Good morning. This is the Chorus Call conference operator. Welcome and thank you for joining the Uniketit Group's 4th Quarter and Full Year 2019 Conference Call. As a reminder, all participants are in listen only mode. After the presentation, there will be an opportunity to ask questions.
At this time, I would like to turn the conference over to Mr. Jean Pierre Muthier, UniCredit Group's Chief Executive Officer. Please go ahead, sir.
Thank you very much. Good morning to you all and welcome to our analyst call for the Q4 2019 and the full year 2019. The last time we saw you, we presented our new plan, TIM23, at our Capital Market Day in London last December. But today, we present the last quarter And the last full financial year of our previous plan transformed 2019. I am really proud to say that we ended the plan on a high note, delivering a strong full year 2019 results, including our target of EUR 4,700,000,000 underlying net profit.
This result would not have been possible without the dedication and the hard work of the whole team. I am very grateful to all our colleagues. Thank you. The €4,700,000,000 underlying net profit The basis of our proposed capital distribution for FY 2019 paid in 2020 of €1,900,000,000 cash dividend on €1,400,000,000 and a share buyback of €500,000,000 subject of course to AGM and supervisory approval. TRD 5 Article 104A As we communicated last week by the ECB, to be applied in the strength valid from the 1st January 2021.
Thanks to this and our strong pro form a CET1 ratio at year end 2019 of 13.09%, we will consider to increase our capital distribution to 50% for FY 2020 paid in 2021 and for the remainder of the plan. This implies More than €1,000,000,000 of additional capital distribution to our shareholders over the course of TIM 2023. With that, we deliver on our commitment since the beginning of Transform 2019 that the increase of the capital distribution to 50% as soon as we can have better visibility on the regulatory headwinds. At Unique Credit, we say what we do and we do what we think. Let's turn to slide 4.
The underlying 4th quarter 2019 net profit of the group was EUR 1,400,000,000. This is the record for Q4 for the 3rd time in a row. Derisking the quarter continued at a vigorous pace, Taking the group gross NPE ratio to 5% for the first time, again significantly down year
on year.
4Q 2019 was affected by a number of non operating items as per the Capital Markets Day 2019. We are also recasting the 1st 3 quarters of FY 2019 and all the quarters of FY 2018 For the revaluation of real estate, you can find details of these topics in the Annex from Page 45 and onwards. You will have also seen that last night, we sold another stake in YAPI, taking our shareholding to 20%. We expect to stay at that level for the remainder of the year. We are confident that this transaction will allow us to deconsolidate YAPTIC from a regulatory perspective in the Q1 2020 and have contacted the prudential supervisors.
The overall impact on the Q1 2020 of the transaction in Yaply, assuming regulatory deconsolidation, is expected to be around 0.5 percentage points of CET1 ratio. Let's move to Slide 5. The 4th quarter 2019 group revenues are up 3.4% year on year, While Q4 2019 costs are down 4.4% year on year, resulting in significant operating leverage. Group gross NPEs are €25,300,000,000 down almost 2 thirds since the start of Transform 2019 and beating the original target by almost €20,000,000,000 Let's move to Slide 7. Our pro form a 4 quarter 2019 CET1 ratio stood at 13.09%, representing a buffer of 300 basis points over NDA.
In the last 12 months, Our spreads have tightened considerably. We continued our proactive funding strategy and issued more than €3,000,000,000 in subordinated TLAC instruments in January this year at very attractive spreads. The non core rundown continues at a brief pace with non core gross NPE reaching €8,600,000,000 At the end of FY 2019, well ahead of guidance. Let's turn to Slide 8. We continue to enhance our multichannel offer to deliver enhanced customer experience as illustrated by the continued successful rollout of our Western European mobile banking app.
We have published our comprehensive ESG strategy late November last year, which is fully integrated into TIM23. This demonstrates our very strong commitment To sustainability, let's turn to slide 9. As we said earlier, we have successfully delivered Transform 2019 Despite challenging macro headwinds, we overachieved on the reduction of NPEs, the capital and cost reduction, Including the FD and branch closures, while we beat the absolute cost reduction target by €700,000,000 The adverse macro environment led to lower revenues and first, the cost income ratio was slightly above target. We are very proud of the increase in our profitability, capitalization level and risk profile that together resulted in the improvement of our SREP P2R ratio by 75 basis points since the beginning of the plan. This is the biggest decrease of any European bank.
Now let me hand over to Mierko.
Thank you, Jean Pierre, and good morning to everyone. I will now take you through our 4th Q 2019 fiscal year 2019 financial performance. You will see we have stopped reporting the group core P and L numbers. We communicated at our Capital Markets Day 2019 about the EUR 1,000,000,000 non core loan loss provisions for the aggregated rundown strategy booked in the 4th Q. As a result, non core is essentially closed from a P and L perspective And therefore, group core numbers will be materially the same as grew from the 1st Q 2020 onwards.
As regards to the asset quality KPIs, we will continue to make the distinction between group excluding non core and non core until the full rundown by the end of 2021. Group profitability was strong with an underlying ROE of 10.8% in the quarter and 9.2% for fiscal year 2019, better than our 9% target. Let's turn to Slide 12. As we will go through the P and L items up to now, on the following pages, I will focus my comments on this page On the below the line items. The systemic charges were slightly higher than our guidance of approximately EUR 850,000,000 due to one off items like bank levy in Romania.
For fiscal year 2020, our guidance is below EUR 900,000,000. The integration costs include the restructuring charges for FTE reductions mainly in Germany and Austria as well as nonrecurring write off of intangible assets related to software. The profit on investment includes the impact from the unwinding of the YAPI joint ventures As disclosed in the press release in November, the tax rate the stated tax rate in fiscal year 2019 is 29%, driven by the non deductibility of various non operating items. The underlying tax rate in 2019 is below 20% as per guidance. 14.23, the stated tax rate is expected between 23% 25%, while the underlying tax rate, as previously said, is between 18% 20%.
Our colleagues in IR will be happy to give you more details on this if you need it. Let's turn to Slide 13. Commercial dynamics in the quarter were resilient, although NII was down to noncommercial items. The main drivers of the quarterly NII were loan volumes down, mainly driven by Commercial Banking Italy and CIB. In Commercial Banking Italy, we proactively managed our credit exposures with EVA negative clients, which explains 80% of the loan reduction.
In CIB, there were some large repayments from corporates with excess liquidity. The contribution from deposit rates was a positive EUR 45,000,000 driven by lower term deposit volumes, mainly in Russia. In the other bucket, 3rd Q 2019 was affected by a nonrecurring positive €11,000,000 item in Factoring Italy. In addition, there was a technical accounting adjustment in the quarter on quarter change for negative EUR 13,000,000. Let's turn to Slide 14.
Commercial Banking Germany, customer loan rates were up 3 basis points in the quarter, while for the group, they were 2 basis points lower. The main reason being our focus on better rated clients and continued competitive pressure. Deposit rates at group level were down 4 basis points in the quarter, mainly driven by the lower term deposits in CEB. Let's turn to Slide 15. End of the period customer loan volumes in group excluding non core were lower quarter on quarter in all divisions except Commercial Banking Austria.
