Good morning. This is the Chorus Call conference operator. Welcome and thank you for joining the UniCredit Group Third Quarter 9 Months 2018 Results Conference Call. 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 year, UniCredit Group's Chief Executive Officer. Please go ahead, sir.
Thank you very much, and good morning to you all, and welcome to our Q3 2018 Conference Call. Q3 saw an increase in uncertainty created by the broader geopolitical situation and concerns about the growth prospect in U. S. And Europe. And also the market in Italy was particularly volatile.
The country's private sector fundamentals remain strong. The underlying performance of the group remains very strong and our adjusted results are up year on year. However, before we look at these results per se, I would like to start by highlighting a few external events beyond our direct control that had a negative impact on our bottom line and capital in the quarter. As you know, we have a policy to take upfront the impact of negative developments in order to put them behind us. This is why we have taken decisive actions on Turkey and U.
S. Sanctions. And as a result, our effective net profit for the quarter is €29,000,000,000 This will lead to some adjustment of our Transform 2019 revenue target, Well, I stress that all other key targets are confirmed, including asset quality as well as 2019 net profit of €4,700,000,000 and ROTE above 9%. First, Turkey. In light of the evolution of the macroeconomic environment in the country, we have reviewed our investment prospects in YAPI, looking at all potential alternatives.
Based on the outcome of our analysis, we are confident It is in the best interest of all our stakeholders to maintain UniCredit investment and pro rata shareholding in YAPI and if necessary, provides capital support on a proportional basis. Also in the Q3, we have taken a proactive but conservative approach and did a €846,000,000 impairment for the profit on investment line in our P and L. Together with the quarter on quarter negative change in FX revaluation reserve of €500,000,000 This takes the carrying value of our participation closer to the market value of our stake. This quickly minimize the risk of future impairments. 2nd, while continuing discussion with the U.
S. And New York authorities, There continue to be some open issues, but consistent with our conservative approach to provisioning, we have increased our provision in the 3rd quarter. We hope to be able to communicate an infinitive agreement in the Q1 2019. We expect the settlement to have no material impact on UniCredit CET1 ratio target. In addition, increase in the BTP Bund Spread led to a 9 basis point charge to our CET1 ratio.
And as it is in our EBIT, We have taken decisive actions to put these topics behind us. As a result, our effective net profit for the quarter is €29,000,000 The old team has put an extraordinary effort and worked really hard to compensate for these factors that are outside of our control. We have delivered a very, very strong underlying performance in this challenging environment and continue to execute Transform 'nineteen that is well ahead of schedule. I am super proud of what has been delivered and together We will keep moving forward regardless of one off external events and focus on what is under our control. We're making real progress with the transformation of the group.
In the remainder of the presentation, we will focus on the net profit figures adjusted for the impairment of CFP in order to give a more normalized view of the bank. In order to offset the financial impact of this quarter, and in addition to the actions already taken, we will be implementing other proactive even decisive remediation measures to maintain and protect the strength of our capital level. But first, let's focus on the business evolution in the quarter. We saw a very strong commercial performance in the core bank. 3rd quarter NII is up 3.1% quarter on quarter.
Fees are up 2.6% year on year. Our core bank net operating profit reached €1,800,000,000 in the quarter, up 21.9% year on year. This is an outstanding performance. The 9 months 2018 adjusted core RoTE reached 10.4%. It is only adjusted for the GAAP impairment and not for the higher provision for U.
S. Functions. So if we had addresses for those, our ROE we will be meaningfully higher. I repeat, meaningfully higher. The core core growth NPE ratio grew up to 4.3%.
Now let's go back to the remediation action I mentioned earlier. First, We will implement additional cost reduction measures in 2018 2019, which at the end of 2019 will amount to around €200,000,000 versus the original Transform 2019 target. This includes further non HR cost reduction, thanks to the optimization of back office activities and real estate as well as lower HR costs resulting from our faster execution of Transform 2019. 2nd, we will dispose specific assets such as real estate. 3rd, will be reducing the BTP's price sensitivity significantly, primarily for the partial allocation of future BTP purchase from rollover investment to help to collect.
Also given the current volatility across a number of markets and to further enhance the group risk profile, we will ensure that all group legal entities become self funded by progressively minimizing intra group exposure. Before we move on, let me briefly mention the EPS stress test results published last Friday. Our 20 3 CET1 ratio results are 13.76% in the baseline scenario and 9.34% in the adverse scenario. Both ratios show sharp improvement over 2016. UniCredit at the 3rd highest CET1 ratio in the adverse scenario of all euros on GC, A clear confirmation of the renewed strength of the group balance sheet.
Let's move to Slide 4. UniCredit has performed very well in the 1st 9 months of the year, thanks to strong underlying commercial dynamics and the unwavering commitment of all our teams. We report an adjusted profit of €3,000,000,000 which is 4.7% up versus the same period last year. Revenues in the quarter were up 2% year on year, mainly thanks to stronger net interest and fees. 3rd quarter 2018 costs were down 7.7% year on year, driven by both HR and non HR costs.
Our Q3 2018 cost of risk was normalizing at 60 basis points in a still supportive risk environment with 1 basis point impact from model change. Our adjusted ROE for the group was 8.3% in the 9 months 2018, up 0.5 percentage points versus last year. Let's turn to Slide 6, and I will give you details on the positive progress of Transform 2019. As a result of the decisive action taken in Q3 and the corresponding remediation action in capital, we have lead of CET1 target. We expect a CET1 ratio of 11.5% to 12% at the end of 2018 and of 12% to 12.5% at the end of 2019.
The NDA buffer target for CET1 is confirmed at 200 to 250 basis points. The range gives management the flexibility to adjust as needed to the macroeconomic environment up to the upper level in good times and closer to the lower level under more adverse conditions. As communicated at our Capital Market Day, it applies from the end of 2019 onwards. In 2019, we will initially be below the 200 basis points before remediation action and return earnings bring the buffer back up again. Marco will give you more details on the CET1 ratio development later.
The derisking of our balance sheet continues. The group's growth NPE ratio reached 8.3% in this quarter, almost half of what it has been when we launched Transform 2019. Group core MT ratio stood at 4.3%, close to the EBITDA range. The operating model transformation is ahead of schedule, reaching 88% of the target for branch reduction and 93% for ST reduction. Our improved cost efficiency for 2018 2019 means we will be below the €11,000,000,000 and €10,600,000,000 original 2018 2019 cost targets, delivering an improved reduction at the end of 2019 of around €200,000,000 Let's turn to Slide 7.
Commercial dynamics for the group are very positive and sustained. Our clients are embracing our multichannel offer and increasingly used digital solution. We're leveraging on our partnership with Alibaba and have expanded the relationship to corporates in Italy and payments in Hungary. Our fully plugged in CFP model continues to prove its success with leading position in IPO and debt capital markets. And our corporate center's premium is well on track to reach its target of reduced rate on total costs.
Now let me hand over to Mierko, We'll give you more detail on our financials. Pierre Claude, over to you. Thank you, Jean Pierre, and good morning to everyone. I will now financial performance. Our group core adjusted net profit stands at a strong EUR 1,100,000,000 in the quarter EUR 3,600,000,000 in the 1st 9 months.
Despite volatile market conditions, The commercial dynamics across the core bank community continued to be strong. The main divisional contributors to our strong performance this quarter were again CEE and Commercial Banking Italy. Adjusted group core return on tangible equity was 10.4% in the 1st 9 months. We confirm the 2019 target of above 10%. Let's turn to Slide 10.
