Ladies and gentlemen, thank you for standing by. I am Mina, your call operator. Welcome, and thank you for joining the Bank of Cyprus conference call to present and discuss the first half 2024 financial results. All participants are in a listen-only mode, and the conference is being recorded. The presentation will be followed by a question-and-answer session. Should anyone need assistance during the conference call, you may signal an operator by pressing star and zero on your telephone. At this time, I would like to turn the conference over to Mr. Panicos Nicolaou, Chief Executive Officer. Mr. Nicolaou, you may now proceed.
Good morning, everyone. Thank you for joining our financial results conference call for the period ended 30th of June 2024. I am joined by Eliza Livadiotou, Executive Director of Finance, and Annita Pavlou, Manager, IR and ESG. After my introductory remarks, Eliza will go into more detail on our financial performance, and then we will be happy to take your questions both during this conference call and afterwards. I would like to start by briefly reminding you of our powerful equity story and our core strengths on slide number five. We are the leading financial group across banking and other financial services in Cyprus, which is a highly liquid and concentrated banking sector, and we operate in a supportive macroeconomic environment. The Cypriot economy remains strong, delivering good growth, proving once again its flexible and resilient characteristics. We have strong levers under our control.
Our diversified business model, our ongoing cost discipline, our robust asset quality, and our strong capital position all support our commitment for attractive shareholder remuneration by continuing delivering sustainable mid-teens ROTE over the medium term in a normalized interest-rate environment. In fact, today we are targeting distribution for 2024 at the higher end of our payout range at 50%, market conditions allowing. Slides six and seven show an overview of the macroeconomic environment. We operate in a strong, diversified, mainly service-based economy that exhibits continuing growth. Based on the latest projections of the Ministry of Finance, economic growth is expected to be around 2.9% in 2024, outperforming Eurozone average. This is underpinned by the strong tourist activity, lower unemployment, improved public debt to GDP, and decelerating inflation. Let me now deep dive into each enabler.
Tourist activity in the first half remains strong and similar to prior year levels, despite the geopolitical uncertainty. Likewise, tourist receipts for the period January to May 2024 were 3% higher compared to the corresponding period in 2023. Public debt to GDP continued to improve to 76% as of the end of March 2024 and remains well below the euro area average, with the latest projections indicating that by 2026, public debt to GDP will be below 60%. The unemployment rate decreased to 5.97% in Q1, and it is now considered that the economy operates at almost full employment. On the other hand, consumer inflation continued to be impacted by energy prices but has now come under control. In Cyprus, inflation stood at 3% in June 2024 and is expected to average around 2.5% for the year.
The resilience of the Cypriot economy is reflected in its credit rating, as the country has an investment-grade rating by four credit rating agencies. Let's now turn to slide eight, and the group's continued strong financial performance in the second quarter. Net interest income in Q2 remains strong, on the back of high rates and ample liquidity, declining only modestly on prior quarter to EUR 207 million. Our continuous focus on cost management and strong income kept the cost-to-income ratio low at 32%. Cost of risk at 34 basis points remains below our normalized provision range, reflecting robust credit portfolio performance in the second quarter. As a result, the group generated a profit after tax of EUR 137 million. All in all, as is shown in slide nine, we achieved a ROTE of 23.7% for the second quarter, which is equivalent to almost 30% ROTE and a 15% CET1 ratio.
This is the sixth consecutive quarter of delivering ROTE over 30% on both metrics, demonstrating the sustainability of our business model. Our second quarter earnings per share of EUR 0.31 are feeding through into strong growth in our tangible book value, up 21% year-on-year, despite the payment of EUR 0.25 of dividends just completed in June. We are delivering our shareholder remuneration. As communicated in the past, we have a very clear path of rebuilding shareholder remuneration. We started with a small dividend payout of 22 earnings. We were the first bank in the region to recommend dividends, and thereafter proceeded with a more meaningful 30% payout ratio in 2023, equivalent to an 8% yield. This distribution corresponded to a fivefold increase in cash dividend, which, as mentioned, we have already paid, and the commitment of an inaugural EUR 25 million share buyback. Turning now to slide 10.