The reasons were slightly different. In Commercial Banking Italy, we proactively managed our credit exposures with EVA negative clients, which explains 80% of the loan reduction. In Commercial Germany, there was active balance sheet management by clients over year end with early repayments in real and short term loan reduction from large corporates. In CIB, some large corporates with excess liquidity repaid their loans And we exited the C division Baltic Leasing Business for EUR 800,000,000. The gap between customer loans and customer deposit that resulted from the sale of Fineco is almost completely closed, improving from more than EUR 17,000,000,000 in the 2nd Q 2019 to less than EUR 3,000,000,000 in the 4th Q 2019.
Let's turn to Slide 16. Group fees were up 5.1% year on year driven by investment fees. There was a strong contribution from AUM fees both from upfront and management fees. This is true for the development across Western Europe, both quarter on quarter and year on year. It confirms the success of our strategy of converting AUCs into AUMs.
Russian fees would have been flat quarter on quarter had they not been affected by a nonrecurring success fee paid to a 3rd party in the 4th Q 2019. For fiscal year 2020, we expect a positive contribution to transaction fees From current account repricing, let's turn to Slide 17. TFAs stood at €793,900,000,000 in the 4th Q 2019. We had strong AUM net sales of plus EUR 2,000,000,000 in the quarter, mostly in Italy. We continue to see successful conversion of AUC into AUMs As clients realized capital gains from BTPs and certificates and invested a good percentage of these flows Into AUMs.
As a result, AUC net sales in the quarter stood at a negative EUR 2,400,000,000. Let's turn to Slide 18. Trading income in the fiscal year 2019 was EUR 1,500,000,000 up 20.2% on last year driven by strong client activity. This is even more impressive considering there was a negative swing in of almost EUR 150,000,000 Excluding XVA, the increase in trading income would have been 35%. We confirm the expected average quarterly figure of around EUR 300,000,000.
This number excludes XVA. The contribution of YAPI was EUR 220,000,000 in the fiscal year 2019 Petrobras 9,000,000 in the 4th quarter, mainly driven by higher loan loss provision in the local accounts. As we said before, we expect the share ownership level of Yapi at 20% for the remainder of the year. Let's turn to Slide 19. Our focus on cost efficiency is yielding tangible results quarter after quarter with costs better by 3.7% fiscal year on fiscal year.
As we said at our Capital Markets in December Last year, TIM 23 is more about bottom up process optimization. As a result, Our cost efficiency will be more back ended to offset cost inflation leading to overall flat cost over the planned period. For fiscal year 2020, the cost target is confirmed below EUR 10,200,000,000. Let's turn to Slide 20. We experienced the usual 4Q seasonality in both HR and non HR expenses, While the latter is driven by year end invoicing of vendors, the former is affected by variable compensation and the new labor contract in Italy.
Please also note that the intangible asset write off in the 4th Q 2019 was reclassified from non HR expenses to integration costs due to its nonrecurring nature. Let's turn to Slide 21. Regarding group asset quality, I would like to point out 3 items. First, in the 4th Q 2019, for the first time, the group gross NPE ratio improved to 5%. This was thanks to a 12% quarter on quarter reduction in the gross NPE in the numerator and an increase in the denominator from higher repo volumes that are more volatile in nature.
With more normalized repo volumes, the ratio would have been 5.2%. 2nd, The underlying cost of risk was 49 basis points with no mortgage impact for fiscal year 2019 better than our original target of 55 basis points, including 4 basis points of models. On a stated basis, The non core loan loss provision for the updated rundown strategy inflated the number. 3rd, The underlying risk environment remains supportive, and we confirm the fiscal year 2020 guidance given at the Capital Markets Day 2019 of 46 basis points, including 12 basis points of regulatory headwinds. This drop in cost of risk is driven by noncore no longer contributing to loan loss provisions in a material way.
For reference, the fiscal year 2019 cost of risk for group, Excluding non core was 37 basis points. Let's turn to Slide 23. In fiscal year 2019, NII was down due to pressure on loan rates and volumes and higher deposits. The quarter on quarter drop in loans in the 4th Q 2019 was due to our proactive management of credit exposure with EVA negative clients, which explains 80% of the loan reduction. On the fee side, fiscal year 2019 investment fees were stable versus the previous year that showed a meaningful acceleration towards the end of the year.
4th Q 2019 investments fields were up 19.5% year on year, thanks to better upfront fees from significantly better gross sales and management fees. Fiscal year 2019 cost of risk was 73 basis points, down 1 basis points versus last year. This was affected positively by lower impacts from models and the IFRS 9 macro scenario and negatively by disposals of residential mortgage NPEs in the 3rd Q 2019. Let's turn to Slide 24. In Commercial Banking Germany, fiscal year 2018 total revenues were down 2.2 driven by trading, while commercial revenues were resilient.
The drop in trading was almost completely due to a swing in XVA. 4th Q 2019 NII was lower quarter on quarter due to a negative EUR 13,000,000 from the technical accounting adjustment we mentioned earlier. Please note that the first three published quarters were meaningfully affected by the recast For the revaluation of real estate, details can be found in the annex on Page 49 and following. Let's turn to Slide 25. In Commercial Banking Austria, 4Q 2019 fees included a high single digit performance fee As we did not have net write backs in the second half of twenty nineteen, cost of risk started normalizing, and we ended the year below the 16 basis points fiscal year 2019 target.
Let's turn to Slide 26. In CE, fiscal year 2019 fees were up 2.3% on last year. The underlying fee growth adjusted for accounting changes on CPI 3 accruals is around 4%. The contribution of IAPI was lower due to the increased loan loss provisions. Please remember that we still include the clients and branches of YAPI in the divisional numbers.
We will stop doing this once we get the regulatory deconsolidation. Let's turn to Slide 27. Financing fees in fiscal year 2019 were down 10%. This was driven mainly by lower loan fees from reduced client activity and lending volumes. For fiscal year 2019, trading profit is up a strong 26.6 percent, driven by strong underlying client activity, mainly in FICC and Equity Derivatives.
This is despite an adverse mid double digit move in XVA. Excluding XBA, trading profit would have been up more than 35%. Let's turn to Slide 28. In the group corporate center, we delivered on our transformed 2019 KPI of group corporate center cost to total cost. While the revenues were down year on year due to increased subordinated issuance, we expect fiscal year 2020 funding cost come down, thanks to the spread tightening experienced last year.
Please bear in mind that the sale of Fineco in 2nd Q 2019 is in discontinued operations. Let's turn to Slide 29. After we talk in the 4Q 2019, the loan loss provision related to the updated rundown of non core, The division is essentially closed from an economic and P and L perspective. Therefore, we expect only nonmaterial P and L impacts fiscal year 2020 2021. We have also improved our fiscal year 2020 gross NPE target to less than EUR 4,300,000,000 which is half the gross NPEs at the end of 2019.
Let's turn to Slide 31. We continuously work to de risk the balance sheet. The trend is very good, primarily driven by disposals. Our gross NPE ratio for the group excluding non core improved to 3.4% in the 4th Q 2019. Calculated using the EBA definition, we were at 3.0 percent, very close to the EBA average of 2.9%.
