Good morning, ladies, and gentlemen. Before I hand over to Magda Palczynska, Head of Investor Relations, a reminder that today's call is being recorded. Madam, you may begin.
Good morning, and welcome to UniCredit's First Quarter 2022 Results Conference Call. Andrea Orcel, our CEO, will lead the call. Then Stefano Porro, our CFO, will take you through the financials in more detail. Following Andrea's closing remarks, there will be a Q&A session. Please limit yourself to two questions. With that, I will hand over to Andrea.
Thank you, Magda. Welcome and thank you for joining this morning. Our first thoughts over recent weeks have been with those impacted by the war in the Ukraine. It is a tragedy that none of us thought could happen again within Europe's borders. I'm proud of our employees who donated their time and financial support for relief efforts, which we have matched. In times of crisis, banks have a dual role. We must help those directly impacted by the war, and we must also help the communities who are seeing their cost of living rise as a result. UniCredit will continue to play an important role in supporting all these people, as well as our clients who are navigating uncertainty and volatility.
In terms of the impact of the war on our financial results, against this backdrop of geopolitical uncertainty and market volatility, we delivered a record-setting quarter across a number of metrics. At the same time, we have granularly assessed our exposure to Russia, made good progress in managing it, and dealt with the first order impact. We have successfully reduced our position by EUR 2 billion at minimal cost. We have absorbed 70% of the Russia extreme loss scenario capital impact in Q1 alone, landing at a CET1 capital ratio of 14%, including EUR 400 million for the 2022 dividend accrual and EUR 1.6 billion buyback relating to 2021. Furthermore, and more importantly, in terms of the second order impact of the war in Ukraine, we are uniquely positioned to absorb possible extreme spillover effects.
This is thanks to our strong starting CET1 position, substantially improved profitability, healthy capital generation, conservative coverage strengthened by overlays that have further been reinforced in 2021, and the conservative LLPs taken in the first quarter against Russian exposure on the back of an internal sovereign rating downgrade. While a critical issue, our exposure to Russia is only one small part of our business. Our overall franchise remains incredibly strong and is firing on all cylinders, reflecting our confidence in and focus on the continued successful execution of UniCredit Unlocked. The first quarter in 2022 is the fifth consecutive quarter of profitable growth and organic capital generation, demonstrating the commercial and financial momentum within the business. Excluding the impact of Russia, the group posted EUR 1.2 billion net profit, generating 44 basis points of capital organically.
Well underway for the 150 basis points annual organic capital generation targeted in our plan. The critical mass and strengths of our business is evident across all regions in their profitable growth and strong organic capital generation. At last month's AGM, shareholders approved a total 2021 distribution of EUR 3.75 billion, which includes the already paid EUR 1.2 billion cash dividend, plus EUR 2.6 billion in the form of share buybacks. For the latter, we have requested and received supervisory approval for an initial EUR 1.6 billion buyback, expected to commence as early as next week. I am confident in delivering the remaining EUR 1 billion later this year within the framework I will speak later about. The cash dividend and initial share buyback tranche represent a very compelling yield of 15% on our current share price.
This distribution is only around 40% of the organic capital generated last year and keeps our current CET1 ratio at a strong 14%. We remain confident that our franchise, excluding Russia, will meet the overall UniCredit Unlocked 2022-2024 return on tangible equity and organic capital generation targets, thereby supporting returns. Subject to AGM and supervisory approval of at least EUR 16 billion to shareholders by 2024. EUR 2.8 billion of which are already being delivered, and EUR 400 million of which have been accrued this quarter. Our focus remains on executing our strategic plan, delivering meaningful, albeit prudent and sustainable distribution, funded by recurrent organic capital generation, while continuing to invest and develop the growth and profitability of our business. Let's turn to slide three.
Two months ago, for transparency, we provided details on our Russian local derivative and cross-border exposures with a connected maximum capital impact in the event we had to zero all those exposures. We were clear that this was highly unlikely and not our scenario. We reduced our exposure by about EUR 2 billion at minimum cost during these two months, while we had EUR 1.3 billion of headwinds from hedges expiring, and added EUR 300 million of intra-group commercial exposure to our definition, almost entirely letters of credit. As a result, our Russia exposure maximum impact is reduced to EUR 7 billion. If the full position were zero, we would still remain at a pro forma first quarter 2022 CET1 ratio of 13%, post the EUR 1.6 billion 2021 share buyback and the EUR 400 million dividend accrual for 2022.
In the last two months, we have reviewed our exposure in detail and assessed what we consider to be our extreme loss. This includes the current assessment of a full capital hit of our local participation, a cross-border exposure recoverability assumption of 40% following a name by name and nature of exposure analysis, and for derivatives, an assumption of peak exposure based on our counterparty credit risk internal model, factoring in maximum recent ruble volatility and assuming no collateral posting by our intra-group counterparts. We also assume that the remaining hedge expires. In such an extreme loss assessment, we expect a CET1 capital impact of 128 basis points, of which we have absorbed above 70% this quarter.
We have a capacity to fully absorb the extreme loss assessment impact with our excess capital only, which was never factored into our UniCredit Unlocked distribution plans, and remain at the upper end of our CET1 ratio target range of 12.5%-13%. Let's now go through the exposure, starting with the local participation. Local exposure. Due to the expiry of the FX hedge on the capital, the net local exposure has increased to EUR 2.6 billion. The gross exposure has not changed. Our extreme loss assessment scenario assumes such full loss, and in the first quarter, we took the full capital impact should this be fully written off.
This quarter, the EUR 600 million capital equivalent taken is the combination of EUR 200 million via P&L, reflecting a provision on the local portfolio, and EUR 400 million via an equity loss, mainly deriving from FX reserves. Turning to derivatives. The maximum loss of derivatives in a jump to zero scenario was representative and is not an actual loss. Further, it assumed no collateral posting from intra-group counterparts in that event. As of March 8th, this was EUR 1 billion, including EUR 700 million positive effect from FX hedges. As of end of April, it remained effectively unchanged as while we reduced third-party derivative exposure by EUR 700 million, at the same time, we also lost the positive effect of EUR 600 million in hedges. Our extreme loss assessment scenario assume a loss of EUR 400 million.
In this quarter, we took the cost of EUR 100 million for reducing the third-party exposure, and the remaining risk is vastly mitigated, in our opinion, by the ruble having become a currency closely managed by its central bank, and our intra-group counterparts have been and continue to post collateral. Turning to our cross-border exposure. We have minimized and managed our position while complying with all relevant sanctions, resulting in a reduction of EUR 1.3 billion. This is the result of loan transfers to third parties, working with clients to reduce committed lines and reimbursements. It has also been done at minimal to no cost, leaving in our portfolio a limited number of multinational corporation who are almost all not sanctioned and likely to honor their obligation due to their quality and sector.
The average life of this portfolio is around three years. In our extreme loss assessment, we assume an average loss of around 60% of such an exposure. Given our recent exposure and the quality of a remaining exposure, we conservatively covered our cross-border exposure at just over 30% in this quarter alone. This means that we have covered 50% of our extreme loss assessment just in first quarter, 2022. I would like to be clear that the extreme loss assessment is not our base case scenario. As a result of the above actions, the overall capital impact of Russia in the first quarter accounted for 92 basis points, absorbing above 70% of the CET1 ratio impact of the extreme loss assessment. In the event of a sale or exit of our subsidiary, there should be no further impact on our capital.
The equity impact would be more than compensated by around 15 billion of connected risk-weighted assets that would be deconsolidated at the same time. We will update the market quarterly on the Russian exposure rather than with every 25 basis points reduction, as we previously communicated. Our conservative provision in Q1 has put us in a position to absorb whatever outcome should affect our local presence solely through our excess capital to the UniCredit Unlocked target CET1 ratio range of 12.5%-13%. Furthermore, having taken the full capital impact of our local participation in Q1, we now have the flexibility to consider and execute the best solution for all our stakeholders. Let's turn to slide four. Moving on to second-order effects of Russia for Europe. These are significant. However, at this point in time.
At this point in time, it is difficult to fully assess and mitigate. While we have been among the most cautious on the economic, inflationary, and societal consequences of the war in Ukraine, we're better positioned than many to absorb such spillover effects, and I am confident in our ability to successfully navigate this period of uncertainty. As part of our analysis, we have assessed the effect of the spillover on each of our countries, considering their mitigating measures and relative resilience that are becoming more and more apparent, as well as the cascading effects both on our retail and corporate portfolio. On the latter, the implication for those more exposed to Russia, high energy prices, and supply chain disruptions.
The difference in real GDP growth between UniCredit Unlocked conservative at the time, macroeconomic scenario, and the revised baseline scenario, which underpins our 2022 guidance, is around 2% for our footprint. In case of a recession, it widens to 4.7%. Inflation in our footprint could rise to around 6% this year on average in our baseline scenario, and 8% in the severe case. Inflation is not a new phenomenon for countries in our Central and Eastern European footprint, and we have been successfully managing it for a number of years, as you can also see in the cost income ratio of our banks. In Western Europe, the impact so far has been more limited. However, we expect it to become much more pronounced as we go into year-end and into 2023.
