Good morning, ladies and gentlemen, and welcome to the Commerzbank AG's conference call regarding the fourth quarter results 2021. Please note that this call is being transmitted as well as recorded by audio webcast and will subsequently be made available for replay on the internet. At this time, all participants have been placed on a listen-only mode. The floor will be open for questions following Manfred Knof and Bettina Orlopp's presentation. Let me now turn the floor over to our CEO, Manfred Knof. The floor is yours.
Good morning and welcome to our earnings call for Q4 and the full year 2021. The first year of our transformation and my first year as CEO of Commerzbank turned out better than expected. We have delivered. We have achieved a positive net result despite extraordinary burdens of almost EUR 2 billion. Thus, we have digested the necessary restructuring charges for our transformation without eating into capital. The execution of our strategy is progressing well. We have delivered on almost all milestones towards our targeted business model in 2024. This is a result of hard work and required some tough decisions. With very good teamwork, we have successfully managed the first important steps of the transformation. This is exactly the spirit and attitude we need for the steps and challenges ahead.
The success of 2021 and the prospect of rising rates provide us with tailwinds for 2022. I'm convinced that we will take the positive momentum into 2022, and the first business weeks of the year support my assessment. With the respective financial delivery in 2022, I have the clear intention to resume dividend payments, starting with a payout ratio of 30%. Now let's have a look at the key building blocks of our financials in 2021. When we guided for a positive net result back in November, we did not have in mind the significant additional provisions for the Swiss franc loans in Poland. In particular, the very good revenues from our customer business helped us to offset this burden and to reach an operating profit of EUR 1.2 billion.
Bottom line, we can report a net result of EUR 430 million. The high quality of our loan book and our thorough risk management pay off. While still applying an overall cautious view, our net risk provisioning in 2021 has been reduced by two-thirds. On expenses, we kept our promises, which we have reiterated with the disclosure of our Q3 figures. We delivered. Our high cost discipline even allowed us to increase variable compensation and still meet the budget. Net-net, 2021 was financially a good start into the transformation of Commerzbank. We have also delivered on our major transformation milestones. The business model transformation is well underway. In PSBC, the first three advisory centers have started operations. They already serve around 850,000 customers.
Thanks to excellent service, high advisory expertise, and the expansion of our digital offerings, we have so far been able to effectively limit revenue churn. Whether this will continue in the current year remains to be seen. In any case, we will fight hard for it. In Corporate Clients, we have also delivered on the business model transformation. Our digital direct bank coverage model is in rapid construction and has onboarded the first 1,000 clients. With these initiatives, we built a cost-efficient setup while keeping high quality in customer service. Regarding the redundancy program, the reduction of gross 10,000 jobs is well on track. In May, we had agreed with the employee representatives on the framework for the program. In July, the volunteer severance program was launched, and in November, we were able to complete the arrangements for the respective areas of the bank.
This means that only nine months have elapsed between the adoption of the strategy and the final negotiations of the target structure. This is quite an achievement, at least by German standards. Today, at a good 6,000, more than half of the gross FTE reduction is already insured by corresponding contracts with employees. The optimization of our branch network is also making significant progress. Before the pandemic, we had 1,000 branches in Germany. In 2021, we have reduced the number of our branches from 800 to 550. Thus, most of the reduction to the target number of 450 branches has already been achieved. We are also making fast progress in streamlining our international network. We have already closed six of 15 locations we are closing in total. In addition, we have signed the sale of our Hungarian subsidiary to Erste Bank.
Thanks to the cooperation agreement concluded at the same time, we will be able to expand our range of services in the region for our Corporate Clients. One of the most important cornerstones of our strategy is the improvement of capital efficiency. We need to make sure that all our client business improves its return profile towards cost of capital. Therefore, we tackle all client business with revenues per RWA of less than 3%. In 2021, we could reduce the share of such low margin RWA in Corporate Clients from 34% to 29%. This is an important step in the right direction, and there will be more to come to make sure that shareholders' money earns decent returns. For both private and corporate customers, a stronger focus of our business on sustainability is crucial for the future. In September, we set ourselves ambitious targets for this.
Our credit and investment portfolio is to become net zero by 2050 at the latest, and our own banking operations already by 2040. The evaluation of our portfolio by using the methodology of the Science Based Targets initiative is currently one of our key tasks. We have already defined targets for automotive and energy and will add further sections in the upcoming months. Based on SBTI, we will steer our portfolio towards net zero carbon emission. Our new coal and gas policy, which is effective since January first, marks an important step into this direction and will contribute to achieving our targets. We are aiming for sustainable product volume of EUR 300 billion by 2025. Last year, we have already made a large step. End of December, volumes reached EUR 194 billion, almost doubling the figures of 2022.