Let's turn to Slide 32. The overall credit environment remains supportive as demonstrated by the default rate been down significantly year on year and stable quarter on quarter. The year on year decrease in the cure rate And the increase in the migration rate for the same period
are
both mainly due to Commercial Banking Italy, which we'll discuss in a minute. Let's turn to Slide 33. The gross NPE ratio in Commercial Banking Italy was 5.1%, down 67 basis points year on year, while the coverage ratio improved to 57.3% in the same period. The absolute stock of NPEs, both growth and net, is decreasing year on year and are stable in the quarter. The small uptick in the gross NPE ratio quarter on quarter is essentially due to the lower denominator.
Let's turn to Slide 34. Overall, the risk environment in Commercial Banking Italy remains supportive and stable. This is evidenced by stable year on year default rates and an improved expected loss on the stock. The year on year decrease in the cure rate is due to 4Q 2018 having an extraordinary outflow to performing of 2 single names for around EUR 200,000,000. Without that, the 4Q 2018 cure rate would have been very similar to the one in the 4th by the 4Q 2018 being exceptionally low as a result of proactive actions taken in the 3rd Q 2018.
Without those, the 4th Q 2018 migration rate would have been 28%, very close to the historical average for quarterly migration rates of around 27% and in line with the 4th Q 2019. Let's turn to Slide 35. Non core gross NPEs continued to drop by almost EUR 10,000,000,000 in year 2019 and landing at EUR 8,600,000,000. It is more than 50% better than the original Transform 2019 target of EUR 19,200,000,000 and a drop of more than EUR 40,000,000,000 since the launch of Transform 2019. The team's superb execution of the non core rundown fully confirms their ability to deliver the final runoff of 2021.
Let's turn to Slide 36. The loan loss provisions for the updated rundown strategy of noncore have resulted in a greatly improved coverage And the net NPE is below EUR 2,000,000,000 in the 4th Q 2019. With this improved coverage ratio of above 78%, we are positioned to sell on all non core asset classes. The economic risk stemming from the remaining non core runoff is therefore not material. We also reconfirmed the full runoff by 2021.
In fiscal year 2020, we are confident to at least half the exposure to below EUR 4,300,000,000 gross NPEs in noncore. Let's turn to Slide 38. The group's pro form a CET1 ratio at Quarter end stood at 13.09 percent or a 300 basis points buffer to NBA. This number is pro form a for the share buyback, which is technically will only be deducted once approved. Two factors explain the increase of CET1 ratio.
Around plus 0.1 percentage points of the increase comes from market related items, which could reverse date based on the environment such as BBO. Approximately plus 0.4 percentage points come from the drop in loan volumes as previously explained. Also let me remind you that the lower SREP P2R only came into effect on January 1, 2020. As regards to the CET1 NDA buffer guidance for 2020, we expect it to be at a similar level to today Throughout the year, while the final pro form a CET1 NBA buffer at the end of 2020 should be closer to the upper end of our target range assuming an increased capital distribution to 50%. Let's turn to Slide 39.
Risk weighted average in the quarter decreased by EUR 9,100,000,000 to EUR 378,700,000,000. The main driver was the business evolution from lower lending volumes due to the proactive management of EVA negative clients' relationships. Let's turn to Slide 40.
In the
4th Q 2019, our tangible equity grew by 1.9% quarter on quarter to EUR 53,000,000,000 is the 5th consecutive quarter of growth in both tangible equity and tangible book value per share, both now above fiscal year 2017 values. We expect tangible equity to drop in the 1st two quarters of fiscal year 2020, due to the integration cost in Italy and the dividend payments that we are confident that at the end of 2020, tangible equity will be higher than fiscal year 2019. In terms of cash dividends payments for fiscal year 2019, we expect that to be EUR 0.63 per share or EUR 1,400,000,000 to be paid out in April 2020. Let's turn to Slide 41. As of the end of the 4th Q 2019, we are well above our requirements with a TLAC ratio of 22.35%.
This corresponds to an NDA buffer of 276 basis points, well above our target buffer range of 50 to 100 basis points. We have rebalanced our fiscal year 2020 funding plan Following the communication of the revised timing of the CRD V as we intend to utilize the possibility granted by CRD V Article 104A to cover up to 44% of the P2R with AT1s Thank you, Jules. We now target a total issuance of around EUR 13,000,000,000 out of which around EUR 6,000,000,000 will be subordinated. In January, we issued EUR 1,250,000,000 in Tier 2 and a EUR 2,000,000,000 senior non preferred dual tranche, all in the euro markets. These very successful transactions confirm our well diversified market and strong debt capital markets franchise.
Following these transactions, we had only EUR 2,600,000,000 of subordinated instruments left to issue. Jean Pierre, back to you.
Thank you, Mircot. With Transform 2019 successfully behind us, We are now dedicating our full focus and energy on delivering our new plan, Team 23, with all targets achieved. Ahead of reporting our Q1 of TIM 23 performance in May, we will submit the request for the initial share buyback to DICB and to our AGM in April. As already mentioned, CRD V Article 104A has been communicated last week by the ECB to be applied in the strength valid from the 1st January 2021. Thanks to this and our strong pro form a CET1 ratio at year end 2019 of 13.09%, we will consider to increase our regular capital distribution to 50% for FY 2020 to be paid in 2021 and for the remainder of the plan.
This means More than €1,000,000,000 of additional capital distribution over the course of TIM 2023 and is, of course, subject to shareholder and supervisory approval. With that, we deliver on our commitment since the beginning of Transform 2019 But we increased the capital distribution to 50% as soon as we have better visibility on regulatory headwinds. Our medium to long term CET1 NDA buffer target 14.23 remains 200 to 250 basis points. Consequently, once all the regulatory headwinds will be clear, Including the impact of Basel IV, we might consider on top of the assumed regular 50% capital distribution An extraordinary distribution in 2021 and or in 2022 To our shareholders, based on our estimate of the projected CET1 NDA buffer excess for the duration of TIM23. Also this one is subject to shareholder and supervisory approval.
You should also remember that we prefer share buyback over M and A any day of the week. For the avoidance of any doubt and to prevent any speculation, there will be no M and A for the duration of our plan. Before taking your question, let me again extend my deepest thanks An appreciation to all UniCredit team members whose commitment and hard work led to the successful delivery of Transform 2019. Together, we now approach the execution of TIM 23 with the same spirit and energy, doing the right thing For all our stakeholders, thank you. Now, Mirepo, the rest of the team and I are ready to take your question.
Many thanks. Operator?
Excuse me. This is the Chorus Call conference. Operator, Please go ahead, madam.
Yes, good morning. Thank you for taking my questions. So 2 from
my side then. First of all, just wanted
to come back on your comment about potentially distributing dividends for full year 2021 2022. Just in terms of the thought process, is it just Basel IV clarity you're waiting for until year end? Or is there anything else we should consider in terms of headwinds or Any other usage of that extra capital you may get that we might have missed? Just to clarify. The second question is on the net interest income.