We had a strong commercial performance in the core bank. Net interest was up 3.1% quarter on quarter and 7.7% year on year. Fees were resilient, up 2.6% year on year. In Commercial Banking Italy, fees were even stronger. We are enjoying sustained commercial dynamics across the group and gained 484,000 gross new clients in the quarter, while writing almost €78,000,000,000 in new loans in the 1st 9 months.
The execution of Transform 2019 continuously delivered tangible results quarter after quarter. Costs are down significantly 7.1% year on year and 2.8% quarter on quarter. Loan loss provisions were down 1.4% year on year. The gross NPE ratio stands at 4.3%, Down 85 basis points year on year and already below our fiscal year 2019 target. Net operating profit in the quarter was EUR 1,800,000,000 up 21.9 percent year on year.
Adjusted net profit was EUR 1,100,000,000 up 9% year on year. Let's turn to Slide 11. Let's now talk about the stated figures of the group. I would like to point out 3 items on this page. First, we took decisive nonrecurring action in the quarter that affected our non operating items.
We impaired our participation in YAPI for EUR 846,000,000 in the profit from investment line. This reduces the carrying value much closer to market value and greatly minimizes the risk of future impairment. We also have increased other charges and provision mainly for U. S. Sanctions as we are nearing a settlement.
The impact of the settlement should be nonmaterial, plus or minus mid single digit basis points on our core Tier 1 ratio. 2nd, our normalized year to date tax rate would have been around 16%. For the fiscal year 2018 normalized tax rate, we expect a similar level. While for fiscal year 2019, we expect between 18% 17%. Both numbers are not including the potential effects from ongoing DTA assessment.
3rd, as we said before, we have decided to adjust our net profit for the nonrecurring impairment on YAPI. As a result, our adjusted net profit for the quarter is EUR 875,000,000 while the stated net profit is €29,000,000 We did not adjust for the higher charges and provision from U. S. Sanctions. Let's turn to Slide 12.
NII was strong in the quarter, up 3.2% on a stated basis and up 2.3% when adjusted for days and foreign currency effects. The main driver of NII were the following. Average loan volumes were up 2.5% at constant FX, although not quite offsetting lower customer rates, which were down 8 basis points. Term funding costs were lower by $41,000,000 driven by both volumes and rates. As we resume issuance of capital market bonds if benefit should decrease.
Investment portfolio and treasury contributed €49,000,000 to the quarterly increase in NII. The higher spreads on our bond investment done in the 2nd Q 2018 contribute a large part of this. In the 4th Q 2018, we expect that contribution to go down. Let's turn to Slide 13. I will highlight 3 points on this slide.
1st, In group core, average loans were up by €10,800,000,000 or 2.8 percent in the quarter. That is the result of the good commercial dynamics we saw in the last two quarters, which include a large transaction in factoring in the 3rd Q 2018. 2nd, the average customer loan rates were down 8 basis points for the group. We saw stabilization in Commercial Banking Austria and CIB. In CEE, while customer rates fell, they remain high.
In Commercial Banking Italy and Germany, we continue to experience competitive pressure. We still expect a bottoming out of customer loan rates at group level by the end of the year as we have indicated since the 3rd Q 2017. 3rd, in CIB, there were extraordinary recoveries in the 3rd Q2 2018, which are not expected to recur in the next quarter. Let's turn to Slide 14. End of period customer loan volumes for the group core were up $10,300,000,000 or 2.5% in the quarter and 6.7% year on year.
This compares with the EUR 9.6 €1,000,000,000 for the whole year in 2017 and underlines our current strong commercial dynamics across the group. In Commercial Banking Germany, CIB and CEE, the loan growth was particularly strong. We do not expect loan growth to the same extent in the next quarter. End of period customer deposit volumes for group core were up 1 point 7% for the quarter and 5.5 percent year on year. The decreases in deposit in Commercial Banking Germany and Austria are the result of our decision to extend negative rates to more corporate clients.
Deposits in Commercial Banking Italy are steadily increasing, especially on the retail side. That were technically driven and extraordinary high single digit billion deposit inflows for corporate clients in CIB that are expected to reverse in the next few months. Let's turn to Slide 15. Fees in the quarter were up 2.5% year on year as there is seasonality in the 3rd quarter. Let's look at the fees category separately on a year on year basis.
Investment fees were down 3.1% year on year. This decline was due to a different AUM product mix, which leads to lower upfront fees, but higher management fees. It should make investment fees overall more stable and resilient in the future. AUM stock was up 4.9% year on year and 0.9% in the quarter, driven by positive net sales. Financing fees were up 1% year on year, thanks to good fees from the capital markets and better results from factoring and consumer protection insurance in Italy.
Transactional fees were up 10% year on year, driven by card services and current account fees in Italy. Given the volatility in the market and the negative impact on investment fees, we revised our guidance for total fees growth fiscal year 2018 over fiscal year 2017 to a similar level as the 9 months over the 9 months is growth. Let's turn to Slide 16. TFAs reached €833,800,000,000 in the quarter, increasing 3.4% year on year. AUM in the quarter were EUR 221,900,000,000 benefiting from net sales of EUR 1,500,000,000.
Commercial Banking Italy had positive net AUM sales in the quarter and outperformed the market in the 1st 9 months. AUM stock in all commercial banking divisions was up both quarter on quarter and year on year. Is an outstanding achievement considering the very challenging market environment in the quarter. AUCs decreased year on year, driven by retail bond runoffs and the market performance in Commercial Banking Italy. Let's turn to Slide 17.
Trading income in the quarter was down 27% versus last year as the general market environment continues to be unfavorable. Spread widening across the board led to lower client activity. There was also a negative impact in the trading line of about EUR 30,000,000 from the mark to market of our mandatory convertible into Pekao shares. A similar amount was received in the dividend line on the shares underlying the convertible. Going forward, we expect our trading results to be at the lower end of our previously guided €350,000,000 to €400,000,000 quarterly run rate, implying of fiscal year 2018 target of around EUR 1,400,000,000.
One of the biggest contributors to our dividend line is Yaping. Yaping is a very good bank and has a very good underlying performance in the quarter. Revenues and gross operating profit in Europe are up both quarter on quarter year on year. Loan loss provisions were also up in the quarter as Yapi conservatively increased the Stage 2 loan classification and coverage. Yapi P and L is included in our annex on Page 51.
YAPI's 3rd Q EUR 24,000,000 contribution to our dividend line appears slow. This is mainly due to the accounting treatment of FX translation at UniCredit Group level, which amplifies the recent FX moves. Discounting this account treatment, YAPI's P and L contribution would have been in the middle double digits range. Thanks to the decisive actions taken in the quarter, we have reduced the core Tier 1 ratio sensitivity to future FX volatility. After the impairment and the currency moves in the 3rd Q 2018, our sensitivity has turned positive at 1 plus one basis points net for 10% adverse move in the Turkish lira from now on.
The plus one basis point net impact is composed of minus 2 basis points from capital and plus 3 basis points from risk weighted assets. Let's turn to Slide 18. Our focus on cost efficiencies yielding tangible results quarter after quarter. We have already achieved 93% of our planned FTE reduction, 88% of our scheduled branch closures. As a result, operating expenses are down 7.7% year on year and down 2.4% in the quarter.