As a reminder, in June 2023, we had our inaugural investor update event. As we are currently on our first year anniversary since the event, we wanted to update on our progress on the promises we have made. It is clear that the group has made considerable progress across key metrics in performance and delivery of shareholder returns. Moving to slide 11, our key financial metrics of net interest income, efficiency, cost of risk, asset quality, and capital are well ahead of the 2024 targets we set in February 2024. All in all, we generated a ROTE of 23.7% for the first half of 2024, translating to strong CET1 generation of 214 basis points before distributions. Capitalizing on this strong performance and on the back of a supportive macroeconomic environment, we are upgrading today our 2024 and 2025 financial targets.
As shown on slide 12, we are upgrading our NII expectations to around EUR 800 million in 2024. For 2025, we expect that NII will exceed EUR 700 million. We will discuss the drivers in more detail on slide number 14. Our cost-to-income ratio is expected to be below 35% for 2024, reflecting mainly higher-than-anticipated income. For 2025, despite lower income due to gradual decline in interest rates, the cost-to-income ratio is expected to stay below 40%. On asset quality, we expect the NPE ratio to remain below 3% for 2024 and below 2.5% for 2025. Our cost of risk is expected to be around 14 basis points for 2024, and we think the normalized level of 40 to 15 basis points for 2025. Lastly, given the stronger profit generation, we expect significant CET1 generation of over 300 basis points per annum before any distributions.
Moving now to slide 13, all this supports a stronger ROTE and distributions for 2024 and 2025. For 2024, we expect to deliver a ROTE of over 90% on a reported basis, which is translated into a ROTE of over 24% on 15% CET1 ratio. For 2025, the group expects to deliver a management-reported ROTE corresponding to high-teens ROTE on 15% CET1 ratio. We maintain a clear focus on delivering sustainable returns to our shareholders. Supported by our continued progress towards our strategic targets, we are now targeting distribution towards the higher end of our payout ratio at 50% for 2024, subject to market conditions and required approvals. Any proposed distribution quantum, as well as envisaged allocation between dividend and buyback, will take into consideration market conditions as well as the outcome of our ongoing capital and liquidity planning exercises at the time.
Going forward, given our strong capital generation, we expect to review our distribution policy with the full-year 2024 financial results in the context of prevailing market conditions. Let's focus on the key drivers of our net interest income targets on slide 14. Compared to market expectations in February 2024, the interest rate environment turned out to be more resilient than initially anticipated. You can see on the chart on this page how expectations evolved since January 2024 at the time of our full-year 2023 financial results. In conjunction with the positive deposit behavior, both on mix of deposits and cost of deposits we have been experiencing, we now expect a net interest income of around EUR 800 million.
In 2025, we expect net interest income to decline on projected lower interest rates and higher cost of deposits compared to 2024, as depositors may look to lock in higher rates despite rate cuts. I will quickly take you through the key drivers of our upgraded NII guidance. We now expect the cost of deposits to average to around 35 basis points for 2024 from the current levels of 32 basis points in the first half. We continue to allow for changing mix with time and notice deposits increasing from 33% in June to around 43% by December 2024. On the lending side, we reiterate our expectation of low single-digit loan growth in 2024 and 2025, supported by economic growth. Wholesale funding costs will increase to reflect the full-year impact of the 2023 Emerald issuance and the 2024 issuance of Green Bond.
