Good morning. This is the Chorus Call conference operator. Welcome and thank you for joining the UniCredit 4th Quarter and Full Year 2018 Group Results Conference Call. As a reminder, all participants are in a listen only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions.
At this time, I would like to hand the call over to Mr. Jorg Pizzner, Head of Investor Relations for introductory remarks. Please go ahead, sir.
Good morning to you all, and welcome to our full year 2018 analyst call. Before I hand over to our CEO, Jean Pierre Messy, for the main presentation, Let me make a few remarks on an accounting topic on our 4th quarter stated net profit. As communicated at our Q1 2018 presentation on Slide 39 of the market presentation. UniCredit took a gross impact of minus €3,800,000,000 for the first time adoption FTA of IFRS 9 on the 1st January 2018. According to established accounting practices, such impact was taken at equity and had no impact on the group's P and L.
UniCredit SBA did not book any positive tax impact in Italy related to the IFRS nine FDA. Following the publication of the recent Italian budget law, it has been ruled that such IFRS 9 FDA shall become tax deductible over 10 years rather than to be taken all at once in the 1st year. Taking into account the relevant accounting treatment, This change will accelerate the booking of the positive tax effects associated with IFRS 9FTA at the current tax rate. As for all Italian banks of around 33%. For UniCredit, this results in a positive effect of €887,000,000 As the FKA was recognized at Equity, a coherent representation for the related tax impact should have been at Equity as well.
However, based on the very recent indications received from the relevant authorities, UniCredit has now recognized such positive tax effect related to IFRS 9 FDA through its P and L in the Q4, generating a positive extraordinary effect equivalent to €887,000,000 The application of such accounting treatment has resulted in a stated 4th quarter net profit of EUR 1,730,000,000 Excluding such positive tax effect, the Q4 'eighteen would have recorded a net profit of EUR 840,000,000 In what follows, we will focus our analysis on the adjusted net profit that does not contain the above mentioned positive one off tax impact. So as to reflect what UniCredit considers the economic performance of the group in the period. The regulatory capital and dividend implications will be clarified in the following pages. Thank you for your attention and now transfer over to you. Thank you very much, Joerg, and good morning to everyone.
Looking back, 2018 has been a year with strong macro headwinds, which have impacted the profitability of UniCredit, while we have made strong progress on the delivery of Transform 2019. This could not have been achieved without our very strong teams who have worked tirelessly and with extraordinary commitment throughout the year. Before we start, I would like to thank them all. And I would like as well to thank our loyal shareholders who continue to support us as we make great strides on our Transform 2019 plan, ensuring UniCredit remains a pan European winner. Now let's take a quick look at the highlights of 2018.
Therefore, Mirko takes you through the figures. The underlying performance of the group remains very strong and our adjusted results are up versus last year. Our net operating profit of €6,400,000,000 was the best since 2008. And our adjusted net profit of €3,900,000,000 is up 7.7% versus last year, despite large additional provisions for U. S.
Sanctions. As Joerg just mentioned, We will not comment further on the DTA IFRS 9 accounting treatment. And as Jorg said, The figures in today's presentation represent the real underlying economic performance of the bank. The core bank performed very well in this increasingly challenging macro environment. Our adjusted core RoTE reached 10.1%.
Without the impact of the very large U. S. Function provision, The profitability would have been materially, and I repeat, materially higher. Our Transform 2019 plan is well ahead of schedule. We already achieved 100% of our planned HD reduction and 93% of our planned branch closures.
Both targets will be exceeded. Non core growth NPEs reached EUR 18,600,000,000 and our group NPE disposal reached EUR 4,400,000,000 both better than targets. CET1 ratio reached 12.07%. Thanks to our decisive actions 2nd in December early January. We are fully compliant with the TLAC requirements with a subordination ratio of 18.13 percent pro form a.
The group has excellent capital market access as demonstrated by recent issuances. Our tangible equity increased to EUR 47,700,000,000 up 3% from its growth in the Q3 2018. We intend to propose to our AGM cash dividend of EUR0.27 per share, which is equivalent to a 20% payout on our stated net profit, excluding IFRS 9 FT8 tax impact mentioned earlier. Before we move on, Let me briefly mention the recently published EBA transparency exercise results, where many European banks are measured on a comparable basis with regard to a number of KPIs. We are pleased that in the EBS sample, we have the 2nd highest NPE coverage ratio of all Eurozone Banks and the highest in Italy.
Our CET1 ratio is also the best compared to Eurozone and Italian peers. You can find the chart in the annex on Page 72 74. Let's move to Slide 5. This is UniCredit based for a quarter a decade for the 2nd time running. This segment is based on our adjusted net profit, I.
E, without the €887,000,000 positive impact from the IFRS 9 FCA Fiat Taxi track. We report an adjusted net profit of €840,000,000 up 19.9% year on year. We saw a sustained core commercial bank performance with 4 quarter 2018 gross operating profit at €2,200,000,000 up 5.1 percent year on year. 4th quarter 2018 costs were down 2.7% year on year. Our Q4 'eighteen cost of risk came in at 79 basis points as we saw the first impact of the IFRS 9 macro scenario and for model changes.
Our CET1 ratio saw immediate capital impact of 23 basis points from Regulation, Model and Prospect Utility in the 4th quarter. Let's move to Slide 6. UniCredit showed a strong financial year 'eighteen performance, thanks to sustained underlying commercial dynamics and the unwavering commitment to success by all our teams. We report an adjusted net profit of €3,900,000,000 which is up 7.7% versus last year. Our 2018 costs were down 5.6% versus last year, driven by both HR and non HR costs.
Our 2018 cost of risk was better than target at 58 basis points in a supportive risk environment, despite 5 basis points impact from model change and 3 basis points impact from the IFRS 9 macro change. Our adjusted group RoTE was 8% in the year, up almost 1% basis point versus last year. If we also took out the large additional provision for U. S. Sanction, Our adjusted group ROE will always be close to double digit.
I repeat, close to double digit and above 9% our financial year 2019 target. Let's turn to the next slide, and I will give you some details of the positive progress of Transform 2019. We ended the year with a CET1 ratio of 12.07%. We confirm our target of 12% to 12.5% at the end of 2019. During the course of 2019, we will initially be below 12% before remediation action and return earnings bring the ratio back up again.
We have just signed yesterday The same of the real estate asset in Germany, which will have a segment basis point positive CET1 ratio impact, which corresponds to a third of the overall amount expected from real estate disposal, most of which will come in 2019. Neko will give you more detail on the CET1 ratio development later. On TLAC, record this year already fully compliant with the upcoming requirements on a stated basis. Pro form a, The recent senior non preferred issuance, our subordination requirements stand at 18.13% with the preferred flat in excess of our target range of 50 to 100 basis points. Thanks to that, We are already compliant with the upcoming superniation requirements of MREL as well.
The derisking of our balance sheet continues. The group gross NPE ratio reached 7.7% in this quarter, less than half of what it has been when we launched Transform 2019. Group core NPE ratio stood at 4.1%, close to the EBITDA range. Please be reminded that the EBITDA uses slightly front and less conservative definition of the NPE ratio that we have chosen to do. On a like for like basis, Our group core NPE ratio last quarter would have been 0.4 percentage points lower.
