Ladies and gentlemen, thank you for standing by. I am Kelly, your chorus call operator. Welcome, and thank you for joining the Bank of Cyprus conference call to present and discuss the group's financial results for the quarter ended 31 March 2022. At this time, I would like to turn the conference over to Mr. Panicos Nicolaou, Chief Executive Officer, Ms. Eliza Livadiotou, Executive Director of Finance, Mr. Demetris Demetriou, Chief Risk Officer. Mr. Nicolaou, you may now proceed.
Thank you. Good morning, everyone. Thank you for joining our first quarter of 2022 financial results conference call. I'm joined by Eliza Livadiotou, Executive Director of Finance and Legacy, Demetris Demetriou, Chief Risk Officer, and Annita Pavlou, Manager IR and ESG. After my introductory remarks, Eliza will go into more detail on our financial performance, and then we'll turn to Q&A. Of course, we remain available for questions both during this conference call and afterwards. I will start by highlighting some of the key messages for the quarter on slide 4. First, we see healthy loan growth momentum and extended a record of EUR 618 million of new loans. Our non-performing group grew by further 2% this quarter and reached EUR 9.5 billion compared to EUR 9 billion 15 months ago.
Second, we delivered a healthy profit after tax before non-recurring items of EUR 37 million, with an underlying return on tangible equity of 6.7% converging to our mid-term target of over 10%. A main component of this performance is our non-interest income that amounted to EUR 75 million in the first quarter, representing over 50% of total income, driven by higher fees and commissions and higher insurance-related income. Our insurance business recorded a 24% increase year-on-year and is a key contributor to income growth. Third, our capital position remains robust.
As at the 31st of March, our capital ratios on a transitional basis were 20.3% for total capital and 15.2% for CET1, both pro forma for trades, and remain well above our target of maintaining a capital ratio of 13.5%-14.5% for the period 2022-2025. Fourth, the process of balance sheet de-risking is now largely complete. During the quarter, we reduced our pro forma NPE ratio to 6.5% and to 2.7% on a net basis. We remain well on track to achieve our target NPE ratio of 5% by the end of the year and to less than 3% by 2025.
Our quarterly cost of risk increased modestly to 44 basis points in the quarter but remained well within our normalized target range. Finally, as we look ahead, the group has set the foundation to enhance its organizational resilience and ESG agenda and continue to work towards building a forward-looking organization with a clear strategy supported by a strict corporate governance aligned with ESG agenda priorities. In 2022, the company received a rating of A A by MSCI, and we are working hard to improve this rating further. Our transformation plan is already in progress and aims to enable the shift to a modern banking organization. The bank's digital infrastructure initiatives provide alternative solutions to our customers to carry out their daily banking transactions. Our active digital users continue to increase.
Since the beginning of the year, active digital users have increased by 3% to 383,000, while our active mobile users have increased by 5% to 335,000. Moving now to slide 5. Clearly, a lot has changed since we communicated our mid-term guidance in February this year, and so I wanted to share with you our thoughts on how this will likely impact the bank. As we are all aware, the macro environment is one of high inflation and some slowdown in near-term growth, offset by a large positive change in the shape of most interest rate curves. On both side, we are very positive for both earnings and capital. Our income will clearly benefit from higher net interest margins from next year more than offsetting unexpected slowdown in volumes and fees.
Higher inflation may lead to modestly higher costs, although there are already plans in place to mitigate the impact. In the near term, we expect some upward pressure on cost of risk, but the normalized cost of risk target remains unchanged to 40-50 basis points. Together, however, we expect this to add to our ROTE per annum, which in turn means we now expect to reach double-digit ROTE a year earlier in 2024. Higher levels of profitability will be positive for our CET1 ratio, which we expect to be further boosted by next year following the implementation of IFRS 17. Specifically, we estimate the adoption of IFRS 17 in January 2023 to have a day one benefit on group tangible equity of circa EUR 50 million, enhancing group CET1 ratio by 50 basis points.
They have both put us in a stronger position from which to build a sustainable dividend. We are increasingly confident in resuming meaningful dividends earlier, subject of course, to regulatory approval. Moving now to slide 6, which provides further details for our performance in the quarter. I will briefly go over these. The Cypriot economy had a strong start for the year, with GDP growing by 5.6% in Q1. However, it is clear that the events in Ukraine will have an impact. For the whole 2022, we expect the economy to grow by 2.7%.