As a bank, we play an important role in the green transformation. We aim to contribute to challenging more capital into sustainable economic activities in order to mitigate the consequences of climate change. We aim to actively support our customers in their transformation into sustainable companies. Sustainability thereby becomes a fundamental pillar of our business model. Let me conclude with the takeaways from our first transformation year. First, we delivered a good financial performance in 2021. Second, we delivered the promised transformation progress in 2021. Third, based on the results so far, I'm confident to reach our strategic and financial targets in the upcoming years. This will not be easy, and I'm sure that we will face some real challenges. This transformation requires hard work of the whole team.
I'm looking forward to our Capital Markets Day in two weeks when we will present our Strategy update for 2024. Our ambition for the current year is clear. We expect a net result of more than EUR 1 billion, and we intend to pay a dividend for 2021 at a payout ratio of 30%. This leads me to the final slide of my presentation. We have decided on a capital return policy that goes beyond the year 2022. Starting with 30% payout ratio in 2022, we aim to increase payouts up to 50% thereafter. Moreover, we will consider share buybacks as part of the payout ratio or as an additional payment. This is our clear commitment. Now over to you, Bettina.
Thank you, Manfred, and also good morning from my side. As Manfred already stated, 2021 has been a very successful year for Commerzbank. We have made significant progress in the strategy implementation while at the same time delivering a solid financial performance, better than expected at the beginning of the year. This is in particular visible in the Q4 results. Despite the booking of EUR 436 million in provisions for Swiss franc loans in Poland, the operating result of the quarter reached EUR 141 million. The net result was EUR 421 million, including a tax gain of EUR 199 million. The Q4 operating result has been driven by three factors. A, revenues that are up 3% year-on-year. We have seen a strong increase of NII and NCI based on healthy underlying customer business.
Additionally, we have benefited from valuation gains of some investments and from the TLTRO. B, cost of EUR 1.6 billion, fully in line with our guidance. C, a risk result of EUR 313 million, which is lower than last year, underpinned by a strong portfolio and a low underlying default rate. Finally, we further improved our strong capital ratio to 13.6%. The buffer to MDA increased to 420 basis points. Now let's briefly look at slide 10 and the full year view. Figures compare well with 2020. The operating result improved to nearly EUR 1.2 billion, fully covering the restructuring charges for the implementation of our strategy. The net result of EUR 430 million benefits from tax gains, reflecting our improved outlook. Let's move to page 11 with the exceptional revenue items.
In 2021 we have benefited by EUR 264 million from the TLTRO and by EUR 16 million, sorry, from the revaluation of our participation in the German Credit Bureau, SCHUFA. More than half of these benefits were booked in Q4. As we had further large and non-regular revenue contributors in 2021, we have adjusted the revenues accordingly to give a clearer picture of the trends in the underlying business on page 12. When adjusting for good but slightly lower contributions from CommerzVentures and the strong increase of provisions for Swiss franc loans in Poland, revenues clearly improved in 2021. This improvement was driven by the strong growth of the net commission income from our customer business detailed on the next slide.
The full year net commission income of PSBC Germany has increased by an impressive EUR 215 million or 11% compared to last year. Q4 alone was EUR 53 million better year-on-year. Trading volumes have held up well, and securities and custody have increased significantly compared to last year. Commission income in Corporate Clients also increased this quarter. This is mainly due to transaction banking. We have seen better contributions from payments and FX businesses. This leads us to NII and slide 14. Underlying NII has been up from the previous quarter. In PSBC Germany, NII from the loan business is a bit better than last quarter. The NII from deposits was also up, mainly from deposit pricing. mBank has benefited from the strong increase of interest rates in Poland.
In corporate customers, NII from loans was stable, while the contribution from deposits further increased. The stabilization of underlying NII during the year is encouraging. Our aim is to exceed this level in 2022 and compensate any potential churn resulting from the further implementation of our strategy, in particular, the closure of domestic branches and foreign locations. Now let's move to the next slide with the current interest rate development and the further outlook. Knowing how important transparency on our interest rate sensitivity is, we have further refined our disclosure this quarter. As our Strategy 2024 is based on constant rates during the planning horizon, we had assumed a EUR 300 million reduction of revenues from deposits in PSBC Germany by 2024. Of this, we have seen around EUR 100 million in 2021.
We could compensate this drag by higher loan volumes and increased pricing of deposits. However, the current forward rates priced by the market predict significant rate rises. Based on these, we would not see a reduction of NII in 2024. On the contrary, based on the forward rates as of the 4th of February, we would expect NII from euro deposits in PSBC and Corporate Clients to improve by more than EUR 500 million by 2024 compared to 2021. This is net of the effects from deposit pricing. It would result in NII being more than EUR 800 million higher than planned in our Strategy 2024, assuming no deposit beta once we reach positive interest rates and constant deposit volumes. Now let's look at mBank. The Polish Central Bank has started to increase rates in October last year.
