Earnings Call: Q1 2020

May 26, 2020

Ladies and gentlemen, thank you for standing by. I'm your host, your call operator. Welcome and thank you for joining the Bank of Cyprus Conference Call to further discuss the Group Financial Results for the Quarter Ended 31st March, 2020. At this time, I would like to turn the conference over to Mr. Panikos Nicolaou, Chief Executive Officer Mr. Lizeli Patiotou, Executive Director of Finance Mr. Dimitri Dimitriou, Chief Risk Officer Mr. Panikos Mozzuris, Executive Director, RRD Ms. Ana Chofronio, Executive Director, Real Estate Management Unit Mr. Nick Smith, Executive Director, Corporate Finance Solutions and Ms. Anita Pavlou, Manager of Investor Relations. Mr. Nicolaou, you may now proceed. Thank you, Mr. Good afternoon, everyone. Thank you for joining us. I hope everyone remains safe and healthy. Slide 3 summarizes the key highlights from the Q1 of 2020. I will briefly go over this. The COVID-nineteen pandemic is testing us all in ways we could never have anticipated and it's causing disruption, stress and uncertainty. BAMO Services has a massive role to play with supporting our customers and helping to rebuild economic growth. The bank's priorities under these unprecedented plans remain clear to protect the health of our customers and colleagues, while ensuring the operational resilience of demand, to support them and the wider security economy and to provide liquidity to businesses and households affecting market crisis to help alleviate their short term cash flow downturns. Cyprus has successfully managed the spread of the virus and this allowed the gradual relaxation of electricity measures. We are currently in the second phase of the government roadmap for the reopening of the society and the economy. The pandemic has deteriorated the macroeconomic outlook. Consequently, finance we previously announced, we have updated the macroeconomic assumptions underlying the IFRS nine calculation of loan credit losses for Q1. This has led to an increase of $28,000,000 in loan credit losses, reflecting additional 80 basis points cost of risk. Due to the prevailing market and operational conditions arising from the outbreak of COVID-nineteen, then Q3 is taking longer than originally anticipated. Currently, we are focused practically assessing the impact of COVID-nineteen on the loan portfolio. The bank entered this asset of tariffs with good capital, strong liquidity and funding position. We have capital well in excess of tariff and other requirements. As of 31st March, our total capital ratio stood at 17.7% and our CET1 ratio at 14.3%. Our separately currently amounted to $3,000,000,000 under the costing. The balance sheet repair continued in Q1 despite the COVID-nineteen lockdown. The Canadian period after the first quarter amounted to 142,000,000 NPE reduced to BRL3.7 billion and BRL0.6 billion on a net basis. The engrossed NPE ratio reduced to 29% and to 15% on a net basis. Exposures are now covered by 56% non credit losses and by 124 percent when tangible collateral is included. In May, we completed the sale of $133,000,000 of written unsecured NPs, known as Velocity 2. The transaction was capital neutral. The improvement of our operational POC remains a key priority for us. Following the successful completion of the Novanta Brexit staff in the previous quarter, the cost to income ratio decreased by 5 basis points to 58%. During the quarter, total operating expenses decreased by 14% quarter on quarter, 28 percent to $84,000,000 Today, 70% of our customers are digital engaged. We expect the increased video engagement of our customers during the lockdown period to support our efforts to improve further our expenses. New R and D for the Q1 amounted to €451,000,000 up 2% quarter on quarter. In the French quarter of 2020, we generated total income of $145,000,000 and a positive operating result of 52,000,000 dollars Loan credit losses for the quarter amounted to $65,000,000 including COVID-nineteen related charge of 28. The underlying results from the quarter was a loss after tax from Ocana operations of $23,000,000 dollars and a loss after tax of $26,000,000 Turning now to Slide 5. The city of government sweep reaction has successfully contained the spread of the pandemic surge. Statistics have been very encouraging, demonstrating an ongoing slowdown in new cases. The daily reported cases remain consistently low despite the gradual relaxation of the restricted measures not commenced on the 4th May. Slide 6 provides some of the government roadmaps on the European and the CPO Society in the corona. The lifting of the restriction takes place in a gradual and controlled manner and is subject to no material increase in the reported COVID-nineteen issue. Currently, we are in the 2nd phase of the gradual access of Mayodan. The hotels and the airports are expected to open mid June. Slide 7 provides details for the bank's pending plan. For a later period of time, I will not spend much time on this as these slides will discuss on our 2019 investor call results. Slide 8 represents the fiscal measures which are fueled by the Ethiopian government aimed at providing liquidity to businesses and preventing sharp rise in unemployment. Again, I have already talked to you about the various fiscal measures, payment monitoring and job production schemes announced in March. The government announced further measures in May 2020 and includes the