During the first quarter of the year, we generated a total income of EUR 166 million, up 7% year-on-year, driven mainly by 15% year-on-year increase in net fee and commission income and higher insurance-related income, partly offset by 12% lower NII, reflecting the impact of NPE sales. Despite inflationary pressures, we have managed to keep our total operating expenses, excluding levies and contributions, broadly flat in the quarter at EUR 86 million, reflecting our ongoing efforts to contain costs. The cost-to-income ratio stood at 59%, 1 percentage point down year-on-year. The reported result for the quarter was a net profit of EUR 21 million, compared to EUR 8 million a year earlier. Deposits increased in the quarter by 1% to EUR 17.7 billion, and we continue to operate with a significant liquidity surplus that now totals EUR 6.4 billion.
Slide seven provides an overview of macroeconomic conditions. The escalating geopolitical risks following the outbreak of the Russian-Ukrainian war and the sanctions imposed on Russia have profoundly changed the global macroeconomic outlook and increased uncertainty in a very short time span. In Cyprus, GDP continued to grow in the first quarter by 5.6%. However, the growth is now anticipated to slow down, and the Ministry of Finance recently downgraded GDP forecast to 2.7% in 2022 before accelerating again in 2023, underpinned by the implementation of the recovery and resilience plan that is expected to support domestic activity and employment. As in many other countries, consumer inflation in Cyprus has accelerated significantly from the third quarter of 2021 as a result of supply chain disruptions and higher energy and other commodity prices.
In April, inflation accelerated to 8.6% after rising by 5.7% in the first quarter. Russian and Ukrainian tourists accounted for just over a 5th of tourist arrivals in 2019, the last pre-pandemic year. Despite the loss of tourists from these countries, overall tourist arrivals in 2022 are expected to be higher than the 2021 level. Now turning to slide 8. Slide 8 provides an overview of the direct and indirect effects of the Russia-Ukraine war. The indirect impact on the group is expected to be limited, as the group does not have any banking operations in Russia or Ukraine following their sale in 2014 and 2015 respectively. The group has only a very small legacy exposure, net exposure of EUR 5 million in Russia, which is being run down.
We have no exposure to Russian bonds or banks which are subject to sanctions. In terms of assets, again, the group has limited direct exposure to loans related to Russia, Ukraine, and Belarus, representing only around 1% of net loans as at the 31st of March, 2022. The net book value of this portfolio is around EUR 100 million, out of which EUR 90 million are performing. The portfolio is granular and secured mainly by real estate property in Cyprus. Customer deposits related to Russia, Ukraine, and Belarusian customers account for 6% of total customer deposits as at the 31st of March. This exposure is not material in the context of the group's strong liquidity position. Finally, only around 6% of our net fee and commission income is derived from Russian, Ukrainian, and Belarusian beneficial owners.
Focusing now on the internal exposure, we are aware of the challenges that the current economic landscape entails and the increasing uncertainty. However, at this stage, it is considered that the main impact on the Cypriot economy is expected to come from high inflation and a consequential slowdown in economic activity, with the tourist sector to be likely most impacted. Cyprus is not an importer of Russian oil or gas, although of course, it is indirectly affected by the intensifying pricing pressures in the international energy market. Cyprus mainly imports oil from other countries such as Greece, Italy, and Netherlands. Professional services account for around 10% of GDP, of which none relate to Russia or Ukraine, and thus expected to be adversely impacted. There is, however, no credit risk exposure, and the sector is not leveraged.
While Russian gross FX flows in and out of Cyprus may be quite large, these are often reflecting the typical setup of special purpose entities with limited actual impact on the Cypriot economy, hence likely to have a limited impact on domestic activity levels. Shipping in Cyprus is mostly German-dominated. Hence, it is expected that there will be no impact on this sector from any sanctions on Russian ships. Overall, the groups expect limited impact from indirect exposure, while any indirect impact will depend on duration and severity of the crisis and likely reflect European and global trends. The group will continue to closely monitor the situation, taking all necessary and appropriate measures to minimize the impact on its operations and financial performance, as well as to manage all the related risks and comply, of course, with all applicable sanctions.
