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 be gin.
Good morning, welcome to UniCredit's fourth quarter 2022 results conference call. Andrea Orcel, our CEO, will lead the call. 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. Good morning. Thank you for joining us. Before I start, I would like to thank all our colleagues that have gotten us to this, often going through grinding obstacles and seeing it through. It's very much appreciated. 2022 was a challenging year for people across the world, not least the clients and the communities we serve. Against the background of unprecedented turmoil across Europe, UniCredit has sustained its own internal transformation and further strengthened its lines of defense to ensure that we are ready to face the future and win. We're not the same bank we were at the start of 2022, much less at the start of 2021. We have worked hard to evolve, and today's results are testament to those effort.
Before I take you through our results, I would note that while we have guided this year, mostly referring to the Group excluding Russia, given the uncertainty related to our exposure, going forward, I will refer to Group numbers including Russia. We continue to de-risk, given the magnitude of our remaining exposure, the actions are part of our business operation, not an extraordinary measure. The numbers, including Russia, are those that both determine our overall performance for the year and support our distributions. Let's turn to slide 2. Before I take you through the detail, I wanted to give you a snapshot of the year. Thanks to relentless execution, we have delivered a record fourth quarter, the eighth consecutive quarter of year-on-year growth, and the best full year results on a like-for-like basis over a decade.
These results are driven by our industrial transformation, which has led to record operational and capital efficiency and set the base for sustainable future performance. We have delivered top-tier profitability on a new run rate, surpassing all UniCredit Unlocked 2022 and most 2024 targets, enabling best-in-class distribution whilst further improving our capital ratio. The strength of our results should also be considered in light of the proactive actions we took to prepare for the future, including enhancing our already robust lines of defense and actively managing our Russia exposure to further protect or indeed propel 2023 and 2024, depending on the macroeconomic environment. We used our exceptionally good fourth quarter to execute additional prudential measures.
Our results and their quality allow us to propose a total 2022 shareholder distribution of EUR 5.25 billion, up 40% year-on-year, pending shareholder and supervisory approvals. With this, we will have distributed close to 60% of what we expected to distribute within UniCredit Unlocked whilst improving our CET1 ratio further, all underpinned by organic capital generation. The 2022 proposed distribution is composed of EUR 1.9 billion in dividends and EUR 3.35 billion in share buybacks, which we intend to commence as soon as possible post-AGM approval on March 31st, with supervisory approval expected beforehand. We aim to execute our share buyback in two tranches given its size. EUR 2.4 billion post-approval and the remainder expected in H2 shortly after the completion of the first tranche.
We are confident of supervisory approval based on discussions with the ECB, the strengthening of our leading CET1 ratio, extremely strong organic capital generation, which more than comfortably fund our distribution and step up in profitability and our robust lines of defense. Given the above and the expected macroeconomic environment, we're aiming for 2023 results and distribution to be broadly in line with 2022. Let's turn to slide 3. You can view the evolution of our bank on the UniCredit Unlocked in two stages. Our work to structurally improve the bank began with a focus on those easy-to-execute business imperatives, laying strong foundation for us to build on as we start to address the more substantive fundamentals, accelerating on that industrial transformation supported by the proactive and prudent measures taken to date. Let's turn to slide 4. UniCredit's transformation is evident across our entire group.
We're clear on our direction, united behind a clear set of values, a structural better bank with an alpha-driven improvement in returns. We have stepped up our profitability, sustainable run rate across all our three levers. All regions are outperforming, with Client Solutions proving to be a key engine for quality, sustainable growth. Our ESG volumes are above targets, and Russia has been resized and repositioned at a minimal cost. This all supports the significant growth in our best-in-class distribution, whilst further strengthening our leading CET1, which is up by 78 basis points since the start of the year, pro forma for the distribution. Let's turn to slide 5. Our ambition is to be the bank for Europe's future, to set a new benchmark for banking, one that delivers value for all its stakeholder in a balanced fashions: shareholder, colleagues, clients, and communities.
Balancing their interests is how we will realize our vision for the long term and deliver on our purpose of empowering communities to progress. Let's turn to the next slide. We turn our organization on its head, centering it around clients and their need. We're delivering excellence across four industrial pillars, which allow us to optimize across three financial levers. Our industrial transformation is designed for our clients and addresses both our commercial and operating machine. The first pillar, our people and our organization. Our people are being empowered within clear frameworks and objective. Decision-making has been returned to the right place with a great release of energy. Second, separating content and products from coverage, allowing us to focus and excel.
We have two best-in-class product factories which leverage the scale of our 13 banks to attract best-in-class talent and partners such as Allianz and Azimut to deliver equally for all our clients. These capital-light factories are the engine of our commercial transformation. They connect our bank together, drive high quality revenue, and are difficult to replicate by smaller players. Our client franchise has been reunified, crystallizing significant synergies, allowing our local coverage to be differentiated and to punch above its weight. Our commercial machine has strong momentum to accelerate further as we continue to strengthen our factories and improve the cooperation with coverage. Our management focus has now shifted to ensure that the operational machine further accelerates its transformation.
We have spent time on our technology, starting to bring back key competencies in-house, reducing fragmentation, hiring 500 new technology talents, largely engineers, and upskilling hundreds of our colleagues. Whilst challenging, this work has been critical to reinforcing our security and resilience, with incident down 35% as well as enabling us to build out our digital and data offering. We now have 42% of our data directly accessible through a global data platform, doubling the levels of two years ago, well ahead of our targets. Streamlining processes is central to our plan as it improves speed, efficiency, client and employee experience. Once our processes have been simplified, they can be automated and digitalized. Our culture has come together faster than I had anticipated. Our people are re-energized, confident, and determined to win. You can see that in these results. Let's turn to slide 8.
ESG is a prerequisite for how we do business. Our key ethos is to lead by example, embedding our values in all that we do. Today, we announced our net zero 2030 targets on the first three priority sectors. We aim to be net zero on our financed emission by 2050. Our ESG business volume stood at EUR 58 billion in 2022, ahead of our annualized run rate. Within this, social lending amounted to EUR 4.8 billion, a stepped up level relative to the past. Much is still to be done. Social remains a key focus for us, reflected in our EUR 2.5 million of new initiatives of education funded through the UniCredit Foundation. From supporting education via our banking academy in Italy, to the UniCredit Foundation strategy to tackle school dropouts, we are already seeing tangible impacts for our group's effort.
Our diversity is strong. In terms of gender, we are the first EU bank to obtain EDGE Certification in Germany, Austria, and Italy. This year alone, we have invested a further EUR 30 million to meet our commitment to ensure equal pay for equal work by 2024. Let's turn to slide 9. Our well-defined industrial strategy, our people working together with strong principle and values, and the combination of our three levers of cost, revenue, and capital have delivered quality growth and operational and capital excellence. After years of retrenchment, we have recovered our ability to grow and are doing so significantly and in a qualitative way. Our new targeted approach to cost reduction focuses on non-business related activity. It is visibly visible in our positive jaws with operating leverage up 16% year-over-year.
Similarly, our focus on capital efficiency and return is delivering as we continue to grow revenues whilst compressing RWA. Let's turn to slide 10. As a result, we have substantially increased both our Return on tangible equity and Organic capital generation, outperforming peers, while strengthening our lines of defense versus peers. Let's turn to slide 11. Our fourth quarter results have been outstanding. 2022 was our best year ever on a like for like footprint, with all levers contributing to a meaningful shift in profitability. The numbers I will refer to are on a year-over-year basis and continue to be on a group basis, hence include Russia. Gross revenue for the quarter are up 29% and net revenue up 44% on very strong NII underpinned by excellent management of the pass-through, despite some headwinds related to the TLTRO hedge with almost flat cost.
