Good afternoon, ladies and gentlemen, and welcome to the presentation of BNP Paribas First Quarter 2020 Results. For your information, this conference call is being recorded. Supporting slides are available on BNP Paribas IR website, invest.bnpparibas.com. During today's presentation, you will be able to ask your question by pressing 01 on your telephone keypad. If you would like to ask your question, please make sure to be in a quiet area to maximize audio quality. I will now turn the call over to Mr. Jean-Laurent Bonnafé, Group Chief Executive Officer. Sir, please go ahead.
Thank you. Good afternoon, ladies and gentlemen. Welcome to BNP Paribas results presentation for the first quarter of 2020. Before we get into the specifics of the first quarter performance, I'd like to say that our thoughts go to the most affected by the current health crisis and the ones mobilized to support them. Now in today's presentation, we will update you on how the BNP Paribas Group navigate this environment, and we'll focus on group results, division results, and the outlook for 2020, which will conclude our presentation. First, I will take you through the summary of our group results, then Lars Machenil comment on the results by division, and then I will update you on the outlook for 2020. As usual, at the end, Lars, Philippe, and myself will be pleased to take your questions.
Before going into key messages and results, I invite you to move to slide three, where we remind that BNP Paribas has entered this crisis with a very solid balance sheet, capital and liquidity-wise, a diversified and resilient business model, a strict risk discipline at origination, and long-term client relationships, combined with high-performance digital solutions. As such, we are well equipped to accompany our clients through this crisis. Switching to slide four, I would like to highlight some of the ways we're responding to this health crisis. The Group's teams have mobilized around the world to support the functioning of the economy and its financing. Our concerns have been to protect our employees, who are fully mobilized to ensure banking services to quickly implement solutions to support the financing of our clients. To illustrate this, some figures.
First, over 130,000 employees worldwide are working remotely, while close to 90% of our branches remain open with a suitable public health setup. Second, close to 70,000 applications have been received for state-guaranteed loans, notably in France, where it was launched earlier than in other countries. It is important to mention that we were very active in accompanying our clients globally across loan, bond, and equity markets with over EUR 115 billion raised with an exceptional mobilization of the Group. Last but not least, BNP Paribas Group has demonstrated its social engagement through a global plan of emergency financial aid of over EUR 50 million, as well as EUR 100 million in investments to support SMEs, big caps, and the health care sector. Now turning to slide six, with our first set of key messages.
Clearly, the acceleration of the health crisis ignored towards the end of the quarter resulted in extreme shocks on financial markets and in a major shift in the macroeconomic outlook. This triggered several negative impacts on the Group's financial performance, which was otherwise in line with its 2020 objectives. First, a negative EUR 502 million impact on the Group's cost of risk, mainly due to the ex-ante provisioning of expected losses. Second, two one-off negative impacts on revenues totaling EUR 568 million in the first quarter. The first one-off item consisted in a negative EUR 184 million impact in revenues in our equity and prime services business, resulting from the unexpected and sudden restrictions on 2019 dividends by European authorities.
The second one-off item was a negative EUR 384 million accounting impact in our insurance revenues related to the valuation at fair market value of certain portfolio as at March 31, bearing in mind that such impact is reversible with market recovery, as demonstrated in the first quarter 2019. If we move to slide seven, we can see that at the end of a quarter supported by an excellent business drive in line with our 2020 objectives, our results were impacted by the harshness of the health crisis. Group revenues at EUR 10.9 billion showed resilience despite an extreme market shock at the end of the quarter, with a decrease of 2.3% on last year. When excluding the two one-off revenue impacts we have just talked about, this would have translated into a 2.8% increase.
Costs, on the other hand, were significantly down by 3.5% to EUR 292 million, in line with our objectives and as testimony to the continued success of our transformation plan. Included, as anticipated, EUR 45 million of restructuring and adaptation costs, as well as EUR 34 million of IT reinforcement costs and, as planned, no transformation costs. Our cost of risk rose to 67 basis points, out of which 23 basis points were due to the effect of the health crisis on credit and counterparty risk. Down 85.4% increase in our cost of risk this quarter, mainly for ex-ante provisioning of expected losses. Our net income for the first quarter stood at EUR 1.3 billion, down 33% on last year. When excluding the negative measure impacts on the health crisis on revenues and cost of risk, net income was up 6.7%, in line with the group's 2020 objectives.
Our core equity Tier 1 ratio stood at 12%. Finally, the return on tangible equity reached 8% in the first quarter as a result of the impact of the health crisis this quarter. Moving to slide 10, for zoom on revenues in the operating divisions. Overall, revenues in the operating divisions were down 3.1%, while when excluding the negative one-off revenue impacts of the health crisis, they were up 2%. Looking at divisions individually, domestic markets revenues were resilient as requested, with a small decrease of 1.2% of last year due to the persisting impact of low interest rates in the networks, which was partially offset by the increased activity in specialized businesses.
International Financial Services saw a decrease of 5.4% year-on-year, with revenue growth in Personal Finance, Bank of the West, and Europe-Mediterranean, but penalized by the negative one-off accounting impact in our insurance business from the sharp fall in stock markets. Excluding this one-off impact, IFS revenue would have been up 3.6%. Revenues in corporate and institutional banking were down 1.9% on the back of a very good performance in FICC, corporate banking, and security services, and the one-off negative revenue impact in Equity & Prime Services . Excluding this one-off impact, CIB saw an increase of 4.3% in top line. Switching to slide 11 on costs in the operating divisions. Domestic Markets deliver a 0.5% reduction in cost, with a 1.5% decrease in the network and a content increase in specialized businesses.
When excluding the effect of taxes, such as IFRIC 21 taxes, the division saw a [inaudible] in cost as it continues to develop its businesses, CIB reduced significantly by 2%, due in particular to its continued cost base. Moving to cost of risk, starting with slide 12. The impact of the effect of the health crisis was EUR 502 million, or 23 basis points. It reflects the change in macroeconomic anticipations based on several scenarios. It reflects as well the specificities of our portfolios and prudent risk management standards throughout the cycle. The macroeconomic anticipations take into account the specific features of the dynamic of the crisis, and in particular, the impacts of the lockdown measures on economic activity, as well as the anticipated effects of government support measures and authorities' decisions.
Finally, the impact also includes a sector-specific component based on the review of certain sensitive sectors, including hotels, tourism, leisure, transport and logistics, non-food retail, and oil and gas. You can see from this slide, the majority of the impact is borne by CIB and IFS. Looking at the different business one at a time, starting with corporate banking on slide 13, cost of risk was up, mainly related to the anticipated impact of the health crisis. Turning to the other business line on slide 14 and 15, cost of risk remains low in French retail, continued to decrease at BNL in Italy, and increased moderately in Belgian retail due to the anticipated effects of the health crisis. In the other retail businesses, the anticipated impact of the health crisis has resulted in a moderate increase of the cost of risk in Europe-Mediterranean and an increase in banks.
The increase in Personal Finance is mainly on the back of anticipated effects of the health crisis as well. Turning to slide 16, financial structure. You can see that our common equity Tier 1 ratio remains stable at 12%, mainly due to the support of the economy and combined effects of the health crisis. Our Basel III leverage ratio clocked in at 3.9%, and the group's immediately available liquidity reserve totaled EUR 339 billion, up EUR 30 billion from last quarter. On slide 17, you can see that our net book value per share was stable at EUR 69 as at March 31. At EUR 69.7, our tangible net book value per share has grown at an annual rate of 7.2% since 2008, highlighting our continued value creations through the cycle.
Finally, I remind you that the resolution to suspend the payment of the initially planned dividend has been submitted to the annual general meeting. Besides, after the 1st of October 2020, and subject to the then prevailing circumstances, the board of directors may convene a general meeting in order to proceed with the distribution of reserves to shareholders in place of the dividend. You will find on slide 18 some key points on the continuous enforcement of the Group's internal control and compliance system. I now hand over to Lars for the divisional results.
Thank you, Jean-Laurent. Fine ladies, gentlemen, good afternoon. Today, I will walk you through the results of each operating division, starting with the first, Domestic Markets. If I can ask you to swipe to slide 20. You can see that it showed good business drive with solid loan growth, in particular in the French and Belgian retail networks, as well as in the specialized businesses. It also showed a steady rise in deposits in all retail networks, as well as good net asset inflows in private banking. Domestic Markets adapted very quickly to the new environment and showed an extraordinary mobilization of its teams to support customers during the health crisis. For instance, around 90% of branches remained open across its retail networks to ensure continuity of service and support customers. For example, with state-guaranteed loans, debt moratoria , where applicable.