We expect the usual seasonally increase in both HR and non HR expenses in the 4th quarter after a third quarter that was seasonally low. As Jean Pierre said earlier, we will see an improvement in our cost base of around EUR 200,000,000 by the end of fiscal year 2019 versus the original targets. As a result, expenses for 2018 will be below EUR 11,000,000,000 despite the 4Q seasonality and for 2019 will be below €10,600,000,000 Let's move to the next slide. Both HR and non HR costs are down on a year on year basis and on a quarter on quarter basis. HR costs are down 7.6% year on year and non HR costs are down 8%.
Let's turn to Slide 20. Regarding group asset quality, I would like to point out 3 items. 1st, The overall group risk environment was supported in the quarter as demonstrated by a good underlying cost of risk of 59 basis points. While we had write backs in Commercial Banking Germany and the low cost of risk in CE, there was an increase in Commercial Banking Italy due to single names. For the fiscal year 2018, cost of risk should be around 60 basis points.
2nd, The impact from model changes in the 1st 9 months of this year was limited to 2 basis points. Even with the remaining impact on models in the 4th Q 2019, we expect the model impact for fiscal year 2018 to be in the mid single digit range. The reasons for this decrease from the initial guidance of 15 basis points in the first it's the first time adoption impact of IFRS 9. Consequently, this is not a time shift effect, but a real reduction. Underlying cost of risk is confirmed at 53 basis points for fiscal year 2018.
3rd, We confirm the cost of risk target of 55 basis points for fiscal year 2019, 4 basis points of which Our overall asset quality is steadily improving. Coverage ratio was stable in the quarter at 6 0.9%, but up 4.3 percentage points year on year. The group's gross NPE ratio dropped to 8 0.3% in the Q3 2018, down 2.5 percentage points year on year. This is a great improvement considering we start to transform 2019 as a close 16%. Let's turn to Slide 22.
In Commercial Banking Italy, NII was down 1.4% quarter on quarter, while average volumes were up 3.7%. Competitive pressures remain high, leading to a decline in customer loan rates of 16 basis points. Adjusted for some one offs, customer rates were down 12 basis points. Repricing in the Italian food market is starting and we still expect a bottoming out of customer loan rates in the 4th Q 2018. The new business has a low expected loss, well below the expected loss of the stock.
Fees were up 3.7% year on year, mostly Thanks to strong transactional fees from current accounts and card services. Productivity went up with fees per FTE increasing almost 15% year on year. AUM net sales were positive and AUM stock is up quarter on quarter year on year above the market performance year to date. We were able to attract 93,000 gross new clients despite the ongoing optimization of the branch network. Cost of risk in the quarter was 89 basis points, up 26 basis points due to single names.
The impact from models on cost of risk in the 4th Q 2018 should be around 30 basis points. Normalized for the sale of the bond business, the return on allocated capital for the 1st 9 months was 12.3%. Let's turn to Slide 23. In Commercial Banking Germany, NII was stable quarter on quarter. Customer rates remain under pressure, that are compensated by higher loan volumes.
Fees were flat year on year as higher transactional fees from increased client activity offset lower fees from AUCs. The drop in revenue year on year is mainly due to trading, which included a €39,000,000 capital gain in the 3rd Q 2017. 20,000 gross new clients were added in the quarter, up 50% over last year. This was supported by the end to end redesign of account opening process, which was exported from Italy to Germany. It reduces the time for opening an account significantly, lowers the cost and facilitates new client acquisition.
Cost of risk was impacted by nonrecurring write backs. The net profit was affected by higher other charges and provision that I mentioned earlier. These were mainly booked in Commercial Banking Germany and CIB. Normalized for the sale of the participation in the 2nd Q twenty eighteen, return on allocated capital was 5% for the 9 months 2018. If we also adjusted for the higher charges and provision, internal allocated capital would be above the fiscal year 2019 target of 9.1%, which we confirm.
Let's turn to Slide 24. In Commercial Banking, Austria NII was up 6.9% versus last quarter, thanks to higher non recurring prepayment penalties from corporates. Customer enroll rates and average volumes were stable. We gained 14,000 gross new clients in the quarter, up 5.2% year on year. The client share rate is dropping further after the conclusion of the branch network restructuring.
Costs were down 8% year on year After net write backs in the first half, thanks to a healthy loan book in both retail and corporate, cost of risk began to normalize in the quarter and should continue to do so. Return on allocated capital was 16.6% for the 1st 9 months 2018, Considering one offs in NII and cost and normalizing cost of risk, the recurring fiscal year 2018 return on allocated capital is around 13%, in line with the 2019 target and above cost of capital. Let's turn to Slide 25. CE continues to be our growth engine with an inflow of 334,000 gross new clients in the quarter. The division turned in a very good performance with NII up 2.5% in the quarter, constant FX driven by increased loan volumes.
YAPI dividends were affected by the FX translation accounting treatment mentioned earlier, while the YAP impairment was done in Group Corporate Center. Fees were up 3% on last year at current FX, excluding the change in the accounting treatment of fees accruals in the Czech Republic and Romania, fees would have been up by around 6%. Our cost income ratio remained best in class, only 36.6 percentage points in the 1st 9 months. The cost of risk is at the low 58 basis points, but should increase in the next quarter. Derisking continues at a vigorous pace and the division gross NPE ratio fell another 2 29 basis points year on year to stand at 6.5%.
Return on allocated capital for the 1st 9 months was 15.9%. We expect return on allocated capital for the full year to normalize, up closer to 14%, still above fiscal year 2019 target. Let's now turn to Slide 26. CIB had a good quarter. Net operating profit was up 5.8% year on year.
NII was up 5.3% in the quarter driven by a rebound in volumes and stable rates. Even adjusted for the extraordinary interest from shipping, it was up almost 3% and shows the sustainability of NII. Fees were up 11.4% year on year, thanks to strong structured finance and GTP businesses. Our leading franchise in loans and bonds was confirmed with CIB ranking number 1 in EMEA all bonds in euro by number of transactions, which demonstrate the success of our fully plugged in business model. Costs were down 6.5% year on year and led to best in class cost income ratio at 40% in the 1st 9 months.
Loan loss provision started to normalize in the quarter and will continue to do so in the 4th Q 2018. Normalized return on allocated capital was 8.3% in the 1st 9 months. If we take out the higher provision for U. S. Sanctions, return on allocated capital would be well in the double digits.
Let's turn to Slide 27. As most of you will have listened to the Fineco results on the 6th November, I will limit what I say on this slide. We are very satisfied with the overall performance of Fineco. Fineco saw a strong performance in AUM volumes and management fees. Let's turn to Slide 28.
In the Group Corporate Center, revenues improved significantly, mainly driven by lower term funding costs excluding both lower volumes and spreads. Costs are down significantly, mainly thanks to fewer FTEs. As a result, the ratio of the group corporate center cost to total cost is down to 3.4% in the 1st 9 months. The recasted fiscal year 2019 target of 3.8% is confirmed. The division made a net loss of €882,000,000 this quarter negatively affected by the YAPI impairment.
Let's turn to Slide 29. The accelerated 2021 non core rundown is progressing according to plan and our gross NPE targets are confirmed. Performing loans continue to decrease as they are transferred back to the core bank. Gross NPDs Dropped by €1,100,000,000 in the quarter and our end fiscal year 2018 €19,000,000,000 gross NPE target is also confirmed. Let's turn to Slide 31.