Fees were only slightly down 1%, confirming resiliency of our fee base. Trading income remained strong and our cost of risk was down 27 basis points despite our continued prudence in building forward-looking provision and overlays. Our return on equity was around 12%, 14% normalized for our excess capital at 13% CET1. These results are even more impressive when taking into account the numbers of items we weighted on Q4. Cost absorbed a significant inflation relief payment, EUR 80 million, and a bonus adjustment due to our strong performance. Gross and net revenue for the full year are up 14 and 13% respectively, with cost down 2%. A cost income ratio of 47%. Cost of risk was 41 basis points for the full year, including overlays and Russia. As Stefano will take you through, we're in the single digits excluding overlays and Russia.
This led to a net profit of EUR 5.2 billion on the UniCredit Unlocked definition. Our net profit adjust only state d profit by AT1 and cashes interest payment and DTAs. Our stated net profit for the year is EUR 6.5 billion. Our 2022 return on tangible equity reached 10.7% despite being depressed by our 16% capital ratio before buybacks. This is already above our target return on equity in 2024 of circa 10%. Please note that adjusting for the excess capital to 13% CET1 to be more comparable with main peers, our return on tangible equity reached 12.3%. Let's turn to slide 12. Our record result and new run rate should also be considered in light of substantial headwinds and the action taken to secure the fut ure.
These include net of tax, EUR 500 million of incremental overlays, which now amount to EUR 1.8 billion gross of tax, in excess of one full year's worth of cost of risk. These overlays are critical to ensure our cost of risk is under control and will propel us in case the macro environment is better than expected. In addition, we made provision to secure reduce our future cost of risk, EUR 300 million of one-off integration cost and inflation relief, EUR 200 million fully absorbed in TLTRO contractual charges and the related hedging impact, and EUR 200 million of Russia negative impact on net profit, which we do not expect to replicate in 2023. Let's turn to slide 13, sorry. Our performance continues to improve across our three levers, surpassing all targets and delivering profitability above the cost of equity and outsized organic capital generation.
Let's turn to slide 14. Our net profit growth has been enhanced by share buyback, nearly doubling EPS versus our historical run rate, with DPS 5 x higher and tangible book value per share up nearly a quarter. Let's turn to slide 15. 2022 was challenging, Our footprint suffered negative beta. However, we took the necessary difficult decision, our team rose to the occasion, and our business model proved resilient. Russia impacted our profitability, our balance sheet, portfolio, and risk profile, but active management of the exposure reduced this gap meaningfully. The challenging macro environment was offset by rates improvement and complemented by best-in-class management of the pass-through and acceleration of our insurance platform. We acted before inflation hit to further reduce our non-business cost and to streamline efficiency in our operating machine without reducing our intended investment.
We have been able to more than offset this negative beta, absorb a number of Prudential actions to secure or indeed propel our future whilst meaningfully exceeding our net profit targets. Let's turn to slide 16. Our new enhanced profitability and continued capital efficiency action generated 280 basis points or EUR 8.9 billion of capital organically in 2022, nearly double our target UniCredit Unlocked run rate of 150 basis points per annum. It also comfortably funds our proposed distribution of EUR five and a quarter billion, subject to shareholder and supervisory approval, after absorbing all regulatory headwinds, Russia, and adding close to 80 basis points to our best-in-class CET1 ratio, landing at 14.9 pro forma for distribution.
To be clear, such number is expected to further increase by the end of Q1 and beyond, particularly as we do not expect any regulatory headwinds in the quarter. We continue to generate substantially more capital organically than our peers, while still distributing less than we make, demonstrating the prudence and sustainability of our distribution. Indeed, to date, our distribution do not include any of the excess capital. Since 2021, we will have generated organically more than EUR 15 billion of capital while distributing EUR 9 billion to shareholders. This has contributed to the increase of CET1 of 120 basis points whilst growing our top line by EUR 3.2 billion or around 20%, absorbing 85 basis points of regulatory headwinds, 30 basis points from the shock of Russia, and doubling our already conservative provisioning and overlays.
We will have distributed over 50% of a starting market cap since the beginning of 2021 with a proposed 2022 distribution without denting our best-in-class CET1, rather continuing to substantially increase it. Consistently with UniCredit Unlocked, such excess capital to the upper end of our CET1 range of 13% shall eventually be either invested in value accretive and distribution accretive acquisition or return to our shareholders, in both cases, supporting or increasing our future distributions. Let's turn to slide 17. Client Solutions enables us to offer all of our clients best-in-class content and products. The scale of this model means we can attract best-in-class talent and partners and provide a quality and wide range of solution unmatched by local players to clients unreached by global players.
Client Solutions will continue to grow as we strengthen our factories organically and partnership-wise, design and roll out new products, and seamlessly integrate production and coverage. Client Solutions reached revenues of EUR 9 billion this year, up 5% year-on-year, despite significant market uncertainty. Corporate Solutions was up 11% year-on-year, part of which is driven by client risk management still reflected in our strong trading income. Let's now move to our regions. Let's turn to slide 18. Italy. Italy continued its momentum, leveraging the foundation set in 2021. Gross and net revenues grew respectively 7% and 18% and were targeted to our segment of focus, where we continued to strengthen our market share.
Growth was driven by outstanding management of the rates pass through, slightly growing fee income while improving asset quality and conservatively further increasing our best-in-class coverage, particularly given our proactive staging. The continued reduction in cost demonstrated our strict discipline in this area whilst growing our top line, hiring, refurbishing our network, and strengthening of our client services. Our cost income ratio in Italy improved meaningfully to 43.5%. The business continued to display excellent capital discipline, focusing on risk adjusted client profitability, delivering an outsized organic capital generation of over 150 basis points and a RoIC that grew at over 17%. We continued to develop our digital offering, creating a digitalized platform to facilitate easy access for corporate to next generation EU funds in partnership.
Our commitment to supporting the clients and communities remained the priority with a continuation of the Per l'Italia offering, as well as the provision of EUR 2.5 billion in social loans. Let's turn to slide 19. Germany. Few believed that Germany, or indeed Austria, our two best rated countries, representing 35% of our revenues, would be able to produce double-digit RoIC or go above their cost of equity. While both region benefited from higher rates and a well-managed deposit beta, their decisive rationalization, renewed focus on growth and discipline on capital efficiency have step changed their performance this quarter and for the full year. There is more to come. Germany grew gross and net revenue by 13 and 7% respectively, driven by fees, while reducing its overall cost base by nearly 6%.
This led to a RoIC of 11% and over 50 basis points of organic capital generation. Germany has truly transformed, with more to come in 2023. A strong culture, passionate employees, also saw it named a top employer in Germany. The active support of our clients, including cementing ESG as a critical component to drive our business. Germany also took a market leading position in green loans and led the way in the digitalization of green tech fundraising. Let's turn to slide 20. Central Europe. Similarly, Austria continued to outperform, contributing to the Central Europe region's profitability. Overall, Central Europe gross and net revenues increased by over 15% and 20% respectively, with the latter lending a EUR 3.3 billion of sustained NII, thanks to interest rates, proactive management of the pass-through, and quality volume growth. Service offering was further enhanced, for example, in consumer finance.
Asset quality remained stable during the year. Costs were actively managed, supported by organizational streamlining to prevent and minimize inflation impacts. Selective rollout of digital solution supported both revenue growth and cost efficiency. The region's cost income ratio dropped 8.7 percentage points to just over 46%. Ongoing capital optimization remained the core driver with risk density improved despite regulatory headwinds and then all countries delivering double-digit RoIC, which reached nearly 15%, up 3 percentage points year-on-year. The region generated 43 basis points of capital organically this year. Let's turn to slide 21. Eastern Europe. Despite a challenging year, Eastern Europe gross revenues were up 11% and net revenue by over 16% to EUR 1.8 billion, driven by exceptional new business origination and interest rate active management, coupled with a solid client base.