The strength of our digital platforms, illustrated in particular by a steady increase in the number of customers active on mobile apps, as well as in the number of daily connections, was also critical in ensuring smooth continuity of service. If we now focus on the P&L. Top line showed resilience with a slight decrease year-on-year as guided. The impact of persisting low rate environment was partially offset by the increase in volumes and the rise in fees, in particular at Consorsbank in Germany. Operating costs were 0.5% down year-on-year, which, when excluding the effect of taxes subject to IFRIC 21, translated into a 2.3% decrease and positive jaws. Pre-tax income was down 5.5% year-on-year, up 2.6%, excluding the anticipated effect of the health crisis on the cost of risk, which was described earlier by Jean-Laurent.
If you look at pre-tax income, excluding the effect of taxes subject to IFRIC 21, it was up 1% on last year. Looking now at the different businesses part of Domestic Markets, which you can find on slides 21 to 24, I like to highlight in particular. In French Retail Banking, loans were up 5%, with a positive evolution across all customer segments and margins holding up well, while deposits were up 8.3%. Revenues were down 4.4% due to a high base effect in the first quarter of 2019 and the impact of the low rate environment. Costs were slightly down with the ongoing impact of cost optimization measures. Pre-tax income was down 27% year-on-year and down 14%, excluding the effect of taxes subject to IFRIC 21.
Thanks to its digital transformation and the strong mobilization of its teams, French retail banking was able to roll out very quickly the state-guaranteed loan program in France. FRB received 44,000 applications for a total of more than EUR 11 billion, and this at the end of April. If we now go to Italy with BNL bc, which showed a 2.5% decrease in revenues due to the impact of the low interest rate environment, as well as the positioning on clients with a better risk profile, something we have been doing now since several quarters. Costs were down 1.2% year-on-year, thanks to the effect of cost-saving measures. Thanks to a sharp drop in cost of risk all over the year, pre-tax income more than doubled year-on-year.
BNL has been fully mobilized to help customers overcome the effects of the health crisis and rolled out very rapidly adapted measures like loan moratoria. If we now go north, we go to Belgium Retail Banking, was really active in supporting their clients and, for example, approved 74,000 modifications of repayment schedules as of April 24, and this across all customer segments. Belgian Retail Banking showed a sustained business activity with loans up 5% and deposits up 5.4%. Revenues were down 3.3% due to the impact of already mentioned the low interest rates, which was only partly offset by higher volumes and the rise in fees. Costs were down 1.6% on the back cost reduction measures and down 5%, excluding the effect of taxes subject to IFRIC 21, thus generating positive jaws.
Pre-tax income was slightly negative as a result mainly of the strong impact of IFRIC 21 taxes, which I remind you have both a European and a Belgian component. Excluding taxes subject to this IFRIC 21, pre-tax income was only down 3.8% compared to last year. Finally, the last part in Domestic Markets, the specialized businesses, continued to deliver very good business drive with, in particular, a strong growth of 8.7% in the finance fleet at Arval, and a significant increase in orders and number of clients at Personal Investors. In particular with Consorsbank in Germany, with an increase of 172% year-on-year. Revenues were up 9% year-on-year with a positive jaws effect, thanks to a contained increase in cost stemming from business development. Pre-tax income rose sharply 16%.
To wrap up this first quarter, Domestic Markets showed its intrinsic capacity to deliver on the Group's 2020 objectives and be very mobilized for the road ahead. With this, if I can invite you to swipe to slide 25, you will see that our second domain, International Financial Services, showed sustained business activity with loans up 4.5%, with good growth, in particular at Personal Finance in Europe-Mediterranean. Besides, IFS reported good net asset inflows, while assets under management were down 3.5% due to the drop in the market at the end of the quarter. If we now look at the P&L, revenues were down 5.4% year on year, mainly due to the one-off accounting impact on our insurance revenues for EUR 384 million, a negative impact related to the accounting valuation of certain insurance portfolios at market value. Excluding such an impact, IFS revenues would have been up 3.6%.
I'll come back to that. If we look at operating costs in IFS, they evolved by 2.9% year-on-year on the back of business development contained by cost savings. With the combined effect of the one-off impact in our insurance revenues and the anticipated effect of the health crisis on the cost of risk, IFS pre-tax income was down 50% year-on-year, but it would have been down 3% without these two negative impacts. If we now look at the different business lines building the IFS, and this is in slide 26 to 31, I'd like to highlight the following. First of all, when we look at Personal Finance, it continued to show steady growth momentum in the first quarter with a 4.4% increase in loans, which was nonetheless impacted towards the end of the quarter with points of sale closing as the pandemic spread.
Personal Finance reallocated its resources towards customer relationships in order to proactively put together solutions, including deferrals on a case-by-case basis for those customers whose financial situation was justifiably affected by the health crisis. Revenues were up 3.4%, with growth in particular in Italy and Germany. Costs increased at a slower pace of 2.3%, delivering positive jaws. If we now turn to Europe-Mediterranean, which reported good business growth, in particular in Turkey, Morocco, as loans were up 5.5%, deposits 6.6% across the region. The support to clients during the health crisis was facilitated by apps enabling individual and SME clients to report financial concerns. This in particularly in Poland and Turkey. Overall, on a comparable basis, revenues were up 1.6%, impacted by the regulatory environment, while costs evolved by 5.9%, due amongst others, to wage drifts.
If we now cross the Atlantic and even more go to California with BancWest, where we saw an overall increase in business activity with loans up 1.5% and deposits 8.5%, in each case on a comparable basis. Besides, the number of accounts opened online grew sharply, and BancWest adapted quickly to the new environment with 99% of branches remaining open and over 70% of employees working remotely. It is also actively involved in the implementation of the Paycheck Protection Program, the federal support program aimed at small businesses. On a comparable basis, revenues were up 3.4% thanks to the repricing of deposits and higher transaction fees, where costs were up, limited to 1.4%, thus generating positive jaws.
If we now turn to insurance, it maintained a good level of activity in the first two months, but witnessed a slowdown in savings inflow in Europe and Asia with the spread of the health crisis. Revenues were affected negatively by a one-off EUR 384 million accounting impact stemming from the drop in financial markets at the end of the quarter. As a reminder, part of the assets in insurance business are marked at fair value. As such, this effect may be reversed in the event of a stock market recovery. Costs were slightly up due to the continued business development initiatives, and pre-tax income was down 62% year-on-year. Excluding the one-off impact, it was up 11.8%. If we now turn to wealth and asset management, revenues were down 3% due to the impact of the health crisis on performances of asset management and real estate services.
This on the back of, for example, the suspension of construction works only partially offset by the increase in fees in wealth management. Costs were quasi flat on last year due to the combined effect of development costs in wealth management, in particular Germany, and the transformation plan, so the reduction of cost in particular asset management. With this, it completes the retail banking and services business, so domestic markets and IFS. If I can now draw your attention to slide 32 on Corporate and Institutional Banking. CIB showed strong business drive in the first quarter, further accentuated by the intense mobilization to support the economy in the context of the COVID-19 crisis, and that occurred towards the end of the quarter.
For example, with over EUR 150 billion of capital raised for clients across loan, bond, and equity markets, the activity was indeed very sustained and CIB consolidated its leading positions in EMEA, with the number one ranking in volume and market share in syndicated loans and euro-denominated bonds. If we now look at the P&L, starting with the revenues, they were slightly down by 1.9% on the back of a very strong growth in corporate banking and security services, with double-digit increases Compared to last year, and offset by a one-off negative effect of EUR 184 million for equity and prime services businesses. This stemming from the unexpected and sudden restrictions by European authorities on 2019 dividends. Excluding this one-off impact, revenues would have been up 4.3%. Thanks to cost-saving measures, costs were down 2.8%, so generating positive jaws.
Overall, CIB's pre-tax income was down 60% year-over-year, when excluding the one-off negative impact on revenues and the component of the cost of credit and counterparty risk stemming from the health crisis, they would have been up 18.8% compared to a year ago. If we now turn to the components of CIB, we turn to the next three slides, 33 to 35, let's go into more detail. If we start with global markets, slide 33, revenues were down 14% on the back of a very strong growth in FICC, impacted by the external shocks on European markets towards the end of the quarter on equity and prime services. Indeed, FICC revenues were up 34.5% with a very steep rise in client volumes, and particularly on electronic platforms, and the prompt recovery of market liquidity, and a swift resumption of primary bond activity after the outbreak of the crisis.