Finally, we will continue our hedging activity to reduce the NII sensitivity. This will come at its cost in 2024, but will support future revenues. We'll continue to carefully grow our fixed income portfolio to around 17% of total assets, subject to market conditions. Turning now to slide 16. In the context of evaluating how best to position the group to achieve its long-term strategic targets and deliver sustainable value to shareholders, the Board of Directors has been assessing how to enhance liquidity of the ordinary shares of the group, which are currently listed on the London Stock Exchange and Cyprus Stock Exchange. Following extensive communication with the group's stakeholders, the Board of Directors has reached the view that the listing on the Athens Stock Exchange, in conjunction with the delisting from the LSE, will yield a number of long-term strategic and capital market benefits.
This includes enhancing the group's profile among the relevant investor base focused on the region, enabling investors to directly compare performance with regional banking peers, attracting long-term institutional holders with the more focused market ecosystem of ATHEX and providing scope for inclusion among indices over time. Taking into account this benefit, the Board of Directors of the group believes that the listing of ATHEX and then the listing from LSE has the potential to enhance the liquidity of the ordinary shares for the benefit of the shareholders. The ordinary shares of the group will continue to be listed on the CSE. In the coming weeks, we'll outline why we are making this recommendation, with a proposal to be put to shareholders at the forthcoming EGM to be convened in due course.
Subject to shareholder approval, necessary regulatory approvals, and market conditions, the Board expects the listing and delisting to take place in autumn 2024. I will now hand over to Eliza to take you through our financial results for the period in more detail.
Thank you, Panicos, and good morning from me too. Let's now start with providing some details on the H1 highlights on slide 18. During the first half of 2024, we recorded a profit after tax of EUR 270 million, of which EUR 137 million in the second quarter. This corresponds to earnings per share of EUR 0.31. This strong performance was the outcome of resilient net interest income evolution, continued cost discipline amid inflationary pressures, and a low cost of risk. Our liquidity profile remains robust post the full repayment of EUR 2 billion of TLTRO.
Around 30% of our assets are cash balances with central banks, while our deposit base continued to increase by 3% year on year to EUR 19.7 billion. In April, we successfully issued EUR 300 million Emerald eligible Green Senior Preferred Notes, thereby finalizing our Emerald requirements and including a comfortable buffer. This issuance was the first-ever Green Bond issuance by Bank of Cyprus, representing an important step to lead the transition of Cyprus to a sustainable future. On asset quality, our NPE ratio decreased for the first time to below 3%, specifically at 2.8%, while our coverage improved further to 85%. Focusing now on capital metrics, rapid capital build-up drove our CET1 ratio to 18.3% and total capital ratio to 23.3% as of 30th June. Finally, in July 2024, Moody's upgraded the bank's long-term deposit rating by two notches to A1, being the highest rating achieved since 2011.
This is a further validation of the group's transformation into a strong, diversified, well-capitalized, and sustainably profitable institution. Slide 19 shows a detailed income statement of the group. I will not go through every line shown here, but as I will be discussing the drivers of our profitability in the following slides. So let's start with net interest income evolution and its key drivers on slide 21. Our NII for the first half of 2024 stood at EUR 420 million, up 17% year-on-year, benefiting from higher rates, ample liquidity, and a well-managed cost of deposits. On a quarterly basis, NII stood at EUR 207 million, declining modestly on prior quarter. Please bear in mind that in the first quarter of 2024, NII will experience a further decline following the 25 basis points rate cut in ECB Depo rate in June 2024.
Our net interest margin, excluding the impact of TLTRO, remained strong and stood at 3.70%, down 20 basis points Q-on-Q. The NIM and NII dynamic is explained by a number of factors. Firstly, the hedging activity for the reduction of our NII sensitivity, which resulted in a decline in the effective yield on liquids by 15 basis points on the prior quarter. Secondly, the gradual repricing of the loan portfolio. As a reminder, over 95% of our loan book is variable rate, with around half of it linked to Euribor. The effective yield of the performing book declined modestly by six basis points. Thirdly, better-than-expected deposit trends, facilitated by the very liquid Cypriot banking sector. This is evidenced by the evolution of our cost of deposits, which remained low at 34 basis points.