We continue to derisk the balance sheet to further lower our cost of capital. Group cost gross NPE decreased by €2,600,000,000 year on year and €700,000,000 quarter on quarter. Our core gross NPE ratio dropped to 4.3% in the 3rd Q, close to the EBITA average. Let's turn to Slide 32. Overall, the risk environment remains supportive.
The default rate worsened year to year due to single names in Commercial Banking Italy. Let's turn to Slide 33. Gross NPEs fees in Commercial Banking Italy were EUR 9,200,000,000 which is a significant reduction in absolute term versus last quarter and was driven by disposals. The gross NPE ratio was down to 6.2%, driven both by gross NPE reduction and higher loan volumes. 2019 gross NPE ratio target is confirmed at 5.3%.
As we have said before, please keep in mind that the reduction of NPEs will not always be linear. The 3rd Q 2019 coverage ratio was broadly stable at 55%. Let's turn to Slide 34. We continue to see the overall risk environment in Italy as supportive, is also evidenced by higher recoveries year on year. The default rate was stable at 2.1% in the quarter.
Let's turn to Slide 35. The execution of our accelerated rundown of non core is progressing smoothly. Gross loans in non core were down €9,600,000,000 year on year €1,800,000,000 quarter on quarter. This reduction was done through a combination of disposal, write offs and recoveries. Performing exposures in non core are down €1,800,000,000 year on year and set only at €1,700,000,000 As we stated before, all performing exposure in non core will be gone by the end of 2018 and the division will become a closed NP book.
Let's turn to Slide 36. Non core loan volumes kept going down and are on track to meet the 2021 accelerated rundown targets. Net NPE were down 4 point €8,000,000,000 year on year to €7,800,000,000 Gross NPEs decreased by €7,800,000,000 year on year, reaching €20,600,000,000 We are confident to reach our EUR 19,000,000,000 gross NPE end of the year target. NPE coverage improved to 64.3% despite disposal activity. Let's turn to Slide 38.
The group's fully loaded core Tier one ratio is 12.11%, down 39 basis points quarter on quarter. The key drivers were apart from the low net profit impacted by YAPI and U. S. Sanctions, the fair value to OCI and FX reserves. Out of the 11 basis points impact on the fair value to OCI reserve, 9 basis points came from the Italian Sovereign Bond Portfolio.
On the FX side, depreciation of the Turkish lira was the main reason with minus 14 basis points growth. As the risk weighted assets from YAPI also went down, the net impact on our core dividend ratio was only minus 5 basis points in the quarter. Regulation models in procyclicality had 8 basis points negative impact. As we said earlier, we expect our core Tier one ratio at year end 2018 to be between 11.5% 12%. This will be the result of BTP spread movements since the end of the last of the quarter, the increased credit risk weighted assets from model recalibration and EBA guidelines as well as high op risk risk weighted assets.
We updated our fiscal year 2019 Core Tier 1 ratio to 12% to 12.5%, which corresponds to an NDA buffer target of 200 to 2 50 basis points. As we have communicated at our Capital Markets Day, this fiscal year 2019 target is in a fully weighted losses and valid from the end of 2019 and beyond. During the year 2019, we will be below that level. We will reach the lowest point of our core Tier 1 ratio in the 1st Q 2019, slightly below the end of fiscal year 2018 due to the ABA guidelines phasing in. During the course of fiscal year 2019, we will steadily increase the core Tier one ratio to return earnings in our other remediation actions.
Let's turn to Slide 39. Risk weighted assets increased by EUR 1,900,000,000 to EUR 162,600,000,000. The biggest drivers were increased credit risk weighted assets from higher loan volumes and the regulation models and procyclicality. The risk weighted asset contribution from YAPI went down due to the FX development. Jean Pierre, back to you.
Thank you very much, Mierko. As I said in the beginning, we are ahead of schedule on the execution of Transform 2019. Basically, we took advantage of an extremely strong operating performance to take decisive actions on Turkey and U. S. Sanctions to put them behind us.
We have as well announced a number of remediation measures. As such, we confirm the EUR 4,700,000,000 2019 net profit as lower revenues will be compensated by lower cost and an improvement in the normalized tax rate to between 17% 18%. We also confirm our 2019 realty targets. As the composition of our net income is different because of the challenging macro environment, we are updating some of our planned targets. Our 2018 2019 revenue targets are EUR 19,700,000,000 EUR 19,800,000,000 respectively, based on expected lower trading and dividends.
Regarding the latest, as mentioned earlier, We have taken a very conservative view of Turkey. The combined commercial revenues from NII and fees is confirmed around €18,100,000,000 On the cost side, as already mentioned, will be delivering an improved reduction at the end of 2019 of around €200,000,000 versus the original cost target. As a result, we slightly revised our 2019 cost to income ratio target to between 52% to 53%. Our 2018 steady net profit will be at least €2,800,000,000 and adjusted net profit will be at least EUR 3,600,000,000 Our asset quality targets, which we have already improved twice in the past year, are all confirmed. Regarding capital, as explained earlier, we now target CET1 ratio of 11.5% to 12% for the Q4 2018 at 2 days BTP spread in a range of 12% to 12.5% at the end of 2019.
With correspond to an NDA buffer of 200 basis points to 2 50 basis points as of the year of 2019. Let's now go to Page 42. Before we move to the Q and A, let me briefly recap our 1st 9 months 2018. We have seen an ongoing strong core bank performance with group core net operating profit of EUR 6,000,000,000 and an adjusted group core RoTE of 10.4%. If we adjusted for the higher charge and provision U.
S. Sanction, it would be meaningfully higher. Transform 2019 continues to be ahead of schedule and delivers tangible results quarter after quarter. Group costs are down 7.7% on a year on year and will be below €11,000,000,000 in 2018. The accelerated non core run down is fully on track, now down to €20,600,000,000 of growth NPT.
We have taken decisive actions on YAPI and provision for the U. S. Sanctions. Any potential impact from the U. S.
Settlement is expected to be nonmaterial plusorminosingledigitbasispoints. We expect full year 2018 adjusted net profit of more than EUR 3,600,000,000 and the CET1 ratio between 11.5% 12%. We will continue to focus fully on Transform 2019 and worked hard as one team to achieve our objective of making 1 bank, 1 UniCredit with 2 pan European Union. And now, Jenny, Mikko and I are ready to take your questions. If you could please be so kind and limit your question to 2 pitch.
Many thanks. Operator, over to you.
Thank you, sir. Excuse me. This is the Chorus Call conference. Operator, we will now begin the question and answer session. The first question comes from Paola Sabioni of Deutsche Bank.
Please go ahead, madam.
Yes, good morning. Two questions then. First is on your funding plan. If you could give us some update on that given the current context, in particular in Italy. And the second, not sure if you can comment, but given the current share price.
Could you as management team consider buying UniCredit shares? Thanks.
Thank you very much. On the funding side, I will let Meco comment on buying shares. As we have now been coming out with the impairment on Yapies and the U. S. Function.
I will be buying shares and we'll announce that tonight for the equivalent of my gross salary. I will buy, as I did when I joined the group, a mix between shares and AT1. I think it's important on my side now that I can do that from a compliance point of view to show a very strong confidence, Not only in UniCredit, but also in Italy and the country. Bercow, for the funding plan. Yes.