Coming now to slide 9 of new lending. As I mentioned earlier, new lending granted in Cyprus reached a record of EUR 618 million for the first quarter, up by 51% on the previous quarter and 25% year-over-year, reaching higher levels than the equivalent period pre-pandemic. The constant increase is driven by increased activity essentially across all sectors, mainly shipping, international, and corporate. New lending continued to be carefully considered against robust assessment criteria, and 99% of new exposure in Cyprus since 2018 is performing. We have high quality origination supported by prudent underwriting standards, and we make meticulous assessment of the repayment capability of our customers. As at the 31st of March, the outstanding performing loan book grew by a further 2% in the quarter to EUR 9.55 billion.
Only 11% of this loan book is restructured. I will now hand over to Eliza to take you through our financial results for the year. Eliza?
Thank you, Panicos, and hi from me, too. Starting from slide 11 on the income statement, net interest income was broadly flat this quarter at EUR 71 million and down 7% year-on-year, reflecting mainly forgone interest on the NPE sale, what we call Helix 2, which amounted to around EUR 7 million per quarter, as well as the trends, which here have been close to stabilizing. Non-interest income for the first quarter amounted to EUR 75 million compared to EUR 81 million in the previous quarter, impacted mainly by higher revaluation gains in financial instruments in the prior quarter. Total operating expenses totaled EUR 86 million for Q1, down 2% QoQ and up 4% year-on-year despite higher levels of inflation.
Provisions and impairments for the quarter of EUR 17 million comprise loan credit losses of EUR 12 million and impairment of EUR 5 million. Provisions and impairments decreased by 26% from the fourth quarter, mainly due to higher impairment losses on revenue objectives in the fourth quarter of 2021. Cost of risk increased by 9 basis points QoQ to 44 basis points following the updating the macroeconomic outlook to reflect the geopolitical risks. Compared to Q1, our cost of risk was down 22 basis points due to lower COVID-19 related charges. Profit after tax and before non-recurring items amounted to EUR 27 million for Q1, with an underlying return on tangible equity of 6.7%, both similar to the prior quarter.
Restructuring and other costs of EUR 4 million for Q1 includes EUR 3 million relating to a small voluntary staff exit plan in a subsidiary entity. The overall result was a profit after tax of EUR 21 million for the quarter, compared to EUR 10 million in the previous quarter and EUR 8 million in Q1, 2021. Now moving to slide 12 on the drivers of NIM. Our net interest margin in the first quarter decreased slightly to 132 basis points, still negatively impacted by reduction in NII following the NPE sale. We are encouraged by the non-legacy loan income evolution, which is stabilizing, with yields of 292 basis points stable over the past two quarters and volumes growing over recent quarters.
Our interest expense decreased in this quarter following the redemption of the old Tier 2 notes of EUR 43 million, which had a coupon rate of 9.925% in January 2022. Our TLTRO III borrowing stands at EUR 3 billion. Approximately EUR 15 million potential NII benefit is being recognized in the income statement over the period June 2021 to June 2022. While as you can see, individual category spreads were relatively stable, the largest driver of the overall decline in net interest margin was the change in mix of our balance sheet towards more liquid assets. Let's now turn to slide 13, where we discuss in more detail our gearing to higher interest rates. As shown on the graph, we have used conservative interest rate assumptions in setting our business plan back in mid-February 2022.
We expect to observe an immediate NII benefit from the increase in ECB deposit rate as our balance sheet is highly geared to liquid assets. Specifically, around EUR 9.3 billion is held in cash balances with ECB. Based on current market forward rates, the ECB deposit rate is expected to increase from -60 basis points to +65 basis points in 2023, significantly higher compared to our planning assumption of -40 basis points at the same period. However, as approximately 35% of net loans as at 31 March are floored to zero, the NII benefit when rates turn positive is expected to be even higher. This benefit is expected to be partly offset by higher wholesale funding costs and assumed partial pass-through to deposits, including the reduction in liquidity fees.
Overall, the rising interest rates facilitate faster growth in net interest income with an overall net NII uplift potential of EUR 80-100 million per annum starting in 2023. It's important to flag that this uplift incorporates assumptions about the pass-through of the increasing rates to deposits, including the liquidity fees. Slide 14. In Q1, non-interest income amounted to EUR 75 million, down 8% QoQ, mostly impacted by lower fees and other income, as well as lower net insurance income, and up 24% year-on-year as Q1 was impacted by the lockdown, Q1 of 2021.