Lastly, our cost of wholesale funding increased due to the issuance of the Green Senior Preferred Notes in April at a coupon rate of 5% per annum. Let's now turn to slide 22 to provide you an update of our hedging activity. In the first half of the year, we added EUR 3.4 billion of hedging, clearly on track to meet our 2024 target of EUR 4 billion-EUR 5 billion, subject, of course, to market conditions. A large element was through receiving fixed interest rate swaps, while we continued our investment in fixed rate bonds and the use of reverse repos. These actions had a relatively small cost on the H1 NII of around EUR 10 million. We believe that the hedging we are carrying out will support future revenues and, most importantly, will result in lower rate sensitivity.
Simultaneously, about a quarter of the group's loan portfolio is linked to the bank's base rate, which provides a natural hedge against the cost of deposits. Overall, these actions have led to a reduction in net interest income sensitivity to a parallel shift in interest rates by 100 basis points, by EUR 27 million compared to year-end. On slide 23, you can see that deposits increased by 2% on the prior quarter and 3% on the prior year to EUR 19.7 billion. We're encouraged that the shift in deposit mix towards time and notice deposits is progressing more slowly than we expected. In the second quarter, it remained flat Q-on-Q at 33% of the total. If you look at the breakdown of our EUR 19.7 billion deposit base, you can see on the bottom left chart that 80% of our deposits are from Cypriot residents.
Additionally, cost of deposit levels were well managed, which remained low at 34 basis points, facilitated by the very liquid Cypriot banking sector. As a reminder, the sensitivity to each 10 basis points change in the cost of deposits results in a change in NII by around EUR 20 million, while the percentage point change in the deposit mix towards term deposits impacts NII by around EUR 2 million. Moving now to new lending on slide 24. The group extended EUR 1.2 billion of new loans in the first half of the year, up 10% on the prior year, while maintaining strict lending criteria. As a result, the gross performing loan book grew by 3% year to date to EUR 10.1 billion. We reiterate our guidance of low single-digit loan growth for 2024 and 2025, supported by economic growth, but we also know that growth is subdued by repayments.
Slide 26 provides a summary of non-interest income. On this slide, we would like to highlight that non-interest income remains an important driver to the group's profitability, covering more than 75% of total operating costs for the second quarter. Net fee and commission income improved by 5% on the prior quarter, reflecting higher non-transactional and transactional fees. The net insurance result was also up by 30% on the prior quarter, reflecting mainly better claims experience and reduction in the loss component of the insurance contracts in life, in line with IFRS 17. I would also like to remind you that effects gains are volatile profit contributors. Lastly, we also reiterate our expectations that net fee and commission income will grow broadly in line with economic growth in both 2024 and 2025, and that non-NII will continue to cover between 70% and 80% of total operating expenses.
Moving now to slide 32, which provides an overview of OPEX. Our cost-to-income ratio of 30% in the first half of the year was supported mainly by strong revenues and continued focus on our cost base. Total operating expenses in the first half increased by 4% year-on-year, reflecting inflationary pressures, mainly on staff costs due to salary increments, cost of living adjustments, and rises in employer contributions. On a quarterly basis, staff costs remained broadly flat, whereas OPEX increased by 15% due to higher marketing and professional fees. Turning now to slide 33 on cost of risk. The continued robust performance of the credit portfolio, along with the improved macro assumptions in the first half of the year, drove our cost of risk to 31 basis points. On a quarterly basis, cost of risk stood at 34 basis points, up seven basis points Q-on-Q.