The reference rate stood at 225 basis points at the end of January, more than 200 basis points from the low. This increase in rates leads to around EUR 200 million higher NII at mBank per year. We expect this benefit to persist into 2024. On February 9th, the reference rate was further increased by 50 basis points to 2.75%. Many market participants expect more rate increases in the course of the year, which would add more NII. However, we will have to see to what extent the deposit beta starts to kick in in the next months, reducing the positive effect of higher rates. As I have already covered the key aspects of the revenues and the operating result, I will skip over slide 16, which summarizes the group P&L. Let's move straight to slide 17 and the cost development.
Throughout the year, we have stuck to our strict cost discipline. Operating expenses are in line with our full year target. Investment spending was also well within the 2021 budget. We have exceeded our 2021 FTE reduction targets. This will have a positive effect on our cost base from Q1 2022. While again requiring discipline and a sharp focus on execution, we are well positioned to reach our 2022 cost reduction target of net EUR 300 million. However, costs at mBank will increase by EUR 50 million-EUR 100 million, not only due to growth and higher expected compulsory contributions in Poland, but also due to the high inflation. mBank is managed based on its excellent underlying cost income ratio of around 40%-50%, excluding provisions for Swiss franc loans. Higher revenues will more than compensate the cost increase.
Let's move to slide 18 and the risk result. The Q4 risk result of EUR 313 million includes EUR 99 million from IFRS 9 parameter updates and an increase of the TLA by EUR 27 million. These are model-driven and do not indicate a deterioration of our underlying portfolio quality. The remaining underlying risk result is EUR 187 million. It mainly results from a few single cases in Corporate Clients and mBank. The overall cost of risk on loans for the year is 22 basis points, which is around our expected long run average. We go into 2022 with the benefit of a EUR 523 million top level adjustment to cover possible primary or secondary effects of the pandemic that may materialize in 2022.
Now let's carry on with the operating segments and let me start with private and small business customers on the next two slides. The securities business has again developed well in the quarter. The volume increase is not only coming from market developments, it is also supported by the continued inflow of around EUR 4 billion net new money in the quarter. We expect the securities business to remain strong, but the growth rate we have seen in 2021 is unlikely to continue into 2022. Of course, a lot will depend on the overall development of the market. Mortgage volumes continued to increase in the quarter at a steady pace and as planned. Also in the deposit business we have again made good progress in the quarter. We managed to keep the volume of deposits largely stable while increasing the volume of deposits subject to pricing to EUR 18 billion.
For the financial year, deposit pricing contributed EUR 16 million to revenues. This brings me to the performance of PSBC on page 20. While the Q4 operating result has turned to a loss due to the increased provisions for Swiss franc loans at mBank, the underlying customer business has performed well. Revenues increased by 10% year-on-year. All client areas have contributed. Churn due to the streamlining of the business model continues to be lower than anticipated, both in terms of the number of customers and revenues lost. So far, we continue to lose the right customers. For 2022, we prudently expect higher churn. Customers of closed branches might exit with a time gap. This could materialize in 2022. Now let's move to Corporate Clients on the next two slides. In Corporate Clients, we have continued our active portfolio and RWA efficiency management.
The segment maintained loan volumes while increasing average RWA efficiency to 5.2%. There has been an increase in demand for investment loans towards the end of the quarter. It's too early to tell if this is the start of a trend, but surely encouraging. In the deposit business we have successfully managed to reduce volumes, in particular FX and term deposits, and at the same time we have maintained disciplined pricing of deposits and kept the average at around 55 basis points. For the year, interest income from deposit pricing has added up to around EUR 255 million. We continue to actively manage deposits and expect to maintain the revenue level in 2022. Customer revenues have improved in the quarter, driven by Mittelstandsbank, with international corporates also contributing.
The focusing of the business on core clients has not resulted in large revenue churn so far, but we expect this to become somewhat more noticeable in 2022. At the same time, RWA were reduced by EUR 8 billion year-on-year. They are off EUR 4 billion, come from credit RWA, driving the improvement of our RWA efficiency. Let's move to slide 23 and the development of others in consolidation. The operating result of EUR 157 million in others in consolidation is to a significant degree driven by valuations at CommerzVentures and TLTRO. We have sold our stake in Marqeta in the quarter and thereby realized gains from the investment. This is in line with our strategy of investing in the pre-IPO stage and subsequently exiting. Further holdings from the first CommerzVentures fund also increased in value.
We expect some benefits from planned IPOs of investment companies in the next quarters. However, the investments of the first fund will soon have reached their potential, while the investments in the second fund are likely to take more time to reach their potential. Therefore, this year we do not expect to see contributions on the level of last year. Other than consolidations, operating result for the financial year stands at -EUR 48 million. For 2022, we again expect a negative operating result in the -EUR 50 million to -EUR 150 million range of the last two years. Let's move to slide 24 and the risk-weighted assets. RWA have been largely stable compared to the previous quarter. As mentioned in the Q3 disclosure, we have moved to the standardized approach for operational risk. This results in stable operational risk RWA going forward.
