Good day, and thank you for standing by. Welcome to the Crédit Agricole first quarter 2022 results conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you'll need to press star one on your telephone. Please be advised that today's conference is being recorded, and if you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Jérôme Grivet, CFO. Please go ahead.
Good afternoon, everyone. Happy to present this Q1 results for Crédit Agricole S.A. and the group. Let me start directly with page four on the presentation, where you can see that the net profit that we publish for the group globally comes in at EUR 1.3 billion in the stated, I would say, format, and the underlying net income group share is at EUR 1.5 billion. Difference this year between stated and underlying figure is mainly explained by a specific provision that we've taken on Ukraine, but I'll go back on this later on. On the following page, for CASA's figures, what you can see is that we have a good revenue dynamic. Revenues are up 7.5%.
We have also an increase in the gross operating income, close to 5% increase quarter-over-quarter, Q1 on Q1. We have a cost of incurred risk, which is very low, and it's indeed reducing as compared to Q1 2021. Playing in the other direction, we have a significant increase in our contribution to the Single Resolution Fund, +25%, and we have some specific provisions that we take in relation with the Russia-Ukraine crisis, but we'll detail that a little bit later on. If I go now on page seven, we have specific information provided on this precisely, Ukraine and Russia situation. We remain with what we did just after the outbreak of the crisis, end of February. In Ukraine, we've started to support materially and financially our employees and their families.
Those employees, I want to really thank them for this made since that date a wonderful job in continuing to support their own customers. As a matter of fact, even as of now, on a daily basis, almost two-thirds of our branches remain open regularly. In Russia, we've stopped, since the beginning of the crisis, all new financing to Russian counterparts, and we've stopped also all commercial activity in our Russian entity. In terms of risks, the proven risk on Russian and Ukrainian counterparts is very low. Actually, this quarter we've had EUR 43 million of provisioning, bucket three, I would say, provisioning on Russian counterparts and EUR 20 million directly within our Ukrainian subsidiary books. But we've been much more conservative in taking additional provisions.
On Ukraine, we've booked EUR 195 million of additional provision in CASA's books, which is leading actually to full write-off of the value of the equity that we have in our Ukrainian subsidiaries. We can say that after this, the booking of this provision, all our potential risk regarding Ukraine is now fully covered. As far as Russian counterparts are concerned, we've added close to EUR 350 million provision, bucket one and bucket two provision, on Russian-performing exposures.
When it comes to the management of the book, credit exposure book that we have regarding Russian counterparties, the overall size of this book, including all different compartments, I would say of exposures that we may have, has declined by around EUR 600 million since end of last year. When we published our press release beginning of March, we gave end of December figures. Actually, the decrease since the outbreak of the crisis is even higher. It's minus EUR 1.1 billion of reduction of the global size of the book. On page eight , just a few additional comments on what happened during this quarter.
Besides, I would say, what I just commented regarding Russia and Ukraine, we have had a very good momentum commercially with a net customer capture which was significant and the continuation of an increase in all activities, be it credit, be it savings inflows, be it insurance, equipment and so on and so forth. This is leading to the financial figures I already gave and which I will detail a little bit later on. Page nine, again, this high level of customer capture, more than 500,000 new customers this quarter, for our retail banks in France, Italy, and Poland.
Since the inception of the medium-term plan that we are going to finish this year, it's around six million new customers that we've managed to attract in our different retail banks. This is, of course, leading or explaining that all, I would say quantity or magnitude indicators are up also significantly. It's the case for the production of new loans in our retail banks. It's the case for the premium income coming from P&C insurance activities. It's also the case for the development of the production of consumer and leasing in the quarter. Let me go now to the revenues on page 10.
What you can see is that first the revenue, the top line is increasing quite significantly, 7.5%, over the quarter, plus EUR 421 million of additional revenues. Second point, it is spread across all business divisions. Third point, this revenue increase is triggered both by organic growth and by inorganic growth. Because pro forma, the acquisition of Creval and Lyxor that took place in the middle or in the end of last year, the revenue increase continued to be significant, +4.1%. Even excluding the corporate center, which is more volatile and it's not really a business center by definition, the increase pro forma the acquisition is at 4.3%. Last point on this page, this revenue increase is not new for us.
It really comes within a series of regular increases since at least five years, quarter after quarter, as illustrated on the right-hand side of this page. Let me go now to the cost evolution. There has been a significant cost evolution this quarter, +9.5%, +EUR 300 million. Excluding the acquisition and the integration of Creval and Lyxor, the increase is much more muted, 5.4%. Outside the corporate center, it's even lower, +4.2%. The overall increase of the cost base by EUR 300 million is explained by EUR 130 million by the increase linked to Lyxor and Creval.
By EUR 180 million it's an organic growth, out of which EUR 50 million is explained by the corporate center, mainly due to technical, I would say, intra-group restatement, effect. Let me go now to the gross operating income. What you can see on page 12 is that the gross operating income is improving again across all business lines. The increase is +EUR 115 million over the quarter, +4.9%, and excluding the corporate center, it's even +7%. The cost income ratio that we published this quarter at 59% continues to be comfortably below the ceiling of 60% that we had set as a target for the present medium-term plan. Let me go now to the risk side. What you can see on page 13 is two elements.
First element, the cost of risk is very low, and actually it's even decreasing both as compared to Q1 2021 and to Q4 2021, and it's indeed at a very, very low level. The second element is that of course we've been increasing quite significantly this cost of risk because of our very conservative approach on Russia outside Ukraine, which is restated and so which is not included in those figures because of its very specific characteristics.