Fees were strong, up nearly 13%, supported by intensified transactional business and cross-selling. We recovered post-COVID market share well. Costs were managed exceptionally well while facing the highest inflation in our footprint with a focus on digitalization, automation, and efficiency initiatives. Cost income was down 1.6 percentage points at 41%. Capital efficiency remained a key priority with proactive management of processes and risk models with the region delivering the first synthetic securitization in Bulgaria and in UniCredit CE and EE. Asset quality was solid with an improving NPE coverage. Overall, RoIC was 19%, generating 23 basis points of organic capital generation.
Reflecting and responding to our clients' desire for greater exposure around ESG, the region become number one for corporate and green bond, taking a leading share of finance renewable energy, as well as a strong positioning in the financing of solar, wind, and recycling projects in the region. Let's turn to slide 22. Russia. At the end of Q1 2022, our total gross exposure to Russia was EUR 7.4 billion, more than 128 basis points of capital hit in our extreme loss assessment, potentially bringing our CET1 to 13.3% pro forma for distribution.
As of Q4 2022, just nine months later, our total gross exposure to Russia dropped to EUR 5.3 billion, and the residual extreme loss assessment would hit our CET1 ratio by 58 basis points, potentially bringing our CET1 pro forma for full 2022 proposed distribution to 14.3%. The difference in total gross exposure between Q1 and Q4 2022 is affected by an increase of EUR 1.1 billion in our local exposure, mainly due to the ruble appreciation, partially obscuring the magnitude of the reduction of our cross-border exposure, about EUR 4 billion, EUR 1 billion of which in the fourth quarter alone. In conclusion, our local subsidiary has been resized, is liquid, well-positioned, and well-capitalized. We decisively de-risked and resized our cross-border exposure, reducing it by two-thirds, and local exposure, both at minimum cost.
Our cash exposure remains highly provisioned at 35%, while our intragroup derivatives are now fully collateralized. We continue to de-risk our exposure to Russia. Our remaining exposure is such that this will be seen as part of our business operation, not extraordinary measures. We now consider our group numbers to include Russia going forward. For full transparency, we will disclose Russia separately in our divisional database. I will now hand over to Stefano, who will provide more detail on our excellent fourth quarter and full year results.
Thank you, Andrea, good morning, everyone. Let's turn to slide 24. Before take you through the fourth quarter 2022 result, please note that most of the following slides and comments will be on a group excluding Russia basis. This is meant for your benefit of comparison with both the preceding quarters and the guidance which was given on this basis. As mentioned by Andrea before, going forward, we will refer to group numbers including Russia, which we also show throughout the presentation, and I will comment where the contribution from Russia is relevant. My comments are based on a year-on-year comparison, that is for quarter 2022 versus for quarter 2021, unless otherwise noted. Let's now look at profit and loss in more detail, starting with revenue.
Our commercial franchise kept its strong momentum, supported by a revitalized and empowered frontline and reflecting our focus of adding value to clients and delivering high-quality revenue. In the fourth quarter 2022, we generated EUR 5.4 billion of revenue, up 25%, thanks to net interest up over EUR 900 million and trading up by a factor of 2.5 x. Net revenue reached EUR 4.7 billion in fourth quarter 2022, up 35%. This mainly reflects significant net interest growth, but also lower LLPs, despite increased overlays in addition to higher trading results. Trading for the group, including Russia, which had again a strong result of EUR 100 million, with EUR 0.6 billion in fourth quarter 2022. Excluding Russia came in at EUR 0.5 billion, as we supported our clients in defending their business outcome in this volatile environment.
The lion's share is client-driven, supported by client hedging revenues, which is up about EUR 140 million year-on-year, notwithstanding a negative XVA impact of about EUR 60 million. Treasury is up EUR 40 million year-on-year. Let's turn to the next slide. Net interest income was EUR 3.2 billion, up 42% quarter-on-quarter, or about EUR 950 million, driven by higher loan rates, by the benefit on rising rates on the investment portfolio, and the overall positive TLTRO impact, more than compensating the negative implication on term funding and higher remuneration for client deposits. TLTRO contributed EUR 0.4 billion to Net interest income in the quarter, including EUR 0.5 billion positive one-off from TLTRO account in the recognition and around EUR 0.4 billion negative impact from hedging derivatives following the TLTRO contractual changes.
Average client loan volumes relevant for net interest are down EUR 3 billion in the quarter, driven by Italy and Germany, mainly short-term loans for corporates and small and medium enterprises. We are still growing in Central and Eastern Europe. Loan volumes are supported by EUR 4.7 billion in new ESG lending in the quarter as we continue supporting our clients' green transition. Average client loans are up EUR 15 billion year-on-year, focusing on profitable clients despite active portfolio management, including the reduction of low-performing businesses. Customer loan rates are up 61 basis points in the quarter across our regions, leveraging on higher interest rates and thanks to our commercial actions. These also include careful management of our deposit beta, limiting the increase of customer deposit rate to 23 basis points in the quarter, while the average Euribor three months was up 129 basis points in the quarter.
While expected to rise, deposit beta, defined as a percentage of short-term interbank rate pass-through to customer deposit rate, remains below historical levels. This is especially true for Italy, where we have the highest stock of deposits and the customer deposit rate is only 11 basis points higher in the quarter at 13 basis points. Average commercial deposit decreased by EUR 2 billion in Q4 2022 as growth in Central and Eastern Europe only partially compensate a lower deposit in Germany and Italy. The decrease was driven by single ticket large corporate and small and medium enterprises, whilst retail deposits were up. Average client deposit volumes are up EUR 23 billion year-on-year. This year, we expect deposit volumes to be broadly stable, focusing on the deposit beta and loans to be slightly up, concentrating on more profitable capital efficient loans.
Let's take a closer look at our net interest outlook and sensitivity on the next slide, 26. We have updated the managerial net interest income guidance and sensitivity based on conservative deposit beta and rate assumption. Based on a 2.5% ECB deposit facility rate starting at the end of first quarter 2023 and remaining stable thereafter, this being below the current forward rate and the deposit beta around 40%, we expect an updated full year 2023 net interest guidance, including Russia, of over EUR 11.3 billion. This embeds no contribution from TLTRO tiering nor excess liquidity fees, which was EUR 0.8 billion in full year 2022. Russia's contribution to net interest in full year 2022 was EUR 0.8 billion, which is expected to materially decrease in 2023 as we have deleveraged.
In the coming quarters, higher rates are expected to positively impact the net interest contribution from loans and financial asset, while having progressively a negative impact on funding, in particular deposit, where the level of pass-through has been very well managed so far. This depends on the evolution of the deposit beta. You can simply annualize the Q4 2022 net interest income. The observed deposit beta for the group for both sight and term deposit in Q4 2022 was about 20%. In Italy, only 7%. Our full year 2023 guidance and sensitivity conservatively assumes a deposit beta around 40%. As a consequence, the assumed impact to net interest from beta increasing is greater than the assumed contribution from rates.
The net interest income sensitivity for a further ECB deposit facility rate increase of 50 basis points from 2.5%- 3% is above EUR 0.3 billion, which also depends on how client behavior and competitive dynamics develop. Let's turn to slide 27. Fees in four quarter 2022 are down 4% year-on-year due to lower investment and financing fees, partly compensated by transactional fees. Elevated volatility and the macroeconomic backdrop impacted negatively client sentiment and activity. As a consequence, investment and financing fees. Let's look at the component part of fees year-on-year development in more detail. Investment fees were down 10% as lower market levels combined with conservative client portfolio management led to lower assets under management upfront fees and more than 10% reduced assets under management stock negatively impacted management fees.