equities of post OSNEs and self employed while subsidizing a part of the total expenses, 1,000 rand and supplier payment. It's expected that over 56,000 small businesses and self employed will benefit from this measure. Tax incentives from the reduction of rents on a multi tenant basis and liquidity support to the agricultural sector. In mid May, the loan guarantees came with withdrawn as the government does not expect this to be approved by the parliament. The government is working on a new set of measures expected to be announced this week for the support of the businesses and self employed. This set of measures is expected to include liquidity support through EIB loans and interest subsidization. It's important to note that the withdrawal of the government guarantee scheme does not affect our intention to support the viable and performing businesses hit by the COVID-nineteen in order to alleviate certain cash flow burden. Slide 9 provides some of the measures taken by the regulators for mitigating the COVID-nineteen impact. Since this is familiar from the previous quarter, again, I will not go over in detail. As a brief reminder, these measures are unprecedented and have already been put in place to provide flexibility to the banks with regards to capital liquidity requirement. This will enable the banks to provide the necessary support to their customers. On Slide 10, we provide an update on the loan moratorium included in the government measures. As a reminder, the loan moratorium was started on 30th March and offset the suspension of both capital and internal structure for loans, OREPRAS and credit cards for a period of 9 months until the end of 2020. This merger is available to our customers, both private individuals and businesses who are lower effective days past due as of 29 February. The loan terms will be extended so that the loan repayment will continue to be as electricity scheduled. Given our trailing period, interest will continue to accrue. It is important to note that absent the measures have managed by the regulators, the COVID-nineteen model does not trigger tamagiri classification 20 studies due to surveillance. As of May 20, we have received over 34,000 applications for BRL5.73 billion of gross loans, accounting for 53% of the loan book, excluding the legacy. Applications from businesses amounted to 3 €74,000,000 or €52,000,000 non legacy loan book. Whereas applications received from private individuals amount to €204,000,000,000 or €52,000,000 of the non legacy loan book. I would like to emphasize that during the long term period, we will continue to closely monitor the creditworthiness of our customers who apply for this scheme as a consequence from the day after, not to effectively and timely address any potential worsening of their trade quality following that of the moratorium. Now I will hand over to Dimitris to take you through a deep dive of our portfolio and elements of cost of risk. Unifrice, the floor is yours. Thank you, Vanico. Good afternoon to all. I will start from Slide 11. The Ethiopia economy recorded a growth of 0.8% in the first quarter of the year, reflecting the COVID-nineteen lockdown. The public projections of the Ministry of Finance, EBRP, European Commission and the University of Cyprus are clear that under the base scenario, the secular economy will shrink by up to 7% in 2020 and then grow by 5% to 6% in 2021. Our IFRS nine macroeconomic projections are in line with these published projections. Under our base case scenario, we expect the security economy to shrink by 6.9% in 2020 and to grow by 5.4% in 2021. We also expect the unemployment to increase from 7.1% in 2019 to 9.1% in 2020 and to reduce to 7.6 in 2020 21. Having said that, the outlook remains uncertain. The impact of the pandemic on the cigarette economy will largely depend on the duration and the intensity of the pandemic. Moving on to Slide 12. Coming into the crisis, the group has a well diversified non negative loan portfolio amounting to EUR 9,150,000,000 as at 31st March 2020. The plan is to continue closely monitoring the book and set up strategies to prevent further rapid polymer deterioration. Based on our assessment on the impact of COVID-nineteen on the various economic sectors, we expect that the tourism sector will be the most impacted, representing 11% of the non legacy loan. Around 18% of the non legacy portfolio is expected to have a medium impact, including sectors such as trade and manufacturing due to the shrinkage in demand and effective consumption, stemming from the strict lockdown of the previous months. Construction is expected to be only moderately impacted by COVID-nineteen as its operations recommenced on May 4. Overall, 14% of our loan book is expected to experience a moderate impact. Finally, around 15% of the non legacy loan book is expected to experience a low impact including sectors like education, real estate and sharing. We are setting up targeted and efficient strategies for each client segment and industry in order to address any issue. We are in close contact with our customers, not primarily to assess the full extent of the COVID-nineteen chronic side effects and secondly, to provide relief in the form of payment dividers, restructurings and liquidity assistance to our private clients to help them alleviate the short term cash flow Turning to Slide 13. As of 31st March, the non legacy loans to travel individuals amounted to €3,950,000,000 representing 44% of the total non legacy loan portfolio. Over 80% of the private individuals loan portfolio is housing loans. This segment is well collateralized with a loan to valuation with a loan loan to valuation. Around 67% of these loans have an LTV below 60% and less than 15% of the portfolio have an LTV over 80 percent. Other loans to private individuals amounted to RMB0.71 billion as of 31st March 2020. 