Additionally, we incurred impairments of EUR 17 million in the second quarter, relating to the REMU stock of properties due to the aging of the stock and increased impairments on large specifically liquid properties. During Q2, there was a reversal in provisions for pending litigation claims and other matters of EUR 7 million, primarily relating to a release of provision on a claim following the closing of the investigation by the Commission for Protection of Competition. Now let's move to capital on slide 35. The bank's capital position remains robust. Our regulatory CET1 and total capital ratios, net of distributions, at the top end of our distribution policy stood at 18.3% and 23.3%, respectively. On a pre-distribution level, our CET1 ratio increases further to 19.5%, reflecting an organic CET1 regeneration of 214 basis points.
As Panicos mentioned earlier, for 2024, we are now targeting a distribution towards the high end of our payout range of 50%, subject to market conditions and required approvals. Moving now to slide 36 and asset quality. The NPE ratio decreased to 2.8%, achieving early our 2024 target, reflecting low inflows and high curings as well as write-offs. Our NPE coverage improved to 85%, and when including tangible collaterals, NPEs are fully covered. Moving to REO now on slide 37, REO is our engine to manage the stock of properties acquired from defaulted borrowers. As you can see, REO repossessed stock decreased by overall EUR 72 million during the first half of the year to EUR 790 million as of 30th June. With balance sheet de-risking completed, the inflows are expected to remain at extremely low levels, and our focus will be on delivering sales.
We remain on track to achieve our 2025 target of reducing the REMU stock of properties to EUR 500 million. We continue to sell on average close to independently assessed open market values and above book value. I will now hand back to Panicos for his closing remarks.
Thank you, Eliza. Moving to slide 39. In the first half of 2024, we delivered a ROTE of 23.7%. As a result, our particularly strong performance in the first half supported an upgrade of our 2024 and 2025 targets. We're now expecting to deliver a ROTE on a reported basis of over 90% for 2024 and mid-teens for 2025. In this period, we are targeting distribution at the higher end of our payout range of 50% for 2024, subject to market conditions and required approvals.
Lastly, it is the Board of Directors' intention to propose to list the group's ordinary shares on the Athens Stock Exchange and to delist from the London Stock Exchange, with an aim to enhance the group's market visibility, making it more accessible to a new pool of investors. Further details will be provided in due course. This concludes our presentation. I will now open the floor for your questions.
Ladies and gentlemen, at this time, we'll begin the question and answer session. Anyone who wishes to ask a question may press star followed by one on their telephone. If you wish to remove yourself from the question queue, then you may press star and two. Please use your handset when asking your question for better quality. Anyone who has a question may press star and one at this time. One moment for the first question, please.
The first question comes from Alexandros Boulougouris with Euroxx Securities. Please go ahead.
Hello, many thanks for the presentation and congratulations on the results and the guidance. A question on dividend policy. You mentioned the dividend for 2025 will be reviewed with the results at the end of 2024. Should we expect something higher than the 50% that's targeted for 2024, given the high, the substantial capital generation, which seems to be getting also above expectations? And we see other regional banks and many European banks getting closer to the 70% payout ratio. Is this something that would be possible to assume on your end? That's my first question. The second question is, again, regarding dividend policy, the mix. Should we expect a similar split between cash dividend and buyback, as we saw in 2023, regarding the 2024 guidance?
And our third question regarding the NII sensitivity by May. Once you achieve the target of EUR 4 billion-EUR 5 billion in hedging, what should we assume in terms of sensitivity? Sorry, something similar like we saw with a reduction currently. Is it reasonable to assume for 2025? Thank you.
Okay, thank you, Alexandros. The first question on the dividend policy, as it's kind of premature to comment on the payout durations post 2025, but over the longer term, we'd like to align with the sector because we are not an outlier on NPEs. We are not an outlier on returns, quite the contrary. And of course, we don't want to be an outlier on the shareholder remuneration, given, as you said, the strong mechanical generation and existing high capital buffers. So we take one step at a time. We had a clear path.