We are also in discussions with the ECB on moving some of our credit exposures to the standardized approach. We hope that this will be approved in the first half of the year. This would allow us to reduce costs while maintaining appropriate risk coverage. We do not expect to see a reduction from RWA from this change, but there could be an increase of RWA in the Corporate Clients segment that should be largely offset by reductions in other segments. An increase in RWA of Corporate Clients would, however, reduce the reported RWA efficiency of the segment. This, however, would only be a temporary dip. We maintain our 2024 target for the improvement of the RWA efficiency in Corporate Clients. Based on the net profit of the quarter, the CET1 ratio further increased to 13.6%.
This compares to 9.4% for the MDA. With the introduction of countercyclical buffers in the U.K. and Germany, as well as a sector-specific risk buffer for German mortgages, the MDA is estimated to increase to around 10.1% in 2023. To wrap up the financials of the quarter, the underlying business and strategy implementation have developed well. The financial burdens from the restructuring are nearly fully booked. We have significantly increased our provisions for the Swiss franc loans in Poland, and we have a strong CET1 ratio going into the second strategy implementation year. Based on the assumption that there will be no extraordinary provisions from Swiss franc loans in 2022, this is our outlook. Despite effect from potential churn, we expect underlying interest and commission income to increase thanks to higher NII in mBank from rates increases in Poland.
We target costs of EUR 6.3 billion. This includes higher costs at mBank due to inflation. We stick to our cost reduction path in Germany. The risk result is expected to come in below EUR 700 million, and we expect the CET1 ratio well above 13%. We expect a net result of more than EUR 1 billion, and as Manfred already pointed out, we intend to propose a dividend with a payout ratio of 30% of the net result after AT1 coupon payments for the business year 2022. Thank you very much for your attention, and Manfred and I are now very happy to take your questions.
Ladies and gentlemen, the floor is now open for questions. We already have a couple of questions announced. For everyone else, if you would like to raise a question, please press nine and star on your telephone keypad. If you would like to withdraw your question, press nine and star a second time. Let me repeat. If you would like to raise a question, please press nine and star on your telephone keypad. The very first question comes from Benjamin Goy. Your line is open, please. Deutsche Bank.
Yes. Hi, good morning. Two questions, please, from my side. First, on net interest income, maybe you can help us a bit more. Your guidance sounds rather unambitious considering the strong Q4 run rate. Is it fair to assume at least annualizing the Q4 clean number? I know Corporate Clients have been quite strong, but you have Polish rate hikes, you have loan growth and so on. Is at least that a good level to think about? Then secondly, on capital return, I mean, your capital ratios are very comfortable, and it doesn't strike me you need a lot of capital this year. In terms of timing, in terms of capital return, is it only with full year results, or would you revisit maybe with Q2 results, for interim dividend or already launching a buyback? Thank you.
On NII, yeah. The guidance is as follows. I mean, the stabilization of underlying NII during the year is really encouraging. Our aim is to exceed this level in 2022, which means that we want to continue the trend which we have seen in the Q4. It's mainly also due to the higher NII we expect from mBank due to the rate increases in Poland. We also need to take into account that we need to compensate for the missing TLTRO. We will see another EUR 85 million out of the program. Honestly, nobody, I think, expects a continuation of this program, but rather some rate increases, hopefully even this year.
We have not included in our guidance any rate increase already in 2022. If ECB is surprising us positively, we will also have an upside in our NII. Besides that, an increase in NII is what we guide. On the capital return, yeah, I mean, we are now already early because in last year we said we would start and consider paying dividends in 2023. We now said we will do that already in 2022. What we will do clearly because of the announcement that we will reflect that quarter by quarter already, the dividend payment, the final decision will be taken in 2023 and then also by the AGM in 2023.
Share buybacks, I mean, it's part of our capital return policy, clearly. I think first we really need to make further progress in the transformation, and we should not forget that share buybacks are also requiring regulatory approval. I could imagine that ECB at least wants to see a full second year of transformation, successful transformation, before giving any approval. That is a little bit of guessing.
Understood. Thank you.
The next question comes from Izabel Dobreva from Morgan Stanley. Over to you.
Hello, good morning. I have three questions, please. The first one is on NII. Thank you very much for slide 15. That is extremely helpful. Obviously from that slide, that long-term revenue potential is very big. I also wanted to ask you a question about your NII kind of more near term. From that slide, if I add it up, it looks like we have EUR 200 million from mBank, then we have EUR 100 million from the model deposit headwinds which have bottomed out. Already it looks like there is a EUR 300 million improvement sequentially for 2022 before the ECB increases rates or 6% growth. Now, against that, I know that there are some negatives, but how are you thinking about that NII growth next year?