Therefore, we have been front-loading our cost reduction and efficiency measures as much as we can to rebase our cost, as well as taking other initiatives to mitigate future inflationary pressures. Even faced with the most severe recession scenario, our overlay LLPs of about EUR 1 billion would enable us to absorb most, if not all, of the impact for 2022 and 2023. Furthermore, UniCredit's provisioning on Stage 1 and Stage 2 loans during the last two years has been the most prudent within our peer group, with our coverage highest amongst our peers. Apologies. As such, our cost of risk, excluding Russia, is confirmed at 30-35 basis points for this year and for the plan year. For the first quarter, it was almost zero, in fact, 5 basis points only, without releasing any of our overlays.
Our low cost of risk reflects good quality of new origination and the resiliency of our portfolio, which will give us the ability to better withstand a severe recession should this occur. In the Eurozone, if the Eurozone did enter into a full recession, we will also expect greater supporting measures by government and by the ECB. Our starting point capital strengths, even post the first degree effects of our Russian exposure. Sustainably increased level of operational efficiency, much improved organic capital generation, together with the overlays and provision, give us confidence in delivering UniCredit Unlocked in the slowdown scenario, and being able to absorb shocks to a greater extent than peers. Let's turn to slide five.
Our strong capital position and capital generation has enabled us to absorb 92 basis points of impact of Russian exposure to receive supervisory approval for commencing the first EUR 1.6 billion 2021 share buyback tranche, and accrue a EUR 400 million cash dividend while maintaining our CET1 ratio at 14% for Q1 2022. Assuming our base case slowdown scenario, we would be in a position to both complete our 2021 distribution and cover the entirety of our targeted 2022 distribution while remaining at a CET1 ratio of around 13%. We confirm our CET1 ratio target range of 12.5%-13%. We are operating at above the higher end of the range because it is not in the interest of any of our stakeholders to reduce it given the current uncertain environment.
Our performance demonstrate that the model is working, and enables us to remain committed to our UniCredit Unlocked distribution guidance of EUR 16 billion over four years. As we turn to slide six, I would like to shift focus to the first quarter 2022 and the UniCredit franchise potential. We're fully focused on the execution of three levers, net revenue, cost, and capital efficiency, which are largely under management control. On all three, we are showing strong progress. Please note that we are presenting our financial results today, excluding Russia, but full disclosure is in the annex for transparency, as Russia remains part of a consolidated group. In Q1 2022, net revenue reached EUR 4.7 billion, up 8% year-on-year. LLPs were close to zero, as I said, about five basis points, reflecting our focus on quality lending and strong capital light, high risk-return growth across the region.
At the same time, the group's cost discipline led to a 2.6% reduction in our cost base in spite of continued increasing inflationary pressures, particularly in the CEE. As a result, we generated EUR 1.2 billion of net profit excluding the impact of Russia, producing 44 basis points capital organically, well on the way to our target organic capital generation for the year of 150 basis points. As you know, that underpins our distributions. We intend to commence the initial tranche of our 2021 share buyback of EUR 1.6 billion shortly, and I am confident that we will execute the remaining EUR 1 billion, keeping the full 2021 distribution of EUR 3.75 billion intact. This assumes that we do not have a severe further Russian deterioration.
In terms of our 2022 shareholder distribution, if our baseline macro assumption remains valid by the end of the first quarter 2023, and we achieve our UniCredit Unlocked target for this year, which I am confident about, we will seek authorization at next AGM for the same distribution as for 2021 of EUR 3.75 billion. Let's turn to slide seven. Our client solution business leverages best in class products and services for corporates and individuals across our group, maximizing the benefits of our strong, stable client franchise. In Q1 2022, client solution generated EUR 2.4 billion in revenue, up 7% against last year, which was in itself extremely strong, demonstrating the capital light strategy in action. The performance of corporate solution was exceptional at EUR 1.5 billion.
We supported clients in managing their risk through commodity and FX hedging as we navigated an extraordinary level of volatility. The related strong client activity is demonstrated in client risk management revenue up 21% year-on-year, excluding XVA. This together with a positive trend in transaction and payment more than offset slower debt issuance. Our loan and debt capital market performance was strong, with loan capital market also benefiting from arranging some liquidity facilities. At the same time, risk-weighted assets have been reduced by EUR 2.3 billion thanks to our strict capital discipline, despite strong loan growth and a market risk-weighted asset increase due to increased volatility. Corporate solution RoAC was solid at 15%. The business is more than 90% client driven, with a balance related to our trading and investing.
Individual solutions revenue at EUR 0.9 billion is up 5% year-on-year, driven by growth in our insurance business up 14%, reflecting our increased focus and improved quality, also benefiting from the ecosystem we're building with Allianz. Let's turn to slide eight. A cornerstone of our strategy is to fully leverage our differentiated footprint across four regions, Italy, Germany, Central Europe, and Eastern Europe. These countries combined bring us diversification benefits and the optionality to create value accretive growth many other banks do not have. First quarter results across the regions are strong following an excellent performance in 2021, highlighting the commercial momentum and ability to achieve and beat targets. None of our regions have yet been impacted by spillover effects, delivering a double-digit RoAC despite booking the majority of systemic charges, as always, in the first quarter. Let's turn to slide nine. Italy.
Italy once again demonstrated the strength of its franchise with the team delivering organic growth and scale in high return products. Our domestic franchise has over 10% loan market share well distributed across Italy. In high return products such as life insurance, protection, and personal loans, our market share is considerably higher. In Lombardy, we're delivering about 10% loan market share with far fewer branches and posting a double-digit growth of new business in attractive high risk-adjusted return products. For example, we originated 50% more loans than branches market share, growing 43% protection and 145% new personal loans year-on-year in the region without relaxing our risk appetite. Net revenue was EUR 2.3 billion, up 8.6% year-on-year, thanks to small net write-backs and strong fee and trading income, which Stefano will take you through.
Fees are up 6.3% year-on-year, supported by transactional fees and insurance. Fee share of revenue increased to 52%, including corporate client hedging, which is how we look at fees, and is well balanced between corporates and individuals. We expect net interest income to bottom out this quarter as higher volumes and increases in EURIBOR should result in NII growth from here. Costs are well controlled, benefiting from front-loaded FTE reduction with an exceptional cost income ratio of 44.2% in this quarter. Non-business costs have been reduced by 6%, while at the same time we invested in business activities as we promised. This quarter saw positive cost of risk upon a release of loan loss provision, showing our conservatism.
We generated 28 basis points of organic capital, producing a strong RoAC of 13.5% and reducing RWA by EUR 1.6 billion, driven by business measures on lower return portfolios while we are still working on securitizations. The assets under management conversion to ESG investment is EUR 27 billion, materially exceeding plan expectations. The Italian economy's reliance on Russian gas has decreased in recent months, with the Italian government accelerating towards increasing its diversification of suppliers. The post-pandemic reopening will boost the contribution to economic growth of tourism-related sectors. The large stock of household savings accumulating during lockdowns, equivalent to 7.5% of GDP, is expected to reduce the drag on consumer spending from high inflation. This gives the country greater ability to offset the second order effects. Let's turn to slide 10. Germany.
Germany produced the highest quarterly net operating profit in a decade, driven by both revenues and costs. Net revenue at EUR 1.3 billion, up 5% year-on-year, thanks to higher commercial revenues despite net write-backs in Q1 2021. Fees are up 16% year-on-year, mainly supported by recurrent asset management fees and financing fees from strong loan growth. Net interest income is up 7% net of one-offs, largely driven by higher loan volume and spreads, and the excess liquidity fee contribution. The increase in rates will make deposit NII supportive, which has not been the case for a long time. Costs are down 7% year-on-year as we front-loaded certain savings and benefited from lower FTEs. We expect to largely offset inflationary pressures this year.
The cost income ratio is exceptionally low at 47.4% this quarter. Risk-weighted assets were flat quarter- on- quarter as capital efficiency measures compensated for an increase in market risk and higher lending. RoAC was at 10.4%. ESG continues to grow from strength to strength with investment products AUM and social lending significantly exceeding our first quarter targets. The outlook for the country will be helped by solid financial position, including a high savings ratio for retail clients. The potential for countermeasures to energy disruption together with government aid packages will help manage spillover effects. While increased public spending in energy transition and defense will create new business opportunities. Our dedicated teams are closely monitoring the potential impact of the crisis on our clients. Let's turn to slide 11.