Equity and prime services revenues were sharply down on the back of the one-off impact of dividend restrictions and extreme market shocks. The diversification continued with the progressive integration of Deutsche Bank's prime brokerage and electronic execution, and the first client answers have already been achieved. If I now ask you to swipe to the next slide 34, corporate banking showed a very strong business activity with a sustained growth in loans and higher utilization under existing revolving credit facilities to the tune of close to EUR 25 billion in March. Between mid-March and mid-April, capital markets arranged more than EUR 75 billion of syndicated loans, with aggregate final holds not exceeding 15% of deal size, and led more than 50% of all investment-grade bonds in EMEA. At the same time, deposits grew by 14% year-on-year.
Finally, the business consolidated its number 1 positions in syndicated loans and corporate banks in Europe while strengthening positions in Asia, where it achieved for the first time a top 5 position in cash management and corporate banking. As a result, corporate banking revenues grew by 10%, with fees up 18%. A 24% increase in revenues on the capital markets platform and a good resilience of transaction businesses worldwide. Finally, if I can ask you to glance at slide 35 on the third part of CIB, namely Security Services, where the revenues were up 11.8% thanks to the increase in average of outstandings and transaction volumes. The business benefited from a strong growth in Asia-Pacific to the tune of 35%, as well as in the Americas to the tune of 40%.
Security Services pursued its strategic development with the announced acquisition of Banco Sabadell 's depository business in Spain, and the setup of strategic alliance with BlackRock to provide asset managers with integrated services through the Aladdin platform. Ladies and gentlemen, this concludes the division results. I now hand back to Jean-Laurent for the last part of the presentation.
Thank you, Lars. Let's now look at slide 37, which will conclude today's presentation, and will give us the opportunity to share the outlook for 2020. There are a lot of moving parts. The global health crisis leads to a drastic revision of the 2020 macroeconomic scenario. We can currently anticipate that once lockdown measures cease to apply, the current recession will give way to a very gradual recovery. A return to normalized health conditions should not be expected before the end of the year, and a return to 2019 GDP level is not anticipated before 2022. In this context, the unprecedented measures taken to mitigate the impact of the crisis on the economic and social fabric by governments and monetary authorities are critical. BNP Paribas is taking an active part in these economic support initiatives.
Going forward, it should result in an increase in net interest income, which could mitigate, at least in part, the likely decrease in fees affected by the crisis. In parallel, the group anticipates to amplify the initially planned decrease in operating expenses, but this decrease could be offset by the increase in the cost of risk. This moving context, and unless new crisis or new developments of the crisis occur, net income for 2020 could be about 15%-20% lower than in 2019. This concludes today's presentation. As a takeaway, I would like you to keep in mind, the excellent business drive in the first quarter, in line with our 2020 objectives, is not badly impacted by this unprecedented health crisis.
This context, the good resilience of revenues and results confirms the robustness of our diversified and integrated business model and the strength of our franchises. The strong mobilization of our teams around the world to contribute for the resilience of the economy and ensure its financing. Ladies and gentlemen, thank you for your attention, and together with Philippe and Lars, we'll now be pleased to take your questions.
Thank you, sir. Ladies and gentlemen, if you wish to ask a question, you may press zero one on your telephone keypad. Please lift your headset, ensure that the mute function on your telephone is switched off, and that you are in a quiet area to maximize audio quality. We will take questions in the order received, and we will take as many as time permits. If you find that your question has been answered, you may remove yourself from the queue by pressing zero two. Again, please press zero one on your telephone keypad. We have one first question from Mr. Stefan Stalmann from Autonomous Research. Sir, please go ahead.
Yes. Good afternoon, gentlemen. Thank you very much for taking my questions. I have two, please. The first one is you hint in your presentation at potential additional cost-cutting, cost reductions. Could you maybe talk a little bit more about how much we could possibly expect here and by when, which divisions those cuts would primarily affect? The second question relates to the equities business. I think the impact from the dividend trades that you highlight can certainly only be part of the story that drove the weakness during the quarter. Could you maybe break down further drivers of the weakness, whether it's the cost of hedging or counterparties defaulting, or valuation adjustments, or anything else that may have played a role here? Thank you very much.
Cost-cutting. Additional cost-cutting could be in between EUR 300 million- EUR 500 million. Let's say on average EUR 400 million. This is the order of magnitude we are targeting depending on the way the business is moving. Can easily understand that according to the activity of the bank and the different businesses, there are some, I would say, marginal costs that can be avoided. Marginally, a kind of low activity will help reduce the global cost base of the bank. We were starting with a kind of minus plus EUR 1 billion. It could be up to - EUR 1.4 billion, even EUR 1.5 billion. This is for the cost base. For equities, maybe Lars or Philippe can give me more details the way we are splitting the EUR 189 million that hit the platform at the end of March.
Yes. In the equity derivative, I think we had indeed three elements of negative results. One is the EUR 184 million due to the dividend restrictions that were imposed in a very harsh way, very swift way by the authorities. This is easily understandable. We are selling structured products that are mostly indexed on equity indexes, and we hedge them by holding the underlying shares, underlying equities. Of course, in the pricing and in the economics of the business, we take into account the dividends that we are going to receive while holding the stocks, while the indexes themselves are not taking into account the dividends. We are structurally long dividends, if you want, and we count on them for the economics of the business.
Here it's about the 2019 dividends, which were announced, which were, in certain cases, about to be paid, and that were retained at the end because of the strong recommendation by the authorities. This is a very isolated one-off loss, which is clearly understandable. Apart from that, as you have observed, even apart from that, the equity derivative business had a very flattish result over the quarter, which means that they have lost in March roughly what they had won in January and February. This is due to two factors that occurred in March. The first one is the heavy volatility, very high volatility. We are showing the curves in the slide.
Of course, when you sell structured products with the options embedded in it, the hedging consists in adjusting the amount of underlying instruments we held in order to be delta neutral as much as possible throughout the life of the product. This dynamic hedging is, of course, much easier when the volatility is not too high, and it becomes extremely difficult when the volatility becomes very high and hectic, and which happened in the quarter. Hence, we had these kind of losses due to the dynamic hedging. Always a little bit lagging compared with the very high activity, very high volatility in the stocks. Then, the last one is about the price, I would say, reserves at the end of each month and each quarter, we adjust the mark-to-market according to the accounting standards.
It entails a certain number of reserves, which were indeed significantly increased in this period of uncertainty at the end of March. Just one example, which is really understandable. The day-to-day mark-to-market is based on the mid-price, the middle of the bid and ask price. In the accounting standards, at the end of each time we close the accounts, we are supposed to reserve the amount which is necessary to close the position. This closeout cost is depending, of course, on the spread between the bid and the ask. Because roughly it represents the half, if the price is marked at mid-price, it represents half the spread, the bid-ask spread. This bid-ask spread is, in normal times, is relatively small, the adjustment is limited. At the end of March, typically, the bid-ask were very wide.
Sometimes it was not very clear even where is the bid or where is the ask, depending on the price. So we had to reserve much higher amounts at the moment of the closing of the accounts. Those are the elements that explain that the March month was bad for the equity derivatives. At the same time, and given the diversification of our business, the FICC results were very good, as you have seen, an increase of 35% compared with last year. This is balancing to a certain extent, the difficulties encountered in equity derivatives.
Thank you very much. Very helpful. Thank you.
Thank you, sir. Next question is from Mr. Jacques-Henri Gaulard from Kepler Cheuvreux. Sir.
Yes. Good afternoon, everybody. Well done. Great set of results considering the circumstances. My question is about the politics of the results. You've chosen to show a cost of risk of 67 basis points. When I look at your pre-provision profitability, annualized, okay, it's about EUR 11 billion. You could have decided to have an ex-ante, which was much more aggressive, and that would have put you on an annualized basis at about 1.31.4%. You could have literally wiped out every single bit of competition in a way by saying, "Okay, we decide to really have this big ex-ante provision, irrespective of what happens. We have such a great cash flow generation, that in any case, we are able to do that." I was curious to know what really drove you to just be stuck, in a way, at 67 basis points.
If you could maybe be a little bit more precise by telling us what type of GDP assumptions were behind it. Thank you.
Well, there are rules. We are not free to do anything we want, first of all. Second, what we are doing, of course, is taking into account the quality of the balance sheet. If I can make two very simple examples. Cost of risk at BNP Paribas is up 85% this quarter. At Santander, it's up 80%.