In particularly, just if you could Give us a little bit of color about 2020 in terms of the headwinds coming from the investment portfolio, The replicating portfolio and maybe just a little bit also on the commercial side, just how
If you have a third question, we can answer it as well. But just to go back to the Comments we made about the capital evolution and distribution to shareholders. I mean, clearly, the CRD5 Vertical 104 is an important parameter in our view of our capital base as it will free up to fill in the P2R up to 44% of the P2R with AT1 and Tier 2 instead of CET1. This extra 80 basis points, it's actually 77,000,000 capital, coupled with the On capital level, we have at the end of 2019. Most of it is Part 10 is solid, but it's only 10 basis points, which are linked to market activity, which might fluctuate based on the curve, essentially interest rate curve, I mean that we have excess capital above the buffer on the P2R, which we confirm to be 200 to 2 50 basis points over the course of the plan.
And so this extra capital above our buffer allows us to consider 2 things. 1 is to increase the distribution to 50% of the net income starting being of the plan. So for 2020 net income and so capital distribution to be down in 2021 and for the remainder of the plan. And this is something we consider and we are very comfortable to put that in place. It was a commitment We gave to our shareholders when we raised our capital increase.
And for the excess capital beyond that, We will consider in 'twenty or 'twenty one and or 'twenty two, so 'twenty one and or 'twenty two, that can be in 'twenty one, that could be in 'twenty two, in 2021 2022, extraordinary distribution to the shareholders, which can be either in the form of dividends or either in the form of share buyback and for the moment no decision is made and we'll decide that when the time comes. And this extraordinary distribution will be quantified based on the excess capital that we will have when we project all our capital evolution for the duration of the plan. So what will impact our excess capital? It's mostly Regulatory headwinds, we have already communicated and I think we are the only bank to communicate regulatory headwinds up to 2027, meaning up to the full impact of Basel IV. We have made some assumption in This is the unitary headwinds.
And we think our assumptions are fairly valid. I was in Brussels 2 weeks ago and confirmed with members of the Commission that what we think is actually what they have in mind. But the Commission will confirm that by the end of June. So by the end of June this year, there will be much more visibility about Basel IV. Beside the Basel IV, there are very little impact to be looked at in terms of regulatory headwinds, and we detailed everything in our Capital Market Day.
So we are confident that we will have this excess above our MDA buffer of 202.50 basis points. And then we'll make a decision. The Board will look at the issue in early 2021 to submit the proposal to the shareholders and to the regulator and so that we can move on, on this excess capital distribution. On the NII side, just to confirm, we said that the capital market did that the NII will go down close to €10,000,000,000 a year and we'll have a trough in 2021 before rebounding. Rebonding, thanks to increase of volume as well as the rate curve, which you are either getting less negative.
So there is no reason to change the guidance that we gave on NII. So trough in 2020 2021 around €10,000,000,000 and then an increase. And we'll finish at the end of the plan at a level very similar to 2018 around €10,500,000,000
Next question please.
The next question is from Jean Noeze of Goldman Sachs. Please go ahead, sir.
Hi, good morning. My question is actually been Partially answered with your last comment. But the question I wanted to ask is, for example, this quarter, there was probably 30, 40 basis points of capital that formed unexpectedly with the RWA dynamics as well as probably EUR 200,000,000 worth of cost that were below the original guidance of the last quarter. My question is just in terms of reemployment of cost and capital resources in a business that has now been successfully restructured. Obviously, you've hinted that you would spend extra resources on some capital return.
I just want and not on M and A either. I just wanted to understand, for example, if you find these cost efficiencies just like you did, is there any area where you'd like to invest, try to boost revenues try to maximize operating leverage beyond these extra distributions or would you if you had these extra resources just in the future even hike the regular capital distribution, where is the trade off here in terms of franchise development versus Essentially, fall through to shareholders. Thank you.
Thank you very much. Just We said at the Capital Market Day that we want to have proactive capital allocation. We said both top down bottom up. Top down, you have seen what we announced this morning with placement of YAPI. So we go down to 20% stake in YAPI.
We confirmed that we should have regulatory consolidation. But on the bottom up side, during the capital market, we said that want to proactively allocate capital to 2 things. 1 is to growth project and then we let the co CEOs of Western Europe on one side and of CEE on the other side comment about our growth project, both on retail and corporate. But also to make sure that we proactively manage our capital allocation to clients, which might not cover over time their cost of capital. And we have identified a certain number of cluster of clients in various activities, which over time have a negative EBITDA, which we think cannot be fixed.
So we increase our condition for that. And if they refinance with others, then it frees up capital that we can look to redeploy with other clients. And if we can't find a redeployment, which is matching our own cost of capital, We keep the capital for share buyback. So that's the bottom up proactive management of our balance sheet. We clearly would prefer to reemploy the capital towards growth and clients and the co CEOs of Western Europe and Sea will comment about that in 1 minute.
But we don't want to do loan volume. We don't want to push for transaction which have a short term impact on NII and which have a negative impact overall in terms of risk profile. So we are very, very disciplined. And if a client does not cover its cost of capital, we don't do it. And at the same time, and the co CEOs can comment about it, We are taking advantage of the current market environment to shift the portfolio to better rated clients, and I will let the team comment about it.
The current environment is actually a very good environment because some banks are a bit desperate for yield. So they go towards the clients which have a higher spread, which are not the best profile in terms of credit, and we use that to rebalance the portfolio. But I will let my colleagues comment. So maybe first, Francisco Turneur and Olivier K. A.
For Western Europe and then Niccolo Bertheli and Jean Francois Coppizani for CEE. So Francisco Olivier, if you want to comment on Your approach on Western Europe in terms of growth, risk allocation, please. Thank you, Jean Pierre. First of all, in terms of risk allocation, as you said, we are allocating our resources to the best rating and We would like
to make sure that any growth
is not mortgaging the future. As an illustration, More than 70% of last year origination in the Corporate Network Italy was made of investment grade credit, which is a massive improvement versus the year before. Where we would like to allocate and what are
the direction of capital allocation? We have On a regional basis, a growth plan in Germany where we are on ADAC.
We have Just completed the hiring of around 200 bankers to increase our footprint in the country, which could be going to be one direction
on a regional basis. And
on the services, we strongly believe And we are going to allocate more liquidity deployment into working capital type of services, which is the real servicing to the real economy that the bank shall provide. I'll let my colleagues from CEE complement the picture.
Okay. The CEE Regional Banks are performing well and our return on capital is well above the cost of equity. The real location of the excess capital is directed to the business with the best return in the region and by country. For example, corporate, we are expecting a moderate growth in during the plan, and we will focus on the best rated clients. So no volume lending.
On the retail, we have
a very strong customer franchise, and we're going to work on to better penetrating this current customer franchise that we have today. So as a summary, you can see that top down but also bottom up, we are very, very focused on the right allocation of capital and resources towards our clients to create value. And as I mentioned, If we cannot find the proper redeployment of the capital, we keep it to do basically share buyback or increase distribution to the shareholders. And that's the strategy of TIM23. And we think that makes a lot of sense.
In addition, improved dramatically the which profile of the portfolio, which is an added bonus.
Extremely clear. Thank you.
The next question is from Hugo Cruz of KBW. Please go ahead, sir.
Hi. I think you mentioned potential to reprice current accounts In terms of fees, can you give guidance for the benefit of that, please?
Well, the currency concrete pricing is part of the different actions we take in order to manage the impact of negative rates on our clients. So I will let my colleagues in Western Europe comment on the various actions that we are taking with all our clients, the large clients above €1,000,000 deposit. We already commented about it, for which we have proactive management of the Impact of negative rates and then we have ongoing repricing as well on current accounts. So for Sesco and Olivier, if you want comment about your negative rate strategy. And of course, we can give more figures on the impact on a quarterly basis.