60% of this portfolio is secured, of which 60% by property and the remaining 40% by other type of quarter. It is expected that over 35% of total employment will remain largely unaffected from the COVID-nineteen crisis. As this work process imploding the government, semi government and financial sectors, which are protected and have not indicated an intention to project tariffs. In addition, measures announced by the government include an employment compensation scheme for businesses impacted by COVID-nineteen to protect jobs and avoid layoffs until mid June 2020. The government expects that over half of private sector employees and around 40% self employed will benefit from employment compensation schemes. As previously mentioned, the moratorium applications received from private individuals amount to RMB 2,040,000,000 and driven by mortgages and personnel loans. Moving on to Slide 14 that provides a breakdown of the non negative business portfolio and our assessment on the impact of COVID-nineteen. The non negative business loan took us at 30% to 5.4 dollars 5,200,000,000 and is well diversified with high quality collateral. Following the last crisis, we now have high quality origination via proven underwriting standards. We make strong assessment of the repayment capability of our customers. To put this in context, 98% of new exposure since 20 16 are performed. Finally, that is an effective foreclosure in place following the amendments that took place in recent years. 88% of the business portfolio is secured, of which 79% by property. Overall, the business portfolio has a low loan to value ratio around 70%. Moving on to Slide 15. As mentioned earlier, the sectors mostly impacted by COVID-nineteen are tourism and trade. As of 31st March, our total exposure to tourism amounted to RMB 1,030,000,000, around RMB 5% of this relates to food services. The unutilized liquidity of the sector remained broadly unchanged and amounted to €0.33 billion as of April 30, 2020. According to the government's road map for the reopening of the economy, airports and hotels are expected to open in mid June. The government is taking actions in order to capitalize on Saipo's success in handling of the health aspects of COVID-nineteen to position the country as a safe tourism destination. Finally, around 96% of our tourism exposures applied for premium details. Our exposure to trade amounted to around RUB 1,000,000,000 as of 31st March. 28% of this is in lower risk essential retail services not materially impacted by COVID-nineteen, such as supermarkets and pharmacies. Unutilized liquidity of the sector amounted to around RMB 800,000,000 as at 30th April. 54 percent of our trade exposures applied for premium details. Turning now to Slide 16 and the cost of risk. The annualized cost of risk for the Q1 increased to 2% of gross loans, of which 8 k basis points 8 basis points reflect the initial impact of IFRS nine forward looking information, driven by the deterioration of macroeconomic outlook. Excluding this COVID-nineteen rated chart, the cost of risk for Q1 of 2020 was 1.4%. The change in the macroeconomic assumptions also resulted in the migration of around €435,000,000 of core loans from Stage 1 to Stage 2. Finally, as a reminder, interest on net NPs not received in cash is fully provided for, which in Q1 represented 53% basis points out of the 112 basis points non COVID cost of risk. On Slide 17, the bank's digital infrastructure initiatives provide alternative solutions to our customers to carry out their daily banking transaction. Today, 70% of our customers are digitally engaged, up by 5 percentage points since March 2019. Our active digital users increased by 15% since March 2019 to 263,000. As Panikos mentioned earlier, we expect the increased digital engagement of our customers during the lockdown period to support our efforts to improve further our efficiency. Now I will hand over to Elisa to take me through our performance in the Q1 of 2020. Thank you, Tycho. In the interest of time, I will go through some selected slides of the Q1 performance, and we can always discuss anything else you might like to ask in the Q and A session or on the bilateral call afterwards. So starting from Page 19, we have a good capital position, well in excess of our regulatory requirements. As of 31st March, our total capital stood at 17.7% and our CET1 ratio at 14.3%. The ECB capital relaxation was announced in March 2020, allowing the front loading of the ability to use AT1 and Tier 2 to meet Tier 2 requirements, reduced our CET1 requirement to 9.7 percent. Our CET1 capital buffer, as I said last March, was around 4 60 basis points. The temporary relaxation of the capital conservation buffer provides a further additional CET1 buffer of around 2.60 basis points. Finally, the bank's CET1 buffer increases to 7 10 basis points. Finally, in April 2020, the Central Bank of Cyprus decided to delay by a year the phasing mean by 50 basis points of the OSII