Our IR team is happy to walk you through the details. The operating model transformation is well ahead of schedule, which is 93% of the target for branch reduction and 100% for SE reduction. We will exceed both targets in 2019. And as a result, we confirm our financial year 2019 costs, which will be at EUR 10,400,000,000 Let's turn to Slide 9. As said earlier, commercial dynamics for the group are positive and sustained.
Our clients continue to embrace our multichannel offers and increasingly used digital solution. We recently launched Google Pay in Italy and now offer all 4 major mobile payment solution to our clients. Our fully plugged in CIB business model continued to prove its success with leading European position Trading Trade Finance and Debt Capital Markets. And our corporate center streamlining is well on track and already below its target of reduced weight of total costs. Now let me hand over to Mircou, who will give you more details on our financials.
Mircou, over to you. Thank you, Jean Pierre, and good morning to everyone. I will now take you through our UniCredit fiscal year 2018 and Q4 financial performance. Our group core has performed very well and shows a high profitability with an adjusted net profit of EUR 4,700,000,000 for fiscal year 2018 EUR 1,100,000,000 in the quarter. The main divisional contributors to our strong performance this year where once again CEE and Commercial Banking Italy.
Adjusted group core return on tangible fee was 10.1 percent for fiscal year 2018. Please remember that this number is not adjusted for the large provision for U. S. Sanctions that we took in fiscal year 2018. Without these provisions, the return on tangible equity Would have been materially, I repeat, materially higher.
With this in mind, we confirm the 2019 core return on Equity target of above 10%. Let's turn to Slide 12. We enjoyed a strong commercial performance in the core bank. Net interest was up 2.9% versus last year. Fees were resilient, up 0.8% versus last year.
We are also enjoying sustained commercial dynamics across the group. We gained almost 2,000,000 new clients in the year while writing EUR 105,000,000,000 of gross new loans in the same period. The execution of Transform 2019 continues to deliver tangible results quarter after quarter. Costs are down significantly, 5.6% lower than last year. Loan loss provisions were down 14.1% versus last year, thanks to a supportive risk environment.
The gross NPE ratio stands at 4.1%, down 99 basis points year on year and already well below our fiscal year 2019 target of 4.7%. Net operating profit in the year was a solid EUR 7,500,000,000 up 12.3% versus fiscal year 2017. Adjusted net profit was EUR 4,700,000,000 up 9.1% versus last year. Let's turn to Slide 13. Let's now look at the figures of the group.
I would like to point out 3 items on this page. First, there was no impact from the expected U. S. Sanctions in the quarter As we have not yet reached a settlement, we confirm that the impact of such settlement should be nonmaterial plusorminosmid singledigitbasispoints on our core Tier 1 ratio. 2nd, our stated fiscal year 2018 tax trade was impacted by DTA write ups in Italy and Germany, the relays of a tax provision in Germany and the IFRS 9 FDA tax effects.
Our normalized fiscal year 2018 tax rate rate we expect between 17% 18%. Neither numbers include the potential effect from the ongoing DTA assessments. The impact of the Italian budget law on the other end is included in this guidance. Let's turn to Slide 14. NII was resilient in the quarter, up 0.4% stated and down 0.3% adjusted for 1 offs and FX.
The main drivers in the quarterly NII work were the following. First, average loan volumes were 1.3% in the quarter at constant FX compensating lower customer rates, which were down only 2 basis points quarter on quarter. For fiscal year 2019 loan volumes should grow, albeit at a lower pace than in fiscal year 2018. 2nd, Deposit rates contributed a negative $18,000,000 mainly from higher U. S.
Dollar term deposits and rising rates in CEE. For fiscal year 2019, we have a mid double digit €1,000,000 of budgeted revenue increase at risk should the ECB not hike short term rates in the second half. 3rd, term funding contributed a negative EUR 6,000,000 as we resumed capital markets issuance in the quarter. Last but not least, higher spreads on our 3rd Q 2018 bond investment contributed positively by around €30,000,000 to the investment portfolio in treasury total, offset by the NII leg of an FX swap unwinding. Let's turn to Slide 15.
I will highlight 3 points on this slide. 1st, As highlighted last quarter, there were extraordinary recoveries in CIB in shipping in the 3rd Q 2018, which did not recur in the 4th Q 2018. The adjusted decline in customer rates is therefore only 3 basis points. 2nd, The group average customer loan rates were down only 2 basis points and we saw stabilization across the divisions. This is especially true in Commercial Banking Italy and Germany, where short term loans even saw customer rates increases.
3rd, as we have indicated since the 3rd Q 2017, customer rates are expected to have reached the bottom in the 4th Q 2019 and should go up in fiscal year 2019. Let's move to Slide 16. End of period customer loan volumes for group core were up 3,800,000,000 or 0.9 percent in the quarter. For fiscal year 2018, however, the growth was 7.1% year on year. This compares with a year on year growth of only 2.2% in fiscal year 2017 and underlines our strong current commercial dynamics across the group.
The strong fiscal year 2018 loan growth was well spread across Our different divisions, expected loss on new business remained below the expected loss on the stock. As loan levers are lagging indicator of economic activity, the fiscal year 2018 number was typically high late cycle growth and we expect it to be lower in fiscal year 2019. We confirm our fiscal year 2019 targets for the group loans of EUR 444,000,000,000. End of period customer deposit volumes for group core were up 0.4% in the quarter and 2.1% year on year. As mentioned last quarter, there were technical driven and extraordinary high single digit €1,000,000,000 deposits inflows on corporate clients in CIB in the 3rd Q 2018 that were reversed in the 4th Q 2018.
In Italy, deposits are up 3.8% year on year, which underlines the structural health of the savings culture in the country. Please note that our commercial banking divisions are especially self funded with loan to deposit ratios close to 100 percent. Let's turn to Slide 17. Fees in the quarter were down 1.4% year on year as fees are seasonal. Let's look at the fees category separately on a year on year basis.
Investment fees were down 14.5 percent year on year. This decline was mainly due to upfront fees in Italy. Management fees for the group were up as higher pricing compensated lower AUM volumes. AUM stock was down 2.7% year on year and 4.3% in the quarter affected by negative market performance. For fiscal year 2019, in light of macroeconomic environment.
We expect investment fees flat versus fiscal year 2019. Financing fees were up 3.3% year on year, mainly thanks to good fees from loans in CE and CIB. Transactional fees were up 11.8% year on year, driven by current accounts and insurance fees in Italy. Fiscal year 2019 growth should be closer to 2%. Overall, fiscal year 2019 fees should grow by around €100,000,000 but we will refine this guidance in the coming quarters.
Let's turn to Slide 18. GFA stood at €811,100,000,000 in the quarter, decreasing 2.7% quarter on quarter. AUM in the quarter were EUR 212,300,000,000 down 4.3% quarter on quarter. While we had good net sales of +8.8 billion in fiscal year 2019, market performance was negative EUR 14,600,000,000. Commercial Banking Italy generated EUR 3,500,000,000 in AUM net sales in fiscal year 2018, which is down versus last year, while Commercial Banking Germany generated plus EUR 3,200,000,000 in AUM net sales, which is up more than twofold on last year.
AUCs decreased by 7.8% quarter on quarter. Fiscal year 2018 net sales of €700,000,000 were impacted by negative market performance of EUR 18,700,000,000. While we have strong client dynamics, continue challenging market environment will result in TSAs to to be lower than our EUR 858,000,000,000 target for the end of 2019. Let's turn to Slide 19. Trading income in fiscal year 2018 was down 31.5% versus last year as the general market environment continued to be unfavorable, especially in the 4Q 2018.