Net fee and commission income was flat at EUR 44 million this quarter, and net fee and commission income was driven by the introduction of revised price lists in February this year and the extension of liquidity fees to a wider customer group in March 2022, offset by seasonally lower transactional volumes. Net insurance income amounted EUR 16 million, down 11% on the previous quarter, impacted by lower level of positive changes on valuation assumptions and seasonally lower premiums, partially offset by lower insurance claims. Net fees and other income was reduced to EUR 10 million, down 33% QoQ, mainly due to higher revaluation gains from financial instruments in the previous quarter. Now moving to insurance on slide 15. The underlying operating performance of our insurance companies continued growing into the first quarter.
Net insurance income for our life insurance company, Eurolife, amounted to EUR 9.6 million for the first quarter, up 29% year-over-year. For our general insurance business, net insurance income amounted to EUR 6.7 million for Q1, up 17% QoQ. Both increases were driven by higher gross written premiums, partially offset by increased costs and claims. Overall, the insurance business is a valuable and growing revenue stream for the group, as net insurance income contributes more than 20% of the group's non-NII. However, we believe it can deliver more. We are aiming to enhance its value by growing the business even further, supported by digitization and our lean operating model.
Based on current expectations, the IFRS 17 implementation on January 1, 2023 is expected to have a positive impact of around EUR 50 million on the group's tangible equity, enhancing the group CET1 ratio by around 50 basis points. Moving now to costs on slide 16. Total operating expenses for the quarter amounted to EUR 86 million, down 2% QoQ. Staff costs were broadly flat QoQ and year-on-year, resulting from the combined impact of the small targeted voluntary staff exit plan in the previous quarter and the renewal of the collective agreement, and despite Q1 deflation. Other operating costs for the quarter stood at EUR 36 million, down 3% QoQ, mainly due to lower marketing costs and up 11% year-on-year, reflecting subdued spending during Q1 2021 lockdown.
The cost-to-income ratio, excluding the special levy on deposits and other levies for the first quarter, were at 59%, compared to 57% in the fourth quarter and 60% in Q1 2021. The QoQ increase of 2 percentage points was driven by the QoQ increase in total income. Branch footprint rationalization continues, facilitated by the ongoing digital transformation of the bank. We are aiming to achieve a 25% reduction compared to December 2021, as more of our customers become digitally engaged. By the end of July, the branch network will be almost half the size it was in 2018. Additionally, in 2022, we aim to substantially streamline our workforce with a target to reduce the number of employees by approximately 15%. Now moving to capital on slide 19.
Our CET1 and total capital ratios as at 31 March stood at 15.2% and 20.3% respectively, both pro forma for loans held for sale. During the first quarter, we have generated around 50 basis points of organic capital through operating profit, which was largely offset by expected loan credit losses and impairment of around 20 basis points and other movements of a further 20 basis points. The phasing in of IFRS 9 reduced the opening ratio by around 60 basis points. Our CET1 on a fully loaded basis was at 13.9% as at 31 March or 14.5% on a pro forma basis. The minimum requirements for 2022 for the CET1 and total capital ratio is set at 10.08% and 15.01% respectively.
The group continues to monitor opportunities for the optimization of its capital position, including the AT1 capital. Moving now to slide 23, which provides an overview of the asset quality. The NPE ratio was reduced to 6.5% pro forma for the sale, and 2.7% on a net basis, as we make progress towards our target of reaching 5% by the end of the year. The bank's NPE coverage ratio was stable at 60% pro forma for the sale. When taking into account tangible collateral at fair value, NPEs are more than fully covered. The coverage of the re-performing NPEs is relatively low at 30%, reflecting the lower risk associated with re-performing NPEs, whereas coverage of current NPEs increased to 68%. Finally, on slide 26, covering cost of risk.
Our cost of risk for Q1 was at 44 basis points compared to 66 basis points in the previous year, reflecting mainly lower COVID-19 related charges and normalization of cost of risk as balance sheet de-risking is largely complete. The cost of risk for Q1 of 44 basis points includes 20 basis points reflecting the updates in the macro outlook and management overlays on sectors such as tourism and private individuals expected to be impacted by the crisis in Ukraine and the heightened inflationary pressures. With that, I'll hand back to Panicos for his closing remarks.