Nevertheless, if I take into account this provisioning on Russia, we continue to have a cost of risk on the basis of the last four rolling quarters, which remain in line and even a little bit lower than the assumption that we had made for the present medium-term plan, which were, as you remember, 40 basis points for CASA and 25 basis points for the group globally. In terms of asset quality, we continue to have very good figures. The NPL ratio at CASA level stands at 2.4%, and at group level at 2%. Considering the significant new provisions that we've booked this quarter, the coverage ratio continued to increase significantly, 77.5% for CASA and close to 90% for the group globally.
You may see that we've decreased a little bit the volume of the loan loss reserve that we have in our balance sheet, but it's strictly technical. It's due to the fact that we have declassified our entity in Morocco because of the signature of a sale agreement in the last days of April. Let me go now on page 15, where you have the explanation of the evolution of the underlying net profit between Q1 2021 and Q1 2022. What you can see, again, it's another way of putting things together, is that the evolution is explained by two positive elements and two negative elements.
The two positive elements is the increase in the level of the gross operating income, plus EUR 114 million, and a decrease in the, I would say, incurred cost of risk or, effective cost of risk, a reduction of EUR 227 million. Two negative elements, the increase in the contribution to the Single Resolution Fund, plus EUR 126 million, and a significant increase in the cost of risk linked to Russia, plus EUR 389 million. All in all, this is leading to this decrease in the underlying net profit from EUR 932 million down to EUR 756 million, minus EUR 176 million, so minus around 19%.
Nevertheless, if you compare the Q1 2022 figure, it is above the Q1 2020 figures by around 12%. On page 16, you have the return on tangible equity, which comes in this quarter above 11.5%, which is a high level for a Q1, which is, as always, earmarked by the IFRIC 21 accounting constraint. We can go now a little bit more in-depth into the different business lines, starting with the asset gathering and insurance division. Globally, for this business division, on page 18, two elements which are important to have in mind. There has been a very good commercial momentum in all activities across the board, and actually, assets under management globally are significantly above what they were one year ago.
Over the quarter, the decrease is explained only by the market and Forex effect. The net profit of this business division is significantly up, +11.5%. Specifically, the insurance activities have had a very good commercial quarter in all businesses, life, P&C and protection. Revenues are sharply up, and the net profit of the business division is also sharply up, +17%. Amundi and the asset management business division, positive net inflows in medium and long-term assets that offset more or less the outflows in treasury funds, money market funds, and a good level of revenues and a good level of profit, which is increasing as compared to Q1 2021, which was already very significant.
In addition to that, the integration of Lyxor is going on very well, and we continue to develop the business of Amundi Technology. Large customers division, starting with CIB. A good level of revenues overall for CA-CIB this quarter, which is probably the highest level for a first quarter since 2016, thanks to a very good performance in the financing activities. A little bit more muted in the fixed income activities, but nevertheless, almost compensated by a very strong performance in investment banking and equities market. On the cost base, a quarter of the increase is explained by Forex effect. The cost of risk outside the Russian provision is very low.
Indeed, we had a reversal of loan loss provision outside the EUR 389 million of provision regarding Russian counterparties. RWAs increased quite significantly this quarter at CA-CIB, more than half of the increase being in connection with the very strong increase in the risk weighting of the Russian exposure. When it comes to CACEIS, we have had a very good level of activity at CACEIS. A sharp increase in the revenues and a sharp increase also in the contribution to the single resolution fund for CACEIS, as well as was the case for CA-CIB this quarter. Going now to the specialized financial services division and the consumer credit business.
It's been a high level of production of new loan in Q1 2022 at CACF, especially driven by Agos and by the rest of the international activities. When it comes to car financing, it's a little bit more muted in Europe, but very dynamic in China. The managed loan book is increasing. If you assess the P&L outside the effect in connection with the CACF Netherlands, which is as you know in a run-off mode, we are almost flat in terms of revenues, in terms of cost, and in terms of cost of risk. In terms of revenues, actually, what we see is that we have had an increase in the refinancing costs, which is not yet fully passed through to the customers. Regarding leasing and factoring activities, again, a very good commercial dynamic.
We are presently integrating Olinn, which was purchased end of last year, and this is for the time being adding up marginally a 100% cost income ratio to CAL&F. Of course, we are working on the cost base of Olinn. Nevertheless, revenues are significantly up. Cost of risk is significantly down, and the profit at the CAL&F is sharply up. LCL, on page 23, has had also a very good quarter, very good from a commercial point of view with the development of the customization of the customer base, the development of the loan book, strong inflows in customer savings, and an increase in the equipping in the different insurance products of the customer base.
Financially, revenues are sharply up, partially led by the development of the business and the development of the balance sheet, and marginally by some one-offs, positive one-offs, especially in the net interest margin. Operating costs are almost flat outside the contribution to the Single Resolution Fund and the French Guarantee Fund. The cost of risk is down, so all in all, this is leading to a very sharp increase in the net profit at LCL. Italy is working on the integration of Creval and indeed, the legal merger between Creval and Crédit Agricole Italia took place end of April, so just a few weeks ago. The market globally is a little bit more muted in Italy. It's been the case also for Crédit Agricole Italia.
Nevertheless, thanks to the integration of Creval, we have a sharp increase in the level of revenues, a sharp decrease in the cost of risk, thanks to all the decisions that we've taken last year. All in all, a very significant improvement in the net profit of Crédit Agricole Italia. The rest of the international retail banking activities, it's a little bit more difficult to read across this quarter, so let me just divide it between the different entities. In Poland and Egypt, a good quarter with a good evolution of the revenues and a decrease in the cost of risk, so a significant improvement in the profitability. In Ukraine, of course, the financial figures for the bank are penalized, but nevertheless, the Ukrainian subsidiary is posting a slight net profit this quarter.