Central Europe's net revenue of EUR 800 million is driven by strong commercial revenue and net write-backs. Again, asset quality is strong. Net interest is up 16.5% year-over-year due to strong loan growth across business line and countries, and interest rate hikes in the Czech Republic and Hungary. Fees are up 7.2% year-over-year, supported by financing and transactional fees. Costs are relatively stable as improved cost efficiency, particularly in Austria, offset nearly 9% inflation. Net of lower pension costs one-off in Q1, costs Q1 2021, costs for the region are down 3% year-over-year on the back of streamlining and digitization. Risk-weighted assets remained flat quarter-over-quarter, and RoAC was at 10% in the quarter.
In terms of the outlook for Austria, in the event of a gas delivery stop, limited spillover effects are expected. Czech Republic and Hungary are more exposed. However, counterbalancing measures have been put in place, leading us to expect revenues to be resilient and any impact on asset quality still manageable. Let's turn to slide 12. Eastern Europe. Eastern Europe's net revenue at EUR 500 million is up 17% year-on-year, thanks to net write-backs and strong fees and NII. Fees are up 12% mostly on the back of increasing transaction, strongly supported by an enhanced digital offering with the highest digital and mobile penetration in the last five quarters. NII is up 4% driven by strong commercial momentum with high new loan origination as we regain our natural market share without relaxing our risk appetite.
Risk-weighted assets are up EUR 2.3 billion in the quarter, driven by increased market risk due to structural effects, regulation and business growth. Active portfolio management actions are in flight and expected to limit the RWA inflation for the rest of the year. RoAC is the highest of our regions at 21%. The macro outlook for Eastern Europe is expected to be characterized by higher energy prices and generally higher cost of living. We expect Bulgaria to leverage on alternative fuel channels and benefit from management of food stocks, while Romania to benefit from the higher built-in food and fuel independence. Overall, in Eastern Europe, we are better positioned with our footprint in terms of resilience to spill over. The higher prices will have some impact on demand. However, we expect the business to be resilient, supported by rate hikes, higher level of transaction and hedging activity.
Mitigation measures have been implemented to keep cost inflation at bay, leveraging, as an example, on the transition of clients to digital channels and renegotiations of contracts. Let's turn to slide 13. Our business is far more diversified and resilient than we are given credit for. With varied and stable fees delivered in a variety of market conditions. The majority of our trading is also client driven, in particular supported by client risk management hedging activities more comparable to fees. The hedging activities for clients generate robust revenues also in volatile financial markets, mitigating potential headwinds on our fee categories. We have a unique geographic footprint, and our business mix is balanced, with retail banking generating over half of our revenues, stabilizing results.
Our rate sensitivity, which Stefano will explain later in greater detail, will help bolster revenue should we see spillover effects materialize, while our loan loss provisions are protected by our conservative coverage and overlays. Our profitability targets have upside coming from European rate recovery as our plan assumed an ongoing negative rate environment. We have a strong track record in cost efficiency. Our plan has a gross cost reduction of EUR 1.5 billion and net of EUR 500 million, reflecting EUR 1 billion investment. This provides us with a further lever to pull if a top line is not materializing or inflation remains high into 2023, contrary to what is expected. We intend to continue to invest in our future, but have flex to dial back if needed without compromising our key priorities in data and digital. Combined, this makes for a powerful investment case.
With that, I will turn over to Stefano to go over the first quarter results in more detail.
Thank you, Andrea, and good morning to everyone. Let's turn to slide 15. Before I take you through the Q1 2022 results, please let me highlight that they are presenting excluding Russia, given that we absorbed most of the extreme risk assessment, including the capital impact of the local bank. Excluding Russia means group without the local bank and without the cross-border exposures booked in UniCredit S.p.A. My comments are based on a year-on-year comparison, that is Q1 2022 versus Q1 2021, unless otherwise noted. As highlighted by Andrea, in Q1 2022, we deliver an excellent net profit of EUR 1.2 billion, delivering a double-digit return on tangible equity at 10.3%. Group stated net profit at about EUR 250 million as we conservatively book one-offs related to Russia, which led to a net loss of EUR 0.9 billion in the division Russia.
In Q1 2022, we have booked additional LLPs of around EUR 1.2 billion, absorbing the capital impact of our direct exposure and strengthening the coverage of our cross-border exposure to above 30%. Due to a temporary lack of recognition of tax shield on these extraordinary impacts from Russia, the tax rate in Q1 2022 is temporarily higher than usual, as we expect the tax shield to be recognized over the coming quarters. As a reminder, the majority of systemic charges are always booked in the first quarter. This year, they amounted to EUR 709 million, an increase of 15% year-on-year, mainly driven by the increase in the system-wide Single Resolution Fund target level. This is worth about EUR 100 million, an increase in the full year 2022 guidance for the same amount to about EUR 1.1 billion.
The stated CET1 ratio is a strong 14%, about 100 basis points lower quarter-on-quarter, mainly due to the mentioned one-off related to Russia. This already considers the EUR 1.2 billion cash dividend for 2021 paid in April, and EUR 1.6 billion or 55 basis points for the first share buyback tranche approved by the supervisor. As other key recent financial events, I would like to highlight that we successfully completed the Yapı Kredi disposal as planned. The expected positive impact on the consolidated CET1 ratio is mid- to high single-digit basis points in Q2 2022. Let's now look at the P&L in more detail, starting with revenue on slide 16. Net revenue reached EUR 4.7 billion in Q1 2022, up 8%. This reflects LLPs almost at zero in Q1 2022, and strong commercial revenue up 7%.
In Q1 2022, we generated EUR 4.8 billion revenue, up 6% versus Q1 2021, thanks to a strong fee growth of 8% and net interest up 5%. If you were to consider the one-time payment in the revenue balance line of about EUR 90 million related to our FCA agreement which was in Q1 2021, the improvement would be even stronger. Our capitalized strategy is starting to deliver, shifting to better quality revenue. Trading income in Q1 2022 was very strong at EUR 0.7 billion, up 15% year-on-year, benefiting from a strong treasury reserve this quarter, including realized gain on investment portfolio. The majority of our trading is client-driven, more comparable to fees, with hedging from corporate clients reflected in the fixed income currency and commodity result up EUR 72 million year-on-year, positively impacted by the market volatility this quarter. Let's turn to the next slide.
Net interest income was up 2% quarter-on-quarter, adjusting for positive non-recurring item in Germany in 4Q 2021 and base effect. This is supported by a recovery in demand for credit. Average client loan volumes are up EUR 8 billion quarter-on-quarter, driven by Austria, Germany, and Italy. Compensating the negative impact from non-commercial items related to the postponement of the 12.4 TLTRO III additional take-up repayment to March 2024 from June 2022, and the subsequent distribution of the benefit over a longer period of time. Customer loan rates are flat in the quarter at group level as we experience ongoing pressure in Western Europe, while loan rates in Eastern Europe, and in particular Central Europe, are up. Higher market rates had also a positive impact on the treasury result, in particular in Czech Republic and Hungary.
The net interest contribution of deposit is stable quarter- on- quarter, despite deposit volumes up EUR 8 billion, driven by the high liquidity in the system, as better deposit pricing in Germany was offset by customer deposit rate increases due to higher rates in Central Europe. Let's turn to slide 18. As mentioned by Andrea before, our rate sensitivity will help boost our revenue also in case we see spillover effects materialize. As you know, UniCredit Unlocked has been based on prudent assumption of an ongoing negative rate environment. That does not mean we will not strongly benefit from a higher rate environment. Furthermore, static regulatory sensitivities can be difficult to interpret.
As such, with this slide, we aim to show that on a managerial scenario of 50 basis point ECB rate hike in two sets, in the fourth quarter of this year and in the second quarter of next year, we would expect a positive impact to net interest income of about EUR 0.7 billion for full year 2023. In full year 2022, depending on the timing of the actual rate hike and the above three months behavior, we would expect a marginal positive impact in full year 2022 as well. After full year 2023, consistent with a move back to 0 ECB deposit rate, we would expect to lose the contribution of the excess liquidity fee. The TLTRO repayments would also partially reduce the NII sensitivity.
As such, after full year 2023, we would expect a positive run rate of about EUR 0.5 billion for +50 basis points rate increase. In the event of additional rate hikes above 0% ECB deposit rate, we would expect EUR 0.1 billion benefit for any additional 10 basis points until reaching +50 basis points ECB deposit rate. Let's turn to slide 19. Fees deliver yet again another great performance, up 8% year-on-year, further demonstrating our commercial momentum. Our fees are well diversified and all categories contributed positively, foremost transactional and financing fees. Let's look at the component parts of fees year-on-year development in more detail. Transactional fees were up 11%, thanks to current accounts, card, and payment fees responding to the pickup in economic activity.