Thank you, Eliza. I will close with our investment highlights and medium-term targets on slide 30. We remain confident in the key actions planned for the bank to lay down the foundations for sustainable growth and shareholder value creation. These are building our personal loan book, growing more capital-efficient revenue, delivering on the operational efficiency while investing on digital transformation, and executing the last leg of de-risking. Clearly, a lot has changed since we communicated our medium-term guidance in February this year. For Bank of Cyprus, the net effect of a changed market environment is positive for both earnings and capital. Our income will clearly benefit from higher net interest margins from next year, more than offsetting an expected slowdown in volume and fees. High inflation may lead to modestly higher costs, as there are plans in place to mitigate the impact.
In the near term, we expect some upward pressure on cost of risk, but the normalized cost of risk target remains unchanged to 40-50 basis points. Together, however, we expect this to plateau ROTE per annum, which in turn means we now expect to reach double-digit ROTE a year earlier in 2024. Higher levels of profitability will be positive for our CET1 ratio, which we expect to be further boosted next year following IFRS 17 implementation. We're increasingly confident in resuming meaningful dividends earlier, subject of course, to regulatory approval. This concludes our presentation, and we'll now open the floor for your questions. Thank you very much.
The first question is from the line of Quinn Daragh with KBW. Please go ahead.
Hi. Good morning. It's Daragh from KBW. Thank you for the presentation and taking my questions. First question would be on your comment around the upward pressure in the near term on provisions. If you could provide maybe just a bit more color around, you know, what kind of magnitude of upward pressure are we talking about? You know, is that something just for the next quarter or in the second half of the year? Just, you know, what kind of uplift in provisions do you think that implies? Then the second question would be around capital. You know, you've highlighted the positive impact of IFRS 17 in 2023.
I was just wondering if, you know, in conjunction with meeting an NPE ratio of 5%, if you think there could be any downwards move in your capital requirements? Is there any potential for paying dividends out of the 2022 results, or is that something to be reviewed at a later stage in 2023? Thanks.
Okay. Let me take that question on dividend because it's an important question. I will start by saying that I am fully aware how important dividend is for our investors. As a management team, we are very focused on resuming dividends. As we mentioned today, we expect we'll be generating a higher level of profitability and of course increasingly higher capital ratios. IFRS 17, as Eliza mentioned, adds another 50 basis points to our CET1. This improved profitability and capital position is helpful on the resumption of dividends. Of course, this is, as we said, subject to regulatory approval, but our improved performance is making us increasingly confident over both for the timing of dividends and also for that such dividends will be for a meaningful amount.
Going back to the timing, I just want to remind you that we have a dividend prohibition for 2022 given to us in our SREP discussion. Our previous comment on dividends was for a payment from 2023 onward because as we said earlier, 2022 is still a transitional year, which in theory could mean that from the start of 2023 at the earliest, all could be based on 2023 profit, meaning a payment in the first part of 2024. I repeat, this is all subject to regulatory approval, and it's actually that will be decided in 2023. Regarding the question on capital, Daragh , I will highlight how important capital is for us. It's non-negotiable. The positive ROTE allow us organically generate capital, which is also very important.
The buffer in capital, it's one of the main reasons for lifting the prohibition on dividends. Once starting the payment of dividends, we of course do a capital management on the forecast of capital management is always a dynamic process. Because we know how important is the return of shareholder value, we do not plan to sit on unnecessary capital buffers. Step by step and gradually, we need to lift the regulatory restriction and start paying dividends. On the provision cost of risk question, I think our Chief Risk Officer is in a better position to answer this, Demetris as the proper guy to guide you on this one. Demetris, if you please, go ahead.
Yeah, thank you, Panicos. Hello there. Well, let me start by saying that the cost of risk target was a medium-term target from the outset. We did indicate in the past that there could be volatility in the short term, and given the underlying uncertainties, this stands today. Now, any volatility is expected to be modest. Let me just say as well that we are confident in the quality of our credit portfolio, which has already proven resilient through the pandemic. Our analysis of our client portfolio points out that it can absorb the higher costs due to inflations without any significant defaults. We do maintain our rigorous underwriting standards and the structure our repayment provides based on sensitized projected cash flows, which do take into account increased costs and interest rates, as well.
In conclusion, we are confident that the macro changes will not disrupt our medium-term cost of risk guidance. This is supported by the performance and quality of our portfolio. Any volatility, which again we expect will be modest due to the macro environment, will not amend our 40-50 basis points medium-term cost of risk guidance.
Perfect. Thank you.
The next question is from the line of Floriani Jonas with AXIA Ventures. Please go ahead.