We've sold the Serbian entity and the closing was made on April 1 this year, so no consequences in terms of RWA in the figures of the first quarter. You'll see that in the second quarter. We've signed on April 27 the sale of our subsidiary in Morocco, Crédit du Maroc. So the closing is expected to take place before the end of this year, and we've reclassified Crédit du Maroc, which is now accounted for under IFRS 5. Corporate center, nothing much to say. There is always a little bit of volatility in the corporate center, but nevertheless, if I assess all in all, the net impact, it's close to what it was last year.
Let me go now on the solvency, excuse me, on the regional banks of Crédit Agricole on page 28. You will see more or less the same trends as the one I've just commented regarding LCL. A good level of customer capture, a good evolution of the loan book, which is sharply up, plus 6% customer assets as well. Revenues are up a little bit less significantly than at LCL because the portfolio revenues within the regional banks were a little bit weaker in Q1 2022 than what they were in Q1 2021. Nevertheless, the revenues are up close to 2%. Cost of risk is slightly down, but actually the biggest part of the cost of risk is made of bucket one and bucket two provisioning, again, within the regional banks.
The incurred cost of risk is indeed very low, and the net profit is up globally 10%. Let me go now on page 13, in terms of solvency. At group level first and then at CASA. At group level, we have a decrease of 50 basis points of the solvency ratio, which comes in at 17%, 810 basis points of margin above the Pillar 2 requirement. This 50 bps decrease is the combination of course, a significant level of profit after distribution, but a significant impact of the RWA evolution, in connection with the Russian crisis. Again, as I said, at CA-CIB, we have had an increase of close to EUR 6 billion RWA simply by the increase in the risk weighting of our Russian exposures.
Significant also organic growth of RWAs at group level and the OCI impact within the insurance activities linked to, first, a significant decrease in equities markets, but also, and more importantly, a significant increase in the level of rates that is decreasing the unrealized capital gains at the level of Crédit Agricole Assurances. Then we have a regulatory effect, which is mostly due to the fact that despite we challenge that, the ECB has requested the French banks to again deduct from their solvency their, the commitments that they provided to the Single Resolution Fund to pay some contributions. This is leading to an impact of 17 basis points at the level of the group.
Translated at the level of CASA, the overall evolution is more important. It represents globally 90 basis points, but the explanations are exactly the same. We end up at 11%, which is again, and I remind you, because it seems that sometimes it's a little bit difficult to accept, but it's exactly our target, and it is more than 300 basis points above our Pillar 2 requirement. In terms of liquidity, I think nothing much to say on page 31. The liquidity reserves are very ample. They are boosted by the TLTRO drawings. Even if we restate it from the TLTRO drawing, we continue to have a very comfortable liquidity position.
This has been also fueled on page 32 by the fact that our market funding program is well on its way. It's completed 84% at the level of CASA end of April, and at the level of the group globally, we've raised close to EUR 18 billion end of March. A very significant effort, which is paying off because actually, since then, the credit spreads have quite significantly increased on the market. I think I can stop now and we can go back to the question if you wish.
Thank you. As a reminder, if you would like to ask a question, please press star and one on your keypad, and if you want to cancel, you can press the hash key. So that's star and one to ask a question. Your first question today comes from the line of Omar Fall from Barclays. Please go ahead.
Hello, Omar.
Hi, Jérôme. Thanks for taking my questions. The first one is just if you could highlight what remaining impacts on capital, whatever they might be, we should anticipate for the rest of the year, you know, whether there's anything left on TRIM, IRB repair. I think on the disposal side, Crédit du Maroc is, like, 10 basis points. And then Serbia was announced last year, but that's pretty immaterial. You know, just any of the other moving parts aside from earnings we should expect.
The two main elements that we can precisely identify, even if it's not possible for Crédit du Maroc to give the precise date, is the disposal of Crédit du Maroc, a little bit more probably than 10 bps. We'll see exactly the amount when the closing takes place. The TRIM last layer of TRIM impact, which is going to take place in the second quarter and which is going to represent an additional EUR 5 billion RWA at CA-CIB, EUR 5 billion or EUR 6 billion, I don't remember exactly. These are the two main elements that you can have in mind with the precise quantitative impact. Besides, we have moving pieces on which we are not able to give precise amounts.
As a reminder, every year in the second quarter, you remember that we have the dividend payment that is coming from the different subsidiaries of Casa up to Casa. When it's from a banking subsidiary to the banking mother company, there's no impact. When it's from the insurance activities to the banking mother company, it has a significant and positive, of course, impact. This is going to take place as every year in the second quarter. Of course, we have the capacity to fine-tune the amount of this dividend up to the end of the quarter. These are the main pieces that can be identified, as I would say, specific and one-offs. For the rest, of course, this is going to be the normal course of business.
There is going to be the organic evolution of RWAs in the different business lines. When it comes, for example, to CA-CIB, what I can tell you is that most of the increase that CA-CIB is able to do for the full year has been done in the first quarter, and this explains why we've seen such a high level of results and revenues in the financing division at CA-CIB. Of course, there is the retained earnings quarter after quarter that are going to fuel of course the capital ratio of CASA and of the group.
Thank you. Just a quick follow-up, and it's a separate point, which just on the interest rate sensitivity from the annual report that you've put some detail on that on slide 40. You've not given this to us before over kind of a multi-year period. I just had a couple of clarifications. I think you used to say the sensitivity to rates of the group was low, but I mean, this looks like, you know, 100 basis points is like a quarter of last year's earnings. Maybe you can give some color there, especially because it's strange that your sensitivity doesn't increase over future years like most of your Northern European peers. Thanks.