On the funding plan side, we are basically 50% down for the year. We have Actually, if I look at the risk weighted asset development of the bank, we actually need a smaller amount of the funding plan that we announced at the Capital Markets Day. So that's one point. You're going to see us continuing to do secured funding as a group, including a fund brief, Supranational funding, private placement and wholesale funding that is TLAC related. Now in terms of the TLAC funding plan, We are probably going to access the market now that we have behind ourselves the YAPI environment and also the U.
S. Sanctions. We are free also to go to the market. And because of this, you're going to see probably EUR 3,000,000,000 to EUR 5,000,000,000 in TLAC related funding by the end of the 1st Q next year.
Thank you.
Next question, please.
The next question comes from Mr. Ignacio Chieso of UBS. Please go ahead, sir.
Yes. Hi, good morning. Couple of questions for me. If you can Sort of clarify the different impacts you're expecting basically in terms of procyclicality regulation EBITDA guidelines in the 4th quarter. I If I have the €700,000,000 implied profit for the Q4, retained earnings will be around 15 basis points.
You're still going for a maximum reduction of core capital in the region of 60, 70 basis points. We just wanted to clarify whether you have shifting back some of the 2019 impact back into 2018. And the second question is on the treasury net interest income, if you can comment how do you expect that part of net interest income do above in coming quarters? Thank you.
Thank you very much. I will let Mieko comment on the NII side. I will comment quickly on the capital impact on regulatory headwinds. As we mentioned, we have a second combined regulatory impact up to the Q3 2018 of 19 basis points of CET1 ratio, which is basically split and mostly from the model side, including 8 basis points for the Q3. For the Q4, we should have an additional 24 basis points of regulatory headwind, 15 basis points coming from the model side and 9 basis points coming from EBA guidelines, Which means that the total impact from model and EBITDA guidelines for 2018 will be 44 basis points, split 34 basis points for model and 10 basis points for EBA guidelines.
As we communicated during the Capital Market Day 'seventeen, We will have and that's taking into account the time translation of some of the impact which was affecting 2018. We will have for 2019 roughly 80 basis points, exactly 79 basis points of total regulatory impact, 34 basis points for Medellin and 45 basis point for EBA guidelines. And we should have 48 basis points of this, 79 basis points coming on the Q1, 14 basis points for Model and 34 basis points for APA guidelines. If you want further detail, you can speak to our IR team, but that gives you The bulk and the overview of the value of regulatory impact. As far as NII, I'll let Neha Cook.
Yes. And in terms of NII, and I think you were looking for NII going forward, we see that the 4th Q NII probably will be in line with the 3rd Q NII. So that's the guidance that we can give. And for further down the road, the fiscal year 2019, we have announced that the NII plus fees are confirmed at around EUR 18.1 So that's the 2nd guideline that I can give you that includes the NII development.
Yes, I was asking specifically about the treasury component. Financial component within the net interest payment has been a big plus in the quarter.
Yes. We had if you look investment portfolios and markets and treasury, it's plus 49,000,000 EUR 32,000,000 are coming from the investment portfolio. Of course, going forward, you're going See more flattening of the impact on the NII, and that's what you should expect. Campaign. We can say from the investment portfolio that we should expect higher NII contribution as the team has been working very well in terms of turning the portfolio.
We keep the duration short, actually shorter than before at 3.1 years, while the income from the portfolio Has been increasing meaningfully. And now we are 50% above what it was at the beginning of the year. So Very good work done by the treasury team, which should have a lasting impact on the NII side. On the projection for 2019, I just want to state again, the €18,100,000,000 of NII plus fees are confirmed. The operating performance of the group is very You said that on the Q3.
So we confirm going forward the operating performance NII plus field And we have adjusted our revenues based on a very conservative view of YAPI contribution and the normalized contribution of the trading to EUR 1,400,000,000. But the operating performance of the group is doing very, very well. Next question please.
The next question comes from Mr. Alberto Cordara of Merrill Lynch. Please go ahead, sir.
Thank you. I have a couple of questions. The first one is related to your NPE exposure. And in particular related to your bad loans. You had EUR 23,000,000,000 of bad loans With a coverage of EUR 16,800,000,000.
So the coverage ratio is 72.8%. It is extremely high. But I want to ask you an additional question, if you can give us also the number for the write offs Because including the write offs, the coverage would be in a used standard. So you have NPS that are really at market value or over market value. The second question relates to the confirmed target for next year, €4,700,000,000 So you trim the revenue a bit, but you give us better gas on cost And a significant better guidance on the tax rate than what you have seen before.
But just an additional point, I think in your initial speech, you mentioned also some real estate disposals next year. I just wanted to make sure, is this included in the 4.7% or not? And if yes, what Potentially this capital gain. Thank you.
Thank you. I will let TJ comment on the write impact on the €4,700,000,000 confirmation of our net income. As I said, we have an adjustment of the top line, which is coming from a conservative view on ERP and an adjustment, I mean, of the trading expectation to the lower range of the expectation for trading with Comenity at the Capital Market Day at EUR 1,400,000,000. The underling commercial performance, as I said, is very good. And we claw back this lower top line performance, Thanks to cost saving of €200,000,000 and the tax rate between 17% 18%.
You are absolutely right to say that we should have a potential upside on our net income as we did not take into account the capital gain, which should come with our disposal of some related assets. You know that we're always extremely conservative. So, there we have, let's say, a buffer If ever the environment was a little bit more negative than what we're expecting, then I would say we probably have Also an upside on the YAPI side as partaking a very conservative view. So all in all, that's why we are confident that we can deliver on the €4,700,000,000 net income. T.
J. For the write down. Based on the Q3, As you said, the CHF 23,000,000,000 better exposure, if we consider CHF 3,900,000,000 of the group write off, The coverage would move from 72.8 percent to 76.7%, so almost A 4% improvement if we consider the write off.
Okay. Thank you very much. Very good. Thank you.
Next question, please.
The next question is from Mr. Andreas Siltri of Mediobanca. Please go ahead, sir.
Yes, good morning. What businesses could you dispose off? And what effects do you want to obtain from it? And on liquidity, are you seeing any signs of liquidity pensions in Italy, either from other banks or from clients' behavior. And do you consider a 3rd TLTRO plan likely?
Finally, just a very quick one, curiosity here. Do the changes in targets have any implications for the L3 plan? Thank you. Thank you very much. I will basically on the TLTIAA will let Mieko comment.
On the last question, we'll take it and I will let Jenny comment on the first part potential. On the target, the change of target do not impact the LT plan basically. The healthy plan, just to remind everybody, that's the long term incentive plan for the management team, which includes 150 people. We have roughly, I mean, within the managers, 100% of the LTIP allocation for Jenny and myself. So that's all our remuneration for the Executive Management Committee 50% and I've always for other manager The management group, the 30%.
The 3 core parameters The RoTE of more than 9%, which we confirm. The cost income of at or below 52 That would be marginally higher than that and we have a progressive reduction impact on the LP on that. And the disposal and the net NPE level of €20,200,000,000 and will be meaningfully lower than that. I will let Jenny comment on our commitments to commercial banking activities. I can say that on the disposal of assets, We are looking at assets which are mostly related, as we mentioned.
But we are absolutely And I'm not going to do anything on our commercial banking activities. I'll let Janine comment on that.