The path started with 14% in 2022, moved to 30% in 2023. As we said, we target the higher end of our existing dividend policy, which is 50% for 2024. With the full-year results, the board will review its new dividend policy, but it's premature for me to mention any new payout ratios. Yes, we don't want to be an outlier versus the market and versus peers. On the mix, yes, I think given the liquidity of the stocks, you should expect that the main instrument to reward the shareholders will be the dividends. But the mix and timing will also be subject to be approved by the year-end. On NII and hedging, Eliza?
On hedging, as you see on the slide, we are guiding to a packet of EUR 4 billion-EUR 5 billion additional hedging this year. We've done most of it actually in half one.
From then on, I mean, this takes us very close to this outlier test that the regulators are looking at. We will need to take stock, Alex, as to whether we continue or not to hedge. It actually largely depends also on rates. Hedging at the current forward rate makes less sense than hedging in the Q1 or early Q2 levels of rates. So we can't guide on that point yet. It's a function of market conditions.
Okay, very clear. Thank you very much.
We won't be widely off the outlier test. We will be very, very close anyway.
Okay, thank you.
The next question comes from the line of Hugo Cruz with KBW. Please go ahead.
Hi, thank you for the time. I have a few questions. The share of time deposits in your guidance assumes it goes from 33%-42%.
That's quite a big acceleration compared to recent quarters. So are you being too conservative here, and are there any other areas in your guidance where you're being conservative? So that's question number one. On the delisting and relisting options, do you expect it to have any material kind of one-off impacts or recurrent impacts on your cost base? And then finally, a question on the very strong decrease in the stock of NPEs in the quarter. Can the stock continue to decrease in the coming quarters? What kind of trends are you seeing there? Thank you.
Okay. A more general comment on the deposits. The reality has proven to be much better than what we have expected so far, both in terms of volumes. You have seen that they have increased 3% year-over-year, but also in terms of actual cost.
We still remain a little bit conservative for 2024, and especially for 2025. For 2025, we keep our previous assumption, previous basic assumption, where we assume the cost to increase a little bit further versus 2024. From a sensitivity point of view, every 10 basis points of deposit, of course, is roughly EUR 20 million of NII. Going forward, we prefer to observe the behavior of the depositors as market rates continue to reduce before we change our basic assumptions. And we want to see much lower ECB rates than 3.75% before doing that. But we expect gradually to be able to pass the red cash to the depositors because simply the fundamentals of the market have not changed. I mean, it's very liquid, very concentrated market, and it's pretty obvious that we have resiliently low cost in combination with increasing our deposit volumes and base.
So we feel comfortable on our depositor assumptions. On the listing and delisting, if I understand your question correctly, I don't expect any material cost that we change anything of our basic assumptions. On the stock of NPEs, generally, our asset quality is very robust. I mean, stage two are coming down. Coverage of stage two is increasing. The NPE ratio is moving either reducing faster than we anticipated, 2.8% this semester versus 3% that we have an assumption for the year-end. And we expect this to remain below 3% and below 2.5% in 2025. So we also feel comfortable with our NP assumptions and estimations.
I mean, if you made a math, if you made a math on the NPEs, I mean, it's like there is a slide on NPEs, 75% of our EUR 70 million of our NPEs out of the EUR 294.75 million, it's actually 0.7% are reperforming NPEs. So if you in a way assume that these NPEs will actually be cured in the next year or so, then by itself drives the ratio closer to two and maybe lower. So we feel comfortable on that metric as well.
And on listing costs, we don't expect any material one-off. They are already absorbed within Q2, mostly numbers already.
Okay, thank you very much.
The next question comes from the line of Alfredo Alonso with Deutsche Bank. Please go ahead.
Good morning. Thanks for taking my questions. I have two, if I may, to follow up on NII.
As you say, in the guidance for 2025, it looks quite conservative. Especially, I'm interested in seeing two things. First, how would hedges impact as long as you have that decline on the rates versus what you have right now? And second, if you think still deposits going up, which is quite different to the message that I got from many banks in Southern Europe, while they are already seeing the deposit cost in the front book even being stable or even going down pretty soon, how do you think on that? And my second question would be also a follow-up in NPEs because with the levels of coverage that you have right now, would you think of accelerating sales, write-offs, or on the other hand, could you just take advantage for getting cost of risk lower than what we have right now? Thank you very much.