buffer until January 2022. Now turning to Slide 20. During the Q1, we have generated 40 basis points of organic capital in operating profit and another 20 basis points of capital from the decrease of reported assets. These were offset by expected loan credit losses and impairment of around 50 basis points, 20 of which reflected deterioration of the macro economic outlook due to COVID. CET1 ratio was also negatively affected by the decrease in revaluation reserve as a result of the decrease in fair value in the fair value reserve for fair value debt securities that reduced the capital by around 25 basis points. Since 31st March, the mark to market valuation of the debt portfolio held at fair value through OCI decreased by a further €5,000,000 The change is recognized directly in equity. Now moving to Slide 21. Our risk weighted asset intensity remains broadly flat, q on q at 62% and the total risk weighted assets dropped by around €290,000,000 following the further de risking of our portfolio. Now a few points on our key liability metrics are shown on Slide 22. Our deposits decreased by 3% Q on Q to EUR 16,200,000,000 and the reduction in deposits on a Q on Q basis was took place before the outbreak of COVID, reflecting mainly the introduction of liquidity fees in early March 2020 and seasonality in the 1st couple of months. Approximately twothree of deposits represent those who ultimately benefit your loaners on Cyprus, whilst only 4% of those are Russian. The group maintains strong deposit market share of around 35% above the quarter end, and we continue to operate with significant excess liquidity of EUR 3,000,000,000 after 31st March 2020. Now moving to the legacy portfolio, starting on Slide 23. In the Q1, the gross NPEs reduced by EUR 142,000,000 to EUR 3,700,000,000 and to €1,600,000,000 on a less basis. Overall, since 2014, gross NPEs reduced by €11,300,000,000 or 75%, of which €8,600,000,000 has been through organic actions and €2,700,000,000 through NPE trades. The gross NPE ratio reduced by 1 percentage point on a quarterly basis to 29% and to 15% on a net basis. Overall, the NPE ratio reduced by 34 percentage points since peak in 2014. Despite the COVID outbreak, in May 2020, we have completed the sale of 133,000,000 retailer unsecured NPEs known as Opex Velocity 2. This transaction is capital neutral. Now moving to coverage on Page 25. The bank's NP coverage ratio increased by 2 percentage points to 56% at the quarter end. The bank starts today above the European average coverage ratio of 45%, and total coverage, including tangible collateral, increased to 120 4%. Coverage of reperforming NPEs is relatively low at 25%, reflecting the lower risk associated with this stock of NPEs, whereas the coverage of core NPEs increased to 60%. Now turning to Slide 26. The NPE reduction continued in Q1 but at a slower pace, reflecting the COVID lockdown in March. NPE outflows for the Q1 amounted to EUR 158,000,000, while inflows in the Q1 amounted EUR 16,000,000, representing only around 1% of the performing loan book. Write offs for the quarter amounted to EUR 71,000,000, representing 45% of organic growth and PE reduction. As we have previously explained, we continue to expect that the proportion of write off will be volatile in any given quarter. Slide 27. Adding the bank's loan portfolio is of utmost importance for the group and our stakeholders. Today, the bank's EUR 3,740,000,000 of gross NPE falls into 2 principal buckets. Firstly, we're reperforming NPEs, which totaled EUR 3 60,000,000. As a reminder, reperforming NPEs are loans that have been restructured, have no arrears, are still classified as NPEs but are expected to exit the NPE definition in due course. As shown on the slide, around 83% of these re performing NPEs are available for exits by the end of 2021, subject to continuing to meet all relevant exit criteria. It's important to note that the exit phase may be extended if performing loans are eligible and choose to apply for the loan moratorium. Secondly, current fees amounting to EUR 3,380,000,000. The COVID outbreak has inevitably slowed the pace of organic NPE reduction and has delayed the planned inorganic trade. The group focus is on addressing any potential asset quality deterioration in the performing book. Once economic conditions normalize, the group expects to resume its efforts to improve its asset quality position by seeking solutions, both organic and inorganic. Current fees include SEI eligibility of around €820,000,000 We have received applications for EUR 383,000,000 of these. However, 76% of these applications remain incomplete with a deadline for completion of 30th June. For now, from the applications as set to date, EUR 42,000,000 are eligible and around EUR 30,000,000 are nonviable. Our plans for this portfolio prioritize realizing collateral, using write offs to incentivize quicker cash or debt for asset swap solutions and using foreclosure or other enforcement rules where borrowers are not willing to cooperate. This will continue to be facilitated by the onboarding the assets into revenue at a conservative around 25% to 30% discount to open market value. As a last point, I would like to mention that following the COVID outbreak, the foreclosure process has been forestanded until 31 August 2020, in line with the latest division of the Association of Ipriot Bank. Now moving to income statement on Slide 32. Net interest