Almost all of the trading income was time driven in fiscal year 2019, which is a testimony of our fully plugged in CIB business model. Dividends were up 15.6% versus last year. The contribution of YAPI to our dividend line improved strongly from €24,000,000 in the 3rd Q 2018 to €92,000,000 in the 4th Q 2018. As the Turkish lira reversed some of its earlier losses against the euro. This contribution of €92,000,000 appears high.
This is mainly due to the accounting treatment for FX translation at UniCredit Group level, which amplifies the recent FX moves. Discounting this accounting treatment, Yapi's P and L contribution would have been in the 30s. Feel free to call our IR team for more details. Despite the external environment. Yapi posted a strong operational performance in Turkish lira terms.
In fiscal year 2018, Its contribution at constant FX is up 30.8% versus last year. The app is PNN is included in the AmEx on Page 57. For fiscal year 2019, as we said last quarter, We have taken an extremely conservative view in estimating Yapi's contribution. Given the most recent performance and the signs of economic stabilization in the country, we could see some upside here. As of the 4th Q 2018, our core Tier one ratio sensitivity to Turkish lira moves is plus 1 basis point net for 10% adverse move in the Turkish lira.
Let's turn to Slide 20. Our focus on cost efficiencies, leading tangible results quarter after quarter transformed 2019 is well ahead of schedule. We have already achieved 100% of our planned FTE reduction and 93% of our scheduled contract closures. Those targets will be exceeded by the end of 2019, allowing us to reach fiscal year 2019 cost of EUR 10,400,000,000 below the original EUR 10,600,000,000 target. The gross FTE reduction agreed with the union stands, but the net impact will be higher on more efficient turnover management.
Operating expenses are down 5.6% versus last year and our cost income ratio is 54.2%, below the target for fiscal year 2018. Let's turn to Slide 21. Both HR and non HR costs are down versus last year, 7% and 3.5%, respectively. The 4th Q 2018 HR costs were down 5.9% year on year, but had a 1.7% seasonally increased quarter on quarter driven by viable compensation and the release on unused holiday provisions in Austria. 4th Q 2018 non HR costs are seasonably up as well, both quarter on quarter and year on year.
Please bear in mind, however, that 4th Q 2017 had a lower seasonality than usual due to lower expenses recoveries. Adjusted for that, they would be down year on year. Let's turn to Slide 22. Regarding group cost of risk, I would like to point out 4 items. 1st, The overall group risk environment was supportive in the year as demonstrated by a good underlying cost of risk of 53 basis points spot on target.
While we had a low cost of risk in CEB, Commercial Banking Austria and CIB, there was a relatively large impact from models in Commercial Banking Italy. 2nd, the impact from model charges in the year was limited to 5 basis points, while for the quarter, it was high at 13 basis points. As we said the last quarter, the reason for lowering the initial guidance was due to the FDA impact of IFRS 9. Consequently, this is not a time shift effect, but a real reduction. 3rd, we saw the first impact from the macro scenario changes according to IFRS 9, our cost of risk figures.
Twice a year, we are evaluating our macro assumptions to see if they have changed and adapt the no loss provisions accordingly. While at the end of the 2nd Q, there was no change, we adopted the macro scenario at the end of the 4th Q 2018. As a result, we had an impact of 3 basis points on the fiscal year 2018 cost of risk, while for the cost of risk in the 4th Q 2018, the impact was 10 basis points. We confirm the cost of risk targets for fiscal year 2019, both on a divisional and at a group level. Our overall quality is steady asset quality is steadily improving.
The coverage ratio was stable in the quarter at 61%, up 4.7 percentage points year on year. The group gross NPE ratio dropped to 7.7% in the 4Q 2018, down 2.4 percentage points year on year. This is a great improvement considering we started Transform 2019 plan close to 16%. Let's turn to Slide 24. In 2018, NII was down 5.6% versus Q1.
Last year, as pressures on customer rates was only partially offset by increased loan volumes. NII started to stabilize in the 4th Q 2018, down only 0.2%. There are encouraging signs regarding customer loan rates. They are starting to bottom out as repricing picks up speed. Customer loan rates were flat quarter on quarter after year on year reduction of 25 basis points.
For fiscal year 2019, we expect small but steady increase in customer loan rates. Gross new loan production was strong at €24,900,000,000 while at the same time, risk discipline remained very strict. Expected losses on new business was 35 basis points, well below the expected loss on stock. Fees were up 0.8% versus last year, mostly thanks to strong transactional fees from current accounts and P and C Insurance. In the 4th Q 2018, fees were down 4.5% year on year as the challenging market environment put pressure on AUM gross sales and therefore on upfront fees.
4th Q 2018 investment fees were down 16% year on year. As a result, we now expect overall fiscal year 2019 investment fees for the group at the same level of fiscal year 2019. We attracted 363,000 gross new clients, notwithstanding the ongoing optimization of the branch network. Gross new clients give a good indication of the marketing dynamic of the network. Our stock of active performing clients is marginally lower as we review inactive accounts in our client database.
Cost of risk for the year was 74 basis points, up 3 basis points versus last year due to models and IFRS 9 macro, which taken together contributed 14 basis points. The underlying cost of risk improved. Net profit in the quarter was affected by a number of items quarter on quarter adjusted for the sale of pawn business. It would have been down only 1.5%. Year on year net profit was impacted by higher other charges and provisions and lower integration costs in the 4th Q 2018.
Normalized for the sale of the PON business, Italy's return on allocated capital for the year was 11%. This double digit return on capital is very good result, thanks to our low cost base, a testament to the success of Transform 2019. Despite predicted higher net profit for Commercial Banking in fiscal year 2019, we adjust fiscal year 2019 return on allocated target to be stable at around 11% on higher risk weighted assets. Let's turn to Slide 25. In Commercial Banking Germany, adjusted Commercial revenues were down 3.3%.
NII adjusted for the one offs from the tax provisions releases was down 4.2%. This was the result of customer rate pressure that were not compensated by rising volumes. Customer loan rates started to bottom out, although they were down 2 basis points quarter on quarter and 19 basis points year on year. Fees were down 1.4% versus last year as higher transactional fees could not fully offset lower investment fees. 4th Q 2018 fees were up 2% year on year as transactional fees compensated for low investment fees.
75,000 gross new clients were added in the year, up 50% on last year. This was driven by the end to end redesign of the account opening process started last quarter and also resulted in a strong reversal of the NetClient acquisition. Cost of risk in the quarter was impacted by models and some single names. The net profit in the 4Q 2018 was affected by a tax release and DTA write up, while 2nd Q3 2018 suffered from the additional large provisions from the expected U. S.
Sanctions. These were mainly booked in Commercial Banking Germany and CIB, normalized for the sale of our participation in the tax rebate. Fiscal year 2018 return on allocated capital was 4.1% If we also adjusted for the U. S. Sanctions provisions, normalized return on allocated capital would have been above fiscal year 2019 target of 9.1%, which we confirm.
Let's turn to Slide 26. In Commercial Banking, Austria, NII was down 5.1% versus last year, with adjusted for one offs down 3.3%. 4th Q 2018 NII was down 3.1% quarter on quarter due to the non recurring prepayment penalties. Customer loan rates and average volumes were broadly stable with volumes slightly up and rates slightly down. Fees for the year were resilient at minus 0.8% versus last year, while the 4th Q 2018 fees were down 5.3% year on year, mainly due to investment fees.