Yes. Hello, team, and good afternoon, everyone. I also have questions on the outlook, similar to the previous questions. Just wondering if you can also quantify a bit the comments on inflation impact on costs and also the measures that you mentioned that are going to be taken. And related to that, your 15% reduction in FTEs should be part of that cost savings, right? But that probably come late in the year. What about the timing of the charge related to the exit scheme? And then secondly, also on the outlook, what about the comments on the decreased volumes and fees? You know, if you can quantify that, will be helpful. And then my final question is on disbursements.
It looks like the Q1 number is probably a bit ahead of the run rate expected. I was just wondering if the level you've seen in shipping international, it's recurring, or there was a bit of a one-off in Q1 as well. Thank you.
Okay. Thank you. You asked a lot of questions, so I hope I don't forget anything. I will start with cost and inflation. You know that cost has been a key focus for our agenda for the last few years. We even have a dedicated Chief Cost Officer . Regarding the 50% reduction of staff and the 25% reduction of our budget, this will be a one-off from the staff, one-off item for 2022 when and to the extent that it happens. Obviously higher inflation makes the achievement of our absolute cost target harder.
We believe that we will be broadly on track to deliver the targets that we have already guided in terms of absolute numbers, unless inflation remains at very high levels well into 2024 and 2025, which is not in our current expectations. Of course, most importantly, you know that the most important metric is cost to income. Our current plan targets the region between 50% and 55% by 2025. And the improved revenue outlook means that we are increasingly confident to achieve that. If I go to overall disbursement and new lending and maybe touching on the volume pressure. I will say that, yes, new lending it's a record quarter for the bank.
It's even higher than 2019 figure, but any 2019 figure. What is more important is the absolute growth. We have previously guided you that we are diversifying, aiming to EUR 1 billion of income coming from shipping and international. You see now that we mean what we say because you see the first roughly EUR 100 million coming in Q1. Okay, I cannot be sure whether the EUR 100 million will be recurring, but I can be sure of the achievement of the EUR 1 billion in the period that we guided. As we said, our certainty may slow down this pace, but the current in 2022, but the current pipeline suggest much better performance than 2021. I would say reaching 2019 level, which was more than EUR 2 billion.
We have dominant position. You see our markets where they are growing. We have an efficient business model in delivering lending volumes and growth and then diversification. I'm confident that the combination of volume and rates, because this is what matters, is volume and rates. It would be higher capital generation, of course, because of contribution of the higher rates. I don't know if there's any other question. I think that what I would like to mention that the ROE, the uplift in the ROE throughout the period, not just for 2024 or 2022. If I start it from 2023, takes everything into account.
Takes the increased volatility cost of risk as we mentioned earlier, takes the lower volume growth, takes the lower fees, takes even modestly higher operating expenses because of the inflation and because of rising prices. The overall outcome of this, if we combine with the outcome of interest rates that Eliza described earlier today, a rise of 50 leads to the significant uplift of the ROTE. I don't know if you said that.
No, I think that's clear. Just a quick follow-up. I was just wondering if you could share any kind of, high level indication of, data points in April and May in terms of demand for loans, payment behavior, and also demand for real estate assets. So just wondering what you've seen so far in the last month and a half, if it has changed versus Q1 already or not yet?
I believe during next week we have the results. I don't see any material change in the trend. I don't know, Eliza, she knows...
[crosstalk]
Okay, good stuff. Thanks, guys.
The next question is from the line of Alexandros Boulougouris, Wood & Co. Please go ahead.
Good afternoon, everybody. Quick question on the NII uplift from the potential interest rate hikes that you mentioned, EUR 80 million-EUR 100 million per year starting from 2023. Just to clarify, this is based on the assumption you have on the deposit rate going to 90 basis points from -50 in 2024, sorry, I assume. That EUR 80 million-EUR 100 million, is that in 2024 when you are at 90 basis points or and it's gradually increasing to EUR 80 million-EUR 100 million? What should be our assumption? What is the underlying assumption here, please? That is my first question. My second question is regarding questions made by my previous colleagues. One is on the new lending growth.
My understanding is that the EUR 600 million you posted in the first quarter, very strong number. It's can be repeated in the following quarter. So we could see new disbursements of more than EUR 2 billion, let's say, for the full year, unless there is a big slowdown or something like that is something fair? And then my third, sorry, I didn't catch it if you said it previously regarding the VRS and the timing or the plan on the charge. You mentioned it previously, I think was the question. Thank you.