income remained broadly flat Q on Q at EUR 85,000,000 in the first quarter, including approximately EUR 4,000,000 of interest collections not previously recognized. Net interest margin increased to 1.95%, positively impacted by the lower volume and cost of deposits. Non interest income dropped to €60,000,000 from the 1st quarter following a reduction in insurance income and a slowdown in revenue sales due to the COVID lockdown. Total income for the quarter decreased to €145,000,000 compared to €156,000,000 in the Q4 of last year. Now expenses. Total expenses for the Q1 decreased to $93,000,000 from 1 €103,000,000 for the Q4 due to lower staff costs and operating expenses. As a result, the cost per income ratio decreased by 5 percentage points on a Q on Q basis to 58%. Loan credit losses amounted to €64,000,000 of which €28,000,000 reflect initial impact of IFRS 9 forward looking information, driven by the macro outlook as discussed previously. The overall loss after tax amounted to €23,000,000 for the health cost. Now moving to Slide 35, where we analyze the drivers of NIM. Our NIM in the quarter improved to 195 basis points, mainly due to the lower volume and cost of deposits. The yields on the performing book reduced to 3 24 basis points in the quarter as they remain under pressure mainly due to the continued low interest rate environment. Equity book yields increased to 5.60 basis points, positively affected by increased interest collections in the quarter. Finally, the cost of funding decreased to 30 basis points, positively impacted by the reduction in the cost of deposits that declined by another 5 points. Turning to noninterest income on Slide 38. Noninterest income for Q1 decreased to EUR 60,000,000. Recurring income was €49,000,000 in the quarter, down by 9% Q on Q, mainly due to lower insurance income. Net fee and commission income remained broadly flat at q on q at €38,000,000 Net fee and commission income comprises 44% from transactional income and was negatively affected by the COVID outbreak. The remaining is non transactional and therefore more less of more resilient. Net insurance income amounted to EUR 11,000,000 in the 1st quarter compared to EUR 16,000,000 in the previous quarter, reflecting primarily the negative market performance following the COVID outbreak and higher insurance claims. Revenue net gains amounted to EUR 1,000,000 for the quarter compared to EUR 6,000,000 in Q4, reflecting the slowdown in revenue sales due to a lockdown in March. Revenue profit remains volatile. Now turning to costs on Slide 38. Our cost to income ratio, excluding bank loans, stood at 58% for Q1 compared to 63% in Q4 2019, principally reflecting the lower total operating expenses. Staff cost for the Q1 reduced to €49,000,000 compared to €53,000,000 in the previous quarter, reflecting the net savings from the successful voluntary private equity plan. Operating costs were also reduced to €35,000,000 for Q1, attributable to lower consulting expenses and property. Special levy and contributions to the Single Resolution Fund and the Deposit Guarantee Fund for the quarter amounted to €9,000,000 including a €2,900,000 contribution to the Deposit Guarantee Fund. As a reminder, from January 2020 until July 2024, the group is subject on a semiannual basis of a similar level of contribution to the DGF Fund. And with that, I hand back to Manikar for closing remarks. Thank you, Elizabeth. COVID-nineteen presents an unprecedented external economic shock. At the moment, we are clearly facing into a period of significant economic uncertainty, and we are taking a measured and prudent approach in how we position the bank going forward. We are mindful of the need to preserve our capital and financial liquidity strength as well as playing our part in supporting the economy as we go through this difficult period. The gradual reopening of the digital economy is encouraging and we remain cautiously optimistic. The deterioration of the short term prospects of the digital economy has led to an elevated basis points increase, not cost of risk. Our currently clearly funding a credit solution, position us well to withstand the crisis. Renting the crisis is a well diversified loan portfolio. However, as we have no clear visibility of indirect impact of COVID-nineteen on our customers and the effectiveness of the regulatory and fiscal measures take effect on the economy and mitigate the impact of the virus, we will closely monitor their performance. Our Middleton strategic priorities remain clear. We have sustained progress on strengthening our balance sheet and improving asset quality and efficiency in order to continue to play a vital role in supporting the future in economies. This concludes our presentation, and we are now open for questions. Thank you all for having the patience to listen to us. The first question comes from the line of Floriani Jonas with Axia Ventures. Please go ahead. Hi, guys. Good afternoon, everybody. Thanks for the presentation. I have two questions on asset quality. First is on Slide 26. I was just wondering if you could run through briefly the what you saw in terms of dynamics of Q1 inflows and outflows. I suspect that most of this performance is reflecting January February, given the macro situation. And if you have any color on how we should think about these dynamics now in the second quarter, That will be very helpful. I remember that you previously, you