Yeah.
If you look at Société Générale , cost of risk for the first quarter is 65%. Cost of risk at BNP Paribas is 67%. Comparing banks that can be to some extent compared, we are very much in line. Again, there are rules. Those rules, when we are looking ahead, kind of forward guidance, that we are considering the quality of the franchise and the portfolio, this it is. We cannot create cost of risk that just do not exist.
About your GDP assumptions, can you share them?
Jacques-Henri, the thing is, a GDP evolution related to the cost of risk is not kind of a linear link. What you have to look at is that saying, indeed, what kind of products are we in? Are they collateralized products? What kind of countries are we active in? In those countries, are there guarantees? Which all make the difference. The idea is that we basically took into account the kind of countries where we are, the kind of products that we have, the collateral that we have, and we basically apply that in a modeling. In a modeling that is basically operated by teams which are a combination of risk and finance teams, and that use models, which are our models, that are also used in the stress testing, the forecasting. That's basically what we can say about this.
Okay. Thank you very much.
Thank you, sir. Next question is from Madame Delphine Lee from J.P. Morgan. Madame, go ahead.
Yes, good afternoon. Thanks for the presentation. If I could just come back on cost of risk. Just trying to understand a little bit more the level of provisioning, in particular for the sector, which are impacted. You mentioned on slide 40 your exposures to oil and gas, aircraft, travel, et cetera. Would it be possible to have the level of provisioning of coverage that you have in those sectors? Also, for the full year, in terms of your guidance of 15%, 20% decline in net profit, what cost of risk assumption are you using? My second question is on capital. Would it be possible to get just some color on where you think you'll end up the year at in terms of CET1 ratio?
I assume you might have some reversal on some of the impacts you've seen this quarter, but at the same time, I guess market risk or credit risk migration and some impact from TRIM will put some pressure by year-end. Any color would be much appreciated. Thank you.
Again, on cost of risk, I don't think we are disclosing those details. If you look at oil and gas in particular, we have an excellent franchise. We exited in 2012 and recently in 2017, most of the sub-segments that are, I would say, are today having problems. It's a very good franchise we have in the oil and gas environment. Second, looking at the cost of risk, we are telling you basically how far we can go in terms of cost base reduction. You can derive from that kind of excess provisioning compared to last year. From that, you can derive the ratio you would like to derive. These are average numbers in absolute terms, which are one that are relevant in absolute terms. We believe that the increase in space will cover an exceptional increase the cost of risk.
Again, I refer to the slide we gave you. It's page 12 of the presentation. Cost of risk structured through the ratio of cost of risk compared to gross operating income. You can see that through the cycle, banks is going to be extremely resilient. Have stayed very much the way this is the TSB bank, say to a very low type of cost of risk platform. Well, this is it. We have all the numbers in absolute terms. Those numbers are, I would say, the one that are relevant.
Delphine, maybe on the cost of CET1 at the year-end. We stand at 12%, how do we look going forward? Indeed, going forward, there is a fraction of the impact in Q1 that might be returned. It might be returned because the market risk and the counterparty effect will reduce. It might be that the PVA, which is a prudent valuation adjustment, which if you look at the regulation, will basically be impacting much less than it is today. If we look at regulatory changes like the ones impacting PVA, there could be regulatory impacts aligning Europe on the U.S. on things like software and the likes. These are elements that could improve. Both the reversal of those elements and the changes in regulation could be a positive effect.
At the same time, we at the bank, we are there to support the economy in this crisis period, this means that our risk-weighted assets could go up. That is a bit the basis. The starting point is 12. It could go up for the reason that I said. It could be a bit tempered by our support of the economy.
Great. Thank you.
Thank you, madame. Next question is from Madame [inaudible] . Madame, go ahead.
Yes. Good morning. Good afternoon. [inaudible] . Thank you very much for taking my question. First of all, can you comment on-
We don't hear you very well.
First of all, can you comment on the differences between the moratoria and the state guarantee schemes that are put in place in each of your core retail markets? Have you actually seen any disparity in terms of effectiveness from any of these measures in any of those markets? I'm thinking actually particularly of Belgium, because this is where we've seen the highest cost of risk increase quarter on quarter compared to France and Italy. Does that reflect any difference in the effectiveness of moratoria and state support measures in the country? Any comment on this would be appreciated. Regarding dividend and distribution, would it be possible to know how firm is your commitment to maintain an official payout ratio policy at 50% for 2020? Obviously, I appreciate this is very early days to discuss this.
You still have a little visibility on the 2019 dividend so far, but any color on your commitment to your official distribution policy would be helpful. Thank you very much.
Well, the last one is very easy. The commitment is 50% payout ratio is what we are preparing the bank to deliver. Cost of risk in the first quarter cannot have any impact at divisional level, because of the quality or the efficiency of any kind of guarantee scheme. France, Germany, Belgium, Luxembourg, Poland are, to some extent, very close in the way they are built. Belgium, it's slightly different because it's a facility that is on one condition. There are good reasons to believe that this scheme will be completed in the next weeks. Nothing that can be derived from the level of cost of risk from the division, and linked to the efficiency of such plans. Belgium, the reality of last year was extremely low, close to nil.
Obviously, at that level, for a number of quarters, with or without crisis, cost can only go slightly up. What we have seen in Belgium is, let's say, the increasing evolution to a more normalized level through the cycle.
Thank you.
Thank you, madam. Next question is from Mr. Jon Peace from Credit Suisse. Sir, go ahead.
Yeah. Hi there. My first question is just back again to your cost of risk provisioning, and presumably, you have a bull case, a base case, and a bear case, and you've weighted them appropriately. I just wondered if you could give us a bit of a feeling as to what those weights are and what your net profit evolution would be in those different scenarios to give us an idea of how things might evolve if the lockdowns end up being longer than we currently hope. My second question is just on your CET1 ratio target. Do you think targeting 12% is the right metric still in the future? Do you think it's better to switch to a buffer over your minimum regulatory amount? Thank you.
If you exclude extreme scenarios that could be extremely good, extremely negative, the one that is, I would say, the base case is the one that is -50% comparing to 2019 in terms of group result. The bad one is -20%, the difference is very much linked to the cost of risk. The difference between -50%, -20% at the end of the year, the net result of BNP Paribas is going to be very much linked to the cost of risk. This is EUR 500 million plus tax between the two, which is basically EUR 750 million or EUR 900 million pre-tax. It gives the order of magnitude between the two scenarios, one that is relative positive and one that is more severe at the end of the year. You're standing between -15% looking at the net result of the company or -20%.
Again, this is a difference of basically EUR 400 million, EUR 500 million plus tax, which is again the range of EUR 600 million, EUR 700 million pre-tax. Tier 1 ratio, the target for that plan is 12%. We believe this is the guidance we can give today based on the scenario we have. Under the previous guidance, at the end of the year 2020, we would have been at a much better level. 12%, as of today, we consider the company could end up at the end of the year, including paying an exceptional dividend at the end of the year. Do we have to look at the distance to the minimum? Yes, we can give that information, of course. It's easy to give that. 12% is also something that, to some extent, gives some comfort looking ahead, and in particular, looking at the so-called Basel IV finalization of the Basel package.
We don't know, as of today, if yes or no, this will take place. There are voices saying that maybe this ultimate stage is not maybe required or necessary anymore. To some extent, if the banking system is able to pass that crisis based on the current Basel III, one could consider that is enough. It's as simple as that. It's too early to say. Clearly, 12% is not the minimum we need. We could go below, but this is the guidance we have under the scenario we are, and the guidance we are giving the market today. Of course, it's slightly below what we were having as a target internally for 2020 when we communicated at the beginning of that year for the year 2020. Clearly, slightly below. This is the target we have according to the current guidance of the bank.
Okay. Thank you.
Thank you, sir. Next question is from Mr. Tarik El Mejjad from Bank of America. Sir, go ahead.
Hi. Good afternoon, everyone. Just a couple of questions, please. Just I'll go back on costs. The EUR 400 million-EUR 500 million extra savings, is that for 2020 only as one-off cost saving due to less travel and so on? Part of it could be actually as well remain as the savings in the future years? Second question is, on the cost of risk. I understand that you're applying the rules, and you don't have cost of risk as a target, but with the COVID-19, there were some degree of flexibility in terms of interpretation of the rules. I wanted to understand how you dealt with the integrating the macro assumptions within your models, and also in terms of treatments of forbearance and so on for specific files. Thank you very much.