This is partly mitigated by better assets under custody fees, thanks to certificates placement. Certificates are a good example of developing products to meet our clients' needs across market conditions while helping to protect our fee income. Investment fees quarter-on-quarter are up 4% to asset management upfront fees. Financing fees are down 10% as capital market, specifically ECM and DCM, were negatively impacted by volatility. Loan fees slowed down, mainly in Germany, and higher circulation cost is expected by active portfolio management strategy. Fees for guarantees were up. Transactional fees were up 6% thanks to payment and card fees driven by client activity across division and property and casualty insurance growth in Italy. Please consider that client agent fees are booked in trading as mentioned earlier. In four quarter 2022, they stood at EUR 0.2 billion, up 16%.
Full year 2022 fees are up 1% compared to last year, including the client agent fees that would be up 3%. Let's turn to slide 28. Q4 2022 costs came in at EUR 2.4 billion, flat year-on-year. Thanks to our strict discipline, full year 2022 costs stood at EUR 9.3 billion, and we are down 3%, while inflation in our footprint excluding Russia was about 9% in 2022. The result is significant operating leverage with a full year 2022 cost income ratio of 49%, an improvement of six percentage points versus the year before. The cost income ratio in Germany improved by an impressive 10 percentage point, and in Austria by eight percentage points, both countries with double-digit return on capital. Let's take a closer look at HR and on HR cost developments.
HR costs up 2% year-on-year. We supported our employees across the regions to better cope with the challenged economic situation by paying EUR 80 million of inflation relief. Excluding this, HR costs will be down 3%. HR costs are benefiting from lower FTEs, down 4%, as we focus on rationalizing non-business-related activities while maintaining investment in key areas. Last year, we hired over 1,400 FTEs for the front line and strategic areas like digital, where we continue to invest. Non-HR costs are down 4% thanks to lower use of external consultants and credit workout expenses as the usual cost seasonality in the fourth quarter was kept at bay, thanks to very strict cost management and structural cost reduction initiative throughout the year. Real estate costs were kept flat, thanks to more efficient maintenance spending and optimizing our headquarter footprint.
Cost discipline is part of our DNA. That will not change. You can expect us to do a good job in managing the impact of inflation and structural cost improvements will help us to do so in 2023 as well. Let's turn to slide 29. Cost of risk excluding Russia was 56 basis point in the quarter, almost entirely driven by further strengthening of our overlay provisions protecting future profitability. Full year 2022 cost of risk at 23 basis point was below our guidance, supported by our still low default rate at 0.9%. As mentioned by Andrea before, our overlay LLPs on performing loans have increased to around EUR 1.8 billion, about EUR 0.5 billion higher than the quarter before, to be used for any shocks or to be released in the following two years.
We have reassessed all overlays, releasing EUR 0.9 billion, largely related to COVID-19 moratoria, and build EUR 1.4 billion of new gross overlays as precautionary measure for retail clients in light of the inflation and for enterprises in energy intensive sector. Existing overlays are equivalent to over one year cost of risk of our UniCredit Unlocked guidance. We also performed our biannual IFRS nine macroeconomic assumption update, increasing provisions by about EUR 0.3 billion. Our updated spillover analysis confirms the soundness of our group risk profile, which you can find in the annex for more details. Both expected losses on stock at 35 basis points and on new business at 26 basis points also confirm the credit quality of our performing portfolio and our risk discipline is ingrained in our organization.
Full year 2022 LLPs for Russia are about EUR 0.9 billion, while in fourth quarter 2022 we released about EUR 100 million, mainly related to repayments and volume reductions, confirming our conservative approach to provisioning. Cost of risk, net of Russia and additionally overlays, was single digit at about seven basis points in full year 2022, even lower than the year before. Let's turn to slide 30. Our underlying asset quality remain robust. Gross NPE is at EUR 11.9 billion, reduced by EUR 5 billion year-on-year. Our gross NPE ratio is down 21 basis points quarter-on-quarter. The net NPA ratio is stable on a low level at 1.4%. We will continue to pursue opportunities to reduce our NPAs at economically appropriate and value creative terms, including NPA sales.
In fourth quarter 2022, we sold EUR 1.2 billion, which is the main reason for a 2.2 percentage points lower NPA coverage ratio at 47%. Remember, we have a favorable mix of our NPA stock with high share of about 80% UTPs and past due. NPA coverage does not include overlays on performing loans which come on top. With our strong asset quality, high level of provisioning for NPA, and overlay LLPs, we are uniquely positioned to absorb macroeconomic impacts. Let's turn to slide 31. In fourth quarter 2022, we produced EUR 2.3 billion net operating profit and a record stated net profit of EUR 2.4 billion. At the same time, we have taken actions and corresponding charges to protect our future profitability.
In the fourth quarter, we built EUR 0.5 billion additional overlays LLPs, as mentioned, and also booked EUR 0.3 billion integration costs, mainly in Italy and Germany. Additionally, we took EUR 0.3 billion impairments of participation in profit from investment in Russia, but also Austria. This was partially offset by positive EUR 0.2 billion for the completion of the rationalization of the shareholding with CNP Assurances, as announced in the second quarter. The EUR 0.1 billion profit from investment shown on the slide is excluding Russia. The quarter benefited from tax loss carryforwards DTA write-ups of about EUR 850 million, thanks to improved long-term profitability expectation in Italy, but also Austria, leading to a low effective tax rate. The group tax rate, excluding any potential tax loss carryforwards DTA write-up, is expected to be slightly below 30% in 2023.
Net profit, as defined at our Strategy Day, i.e., adjusted for DTA write-ups and after cash AT1 and Additional Tier 1 coupons, came in at a strong EUR 1.4 billion, delivering a return on tangible equity of 12.2%. The coupon on cash AT1 related to full year 2022 result is expected to be paid based on preliminary figures and subject to the relevant approvals. We concluded the EUR 1 billion second share buyback tranche for 2021 in the quarter for 87 million shares, equal to 4.3% of share capital. Together with the first share buyback tranche, we repurchased and canceled the equivalent of about 11% of share capital, which is highly accretive for EPS. Let's turn to slide 32.
In fourth quarter 2022, our risk-weighted assets, excluding Russia, stood at EUR 292 billion, down EUR 10 billion quarter-on-quarter, driven by continued active portfolio management measure worth EUR 6 billion, with a focus on securitization and reducing low-performing businesses and EUR 8 billion of business dynamics affected by counterparty and market risk reduction, as well as lower loan levels. This allowed us to absorb EUR 4 billion credit risk-weighted asset as we finished implementing the EBA guidelines. Risk-weighted asset related to Russia at EUR 16 billion are down EUR 1 billion quarter-on-quarter, mainly thanks to the Ruble depreciation and further asset deleveraging, more than compensating negative effects deriving from a conservative internal sovereign rating downgrade. Net revenue on average risk-weighted asset at 6% in full year 2022, up 0.9 percentage point compared to last year.
Over the course of full year 2022, we achieve a total of EUR 19 billion of risk-weighted asset reduction via active portfolio management. Efficient capital allocation remain a priority focus to manage risk-weighted asset, enhancing return on capital and supporting Organic capital generation. Let's turn to slide 33. The CET1 ratio came in at a very strong 14.91%, up 78 basis point compared to last year, even pro forma for a much higher EUR 5.25 billion proposed shareholder distribution, thanks to an outstanding Organic capital generation of EUR 8.7 billion, excluding Russia. This equal 271 basis point, very well above the 150 basis point target in our plan. In full year 2022, we generated 181 basis point from net profit and 90 basis point throughout our proactive risk-weighted asset management, way ahead our plan.