I think, Alex, VRS is, as I said, the current plan is for 2022. The exact timing during 2022 is still not yet decided. On the new lending growth, as I mentioned earlier, we expect, and based on the current pipeline, we expect a good year. I don't know if we can repeat the EUR 600 million per quarter because we will need EUR 2.5 billion per for the year, and our highest ever was EUR 2 billion in 2019, I think. We do expect a very strong first and second quarter as we have visibility, and an extremely good year, better than 2021. Much better than 2021.
On the NII uplift, I think Eliza, that question is your territory.
Okay. Alex, the uplift is an annual uplift versus previous forecast. It's not an end number where it will be picked up gradually. It's an uplift we expect as versus our previous financial plan on an annual basis starting from 2023. It's the result of obviously the curves, and you can see on page 13 the delta therefore of the curves versus what we had assumed in the plan earlier in the year. Let me just remind you that this EUR 80 million-EUR 100 million is not just the NII benefit. It's net of a pass-through assumption on deposits, a reduction in the liquidity fee, and elimination actually of the liquidity fee in line with the rates, higher wholesale funding costs over time.
It's a net impact of all of the NII and liquidity fee component of the P&L.
The EUR 80-100 million is also from 2023, I assume.
Yes. A large component of that, let me just remind you, is the liquid assets, the EUR 9.3 billion, with the ECB at minus 50 basis points. They would reprice immediately upon a rate hike. The benefit is overnight as opposed to the loan book, which has a time lag on the repricing dates.
Okay. Very clear. Thank you.
The next question is from the line of Cunningham Corinne with Autonomous Research. Please go ahead.
Hi, everyone. Couple of debt questions and then maybe a quick follow-up on the NII. On the debt side, the MREL requirement, does that phase in in a linear fashion? Or is it literally you've got your interim requirement for 2022 and the next big target is for the end state? The other debt type question was on the AT1s, if you've had any thoughts about refinancing, what form that might take. Then the follow-up on TLTRO was just to I suppose confirm your likely actions when the cheap rate drops off at the end of June.
Would you expect to collapse that portfolio or maintain it now with the, as you mentioned, with the expectation of higher rates? Many thanks.
Okay. Eliza, on the MREL side.
Okay. Our MREL target is non-linear. Actually, let me say that again. Our MREL target is only at the end state in 2025. We only had one binding MREL target at the end of last year of 2021, and you will see on the slides that we more than met that. There are non-linear interim soft numbers between now and the end of the period, but all of those are not binding therefore. Obviously current market conditions are not conducive to issuance for us, so we will monitor the market. If we find opportunity to issue at rates which are, you know, acceptable or for us, we will. The numbers, the amounts that we have to issue are manageable, and therefore we're not in a rush to issue at high rates.
We're not under pressure to issue under strict deadlines in inexpensive markets for us. On the AT1, again, as you know, Corinne, there is a call option at the end of next year, 2023. We are monitoring the markets. The same comment applies on our, you know, we keep all options open. Not a good market for us at the moment, but if we find an opportunity to do something with the AT1, to act upon it, we will. What that action may mean, we will need to see depending on how the market evolves. Let me just remind you that our Tier 2 refinancing last year was a very successful transaction for us. You know, we are open to handle our AT1 going forward, depending on market conditions and investor appetite.
On TLTRO, we haven't made decisions yet as to whether we will repay it or not. It depends on the arbitrage. As you know, TLTRO funding for us is a carry trade. We borrow from ECB, and we pay it back. With them, the two legs do not reprice on the basis of the same rate. So we'll take a view as to whether there is a positive carry. If that's the case, we will keep it. If not, we will repay it. This is a dynamic decision. It will be, you know, considered over time, and we will be reassessing it depending on the market rate conditions.
Thank you very much.
Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to Mr. Panicos Nicolaou for any closing comments. Thank you.
Thank you. Thank you all for participating in the call. As always, you know that myself, Eliza, Annita, and Demetris, all the Bank of Cyprus team are more than willing and available for any bilateral discussion, explanation, or presentations of the current performance, and most importantly of the updated outlook for Bank of Cyprus. Thank you very much.
Ladies and gentlemen, the conference is now concluded, and you may disconnect your telephones. Thank you for calling, and have a nice day.