Hopefully, travels do not represent EUR 400 million on a yearly basis. There will be other inputs. One of them is that during that period of lockdown, you discover that the way you are banking with counterparts is slightly different. It's very much the online way. The way our platforms are leveraged by our counterparts is slightly different. It's less, I would say, cost-intensive. Most probably part of this will be, I would say, stable or recurrent looking ahead. Be not all of it, most probably a part of it. It's not forced, but the reality is that the way the bank is moving today is slightly different from, I would say, the classical way. It is not that we are forcing our customers or our counterpart, but the way it is.
For them, it's much more convenient, and for everybody, it's much more convenient to use anything that is the online apps, customer journeys we design over the recent years. This is less cost-intensive. Most probably, in terms of flexibility, in terms of efficiency, we will derive a number of lessons, shortcut, and I'm pretty sure that was probably two-thirds, even three-quarters of this can be recurrent. The marginal part will be only, I would say, maybe travels or gathering, and so on and so on. This is going to be marginal. Most of it, if we are disciplined, will stay the way it is. Hopefully, it will also accelerate, say, the maturity of a number of business models. To some extent, what we are in is kind of acceleration of what we were considering for the two, three, four years to come.
When we look internally to our first internal targets for the next term plan, to some extent, in a number of businesses, we're already at that level in terms of efficiency, online, digital, because this is the, I would say, the way to bank with us. Instead of being part of it, all of a sudden it becomes the majority of the business. We will draw all the lessons business by business. There is, in my opinion, a lot to come from that situation, a lot to learn. To accelerate the transformation of our bank as it will accelerate, in my opinion, the transformation on the global sector banking, hopefully. We're quite confident that we'll be able to deliver those cost-cutting in a recurrent way.
Yeah, Tarik, maybe on the macro view that you talked about on the cost of risk.
What we took into account is a gradual normalization by the year-end. That doesn't mean that GDP is back, right? It just that at that moment, we will start to normalize. For example, we assume that GDP could be reaching the 2019 levels, but not before the end of 2022. That is basically the models. The only thing in our model that we had to specify is the guarantees that have been installed in the countries that we talked about. That is basically how we apply, and that is how those parameters will evolve. Let's be very fair, the de-confinement, like in Paris, is starting gradually only next week. I don't know where you guys are, but if you are in London, it is maybe a bit later. We'll have to see how that gradual normalization unfolds and how that impacts going forward.
I'd like to stress at this point that. We should not try and look for cost of risk being a function of the size of the recession of this year. In the Stage 2 of IFRS 9, it's about the expected losses until the end of each loan. First, it depends also on the shape of the recovery which will occur in 2021, 2022, hence the comments of Lars saying that we have taken a scenario where the level of GDP of 2019 is only back at the end of 2022, and kind of U-shape scenario. The second thing is that even all those macroeconomics are only a small part of the ingredients that have to be put in the machine in order to get a view of the cost of risk in the future.
Because it's of use that with the same macroeconomic growth and conditions, two banks with very different business profiles will have very different level of cost of risk. The nature of the assets, the nature of the activities that are conducted are more important, at least as important as the macroeconomic figures. To that respect, again, we insist on the fact that our business model is very diversified with a certain number of important businesses which have very low cost of risk. For example, security services has almost zero cost of risk. We have the private banking, which is one of our strong points, has a very low or nil cost of risk. We have many businesses, insurance, where there is no cost of risk at all, or almost.
Those elements have to be taken into consideration, and hence the fact that, as Lars said, that we have built a relatively complex model and system, which has been looked at by the SSM, by the way, and in order to be able to provide our supervisors with figures on the stress test, and that we are using for all our forward-looking exercises, being the budget or be it the IFRS 9, or any kind of projections in the future.
Thank you very much. I'll just try my luck for a follow-up on the cost of risk. Because it's very important element in terms of your guidance overall for the net profit. Would you be willing to give a range in terms of basis points or in absolute numbers?
No, the range has been given on the net, I think.
Yeah.
I'm sorry, there are a lot of moving parts. There are some uncertainties on the revenues as well. To which extent are we going to lose fees that are based on volumes or based on values? To which extent are we going to make more net interest income due to the volumes we are going to generate? There are moving parts in the top line. The cost, we are going to increase our savings, to which extent are we going to be able to do it within one year? There is also some uncertainty there. There are uncertainties to a certain extent in the cost of risk as well.
At the end, rather than putting a lot of figures, we have preferred to give you a kind of range on the net net, which we think is already relatively, I would say, maybe courageous, brave, maybe even, given the circumstances. There are not that many banks having said that, and we prefer to stick to that guidance, which is at the end, the bottom line, so the most important one.
Thank you very much.
Thank you, sir. Next question is from Mr. Matthew Clark from Mediobanca. Sir.
Hi. Two questions, please. Firstly, on your CET1 outlook, could you just talk in a bit more detail about the risk of rating migrations providing a headwind? That's something that some of your competitors have flagged. That doesn't seem to be something that's implicitly concerning you, given the flattish CET1 outlook. Maybe you could explain why that's not a concern for you, if that's the case. Secondly, on the cost of risk, you're flagging an increase this year. Could you give some kind of commentary on what you expect next year? Should it be normalized by next year as the IFRS 9 effects wear off, or would you expect it to still be elevated at a similar level in 2021 as you're expecting in 2020, even if you won't tell us what that level is? Thank you.
Core equity Tier 1, I mean to say, one of the key elements is the impact of.
It's a market-related activity. Maybe the difference in the evolution compared to some peers is 30 basis points coming from it. If you compare to, for example, Société Générale in terms of dips, the decrease is very much the same. I don't believe we have something that different.
It's more about going forward rather than the first quarter. As the year progresses, presumably you will have to update your models, and they will show a deterioration in the fundamental prospects for the businesses that you lend to.
Philippe will tell you.
No, you're right that we are also taking into account some rating migrations. When Lars enumerated the positive and negatives, maybe forgot this one. Yes, indeed, there is this one as well. All in all, we still consider that the positive elements should help absorbing the negative ones. Indeed, at the end of the first quarter, we had a range of negative impacts that are all coming all at once, that are due largely to what happened in March and at the end of March, that normally should come back progressively.
The 10 basis points on the value at risk, for example, like Jean-Laurent says, typically it's due to the extreme volatility in March, and as you know, the way it's calculated, it's going to be progressively withdrawn or first less and less weighted in the calculation, and it's going to disappear after one year completely, assuming, of course, that there is no other crisis in the meantime. Now, of course, this is a prerequisite, of course. The same for counterparty risk, which the counterparty risk increase, which is another 10 basis points, is due to the fact that because of the big changes in the values in March and beginning of April, the derivatives have moved a lot in value, and hence the counterparty risk has increased because of the net present value of the derivatives. With time elapsing, these net present value are going to be progressively going to zero.
Given the average maturity of our OTC derivatives, within one year, it will also be quite negligible. The present value should come to zero as well. Here it's for regulatory reasons, and also because it's linked to the volatility at the moment of the closing. All the impacts on the OCIs are also partly probably going to come back, or at least to be somewhat mitigated. We have several plus the software adjustment to the regulation, which is underway, which has been voted Level 1 text. Now it's just a question of that being put into force, and it is announced for mid-June, if I'm right, because it's going to be anticipated rather relatively early this year.
All this creates several positive impact on the common equity Tier 1, we view the negative ones that are going to come, including rating migrations as not overwhelming the positive ones, at least. The migrations, I would like to stress that we are, of course, according to the regulation, by the way, our ratings are through the cycle, so they are not supposed to change each time there is a hiccup. This shock will necessarily have some consequences on certain companies. Again, our analysis of our loan portfolio is such that we don't see that as being a big movement in the next months.
Thank you.
Thank you, sir. Next question is from Mr. Kirishanthan Vijay -
Sorry, just to come back on the question on cost of risk into 2021.
Normally, if you assume that 2022 kind of back to normal, 2021 will stay at a kind of high level. Too early to say if this level will be just the same compared to 2020. Of course, looking at the new accounting norms, normally, 2020 is a kind of maximum and 2021 should be slightly below. This will very much depend on the real scenario we'll be in. If the 2022 is the back to normal year, 2021, as a consequence, we see still a kind of high level cost of risk compared to, I would say, through the cycle normalized cost of risk for the company.
Very clear. Many thanks.