This also allowed us to absorb 14 basis point regulatory headwinds and about 31 basis point negative impact from Russia. Net profit, including, excluding Russia, notwithstanding additional EUR 0.7 billion overlays LLP and EUR 0.3 billion integration cost, is significantly beating our ambition for full year 2022, supported by all regions achieving double-digit return on equity capital. I will now hand back to Andrea.
Thank you, Stefano. In summary, while we still have a long way to go to fully unlock UniCredit, we're already a visibly different, better bank. Our stepped up run rate is the evidence of this. Looking forward, we expect our commercial franchise to build on its momentum as our product factories continue to develop with increasingly effective local client coverage. We now focus on transforming our operating machine, which is expected to unlock substantial additional value over time. Our goal remains singular: to continue to deliver profitable risk-adjusted growth and outsized capital generation to support distribution to investors through the cycle, whilst maintaining our unfailing commitment to acting in the right way so that we can fulfill our purpose of empowering communities to progress. Let's turn to slide 35. Structural changes have stepped up our profitability, with gross operating profit up 29% versus average historic levels.
Our EUR 450 billion loan portfolio is solid, cleaned up, with limited exposure to high-risk sectors, and conservatively staged and covered. Our NPEs are improved in quality with over 70% UTPs. Our coverage on stage 1, 2, and 3 loans is much above peers after we moved EUR 26 billion to stage two at the end of 2021. We have taken overlays to the tune of EUR 1.8 billion, increasing them by a further EUR 0.5 billion in Q4, which is equivalent to our cost of risk, to more than our cost of risk of one year. We're strict on new business, balancing risk profile with commercial activity to preserve asset quality from macroeconomic impacts. Should the cost of risk increase to above our expected 30- 35 basis points, our more than sufficient overlays are expected to compensate, keeping it stable.
Should the cost of risk remain benign as it has been these two years, and depending on the macroeconomic outlook, the entirety of our overlays should be released over the next two years, propelling results. Hence, cost of risk is for us a tailwind at this point. Let's turn to slide 36. Turning to our group guidance for the full year, we assume a mild recession scenario and include Russia. We expect net revenue to be over EUR 18.5 billion. Fees will be down slightly year-over-year due to a rising cost of securitization and a one-off impact of the removal of current account fees in Italy now that we are in a positive rate environment. This will occur in the second quarter and will be a magnitude of EUR 200 million. Otherwise, we expect fees to remain broadly flat.
We do not guide for trading revenue. We do not expect a continuation of the very elevated levels of 2022, given the less volatile backdrop anticipated. As Stefano has explained, our NII guidance is for over EUR 11.3 billion and based on prudent assumption of both rates and pass-through. Cost will continue to be managed tightly. We expect the cost base to be equal to or less than EUR 9.7 billion, keeping it significantly below an assumed inflation in our perimeter of over 7%. We have spoken about our cost of risk, which we're highly confident will remain at or below the 30-35 basis points range. During 2023, we expect systemic charges of around EUR 1.2 billion.
Net profit for 2023 is expected to be broadly in line with 2022, meaningfully rebasing our expectation of what we can deliver sustainably and build upon. We aim for 2023 distribution to also be broadly in line with 2022, supported by our expected organic capital generation and net income, and still not including the distribution of our excess capital. Thank you. I will hand over to the moderator for Q&A.
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 touchtone 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. The first question is from Chris Hallam with Goldman Sachs. Please go ahead.
Yeah, good morning, everybody, and thank you for taking my question. The business is clearly performing well and performing ahead of expectations set at UniCredit Unlocked. I just wondered if we think about slide 7, is there scope to reinvest some of that outperformance back into the business? In order to accelerate or expand the operational improvements embedded in the plan, and if so, where would the focus of that reinvestment be? That's my first question. Secondly, Andrea, you gave some color at a conference late last year on the outlook for M&A in the sector. I think at the time you were flagging political uncertainty, macro uncertainty, and also volatile valuations as obstacles to seeing more deals in the space.
I guess with the improvements in valuation across the sector and a slightly more constructive view on the macro, does that change your view at all on M&A?
Okay. Thank you. Reinvestment, slide 7. In UniCredit Unlocked, we had a clear reinvestment into the business and into our operating machine. The view was, if you remember, that we could extract EUR 1.5 billion of cost reduction and reinvest the majority of it into either front line, which had been depleted, or the operating machine. That has not changed and is continuing. Obviously, the benefit you see from that reinvestment takes time to fall through the P&L. That's why we're saying that if you look at the results today, I would say that the larger majority, say 80% of the improvement of result, is the commercial machine stepping up and driving hard. 20% is the structural change coming through.
Clearly the commercial machine cannot continue to step up at this pace, but we hope that the operating machine improvement in efficiency and then support to the commercial machine leads them, leads a better result still. That's how we look at it. We will continue to invest to be able to achieve that objective. With respect to M&A, I think we still have a relatively uncertain environment. I do think that valuation has become more better. You know, M&A is about three things. One, does it strategically fit, and does it reinforce you? Does it structurally improves your position? Two, is there a seller? Three, do the values make sense? Usually you collide on two and three.
For M&A to take off, there needs to be willing sellers and relative valuation that makes sense. So far, at least for us, it hasn't been the case.
Okay. Thank you.
Thank you.
The next question is from Pamela Zuluaga with Credit Suisse. Please go ahead.
Hello, good morning. Thank you very much for taking my question and for the presentation. I was thinking in terms of the guidance for 2023 net profit, it remained in line with the EUR 5.2 billion achieved already in 2022, as you were saying, considering this year was already marked by provisions for Russian exposure, somewhat weighing on the earnings. Going into 2023, you're saying you're expecting, of course, strong net revenues and even give room for further upside coming from more rate hikes beyond the deposit facility rate reaching 2.5%. In this context, what would you therefore be thinking in terms of headwinds that you're cautious on for 2023? Do you see any downside risk from Italian sovereign headwinds, or is there more risk in terms of cost of risk?
The second question is a follow-up on what Chris was saying. The agreement you recently signed with Azimut in Italy includes a call option. Within this context, can you give us some color around your thinking for inorganic growth in the asset management space? Would you be willing to deploy some of the excess capital by starting to build an in-house factory for Italy, particularly thinking of how European regulation could be evaluating requests for an inducement? Thank you.
Thank you. Let me start with the second one. Then I'll go to headwinds. I'm sure Stefano will complement me. On Azimut, let's take a step back. If you look at our factories, it's important to understand that we view our factories are as serving our existing clients. To make an example, buying an asset manager that serve institutional clients and provide us with product is not exactly consistent with that. If you take 2024 and the potential review of, you know, incentives and inducement and all of that, we're in a position to fundamentally re-internalize everything. We would have a position to have a developed factor with Azimut. We would have in a position to re-internalize our life insurance platform, etc , etc , etc .
Regardless of what the environment is, with respect to inducement, with respect to Danish Compromise, with respect to whatever, we'll see what it is. If it makes sense, we re-internalize. If it doesn't make sense, we won't. In terms of more generally the factories, we will continue to strengthen. The strengthening occurs in two ways. One, hiring talent that is very happy to come and work here because we can provide them with a career over the entire European Union. At the same time, and that strengthen organically our factories. This is the case, for example, in advisory and capital market. At the same time, we will continue to look for partnership to complement our skill set in factories where we're clearly not best in class and cannot be, and to complement our client base by providing access to their clients.
That will continue, and as it goes, we will continue to do that. It also happens that this strategy is not very intensive in capital. Yes, if I were to internalize certain things in 2024, I will have to spend some capital, but a lot less on what I would have spent from doing an acquisition externally. With respect to headwinds, that's a good question because we've tried throughout the year, but in particular the first quarter, to anticipate what they could be. If you take our strong belief in a shallow recession, obviously, we should not have EUR 1.8 billion of overlays. We should not have a number of the other provision we have made. We have tried to say what can go wrong. What can go wrong? cost of risk, of course it can, but now we feel we're bolted with it.