Thanks, Jean Pierre. As you said, we have a comprehensive strategy to address negative rates, while supporting the franchise and defending our client position. You can see that also from the very Successful growth in assets under management. So the basic of our strategy, which is converting the positives to assets under management, which we did successfully. As part of the strategy, as we mentioned, we have done some fairly moderate repricing of current account fees in line with the rest of the market, and we are approaching proactively large customer and depositors, both on the private and wealth side and the corporate side offering alternative market based solutions with limited fees as cash substitutions.
I think that the impact in terms of Of a current upon repricing on a full year basis should be around €60,000,000 to €65,000,000
Sorry, is that for 2020?
Okay.
Thank you very much.
Next question, please.
It is fully included into our projection for for TIM 23. So that's something which is part of the figures we communicated in December, just for the clarification. Perfect.
The next question, sir, is from Mr. Domenico Santoro HSBC. Please go ahead, sir.
Yes, good morning. Thanks for the presentation and for giving the guidance on the NII. Two questions on my side. Given the what you commented in the call that your non core now, NPE Stock is a mark to market and you don't expect any losses. I was just wondering whether the underlying provision level from Now on it could be better compared to the target that you have given for 2023.
I understand that you already given And underlying of 34 basis points for next year, visavis 37 of this year. But I'm just wondering from beyond 2020, if we Could be a bit more positive on the provision side. And then a question on liquidity And circulation of liquidity in the country in which you operate. Last week, the regulator made very clear the point that some countries in Europe, They still limit the liquidity waivers, especially on intra group exposure. So I'm just wondering whether in view of more integrated Markets and Banking Union, of course, the removal of this limitation could be kind of positive for your group And whether you have made any calculation on this or alternatively, operationally wise, you are already enjoying these liquidity synergies?
You very much.
Thank you. I will just take the question on liquidity now, and I will let My colleague, TJ Lim, comments on the non core evolution and our cost of risk going forward. On the liquidity side, the I mean, the head of the SSM commented on local rules, which prevent liquidity to free flow within the banking group as there are Large group exposure in banks, for instance, in our bank in Germany, is a maximum 25% of Capital, which limits the overall exposure to any entity, including the holding of the group. And so that's if you want a legal constraint, which is not under the control of the regulator. So this is what the regulator is trying to see if there could be some waivers to this large group exposure when you're within 1 single banking group.
This being said, at this stage and if I may say going forward as well, we don't need to shift liquidity between our different legal entities. And we don't need to shift liquidity for various reasons. All our banks are actually very well funded on the balance in E and M. And we don't we want to make sure that they remain very well funded on the balance ALM because the constraint here is not the regulator, Based on the rating agencies, in other words, we don't want to fund our Italian curve with German deposits because otherwise Our German curves becomes an Italian curve and we are less efficient in order to develop our business in Germany. So our approach is to make sure that we fund On a subsidiary basis, in the balance ALM, we have excess funding in all the countries, and we make sure that we target excess funding appropriately.
And the liquidity constraint is not a constraint. GVY has been saying many times that the European Deposit Insurance Scheme is not a prerequisite to run a Pan European bank because we don't need it. And so what is important to complete the banking union is not the European Deposit Insurance Scheme. We are a pan European bank. And whether we have it or not, you're not going to change our life actually.
What is important for the Complegional Banking Union is to make sure that we have more homogeneous rule between the various countries so that the banking sector can be seen as one banking sector And bank can attract capital, debt and equity. And European banks can compete against U. S. Banks to attract capital. That's a different story and I'm going off track.
Let's use your liquidity question. All our subsidiaries are properly funded. Balance CLM in each of the subsidiary, no need to upstream liquidity and that's it. There will be some kind of downstreaming of liquidity, if I may say, with MREL and internal MREL. As you know, there will be issuance of some of our subsidiaries towards the holding for resolution rules basically.
And so the holding is raising MREL eligible securities. And then internal MREL means that we will at each subsidiary level And they will issue to the holding, which will subscribe these securities for internal MREL reason as we have a strategy that we have confirmed and we maintain. TJ, on the cost of Okay. At the group level, stated for the full year, the Q4, then evolution for the group at non core going forward, Which is the relevant reference. Yes.
Thank you, Jean Pierre. As Rainy stated at the CMD, We guided the market for a cost of risk of 46. Now this includes 12 basis points of models and next year we will have the new definition before. So the underlying cost of risk is 34,000,000 and if you compare that to the core, it's actually an improvement. And then over team 23, we have mentioned at CMD that it will be around 40 basis points That's the end of the plan.
Thank you. Next question, please.
The next question
is But just maybe before we take the next question, just to clarify because in the stated figures of cost of risk for 2019, We have the anticipation of provision of the non core. If you look at the cost of risk ex anticipation of provision of the non core, I mean, the cost of risk of 49 basis points includes the Group ex non core and the non core. When you look at the Group ex non core, I mean, we are at around 37 basis points for 2019. And the figure that CJ gave of 34 basis points, which is ex regulatory headwind for 2020, is comparable to the 37 basis points of 2019. So, there's The 3 basis points improvement in 2020 versus the comparable figure for the provisions on the group for 2019.
So marginal improvement, good improvement, but very consistent. Next question.
The next question is from Mr. Antonio Reales of Morgan Stanley. Please go ahead, sir.
Hi, everyone. Thank you for taking the time. I've got two questions and one clarification, please. The first question is your comments on preferring buybacks over M and A are very clear. My question is, I guess, how should we think about the total payout mix going forward between cash dividends and share buybacks?
I realize it's early stage, but I'm just keen to hear Your reasoning of this throughout the plan. The clarification was on the capital comment on CRD V. I mean, of course, you have a strong track record on providing guidance on legacy capital. And your comments on the APB are pretty clear. I guess my question is, do you expect any additional add ons or any changes such as countercyclical buffers or any other Headwinds that are not currently included in your slide on capital requirements?
And then the second question is on NII in Commercial Banking. Can you give us an update in terms of what you're seeing on loan demand, spread dynamics and funding costs across Italy, Germany and Austria. Were there any one offs that affected NII in Q4 that we should be aware of? Thank you.
Thank you very much. I will let Mircot comment on the NII question, and I just We'll comment on your first question on the payout to shareholders and additional regulatory headwinds. We I've said the capital market, Dan, reiterated that we prefer share buyback to M and A. We said no M and A And only small bolt on acquisition in the CE side for a few €100,000,000 So what we said at the Capital Market this time, No M and A. So we just want to give any speculation because we have seen too many things.
And you know that we never comments on rumors and speculation. We never comment on rumors and speculation. When I say no M and A, I think there shouldn't be any more rumors and speculation. Nice to deal with that. But we said as well we prefer share buyback to M and A, which can give you a strong hint about how the additional distribution to shareholders will be made.