Thank you, sir. Next question is from Mr. Kirishanthan Vijayarajah from HSBC. Sir, go ahead.
Yes. Good afternoon, everyone. A couple of questions on capital, if I may. Firstly, on the ex-ante provisions that you're taking, just what are your thoughts on taking advantage of the IFRS 9 transitional rules, holding back some of those provisions from actually hitting your regulatory capital, giving yourself a little bit more flexibility to be more aggressive on some of those provisionings going into this cycle. Secondly, just really clarification on your slide 16 on capital, and the minus 20 basis points you show from supporting the economy, just some color on what's driving that minus 20 basis points through risk-weighted asset inflation. Importantly, is there more of that in the pipeline, presumably as you support the economy further. Thank you.
Yeah. Kiri, first on IFRS 9. If you look at the evolution of our common equity, T1, we've given the main drivers, and then we basically said that all the other effects basically cancel each other out. What we've done is that, as there are some new kind of rules when it comes to securitization, which are phasing in and which are increasing a bit the risk-weighted assets, we've also phased IFRS 9 to basically iron out all those regulatory investments. Yes, we have phased IFRS 9, but the impact on all of these elements coming into play are basically zero. Slide 16, the 20 basis points, they are the risk-weighted assets associated with new credit that we extended towards the end of March in order to support our clients.
We had a lot of underwriting of new syndicated lines, underwriting of bonds, and so on. This created risk-weighted assets at the end of March. Part of that indeed has been distributed beginning of April. The pace of new underwritings has slowed down somewhat, and probably will slow down further. Part of this will be somewhat eroded, I would say, in June. Another part is going to stay, because we have also some final takes. The support to the smaller companies is going to get into force during the second quarter. It has already started quite rapidly. Of course, it's guaranteed by the governments to the tune of 90% or 85%, depending on the countries. Still, there is a part which is going to remain at our risk, and so that's going to feed some additional risk-weighted assets.
This is why we consider that this part of the risk-weighted assets should rather go up, probably in a limited way, but still the trend is somewhat up, probably during the course of the year.
Got it. Thank you. Thanks, guys.
Thank you, sir. Next question is from Madame Azzurra Guelfi from Citigroup. Madame, go ahead.
Hi, good afternoon. I have a question on the government guarantee scheme, and how the profitability of this new lending will compare with the profitability of the existing lending. The second one is way more general, but I can see how resilient has been your balance sheet, your capital, and the high level of pre-provision profit. Don't you think that the lack of transparency that you are providing in terms of the moving parts of 2020 will put you in a disadvantaged position versus banks that maybe are weaker than you in terms of balance sheet and pre-provision profit, but that have been more transparent? Thank you.
I'm not aware of banks that have given such a clear way or guidance for the entire 2020 year. If you find one, tell me.
I'm talking about, sorry, I'm talking about the details. Yes, on cost of risk.
If you give all the details but no global guidance, if I may, you are not giving anything. We are among the few, maybe the only one that have given a clear and full guidance in 2020, if I may again. On guarantee schemes, it's very simple. The part that is guaranteed is risk-free in terms of risk weight. It's away from the balance sheet in terms of CET1 and capital consumption. The liquidity that is behind to finance that part, most of it is coming from the Central Bank. It's part the bank, but to some extent, it's away from the bank because it's a kind of free equity portfolio. Second, the liquidity that is necessary to finance that portfolio is coming, we say, most of it from the central bank.
It doesn't have any effect on the profitability of the bank, nor in a positive way, nor in a negative way. It has obviously a strong positive impact on the underlying economies, because it strengthens those companies, and most probably, ultimately, it reduces the cost of risk of banks that are operating locally in those economies. If you look at the pure P&L, net banking income, no impact. If you look at the cost of risk on that portfolio, no impact. If you look at the Equity side, no impact, but globally, it improves the quality of the global portfolio, those banks that are operating under those schemes.
Ultimately, to some extent, it limits the impact of the crisis in terms of cost of it in those local economies. Clearly, those schemes are very efficient in Germany, France, Italy, Luxembourg. This will help obviously keep cost of risk at a very acceptable level in terms of GDPs. It's globally, I would say, part of the game. The impact cannot be viewed in terms of P&L, of profitability, the regular way for a portfolio in a bank, but it's an indirect impact on the quality of the franchise and the economy you are operating in locally in any country that benefits from that type of a scheme.
You can say just the same in California for Bank of the West under the federal scheme. You have the same in Poland. To some extent, you have something that is equivalent in Turkey.
To fully understand what Jean-Laurent says, I would like to add that you have to bear in mind that, of course, each bank in those schemes, each bank is supposed to bring its own clients. It's designed in order to help normal companies that would be affected by the economic environment temporarily, that have to be helped to bridge the bad period and to go through the crisis and resume their activities in a normal way. We are going to bring our own existing clients. Again, we feel that the client franchise is very healthy that we have in our different countries. It is going to help really keeping the cost of risk at a low level, as Jean-Laurent said.
Thank you, Madame. Next question is from Mr. Jean-Pierre Lambert from KBW. Go ahead.
Jean-Pierre? You've left us. You are on mute.
I'm there. Can you hear me? Sorry.
I am.
Okay. Apologies for that. I have questions related to the guarantee schemes. Two questions. The first one, how are the guarantee schemes integrated in your expectation for loan loss charges? Is it in the probability of the scenarios? Is it in the loss given default, or is it in the higher GDP or higher recovery, if you want, of the economies? Just how you use this from a methodological point of view. The second question is on your tactics for the use of the guarantee. If you look at the curve of internal rating, which band you target for these guarantees, does it make sense to get these guarantees for highly rated customers or the middle of the range, which could fall into Stage 2 or Stage 3? How do you see the tactical allocation? Thank you.
There is no tactical allocation. There are rules depending on the different countries and in Europe under the strict control of the European Commission, which means you do not grant those loans to companies that were, we say, are fragilized before the crisis. There are strict rules. The tactical, I would say, approach is not part of the game. Basically, through those schemes, you are helping companies that were very much sound before the crisis. You have a few exemptions for maybe larger, I would say, companies in any country, but this is more like a kind of a restructuring tool to help restructure a certain situation. There is nothing that can be considered tactical. Looking at the impact for the time being, not computing those schemes in our scenarios because it's too early to say.
Maybe what we can say is that, to some extent, those schemes protect those underlying economies, and instead of having in a worst-case scenario something that is really bad, you have something that is slightly more acceptable. Looking at, I would say, guidance, those schemes are not, let's say, computed in or factored. We know that they are existing. There are processes. They will help, I would say, ring-fence this underlying economy, most probably to make it short. It gives confidence to the fact that in 2022, we can be back to, let's say, 2019 in terms of absolute terms. It's a kind of ring-fencing of the economy, most probably based on this. The local economies will be less fragilized by the crisis, and the ability to rebound in 2021 will come sooner and then, as such, the rebound can be completed in 2022.
Great. Thank you very much, Philippe.
The very short increase, seriously, the probability of seeing in 2022, the kind of normalized economy compared to 2019.
Perfect. Thank you very much.
Thank you, sir. Next question is from Mr. Omar Fall from Barclays. Sir, please go ahead.
Hi, good afternoon. Just a couple of questions. Firstly, specifically on Personal Finance, could you give us a sense of how much state support could apply to this business line in its various forms? I am assuming not very much compared to the networks. Is that fair? How much have you put in place in terms of moratorium programs in this business so far, if any, and do you plan to do so? Second question, sorry, a bit boring, last quarter, you very helpfully gave us guidance on potential exceptionals this year from real estate sales and adaptation in IT costs. It seems the real estate gains, you have done a big chunk of that and maybe you are running at a slightly lower run rate for the costs.
Could you just confirm that within your four-year profit target, the 15 to 20, you have those initial numbers, the EUR 500 million of gains and the restructuring costs as per before or you've made some changes because maybe you've seen some more gains that you could do. Thank you.
For that second part of your question, gains looking at disposal of buildings are going to be exactly the ones that we're forecasting at the beginning of that year, so we can only confirm that one. On anything that is restructuring costs, we can only confirm initial guidance that anything that we currently call exceptional items, which are not that exceptional compared to the current crisis, but those items we are accustomed to describe as exceptional are going to be very much in line or exactly in line with the initial guidance. For Personal Finance, Lars will give you maybe some more details, but we have to understand that it's a multi-domestic business. The approach in that domain depends very much on the local, I would say, jurisdiction. Moratoria, especially, very much depend on the local approach.