Therefore for us, we don't see it as a significant risk unless you have very extreme scenario, then we have another problem. What can go wrong is a rich environment that is not as aggressive as some people think, i.e., where the ECB does not raise the full way to 3 or above. Our assumption that we on the rate scenario only include 2.5%. We're already there. What can go wrong is a pass-through or a deposit beta that worsens significantly and that our experience in flight to quality on deposit does not materialize. We're doubling the deposit beta from 20 - 40, so in our projection. We're bolted on that. What can go wrong is inflation and the impact on cost. We're ready for 7% in our perimeter.
Remember that our cost this year include EUR 80 million of inflation relief, which obviously, if we review contracts of our colleagues are not needed anymore because we're doing it through contract. Net-net, we're neutral. We've looked at cost in that perspective, and we started from June to rationalize further with respect to both internal but especially external cost. We're now positioned to do that. Realize that a lot of the efficiencies we've done have been done after the half year mark, so they don't flow through the entire cost base for savings of 2022. They will flow through in 2023, and we are continuing in 2023. We've looked at fees. We've told you that in our fees, in Italy, we booked EUR 200 million for fees on accounts for negative rates. Effectively, those are offset by the NII.
If you take those off, we think we're flat. If we look how we have started the year from the base of last year, we are constructive on investment, we had run rate on protection, we continue to crystallize on payments. There is nothing that leads us to believe that we go further backwards. We have in our expectation, we have put a flat fee environment. Trading is one that I cannot comment, honestly, because, you know, they can go lower. We have all the other levers to hedge us about against that. Have we missed anything else? We might, but I think we've tried to go through down the list and build defenses as much as we can.
Consider also that in our 2022 result, we have a -EUR 200 million impact on net income from Russia, incidentally coming down from -EUR 900 million in the first quarter. We closed back EUR 700 million. We don't think we're gonna have a minus in Russia this year. I think that's what we see. Obviously, with the uncertainty, the geopolitics, and the transformation that we are all undergoing, some things can go wrong, we've tried to address as many of these point as possible. Do you have anything else?
I don't think there is nothing more than what Andrea already commented, maybe a couple of data points more. Andrea highlighted in relation to inflation, 7%, just to give the flavor, is around EUR 500 million embedded cost in 2023 in relation to inflation increase that is already embedded in the guidance that we gave for cost below 9.7%. We are reiterating this because it's really important. EUR 1 billion overlays is more than one year cost of risk. That is sufficient in order to cope also with scenario that are worse than a mild recession scenario.
Very clear. Thank you very much.
The next question is from Andrea Filtri with Mediobanca. Please go ahead.
Yes, good morning. One on profitability in the future and one on capital allocation. EUR 5.2 billion of net profit plus EUR 81 in cash in 2023 is a target in the double digits after accounting for a better rate environment and low cost of risk. What do you think is the midterm profitability prospects from there? On capital, with the new guidance on shareholder remuneration, you would only have less than EUR 2 billion cash back left on 2024 earnings to hit the planned EUR 16 billion cumulative capital return. You clearly got time, how do you look at the material remaining capital excess and when are you going to adjust the strategy versus the UniCredit Unlocked? Thank you.
Just one thing, Andrea, you broke up when you were talking about the EUR 5.2 billion net income. Can you repeat your question on that, please?
Yes, sure. You talked of the EUR 1 billion net profit guidance after AT1 and cash AT1 for 2023 is above the UniCredit Unlocked target in the double digits, accounting for rates and low cost of risk. What is the midterm profitability prospect from that level onwards? Thank you.
Okay. In terms of net income, we have, as you said, a EUR 5.2 billion, including Russia, and including Russia means EUR 200 billion negative, excluding we're at EUR 5.4 billion. It is a EUR 5.2 billion that includes 41 basis points of cost of risk for the year. But the 41 basis point cost of risk of the year is inflated by obviously Russia and overlays. As Stefano said, without that, we were at seven basis points. Okay. As you go forward, what is the normalized? For the time being, we feel comfortable, we say broadly in line. There are, like in everything, potential upside and downside. We feel that this view is tilted to having more upside than downside, but we will see it's premature for us to tell you.
It's tilted to have more upside than downside for how I responded before on all the lines of defense and all the things that can go wrong that we have protected against. Now, with respect to where are we going forward from that, it very much depends to where rates stabilize, where the pass-through stabilize, and then how fast the benefits of our transformation can come through the P&L. I think on that's why we're doubling our effort on that. Let us see how much we can achieve during the quarters of this year, and we'll keep you posted. Clearly, our ambition is to step up from this again. I don't know how fast we will increase further. It depends on our execution. The value to unlock is still there.
I don't think we're done, not even close to being done. With respect to capital and cash and everything else. I think we started by saying at UniCredit Unlocked that we would be generating about 150 basis points or EUR 4.5 billion of organic capital per year, and therefore that would be supporting sustainably distribution of on average in excess of EUR 4 billion a year, which all of you have crystallized into the famous EUR 16 billion. At this point in time, we are running at an organic capital generation that is much higher than UniCredit Unlocked, which is why we are creating capital. It was much higher in 2021, about EUR 6 billion. It was much higher in 2022, about EUR 9 billion.
You're talking between 30% and now 2x of the average. The organic capital generation is linked to two drivers. One, my net income and how efficient I am with the capital I deploy to achieve it, the famous capital light and so on. And two, the process of rationalization and improvement of capital efficiency in my backpack, the EUR 456 billion. The second one, at some point will finish. It's not a perpetuity. The first one is we'll reach a run rate, and then we will be very efficient and profitable, and we will continue. If you had asked me at the moment of UniCredit Unlocked, our target of organic capital generation, so of this efficiency was about EUR 20 billion over four years. That's why we said in excess of EUR 16 billion.
Today we've done 9 and on the one hand, we've eaten into those 20 over 16. On the other hand, we have become more bullish on how much is the total that we can achieve as our organization now lives and breathes capital efficiency and profitability as they did volume before. I don't know the exact numbers, but I think we will go beyond. Other question that is linked to that. I do think that if you look at 2023 and 2024, we're holding. There is absolutely no question we will be there. If you go beyond those two years, then there is the topic, or even beyond this year, then there is the topic of excess capital.
It's clear, and I said it at UniCredit Unlocked, that by the time we get to the end of a plan, I can't look at shareholders and say, "This is a model that should run at a substantial to excess to our target of 12.5, 13." When I said that, we anticipated to be at 13.7. Today, we're at 14.9. Now we have very substantial excess capital that needs to be returned. How will it be returned? I answered the question in a way before, in two ways. Either we get convinced that there are no out there value and distributing a and distribution accretive acquisition because valuation of the targets are too far away, then we will integrate our distributions going forward by distributing back the excess capital like many other banks do.
In my opinion, better, if we can execute value and distribution accretive acquisition, we will invest that excess and feed further the growth in distribution by supporting it with the organic capital generation we'll do from those acquisition. That's how we look at this. For the time being, 2023, we think we are relatively bolted, 2024 also. As we go towards the end of the plan, either we find new efficiency and we distribute over some time the excess capital, or we find new efficiency and we employ that capital in an accretive way. This is the way we look at long-term sustainable growing distribution underpinned by organic capital and profitability. I hope it answers, but we can talk about it further later.
Thank you so much.
The next question is from Antonio Reale with Bank of America. Please go ahead.