Is it fair to say that we will be seeing at least a low- to mid-single-digit growth rate in the NII clean, ex the October? That's the first question. Secondly, I have a question on the cost. Assuming the forward curve holds, I see in the slide you're getting that EUR 1 billion of additional revenue upside. How would you think about the cost in this environment? I was wondering, could you confirm whether in that setup you would stick to a hard cost target? Looking for net cost takeout in absolute terms over the course of the plan. Would you consider switching to a cost-to-income ratio? Then the last question is actually on the buybacks again. Very clear on the timing and on the dividend payout.
In the slide it says that the buybacks could come on top of that 50% dividend payout. Is there a ceiling you had in mind, or are you open to pay out 80%, 90% or even 100% of your profits in 2023, regulator permitting, of course? Thank you.
Well, Isabelle, thank you for your question. On NII again, I mean, what you see on page 15 is clearly assuming the forward rates. It's also for 2022, it assumes that what the market currently expects, that we will see rather sooner than later a move from the ECB. As long as we do not see the move of the ECB, we are stuck with what we have. The increase which we currently assume is that we are able in Germany, et cetera, we are able to compensate the churn which we see by additional growth, specifically on the mortgage side, but also on the deposit pricing side. Then we have clearly growth stemming from mBank.
What you see here in this dark blue and yellow really depends on, yes, we see some moves from the ECB. Second question on costs. This is a good question. My answer would be that I think we can move in the direction of a cost-to-income ratio if we, A, have a decent cost-to-income ratio, and B, if we really see that the interest rates are moving. I think mBank is a perfect example, as I said. I mean, in mBank we see that the interest rates are increasing. We also see the cost pressure. mBank has a very decent cost-income ratio. Therefore, we can work with the cost-income ratio. For Commerzbank itself, I would say still we need to wait until we see further improvements and we see rate increases.
The third question, the buybacks. I mean, buybacks clearly normally come on top. We have shown a slide last year in the Capital Markets Day about potential scenarios, potential scenarios. Sorry, I get here disrupted from something. So the buybacks will be on top. We will decide that on 2023. The potential you have seen at the Capital Markets Day presentation last year, and I can promise we will give an update on that during the Capital Markets Day in two weeks' time. Why was I disrupted? Because I got a page that I should make clear that on page 15 this is really additional.
The EUR 100 million would come on top if there is a rate increase in 2022. It's not yet in our guidance, which we have provided for 2022. That is an upside potential, just to be very clear.
The next question comes from Stuart Graham from Autonomous Research. Your line is open, please.
Oh, good morning. Thank you for taking my questions. I had a couple, please. The first one is on the 10,000 departures. You're at 6,000 already. When do we get that 10,000 fully locked in? How long does that take, please? That's the first question. The second question is on share buybacks again. Have you actually started the discussion with the ECB? Are you in active discussions with the ECB on share buybacks? And related to that, you said you need to see further progress before you can do them. What exactly is being defined as further progress? What are the milestones you have to achieve so the ECB would say yes to share buybacks? Thank you.
Yeah. On the redundancy program, so we have more than 6,000. The rest will be coming over time over the transformation period. We are in good negotiations this year, so we expect over the time of the two-year program to solve all the 10,000.
That's fully in line with your timings.
Yeah.
There's no slippage there.
Fully in line with timing and planning.
Yeah. Basically, to see the full cost effects in 2024, we need to have solutions until the end of 2023. That is the timing, this year and next year. On the share buybacks, I can only confirm that we have aligned the capital return policy with the ECB, so it has the full support, the wording which we have published. I would say that if we have a successful second year of transformation and deliver against our targets and the targets we have just guided, I would say I think we made significant progress, and then it will be much easier to have a discussion also on share buybacks with the ECB.
It sounded in an answer to an earlier question, Bettina, you're guessing a little bit there, or is that a guess based on informed discussions?
No. I mean, we are in constant debates with them, but it's clear that, I mean, we have now the first year of transformation. We made great progress. I think it is valid to wait another year of good progress, which would then be reflected in a net income of more than EUR 1 billion. I think that puts us in a very good position to have further debates on that.
Okay. Thank you for taking my questions.
The next question comes from Johannes Thormann from HSBC. Please go ahead.
Good morning, everybody. Johannes Thormann, HSBC. Two follow-up questions, first of all. First of all, on your NII target of EUR 5.4 billion in 2024, you elaborated on an add-on of EUR 1.05 billion, probably from the rate and curve effects. This is still a delta versus the underlying NII in this year of EUR 4.6 billion after taking the EUR 1 billion away of EUR 800 million despite the reduction of some business volumes. Where do you get it, especially also in the light of the impact of the counter-cyclical buffer on your mortgage volumes, potentially? If you could elaborate a bit on that. Secondly, also on the cost side, I have to pour some cold water on it.
As you lifted your 2022 target by EUR 100 million versus the plan, how can you maintain really the 2024 target despite the inflationary pressure we are seeing, especially in CEE, but also in Germany, as the rising rates are just a function of this pressure and not the first thing, but rather the reaction to it. It is difficult to understand how you can maintain the EUR 5.3 billion. Last, if you could elaborate a bit on the success of the first three advisory centers you mentioned in your speech at the beginning, which are now operational. We hear the reps have been doing more cases than in the branch. Any comments on the revenue generation in those centers, please?