But of course, it will depend on the market environment going forward. As far as the intercyclical buffer are concerned, additional regulatory headwind, I mean, there has been comments on increase of countercyclical buffers by some Members of the ECB, we offer in some of the countries where we are present, there is already a small And the weighted average today for our capital level, 9 basis points basically, might increase marginally, but we have taken that into account into our CapEx projection. If we have additional regulatory headwinds. I mean, we have taken that to a large extent into account as well in our projection, but I cannot see Anything coming in the next 2 years? There might be maybe other developments from 'twenty two onwards.
We'll see how the commission coming back on Basel IV. And if there are additional developments coming up afterwards, it will be maybe 10, 20 basis points maximum. So nothing of a number which will change our view and what we said about first increase to 50% payout, which is what we promised to investors and then payout of the excess capital above the 250 basis points buffer. So it would be marginal adjustment, but we are we think we have a good visibility on that. I'll let Mirco comment on the NII side.
Yes. So on the NII, as we said, we are targeting around €10,000,000,000 in NII. That's perfectly in line with what we said at Capital Markets Day. In terms of loan growth, in the last quarter, Italy and CIB were the ones that grew less. And we would expect going forward overall loan growth to be modest.
On the client rate side, we think the let's say, the competitive environment will continue to be very tough. So we continue We will continue to see a client rates pressure also into 2021. And What you've seen in the 4th Q probably is something that is going to stay there for at least 2021. The big pressure is more on the short term end than the medium long term end, and that's where the most of the competitive pressure is actually coming. On funding cost, you're going to see when you credit the lower funding cost, you've seen already a big reduction in 2019.
If you look at our funding cost also in January, also our spreads have decreased more. The expectation is that we will continue to adjust lower in terms of funding costs. On the other 2 big items in NII is one, of course, is an investment that you asked the question also before, there will be pressure in terms of rates Our spreads, we are investing slightly higher volumes, so we are able to partially counterbalance the full impact. And the same is for replicating portfolio, meaning rates are coming down or are lower. Nevertheless, we have higher volumes that we can ascribe to.
All that has been taken into account in our NII projections. So that we have always, as you know, conservative approach of the guidance we give to the market. And I just want to reiterate again, I think it's important that We come very clean about the NII projection. We don't want to push for volume lending. We don't want to push for carry trade.
We think these are the wrong type of answer to NII pressure because you put in your balance sheet assets you do not want and which impact your risk profile. So it's better for us just to complain about it and to make sure that we work to improve the profile of our balance sheet. And this being said, this is also a golden opportunity at the Co CEOs of Western Europe mentioned, to shift the portfolio towards the best rating, we use for banks which are desperate for yield. They basically refinance clients which are of lower quality in terms of rating and we can shift the portfolio better and you have seen that as well an improvement of the expected loss.
Next question please.
The next question is from Ms. Azura Guelfi of Citi. Please go ahead, madam. Hi, good morning. Very clear to comment on capital.
So my question was mostly focusing on the profitability and P and L. If I look at cost, you have an excellent track record of beating your already challenging target. Could you give us some indication of what are the major that you are planning for 2020, both on the investment side and any update on the potential for the efficiency? And when I look at revenue, what do you think is the main challenge for revenue? Is it the ability to find loans that are actually worth writing given the Return or is it something else that you think?
And are you considering repricing on banking fees? Thank you.
Thank you very much. Well, I will just give you a small introduction on the cost side, and I will let my 2 colleagues on the Western European side to comment about some actions taken in the network and then my co CEOs, colleagues to comment on what is being done on the operation And IT side actually in terms of cost. You are right to say that we actually went Well, better than the guidance we gave on cost at the beginning of the plan by around €700,000,000 in absolute good cost reduction. We have said that our cost target for 2020 will be below €10,200,000,000 And this is a combination of HR cost and non HR cost, which are going to increase versus and the level of 2019. So why do we have a cost increase in 2020 when we should decrease For all of France from 2019, well, first of all, we have and you need to look at the breakdown by geography that we communicated at the Capital Market Day.
The compound average growth rate for Western Europe will be minus 0.6%. So With actions we take as the reduction of around €8,000, actions on the non HR cost. In Western Europe, in negative rate Western Europe, We decreased cost on an absolute basis, so minus 0.6 percent, while inflation is supposed to be around plus 1.4 So you can see that
we have a
positive operating leverage. In the CEE side, we have a cost which are increasing by 1.8% because it's countries where there is growth and there's inflation of 3.3%. And so overall, the target revenues increased by 2%, so there as well a positive operating leverage. On the cost actions, we said that the impact of TIM 23 will be a little bit more back loaded than Transform 2019, because a lot of the actions are coming from bottom up initiative, which are done both on the network and actually on the operation side and IT side. So I'd like Francisco, Olivier, comment on bottom up actions, enablers, end to end room we have on the Western Europe.
And Carlo, And now, Henry, comments on the operation in IT.
Thanks, Jean Pierre. We have a significant number of initiatives aimed both at increasing efficiencies and improving customer experience. Some of them we have described in the TIM 23 presentation. I will remind you, for example, that we confirm our target to have all Italian retail branch is paperless by the mid of this year. This is an ambitious target that we confirm and requires, of course, A lot of work on digitalizing processes and reducing some of the administrative tasks.
We have launched successfully our end to end rooms, which across Western Europe. We are redesigning processes in areas such as current consumer credit, SME lending and with those, we expect also to deliver important greater efficiency in the course of the plan.
Carlo and Van Uvi on what we do on the operational IT side?
Yes. If we if I can take you, if
I can the operation side. Of course, the initiatives have been done on the business as fully integrated with the operations. So the paperless initiative will benefit, of course, all the operations. I would like to remind that we call from a transform 2019 extremely successful in terms of productivity and cost takeout. We will continue to invest in cost notwithstanding the headwind in of the contract renegotiations, and we expect to generate significant productivity by continuous centralization of our activities and leverage on the assuring operations, but also and specifically about the process redesign and digitalization of the process.
The Paperless initiative, for example, will benefit tremendously our back office because we will effectively limit the amount of work that will be done on data entry and paper management and focus much more on activities of control. So we will expect effectively to continue The positive trend in terms of cost and productivity that we have already in the Transform 2019 plan.
On the IT side, also the IT is fully integrated with the rest of the strategy. We are raising the bar on the investments. We have 17% increase in the total amount of investments vis a vis the previous plan. And those are allocated to support the digital transformation, to support the end to end
Next question please.
The next question is from Alberto Cordara of Bank of America. Please go ahead, sir.
Hi, good morning. I have a couple of questions. The first one related to Slide 39. I see that there is a RWA drop That is related also to regulation of €1,900,000,000 down. And the same happened also in Q3 minuteus €1,000,000,000 after regulation was the cause of an increase in risk weighted asset in the first half of the year.
So I just would like to clarify what is this related to? And also if you can give us some clarity of the minus €1,300,000,000 drop in risk weighted assets related to other credit. My second question is more on the business. I think at group level, we see that there is a remarkable stability of default rates So despite some softening in economic environment and the fact that 12 months ago, Italy suffered a mini environment in Q3 and Q4 2018. So the question is, does this softening economic environment translate more into weak lending volumes than the default rates?
And what is the outlook of NPE formation that you expect to see in the course of 2020? Thank you.