Okay, on the NPEs, I will usually expect an organic reduction because the size of the NPEs left actually do not justify the cost of doing, let's say, an outright sale. And it's kind of diversified pool of NPEs. But you should expect less than 2.5% in 2025, as we already guide. In terms of deposits for 2025, I think I mentioned before that we didn't change our previous basic assumption, which assumes a little bit increase on the current deposit cost, which is already extremely low. I mean, the cost is extremely low, the deposit cost for buyback cycles for NPEs, and the volume is going up. So our basic assumption, which I said before, is maybe considered conservative, is that the cost will increase a little bit in 2024 and 2025, and then we'll start reducing as rates start to drop.
So we prefer to keep this assumption for the remainder of 2024 and 2025. As we see the pace of rates reduced, we will consider this assumption.
On hedging non-NII impact, our average hedging cost yield is at 2.8%. So depending on your view on rates, you can do your math from there on the impact on P&L.
Sorry, with the new acquisition approaches that you are going to hedge, you are not trying to change? No. That yield should be more or less.
It's what we've got today, but we've done the vast majority of the hedging for this year already. So this is actual. Remember this 2.8 is a blended average. We started, I think, in Q3, Q4 last year. So this is the blended average of the hedging we've done over a period of more than 12 months now.
That's very clear. Thank you very much.
Thank you. The next question comes from the line of Daniel David with Autonomous Research. Please go ahead.
Good morning all. Congratulations and thanks for taking my questions. I've got three kind of topics. The first one, and apologies for going back there, just on NPEs. Was there any one-off items, like big ticket items, that led to such a reduction in Q2? And then related to the prior question, I guess, is there any reason why you're not taking maybe a bit more action on the REMU stock? So I guess we've seen good progress on NPEs. Revenue is taking a bit longer to tick down. I can see the year-end targets, but you've got a lot of capital. I'm just wondering why you maybe are not being a bit more aggressive there. The second one is just on capital.
Could you just clarify Basel IV and the impacts there and the potential timing? And the third question is on M&A. Now, I realize you might not be able to say an awful lot, but we've clearly seen Greek interests in the Cypriot market and seen the headlines. I guess the question is, with so much capital, is there anything defensive you could, any defensive actions you could take if there was to be an approach by a Greek bank? And just any views on the subject or M&A plans that you might have would be interesting to hear. Thanks.
Okay, thank you for the questions. On the NPEs, the Q2, there are no one-offs. There are natural curings of very performing NPEs that we have in stock. In terms of revenue, I think we continue following the same strategy. For the first time, we are less than EUR 800 million.
I mean, remember that we have been up to EUR 5 billion in 2020. So after our target, we aim for EUR 200 million per year and EUR 500 million by year 2025. So we are on track. And as we delisted and completed the NPE ratio to 2.8%, there are practically no new inflows. And I think the target is pretty feasible. On capital and Basel IV, I think we don't expect any material impact at all. I mean, don't release them.
It comes in perfect on the 1st of January next year. We should be disclosing the impact, if any, at year-end, but we don't expect any material changes to our capital position.
And last comment on general topic M&A and capital usage, I will take you a little bit back, and I will say that as a management, our priority was to build a safe and sustainably profitable organization.
Given what we see and the stock profitability, we are there. So we reached to that point. Our focus has shifted heavily towards remunerating our shareholders after so many years that we are not doing so. So remuneration of our shareholders will continue to be our top priority, and especially to sustain attractive shareholder remuneration and payouts in the medium to long term. So this is number one priority. Of course, we need to grow the business, plan A's organically. We know, and you know, that we have large market shares in many aspects, but we can still grow in insurance, international banking. It's almost 10% of our performing book, aligned with what we have guided. Asset management, wealth management, and of course, invest more on digitizing the economy. So having said that, and having said that, organic growth is our basic plan.