Financing fees were up 11%, supported by loan and guarantee fees in Italy and Germany, and credit protection insurance in Italy. Investment fees were up 4%, thanks to strong recurring asset under management fee compensating lower upfront fees as expected. Investment fees were also supported by life insurance fees, up 16%, mainly in Italy. Let's turn to slide 20. Q1 2022 costs came in at EUR 2.3 billion, down 3% year-over-year. Thanks to our continued focus on cost efficiency and rigorous cost discipline, we managed to reduce our cost base even with inflationary pressure. The reduction was mainly driven by non-HR costs, down 5%, thanks to lower consulting and advertisement. HR costs down 1% year-over-year, benefiting from lower FTEs in Italy and Germany. Let's turn to slide 21. Cost of risk excluding Russia is close to zero.
The EUR 1.3 billion LLPs booked in the quarter were almost completely related to Russia, further strengthening our overlay provisions. This includes an updated IFRS 9 micro scenario for Russia. The next regular for IFRS 9 micro review is in the second quarter. Our underlying asset quality remains sound. Net NPEs were EUR 7 billion, with a ratio of 1.6%. Risk management is the bedrock of the best-in-class banking, and we will not surrender the risk discipline we have worked so hard to acquire in the last few years. With our strong asset quality and overlay LLPs, we are uniquely positioned to absorb spillover effects, both in a slowdown and a severe scenario. Let's turn to slide 22.
In Q1 2022, our risk-weighted assets excluding Russia stood at EUR 309 billion, down EUR 1 billion quarter-on-quarter, as active portfolio management measure of EUR 4 billion more than offset the impact of business growth and regulatory headwinds. The latter includes nearly EUR 3 billion for structural effects increase in market risk-weighted assets related to our Russian participation have increased to EUR 17 billion. For Russia, including the cross-border exposure to EUR 21 billion, up EUR 9 billion quarter-on-quarter, mainly reflecting the internal downgrade of the country. Our business model is focused on capital light profitable growth. Active portfolio management and efficient capital allocation remain a focus to manage risk-weighted asset and support organic capital generation. Let's turn to slide 23.
The CET1 ratio came in at 14%, already deducting 55 basis points, the first share buyback tranche of EUR 1.6 billion approved by the supervisor, which we will commence as early as next week. Our strong capital position and organic capital generation of 44 basis points in the quarter allowed us to absorb, with 92 basis points, more of the Russia extreme risk assessment capital impact, and still remain comfortably above our target range of 12.5%-13%. Before I hand over to Andrea, a few comments about our outlook. The environment remain obviously fluid, and we are at an important point in the European economic recovery. As we have commented, we do not see any spillover effects in our region as of early May.
As per earlier comments, we have reconfirmed our targets for 2022, excluding Russia, with a net profit of over EUR 3.3 billion after cashes and Additional Tier 1 coupons. A cash dividend 35% of net profit excluding Russia is being accrued, with the balance intended to be returned in share buybacks. The group tax rate, excluding any potential tax loss carryforwards DTA write-up, is expected to remain slightly below 30%. Our net interest income guidance remains for 2022 to be in line with 2021, when excluding the non-recurring item from full quarter 2021, with potential upside for a positive market rate development, which could be partially offset by lower volumes as GDP growth is slowing down. Lower volumes provide a natural edge via lower risk-weighted assets.
We continue to expect a slight increase in total fees for 2022 compared with 2021. The continuing highly elevated financial market volatility that can negatively impact investment fees dynamics is, however, supportive for client risk management activity. Overall, trading was already normalizing as we enter the end of the quarter. Please keep in mind that the dividend income this year will no longer benefit from Yapı Kredi's contribution. We continue to expect costs in 2022 to be in line with 2021, as we limit inflationary pressure with disciplined cost efficiency. We are uniquely positioned to absorb spillover effects, as explained in detail before. Therefore, our cost of risk, excluding Russia, is confirmed at 30-35 basis points for this year and for the planned period.
We expect, according to our base macroeconomic scenario, around 50 basis point regulatory headwinds for full year 2022, of which 6 basis points have been taken in Q1 2022. Also this year, our organic capital generation is expected to be in line with the 150 basis point plan ambition on average per year. Our CET1 ratio target range remain between 12.5% and 13%. I will now hand back to Andrea.
Thank you, Stefano. UniCredit Unlocked is based on five strategic imperatives that support our achievement of our financial ambitions. Across all these, we are delivering tangible proof points only one quarter into a three-year plan. I particularly want to call out our ESG progress, where we are running ahead of ESG total volume targets for 2022- 2024. We incorporate sustainability in all we do and have been very successfully supporting our clients' green and social transition. UniCredit entered this phase with a sound business model and a plan focused on improving both profitable growth and organic capital generation. Franchise performance so far allows us to confirm our financial guidance for 2022, adjusted for the impact of Russia on revenue and cost.
That effectively means that the remaining franchise will compensate in terms of revenue and cost reduction for the absence of Russia, and that our net income is confirmed, as is our ROTCE. The franchise is more than compensating for any profit and organic capital generation contribution from Russia expected for 2022. That we're not factoring in our guidance. At our strategy day in December, we outlined a plan that would lead us into an era of purpose, growth, and value creation. Creating a bank that would deliver for all our stakeholders, the bank for Europe's future. Our plan has embedded profitable growth from internal action, largely in our control, and over long term, from prudent assumption on macro. We have a unique Pan-European footprint that offers us both significant diversification and exposure to growing economies. It is a multi-year industrial plan enabling us to manage a near-term slowdown.
This is a plan out to end 2024 targeting 10% return on tangible equity. We are already delivering positive outcomes by combining the three levers of net revenue, cost, and capital efficiency. I remain committed to distribute at least EUR 16 billion to investors between 2021 and 2024 in line with UniCredit Unlocked delivery. This is predicated on our revised baseline macro assumption of a slowdown. We are also well prepared to weather a potential recessionary environment. It is not what we expect at the moment, but we are mindful of the fact that this situation can and will change rapidly. Even in a severe recession case, we're in a privileged position to absorb a significant portion of the shock and the impact on our strategic plan, UniCredit Unlocked. Why am I confident? We have managed the first order Russia effects.
We benefit from strong capital, strong coverage, high overlays to manage second-order impacts. The extreme Russia impact is absorbable while maintaining a robust CET1 ratio. If there is a top-line slowdown, we can slow down investment while protecting key priorities. We have upside from rate increases, which we have not factored in the plan. We have the commercial momentum and diversified model delivering profitability and organic capital generation as part of our multi-year plan, supported once again by excellent quarterly results. Our distribution over the plan are based on returning our net annual organic capital generation to shareholders as part of ordinary distribution only. They do not rely on returning excess capital to shareholders, meaning that in any given year, our CET1 remains protected. This is a prudent approach.
I'd like to take the opportunity before we close to reflect briefly on the years since I had the honor of starting as CEO. I've been blown away by the quality and dedication of UniCredit's talent and commercial potential. Last year, we immediately came together to change how we do business, how we operate internally, and how we support our communities. The willingness of the business and regions to operate together has been incredibly powerful. We have delivered five strong consecutive quarters, and this is just the start. There is much ahead for UniCredit in the coming years. The current geopolitical developments remind us what is really important in life. There will be no way to make up for the tragedy of war. If we can take anything from this conflict, it is the hope for a more united Europe.
This unity will be crucial as we defend our shared value and help our continent rebuild and transform for the better. The long-term economic impact of the Ukraine conflict is yet to be determined, but the banking sector has a responsibility to help navigate this turbulent period. As the bank with a true and deep presence across the continent, UniCredit's responsibility is to the whole of Europe. This means not only helping to deal with inevitable challenges, but also to make the most of opportunities and build a better future for us all. Moderator, could you please open the lines for questions? Thank you.
Thank you. We will now begin the question- and- answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. To remove yourself from the question queue, please press star and two. Anyone who has a question may press star and one at this time. In the interest of time, we ask that you please limit yourself to two questions and one quick clarification point per caller. We will pause for a moment as callers join the queue. The first question is from Ignacio Cerezo with UBS. Please go ahead.
Yeah. Hi, good morning, and thank you for the presentation and the detail. I have two quick questions from me. The first one is on the local Russian bank. Given the flexibility you have shown in terms of disposing or selling or walking away basically from the unit without additional capital costs after the measures taken in Q1, I was just curious to understand basically what are the pros, the cons, of doing one thing or the other, how you're thinking about it, the challenges basically of taking that measure versus staying in the country. The second question is on fees, specifically, if you can give us a little color basically on how sustainable the strength we have seen in Q1 actually is into current quarters, specifically on financing fees. Actually, that's the line that surprised me the most.
Thank you very much.
Thank you. I'll start with the local presence. What we have done in Q1 allows us to evaluate all options calmly, without pressure, and without further impact on our CET1, based on the scenarios that we have today. That would mean that if we were to lose the entire bank because of nationalization, that some people raise, because of intervention, the impact on capital will remain what you have seen, so there would not be any additional impact. If we were to sell, combine, or do something with our local subsidiary, we would get whatever upside from what we get from that transaction. If we were to, for the time being, stay because the time is elongated, we would again not have further capital commitments, in our opinion.