Okay. Thank you very much. Just on Page 39, if you want to have much more detail than what I'm going to say no, feel free to contact our wonderful IR But basically on the regulation bucket, the minus €1,900,000,000 we put in this bucket The disposal of the non core resi portfolio, which was done closed on the Q4, so that explains basically all the reduction. And on the other credit, it's a disposal of some assets. We had Ocean Breeze, which was the wind farm that we disposed, the Mediobanca stake and others.
So that's explained mostly by discontinuity because we sold assets, which lower the risk weighted asset. On the Credit risk and credit evolution, I'll let TJ comment specifically. We focus on Italy. We might explain or just go back to the explanation on evolution of the cost of risk in Italy plus the different ratios We have in Italy, which explains most of the group evolution. TJ?
Thank you, Jean Pierre.
Firstly, for The default rate, we are
seeing very stable sort of evolution as you're seeing. So we do not expect any deterioration plus Also a lot of proactive action in managing sort of our stock. And in terms of outlook, clearly 2020, we have the new definition of default. We're expecting an increase in NPE ratio just mathematically with the new definition of default. But still, we're going to be proactively managing it.
It will hover around the so called 5% sort of level, 5.1% to 5.4% over the so called 20 20 sort of horizon. And in terms of the underwriting standard, you've seen that in the expected loss side, we are very stable outside of the model effect over the course of 2019. And then this year, we're also expecting to be some slight migration upward, but still stable outside of the so called model effect.
Okay. Thank you very much.
And next question please.
The next question is from Mr. Giovanni Razzoli of Equita. Please go ahead, sir.
Good morning to everybody. Thank you the presentation, just a couple of clarifications, not to bother you on the on your renewed dividend Strategy, you mentioned €1,000,000,000 of extra shareholders remuneration as a part of the increase in payout from 40% to 50% in the course of the percent in the course of the plan. And this €1,000,000,000 will take the form of buyback or dividend. So You have these options. This is my understanding and want to know whether this understanding is correct.
The second question is on Slide number 38, you have a 300 basis points of NDA buffer today. If I'm not mistaken, this amount should increase further In 2020, thanks to the deconsolidation of YAPI Credit. You don't have any particular regulatory are doing in the short term. If I'm not mistaken, in 2020, you're going to have €1,100,000,000 of restructuring charges in Italy, which amounted to something like 30 basis points of capital more or less. So the MDA buffer will increase further vis a vis the 300 basis points we see today, I was wondering whether in the context of the possible dividend extra dividend distribution that you announced today, you are going to look at the Basel IV, the 80 basis points of fully phased Basel IV impact on a fully phased basis or a phased in.
Clearly, my question is in that trying to understand what's the potential today of the extra dividend distribution. Thank you.
Thank you. Just on the Extra dividend or shareholder payouts because it's more the adequate same over the duration of the plan with the increase 250%. We said EUR 1,000,000,000 it should be, strictly speaking, I think EUR 1,300,000,000. So but that's the order of magnitude, so your understanding is correct. On the buffer For the NDA buffer, we are at around 300 basis points at the end of the year and we said that we should stay at around the same level for the duration of the plan or the year, sorry.
And while at the end of the Q4, we will have to provision the extra distribution basically, dividend and or share buyback. And so we'll be below 300 basis points and closer to the upper part of the 2 50 basis points and you can do the calculation if you do the adjustment yourself basically. That's easy to do. The question on YAPI and restructuring charge, the benefit we get on YAPI will cover Maybe slightly in excess the restructuring charge in Italy. The restructuring charge in Italy are represents around 40 basis point of CET1, while Yaffe will generate funding, which is a little bit more than that, but not very different.
We have grown 48 basis points for the Q1. And the YAPPE disposal and the restructuring in Italy were fully taken into account into our capital work and fully taken into account in the guidance we gave, we still want 300 basis points of CET1 MDA buffer and you have to deduct at the end of the year for the 300 basis points the extra distribution that we will have.
Thank you. Next question, please.
The next question is from Mr. Andrea Filtri of Mediobanca. Please go ahead, sir.
Yes. Very, very clear capital return strategy. Thank you. Yet we see very little followership From other banks so far to your approach to Article 104A of CRD 5, are you worried that the validation of the article could be partly offset by the ECB through an increase in P2R requirements? Or can we still hope for a reduction in P2R for UniCredit over the course of the plan given your big improvement in asset quality and capital strength.
2nd question On YAPI, could you decide to hold on to the YAPI stake beyond 2020, given you will already get most of the CET1 benefits in Q1 2020? And finally, just a confirmation on your message on the tax rate for 2020. I didn't understand exactly if We should continue to expect a report tax rate in the 18% to 20% bracket. Thank you.
Thank you very much. I will let Mircot comment on the tax rate, and I will take the first two questions. I mean, we as I said earlier, we are the only bank which has been communicating very, very clearly about our expectation about Basel IV. When you complain about Basel IV, then you can complain about CRD5 If you comment about the positive of Article 104A, the immediate question for analyst Okay. But what about Basel IV?
And we have seen very few banks commenting about Basel IV. And so I think the reason why we have been one of the few banks To be very clear about Article 104, because we are clear about Basel IV. So I think during the course of this year, you will see other banks Coming out with the impact on Basel IV when the commission has clarified what should be the transposition into European laws. We don't expect that the ECB will try to claw back the Article 104A CRD filed by an increase in the P2R. I think Mr.
Henriard was very clear when he communicated that that's the low, that's impact and this is what is going to be done. And we cannot comment on what the regulator will do. As far as our P2 average was concerned, we had a reduction starting from the 1st January of 25 basis points. And we will keep working very hard to improve on all the criteria that the ECB is looking at to make sure that our regulatory capital charge is as optimized as possible. But let's see what the future brings.
And for the moment, we focus on 2020. As far as YAP is concerned, I would like to get you to Slide 52 in the annex of the presentation, Where we have put a footnote, which are an answer to your question, If you look at the net profit for 2020, the net profit for 2020 includes the contribution of YAPI for 20%. And we have footnoted for 2023 The net profit of €5,000,000,000 saying that the net profit of 2023 does not include any contribution of JAPI. And it is not by mistake. So basically, I think it's an answer to your question.
In 2020, we said that we keep our 20% stake. And in 2023, Yes, it does not contribute to the net income. Nelco, on the tax.
Yes, Andrea. In terms of, First of all, the underlying tax rate on the multi year plan is confirmed between 18% 20%. And this is due to the positive contribution from DTA on tax loss carry forwards in Italy. When we look at the stated number, the stated number between 2020 and 2021 will be around 24%, 25% and this is basically affected by the non taxable deductible, the deductibility of non operating items. Then in 2022 to 2023, the stated and the underlying will converge to the 18% to 20% since we don't have any more material nontax deductible, non operating items that are foreseen.
Thank you. Next question please.
The next question is from Ignacio Charezo of UBS. Please go ahead,
sir. Yes,
hello. Hello? Yes, sorry. Yes, so Couple of quick clarifications from me. If you can actually give us The maths behind the Turkish capital benefit will be offsetting the EUR 22,000,000,000 RWA The consolidation because you would suggest actually the capital benefit is larger than that.
2nd, If you can give us an update on the trade union agreement for the with Ambulance in Italy. And 3rd, if full year results Where basically the final hurdle for the ECB to give the approval on the buyback and the Turkish deconsolidation?
