ask another question, please register. If We'll take the deafening silence as the sign that there are no more additional questions. So thank you very much
Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.