The underlying business can be slightly different in different countries because the business model is just exactly the same in each country. Maybe Lars can give some more details, but it's more difficult to explain Personal Finance on average at that moment of the cycle.
Yeah. Indeed. Let's say the large-scale moratoria like that what we have seen in France or what we see in Italy, which is applied to the corporates and SMEs, is not something which at large, let's say, is available in that activity. It is more something that the bank is looking at how to handle. Again, that depends on a country-by-country basis and depends also on the kind of product, the collateral, the guarantee that is in place. That is why the overall impact, if you look at the cost of risk of what we've taken up in the looking forward, is in Personal Finance, a material part of the cost of risk outlook, whereas for our domestic markets, it is a minor part.
Just as a follow-up to that, thanks for that. I guess you're very busy looking at all the parts of the portfolio. You have concerns everywhere, but specifically Personal Finance, the short duration of the book, is this an area that you think that's very much at the forefront of your mind in terms of stress? How would you look at things like the used car market, which greatly has an impact on this business as well?
Yeah, there's two things. When you look at it, indeed, if you look at the efforts that are being done to be close to the customer, to see how we can evolve, that is, in particular, the most intense when you look at Personal Finance compared to the other domestic markets, given the turnover, given the duration. That is clearly the case. That's why, as I said, it is a big part of the forward-looking cost of risk. I'll leave it to that, Omar.
Thanks so much, Lars.
Thank you, sir. Next question is from Madame Giulia Miotto from Morgan Stanley. Madame, please go ahead.
Thank you. Hi, good afternoon. Two questions from me, one on cost of risk and one on capital, please. On cost of risk, could you please quantify what percentage of your loan book is, at the moment, affected by payment moratoria, and whether you are already provisioning for some of these or you are taking the approach that you think this just depends on COVID, and hence, once the crisis is over, you will get this payment. You just accrue the revenues and the wait until the end of the moratoria. That is the first question. The second question, we have discussed potential negative movements to capital, but I would like to ask you, could you please quantify the positive impacts that could come from the European Commission wide-ranging set of measures recently announced?
The intangibles that you were referring to, the SME and infrastructure supporting factors, for example, so that we could have an idea of the magnitude of these as well. Thank you.
Okay.
Maybe when we look at the impact of the moratoria, if you look at the picture of our balance sheet at the end of the first quarter, it's a tad too early to basically see those movements. It depends also a bit country by country. If you take, for example, Belgium, where there has been a big flux when it comes to mortgages, which fall at the same time, which have been done, there is a high number of that being applied. It's a bit just a tad too early to give that number. You're right, when it comes to how we see the moratoria and how to evolve, it is, of course, we're also looking at the period thereafter. That is why when we look at the cost of risk, we look at the sectors in which they're active.
Some sectors will probably rebound post-COVID stronger. There are others that will rebound slower. That are elements that, of course, we take into account in our provisioning of the cost of risk. As Philippe has said earlier, it's just not mechanical. We look at all of these aspects. When I go to your second question on the potential positive impacts of what Europe is doing and what it means for us. If you look at what we have guided, depending on what the exact final shape and form will be when it comes to aligning Europe, when it comes to software on the U.S., no longer deducing that from the capital, for us, that would be something like the equivalent of 20 basis points. When we look at the SME supporting factor, that would be in the range 5-10 basis points.
There is also a thing called the IPC, the Irrevocable Payment Commitment, which could be up to 10 basis points. That is a bit the effect that these kind of measures would have on BNP Paribas.
Thank you very much.
Thank you, Madam. Next question is from Madam Anke Reingen from RBC Capital Markets. Madam, go ahead.
Yeah. Thank you very much for my question. Just following up on the capital question. Just to confirm, the 12% does then not include any assumption of a TRIM hit. Should we basically assume the 12 is the target, and you basically adjust your payout with respect to financial year 2020 and potentially 2019 dividends regarding where you land relative to the 12%? Just lastly, I guess on the capital buffer, you give hopefully the slides on the different levels to MDA, and obviously it doesn't seem the CET1 ratio that's the constraint, but the tier 1 and the total capital ratio. Am I missing something or are you considering closing the gap so that the CET1 becomes the binding constraint?
Maybe just lastly, do you have any thoughts about the recent announced TLTRO and if you would be interested in picking up any more orders rolling over? Thank you.
To start just briefly, TRIM up to now has not cost us that much. We have gone through a process. TRIM is a multi-tiered process with inspections going on the different types of models. We have already gone through a certain number of TRIM visits, up to now, the impact has been, in total, relatively limited. We have never been, you remember, we have never been really afraid by the TRIM consequences, up to now, we've been right. In any case, TRIM visits have been stopped by the ECB in that moment. Well, probably also for operational reasons because it's difficult to have a TRIM inspection without being on-site. We don't expect that to resume really in a significant way before the end of the year. The TRIM question, anyway, would be a rather question for 2021, I believe.
I would like to precise something on the payout ratio. We stick to 50% payout ratio. The only thing is that the SSM doesn't agree with that. They have stopped us. At this stage, we are there. We say that we would like to distribute 50% of our results, our 2019 results, and then our 2020 results. We wait for their decision in October because I understand that they have said that potentially in October they will review their recommendation. We cannot give you, we don't know more than you know. You know exactly everything. We want to pay a 50% payout ratio for the 2020 plan, and the only thing is that we have been prevented from paying it this time. We're basically being prevented, we postponed on the 2019.
As you have seen in our presentation on the first quarter result of 2020, we set aside 50% of the earnings for dividends. That is to confirm that we remain on that trajectory. When it comes to your question on the MDA, the MDA is the distance in Euros that if you would drop that amount of capital, you would be prevented from paying coupons and the likes. That MDA has to be calculated on common equity, on Tier 1, and on total capital. Indeed, in the past it was measured on the common equity Tier 1.
What you see now is that with Europe advancing the rule of part of the P2R, which used to be fully in Common Equity Tier 1, as that has now been moved into the Tier 1 and the total capital, the calculation of the binding concern on the MDA is now on total capital, and that is the EUR 15 billion distance that we have. We are very comfortable on that.
On TLTRO, please. Thank you.
Yes. TLTRO, each type of such, I would say, window, new window is carefully looked at. As you know, it is not blank loan. It has to be collateralized with certain type of collaterals. We try and take the best of each type of window of that kind. We don't exclude indeed to use the new TLTRO or the additional TLTRO that has been opened. At first glance, we don't think to use the TLTRO, which is less favorable.
Thank you.
Thank you, Madame. Next question is from Madame Lorraine Quoirez from UBS. Madame, go ahead.
Hi. Hello. Good afternoon. Thank you for taking my questions. Just a few things from me. The first one is, as you said, it's quite remarkable and a brave move to provide us with a guidance for this year net income. Given there is so much uncertainty, and it's also not so easy to cut costs in such a period of time, I was wondering what else you could do to defend the P&L, if needs be. You already announced some real estate disposal this year, and I was wondering if there were already some other options you could have identified, again, if needs be. Also, with regards to the equity performance, I was wondering whether this could lead you to review your product offering in equity derivative. Finally, on the leverage ratio, just wondering how low are you ready to go to support the economy. Thank you.
Did I hear?
Thank you for your comment on the quality of the guidance. Lars?
Yeah. If I start from the leverage. Let's not forget, leverage today, the regulation says that we have to be at 3%. We typically hover around 4% during the first quarters of the year. Given the additional production that we have done this first quarter, we are at 3.9%. Don't get me wrong, but the leverage is not the metric by which we steer the bank. We do it on Common Equity Tier 1, and we are structured in such a way that the leverage remains where it is. That is basically that point. On that brief guidance of 2020, as we said, the main thing that give us a bit of comfort is that in the moving parts you have the cost of risk on the one hand, but on the other hand, you have the cost.
The cost, it is not a magical bullet that we fire. It is something that we had in the wings. It is part of the plan ending in 2020. That is the kind of levers that we are putting in place and that we are strengthening. That's basically that. When it comes to equity, what you know is we are in the process of, actually in prime services, of diversifying further that activity. That activity that we have is fine. We are strengthening this with bringing on board the activities that we have acquired from other players. Lorraine, that would be the three answers.
Thank you, Madame. Next question is from Jean-François Neuez from Goldman Sachs. Sir, please go ahead.