Costs were down 5.9% versus last year, driven by both HR and non HR cost. After net writebacks in the first half twenty eighteen, cost of risk was 6 basis points positive for fiscal year 2018. For fiscal year 2019, We expect a normalization in cost of risk and confirm the target of 16 basis points. The fiscal year 2018 net profit was down from last year as there were almost EUR 100,000,000 less profit from discounted Real Estate Operations. Return on allocated capital was 16% for fiscal year 2019.
Expected fiscal year 2019 return on allocated capital on a normalized cost of risk will be close to the target of 13.3%. Let's turn to Slide 27. CE continues to be our growth engine with an inflow of 1,300,000 gross new clients in the year. The division turned in a very good performance with NII at constant FX up 6.6% versus last year due by increased loan volumes. There was a low double digit million one off in NII from discounted funding related to the government subsidies in Hungary.
YAPI dividend was affected by the FX translation accounting treatment. Fees were up 5% on last year at constant FX, mainly driven by transactional fees. 4th Q 2018 fees were up 17.4%, primarily thanks to financing fees. The division's cost income ratio remained best in class, only 36.7 percentage points for the full year. The cost of risk is at a low 73 basis points, but is expected to normalize in fiscal year 2019.
Derisking continues at a vigorous pace and the division's gross NPE ratio fell 1.5 percentage points year on year to 6.4%. Return on allocated capital for the year was 15.7%. We expect the fiscal year 2019 return on unallocated capital to be lower due to normalized cost of risk and the impact from the new Romanian bank tax, which we estimate in the worst case to be a mid to high double digit million amount before remediation actions. We confirm fiscal year 2019 return on allocated capital target of 13.4%. Let's turn to Page 28.
CIB enjoyed a resilient performance in a very difficult market environment. Revenues were down 7.3% versus last year on lower trading. NII was up 7.5% on last year, driven by higher loan volumes and higher income from the bond portfolio. Fees were down 2.4% versus last Q2 due to a sector wide weak capital markets business and only partially offset by structured finance fees. The same general trend holds true for the 4th Q 2018 fees year on year.
Our leading franchise in debt capital markets was confirmed yet again with CIB ranking number 1 in EMEA, all bonds in euro by number of transactions. Costs were down 3.9% versus last year and lead to a best in class costincome ratio at 41%. Cost of risk was at a low 7 basis points in fiscal year 2018, driven by nonrecurring write backs in the 2nd Q 2018. For fiscal year 2019, we expect a normalization and confirm our target of 21 basis points. Normalized return on allocated capital was 8.7% for the year.
If we take out the higher provision for expected U. S. Sanctions, return on allocated capital would be well in the double digits, which we confirm fiscal year 2019 return on allocated capital target of 11.7%. Let's turn to Slide 29. As most of you will have listened to the Finnacle results on the 5th February, I will limit what I page.
On this slide, we are very satisfied with the overall financial performance of Fineco. Fineco saw a strong performance in management fees despite lower AUM volumes from negative market performance. Let's turn to Slide 13. In the group Corporate Center, revenues improved significantly, mainly driven by lower term funding costs, thanks to both lower volumes and spreads. The profit on investment line was affected by the YAP impairment in the 3rd Q, 2018, while the tax line was affected by the IFRS 9 FTA tax effects.
Costs are down significantly, mainly thanks to fewer FTEs. As a result, the ratio of group corporate center cost Total cost is down to 3.4% in fiscal year 2018. The fiscal year 2019 target of 3.8% is confirmed. Let me reiterate that we ensure we allocate fairly and proportionately all operating and funding costs to our business divisions, so that we give a true and fair view of their operating performance and do not flatter the business divisions. The Corporate Center only retains True Central revenues and costs, which have dropped considerably in the last few quarters, as Transform 2019 has progressed.
Let's turn to Slide 31. The accelerated 2021 non core rundown is progressing according plan. As already indicated in the last quarters, the non core division has transferred all remaining performing loans back to the core bank and is now a closed NPE book. Gross NPEs dropped by EUR 2,000,000,000 in the quarter and stood at EUR 18,600,000,000 at the end of fiscal year 2019. Our fiscal year 2019 gross NPE target of EUR 14,900,000,000 is confirmed.
Let's turn to Slide 33. On this slide, I would like to recap our impressive progress in improving our asset quality. Thanks to our decisive actions, we have massively reduced our NPE stock, which is down EUR 38 point EUR 6,000,000,000 since the 3rd Q 2016, more than 50%. Net NPEs are down even more on a relative basis. We have done an incredible €27,000,000,000 of NPEs disposal in the quarter, while at the same time increasing the NPE coverage by more than 8 percentage points.
UniCredit today has the 2nd highest NPE coverage of all Eurozone Banks in the recent EVA transparency exercise and the highest in Italy. At the same time, we have strengthened our underlying process to contain as far as possible the creation of new NPEs. The expected loss on new business for the group is 34 basis points, below the expected loss on stock of 38 basis points. Our proactive and decisive de risking actions benefit all stakeholders, and we are well ahead of regulatory patience and requirements. Another example of that is our voluntary partial anticipation of EBA guidelines.
Let's turn to Slide 34. We continuously work to derisk the balance sheet to further lower our cost of capital. Group core gross NPE decreased by €2,700,000,000 year on year and EUR 600,000,000 quarter on quarter. Our core gross NPE ratio dropped to 4.1 percent in the 4Q 2018, close to the AVA average and is already well below our 2019 target of 4.7%. Our coverage ratio has improved by 2.4 percentage points year on year.
Section on Page 35. Overall, the risk environment remains supportive as demonstrated by an improvement in default rates year on year. The migration rates improved by 7.8 percentage points quarter on quarter Future Single Names in the 3rd Q 2018. Let's turn to Slide 36. Gross NPEs in Commercial Banking Italy are down to EUR 8,700,000,000, which is again a significant reduction in absolute term versus last quarter and was mainly driven by disposals.
The gross NPE ratio dropped to 5.7% thanks to both gross NPE reduction and higher loan volumes. The 2019 target is confirmed at 5.3%. The 4th Q 2018 coverage ratio was slightly up at 55.5 percent despite significant disposal activity. Let's turn to Slide 37. The overall risk environment in Italy remains supportive.
The default rate improved by 0.2 percentage points year on year. The cure rate was more than double than the same quarter last year as 4Q 2018 to the return of 3 single names to performing. There was also a good trend of migration rates, which stabilized at 20%. Let's turn to Slide 38. The execution of the accelerated rundown of the non core is progressing team very well.
Gross loans in non core went down EUR 10,700,000,000 year on year EUR 3,700,000,000 quarter on quarter. This reduction was thanks to a combination of disposals, write offs and recoveries. Please remember that there were extraordinary write off on residential mortgages in the 1st Q 2018 for EUR 1,400,000,000. Performing exposures in noncore are down to 0 turning the division into a gross NPE book. Let's turn to Slide 39.
Non core loan volumes get going down and are on track to meet our 2021 accelerate rundown target. Net NPEs, which are good indicator of economic risk, were down significantly to EUR 6,600,000,000 dropping by EUR 4,500,000,000 year on year. Gross NPEs decreased by €7,400,000,000 year on year, standing at €18,600,000,000 better than our fiscal year 2018 target and below our original fiscal year 2019 target from Capital Markets Day 2016. We confirm our EUR 14,900,000,000 for fiscal year 2019 gross NPE target. NPE coverage was stable at 64.3% despite disposal activity.