commented on that you're still expecting a reduction in the stock of NPEs for 2020. And just wondering if this still holds. And then my second question is on Slide 16. On a similar note, if there's any visibility on the cost of risk going forward, I assume that if we don't expect any major changes in terms of macro estimates for the year, we should not see additional one offs in your cost of risk as well. And if that's the case, I was also wondering if the 112, 110 or so basis points that you booked in Q1 could be a run rate for the rest of the year on an underlying basis. I'll leave it at that. Thanks. Okay. Thank you, Jonas. I will go ahead with the first question and then I will tap over to the meeting's further question on the cost of risk. So in Slide 26, indeed, you see that you have, let's say, the lowest inflows of NPE in this quarter. And this is very encouraging. As you said, this was mainly the 1st 2 months of the cost debt. But given the moratorium and the measure we are taking on proactively assessing the credit risk of our clients, we do not expect significant inflows of NPE during the remainder of the year. However, on the outflows, there is a plan we are constantly monitoring. But this is kind of, let's say, more unknown. So that's I think we should keep the conclusion that we don't expect during the next couple of months any significant NPE inflows in our portfolio. In Greece, on Costa Rica, any comment on which side as well? First, to derive the macroeconomic practice, following the public advisory at the same level, we considered various scenarios of different decrease of adversity, and we combined an improvement rating to drive our forecast of the way forward. As we indicated, SAS is usually coming out early from this will ease off gradually. However, we would need to wait and see how this materializes. And up until the time when we have the situation of the standard is improved, we will continue to be prudent in the weighting of our adverse scenario. Now as far as the run rate of the cost of risk, 100 and 12 basis points as indicated is reasonable given the situation today. But I have to note here that a significant driver of this 112 basis points is the provision we take for the noncash interest we recognize on NPVs. As shown in the presentation, this is a charge of around 53 basis points. So going forward, a sale and the recognition of an NP part of the portfolio is expected to have a positive impact on the provisions going forward. Well, I hope that answers the question. Thank you. The next question comes from the line of Dara Quinn with KBW. Please go ahead. Mr. Dara Quinn, can you hear us? We will continue to the next question. The next question comes from the line of Kanika Korin with Autonomous Research. Please go ahead. Good afternoon, everyone. Thank you for the call. A couple, please. Just can you let us know what you're thinking in terms of loan growth? I know you mentioned that the government guarantee schemes are not back in place yet, but you don't expect that to affect the support you're going to provide. So if you could give us a scale perhaps of how much you expect loans and RWAs to increase from that. And then on the capital front, are there any releases of capital from elements such as IFRS 9 or changes in the software reduction? Could you guide us through any changes in RWAs or capital calculations that might come from either of those types of things? Thank you. Okay. Thank you, Corinne. I will try to ask your question on loan growth and then Elisa hand it over to Elisa for the capital release question. So okay, as you may have noticed, the 2019 new loans was a record year for the bank, EUR 2,000,000,000. And even Q1 of this year was up 2% versus 2019 quarter on quarter. But I wouldn't be prudent to you if I was to say that I expect, let's say, the same amount of new loans in 2020, dollars 20.20 million. So I expect lower volume of new loans and this volume of new loans will be mostly related with providing liquidity assistance to our clients and which we already do. And as we said, the absence of any debt guarantee does not in any way change our way of seeing things in providing the liquidity to our viable clients. So I expect less than we launched in 2020, but I also expect the performing book to remain broadly flat period year given the market. And we want to cover that, I believe? Yes. So Corinne, I think you're referring to the announcement of the European Commission a couple of 3 weeks ago or so. So yes, we do expect a benefit to come through from those. We haven't put it in the slides because, as you know, it's not yet legally in place. However, actually, the biggest benefit for us is this SME factor on the risk weighted assets. We expect around €350,000,000 benefit coming from those. This is based on kind of high level information without knowing all the details yet because they've not been announced. And we do expect or actually, there is the possibility that we may have another modest level of benefit from software. But as the technical guidelines are not yet issued, it cannot assess to what extent our software, our intangibles will qualify for that. So that remains a potential positive, but as of this time, unqualified. I hope this helps. And on the IFRS nine, you mentioned actually. Yes, there is it's good that the dynamic part of IFRS 9, so any COVID provisions we may take will be phased out and will