As a management team, it's our duty, of course, to look whether we can achieve any of our goals faster by any inorganic routes. But it has to make both sense strategically and financially. And of course, without this changing the risk profile of the group and without putting at risk our ability to provide attractive remuneration to our shareholders. In terms of interest from the market, of course, I cannot comment on market regulations. Our focus as a management is to manage the bank and deliver the best value for our shareholders.
Thanks a lot.
The next question comes from the line of Demir Can with Wood&Co . Please go ahead.
Yes, good morning. Thanks for taking my question. So I actually have two. The first one is the year since I started, it's slow in terms of volumes and fees.
I was wondering if you could talk about the reasons as to why that's the case. And the second question is on the margins, and now we have sort of better visibility on the deposit pricing. Do you also have a better sense of where the margins could settle than the Euribor goes back to 2% level, which happens to be the constant level in terms of where it could settle when everything is said and done? So those are the two questions.
Apologies, Can. Sorry, apologies for interrupting. It is very hard to hear you. Can you please repeat the question? I'm really sorry for this.
Mr. Can, can you please speak closer to your microphone? Thank you.
Yeah. Is it any better now?
Yes. Thank you. Apologies.
Okay. Super. No noise at all. That's my microphone, so.
The first question was, the year started slower in terms of volumes and fees compared to your guidance. I was wondering if you could explain the reasons behind that or at least talk about them a bit. The second question is on margins. We obviously have more visibility on deposit pricing these days. I was wondering if you also have a better sense of where the margin could settle when the Euribor rate normalizes, perhaps around 2% or so. Thank you very much.
Okay. On the volume and fees, I'm not sure if the volume refers just to this also on the loans as well, but assuming that you are referring to the non-NII component, I will say that Q2 is better than Q1, so we are catching up. We do expect net fee and commission to be broadly aligned with the economic growth.
In fact, if you exclude the one-offs that we have in last year in Q1 and Q2 and the effects volatility, if you do the math there, you will see that last year H1 and this year H1 are broadly the same. So going forward, in the middle term, we will continue to grow our non-NII component from the insurance business. We have included two more future contributors of non-NII, which is the first one is a Genius initiative, and the second one is our new affluent banking proposition, which we call Privilege. So again, reassuring that we do expect net fee and commission for this year and next year to be broadly aligned with the economic growth. Okay. In terms of I'm not sure if you also asked about the volume growth for loans.
I don't know if this is a question, but if this is a question, I think in terms of volume growth for loans, actually, we had a good first half of the year. We are 10% in terms of new lending higher year-over-year. The performing book growth is 3% versus last year. So we are aligned with what we have guided the market. And it's important here to mention that our initiative, which comes through international banking, our CP International portfolio, it's more than 10% of the new lending and approaching the 10% of the total book. So this, again, is in line with our expectations for growth and diversification.
On net interest margin, I mean, our margins now are in Q2, in half one, it was at 379.
Based on the current rate, on the rate expectations in the presentation, which I appreciate are slightly higher than what the market currently expects, we've seen it stabilizing at the 3% mark-ish. Obviously, this needs to be adjusted for whatever view you take on forward rates.
Okay. Got it. Thank you both. Super helpful.
As a reminder, if you would like to ask a question, please press star and one on your telephone. Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to Mr. Nicolaou for any closing comments. Thank you.
Okay. Thank you all for your participation and questions. As always, myself and the team are available to take any of your questions and provide more clarity on topics that you would like to talk about.
Have a nice day and, of course, enjoy the break and your holidays as well and the holiday period. Thank you all very much.
Ladies and gentlemen, the conference is now concluded, and you may disconnect your telephone. Thank you for calling and have a good day ahead.