Thank you. On the JAPI side and the math behind the Capital release, I will let our specialist, Miaco Bianchi, to comment about it. On the trade union agreement in Italy, Our HR team is will start very soon the discussion with the union. So I mean that Should start and be done in the near future. As far as the So the YAPI side is concerned.
Mirko, can you comment?
Yes. On the JAPI side, in
terms of the impact on capital, Once we have did the consolidation, the impact will be basically 32 bps in capital in addition to basically the effect of the 9% closing that we have done and realized in the 1st Q. So overall, The impact will go up to 48 bps. And then depending on what happens to the Going forward, in theory, it goes up to the famous 70 bps that we mentioned in Capital Markets Day. From a P and L perspective, you have the FX recognition that is going to flow through the P and L, not the capital that will amount by the end of the 1st Q 2020 once the deconsolidation is reached of around EUR 1,400,000,000.
Just a reminder, but you probably all remember that, JAPI had a strange consolidation situation, we were from an accounting point of view consolidated equity, while we were from a regulatory point of view Consolidated, and it's something which is strange because usually there's a convergence between accounting and regulatory consolidation, which is why When we sell the stake, we have this, I mean, over impact, if I may say, on the regulatory side, which frees up a lot of capital. And that's a positive consequence, if I may say, of the action we took. You asked For the regulatory process for deconsolidation, we said that we are confident that YAPI from a regulatory point of view will be deconsolidated as of the So we did see it as of the Q1, and we expect a feedback from the regulator to match this deadline. And so we would not have been doing the transaction if we didn't think that we would have the regulatory consolidation basically. As far as the buyback, ECB authorization on the buyback, we said our Board validated yesterday the buyback.
And so we are going to send the application to the ECB, which will be processed. And in parallel, we need to have the agreement of our shareholder At the AGM, which will be in April, so the 2 process work in parallel, say, we are confident that this will happen.
Okay, thanks. Next question, please.
Next question is from Mr. Andrea Berthelone of Exane. Please go ahead, sir.
The two questions are the first one is on tax Or mostly on the one off tax items. What's this €400,000,000 1 off in Q4 that you had mentioned before? And if so, I'd like to know whether you got the capital benefit from it or if it's still deducted? Same question going forward, as you're going to have, as you just said, the tax benefits in Italy for X number of years. Do these benefits accrue to capital Immediately in the year when they are booked?
Or you continue to deduct them from From a regulatory capital point of view, do you write up DTAs or are they current tax assets? The second is just some clarifications on net interest income. You mentioned in the presentations, apology, I missed the beginning of the call, several times, Italy impacted by nonrecurring items and other divisions impacted by noncommercial items. Can you just Quantify a little bit what these nonrecurring items were in the various divisions in Q4? Thank you.
Okay. I will let Mirko comment on the non recurring items. If you go to the percentage in the annex, you have A list of those, but Mirco will elaborate a little bit more. But before that, I will let our Co CFO, Stefano Poirot, working with Mirco And with our specialist on the tax treatment to comment on the various requests that you have, Stefano, all yours.
Yes. We experienced DTA write up in Italy and in Austria in Q4 2019. The DTA write up in Italy was around €500,000,000 out of which the vast majority of this went through equity, not through P and L. All the amount of DTA write up is related to cash flows carried forward. So it's neutral from a capital During the plan, we're going to have recurring DTA write up for around €400,000,000 per year.
The DTA write up is related to tax loss carried forward in Italy. The amount is relevant for P and L perspective, not for capital perspective because the amount of tax loss credit for OBL write up is going to be deducted on the capital.
On the one off items in the NII, there are 2. 1 is an EUR 11,000,000, Let's say, contribution in the 3rd Q and it's factoring Italy. So that's why the delta is coming out into the NII quarter on quarter. And the second one is due to a technical account treatment shift between NII and fee. So from a, let's say, group P and L perspective, this is a zero effect.
Okay.
Next question, please.
The next question is from Mr. Andrea Unsuesta of Credit Suisse. Please go ahead.
Thank you for taking my questions. If we go back to your Slide 52, you mentioned that the contribution of IAP is on the net profit line, but there is a note on the revenues. Am I right to understand that Within your EUR 18,200,000,000 revenue figure, you do not have anything from YAPI for 2020. And if you can confirm that you cannot reduce this further until 2021? And then I want to go back to Your comments on volumes and specifically in Italy, you effectively said that 80% of the loan reduction was voluntary.
How Shall we think about volumes in Italy in particular going forward? Do you expect volumes to stabilize, grow or decline further? Thank you.
On the volume evolution, I will let the Co CEO of Western Europe to comment on the Slide 52. The revenue side, if you look at footnote number 1, we said that it does not include the contribution from Yapies. So in other words, The €18,200,000,000 in 2020 are not in total revenues for the group. The total revenues from the group will be €18,200,000,000 plus our pro rata, so 20% of the forecasted net income of YAPI. That's for 2020.
And so it will be what it is basically. And we said that in 2023, The net income of €5,000,000,000 does not include the contribution of any contribution of JAPI, While in 2020, the €4,300,000,000 include the contribution of JAPI. So we put in the €4,300,000,000 the contribution of JAPI, which It's a net income issue, so it's already planned. But we didn't put it in the revenue side as it would be for JAPT to communicate and we wanted to make sure that 2020 could be comparable to 2023 as far as the revenues are concerned. So you have the true evolution at the EASO perimeter between 2020 2023 on the revenue side.
That's why we didn't put the contribution directly in 2020, just to make comparison possible. While on the net income on the net profit side, wanted to make sure that you have the proper net profit, including everything as it is relevant for dividend distribution. Okay. So that's why we have this little certainty actually to help analysts with their Excel worksheet, if I may say. On the volume On the Italian side and client activity, I'll let the CEO's question, your comment.
And the question was mostly related to Italy. Just to remind you that in the last quarter, more than 3 quarters of The decrease in lending was coming from very, very discipline and strict action on the negative TVDA lending and especially on the short end, we are confident with Francesco that This year, we might progressively have a slight growth in lending to be coherent with the plan of TIM 23 resulting from this adjustment that has been done this quarter.
Thanks.
Thank you. Next question please.
The next question is a follow-up from Mr. Hugo Cruz of KBW. Please go ahead, sir.
Hi. Thank you for taking the time. Question around the revaluation of real estate. You kind of indicating there are going to be further disposals. So how likely is that you could see further capital gains in 2020 or later years coming from this?
Thank you.
I will let Mieko comment on that.
Yes. On the revaluation Real Estate, we think that we have taken, let's say, a conservative approach to it. And we have confidence of potential volatility into the P and L. But from what we have done and what we see, we don't see We're not forecasting any major volatility in the various country. Here, we are talking more Germany and Italy.
But, Hugo, also in the Capital Markets Day, we had one real estate gain in 2020 and beyond that we talked about in the Annex of Melco's Page 27. Next question please.
Mr. Muster, at this time, there are no questions registered at this time, sir.
Okay. So I'll leave you a few more seconds. Anything unanswered? Any additional question, clarification? Okay.
If not a question, thank you very for your attention and we'll see some of you tomorrow in London and in the coming weeks during the road
Ladies and gentlemen, thank you for joining. The conference is now over and you may disconnect your telephones.