What we have done here, given the complexity of the situation, and I would urge all of you to focus on substance and not on signaling or on commitments. Because if we look at people or firms that have substantial presence in the country and their actual exit, it is proving to be complex, as we said it would be. It is not something that can be done easily. We think that the position we have taken allows us to evaluate all the options. The direction of travel, I think, is quite clear from what you're seeing financially, but it allows us to evaluate all the options in a way without pressure and trying to do what's best and maximize value for our shareholders. With respect to the fees, I would have a general comment, and then I'll pass it to Stefano.
I think we have a setup where what we consider fees in our client solutions is quite diversified. As you see this quarter, we have had a slowdown on asset management fees as we would in an environment such as this one. We have had a vast acceleration in client hedging fees because our SMEs have wanted to hedge on FX and on commodities, as they should. There are a few things that are accelerating independently and that were not there before, that is primarily protection in some areas of insurance that are due to the new agreement with Allianz. It's a strong partnership, and there are further options to improve that contribution as we pull together an ecosystem. The rest I will pass to, obviously, is dependent on the quarter, but there was very active in all areas.
Yeah.
I'll pass it to Stefano.
Thank you, Andrea. As we commented before, we are expecting for the full year a dynamic of the fees higher than 2021. Transactional fees were strong, so we're up around EUR 58 million year-on-year, EUR 17 million quarter-on-quarter. Within that, during the course of the year, the dynamic of the transactional fees will remain well supported, also taking in consideration the expected dynamic of fees connected with payments, credit cards and so on. Financing fees have been also well supported, including also the contribution of protection. These are linked to the dynamic of loans. As we were discussing before, during the quarter, around EUR 8 billion more on average from the loans perspective, we are expecting growth.
Such a growth, as a consequence, the lending dynamic can be lower than expected, in case there is a reduction in the growth. In relation to the investment fees, as commented Andrea, this quarter-on-quarter, we had more upfront fees, less management fees. Management fees in reality impacted by the dynamic of the markets. What we are expecting is a normalization. However, in a situation where the commercial dynamic is strong, this quarter we have around EUR 15 billion gross sales of asset under management insurance product. That is showing you that the activity that all the network is doing in relation to overall management of the clients is really good and well supported.
Thank you very much.
The next question is from Antonio Reale with Morgan Stanley. Please go ahead.
Hi, good morning, everyone. It's Antonio from Morgan Stanley. Two questions also from me, please. The first one on strategy, and the second one on the outlook for costs, basically. On the first question, your plan included a buffer, a headroom to your capital target in 2024, and initially this was intended to cover for any opportunities or any unseen, unforeseen circumstances, such as the one we've seen in Russia. If I add higher rates, which were not in the plan, together with some of the flexibility you talked about on costs and IT investments, that should give you additional headrooms. Can you remind us of your strategic priorities in light of recent events?
Is there any risk that higher rates imply that some of the corporates that have been using the markets fund themselves come back on your balance sheet? In other words, I'm wondering to what extent higher rates affect your planned move to a capital light model and where do your strategic priorities stand? My second question is on cost of risk. You've given a very clear message, cost of risk to remain at the 30-35 basis points range. I understand you've got EUR 1 billion of COVID overlays. If I look at your Q1 results and the underlying cost of risk, it was 5 basis points. You said you have not seen releases of overlays, but you've seen some write backs in some regions, including Italy.
What gives you the confidence on the resilience of the credit cycle and how do you see credit quality for the key geographies you're in? If you could comment on some of those key markets that will be great. Thank you.
Maybe I'll take just the introduction. I'll pass it to Stefano. You're right to point out that in UniCredit Unlocked, we were very clear that our target CET1 ratio was 12.5%-13%, and we would be moving within that range. That there was excess capital that quite significant excess capital that was not factored into UniCredit Unlocked, and was going to be used for three purposes we said at the time. One was potential M&A, another one was to further complement distribution to shareholders, and another one was to absorb unexpected shocks. Well, we didn't expect that one, but it is there for that. The shock from Russia has affected most of that capital excess, not all of it. We remain at 14%, and depending on where the situation concludes, in any case, we will remain above 13%.
That's why we bifurcate and we say very clearly that the remaining part of the franchise that is now running faster can deliver, can remain with the CET1 ratio where it was, bridge the gap for Russia and deliver on the distribution without that being affected by Russia, given what has happened. Obviously, our flexibility or our excess capital on top has been reduced. That I would say is the point. The other thing generally, and then I'll pass it to Stefano, but I will say on cost of risk, just as an, well, now a 12-month outsider, this bank has provisioned very conservatively, and so we should. This quarter is no exception. Last year, in 2021 last quarter, as you know, instead of using overlays for whatever reason, we increased overlays.
In this quarter, we could have potentially, t here is always a judgment call m ade substantially more right backs than we have. We kept them to the minimum required. Therefore, we continue to think that our existing portfolio is extremely well covered, that we have on top of that overlays and a very, very conservative assessment of Stage 1 and Stage 2. We on top of that have made a provision for the Russia first order effect that is in effect a combination of a normal provision and another overlay. That's what giving us confidence to be able to manage the cost of risk in the 30-35 basis points.
Antonio integrating what Andrea highlighted. In relation to overlays, we were commenting before the update of the macro scenario for Russia only. As a matter of fact, out of the more than EUR 1 billion overlay, we have EUR 400 million-EUR 500 million it is the macro related. In case of deterioration of the macro scenario, as a matter of fact, we can use those. Second point is default rate. If you look at the default rate in Q1, default rate of the group was 0.7%, so it was below 1%. We are at 1% or below 1% in all the countries. In Italy, Germany, Central Europe and Eastern Europe. Third point is expected loss, i.e., the quality of the portfolio that we are originating.
The expected loss of the new business at group level is 27 basis point. That is absolutely in line with the expected loss of last year. Also on the stock there is no deterioration. The combination of this effect is allowing us to be confident that we will achieve a cost of risk in 2022 in the target range of the plan, so 30-35 basis points.
Thank you.
The next question is from Delphine Lee with JP Morgan. Please go ahead.
Hi, good morning. I just have my two questions, first on capital and then second one on Russia. On Russia, just to check the reduction in the net cross-border exposures that we have seen, is that mainly related to trade finance and short-term transactions? Just wanted to understand how you manage that EUR 1.3 billion reduction. And also checking, you know, sort of the intragroup exposures. For the subsidiary, as you mentioned, no further commitments on capital, but you would support in terms of financing with additional intragroup if necessary. On capital, my second question is just trying to understand a little bit the process for the remaining EUR 1 billion, which is dependent on Russia. Sorry for the background noise.
It's just because you're already at 13.6%, so that's well above your 12.5%-13% range. Trying to understand what, you know, what should we expect, I mean, because you said 13% on your minimum. Does it need to stay well above 13% to for you to start that EUR 1 billion? If you could just elaborate a little bit on the process on the remaining EUR 1 billion. Thank you.
Okay, I'll start, and then Stefano will certainly correct me. On the cross-border reduction, what we have done in these two months is a number of levers. The first thing that we've done is strictly within the sanction framework. We have swapped position with mostly Russian counterparts that are not sanctioned. They may have a loan towards a European company, we have a loan towards a Russian company. We swap a nominal value. We've been able to reduce exposure for both sides without any economic impact. That's one lever.
The second lever that we have had is going to all of the clients that had letter of credit in flight for us and other type of short-term support, and review with them whether really they were going to continue to need those letter of credit due to the fact that the business in Russia is terminated. In many cases, we have been able to disengage from a number of those exposures. The other way, the other areas that we have looked at is on derivatives, where we have unwound our positions, mostly with third-party banks. The position that we have done that at minimal cost because we were on par. The remaining part of the position is, I think, all intragroup, and that means with our subsidiary in Russia.
Let's be clear on the derivative and the assumption, and I'll put it in management term probably. The derivative exposure jump to zero that we have is mostly linked to the ruble versus the dollar and the euro. Once that exchange rate changes, there is margining from our local bank. For us to lose money on those derivative position, we need two things. One, that the ruble vastly depreciates against the dollar and the euro, and in that process that our local bank does not post margin. On the first point, as I have indicated, personally, I believe that now the ruble is mostly a managed currency locally. You're seeing the strengths of the currency, which actually has cost us our hedges.
I do not see scenarios where it is in the best interest of Russia to let the ruble depreciate very substantially. Given that it is managed, we have taken a more positive view than our maximum risk loss. But even if it was going to be devalued, we would need for the local subsidiary not to pay us or not to margin something that they have been doing punctually until now. With respect to the local exposure, you have seen we've taken EUR 600 million. What remains, Stefano is gonna take you more through that, but obviously those EUR 600 million do not benefit from the release of RWAs that we would have if we were to exit or otherwise lose the subsidiary.
The remaining equity that is there would be compensated by the deconsolidation of the RWAs that we have locally, which is why you see the numbers that you see on the table.