Let's turn to Slide 41. The group's fully loaded core Tier 1 ratio at year end stands at 12.07%, down 4 basis points quarter on quarter. The key drivers were the net profit of 23 basis points in the 4th quarter as well as the regulation models and pro That had 23 points negative impact. Let me make a remark regarding our dividend payment, which is based on a 20% payout on stated net profit excluding the tax effect from IFRS 9, FTA. As we did not take this tax effect through our profit and loss accounts in the 1st Q 2018.
Our shareholders did not suffer a negative impact on their dividend base. As a consequence and to keep asymmetric treatment, the related ETA benefits should not affect dividend either. The impairment we took on the YAPI in the 3rd Q 2018, however, is treated differently. It affected the fiscal year 2018 dividend base negatively, but in turn, Any potential future write up of YAPI will impact the dividend base positively. The net impact of YAPI on our core T1 ratio this quarter was negligible, only one negative basis point composed of plus 4 basis points from capital and minus 5 basis points from risk weighted assets.
Yes, IFRS nine FDA DTA write up and only a very marginal combined initial impact of plus five basis points on our core Tier one ratio for fiscal year 2019. The reason is that DTAs resulted in risk weighted asset and capital deductions for amounts exceeding the so called combined DTA bucket. As the DTA bucket empties over time, some of this lost benefit will be regained in the future. In fiscal year 2019, we expect a positive core Tier 1 ratio contribution in the high single digit basis points. Feel free to call our IR team for more details on this topic.
I'd like to make clear example in the ABA transparency exercise in AmEx on Page 73. That also means We never pro form a our capital ratio for potential future positive DTA impacts. And as such, dividend to it for the IFRS 9 FDA tax impacts this quarter. With UniCredit, What you see is what you get. Also let me use this opportunity to remind you that our capital levels compare very well in the recent EBA transparency exercise that put all banks on equal footing.
UniCredit has one of the best core Tier one ratios in relation to Eurozone and Italian peers. We confirm our end of 2019 core Tier 1 ratio target of 12% to 12.5%, which corresponds to our target NDA buffer of 200 to 250 points. The expected evolution of our core Tier one ratio during 2019 will be driven by the combined effect of regulatory headwinds, mainly expected in the 2nd Q 2019 and 4th Q 2018 due to the timing of ECB approvals and tailwinds from retained earnings and capital gains from real estate sales. Overall, this should lead to a core Tier 1 ratio trough at the end of Q2 of 2019 at around 11.7 percent at current BTP spreads before going back up to our target range of 12% to 12.5% by year end 2019. Let's turn to Slide 42.
Risk weighted assets in the quarter increased by EUR 7,600,000,000 to EUR 370,200,000,000. The biggest drivers were increased credit risk weighted assets from regulation models and profitability. There were also around EUR 0.6 €1,000,000,000 of risk weighted assets from the 2 50 percent risk weighting of the deferred tax asset from IFRS 9 FDA not deducted from the core Tier 1. Market risk weighted assets were down due to lower inventories from market making activities. Operational risk risk weighted assets increased following the inclusion of the additional large provision for the expected U.
S. Sanctions into our loss database. Over the course of 2019, we expect risk weighted assets to increase every quarter up to our target of EUR 406,000,000,000. Regulatory headwinds from EBA guidelines and the regulations models and pro Criticality should account for roughly EUR 25,000,000,000 of risk weighted asset increase and should mainly be split between the 2nd and the 4th Q 2019. Let's turn to Slide 43.
After a number of quarters with declining tangible equity values, we consider The 3rd Q 2018 was the trough. In the 4th Q 2018, Our tangible equity grew by 3% or EUR 1,400,000,000. The main driver was the net profit of the quarter. The IFRS nine FDA tax impact from the BTA write up also had a positive impact on tangible equity. We expect a steady increase of tangible equity and tangible book value per share throughout 2019.
This should lend support to our share price going forward as tangible book value per share has increased to €21,400,000 Let's turn to Slide 44. As of the 4th Q 2018, we are fully compliant with the upcoming Filac requirements with a subordination ratio of 17.42%. Pro form a for our senior non preferred issuance executed in January 2019, our subordination ratio is 18.13%. This corresponds to a buffer of 107 basis points, slightly above our target of 50 to 100 basis points buffer range. Taking that into account, we are also already compliant with the upcoming subordination required for MREL.
Our TLAP funding plan for 2019 is well advanced. Out of a total of EUR 9,000,000,000, We only need to issue an additional EUR 3,900,000,000 of subordinated instruments in the full year. Our 2 large successful senior non preferred transaction in recent months have also put us ahead of the curve in utilizing our substantial market capacity and our position well with our investors. Jean Pierre, back to you. Thank you, Mierco.
Before I get to the conclusion, I just wanted to say a few words on the senior management team reorganization project we announced last night. The change in the management structure and to continue the streamlining process, initiative will transform 2019 and will ensure that the management team will deliver The next 202023 plan will have full ownership of the new strategy from the very outset of the planning process. As we are nearing the achievement of our Transform 2019 key financial and operational targets, it is time to actively prepare for the next strategic cycle with the objective to continue sustained value creation for all our stakeholders. Jenny Papa has announced that in agreement with the banks, he will be stepping down on the 1st June 2019. I would like to thank Jenny for his valuable contribution to the group over the last 39 years.
Jenny has It's been integral to the 1st 2 years of the implementation of Transform 2019 and will, Antti Stephane, remain as an advisor to the CEO on the ongoing execution on the plan. Let's turn to Page 47. Before we move to the Q and A, let me briefly recap our 2018 performance. In our 2nd full year of Transform 2019 plan, we are seeing a continued strong core bank performance with group core net operating profit of EUR 7,500,000,000 and an adjusted group core RoTE of 10.1%. If we adjust for the higher charges and provision on the expected rate sanction, it would be materially higher.
Transform 2019 continues to be well ahead of schedule and is delivering tangible results quarter after quarter. We have already achieved 100% of our planned FD reduction and 93% of our branch reductions. Group costs are down EUR 10,700,000,000 better than our €11,000,000,000 target. The accelerated non core run down is fully on track, already down to EUR 18,600,000,000 of gross NPE. The target for 2019 from our targets of EUR 4,700,000,000 net profit, 9% RoTE and 10% core RoTE.
As we said earlier, without the expected rent function, our 2018 adjusted group RoTE would have been close to double digit and above the 9% target of 2019. We are confident our tangible equity will grow throughout the year. And last but not least, We confirm our CET1 ratio range between 12% 12.5% at the end of 2019, corresponding to an NDA buffer of 200 to 2 50 basis points. We expect real estate disposal to contribute around 0.2 percentage point to our CET1 ratio, mainly in 2019. We continue to focus fully on Transform 2019 and work hard as one team, one bank, one UniCredit to ensure UniCredit remains a true pan European winner.
As a sign of my personal conviction that transformed 2019 will successfully meet the stated targets. I have decided to invest once more into UniCredit. I will invest the equivalent of the after tax value of my long term incentive plan in shares. That means I will buy €3,600,000 worth of shares as well as €3,600,000 worth of AT1, holding booth for the same length of time at the original LTIP award. Finally, let me announce that we shall present our new strategic plan for for the period 2020 to 2023 at the Capital Market Day in London on the 3rd December this year.