Actually, it increases over the year, over the time, but there is a technical effect, and I think it's explained on this page 40. On the first year, because the first year is impacted the way you see it can impact the way you see the global impact of this increase. It's the TLTRO premium ending end of H1 and also the Livret level increase that took place the beginning of this year. This is why, actually, you could more look at the plain bar on the bar chart, EUR 0.4 billion on the first year, then EUR 0.7 billion, then EUR 0.8 billion.
There's a progressive increase of the spreading of the impact within the P&L.
Thank you.
Thank you.
Thank you. The next question comes from the line of Guillaume Tiberghien from Exane. Please go ahead.
Yes, good afternoon. Thank you very much. Question on capital as well. I understand that your target is 11%, but next year we're gonna have potentially the IFRS 17, potentially some bunny insurance joint venture. My question is, what would be the floor at which you would accept to operate on, even if I understand the target is 11%?
Yes. IFRS 17 is going to be somehow financed by the insurance activities themselves. What we have in mind is that actually, especially in the context of the increase in rates that we are seeing now, an increase in rate is at the same time producing a significant improvement of the solvency of the insurance activities. It's the solvency to a capital requirement standard that produces this effect. At the same time, it reduces the OCI reserves and reduces the solvency of the banking mother company. We are going to work on the level of leverage that we can inject within our insurance activities in order to more or less offset the IFRS 17 impact in terms of solvency at group level.
We consider we can absorb that without having to incur, or at least not significantly, an additional hit on the solvency at CASA. You've mentioned also potential additional bank insurance agreements with third party, for example, in Italy. This would not be performed directly by CASA, but by our insurance activities. Translated in terms of solvency impact at the level of CASA, it would certainly be whatever happens really in terms of those partnerships. It wouldn't translate into a significant hit on the solvency of CASA. This is to answer to your two specific points regarding IFRS 17 and potential new bank insurance partnerships.
Going back to your more general question about 11%, the target, and so on and so forth. 11% is the target. This is what we are aiming at. Of course, we like to be at 11%. We like to be possibly at 11%, I would say comfortably, but there's no need for us to be permanently at or above 11%. Again, when we are at 11%, as is the case now, we have 310 basis points of margin above the Pillar 2 requirement. We have 300 basis points of excess above the minimum distribution amount. There's absolutely no stress for us when we are at 11%.
If we were to be at 10.9% in the coming quarter, which is not what I foresee, this wouldn't be an issue, because again, 11% is the target. It's not the floor.
What flow would you accept to fall to?
It's a target, and we have, of course, our internal, I would say, management buffers. We monitor our activities in order to be able to continue to aim the target. We are not going to disclose a precise figure which would be a flow. We disclose a target. We want to be comfortable in terms of our capacity to distribute, and this is why we are happy to have this 300 basis points of margin above the MDA threshold. What I can tell you, but of course I'm not going to disclose the figures, is that I regularly, every quarter, update my capital trajectory.
What I can tell you is that in my central scenario, my capital trajectory is going to translate into a slight increase of our solvency over the rest of the year. Again, it's in the central scenario and 11% is a target, and the target is a target.
Very clear. Thank you.
Thank you.
Thank you. The next question comes from a line of Delphine Lee from JP Morgan. Please go ahead.
Hi, good afternoon. Thank you for the clarifications on capital. I just wanted to come back on the interest rate sensitivity that you provide in the annual report. What kind of assumptions are you making on deposits and Livret rate when you provide the sensitivity? Is that like a 100% increase in Livret rate? Or, I mean, what are you assuming for sight deposits and the rest? Just trying to understand what the deposit assumption is for that number.
Yeah.
Also on capital, so just on the sensitivity, okay, is there a way to provide like a sensitivity on capital from rates on kind of OCI reserves? How much OCI gains do you still have? Just trying to think about, you know, what the impact would be from rate moves. Thank you very much.
Okay. On interest rate sensitivity, you know, it's an exercise which is very academic because actually the reality is never taking place exactly like the sensitivity scenario are playing. We have to make certain assumptions. The first assumption is about what we call the pass-through rate, i.e., the capacity of passing to the customers on the asset side the increasing rates. We've provided two different assumptions. One with 50% pass-through rate and another one with 100%. The second assumption, the second strong assumption, is that it's based on a constant balance sheet structure. It means that there is no specific assumption regarding a migration from liabilities to one bucket, from one bucket to another one.
The third assumption is, of course, that the increase in rates is, of course, translated to the different categories of assets and liabilities that are rate sensitive. It means that on the Livret side, for example, it's taken into account. Actually the increase, and this is what I explained rapidly when I answered to Omar a little bit earlier. The increase of the Livret in February is taken in the central scenario, so it's in the base scenario. Then the further increase that may take place in August is taken in the sensitivity. Okay?
All right. On capital impact?
Regarding the OCI, well, to put it in a nutshell, if there is an increase of 100 BPS in interest rates and in the yield curve globally, then what we can say is that it would translate in terms of impact on the CET1 of CASA by around probably 20 BPS of impact all in all. Of course, you need to assess exactly how it's taking place. Is it going along with a decrease or an increase in equities, and so on and so forth. This is globally the magnitude that we had in the first quarter of this year.