Thank you very much, Jean Pierre. As Jean Pierre mentioned, we have the target that we gave the EUR 4,700,000,000 financial year for net profit for next year Yes, is without including the positive contribution of real estate assets, it's coming from pure commercial activity. We are very committed to all the countries where we are having activities. So we're talking about the division and the countries. And then for the different segments of the market, we are growing very nicely in retail business in all the countries, so in Italy, in Germany, in Austria and in Central and Eastern Europe.
As presented by Jean Pierre and Mirko, we have a very positive contribution coming from CIB, where we are one of the major players in a particular segment part of the market. We don't see much attention in terms of liquidity in the sense that even since the beginning of the Italian bond spread widening, commercial deposit base in Italy, in Germany and in Austria are either stable or increasing. And this is true in particular as far as retail and corporate customers are concerned. So we do have our we confirm our strong commitment to be a pan European commercial bank with a fully with a full plug in CAB.
Yes. On the TLTRO topic, First of all, we have a pretty much evenly spread redemption amounts into basically into different periods. And we are going to manage smoothly the Tier 0 redemptions and ensure that we have a stronger LCR and stable funding ratio. Our base case scenario includes basically our execution of our funding plan, the usage of short term paper and also our deposit commercial growth that we have in the plan. Of course, if there is potential TLTRO from the ECB in order to smooth this fluctuate liquidity maturities.
Of course, we would also use that in case that our base case scenario is based on normal market And development of our liquidity position. Next question please.
The next question is from Jean Louis of Goldman Sachs. Please go ahead sir.
Hi, there. I would like to ask a first question on the changing targets. I just wanted to understand a little bit better the drivers of the change in the tax trade guidance and its potential sustainability or not after 2019. And also the geographic split, Pluses and minuses of the revenue change, if that was possible. And secondly, I wanted to ask about the capital requirements.
So you said the new target of 12% to 12.5% is at least 200% above MDA. I guess That means an unchanged an assumption for an unchanged capital requirement going forward. And in light of the stress test results, I just wanted to know whether you would be able to share an opinion on the direction of the threat from here or if it has any impact at all. Thanks a lot.
Thank you. I will comment on the capital requirements and let Mielko give you more detail on the tax rate. We might not go too much into details and feel free to call on your team. It is important for us to maintain a high buffer in terms of NDA requirement. I want to have a buffer which is high, Which gives us as well the ability to manage, if I may say, our own countercyclical buffer, Meaning that in good time, we want to be at around 250 basis point buffer.
And in a more adverse environment, We can go down to 200 basis points, which is what we last planned and we said we should look at the NDA level at the end of 2019 at 11.5% CET1 in potentially Q1 2019, we will be at only 150 basis But we think it is important specifically until we have not run off completely the non core, we want to maintain a high buffer to end the year. We are already a Pillar 2 requirement reduction this year, which was applying for 2017. I think in the current environment, it is probably too optimistic to expect that the ECB We'll lower again our Pilato requirements for 2018 to apply from 2019. But based on the evolution of our ratios, Knowing that with the last actions we took with Turkey and U. S.
Sanctions, we should have put behind us All negative impact we are expecting and we will push very hard next year to have a further reduction of our Pillar 2 requirement. But once again, we are planning to have a high capital level, And we are focusing on the MDA requirement, which is we see the MDA buffer is the right thing to look at between 200 to 250, which is why we are taking a manageable action to reach back again to 200 or above at the end of 2019. Yes. On tax rate, first of all, on the 3rd Q, the impact on the stated tax rate that is high at 32% is because of the YAP impairment is not tax deductible. So that impacted the 3rd Q.
And therefore, the normalized is more in line with the 10% rate. Now if we look at the 9 months horizon, Also here, the stated is around 18.3%. If we normalize for the various disposals And no deductibility of some items in Germany, you land at 16.3% group normalized tax rate. That is also the tax rate that we think we are going to maintain for the full year 2019. For 2018, sorry.
For 2019, we are guiding between 17% 18%, And that will depend on the various, let's say, legal and jurisdictions in terms of the various tax rates Impacting a slightly higher tax rate as for 2018. We could say as well that this number do not include the potential effect from ongoing BT assessment, which could come on top and show further improvement.
And on the geographic changes in the revenue targets, if possible?
Well, I think we have I mean, in terms of the review target, We said that Italy will keep performing very well. So we are targeting ROAC, which is in the between 12% to 13%, which was what we communicated at Capital Market Day. Germany, after the impact we had on the U. S. Sanction, I should go back to the 9% or above ROIC.
Australia The ROIC which was a bit too high at this stage because we had provision 1 pack and exceptional and we'll go back to the capital market target of 13% and slightly above 13% CEE, Which is for a part book in Germany, for a part book in Italy, will be sorry, CIB will be at around 12%. This is what we communicated at Capital Market Day. And CEE would be roughly around the target we communicated as well above 13%. So we'll if you look at the ROAC, which to give you a good geographic breakdown of the revenues. We are going to target the normalized view of the Capital Market Day.
As we communicated, to find the true normalized profitability for the 9 months to date, You have to take into account not only the impact of YAPI impairments on one side, But also the impact on the U. S. Sanction, which is split between Commercial Banking Germany NCIB. If you were to take out the impact of the U. S.
Sanctions and remind you that we as well to provision the 2nd quarter for sanctions. Part of that was for the U. S. Side. I mean, you can see that the normalized profitability for Germany would actually be very, very good and CLB, as we said, would be in the mid team.
So a very good profitability as well. So to cut a long story short, we took advantage of an extremely strong operating performance to put things behind us and to have a clean 2019. And we have, as we said, a little bit of potential buffer for the projection of Turkey evolution, the potential capital gain of the disposal of real estate and potentially a good surprise on the DTS side.
Thanks a lot.
Next question please.
The next question is from Adrian Chibi of RBC. Please go ahead, sir.
Hi, there. Thank you very much for taking my questions. I have two follow-up questions on net interest income. So you're planning to reduce the BTP sensitivity by 35% by end of next year. Will you achieve this by reducing the amount of BTPs or further hedging?
And if so, what are the implications you have on either the NII outlook or NII sensitivity. And then on Italian NII, specifically, your quarter to quarter move in asset Deals appear quite high in a slightly vibrant environment. Can you give us a little bit more insight into how much of this is driven by mix And whether there are any other drivers that are playing. You're growing specifically in Italy quite a bit higher than the market. And one could look at this as sort of chasing volumes at potentially discounted prices.
Is this a fair way to look at the strategy? Or is there a different explanation. Thank you.
I just commented on the BTP side And then let me comment on the NII. On the BTP side, as we said, we have roughly EUR 12,000,000,000 of expiries of BTP of redemption next year. And we will reinvest, a part of this redemption into directly into the held to collect. We cannot reclassify the portfolio. It is not allowed from an accounting point of view.
So we work with the flow. If you look at our current BTP portfolio. We have a BTP portfolio when you look at the available for sale portfolio, which is on the 3rd quarter marginally lower than what we had on the 2nd quarter, Which is meaningfully lower than what we had at the end of last year. So the, if I may say, CET1 sensitive part of the portfolio is lower. And that's what we're going to keep doing.
We have EUR 44,000,000,000 more or less of BTP at fair value. And we had EUR 50,000,000,000 at the end of last year of BTP at fair value. So €50,000,000,000 are going down to €44,000,000,000 But we are increasing The L2 Collect and we are at €8,000,000,000 of L2 Collect at the end of the quarter versus €3,300,000,000 at the end of last year. So you can see already That we have engineered the shift. And we will keep doing that targeting more or less an amount of BTP, which should be equivalent.