Yeah. Let me start with the first question on the advisory center. We are planning to have all the advisory centers fully in October, November up to start all the 15s, and then we will have more outbound capabilities and processes aligned. We have the first three up and running, and this is just a pilot mode. Now we are building on the processes and yeah, training our employees in the inbound but also on the outbound capabilities. Then from that on, we will see also revenue impacts. This is just the progress, and there's a lot of hard work this year to do, and we are planning for the full start of the advisory centers in the autumn of this year. Bettina?
Yeah. First on the cost target, can that be capped or not? I mean, we have only adjusted the 2022 target because of mBank. There's no change in plan for Germany and the international locations. I mean, the key question is clearly we now see in Eurozone a 5% inflation. We are very confident that whatever we see as cost increases, that we compensate that for 2022. The rest really depends also on reaction of ECB and the question, do we see a permanent or a temporary inflation? If we see a temporary inflation, I think we stick to the targets because then we most likely will also not see the rate increases we all hope for.
If ECB is moving, and they would move because of a permanent inflation. We see revenue increases, and then we will also take care of potential cost increases. That is too early to tell. I think we really need to wait how 2022 is developing. On the NII target, I'm not so sure, Johannes, that I completely got your question. I think one part of the question was whether we think that the countercyclical or the systemic buffer introduced for mortgages will slow down our mortgage business. That is not our expectations. I think it will not change anything. It will not hinder us doing business. That's message number one.
Your first part of the question, I'm not entirely sure that I got what you were targeting for.
Yeah. Very simple. We have a delta, also in the current plan, if we completely ignore the EUR 1 billion uplift of NII from, let's say, EUR 4.6 billion underlying NII in 2021 to EUR 5.4 billion in the old plan, ignoring the move of the rate curve. If you have a reduction of business volumes we're seeing, can you elaborate a bit more how you're generating this in the next years? How much margin improvement is factored into this number as well, please?
Yeah. I mean, there are different effects on private client side. Yes, we expect some more churn to come in probably 2022. However, then the whole branch restructuring is finalized, and we also expect to counterbalance this churn also in the upcoming years by future growth in mortgages and new clients. That's one side of the story. Most importantly, we already also reported back last year, and that was before the rate increases we saw for mBank, a strong growth for mBank. That, putting the two things together, add up to the normal revenue increase, if we leave out potential rate increase effects for the moment. That's the whole story.
Thank you.
We give you anyhow an update in two weeks time, but it has not really changed the story for that.
Up next is Nicholas Herman from Citi. Your line is open, please.
Yes. Hello, good morning. Can you hear me?
Yes. Very clearly.
Okay. Excellent. Yes, morning. Morning, both of you. I have two quick follow-ups and one other question, please. In terms of the two follow-ups, one on net interest income, I mean, can you quickly just quantify the expected PSBC churn in 2022? And if there's any change to your expected churn by 2024, given the encouraging progress so far? That's question one. Question two, just a follow-up on the buybacks. We talked, you talked about how progress on the transformation is a key consideration. What about progress on FX mortgages and the exposure there? Is that also a consideration as well? And then the other question, just on the TLA.
You kept that for 2022, as you said that you would. Do you have any greater visibility now on the timing about when you need to use it by, if provisions do not materialize as you expect them to do so, would you then have to release it by the end of 2022? Thank you.
Yeah. Thank you, Nicholas. On NII, and you see that slightly on the page 15, I mean, we expect we have seen EUR 100 million drag from net interest rates in 2021. For 2024, we believe if nothing would change, so constant rate environment, we would see -EUR 300 million. We said we would compensate by additional growth. In between, that means that you would probably see something like a - EUR 200 million or so for 2022. However, it all depends on how interest rates are now developing. We are very confident that, A, we are anyhow will compensate that by future growth, plus also confident that we might see some rate increases over the next months.
Besides that, it's fully embedded in our plan and our guidance. We have included the at the moment expected interest rate. That is important.
Sorry.
If we guide slightly higher NII for 2022, it means we assume that we will see a drag of approximately EUR 200 million at the moment.
Sorry. Can I just quickly follow that? When I said the churn, sorry, I actually meant not just the NII pressure from deposits, but more the customer churn.
The customer churn.
Yes.
The customer churn is specifically on NCI, where we have included something. That is also something why we believe that out of the combination of NII and NCI, we see an increase. On NCI, we believe that if you see the churn, it might be in NCI, not very high, but to a certain level. The share buybacks, does it change by FX mortgages? I mean, I think the share buybacks really depend on our progress and transformation. I think we have shown in 2021 that we were even able to absorb the additional provisioning out of Swiss franc. We feel very comfortable now.