start to be impacting capital as from 2022. However, the impact of that we expect is modest based on what we currently see. Of course, this depends on how the market assumption and how we kind of hold out, look, evolve. If we end up with more Stage 1 and Stage 2 provisions, we will have a bigger capital benefit. Effectively, what that said, what that decision or recommendation said is any IFRS 9 COVID related provisions on Stage 1 and 2 loans, new provisions, can be can keep capital with a 2 year target. Thank you very much. And just to be clear, when you said the FME factor, the EUR 360,000,000 benefit, that would be a reduction in RWAs by EUR 360,000,000 Yes. Yes. It's beneficial. It's the most favorable capital treatment given by the European Union for to encourage lending to SMEs. And it so happens that in Cyprus, actually quite a large portion of our corporate portfolio also qualifies for this SME definition because of the size of the country and the company. So we start to benefit disproportionately from this positive. This is a CRR definition and it's actually an early adoption. So it brings forward something that would have happened down the road in 2021, and it's a permanent benefit. Unlike with temporary capital conservation buffer and other more temporary benefits. This is a natural part benefit, assuming you get most of it through. Thank you. The next question comes from the line of Robert Stewart with Tuscafan. Please go ahead. Hi, there. Thanks for the opportunity. Just a couple of questions, please. Firstly, on fee income. I was wondering if you could just discuss that a little bit more generically around the structural versus cyclical, which is how I think that the yes, just to give sort of a bit of color for going forward. Then on interest income, similarly, I was wondering, appreciate you just sort of partly asked the question around balance sheet size performance just hopefully going to stay at a similar level. I was wondering if you could just give me a bit of an indication what front book versus back book yields were for portfolio for Q1 for the €450,000,000 revenue lending? And then the final one was just on the NPE sale. Appreciate that's currently off for now. Has any kind of potential discussions completely sort of gone? Or are they just ongoing slower, more slowly at federal? Or should we just park that and revisit it at a later stage? Thanks. Thank you for the question. I will start with the last one and hand over to Nick about the NPE trade. Nick? Rob, it's Nick. Hope you're well answered the question. I can't really say a lot more over and above what I said on the relatively recent full year 2019 announcement call, which is, look, obviously, COVID has interrupted our hope for a H1 execution, but we're tentatively focusing on a delivery into the second half of twenty twenty. But we're going to caveat that with there is a high degree of uncertainties, many of which are kind of outside of our control. So I think we need to keep this situation collectively under continuous reassessment. But our endeavors remain, and our hope is focused on the second half of the year. And can you, Carolyza, on the income side? So on fees, Rob, if I refer you to Page 36 where we have the fees and they are in they were at €38,000,000 this quarter or €39,000,000 in the previous quarter. So that's the kind of run rate. The feedback risk, as I mentioned, relates to the 44% transactional. And of that or actually, not all of that of the policies, we expect around a rapid 20% drop due to COVID for Q2, Q3, hopefully recovering or expected to recover from Q4 to start recovering and fully recover next year. But the reason actually, the main reason for the drop unexpected drop are 2 fold. The first one is car, car usage, which is linked to consumption and therefore of macro and is also linked to tourism and there are the use of cards for recycled. And the other element is international transfers, mainly coming from our international banking services business line. Now on frontback book spreads, I will refer you to Page 34, one of the pages I haven't covered, where you will see you can you see the effective yields of the legacy and the non legacy portfolio. And I would say that from the non legislative or the performing book, there's definitely a few positive I mean, the front book is slightly lower than the average, but we don't have the number the exact number. I mean, it's not public. Okay. But then yes, the non legacy is slightly lower actually? Yes. So this is a good question. As don't forget that new lending this year will be actually relatively modest. And actually, the back book, the non legacy back book will, to a large degree, continue to be in place by until the end of the year. Sorry, the kind of It is higher rate. Yes, no, no. What I'm more thinking about that is well, the reason why the question is more around the sustainable pre pruning profit basically, assuming at some stage that the legacy is not around or a portion of the legacy is not around, It's kind of my thinking. But I mean, when you say the effective yield, I mean, maybe you don't focus, but are we talking I mean, I don't know, maybe you can answer that in a slightly different way. If you look at mortgage rates, for example, what are they coming in at now? Or maybe at the beginning of the quarter, because maybe it's slightly unrealistic to think about today? What is rate? Did you want