Yeah. In relation to the local subsidiary sufficiency, the subsidiary is self-sufficient from a capital standpoint, so the local capital ratio is around 15%, and independent from a funding standpoint. We are net borrower, so no support, neither from a capital and a liquidity standpoint. In relation to the further EUR 1 billion buyback, that is connected to the overall performance of Russia that we will evaluate during the course of the next weeks, and compliant with the target common equity ratio that we have reiterated, will be between 12.5% and 13%. Based on the slowdown scenario, expecting to be in the upper end of the range at year-end, so around 13%.
I would maybe make one comment on that. As you know, cash dividends and share buyback do not go through the same process. Cash dividends, as long as you have appropriate capital levels and net income, are in inverted commas, quite freely payable. Share buyback require an approval from the supervisor that reviews your capital plans over a three-year period, your profitability over a three-year period, et cetera, et cetera. The bar is different. As such, while we are absolutely confident that our CET1 will remain well above 13%, while we have reviewed all the scenarios and the shocks that were possible, and we believe that we will show that further in Q2, obviously we need to go through a process that evaluates.
That not only evaluates what has happened in 2021, but takes into consideration what is happening today. I take it as a positive that we have been already authorized to execute the first EUR 1.6 billion as of today. I remind everybody that EUR 1.6 billion on the current market cap is a much larger percentage of shares that are going to be reacquired vis-à-vis what they were in December when we announced the plan, and that there is a minimum time to be able to reacquire these shares. In a way, even if we were approved for the entire amount, we would not be able to execute it for quite some time because we cannot intervene in the market for more than a certain percentage.
From a management standpoint, we're comfortable with the distribution under the conditions that we have highlighted, but, we are duly respectful of the processes of our supervisor and therefore you hear from us what you're hearing.
Thank you.
The next question is from Hugo Cruz with KBW. Please go ahead.
Hi. Thank you very much. Following a bit on that, when do you expect to have enough clarity in Russia to both confirm the second tranche of the buyback, but also, you know, I think your pro forma CET1 ratio that you show in the slide for 2022, that includes the buyback out of 2022 earnings as well. When do you expect you could have clarity there as well? My second question is really around rate sensitivity. The guidance you gave is very appreciated. I was just wondering, you know, you gave guidance up to a ECB rate of 50 basis points positive.
If we go above that level, and the market expectations are to go above that, you know, what level do you think ECB rates will stop being a positive for the NII? And when do you think it starts to have a negative impact on fee growth and the cost of risk? Thank you.
Thank you. I'll take again, Russia. So I believe that Q2 will be important for all of us in terms of articulating where we are in Russia. I mean, I'm sure you have noticed the speed of change in terms of sanction and waves of sanctions. I guess we have reached a point where if the current speed continues, we will have much more clarity of what the end game scenario is, called this way during Q2. I think that's an important checkpoint for all of us and for any prudent management of a business.
We strongly believe, at least, in the management team, that while the last billion of buyback is related to 2021 and not to 2022, and had it been a dividend, it would have already been paid, it is prudent and correct to observe what the situation is before jumping. Therefore, we are aligned, in my opinion, with our supervisor in evaluating what happens this quarter. That said, we have said very clearly that in the extreme loss scenario, the cost to our capital would be 128 basis points. We've taken 92 in this first quarter. If we even went to the extreme loss scenario at the end of Q2, which we consider highly unlikely, the impact on capital would be a further 36 basis points. We start from 14.
We have capital generation coming in Q2. Hence, you understand our comfort or confidence in our ability to prudently distribute or execute the additional EUR 1 billion. That's on the Russian share buyback. You want to take the rates?
Yes. Thank you. Hugo, on rates, with an assumption of +50 basis points, we're expecting to have a positive impact on net interest income in 2023 of +EUR 700 million. One important element, this is already including the effect not only from TLTRO, but also excess liquidity fee, because as a matter of fact, with an increased level of the rates, as a matter of fact, we will have an impact on the excess liquidity. Currently, the excess liquidity contribution from this quarter has been around EUR 100 million. If you look at the forward rate, and if we look only at the forward rate, the NII impact will be meaningfully above EUR 1 billion in our case in 2023.
With regards to the effect on our top line, as a matter of fact, we think that the difference in terms of client behavior can start from 50, +50 basis points. Still, however, with only a portion of the deposits that will reprice. We will, however, remain positive rate sensitive also with rates above 50. With rates above 50, it's not sufficient in order to have negative effect neither on loans nor on LLP. What we are expecting is a level, both in 2022 and 2023, of rates that should not create impact either on the top line or on the cost of risk. For the top line, as we were commenting also during the presentation, there is a natural hedge, because in case we have less loans, we do have also less risk-weighted assets.
Thank you very much.
The next question is from Giovanni Razzoli with Deutsche Bank. Please go ahead.
Good morning to everybody. Just a follow-up clarification on slide number three, regarding the impact of Russia. Basically, you were very effective in reducing the cost in the extreme scenario of Russia to 128 basis points and you do expect some additional cost in the second quarter. My question is: To what extent are you in the condition by a managerial action to reduce even more this 128 basis points in the next quarter? And is it mostly related to that further action on the cross-border exposure, or is there something else? Thank you.
Okay. Two things. The first thing, to be clear, and I think we may have led the misunderstanding. I would separate the exposure from the loss. The exposure is the net reduction of EUR 400 million from the EUR 7.4 billion - EUR 7 billion. Okay? That's one thing. The second thing is the extreme loss or the base case scenario loss that we expect on those exposure. On those exposure, at the moment, the extreme loss that we expect is 128 basis points. Obviously, we do not expect to be at the extreme loss because otherwise we would have provision even further during the quarter.
Starting from the 128 basis points, or the EUR 5.3 billion, that are the results of the following: assuming a complete loss or exit or nationalization or whatever on the local subsidiary, plus, a 40% loss on our derivatives that I explained are linked to the ruble and the margining, what we think is extreme. Plus a 60% loss on our remaining cross-border loans, which are mostly, absolutely top-tier, high-quality sector that the European Union, and actually the Western world, has not sanctioned for a reason. Therefore, it's quite a significantly conservative assumption to think we're gonna lose 60% on those. We could, if Russia was completely walled off. Starting from those, you have your 128 basis points. Now, can we reduce further the 128 basis points?
There are a number of actions that we have to use. Number one, obviously, if the outcome of a local subsidiary is better than a, let's say, exit at zero, that reduces the impairment. Secondly, if our derivatives continued unwinding is better than taking a 40% loss because the ruble actually is rather stable or the margining continues, then that is better. With the passing of time, you're gonna see that unwind. Thirdly, on the cross-border and on the letter of credit, we will continue to do what we have done, swaps, renegotiation with clients, and things like that. When we're able to do them, they're very efficient from an economic standpoint, because both parties exchange, there is no what loss do you take to buy it for cash?
It's an exchange, or it is business that we no longer do, and therefore the clients exit it. We will continue. I want to warn you, which is why we have been cautious. Every time the sanctions tighten, the window shrinks. Every time the sanctions have tightened, there have been a number of opportunities that the team has spent day and night trying to execute, but in two cases, we lost two major possibilities to reduce our exposure much further than that, because 24 hours or 48 hours before we were ready to execute, new sanctions were executed and the windows closed. Therefore, we need to start all over again. Obviously, given the level where the sanctions are today, the window has become quite small.
The opportunity to continue and optimize at zero cost, as we have done so far, is less and less. For the time being. This is a little bit the general how we have approached the exposure, how we will continue to approach the exposure, and why I do believe that Q2 is quite important, because by the end of Q2, with the direction of travel and the speed at which the geopolitics are changing, I do believe that we will have full clarity on where we stand by the end of the quarter. There was another.
No.
No? That was it. Okay.
No, that is very clear. Thank you. Thank you for the clarification.
The next question is from Andrea Filtri with Mediobanca. Please go ahead.
Yes, thank you for taking my question. A clarification, firstly, on Russia. It seems like the jump from the 200 basis points maximum loss, estimated first in your press release to 128 today. There are some number of factors, but largely from the 40% recovery rate assumption in Russian cross-border exposure. If you could explain what has changed in your assumptions vis-à-vis your first press release. How should we take, in your view, the partial approval by the ECB of the buyback? It's true that it's certainly a positive, the EUR 1.6 billion was being validated. But even if you were to have gone ahead with the entire buyback, you would have still been at your CET1 target range.
Is it that ECB does not validate the recovery assumptions, and they want to have more clarity? That's the first question. The second one is when should we expect the capital relief from the asset deleverage from the UniCredit Unlocked plan? Just finally, on the one-offs, this is just a follow-up on the other questions. Before Stefano mentioned about upfront fees in the quarter restart. Any evident one-offs that we should be aware of in this quarter? Thank you.