We had an increase of around 100 BPS of the interest rates. There has been an impact linked to the OCI reserve depletion of 20 BPS on the CET1 of CASA. This continues to remain the sensitivity. Again, what I want to mention, because it's not maybe perfectly known by everyone, if there is an increase in rate, it is improving the solvency of Crédit Agricole Assurances under Solvency II. Because you know how the solvency requirement is calculated for the insurance activities.
It's based on the series of scenario, and of course, every time the scenario are taking an assumption of increase in rates is improving globally the solvency going forward of the insurance activity. This is giving us additional margins of maneuvers in the capacity of upstreaming or downstreaming capital between the insurance activities and CASA.
Understood. Thank you very much.
Thank you.
Thank you. The next question comes from a line of Jacques-Henri Gaulard from Kepler Cheuvreux. Please go ahead.
Yes. Good afternoon. Two questions. The first one is, going back on cost. It's not the first time that basically the company missed a little bit against consensus. Question for you was how you manage the cost base. Is it a case to say, "Okay, we are below 60% target, therefore it doesn't matter if the operating leverage is not as good as it could be because the target is 60% and I need to be below 60%." Is it the way you're doing it, or is there something else? The second question is on the CVA impact of the Russian counterparty on your CIB business. If you could give us the number, that would be helpful, because I assume that's not gonna come back in the forthcoming quarter. Thank you.
Thank you. Well, on the cost base, maybe we can go on page 11 of the document. Again, globally, what is interesting is to analyze a little bit the evolution of around EUR 310 million of the cost base that we have had, excluding the contribution to the Single Resolution Fund over the quarter. Two main components, scope effect, Lyxor and Creval, around EUR 130 million, and the rest of the group, EUR 190 million. Outside the scope effect, inside the EUR 180 million, two categories. Corporate center, around EUR 50 million, mainly explained by technical accounting intragroup restatements. So it's not really an increase in the running cost base, it's technical. EUR 50 million. The rest for the business lines is EUR 130 million.
Maybe we can do an exercise that would consist in taking all business lines and seeing how much did they increase their cost base, and what is the explanation. The biggest increase is at CACEIS, EUR 40 million. EUR 10 million of Forex effect and EUR 30 million of IT expenses in connection with different project and development. You have Crédit Agricole Assurances, EUR 20 million of increase, roughly. It's mainly development, and when you see year after year the development of the business in the insurance activities, it's money that is well invested. Consumer credit, CACF, EUR 20 million, again. It's almost only scope effect. The effect in connection with CACF Netherlands, you know that we've been deconsolidated under IFRS 5 and then reconsolidated because we finally chosen to run it off.
This is producing an effect between Q1 2021 and Q1 2022. Also a second scope effect, which is the integration of SoYou, the Spanish subsidiary. Almost no organic growth at CACF. LCL, EUR 20 million, almost totally explained by the contribution to the French Fonds de Garantie des Dépôts. No organic growth or almost no organic growth. Amundi, EUR 15 million outside Lyxor. It's mainly driven by Amundi Technology and the development of the ALTO project. You have the leasing and factoring activities. Again, EUR 15 million increase, outside of which Olinn, which is the new integration, is representing about half of the increase.
You have the wealth management business, EUR 10 million increase, mainly explained by projects and developments inside Azqore, which is the subsidiary dedicated to servicing third party private banks. You have CACEIS, around EUR 5 million. It's totally explained by the fact that CACEIS is going to move from its present location to a new location, and for two or three quarters they have to pay two rents, two terms. Really when you see exactly where we've been increasing this quarter, the cost base, it's perfectly explained. It's not spiking, you know, across the board.
It's really made of different decisions that are perfectly acceptable from our point of view and compatible with what continues to be a very important priority for us, which is to monitor the overall cost base and to keep it under the 60% ceiling. Clearly, I was saying that 11% is a target. 60% is not a target, it's a ceiling that we want to respect. We continue to manage this cost base in a decentralized manner, i.e., each head of business is responsible for managing his or her own cost base in accordance with the potential of generating revenues. I don't know if I have been clear.
Fantastic, Jérôme. Thank you so much.
If this was worth getting up this morning.
Indeed. On the CVA, if you can, just reply to that question.
Yeah, excuse me. On the CVA, yes, we have had around EUR 35 million CVA impact this quarter, whereas in Q1 2021 we had, I think, EUR 15 or 20 positive reversal of CVA. The difference between Q1 2021 and Q1 2022 is about EUR 50 million, roughly. I'm not sure that I agree with your opinion that it's not going to be written back someday. If you remember, back in 2020, in the midst of the crisis, the pandemic crisis, when in the beginning there was an intense tension on the market, we have had up to a much higher amount of CVA that has been progressively written back and is now completely recovered. The CVA is normally here to be recovered.
Thank you so much.
Thank you.
Thank you. The next question is from the line of Giulia Miotto from Morgan Stanley. Please go ahead.
Yes, hi, good afternoon.
Thank you.
Two questions from me, please. The first one on Ukraine. There is a provision of EUR 195 million, which is the same level as the equity. Is there a scenario where you can lose more than the equity, actually, or what is the outlook, essentially, for your exposure to Ukraine?
Mm-hmm.
Secondly, on Russia, could you maybe give us some sense around. So first of all, the maturity of the loan book by when, if you just keep it in run-off, by when will you know, be free from it? But also, according to your best assessment, what's the worst-case scenario in terms of losses? That would be very helpful.
Okay. Ukraine to start with, actually, it's the combination of the EUR 20 million loan loss provision taken locally within the books of Crédit Agricole and plus the EUR 195 million that all together more or less represent the value of the equity, but nevertheless, it's a detail. Can we lose more than that? The only possibility to lose more than that would be a situation where we would decide voluntarily to inject additional equity within our subsidiary before losing all of it. Because as of today, the only possibility if we don't add up any capital, additional capital, in Ukraine, would be a complete write-off of this asset, and then, there would be almost no additional effect.