We should not forget that we have in total now provisions of EUR 900 million combined with the capital buffer, which we have within mBank for the Swiss franc portfolio. We are very near to the level which was calculated for potential KNF solution. In the moment, I would say we feel comfortable on that, but it clearly depends on the further development in Poland and in the different verdicts by E.U. courts, by Supreme Court in Poland and so on. On the top-level adjustment, that is indeed the question of the year. I mean, we guided on smaller than EUR 700 million, and it's clear that it very much depends on what happens with the top-level adjustment.
It might be that we are able to keep it, not use it, and have put it in the direction of 2023. It might be that we see primary and secondary effects of the pandemic, then we will use the TLA. It might be that we are not able to keep it, and then clearly the smaller than 700 you will never see, because we have the top-level adjustment which we first have to use. It is really kind of a buffer which we have currently, and we feel pretty comfortable with that.
Just on that last point, I mean, is there a point at which you will have a pretty strong message from the accountants or whoever it is, the auditors, excuse me, about when you need to survive that. Is that gonna be Q2, Q3, is it kind of then that you'll-
Yeah. I mean, the pandemic tells us that there are always new things and pandemic is ongoing, while we should have seen already an end last year, and then Omicron was there. Therefore, I mean, we just stay cautious and I mean, we have seen some primary and secondary effects, not really resulting in any burden for us. It's just, we just stay cautious and we'll review the year and then decide what we do with the top-level adjustment.
Fair enough. Thank you for those. Thanks for the answers. Appreciate it.
The next question comes from Kian Abouhossein from JP Morgan, please.
Yes. Hi. Thanks for taking my question. The first one's related to deposit betas on page 15, which is a very helpful slide. You clearly discuss a no deposit beta after leaving negative rates. I just wanted to hear why you're using this particular assumption. In your budgeting, how you do your deposit betas. I'm just trying to understand your thinking around zero and how we should interpret that. On Poland, you said there's quite a bit of uncertainty around deposit betas. Can you share your views how you do your long-term budgeting in that respect, so we can get a better picture? Just coming back on cost, the second question, you mentioned should the ECB go into lift-off mode, you might have to revise your cost.
I'm just trying to square the two. Would you change your cost guidance once you see ECB increasing rates? I'm just trying to see what triggers the change. Thanks.
Yeah. Thank you. On the deposit beta on page 15, on the left-hand side, I mean, what are the underlying forward rates? They are still below 1%. Our assumption was that as long as we are below 1%, there is probably not a necessity to really calculate with deposit beta. We should also not forget that, for example, on the Corporate Clients side, we first have and will reduce in the direction of the clients the deposit facility fee. This is why it's so important that we made a net of deposit facility fee. The EUR 255 million we have seen in 2021 and which we also expect for 2022, we deducted from the EUR 850 million. That is net of that. It's an important number.
Therefore, we felt comfortable as long as we are going north of 1%. On mBank, it's a different situation in Poland because we are already now at 275 basis points, and we just simply expect. It's not yet seen, but we simply expect that there will be some deposit beta increase in the coming months. Therefore, we just stay cautious on that. That is a little bit this shadowed thing.
I mean, we believe that we will also benefit from further rate increases, but it's much tougher to calculate than the first numbers, just given the fact that we really can't judge in the moment what happens in the market because this is also very much market dynamics. I mean, this one is now also reaching a level where you could also foresee that you see an increase on loan loss provisions at a certain point in time, which we would also not expect if our interest rate level in Europe stays below 1%. That is, that's just the story. On costs, let me refer back to my answer to Izabel because I think that is summarizing it the best. We will stick to our cost targets, and we will not adjust the cost targets.
For me, it's important that we have a decent cost-income ratio which is competitive, and that is the overall target. That is what we are striving for. The rest, we will decide when we see how certain factors are developing, what happens also with the negotiations with the unions this year, it's an important factor, and on the other side also, what happens with our growth and revenues. Out of the combination, I can just say that for the time being, we stick to the cost targets, and more important, we also stick to the target of a competitive cost-income ratio.
Thank you.
We have another question coming from Tobias Lukesch from Kepler Cheuvreux. Your line is open.
Yes, good morning. Three questions from my side as well, please. Firstly, on the RWAs, you mentioned that there is a bit of management potential. Could you maybe give us again a bit of an idea how this is managed at group level? I think at the end of the day, the above 13% CET1 ratio you target, you said it's well above. How much of a potential RWA impact should we expect out of that modeling? With regards to the FX Polish mortgages, could you remind us, may there be even a positive capital impact on RWA in case it was settled at the level which you have basically a provision for? With regards to the buyback, I think I will not touch on that again.