We might temporarily go slightly higher to take benefit of market environment and not just afterwards, but that's up to our treasury team to manage that. The move towards to connect And now to reduce by the end of next year the sensitivity of the available for sale by 35%. The sensitivity of the available for sale right now is 2.5 basis points for 10 basis points move of the BTP spread post tax and a 3.5 basis points for 10 basis points move pretax. So we will be at 35% lower than these figures at the end of next year. The duration, As I said, which I think is an extremely important component of the evolution of the sensitivity and our ability to be mobile on the portfolio has been reduced at the end of the quarter from 3.3 years at the end of Q2 to 3.1 years.
So reduction of the duration or the yield on the portfolio has increased, as we mentioned, versus the yield we had last year by roughly 50%. So that's it. Maybe a quick comment before Mircou comments on the NII side. We have seen that we have a very robust loan growth in most of the our activities in most of our countries. This is a testimony of the very good performance of our commercial activities, We're up 6.7% on a year on year basis on the core bank, 2.5% on a quarter to quarter basis.
And we increased in Italy 5.5 percent, for instance, on a year on year basis and 1.5% on a quarter to quarter basis. But Jenny and I are very, very focused on the quality of new origination. Jenny looks at it, I would say, real time, and we review together the quality of origination On a monthly and quarterly basis, just to give you some figures, the expected loss on the new business For the group, for the 9 months to date, 34 basis points versus the portfolio, which is at 38 basis points. For Italy, where we increased by 5.5 percent on a month to month basis. We have expected loss on new business of 35 basis points versus an expected loss on the performance of 53 basis points.
So you can see that the new business which comes in into the portfolio improved the risk profile of the group. And we look together with Janney on a very detailed basis, as we already mentioned, At the expected loss origination by bucket and focus on the lower quality bucket to make sure that we limit that. This is why We can drive the new origination towards a very high quality client and we can show an improvement on the risk profile of the portfolio. The long answer to a short question and I let now Mierko comment on your NII question. Yes.
One question was the NII impact In terms of the sensitivity change, if this impacts our NII production going forward, it is not. It doesn't have a negative impact on our NII. Then second, basically, Jean Pierre responded, meaning it's not a volume chase. We are getting back to our natural market share in Italy. And the type of business that they're doing is nicely spread over the corporate and the retail business.
And here, the NII development is really more driven from client rates, in which we continuously see pressure from client rates. But if we look at the trend on a monthly basis, we start seeing a slow reduction of debt. So that's why we are still guiding for stabilization of client rates going forward.
Thank you very much. Very helpful.
Next question please.
The next question is from Mr. Hugo Cruz of KBW. Please go ahead, sir.
Hi, thank you. Just wanted to ask about the Pinter Group funding exposure to Turkey, if you could give us an update.
Of course. We mentioned it and I think it is important in the introduction as Some of our remediation actions, one of them will be that we want each legal entities to become self funded by progressively minimizing infra group exposure. And so this applies to all our subsidiaries and to the group And specifically towards YAPI credit, there are a certain number of upcoming expiries, Which are expecting to have our Q3 2018 in Quad Group exposure Within the next 24 months. YAPI Credit is a listed company, so I will just mention the figure they gave on intra group exposure of EUR 2,600,000,000. And we're seeing that within 24 months or within 2 years, we should have this exposure, so basically be down to EUR 1,300,000,000.
Next question please.
The next question is from Delfin Lee of JPMorgan. Please go ahead ma'am.
Yes. Thank you for the presentation. So just two questions. First of all, on the litigation, just wondering If you could
give us a little bit
more color in terms of what stage of the discussions you are with the U. S. Authorities. And just to give you just to have an idea of the size of the outstanding for the provisions that you have allocated to U. S.
Sanctions. And also related to litigation, I've seen you've taken the €150,000,000 or €200,000,000 in Germany. Just wondering if If you could also give us a bit maybe of an update of the litigation issues of Comex, anything that you can provide in terms of color would be quite helpful to understand if there's anything more coming in the next few quarters. And then my second question is just on just VC on capital for your target of 12%, 12.5% at the end of 2019. So this includes some disposals.
So you mentioned real estate disposals, but I just wonder sort of Just the magnitude of the contribution in terms of capital benefit to the ratio, if you could provide a
little bit more of the assumptions
you've made. Thank you very much.
Well, as you can understand, we are Still discussing the U. S. Authorities, so we cannot give any specific detail about The size of the provisions or the state where we are. The only thing we commented about was 1st to say that we expect to have a resolution of this discussion by the Q1 of next year. We are not the master of the time, basically, it's up to the U.
S. Authorities. But based on our discussion, we can expect that to be resolved. And we said, and I think it's important that we have taken, I mean, assumptions. And so any additional impact on CET1 based on the final resolution can bring a plus Or minus single digit basis point impact on CET1.
I'm saying plus or minus, which means that there could be There could be write back basically or there could be very marginal additional provision. It's very difficult to estimate what should be No final figures, but we are confident that we are well covered specifically. As far as the cum ex transaction, HBB has been settling with the German authorities, the COMEX issues. And you can find a detailed statement on the subject So on the first half twenty eighteen HBB financial report and for the specialist, it's on Page 42. And what we can say that all criminal proceedings against HBB, Which are relating to the claim for resulting tax credit have been terminated basically.
And we so that's what we can say, So I think that's behind us. On the capital target of 12.5 basis points for 2019, Some of the reengage action include the disposal of some real estate assets, which we will sell in the course of next year. We don't give a precise indication on that because we are still negotiating. It is not small basically, but we have to we rather wait for the transaction to close to communicate to the market as we don't want to hear as well and to put ourselves in a weaker position is the various entities we negotiate with. So but we are confident we can deliver the 12% to 12.5% percent target.
Segments. Thank you.
The next question is from Mr. Andrea Berthelone of Exane. Please go ahead, sir.
Good morning. Just one question for me. And I'd like to have a little bit more detail on tax. I appreciate it's boring, but the drop in the projected tax rate from, I believe, somewhere around 22%, 23% to somewhere around 2017 2018 for next year is quite big in euro, million terms. So number 1, I like a little bit more color on I can square this.
You said there is no positive benefit from reassessment of DTAs in that number. At the same time, if we look geographically, you have 33% tax rate in Italy, 31 and a bit in Germany, 25% in Austria, CE is lower, somewhere 13%, 14%. But how can you add an average tax rate, 2017 or 2018? What am I missing? And the registration in Italy is probably also being scrapped, so that's another negative.
I'm surely missing something. So I'd like to Also to know beyond 2019, is this a number which
I will let Mieko comment on the tax rate to give you more I think it would probably be more appropriate after the comment of Nico that you speak directly to the IR team or to Nico offline. I'd say it might go a bit into detail. But just to be clear, I mean, if you look at our current tax rate for the year, you mentioned it will be between 16% and 17%, 16.3%, I think That's clearly what we are targeting for 2019 is not very different from what we will have for 2018 even if There are some reasons to have a 16% tax rate for 2018. I confirm that there is no DT impact on the tax rate And that the tax rate, which was communicated at Capital Market Day was probably based on net income assumptions, Which were probably, I mean, conservative as far the tax rate is concerned. But let me comment in more detail about the assumptions.