With one detail, which is that we have a Forex reserve in our books that would then be recycled through P&L. It's around EUR 200 million, so there's no effect neither in cash nor in solvency, because of course it's already deducted from our solvency as of now. If there would be somehow a termination of our activities in Ukraine, we would have to recycle this reserve through P&L without any effect, again neither in cash nor in solvency and of course not also in dividend because of this absence of effect in solvency. This would be the only additional effect unless, again, we decide voluntarily to inject additional capital in Ukraine.
When it comes to Russia, first the maturity of the different exposures, you have them on this slide 38. What you can see is that, actually, when it comes to the on-balance sheet offshore exposures, two-thirds of the residual maturities are below three years. When it comes to the off-balance sheet portion, be it on and offshore, it's 70% with a remaining maturity of less than 1 year. It's a rather, I would say, short to medium term portfolio.
Thank you.
What we see our worst-case assumption, I don't know. What I can tell you is that when we assess each of the counterparties that we have, they are almost all of them in a very good economic situation. In terms of pure credit risk, there is no threat regarding these different exposures. The only threat that we have is a political slash legal slash sanction stress. But economically, the level of credit risk that we feel in these different exposures is and continues to be very low.
Perfect. Thank you. Just to follow up on the Ukrainian exposure, by when would you expect to decide whether you put more equity or not in this division?
The question is not raised. I was just addressing it, I would say, theoretically, but as of now, the bank locally is perfectly solvent. As I said, it has been able to post a very tiny but positive profit for the first quarter. So there's no reason why we should be these questions should be asked.
Okay, thank you.
Thank you.
Thank you. The next question is from the line of Stefan Stalmann from Autonomous Research. Please go ahead.
Yes. Good afternoon, Jérôme. I have two questions, please. The first one regarding your Russian subsidiary. Given that you have taken a provision on the equity value of your Ukrainian subsidiary, and the prospects in Russia are probably not that much better or maybe worse, do you expect that you may have to take or want to take provision there as well at some point? The second question is, maybe I've missed it, but are you disclosing an update of the solvency ratio of Crédit Agricole in the first quarter and also the policyholder participation reserves? Thank you very much.
Yes. As far as the Russian subsidiary is concerned, the situation is not really the same as in Ukraine. First, there is no war in Russia, as contrary to what is the case in Ukraine. Second, it's a much smaller entity with a total asset of around EUR 700 million. So it's half the size of the Ukrainian bank. More than half of this exposure is simply made of deposits within the Russian Central Bank. So it's only customer money that we have put back at the Russian Central Bank instead of lending it to local counterparts.
The real credit loan book locally is, I think, between EUR 200 million and EUR 300 million. It's a very small portfolio, and half of it is related to Russian subsidiary of multinational companies. We have the guarantee of the mother company regarding these exposures. Definitely the situation is not the same. Absolutely not the same, we have no intention as of now to take the same stance on the Russian entity as the one we've taken on the Ukrainian entity. The solvency ratio of the insurance activities stood at 244% end of last year. We haven't published the figure end of Q1.
What I can tell you is that it has increased since this level again because the increasing rate is positive solvency-wise for an insurance company. When it comes to the participation reserve for the customers for the policyholders, it is a little bit above EUR 13 billion, and it's up close to EUR 500 million this quarter as compared to end of last year.
Great. Very clear. Jérôme, could you maybe give us a general sensitivity of the solvency ratio, let's say for a hypothetical 100 basis point increase in rates, what would that typically do to the solvency ratio?
I don't have that precisely in mind, so it's a good question that we are going to address more formally in the course of the preparation of the communication going forward.
All right. Thank you very much.
You noted it.
Will do. Thank you.
I fear it's not completely linear.
Thank you.
Yes.
Once again, as a reminder, if you would like to ask a question, you can press star and one on your keypad. Your next question comes from a line of Kiri Vijayarajah from HSBC. Please go ahead.
Yes, Kiri.
Hi there. Yes, a couple of questions on French retail. The increase in Livret A rate has been helpful. You've given us the impact on NII, but my question is more to what extent you're starting to see some sort of impact on customer behavior, you know, for instance, moving back into some of those regulated savings products out of some of the other savings and investment vehicles you guys offer. Still on French retail, more on the asset side and French mortgages. The volume growth is still pretty robust, but I wondered how the pricing is shaping up at the moment. You know, the funding curve's been moving up.
Have you been able to pass that on in terms of the mortgage rates you're offering? Are you sensing the customers are kind of willing to pay up a little bit at the moment to lock in low-ish rates in anticipation of the rates increase? Is that kind of helping you put some of that price increases through? Just some color there on the pricing dynamic on French mortgages, Jérôme.
First question on the liability side, for the time being, but of course it's not going to last forever, especially if rates continue to increase, especially in connection with the level of inflation, because as you know, the Livret A yield is partially linked to inflation. As inflation continued to increase since the beginning of this year, what we think is that the Livret A is going to increase. The rate of the Livret A is going to increase in August, at the next reset date, and probably it's going to be a significant increase again.
Probably at a certain point in time, there is going to be a modification of the behavior of the customers in terms of allocating their cash between a side deposit with a remuneration that is zero and Livret A or whatever. For the time being, there's been nothing significant, but it can take place going forward. Between Livret A and other products, we have also a term deposit. We have also unregulated savings accounts. We have a whole series of product that can be used. Of course, the idea for us is to continue to monitor, I would say the weighted average cost of our liabilities in a manner that is as efficient as possible.