Hi, good afternoon. I have just one question, and it relates again to your outlook. In a sense, if I take a step back and I look at what the market thinks of your shares, in a sense, this is trading at less than 40% of tangible book. Going into the results, where probably consensus expectations are for much higher provision than what this guidance implies, and it's not taking much notice on the new elements of measures cost of risk increase, and of the potential resumption of dividends, in particular, following the suspension that was decided earlier into the COVID crisis.
Obviously you have a unique perspective of your own business and of the quality of your book, and I just wanted to know what you think you can share that would help reconcile essentially these two extreme views, one of which, essentially your cost of risk or your profitability implies something which is nowhere close to what's budgeted in 2008, once the market is taking a completely different view. Maybe in converse, what that makes you think if you have to think a second time about the outlook and take into account what the market implies for BNP. Thanks.
Well, you have very much to look at page 12. These are numbers and facts that derive from the kind of long-term observations. It's good to believe that the group operating in so many different businesses, geographies, is moving for years in a very disciplined way, and then you believe this is real, and it seems that it's real if you look at slide page 12, or you believe that we are very much on average. If you believe that we're very much on average, it means that you are not looking at BNP Paribas. It's as simple as that. There is no other point. This is the basis of the difference, and it seems that any bank, a certain region, I'm talking of Europe, is considered the risk side, basically on average.
Everybody, as long as I can look, read, understand comments coming from experts, analysts, and so on, they are all looking at the situation on average. There is no difference made in between platforms. It's just a reality from numbers the way it goes. You consider there's a certain discipline that is derived from a very diversified model, which puts the group in a situation which allows every day to balance one loan against another one coming from different geographies or different business in terms of quality. Either you believe this discipline really exists at group level and in our businesses, or you believe this just doesn't exist. If you consider the group on average, you get an average, I would say, result. This is basically the difference.
If I may, it's very much said at page 12 that you can measure a certain difference, and I'm not saying that this will stay forever. I'm just telling you that this discipline is in place at group level for a number of years, and we never lost that discipline. Most probably, again, in that crisis, it should make a difference. This difference would explain a certain, I would say, positive impact in our favor compared to average, looking at cost of risk. If I may, being aware of a certain file in Singapore that is costing the range of EUR 2 billion to a bunch of banks, we are not part of it. We are not part of it because back in 2012, we exited that counterpart, not because we are just lucky.
There are so many situations we are giving up revenues, nice margins, because we tend to grow a kind of low-risk approach to our different businesses. Of course, this is a new crisis. This is a crisis of a new type. It's kind of unprecedented situation. You never know. This discipline ultimately will be represented in the cost of risk.
Okay, excellent. Very clear.
Maybe another way to look at it, Jean-François, is that when we Lars said that already, but I will tell it another way. When we say that the guidance for this year now is -15%-20%, it doesn't mean that the impact of the crisis is 15%-20%, because it's rather 25%-30%, because we were supposed to improve in that last year of the 2020 plan. Given what we had said about our targets, we were supposed to improve from 2019 to 2020, before the crisis, to improve by 10%, roughly, the net. Instead of increasing the net by 10%, we are saying that it's going to go down by 15%-20%. The gap is bigger than it seems, if you just compare 2019 and 2020.
Okay. Excellent. Thanks. That's a good clarification.
Elements of reconciliation, maybe.
Thanks.
Thank you, sir. We have one last question from Mr. Pierre Chédeville from CIC. Sir, go ahead.
Yes. Good afternoon. Can you hear me?
Yes.
One question regarding insurance. As you are a creditor insurance leader, I would like to ask you whether you see the combined ratio evolving on this specific line of product? Also, what is your, if you give it, I don't know, your solvency ratio on insurance, because generally you don't give it, but regarding the circumstances, maybe you will make an exception? My second question relates to the cost of risk and more generally to this specific situation where you have more than 130,000 people working remotely.
Do you think that you will have a comeback to a normal situation after the crisis? Are you engaged in, I would say, a longer term reflection regarding the way you manage your organization and in terms of working organization, delegating, for instance, and that could result in additional economies? Thank you.
You're absolutely right. When it comes to non-life, combined ratio is a very important metric, and with what we're living today, there will be an impact, of course. When it comes to solvency, as you know, solvency as insurance is part of the group, there is a total aspect. In particular, the solvency indeed on Cardif is not a metric in particular. As you can imagine, it is well-positioned, as you know, so we are well above where we have to be at a minimum. That is basically the two points on insurance.
On remote working?
Well, on remote working, we believe that, well, first, we are surprised by our capacity to extend work from home as fast as we did and as successfully as we did. Not only ourselves, it was, I think, most of the industry has more or less done the same, which shows that, well, probably we could do more in normal times. We had introduced work from home to the tune of maximum two days per week before the crisis. In practice, it was rather on average one day per week that was chosen by our team members. In the progressive freeing up that we are going to live, we intend to put back people at work in the office only very progressively, very gradually. Probably we will not come back to the previous situation.
At the end, it's likely that we will find a balance with more work from home, even in normal time. Probably not five days a week like today, but probably more than one day a week like before. Probably something in between. I don't know exactly what's going to be the right balance. It will probably be different from one business to another. It has to be tested, I would say, in a very decentralized way. Eventually, I agree with you, we'll end up with probably more work from home than in the past, which will entail certainly new savings, especially in terms of buildings and premises.
To give you an example, today we are gathered in the boardroom of the bank. We are four. Between us, there are, let's say, two to three meters distance. Usually we are 12. We have a good potential in terms of cost-cutting. It's not a joke. Just the fact that in the digital universe, we can deliver a number of services that are much more fluid, as long as the counterpart, like you, I would say, can accept that kind of an interface. Clearly, this happened. This was basically at the very center of the next term plan, how far we can push the digital model, the online approach, and get rid of the former, I would say, physical face-to-face type of interaction that is useful from time to time, that cannot be any more the bulk of the relationship.
For a very simple reason is that trades, payments, everything, day-to-day banking is delivered online through automats. We have to take the full measure of that situation, and businesses by businesses, processes by processes, we have to deliver. In three weeks, throughout Europe, from U.K. to Nordics to Poland to Southern Italy, we delivered 50% of all the underwritings for large companies, 50%. We were the lead bank in 70% for bond origination. Well, it means that we've been extremely efficient. Otherwise, I would say, it doesn't comply with the regular way of delivering the bank. We've experienced a very unique situation, and we have to draw the lessons. Of course, this situation cannot be, I would say, the model, because clearly it can be sustained to some extent in a certain limited period of time.
I would tend to say that most probably half of it, even two-third of it can be, I would say, returned in the midterm, meaning the two, three years to come. This clearly will have an impact on the efficiency of the bank to be reinvested, most probably in other value-added type of services or products. Clearly, because also through that moment, we have measured, I would say, the satisfaction of our colleagues working from home. We have developed, I would say, tools just to keep track their satisfaction at home. The results we are getting are much better than the one we are getting usually. It means also something, is that way of moving and delivering the bank is also, to some extent, more efficient also for our staff and our colleagues.
From that, you can also deliver additional level of efficiency, the satisfaction, quality, and so on. Nothing can be, I would say, built in just two months. This parenthesis gives us, in my opinion, a unique view, a unique observation, a unique experience of what we could stabilize for the years to come, in that new universe of banking and online services. Knowing that, of course, face-to-face relationship is still at the very heart of design because there are a number of services or situations you can only, I would say, deliver or consider in a kind of face-to-face approach. To some extent, this is also a unique opportunity for this industry, for banking, insurance, financial services, and it will push us that direction with an extremely strong momentum. [inaudible]. Be convinced because we are seeing that situation every day.
The question is not to be convinced. The question is not to believe if yes or no, we can deliver. Yes, of course, we can deliver. Clearly, we will have to adapt some systems, some processes to make it happen on a regular basis. What we've seen recently and what we currently see, for us, and I guess for a lot of other banking platforms, is full of potential. I'm not saying this is going to be easy, but the potential is there. Now we will have to deliver it in a more, say, a recurrent way. Again, I'm not saying it's simple, but the day you can see the potential, well, I would say, a better chance to deliver.
Thank you very much.
Good question anyway. Very good question anyway.
A good question to wrap it up. If there are no further questions?
We have no further questions.
Okay. Thank you. We'll close the call. Thank you for having there with us in these remote times. Well, we hope to have an opportunity to see you in person soon, and take care of yourself in this period.
All the best.
Thank you so much. Take care. Stay safe. Bye-bye.
Ladies and gentlemen, this concludes the conference call. Thank you all for your participation. You may now disconnect.