So please put the date in the diary. Needless to say, we much look forward to seeing you all there. And now, Nico and I are ready to take your question. If you could be so kind to limit your question to 2 each. Many thanks.
Operator?
Thank you, Mr. Musier. We will now begin the question and answer session. We kindly ask you to use handsets when asking questions. The first question is from Andrea Filtri with Mediobanca.
Please go ahead.
Good morning. I have Two questions, capital and cost of risk. On capital, which of the 2 CET1 targets is senior to the other? Is it the 12% to 12.5 percent for 2019 or the 200 basis points to 2 50 basis points MDA buffer. And do you reiterate your expectations Given in December 2016 that your threat should fall further, on the side, What are your IFRS 16 and TRIM impacts expected for this year?
On cost of risk, you indicate 10 basis points of loan loss provisions from IFRS 9 macro scenario. What macro scenario are you reflecting? Are you confirming the provisioning guidance despite the deteriorating macro scenario? And Will this also result in higher than expected risk weighted assets from your IRB models? Thank you.
Thank you very much. Let me answer the CET1 question and I will pass over To TJ for the cost of risk and the macro scenario. We have 2 targets, as you pointed out, in terms of CET1, 12 to 12.5 and 200 to 200 basis points above. We are very focused on the buffer as we see the important parameter for our shareholders. Not only on the CET1 ratio, but also on the TLAC ratio and we announced buffer for the TLAP ratio of 50 to 100 basis points.
And the management will make sure that we are within this target. It is when we took actions as well in addition to our net earnings generation for 2019 to make sure we would be within the buffer. For 2019, the 2 ratios, 12.5% and 200% to 2.50% both. It is fair to say that we have a 3rd pillar 2 requirement of 200 basis points and we hope That is 3 pillar requirements will be able to be lower the gain, but that will not impact 2019. The decision will be made by the ECB in 2019 and it will impact 2020.
And so if we have a lower credit requirement. This means that we will have more room and to move between our 200 to 200 basis points buffer. On IFRS 16 and TRIM, it has been embedded into our capital projection. We already communicated, I think, before Capital Market Day that the impact should be around 10 basis points. Also due to an increase of risk weighted asset of EUR 2,700,000,000.
I hand over to T. J. On the macro scenario. Just to remind you that the 10 bps for the 4th quarter is a 4th quarter impact, not an annualized impact. The annualized impact is 3 basis points.
But, TJ, I hand over to you to explain on one side the parameters behind that And to give us sensitivity on further evolution. Yes. Thank you, Jean Pierre. As Jean Pierre mentioned, Yes, just on the process point of view, twice a year, we update the macro scenario to reflect just on the IFRS 9, what the additional LLP would be. And for the sort of second half of the year, We have clearly, particularly for the Italian parameter, we've downgraded the GDP to be more in line with our forecast.
And that gives the so called 10 basis points for Q4 and 3 basis points for the year. And this also we impacted also as well as by the BTP Bund Spread. We expect for sensitivity that if there's an additional 1% over the next 3 years in terms of the Italian GDP, the forecast In terms of LLP, it will be quite small, between EUR 40,000,000 to EUR 60,000,000 Cumulative, yes. Just to clarify, the 1% is a cumulative 1% Please, which if you look at it over 3 year on average, that should be 33 basis points per year basically. And in terms of downward revision, if you focus On the Italian GDP, we have revised for the next 3 years the GDP for this IFRS nine simulation to levels which are below 1% with the trough in 2020 at roughly 0.5%.
Next question please.
The next question is from Adrian Chigi with RBC. Please go ahead.
Hi there. Thank you very much for the presentation and for taking my questions. I'll focus on 2 questions on net interest income and fee income. Can you, in terms of net interest income, provide us a more detailed outlook for the various moving parts, particularly your thoughts on the repricing in Italy, Some of the impacts from what you see on the wholesale funding movement, any time value outlook and potential TLTRO scenarios impacting NII in 2019. And then on fees, you referred to the upfront fees decline as a key driver of the year on year performance.
Can you disclose the amount of upfront fees, if possible, both absolute and percentage AUM to allow us to form our own estimates of potential future impacts? Thank you.
I will hand over to Mifo for the detail. I'm quite sure that I'm going to give you all the details you want, but let me confirm on the core figures and Neppo will go down in detail afterwards. We confirm our 2019 revenues of €19,800,000,000 and of course, the net profit of €4,700,000,000 Just want to state again that the net profit of EUR 4,700,000,000 does not include a potential capital gain from Real Estate Asset Disposal. So we have here as well an additional buffer, if you want. And we said that we stake the real asset disposal to contribute to 0.2% of CET1, mostly in 2019.
As far as the commercial performance is concerned, so NII plus fees, we should be within the EUR 18,100,000,000 that we have mentioned last quarter. We have said within that could be a variation of maybe EUR 100,000,000. But we have as well potentially less negative contribution that's what we were forecasting before of Turkey. We had a very tough projection for Turkey In terms of dividend, I mean, the figures of the Q4 showed that potentially we have some upside here. And we have a very conservative view on the Credit inside and so we could have some upside as well.
So basically, the evolution and it's more now than the science of the commercial revenues It might be compensated by potentially better news on the dividend side and the trading side versus what we were expecting. But Mirko can give a few more details on the NII and the moving parts of NII, which are always Difficult to Anticipate. Yes, thank you, Jean Pierre. Yes, on the NII front, I think something that we need to take a good takeaway from the 4Q performance is that for the first time we are seeing a positive impact if we combine the loan volumes and loan rates in terms of a positive number. We think that this is going to continue.
Of course, we are not expecting The loans to grow at the current level, like we have seen, €3,800,000,000 for the quarter. Of course, due to the GDP environment in Italy, especially loan growth will be a little bit more subdued. But nevertheless, we are going to see loan growth. And as we said into the script before, in terms of the loan rates, we are seeing a stabilization of rates, very important that Italy has stabilized. And the stabilization is also supported by the repricing that we are doing in the Italian market.
And therefore, we should see this trend continuing also in 2019. Now the line item that It started to impact our NII is the term fund new line item. You can see the minus €6,000,000 impact on this for this quarter due to the restarting of our funding. Expect going forward on a quarterly basis to have, Let's say mid single digits, 1,000,000 higher impact from cost of funding because Our funding plan is mostly focused on subordinated debt to maintain a strong, let's say, subordination ratio. In terms of TLTRO benefit, we are not planning in our budgeting for the TLTRO.
Of course, there are rumors about a potential TLTRO. If there is one, of course, it will be a positive element for us in our development of DMEI. But even absent this, We would see 2019 slightly increasing. In terms of fees, fees, as we said, the fee side, investment fees are the ones that are under pressure. If I look at the composition, it's mostly driven by AUM, especially on the upfront side, in which we see lower volumes and also lower pricing, so very competitive environment there.
And nevertheless, there is some counterbalancing from management fees that actually are flat. And also this kind of a stabilizing aspect of the investment fees. Nevertheless, as a guidance for you, A flat development for 2019 should be the base case going forward for For financing fees, we have seen a good performance, especially on the quarterly performance in CIB on loan fees and also CE on loan fees and guarantees have performed quite well. We have plus €31,000,000 there. So it should be sustained also into 2019.