I'm going to your second question, the idea is of course that progressively, the increase in the cost of our liabilities is going to translate into an increase in the yield of our assets. Up to now, the increase has been quite modest in the pricing of new loans for at least two reasons, plus one, I would say. The main overall reason is that the competition continues to be quite fierce in France, and of course, nobody wants to lose ground on this market. Besides this element, you have two more technical elements that explain why it's lagging significantly as compared to the evolution of market rates.
The first point is that between the moment you set the rate of a home loan and the moment the rate the loan is in place it can take a certain amount of time and sometimes several months. What we are now putting in place is loans that were negotiated a few months ago. It's only progressively that the rate increase is going to bite and to produce effect on our yields. The second point is that in France, you know that we've got a regulation regarding taux d'usure.
This is also slowing down the evolution of the pricing of new home loans, because for different categories of loans, mainly, for different bucket of maturity, there is a regulation that imposes not to go above four-thirds of the average market rate on the market that was in effect in the previous quarter. It means that on a single quarter, there is a cap that is set on the possibility of increasing the customer rate.
Okay. That's helpful. Thanks, Jérôme.
Okay, thanks.
Thank you. The next question is from the line of Pierre Chédeville from CIC. Please go ahead. Pierre, is your line still connected? Can you hear us? Looks like that line's on mute. We'll move to the next question. This is from the line of Matthew Clark from Mediobanca. Please go ahead.
Good afternoon. Can I ask you a couple of questions on Banco BPM, please? I guess the first question is, can you rule out ever making an offer for a controlling stake? The follow-up is if so, why? I just really want to get a firmer view on your intentions there. Thank you.
Your question is, do we rule out the idea of launching an offer on BPM? Is that the question? The line was not very good.
Yes. Yes, that was.
Well, we have been quite clear in the communication. We have said that we had not requested the approval that we need to get from the ECB if we want to go above 10%. It's quite clear.
It's clear in a backward-looking way. It's not clear in a forward-looking way. I'm asking, can you give a forward?
No,
forward-looking commitment rather than a backward-looking one.
We've also explained that the purpose of this stake was to reinforce our cooperation within the different specialized business lines between our group and BPM. We've stated, first, the level of stake that we have taken. Second, the fact that we have not requested the possibility of going above 10%. The reason why we did that, I think it's self-explanatory and self-supporting. There's no need to provide additional comments on this. It's very clear.
Okay, thank you.
Thank you.
Thank you. The next question is from the line of Guillaume Tiberghien from Exane. Please go ahead.
Yes, thanks. Just to follow up on the mortgage margin in France. I understand the lag between the time you commit and the time you actually lend. Let me ask the question differently. The government bond today is 1.5%, the ten-year in France. You should now commit to lend at roughly 2.5% for your new business. Is that what you're doing or are you still well below 2%?
You perfectly know the answer, Guillaume. The market rate is around the for the new loans that we grant, and you know that new loans are usually on average close to or even above 20 years of maturity. You perfectly know that we are lending on the basis of a rate that is closer to 1.20. Definitely, for the time being, it is not matching with the ten-year swap rate or the ten-year OAT. Again, there is going to be a certain amount of time before progressively we are in a more normal situation where because in terms of duration, a 20-year amortizing loan is more or less in line with a ten-year bullet bond.
The reference rate that you have in mind for the home loans is relevant, but it's going to take time before we are able to reach this level.
Why don't you stop lending altogether until the margin is comfortable and buy government bonds instead?
Because we are not a hedge fund. We are simply a bank. We have customers, and we need to keep our customers and to increase our customer base and to entertain a long-term relationship. That's the difference.
When rates move fast, I understand that the view can be that it's temporary, but right now, it should not be seen as temporary. You should say to your clients, "I'm sorry, but that's the world has changed. That's a new normal." In some countries, we see that. In the Netherlands, banks are lending 100 basis points more than at the beginning of the year.
Yes, but the way we do banking in France is not the same as the Dutch banks are behaving. In France, all banks don't behave exactly the same way. You know that within our group, we have a DNA that is really built around preserving, developing, enhancing permanently the relationship with our customers. If we were simply a financial investor, we would certainly arbitrate between bonds and loans regarding only the financial conditions, but we are not a pure financial investor. We are a bank and a relationship bank.
Okay. Fine. Thanks.
Thank you. The next question is from the line of Pierre Chédeville from CIC. Please go ahead.
Yes, good afternoon. Can you hear me?
Yes, Pierre.
Sorry I have many problems with my phone. I don't know why. First question. I remember that Philippe Brassac in an interview and I don't remember exactly showed quite a real ambition regarding development of P&C Insurance towards corporates and particularly SMEs. I wanted to know where you stand here in terms of development regarding this type of products and customers. Second question is regarding LCL. You have quite impressive, very impressive production numbers. I was wondering if it was only the fact of the catch-up towards 2021 knowing the fact that in 2021 you had the catch-up of 2020.
I was wondering when the catch-up would stop, if it's a question of catch-up or if it's a question of a marketing campaign on Q1. Because when you see such impressive growth in production, it raises question. My subsidiary question is why what is the philosophy behind your financial communication when we can say that you are one of the sole big European banks that is not giving any guidance on the cost of risk? I understand that giving guidance is always something tricky, but when we are in particular times and that we see that all, as I said, big banks in Europe give such guidance, why you don't give any guidance on this subject? Thank you very much. Sorry once again for the line.