to comment on? Monthly rates are, let's say, are gradually rising. I have seen them gradually rising in the last couple of months, but it's still on the range close to 20%, 25% percent to 0.5%. The business loans are up. I mean, we are seeing average spreads for new business loans of 3.5%. So we don't expect it, having in mind that the back book, which is higher priced because of the moratorium will not decrease as it used to happen in the previous years. We expect the rates to remain broad in fact or any high profit to become better, I mean, the effectiveness on the loan book. But aside from that, it remains too busy, yes. Actually, on the mortgage loan book, Rob, we don't really see a big difference between front and back book, other than trades these days. Okay. Perfect. Mostly the business loans where this breaks Yes, business loans have They're catching up, yes, because We have a follow-up question from the line of Cunningham Coreen with Autonomous. Please go ahead. Thank you. I just wanted to ask about TLTRO and whether you had plans to use that. In fact, you can give us an idea of scale or impact that, that might have on your NII if you do choose to go ahead. Thank you. Okay. So yes, we are looking into it. We haven't yet decided whether and how much to go for. If I was a betting person, I'd say we probably go on go apply going in the participate. However, the benefit actually relates it can be from 0 to around 60, 60 basis points depending on the lending that we expect we have done and expect to do in the period during which the TLTRO formula works. And this is something that we are still trying to decipher. So I cannot give you clear visibility of numbers. It's something considering the next couple of weeks ahead of the deadline of participation. Thank you. We have another follow-up question from the line of Robert Stewart with Tuscafan. Please go ahead. Thanks again. Sorry. Just on TLTRO, just to follow-up on that question, do you say the maximum that you could draw then? I think the lines just cut out when I was listening to that. And then just on operating expenses. So obviously, it's good performance this quarter. I appreciate that the backlog was done last year. Outside of some of the moving parts around levies, etcetera, would you expect this sort of run rate to continue? Okay. On the I couldn't hear very well the first question. But on the question of corporate expenses, I mean, there is a clear focus. There was a COVID reduction plan within the bank. Pro COVID, this has been realized and has been more aggressive post COVID. And we expect, let's say, a reduction versus 2019, not only on the staff costs, which are expected because of the actual plan you have at the end of 2019, but also on the remainder of projects, yes, we expect to have a meaningful reduction during the year, yes. The first question, sorry, I couldn't hear very well. So, Yvesen, you can repeat, please. I just wasn't sure. Sorry, I couldn't hear whether you originally just said whether it was a maximum TLTR benefit in terms of take up or you just expect to take as much as possible? No. What I said is the benefit before the order of 50, 60 basis points maximum. But whether we can take that or I mean benefit from that or not, I mean, to what extent we can benefit from that or for benefit from that depends on our new lending to certain types of customers, local, within a certain period. In Europe, there are some restrictions. So we're working through our numbers again to see to what extent we feel what is the probability we feel we will benefit. And depending on where we get to, we also apply for an amount depending on our comfort that we will actually benefit from it. So don't forget to TRO for us is effectively a carry trade. So it's we would borrow and place back from the ECB at the margin. That's how you think about it. So it's a matter of making sure we can benefit. We feel we will end up participating, but the expense and the benefit is still being worked on. But the amount of LTL that you can apply for it, it's more than a deal, correct? Yes, it's a big number. It's a bad offer, yes. Mr. Stuart, are you done with your questions? Yes, that's fine. Thank you. Thank you very much. If I can just go back to the TLTRO question, apologies for reversing. Actually, the amount we can apply for is quite a bit number. It's in excess of but our thinking if we are to apply is for amount of €1,000,000,000 like Panikkar mentioned, just to make sure there's no confusion on this point. Thank you very much. Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to Mr. Nicolas for any closing comments. Thank you. Final comment is that our strategy, and I would like to emphasize this, it remains the same. We want to strengthen our balance sheet, but at the same time, improve our efficiency, which equally in our efficiency comes with changing our operating model, reducing our cost and of course, bringing forward more and less to be our digital agenda. Reducing of NPEs is a commitment together with accelerating debt reduction through organic and inorganic environment and talking about inorganic, we mean trade Of course, we will be more than happy to discuss 1 by 1 let's say, conference call with each one of you that would like to have more information about the strategy of the bank and about the results of Q1. Thank you all for participating, and I wish you all stay safe and healthy. Thank you.