And on the transactional fees front, we had a very strong, Let's say, increase in fiscal year 2019, mainly driven by the current account repricing that we have done. Nevertheless, For 2019, we are going to continue to see potentially around 2% growth of this segment of the fees line item. So overall, fees will be around the level of for 2018 plus EUR 100,000,000.
Thank you very much. Very helpful.
Next question please.
The next question is from Jean Maries with Goldman Sachs. Please go ahead.
Hi, good morning. I just wanted to ask firstly about the dividend policy team going forward. I welcome your comments on the explanation for the basis of calculation and the underlying versus stated. I just wanted to clarifying the path going forward because of the slight revision compared to originally in the plan of the capital ratio, Whether we're still on track for 30% in 2019 and 50% thereafter subject to capital reaching 12.5%. And into this weather, going into the plan that you're going into for next year also with the management changes, etcetera, Whether you're budgeting any restructuring charge that could or would that could impact dividends.
And my second question is more conceptual. As you go into the next business plan, we are seeing a lot of banks doing business plans these days. Some are favoring more this is more growth, some are favoring more returns. And I just wanted to understand from where you stand and considering your geographic Also, where you're tilting in terms of your preference in terms of maximizing returns or otherwise now that you've restructured successfully looking for growth opportunities. Thank you.
Thank you very much, Jean Francois. Remind you that our capital market is on deck 3rd this year, so we're not going to have it now, but I will give you some information. First, on the dividend policy, We confirm that we will increase for 2019 and dividend paid in 2020 Our dividend payout to 30% to be applied to our net income and it will be a cash dividend of course. In terms of the increase to 50% thereafter, we always say that we aim to increase as fast as possible the payout to 50%. We didn't say we will increase it in 2020 to 50%.
And that will be based on the forecast of our CET1 evolution. And based on the question we had from Andrea Before, we will focus mostly on the NDA preference, so not on the 12.5% CET1 ratio, for making sure that we can be on the upper end of our buffer of 200 basis points to 2.50 basis points. So that's, as I said, What will drive our strategy is not as much the absolute CET1 ratio and the buffer to CET1, so 200 to 250 basis points. And if we reach the upper end of this buffer, Then we can increase the dividend payout post 2019. As far as the strategic plan is concerned, We will communicate about it on the 3rd December, but I think it's important to state that We have a view that it is important to be credible in the projection we give.
I think So far, we have delivered on the KPI of Transform 2019 because we gave objective, which were ambitious but credible. So growth on the top line in Europe Cannot go well above the overall nominal growth of the economy. So we are not going to for me growth for activities, which would not be consistent with what the real world is. And you know that We lend to SMEs, we lend to retail individuals and we are very focused on the real world basically. 2 is in terms of profitability.
And I stated that the return on equity of European banks It's probably not going to be well above the cost of capital going forward. And I have seen Actually, adjustments of various banks in terms of their targeted return on capital. And we feel that reaching the cost of capital will be a very good target. So there's 2 ways to reach it. It's to make sure that the RoTE increases and to make sure that the cost of capital decreases basically and that would be as well the focus of the plan.
So what we have in mind is reasonable growth, which is realistic and not based on assumptions, which might be too optimistic. On the CIB side, we have a plugged in CIB, which is serving our businesses. So no complex business, no complex derivative, nothing, a cost income which is 41% this year. So It's an extremely good cost income and we're not betting on realistic assumption there as well. And profitability and RoTE, which should be close to our cost of capital.
Next question. Thank you.
The next question is from Delphine Lee with JPMorgan. Please go ahead.
Thanks for taking my questions. So through as well on my side, if I can just go back on the revenue target of 2019. Thanks for just confirming again the EUR 18,100,000,000. But just looking related at your comments on NII and fees and commissions, which were quite helpful, Just wondering where the, let's say, EUR 500,000,000 pickup from this year to next year is coming from. You seem to suggest a little bit of NII pickup, but and C pickup as well.
But if you can just give us a little bit more guidance versus your all published targets that would be quite helpful. The second question is just going back to Capital. I'm just trying to understand the range of 12% to 12.5%. Are you Assuming a EBITDA buffer for EBA guidelines to be maybe delayed Or any impact from BTD bond spreads winding or the timing of disposal. I'm just trying to think about Where was the pickup coming from in terms of the bottom of 12.7% end of Q2 to 12%, 12.5% in just one half.
Thank you very much.
Yes. Thank you very much. Mircro and I will answer your question. First, We don't have a pickup on revenues of €500,000,000 We have mentioned in the Q3 that we have target for 2019 revenues, which were around €19,800,000,000 basically. We lowered on the 3rd quarter revenue target for 2019 by €600,000,000 But nevertheless, we confirm commercial revenues.
I said around 18.1 percent, meaning that it is, as I said, an art and not a And the adjustment potentially, let's say, of EUR 100,000,000, which might be the viability, We think can be compensated outside of the commercial revenues by potentially higher dividend. That's what we were planning and potentially higher credit revenues as both of them were set at very conservative level when we confirmed the €19,900,000,000 of total revenue. So we have fees which would be €100,000,000 higher versus this queue. On the NII side, as Mirko mentioned, they are positive, I think, in terms of funding cost. We had some comments of analysts saying about the senior non preferred you issued were at a high level, is it going to negatively impact your NII?
1st of all, when we have a window we issue, I think that our policy will keep doing it. 2 is the issuance that we have done on premium and preferred in December and in January were at levels which were below What we have projected to come up with our NII projections. So these do not impact negatively, but actually positively NII projection. As you know, we always are extremely conservative in our projection. So I think there is potentially On the NII side, good news on the funding cost.
We have not planned a TLTRO. If this happens, that might be as well positive, so let's see. And on the NII, Mirco commented on loan rates and loan volume. On the CET1 ratio. We said that we'll have a trough on the 11.7% in the 2nd quarter.
We have a slight delay, if I may say, based on translation of the impact of a model change and EBITDA guidelines from the first to the second quarter. Show. We expect to have all in all for 2019 an overall impact of 75 basis points of combined model for 35 basis points and EBITDA guidelines for 41 basis points, That's for the full year. The Q1, we expect around 10, 12 basis points. And on the 2nd quarter, we expect that We should have a more important impact of roughly 39 response, which could impact the Q2.
So the combination of this negative regulatory impact with earnings on one side and potentially some managerial action like disposal of real estate orders, in that we have a growth at 11.7% and we go back up to 12% at the end of the year. The second impact of regulatory change will be mostly on the 4th quarter. We have very little impact on the Q3 of any regulatory change. So we move into a combined impact up to the Q2 of 51 basis points, so 12.39 on 1st and second, roughly nothing on the 3rd and the balance 25 basis points on the 4th. So I should guide you in terms of your CET1 projection.
We are very confident that we will deliver on our 12% CET1 ratio and our 200 to 250 basis points MBA buffer. As I said, it is as important to look at the MBA buffer going forward for the dividend policy than the absolute CET1.
Sorry, if I can just clarify. What I meant for the revenues was the EUR 500,000,000 pick up was on core revenue. So because you had EUR 17,600,000,000 in 2018 and you're targeting EUR 18,100,000,000 in 2019. So if fees and commissions are going up only EUR 100,000,000, it just implies quite a bit on NII. So I just wanted Understand a bit the trends in NII basically.
Thank you.