I think it's very clear. Even if Poland would see additional provisions which you do not expect, we could be quite reassured of a 30% payout ratio. If nothing happens, that would potentially fastly increase to a 50%, with some share buybacks on top. Maybe you just can say this is the right interpretation of the case. Lastly, looking at the PSBC segment and the subsegment of small business customers. I have looked at that quarter-over-quarter for many years. There has been basically no growth at all. This was basically at a EUR 200 million revenue line for many years. Now we have seen an increase, it's up 7%, basically.
I was just wondering, is that a kind of, deposit repricing effect you have with these small business customers, or is there actual cross-selling and growth in that segment finally arriving? Thank you.
Let me start with the RWA and my well above 30%. I mean, we currently are at 13.6%. If I guide for a net income of more than EUR 1 billion, even with a dividend payout, we should expect a capital increase. You could wonder what happens with the RWA. That's just a cautious thing. First, we have still some model debates with the ECB that might lead to an increase. Then we should not forget, I mean, we have the top-level adjustment still of EUR 523 million. If we need to use this for primary and secondary effects of the pandemic, it would also mean that we would see rating migrations and therefore RWA inflation.
That's the whole thing, what we have included in here. The same, I feel pretty relaxed on the EUR 523 million. I also feel pretty relaxed on the well above, to say it like that. The positive capital impact, you are absolutely right. I mean, we have now provisioned EUR 900 million, and we have a capital buffer of approximately. It's probably not the right conversion, but around EUR 400 million or something like that. It's, I think in Polish zloty, it's something around PLN 1.3 billion or PLN 1.4 billion . That is clearly something that if we find a solution which settles at EUR 900 million, that would be then clearly relieved.
Then lastly, on the 30%, yes, I mean, we announced a dividend policy which has 30%-50%, plus potential share buybacks at a certain point in time if we see that the transformation is progressing well. I would say let's start and let's focus on 2022. We are very committed to deliver our targets and then also have a payout of 30%. On the small business clients, I mean, first of all, there has also been a repositioning, and an enforcement of the segment, or we have seen very nice results actually on the NCI of the small business clients.
We have been also very successful in the deposit facility fee in this segment, and the combination of the two things created the increase which you rightfully observed.
We have room for one last question, which comes from Jeremy Sigee from BNP Paribas. Your line is open, please.
Morning. Thank you very much. Two things following on from points that have been discussed. The first one, just picking up on your last comment there, you were talking about the fee income, which I think is another interesting element. We've talked about net interest income. Could you talk about your outlook for both PSBC and Corporate Clients? PSBC, you said obviously the growth isn't sustainable, but can you maintain something around this level of commission income in 2022? Can you sustain that level in PSBC? And secondly, can we expect further growth in the Corporate Clients' commission income reflecting some of the drivers that you've talked about? That's my first question on commission income. Secondly, I just wanted to clarify on the CHF mortgages exactly what is included in your 2022 guidance.
When you say that you assume no material additional provisions, does that mean you assume zero in terms of P&L, or are you just saying no of the sort of EUR 400 million size like we had in 4Q? Do we go back to the kind of EUR 50 million-EUR 100 million run rate that was normal for a few quarters prior to that, or do we go back to zero? Then if it is zero, could you just talk about what gives you confidence that you've got ahead of the curve now on the Swiss franc mortgage provisioning? Thank you.
On your first question on NCI, I mean, on the private client side, 2021 has been very strong, even stronger than 2020. That's number one. Number two is that we believe because of the churn, because of the closing of the branches, we assume that we will see a reduced level in comparison to 2021. On the corporate client side, we rather expect it flattish. I mean, we have some more closures ahead of us, some foreign locations which will be closed in 2022, and that will have an impact. However, we also have a number of growth initiatives ongoing, so we assume that we can hold up the level with respect to NCI.
On Swiss francs, I think the good guidance is as long as we do not have to go ad hoc, as we have done so in January. I would say it's not extraordinary, and we can absorb that. It's exactly as you say, the previous quarters where we have just booked EUR 100 or something like that, we would not talk about that. How do I feel about the provisioning? It's very tough to say, as we all know. This is a very difficult situation. I mean, we always have light and shadow there.
We just got a very promising verdict actually and decision in a class action against us with more than thousands of plaintiffs, which we won. It's not, unfortunately, a final decision, but it is a decision where the judge has been asked twice to decide on that, and he twice decided in favor of mBank. So that gives hope. Then I would say, I mean, we have a lot of provision already in place, but we also know that we have seen other verdicts. So we really need to stay tuned. I can only repeat what I have said before, and I think that holds also true for the management team of mBank.
We would welcome a solution because a quick solution would be much better than what we see currently. We will constructively work on solutions, meaning settlements or other things. For the time being, I think we can feel comfortable with the EUR 900 million booking.
Yeah. We'd like to take the opportunity to say thank you very much for all of you joining this call this morning. Of course, our teams are ready to discuss further detailed question with you as a follow-up. Bettina and myself also looking forward to have a far more deep dive in two weeks at our Capital Markets Day. Until then, I say thank you very much, goodbye and have a good day. Thank you very much.