Hi, good morning, everyone. It's Antonio from Bank of America. I have two questions from me, please. One is a follow-up on strategy, and the second one on the deposit pricing, please. If I look at your numbers and go back, you presented the plan including a capital buffer embedded in your 12.5%-13% target range. I hear your comments, and clearly you continue to prioritize capital distribution. You have a lot of buffers there, not just on capital, and you seem to be generating more than you can distribute whilst absorbing unexpected shocks. My question is: Where do your strategic priorities stand here at this point of the rate cycle with respect to some of the use of and allocation of excess?
Where across your footprint do you see the greatest opportunity to deploy the capital? How should we expect the shareholder remuneration mix to change going forward? Would you be willing, for example, to introduce interim dividends? That would be my first question. Secondly, on deposit betas, I've seen you've increased your assumptions from 20%- 40%, but I'm more interested in sort of exploring your pan-European viewpoint. What are you seeing from competitors and from your client base when it comes to deposit pricing? You've talked about lower current account fees, which I guess is the first natural step. I wonder how you're thinking and what you're seeing in terms of corporate and retail clients across your key geographies. Thank you.
With respect to capital, I think I mostly answered before, but fundamentally, we believe that a target of 12.5, 13, while higher than the peer group, is a prudent and solid target, and we stick to that, notwithstanding regulatory headwinds that implicitly increase those numbers. With respect to the excess, and especially given the magnitude of the excess, I fully understand it's a topic, and I fully understand that we need to answer that topic. For the time being, that excess is absolutely not needed for us to continue to step up our distribution as we have this year and compensate our shareholders at a magnitude that is commensurate to what we think is right.
At some point, and not in five years, but in the next two, we need to also articulate how this capital will be employed. The employment will be either to be returned to shareholders progressively, complementing the ordinary distributions, or employed into acquisition that then would generate additional organic capital generation to increase the distribution, including on a per share basis. This is what we do, and we need to articulate it better. I think after a year of operation on the UniCredit Unlocked, it's a bit premature to give you exact timing and numbers. With respect to deposit, and I will then turn to Stefano, I would say this. If you look back to 20 years, every time there is a shock or recession, contrary to potentially public belief, UniCredit becomes a flight to quality.
In every market, we have depositors, we have clients that come to UniCredit. Every time in the last shocks, UniCredit manages in a value creation manner, the pass-through of a deposit beta and benefits on margins more than proportional on that. In our numbers, we have a different thing. We have taken a conservative view that the deposit beta moves from 20%-40%. Just to be clear, if I look at my deposit beta in Italy, which is one that I know particularly well, given my new job, it was at 7% last year. It is at 7% in January. Let's see what we do.
The behavior of clients, both families and corporates, is a behavior where we remunerate, let's say, fairly, but the flight to quality and everything else that we offer is priced into a path through that is particularly positive for us. For the time being, that's what we see. Stefano can add to that.
It's important to distinguish by country and by segment. Before we were commenting, first of all, the overall client beta that we have is 20, but important is including both sight and term deposit. That's very important because the sight deposit, one, beta is even lower than that. Then we were commenting differentiating Italy in comparison with the other countries. We were commenting that Italy were at 7%, while on the other country, on average, we are around 30%. Within that, let's open a little bit and then I will comment in relation to, let's say the competition. The retail, to give you the flavor, is clearly lower. The retail in Italy is 3% on deposit beta.
Corporate, on the other hand, the group is currently about 30%. This is also depending on one hand from the client behavior and the competition, i.e., so far the client behavior is better than expected and is clearly showing a different competition on corporates mainly. This is also reflected in the dynamic of the deposit that I was commenting before. When I was commenting that we have a reduction of deposit primarily in Germany and Italy due to large corporates, small-medium enterprises, this is why we have decided not to follow up with pricing that we think are not appropriate.
I.e., the situation of the group in terms of liquidity is such in all the country that the focus on the beta was such that if there is no need of liquidity, we will not change the pricing. Coming to that, the competition is a little bit more on the corporate. For the time being, we are not seeing an important competition, especially on Italy on this side. Fair to be said that we need to look during the course of the year, especially in the second part, when there will be the full reimbursement of the TLTRO. That's why we have decided to have conservatives assumption, also look into the historical behavior in relation to the clie nt beta.
Thank you.
The next question is from Delphine Lee with JPMorgan. Please go ahead.
Good morning. Thanks for taking my questions. My first one is on Russia. Just wanted to get a bit of an update on the de-leveraging process and it looks like you're not expecting big impacts. You know, now that the targets are based on the group, including Russia again, I mean, should we assume that the exit of the sale is off the table for now? Then, my second question is on the cost. Just wondering, I mean, I know you've mentioned EUR 500 million increase for inflation. Just wondering specifically for Italy, what are you anticipating in terms of wage increases? Thank you.
With respect to Russia, there is absolutely no change in strategy. We continue to de-risk, and we do that decisively, trying not to leave too much money on the table. By the way, Russia was never deconsolidated. We just presented the results separately, because given the magnitude of the rationalization and the uncertainty and the volatility, we wanted to allow all of you to see how the rest of the franchise was continuing to progress and focus on how we were rationalizing Russia. As we end 2022, Russia is resized, it's highly rationalized. I mean, last year we compressed cost aggressively. We compressed the balance sheet aggressively.
Now it is in a place that because of its size and because of what we expect in terms of volatility, it can be absorbed in the normal course. Therefore, having the difficulty of every quarter and every guidance, we are simplifying while providing you all the details on Russia. The line of travel does not change, and I would like to underscore that relative to anything and everything, we set a strategy at the end of Q1 in terms of de-risking, and I do think that for those who have followed the same objective, we've de-risked more aggressively and more and faster than anyone else, leaving on the table almost no money, which was the objective, and we will continue to try and do that. Expect us to continue to de-risk. We de-risked EUR 1 billion in Q4.
At some point, because the magnitude of what we have has compressed, we can't continue to shrink at that size all the time, but you should expect us to continue to de-risk.
In relation to cost, the EUR 500 million I was highlighting before, are also including the salary drift. The salary drift will be differentiated country by countries. We will not have the new agreement in Germany because that will be relevant for 2024. In a way, the 2023 costs are secured while we are start a discussion in Italy and Austria. In general, the salary drift will be below. However, the level of inflation that we are assuming for each country and in general, please take into consideration that taking the actions that were already secured, the average FT will be down for around 3% also during the course of 2023. This is an important element to be considered as mitigating factor of the salary drift dynamic. Thanks.
Thank you very much.
The next question is from Azzurra Guelfi with Citi. Please go ahead.
Hi, good morning. I have two question for me. One is on asset quality and one is on lending rate. When I look at the guidance that you've given, I understand it is ex macro overlay. I understand all the caution and cautiousness that you are including. That is the biggest difference versus consensus. Clearly the market is more conservative than you on the asset quality environment. Can you give us some reassurance on how you see on the ground in terms of like corporate space, especially in the SMEs in Italy or the corporate space in Germany, of how the situation is developing in terms of asset quality? If there is any area that you are seeing some sign of deterioration and how you are approaching this? The second one is on the lending.
When I look at the slide 26, when you talk about your further upside on NII, the lending positive impact is lower than the negative on the deposit beta. I was wondering if you can give us some color on the interest rate pass rate on the lending side that you are seeing and whether there is any, if you want, pressure point on SMEs or corporate space in terms of repricing given the macro development. Thank you.
I'm gonna start and then pass it to Stefano. Let me take asset quality. On asset quality, I think, firstly, I think it's always very important, if you take away overlays and everything else, to see what is the starting point. When you hit a shock or a recession, what will drive you through or not is the quality and the coverage of your existing loan book. We move about a small fraction of that loan book every month. If a EUR 456 billion are high quality, highly covered, prudentially staged and everything else, whatever happen, you will have a lower cost of risk than most. If you're not, you're gonna skyrocket.