Okay, I'll take the first one. Again, I think most probably, although I thought we had been, but we were not clear when we put out our press release. When we put out our press release, we said, clearly, "This is our exposure." We didn't say, "This is our loss." Actually, there is a paragraph that starts, "This is not our scenario." This was just providing clarity with our exposure. I understand that other banks have come out directly with their expected loss. We never did, because we didn't think we had enough elements to assess it. I would compare the EUR 7.4 billion of exposure to the EUR 7 billion. That's the first thing. It went down EUR 400 million, EUR 2 billion net of the other actions.
In terms of loss or expected loss, we went granularly through everything in an extreme scenario. Again, our working scenario and base scenario internally is not extreme scenario. We're just giving you our extreme scenario. Our extreme scenario goes through, as we said, one, that in inverted commas, the worst that can happen, because we have also been very clear that we will not support the local subsidiary with equity or cash. Our extreme scenario will inevitably resolve in either nationalization, intervention, exit at zero. This is the worst case. We continue to believe that that is an exposure. It is also the worst case that can happen. In the case of derivatives, where you see, if I remember correctly, top of my mind, the EUR 900 million, EUR 100 million, and we go to EUR 400 million. Why do we reduce?
Because the EUR 1 billion assumes that the ruble goes to zero value. That's why, in my opinion, but I leave you to yours, it's not realistic. The worst case scenario assumes that the ruble is well into the 160-170 against the dollar, and that there is no margining from our local subsidiary. The EUR 100 million, i.e. what we took in Q1, assumes that the ruble moves around the 70, 80, 90, and that we continue to have margin, and we have put a buffer for certainty for conservatism. These are the differences between the three. When you arrive to cross-border, what has changed in general? What has changed is, number one, that the numbers we started from has been reduced through swaps and cancellation of contracts on letter of credit and other things of the like.
It has been reduced, you know, thankfully, without having to leave money on the table. Now you have what remains. What remains has concentrated, because we have been able to reduce the worst exposures. Worse means not necessarily worse from a credit standpoint, but companies that either were sanctioned or were going to be sanctioned, or that could have interrupted their international payments with limited disruption to Russia. What we have kept is, as I have said, company that instead provide commodities, to not be more specific, but I can think of two that we consider highest quality, not only because of the quality of the company, but because the Western world is still very dependent from their provision of commodities, and therefore the probability that they get sanctioned is more remote, and therefore the probability that they don't pay is even more remote.
Let's remember that a lot of the payments are gonna occur or not because these companies are not able to pay, but because these companies are getting sanctioned. It's a political impact, it is not an economic credit impact. I think the interesting thing, in my opinion, is that differently from previous crises, you're seeing, at least for now, a greater risk on the cross-border, so on the Euro bonds, et cetera, et cetera, than you're seeing locally. That is a result of the fact that the crisis is not economic or is not yet economic, is political. Locally, in inverted commas, continues as they want it to continue. Cross-border, it's affected by the sanction and the politics between the countries.
That's why I think the scenario is different from what has been in other crises of other countries that have run in credit difficulty as opposed to a war, which is very different. I think this is the change between the two. The second part, I'll let you.
Yes. In relation to overall capital generation action in the plan, if you remember, we're around EUR 30 billion, more or less EUR 10 billion each, disposals, securitization, and then specifically portfolio management action connected with reduction AVA negative client, improvement of collateral, and so on. It's more skewed towards 2022 and 2023. As a matter of fact, a portion of that was already taken in 2021. i.e., in 2022 full year we're expecting more than EUR 10 billion, with main part of the execution connected to securitization and disposal to be done starting from Q2, but especially in the second part of the year. In relation to the fees you are referring to, one-offs. As a matter of fact, we had some one-offs in Q1 2021.
If you look for quarter, I think that we had between EUR 20 million and EUR 30 million performance fees in general, EUR 10 million in Austria and then around EUR 20 million in Italy. While in this quarter we're having in terms of assets under management, around EUR 690 million that are not relevant one-offs to be highlighted.
Sorry, Andrea, I sidestepped the ECB on one thing. We have not asked ECB for EUR 2.6 billion. We have asked ECB for EUR 1.6 billion. What we asked, we got. Actually I would read it a little bit differently. I would read it that in the middle of the crisis in May, with full knowledge of what is happening, ECB has supported our request for a share buyback of EUR 1.6 billion. All the other distributions that are not share buyback do not have to go through that due diligence. With respect to the additional EUR 1 billion, why did we not ask it? Number one, because it's prudent, and we run this bank prudently.
Number two, because effectively it can't be executed for three months or more because we need to buy back EUR 1.6 billion out of a market cap that is not much higher. If you know try to buy that day to day, keeping not affecting the stock, it takes time to be executed. The two things converged. Thirdly, you have heard me. I am confident that we will get the EUR 1 billion because of the numbers that you correctly point to.
Thank you. This is a really important call. Thank you very much.
The next question is from Britta Schmidt with Autonomous Research. Please go ahead.
Yeah. Hi there. Just some two quick follow-up from me. I think you mentioned that net interest income is expected to bottom in Italy and then grow. Could you also give us an indication for the expectation around Germany? Maybe you can give us a little bit more color on the cost levels that are to come. Are you talking about potentially delaying some of the investments? Which ones are those that do not impact the digital strategy? Thanks.
On the cost lever, very simply, we highlighted in UniCredit Unlocked that we had EUR 1.5 billion to take, and we also said we would take EUR 1 billion and reinvest. We also said that we would reinvest in a number of things, our technology, more investment in the front line in terms of more advisory in insurance or asset management for Italy or for Germany, and so on and so forth. It is obvious that if the front line is not there because the economic conditions are not there, we're not going to go full throttle on hiring people to advise and sell and in the commercial front line as much as we had before. We're gonna delay that to when the business picks back up.
What we have been doing, because of this environment, has been to. F ront load the cost that we can front load as much as we can, and we will try to continue to do that, while, for the time being, not renouncing to the investments that we want to make to strengthen our franchise. In a slowdown scenario, we will continue to do that. If things go in deep recession and severe, obviously we will pull back, and we will pull back quite significantly. I remind you all that those cost reduction are fully provisioned already against our capital of the end of 2021. They are there, and we just need to crystallize them. If not, we have a reversal of provisions.
In relation to net interest income, Italy and Germany will have, in a way, similar dynamic. The net interest income of Italy in the quarter was down, but in reality mainly for non-commercial items. If you look to the commercial items from Italy, there is a stable net interest income. The situation will be similar during the course of the next quarters, i.e., with the NII in line with Q1. We stabilizing rates because as a matter of fact, the overall client rates is stabilizing and the same in Germany. While we have already higher client rates in Central Europe and in Eastern Europe, both in Italy and in Germany, we are stabilizing. It will be fundamentally dependent from two phenomenon.
One is volumes, and the second one that I was highlighting before, we might have also some upside potentially deriving from the dynamic of the rates and mainly in relation to dynamics of the EURIBOR.
Great. Thank you.
Okay.
The next question is from Domenico Santoro with HSBC. Please go ahead.
Hi there. Thank you very much for the presentation. Can we just come back on page three of the presentation? It's absolutely very clear, I mean the difference between loss and exposure and your assumptions, they look very reasonable. I'm just talking hypothetically, I understand the hypothesis regarding recoverability. I just want to understand in terms of derivative exposure, what could be in a sort of hypothetical scenario in case there is a total depreciation of ruble the maximum losses here. It's still EUR 1 billion or EUR 900 million now that you have taken EUR 100 million provision or as we reduce? It's just to have for sake of clarity the total maximum losses regardless of any consideration or assumption. The other question is about the 44 basis points capital generation for the rest of the year.
My understanding is that you're gonna upfront the 50 basis points regulatory headwind that you have assumed in the plan. Is this including already any negative from procyclicality on the non-Russian business or risk rating that we probably are gonna see for the next part of the year? Whether this includes also the risk of the assets optimization that the CFO was just mentioning before. Thank you very much.
Okay. In relation to derivatives, maximum capital impact connected to the maximum exposure is EUR 1 billion, coherently with what we are showing in the presentation. That the maximum is taking into consideration no posting of the collateral from the counterparty and ruble fundamentally valuing nothing. If one of the two conditions is realizing, there is not that impact. For example, if the counterparty is keep on posting collateral like we have now, there is no risk. Coherently with what we have been communicating in the slide in relation to first quarter 2022, in relation to the regulatory headwinds. Yes, you are right.
The regulatory headwinds around 50 basis points are fundamentally the vast majority of the fact that we will have during the horizon of the plan, 2022-2024, are not including any capital generation actions because are only regulatory headwinds. When you look to the dynamic of the year, on one end we have regulatory headwinds. For example, this quarter we had 6 basis points regulatory headwinds, 44 basis points organic capital generation. The same will be for the year. For the year, we're expected to be in line with 150 basis points organic capital generation and 50 basis points regulatory headwinds. The regulatory headwinds are also including the procyclicality component in line with the base case slowdown scenario that we have communicated and based on which we have also communicated the expected dynamic of the capital ratio.