No problem, Pierre. P&C insurance for businesses, you know, SMEs and corporates, it's been launched already and it's developing, but it takes a long time and the good news is that we are patient. We've launched, for example, collective group insurance policies for protection businesses about five or six years ago. It now represents a few hundred million EUR in premiums on a yearly basis. But it took five or six years to reach this level. It's going also to take time for the development of P&C insurance for businesses. But clearly it's already live and it's been developed with several regional banks already. LCL, the level.
It has started at the very end of 2020. We now have a little bit more than a full year of, I would say, test and learn on this business. LCL, well, we don't want to put a brake on the development of the customer base of LCL and the equipment of the customers of LCL with different products and services. We are very happy to see the development of the loan book. We are very happy to see the progression of the equipment in different P&C and protection insurance policies. All that is very positive. Of course, when we grant new loans, we continue to stick to the same credit standards.
We don't want to relax the credit standards, of course. As long as we are inside our standards, we are happy to see the development of the production. I think that what you see in terms of dynamics is the result of the fact that LCL is a bank that is fully focused and dedicated on its own market, which is to be a retail bank on the whole territory in France. In terms of cost of risk and guidance, I don't know exactly what you mean by guidance. What we say, what we do is that we set assumptions on the medium term, and we say that our financial targets are coherent with those assumptions. You know that the assumption at CASA is an average cost of risk around 40 basis points.
What I told you and what I showed you in my presentation is that including the very specific provisions that we've taken regarding Russia, we are more or less at the target. In addition to that, what I can say is that the incurred cost of risk, because most of the Russian provisions is not on incurred exposure, risk exposure, is purely prudential. If I take only the incurred cost of risk, it's a very low level. It's around, I don't have the precise figure in mind, but it's much lower than the 40 basis points assumption. For the time being, we don't see any sign of significant deterioration of the asset quality of our exposures.
What we say simply is that ahead of us, there is a lot of uncertainties and possibly there is a possible deterioration of the situation. We are not seeing, as of now, sign of a significant deterioration in the different credit exposures that we have across the board. Maybe the last point, but it's important to keep it in mind, we have very significantly increased our Stage 1 and Stage 2 provisions since the beginning of the pandemic back in 2020. We have now around EUR 2.5 billion of Stage 1 and Stage 2 provisions at CASA.
No, we have increased our Stage 1 and Stage 2 provision at group level by EUR 2.5 billion, and we have increased our Stage 1 and Stage 2 provision at CACF by EUR 1.3 billion since the beginning of the crisis. It's a very, very significant level.
Okay. Thank you very much.
Thank you.
Thank you. The next question comes from a line of Flora Bocahut from Jefferies. Please go ahead.
Yes, good afternoon. I wanted to ask you two questions on the financing business in the CIB. The first one is on revenues. You had, you know, a very good quarter here in Q1 on the revenue growth. I think you made a comment earlier on this call that CA-CIB has already used most of the capital that was allocated for the year. Just wanted to check here whether, you know, this could mean that the organic growth in financing for the rest of the year could be constrained, you know, by this capital growth that we saw obviously in Q1. The second question is still on financing, but then going to provisions.
You know, you made the point that you actually saw a write back this quarter if we exclude the provision on Russia. I understand, because obviously you have a high NPL coverage, but the timing is a bit of a surprise in the sense that I would say the risks have probably increased for large corporates when we look at you know, higher inflation, higher raw material prices, the disruption in the supply chain in some of the sectors. I wanted to better understand the move here on the provision write back in financing and any concern or actually lack of concern on the underlying risk there.
Okay. On the financing activities, the development of the revenues is not linked to a permanent increase in the size of the loan book. The development of the revenues is linked to the activity, and the activity is made of granting new loans but also distributing assets, covering assets, and making room to grant new loans. It's a permanent move. What I just said is that in terms of the capacity of expanding the size of the loan book and the size of the RWAs, and this is regularly the case in the first quarter of the year, there is within the budget a new assessment of the development capacity.
Of course, as the loan book is generating revenues over time, it's generally important to try to take advantage of opportunities in the beginning of the year in order to generate revenues across the full year and not only progressively. The revenues within the financing activities is not only linked on the carry of the book, it's linked on the transactions, and the capacity to undertake new transactions is also connected with the capacity of distributing, making room, and then taking new operations. CA-CIB is very agile in this viewpoint. The capacity of CA-CIB to continue to develop its business is not, you know, it's of course constrained, but it's not nil in the coming quarters.
When it comes to provisions and write backs, you know, it's not discretionary. We cannot just say, "Well, we feel like taking new provisions, and we feel like, you know, writing back provisions." It simply is the fact that in the first quarter of this year, if I take out the Russian exposures, the behavior of the credit exposure of CA-CIB was such, the improvement of the quality was such that a write back was absolutely relevant and necessary, considering all our models and all our provisioning rules internally. That's the point. You know, when you have a provision on a loan that was defaulted and that ultimately is repaid, you have nothing to do than writing back the provision.
All in all, we've not written back Stage 1 and Stage 2 provision at the level of CASA. We've even slightly increased, again, outside the Russian provision, we've even slightly increased the level of Stage 1 and Stage 2 provision over the quarter, at CASA.
Okay. Thank you.
Thank you.
Thank you. There are no further questions at this time, so I'll hand back to the speaker for closing remarks.
Excuse me. There's no other question. Well, thanks a lot to everyone. We are waiting to meet you on June 22nd, 2022, and I think this time it will be in person, I guess. I hope at least for most of us. Until then, have a good end of the day, and see you soon. Bye-bye.
Thank you. That does conclude the conference for today. Thank you for participating, and you may now disconnect.