If you look at the fact that our cost of risk continues to remain in the single digits two year in a row, when you eliminate overlays, rush, and everything else, it demonstrates that actually we have a very defensive existing portfolio. That's point number 1. Point number 2, what do we see in the market going forward? As of now, we don't see any meaningful worsening of, let's say, risk indicators, not in terms of expected loss, not in terms of anything. For the moment, we are in a position where plus minus we are trend, we are a trend line. Can that worsen? Of course it can, but for the time being, it hasn't. If you expect a mild recession, the worsening is not that sizable. That's where the overlays come into play.
That's the way I look at it. Please, Stefano.
Yeah. Last, let's start from the default rates. The default rate for the full year, as I was commenting, it's 0.9. It's lower than one in Germany because it's 0.5. It's around one in Italy and Central Europe, a little bit higher in Eastern Europe. In our assumption, we are assuming the default rate it is above 1, but it's not significantly above 1. What we are seeing on the ground, as highlighted by Andrea, is that not only we are not seeing a situation either on the retail and corporate that are bringing us to classification, but also so far the early warning indicators are constructive.
One important point, however, to be mentioned is that we are continually running through the spillover analysis, and the spillover analysis confirming that only around 1% of our total portfolio can be considered high risk for energy-intensive standpoint. With regards the, in general, pass-through or repricing, because your question was in relation to the asset side, so on the loans. On the loan side, if you look the client rate, on average we are up 60 basis point. That's the client rate in the quarter, and we are up in all the countries. Fair enough, on the spread, especially in country like Italy, spread, meaning net of the cost of funding, right? There is a spread compression.
That's why we are conservatively assumed also for 2023, a spread compression on some basis points. It's not a lot, but on some basis point. We do think that it will take a while to reprice also on the asset side. Like there is a delay on the liability side, it will be the same on the asset side. Such a spread compression is more in Italy and Germany because in Central Europe and Eastern Europe, especially in the country where the interest rates movement started before, the repricing was already happening.
The next question is from Hugo Cruz with KBW. Please go ahead.
Hi. Thank you. Hugo from KBW. Two questions, one on capital and one on OpEx. In capital, can you remind us if there are any regulatory headwinds to come in 2023, but also if there are any material benefits from portfolio management in 2023? On OpEx, I understand a big part of the bank's plan was to rationalize the usage of external providers, IT providers. How is that process going? Can you give us any KPIs? Are you seeing any different inflation dynamics between the external and internal IT providers of the group? Thank you.
Thank you, Hugo. On capital reg headwinds, nothing meaningful. You know, we rolled out EBA in our models a long time ago, we don't get those or not meaningfully. We got some from Austria in the quarter, but nothing meaningful in 2023. In terms of organic capital generation, we still expect for it to be significant. Obviously, it's difficult to keep it at 300 basis points per year. Don't expect EUR 9 billion of organic capital generation every year. It just at some point it stops, right? We just need to be at 150 or above, and I think we're determined to do that. With respect to cost and external providers and everything else. That for UniCredit is both a challenge and an opportunity.
Challenge, we're very externalized, and external costs flow through much faster than internal cost. However, it's also an opportunity because as we internalize and rationalize all these external providers, our ability to reduce cost is more significant. We have proven that throughout 2022, and we're going to do that even more in 2023. I think that's the external part of our cost base. The internal part of our cost base, just to be clear, and repeat what Stefano has said, we took some synergies in reductions and in streamlining internally. Some of them are not fully crystallized on the full year because they were done across the year. Those, as we start the year, are bearing full fruit. On top of those, we have new ones that we will continue to roll out this year.
That's why the 9.7 we said below, because we expect to beat it.
Just integrating a point, because you asked for active portfolio management action. The act, yes, we are envisaging active portfolio management action, i.e., securitization and a reduction of EVA negative clients, among others, also in 2023. The magnitude of the action will be such that we can fund from a capital standpoint, the business dynamic, i.e., the growth of the lending.
Thank you very much.
The next question is from Giovanni Razzoli with Deutsche Bank. Please go ahead.
Good morning to everybody. Two questions. The first one is a clarification. I've seen that you're going through a, you know, something like a dual track in terms of execution of the share buyback, with most of it starting, you know, in March and the second part in the second half. I was wondering whether you are going to apply to the ECB for the entire amount and then split the execution, or are you going to replicate the same, you know, process of last year with, you know, a double application to the ECB once the first tranche of the buyback is completed? The second question relates to the, you know, in general, to the asset quality outlook for Italy. I was...
I would like to know your views on the, how the higher rates environment may impact the risk profile on corporates and retail in Italy. My perception is that this argument is a little bit overdone with rates at this level, especially for retail, but I would like to know your view on this. Thank you.
Okay. The share buyback. We will apply for the full share buyback in one go. Not like last year, but we will apply for the full share buyback in one go. We expect to receive the answer from the ECB before the AGM. At the AGM, if shareholder approve it, we will approve the dividend and the full share buyback. The execution is another thing because given the magnitude, trying to cram in at the same time with one bank, the entire amount felt a little bit too ambitious, which is why we are separating it. That's that for that. With respect to Italy, I'll give you a macro view, but Stefano will add.
Obviously increased cost of financing in an environment where value chain gets redefined and energy costs, foodstuff, you know, commodities cost go up is not great news for our clients, both families and corporates. They are very liquid. They have been on the front foot on restructuring what we need, but to restructure and at the moment, while there is increasing pressure, and if you remember on the third quarter, we even provided the most needy part of our families and corporate with the ability to extend their repayments and their payment of interest to help them. There is an impact of that, but the impact is limited. Incidentally, very few people took the offer, showing that they feel quite strong, they can sustain and continue at that level.
For the time being, the macro view is that it is within the realm of what is absorbable.
Yeah. If we look, if we look to the stock, with the breakdown between retail and corporate, to give the flavor, if look our loan book, two-thirds of the stock of residential is of household, sorry, is fixed, and one-third is floating. That different is more or less the other way around for corporate that however, as some of them has hedged their position. All in all, we are more looking to the impact on one end, the available income, on the other end, the overall profitability of corporate deriving from inflation on one end and energy, and as a consequence, energy intensive sector that for the time being rates. The situation can be different if the increase of rates is significantly higher than currently assumed.
Thank you.
The next question is from Richard Thomas with Bank of America. Please go ahead.
Thank you very much, for taking my questions. Just a couple of things. First, could we have a bit more color on your funding plans for 2023 in terms of volumes anticipated? I know there was some reference in the release to more capital instruments, but I'd be interested in the volumes. Secondly, did I hear properly that the outlook for the payment of cash AT1 coupons in 2023 is that they'll be paid in accordance with the terms and conditions? Thank you.
The overall funding plan that we have for the group is a little bit more than EUR 20 billion. You can break down that in fundamentally 3 component, between EUR 7 billion-EUR 8 billion is the MREL TLAC part of the funding plan. Around EUR 7 billion is the covered bond part, and then there is the residual portion related to supranational funding and so on. With regards to the first part, is more skewed, also this year as last year towards senior preferred and senior non-preferred, i.e. the subordinate part of the plan, it will be fundamentally more related to Additional Tier 1.
With regards to the cashes, I was already commenting before, so taking in consideration the current results, and the proposed dividend, the coupon, there are the condition for payment of the coupon clearly subject to the approval by the AGM of the relevant on one end, results, on the other end, dividend pro posal.
Great. Thank you very much.
The next question is from, Britta Schmidt with Autonomous Research. Please go ahead.
Hi. Thank you. Most of my questions have been answered. Thanks a lot.
Okay. This concludes our conference call. Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.
Thank you very much. Whoa.