Thank you.
The next question is from Benjie Creelan-Sandford with Jefferies. Please go ahead.
Yeah, good morning, everyone. Thank you for taking the question. You largely dealt with my question in the previous answer, but just to be absolutely clear, 'cause just looking at slide five and the capital walk-through the rest of the year, just trying to reconcile what that means for RWAs and profitability. Based on what you said about the RWA optimization expected in the second half of the year, is the expectation that RWAs trend down from here, or is that optimization gonna be offset with underlying growth or other impacts? On the profit side, just wanted to clarify, is the base case slowdown scenario included in the capital book, is that now also the basis on which you have the EUR 3.3 billion profit target for the year, i.e., the reiterated profit target ex- Russia is now based on your new slowdown scenario? Thank you.
Yes, thank you, Benjie . With risk-weighted asset, we are expecting to have a dynamic of the risk-weighted asset more or less in line with the one of this quarter, i.e., when we look at the group excluding Russia. As a matter of fact, we are being able to put in place portfolio management action in order to more than offset regulatory headwinds and the business dynamic. We are fundamentally expecting for the remaining part of the year a similar dynamic. There can be a little bit more of the action that we can put in place compared with the dynamic of regulatory headwinds and business-related risk-weighted asset. All in all, this is what we are expecting.
It's confirmed, i.e., we are confirming that excluding all the contribution of Russia, also from second quarter to fourth quarter, we are confirming that we will have a net profit above EUR 3.3 billion.
I think.
The EUR 3.3 billion, as per definition that was discussed in the plan, also takes into consideration the coupon of the Additional Tier 1 and the cashes, i.e., the stated profit, will be higher than that. This is the one coherent with the definition that we have communicated at Investor Day.
Yes, that's clear. Thank you.
You're welcome.
The next question is from Andrea Vercellone with BNP Paribas Exane. Please go ahead.
Good morning. I've got three questions actually, but they're all in the same topic, which is the buyback, and two are just a technical thing. Your AGM has approved EUR 2.6 billion. There's however a cap to 10% of maximum share capital being treasury shares and then canceled. I'm just wondering whether you now have two separate caps, i.e., you could execute the first, cancel them, and then you restart from zero, or the 10% it's still combined for the EUR 1.6 billion plus the possible EUR 1 billion second tranche of the buyback.
The other clarification, if you can remind us, whether the authorization to purchase the shares runs until year-end or the date of the 2022 AGM, i.e., you could still launch the second tranche and you will still have a few more months to complete it. The third one, still relative to the buyback, the second tranche of the buyback in this case. You're telling us that Q2 is very important to almost draw the line on Russia, i.e., you will have a much better visibility in Q2 than you have now, and you're saying that there will be probably slower adjustment after that.
You are also telling us that out of your extreme loss assessment the maximum loss is 128 basis points of capital, of which only 35-36 are outstanding. You're telling us you are gonna generate capital also for the remainder of the years. It takes a bit of time for the ECB to approve a second tranche. I'm just wondering whether you will draw the line on whether you will ask authorization to complete the second tranche or not at the Q2 results.
I will start. The AGM approval was related to maximum amount, so, EUR 2.6 billion, and the maximum number of shares coherent with the percentage limit that you have mentioned. As a matter of fact, we need to be in line with both of them. i.e., it will be important to understand which will be the number of shares that we will purchase, and that will be dependent also on the dynamic of the stock. In case then there is not sufficient amount of buffer, we need to go to convening another AGM. If we're buying at this level of the stock, taking into consideration the amount of shares that we will buy, in order to execute the further EUR 1 billion, for a portion, we are able to do that.
For another portion, we need to call another AGM in order to get the authorization. The authorization is giving us sufficient time in order to execute the full amount of EUR 2.6 billion also, beyond the deadline of 2022. Process-wise, as a matter of fact, with ECB, the process will start in the moment when we will file the authorization. Depending on the moment when we have sufficient availability during the next month in relation to our exposure to Russia, then from that moment on, we'll be able, we think, in a sufficiently reasonable time, to get the response in relation to the related authorization.
As highlighted by Andrea, we need to, however, take into consideration that it will take a while, so some months, to execute the first tranche of the buyback, i.e., we have sufficient time in order then to take into consideration also the result that will include also the evolution of Russia of Q2.
Thank you.
The next question is from Christian Carrese with Intermonte. Please go ahead.
Thank you. Two quick questions. The first one on financial portfolio and interest rates. Are you willing to increase your financial portfolio to support net interest income, and if you can give us an update on the sensitivity on capital from BTP bond spread? The second one on trading, do you think that the level we saw in the first quarter is sustainable, or there are some exceptional items? The client-driven trading, what is the amount that we can plan for the following quarters? Thank you.
The financial portfolio is currently EUR 144 billion, so it's stable. The Italian govies portfolio slightly reduced, so it's currently around EUR 41 billion. The duration is below 4. We have around 55% of the position in the Italian govies held to collect, so with no volatility to the capital. For having 10 basis points of widening, the impact to capital is below 3 basis points, so it's more around 2.5 basis points. The other point was.
Trading income.
Trading income, sorry.
Financial portfolio, if you want to increase also, I don't know, your strategy on the financial portfolio with yields going up.
No, I mean, rates is not really the point, because as a matter of fact, we are swapping the investment portfolio, so it's more a matter of credit dynamics, if you want. We are currently expected to remain with a stable, substantially stable amount of Italian govies that was ranging between EUR 40 billion-EUR 45 billion. Please consider that we have rollover, so taking into consideration the rollover that we will have in the next couple of years, we can, however, benefit from the rollover from higher spreads. In relation to the trading this quarter, we have a gain from the management of the investment portfolio around EUR 190 million, so as a matter of fact. The contribution of the client-driven was EUR 388 million, so was really strong.
As I was commenting before, the trading was already normalizing in March and normalized in April. While we're expecting a good contribution from the client-driven, as a matter of fact, within the dynamic, we'll be more normalized in comparison with Q1.
Thank you.
The next question is from Andrea Lisi with Equita. Please go ahead.
Hi. Thank you for taking my question. Just one. It is about your risk appetite on lending. If you can provide us an indication how has it changed or how it is expected to change in the current environment? Thank you.
On the risk appetite on lending, I mean, it's not really changed. We kept the same risk parameter, and we're keeping the same risk parameter. There is an important point to take into consideration that we have already taken into consideration, is the monitoring on the stock, and especially on the new business on the most impacted sector. I mean, not only by COVID, but the current evolution of the Russian-Ukraine crisis. This is the main, if you want, point of attention in relation to the lending. The key priorities of the lending dynamic and credit policy in the plan are remaining the same, including, for example, the consumer financing dynamic.
The market shares that we have shown recently during the course of 2022 is confirming that in Italy, for example, we are just above 12% market share in new production consumer financing.
Okay. Thank you.
The next question is from Patrick Lee with Santander. Please go ahead.
Hi, good morning, and thanks for taking my questions. A couple of questions from me. Firstly, on your rate sensitivity disclosure today, the 50 basis points and EUR 0.7 billion benefit, can you just give some general color in terms of how the benefit splits in your main geographies? Should I assume that most of the benefit will be coming from Italy or limited in Germany? What about Central Europe and Eastern Europe? Then secondly, a more general question on Russia. I know it has been kind of exhausted now, but in terms of the different possible strategy that you can take there, with your recent interest and the subsequent pull-out of the Russian bit earlier this year, would that actually affect your ability to negotiate a potential exit or positively or negatively?
Are there any ongoing conversations with the local regulator and Russian banking peers since, or has everything effectively stopped? Thanks.
Maybe I'll take Russia.
Okay.
So first of all, I said that to one of your colleagues. We strongly believe in executing first and talking less. I think if you look at all the signaling that has happened around Russia, there is a long list of signaling of pullouts and plans. Try to see how much of that signaling has been executed. I think that the important point is what is the substance? We continue to work on the substance, and I think that through the presentation it is pretty clear our direction of travel. The rest, we hope to be able to discuss with you an actual outcome when we have it.
In relation to the net interest income sensitivity is skewed towards Western Europe country, more specifically Italy. Italy is representing 2/3 of, so more than 60% of the overall net interest income sensitivity. In Central Europe and Eastern Europe, the two countries we're, I mean, we're showing with the higher sensitivity are Czech Republic and Hungary. For both of them, every 10 basis points is EUR 2 million more of net interest income.
Perfect. Thank you.
Mr. Orcel, there are no more questions registered at this time. The floor is back to you for any closing remarks.
Thank you very much for your time. Maybe my only closing remark is, while I understand that Russia is extremely topical, please don't let it overshadow the performance from the franchise, which is actually well in excess to what we had set in UniCredit Unlocked from the get-go. Please take the time in looking at that as well. Thank you very much, everybody.
Ladies, and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.