Yes. So, first of all, the sustainability of this level of tax rate beyond 2019 is a yes. So this is sustainable also going forward, so beyond 2019. And then I would say that there are legal entities like Italy and Austria, they are well below the nominal tax rate, and that changes your mix when you start comparing one tax legal entity from 2001. As I said, let's go back in It was a specific call because it's very technical because every legal entity has its own logics behind it.
But overall, what we are telling to you, we are guiding probably Pretty well for fiscal year 2018 2019. And we're very comfortable with what we are telling you in terms of 17% to 18% going forward.
Okay. Thank
you. Ex DTAs, of course. Next question please.
The next question is from Christian Carrezza of Intermonte. Please go ahead sir.
Yes, good morning. Could you share with us your thoughts on business confidence in Italy? Because we saw some negative elements, GDP equal to 0, PMI down. And according to your guidance, 2018 seems that we are not expecting a slowdown It's just a matter of trading and specific for Turkey. What is the trend that you are seeing in terms of business confidence in the entrepreneur in the last couple of months?
And what do you expect it to be The loans growth in 2019. And the second question is on dividend. If you can remind us your dividend policy and remind us that start 2018 net profit will be lower than expected. Thank you.
Thank you. I'll take the dividend question and we'll hand over to Jenny on the Italian business and the reaction of our clients. On the dividend side, we confirm our payout ratio of 20% of net income for 2018, so dividend to be paid on 2019 and 30% of net income of dividend for 'nineteen to be paid in 2020. So no change in the dividend policy. We as well said that based on the capital level and our ability to maintain the NDA buffer, We will increase the dividend payout to 50% as soon as we can afterwards.
On business confidence and client dynamic in Italy, Janie, over to you.
Thank you, Jean Pierre. So, well, the business is growing very nicely. As mentioned before, we had a very nice growth in the Q3 and also year on year in terms of new production of loans. And this both in retail and corporate, not to mention also the business for the CIB customers that are part of the CIB Italian business. We are growing the number also of customers.
So not only market share in segments such as, for instance, mortgage business, but also if look at corporate business in Italy, we've been growing the market share in Italy overall. And also you say, thanks to the very strong commercial dynamic of our colleagues of the teams and the fact that also in terms of structure of business, we are Seeing by customers by our customers as the bank that can really deliver what they need. In as much as 2019 is concerned, which was also your question, we believe that we'll be keep on growing. We see our positive positioning and growing position in terms of our customers' acquisition, both in as much as retail And the corporate business is concerned. So we are very confident that we will be able to keep on in our customers.
And as mentioned by Juniperos at the beginning, we are assisting the real economy, the Italian real economy in developing their business. On top of that, thanks to the network of banks and the fact that we are a pan European bank, We are able to assist our customers also in as much as their internationalization drive. We have an impact we see More and more, for instance, corporate customers are becoming very active in terms of export activity, But also setting up buying companies abroad. So we are confident on the Italian business.
Next question please.
The next question is from Benjie Kralian Sanford of Jefferies. Please go ahead.
Yes, good morning, everyone. I just wanted to go back on to capital again, So again, continues to have a lot of moving parts. So I just wanted to check, but I'd heard, properly earlier that for the 4th quarter, You're expecting a 24 basis point headwind from regulation. And if that's the case, could you just spell out What the additional potential negative you are thinking of given the buffer that seems to be embedded in the 11.5% to 12% year end target? My second question was just on YAPI credit.
If you were to write that, so the remaining investment, if you were to write that down entirely, can you just Please quantify what the expected impact would be on both the book value and the CET1 for UniCredit. I'm just trying to think or and the moving parts around the existing FX reserves in particular. Thank you.
Well, I think on the capital side, as mentioned earlier, we expect to have on the Q1 24 basis points impact of regulatory impact model and EBITDA guideline, 15 basis points from model and 9 basis points of EBITDA guidelines, so which will move the total impact for FY 2018 to 44 basis points. We already have more or less 20 19 basis points. And as I said, we expect to have for the first half twenty eighteen probably in the first quarter, a 48 basis points of impact, 14 on Model and 34 on EP. On the YAPI side, I mean, first of all, I mean, Yes, please, a very good bank. We are going through now normalized, if I may say, adjustment of the cycle.
What I mean by normalize is over the summer was the normal adjustment of the economy in Turkey, Which is always deeper than what we can see in other economy because they have a high current account deficit. And on top of that, we had the tensions with the U. S. The tensions with the U. S.
Have disappeared or about to disappear with the release of the past I mean, the withdrawal of the sanction against some Turkish ministers and vice versa. So I think we are now in a cycle adjustment as usual, which is always bigger than in some other economies. So as such, I mean, working off our stake in YAPID to 0 is an absolute no go. Sorry, but if you want to know what is the mark to market value of our stake, and it is around €1,200,000,000 And when the market cap in euros, when the market cap of CRP is around €1,000,000,000 So why didn't we write down to The market cap because market cap is not the reference point for the valuation of our stake. We use a model and which is based on are our own assumption in terms of profitability, the value in this model and the valuation of YAPI, which has to be taken up The highest between the market cap and the model.
And we don't intend to change the valuation of our stake based on the market cap that we did. So in order to 200 buffer, if I may see, the 200 gap, 1 is completely non significant at group level. 2. I mean, we know that the situation in Turkey will improve. That we know.
It's where apart, I mean, if you have Looked at the order cycle adjustment, we all know that we have in Turkey and that just usually which lasts between 1 year and 18 months and that's where the economy turns and improves. And so we know that the situation will improve. And as such, Nevertheless, we have taken, as I said, extremely conservative assumption, not only to value the stake, but also to look at The future contribution of YAPI next year. To be conservative, we have an extremely low contribution to our revenues. I mean, you that YAPI contribution is for the dividend line where we take pro quarter our share in the net income.
We consolidate YAPI equity from an accounting point of view, but we consolidate YAPI proportionally from a regulatory point of view, which means that our sensitivity to the FX has actually changed and we now have, Let me say positive sensitivity to the FX evolution, which means that if the FX is improving, the Turkish lira is improving versus the U. S. Dollar. It will reduce by 1 basis Our CET1 ratio will improve our tangible book because we have a benefit as far as evaluation is concerned. It will reduce marginally our CET1 ratio Because we look at the improvement on one side of the value of the stake and the other side, the impact on risk weighted asset because the risk weighted assets are consolidated from the regulatory point of view, which is why we have this asymmetric behavior, if I may say, when you look at CET1 ratio.
But I think We can say today with what we've done on Turkey, the Turkish issue is behind us. And as we said, we're extremely confident That there will be no other move as far as Turkey is concerned. And we're extremely confident that our projection for next year are extremely conservative. Next question, if we still have 1.
Gentlemen, at this time, there are no questions registered.
Okay. There is no other question. Thank you very much for your time. I just want to reiterate again that We had an extremely strong operational performance as you have seen. We have been using this extremely strong operating performance in order to put behind us these headwinds, which are out of our control, Turkey and the U.
S. Side. We think that all these headwinds are behind and we can keep delivering on the transform 2019, which is clearly showing extremely strong signs of implementation. We are 93% down on the FD reduction, 88% down on the branch reduction. We see a very strong commercial dynamic on the loan side, on the client side, and we look forward with confidence for Q4 in 2019.
Thank you, and have a good day.
Conference Call. Ladies and gentlemen, thank you for joining. The conference is now over and you may disconnect