The trend in NII, if you look at the group call, we have for the net interest for 2018, €10,700,000,000 and we have fees of €6,800,000,000 So we are actually Not very far from the EUR 18,100,000,000. So I'm not quite sure that I understand your EUR 500,000,000 evolution, but I suggest that the IR team I'll speak to you directly afterwards. Next question please.
The next question is from Andrea Vercellone with Exane. Please go ahead.
Good morning. I have two questions. First one on capital, second one on tax. On capital. You have already taken a lot of the negative impact related to NPL sales, whether it's due to Fino or disposals which had happened afterwards.
Now if the Revised version of the BRRD was to include an LGD waiver on massive NPL disposals. Does it mean you will have a benefit from your in your fully recorded EBITDA ratio or What is done is done. And second on tax, how long can the 17%, 18% tax rate last for like 2020, 2021 or longer than that? And specifically on this, can you disclose how much potential you still have for DTA write ups, specifically in Austria and in Germany.
I will let Mirco comment on the tax rate. And after which TJ and I will comment on the massive disposal But, Mieko, can you first comment on the tax rate? Yes. On the tax side, yes, we have a 17.8 A normalized percentage point, I think for 2019, this is going to be between 2017 2018. Post 2019, I think we should start modeling at 23% to 24% normalized tax rate because This will depend a lot on the DTA checks that we need to do on a regular basis depending on the various performances in like you said in Austria and in Germany.
And so that's basically where we are comfortable in basically guiding in terms of tax rate.
How much have you still got in potential cushion?
Yes. The cushion is around If I look at Germany and Austria, it's around EUR 450,000,000.
Okay.
I will hand over to T. J. On the massive disposal, the impact on the model and the LGB impact it We have on the stock. But I think that on the flow, which was not your question, but which I think is important, What is important for me is that we don't negatively impact Our competitive positioning when we afford because we are conservative disposal of NPL And take the pain first. So we are being discussing with the regulator, but the LGD waiver will allow us when we look at sub pockets, if I may say, of loans to lower the initiative and not being impacted by past history, which has nothing to do with what the bank is today.
So I think the future origination capabilities and competitive is what is important. And together with the team, We are making sure that this the negative impact of disposal on assets which have no relation with underwriting will have a de minimis impact. On the stock, it's adjustment, Let me say of the LGD, T. J, I'll let you comment. Just one clarification.
Clearly, this waiver is not really a full waiver. It's an adjustment for massive disposal. It is still in final consultation. We expect this In the next few months. Clearly, that happened.
It will have positive impact on our capital sort of walk, But it depends on the number of factors, including the bad shortfall versus a good shortfall, the shortfall evolution. During the CMD, in December 3, we will then give you a projection of this impact because it's still Not fully signed off and we are clearly working. We have estimated impact and this impact has been embedded into the 2019 guidance that we've given. But going forward, clearly, this is the future as well And we will articulate this further on December 3.
Okay. Thank you very much.
Next question please.
The next question is from Giovanni Razzoli with Equita. Please go ahead.
Good morning to everybody. Two clarifications, if I may. Back on the cost of risk, You've mentioned that you had a 10 basis points quarter on quarter increase in the cost of risk because of the updated GDP estimates. I was just asking whether this increase reflects an increase only on the Italian Commercial Banking business or at group level? And the second question, as we go in 2019, I was wondering whether we may have some updates on the litigation with the Autonomousstration on the pension liabilities.
Thank you. Thank you. On the IFRS nine cost of risk impact, as we said, the impact has to be looked at on an annualized basis, So it's 3 basis points and covers GDP adjustment for all European countries. So if we have mentioned As far as Italy is concerned, what has been the specific impact? TJ can mention that on our Italian cost of risk Firstly, we had more minor impact on the other countries.
But before TJ speaks, let me comments on the litigation side is we have not taken any additional provision in the Q4 for U. S. Litigation. We expect the provision was taken to be in line with what could be the final decision. And I have we said a minor low single digit impact on our CET1 plus or minus 5 basis points basically.
So That should not be a specific issue. TJ, on the cost of risk for the IFRS nine adjustment. Yes, on the cost of risk, we clearly updated All of the GDPs and all of the parameters across our entire group and the most impacted clearly is the transient side of the for instance of from which it contributes more than 2 thirds The impact for the entire group. So overall, it's 3 basis points for the year. And if you go through all the Group.
The most impacted area is Italy. There are some minor impact in Austria and
The next question is from Madhurra Guelfi with Citi. Please go ahead. Hi, good morning. Something on cost Then something on NPL, so just a little bit different. When I look at your cost target for 2019, given the progress that you have showed in 2017 and team is not particularly demanding.
And I just wanted to know if you could split for us what are cost saving and potential investment that instead that you are considering to do during the year. And if you see that there could be More space for optimization or you would leave some more for the next plan? And the second one is on NPL. As you said, you have one of the highest coverage and you have done a lot of work on NPLs. And could you increase disposal for 2019?
And in case, any update on the workout because the results that you showed so far are quite encouraging. Thank you.
I might take a slightly different view and yours on your not particularly demanding cost reduction. Let's be serious. Okay, we reduced our cost in a massive way. The team is focused on that. It's coming from the top.
We are massively outperforming our cost reduction for 2018 and we are down to €10,700,000,000 while our target €11,000,000,000 while reducing further our cost and our target to €10,400,000,000 So I know it's easy when you have an Excel worksheet to say, why not reducing the cost? We're managing people, branches, clients. So please, recognize what we have been doing and don't make this kind of comment.
No, absolutely. Yes, this
is no, that's it. On the NPL disposal, we have a target to reduce our non core book to 0 by 2021. We're on track. We are working in the most efficient way in terms of reduction. It is a combination of recovery of write off and disposal.
And we said that the contribution should be more or less 1 third, 1 third, 1 third. And if we can reduce further and more quickly, we will do it. But don't expect To be massively below our target for 2019 on €14,900,000,000 for the non core. It is a challenging target and it is very challenging to reduce 2 DO by 2021. Thank you.
We have reduced that massively from what we mentioned at the Capital Market Day and we stick to our projection. Next question please.
The last question is from Ignacio Freinto with UBS. Please go ahead.
Yes, hi, good morning.
A couple of quick ones from me. The first one on NPL income within the net interest income, both time value of money and UTPs, If you can give us the weight within the group. And second, in terms of update on the Turkey book value and the Hinkla Group exposure you have as of December.
Thank you.
So So on the term value of QTP, I don't know if TJ can have the answer now. Otherwise, the IR team will call you back I have to say that you are challenging us with this question right now, but well done. On the Turkish The value of YAPI credit is unchanged. There's no specific additional impairment in our Q4 results and We don't expect additional evolution for the Turkish for YAPi credit book value. TJ is waving desperately saying that the higher client will quickly we don't need to get better on the time value of NPL.
Thank you. There are
no more questions registered at this time.
Maybe let me just make one remark from the IR side on the dividend that we just announced. So And the upcoming dates for the dividend will be the 23rd April is the ex dividend date. The 24th April will be the record date and the 25th April will be the payment date. And Any other specific communication regarding these dates and the dividends will be available on our website. Any other question?
Gentlemen, I confirm there are no questions.
Thank you very much. So if there's no other question, thank you very much for taking the time to listen to us. We'll be here from tomorrow on the road, Nico and I, and being able to meet with you and with investors for the next Week and a half or 2 weeks. Thank you very much.
Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.