Good morning, ladies and gentlemen, and welcome to the Commerzbank AG conference call. 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.
Good morning, everyone, and welcome to our earnings call for the third quarter. Let me start with some general remarks before I walk you through the slides and Bettina goes into the financials. On the one hand, we see a very strong performance in our business and are fully on track with our transformation program. On the other hand, we face significant macro uncertainties along the lines of GDP, inflation, rates, and asset quality. This makes it very hard to provide you with an outlook that does not come with some health warnings. However, I'm very convinced that we will reach more than EUR 1 billion in net profit this year. Looking into 2024 and our strategy execution, I'm convinced that we will reach our targeted cost-income ratio of 60%.
Again, uncertainty is high, and it's a key challenge of the whole team to manage it in the best interest of all stakeholders. Now let's have a look at the slides and start with our very good business performance. In the first nine months of the year and with tailwinds from rates, we have increased our revenues by 12%. This even includes the significant burdens from mBank in Poland. Otherwise, revenues would have grown by more than 20%. This is exceptional. Due to our high cost discipline, despite increasing pressure from inflation, it translates into a cost-income ratio of 69%. Our loan book proves to be of high quality. There's no meaningful deterioration so far. With such low provisioning needs in the third quarter, this leads to an increase in operating result of 50% after nine months in this year.
Capital slightly increased to 13.8% and provides us with ample capacity for our targeted 30% payout, which is of course, subject to reaching our net income target. At the end of this year, we will be halfway through our strategic path to 2024. In the past two years, consolidation has clearly been the focus of our transformation program. The necessary restructuring and the setup of a leaner business model have been my top priorities when I joined Commerzbank as CEO almost two years ago. We are virtually done with the consolidation. Let me recap the highlights. The reduction of 10,000 FTEs is largely accomplished. 8,350 FTEs are already contracted. A further 1,100 are part of the streamlining of our international network and come with very low execution risk.
We have cut our branch network faster than planned two years ago. From originally 1,000 branches, we reduced the network down to 450 branches and will further reduce to 400 next year. We have also reduced the cost intense complexity in the bank, but it is clear that we have to go further. Complexity reduction and higher efficiency remain top priorities in operations. In parallel to the restruc turing, we have built the new business model. In PSBC, all 12 advisory center locations are live and have started with remote advisory of clients. More than 50% of staff and clients are already transferred, and the ramp-up will be finished by the end of this month. In Corporate Clients, the direct bank is also fully operational. With the next onboarding wave, it will serve 6,000 clients by the end of this month.
Sustainability has become an integral part of our business model and is well established. With a business volume of EUR 185 billion in the first nine months of the year, we are well on track towards our targets of EUR 300 billion in 2025. The new business model set up also means change for many of our customers. So far, however, we do not see any meaningful revenue churn, and we will make every effort to limit churn going forward. This leads me to our focus for the next phase of the transformation: client business. In the next two years, we will concentrate on our client business within the new setup. In PSBC, 8 million customers will be introduced to a 24/7 remote service and advice. The advisory centers close the gap between branches and digital banking.
We are absolutely convinced that this is the right approach to retail banking in this decade. It might come with a few temporary shortfalls in sales, but it saves a lot of cost, and the full product offering is in place. For the rising number of customers who are self-directed and prefer digital channels, comdirect offers all relevant services and products, and we will further invest into comdirect to maintain our strong position in the market. Our strong advisory skills in 220 premium branches will be focused on wealthier clients to make sure that we tap the full potential of the respective revenue pools. In our corporate client segment, the clear focus is on the German Mittelstand. We will strengthen our leading position as a reliable banking partner, especially when it comes to tackling the uncertainties ahead.
We will open up our direct bank for corporates also to new clients, and plan to serve 7,000 clients with a fully fledged product offering by 2024. Strong export and global sourcing are obviously key assets of the German Mittelstand. Wherever our clients do their business, we aim to be there to support them. Therefore, we constantly review our footprint and adjust when necessary. In light of changing trade corridors, we open up rep offices in selected foreign locations to be present for our clients. Such a rep office is very lean with just two or three people on the ground who manage relationships with our clients. Thus, we strengthen our position as leading trade finance bank for Germany. Client business is in focus, but we will not give it efficiency.
High cost discipline and profitable employment of capital and RWA remains top priorities in the bank and are crucial for future success. This has all been part of our annual strategy review, which we also discussed with the supervisory board. Besides priorities and focus, we have also confirmed our targets for 2024. We target the cost-income ratio of 60% and the return on tangible equity of more than 7.3%. The return figures come with high excess capital as we have not baked in the plan any distributions above 50% payout. Beyond 2024, my ultimate goal is clearly to earn cost of capital. Let me conclude with my key takeaways before I hand over to Bettina for the financials. First, in turbulent times, we have delivered a very good financial performance.
Second, we confirm our 2022 targets and keep our guidance of more than EUR 1 billion net income. Third, we enter into the next phase of our transformation and confirm our key targets for 2024. Now over to you, Bettina.
Thank you, Manfred, and also good morning from my side. I will now walk you through the financials of the quarter. After that, I will follow up on the strategy update with a more detailed view on costs and revenues. I'm very pl eased with the underlying profitability of our businesses. Despite a EUR 747 million burden from credit holidays and Swiss franc provisions in Poland, we reached an operating result of EUR 282 million and a net result of EUR 195 million. Excluding these burdens, it has been the best quarter for more than 10 years, and we are well prepared for future uncertainties.
With EUR 500 million, we have maintained a high top-level adjustment to cover potential further impacts to the risk result, and the CET1 ratio has improved slightly to 13.8%, 435 basis points above the MDA. We continue accruing for a 30% payout for the year. The good performance in the quarters rests on three pillars. Significantly better NII, a cost base contained by our strict cost management, and a low risk result. I will cover all three in more detail later on. On slide eight, you see the year-to-date view. We have improved almost all key financial indicators, even compensating the burdens in Poland. The higher risk result reflects the effects of Russia, while risk provisioning for the underlying business remains at a moderate level.
With a nine-month result, net result of EUR 963 million, we are very close to reaching our EUR 1 billion target for the year. The exceptional revenue items on slide nine are dominated by the credit holidays in Poland. There was a small benefit from the TLTRO in the quarter. We have not included any benefits from TLTRO in our 2023 and 2024 targets. This leads us to the underlying revenues, starting with the commission income on page 10. Corporate Clients has increased net commission income, especially based on strong hedging activities by our customers. Given current market uncertainty, hedging needs of our customers should continue to support revenues. Nevertheless, on group level, net commission income is lower than last quarter due to PSBC Germany. Lower equity and bond market affects PSBC securities business. Also, private customer trading volumes have trended down.
As long as there is no turnaround in the markets, we do not expect an improvement. Therefore, 2022 net commission income will most likely be somewhat below last year's level. Now to NII on slide 11. Underlying NII is up EUR 176 million from the previous quarter. Adjusting for the positive one-off from early mortgage repayments in Q2, all customer businesses contributed to the improvement. In Q4, we do not expect NII to rise significantly. In Q3, we have seen the cumulative effects of higher rates and deposit pricing and corporate customers that has now come to an end. The increase at mBank was exceptionally high. The next slide covers the NII outlook.
At current and further rising rates, interest rates, we benefit from better interest income from deposits, both from unmodeled deposits invested short-term as well as modeled deposits where we can reinvest at higher yields over time. We already see first effect this year with interest income from the deposit business expected to be around EUR 450 million higher than last year. There is uncertainty on how the yield curve will develop in the next years. Forward rates and market expectations are currently fluctuating significantly. We have therefore calculated our interest rate sensitivity with a conservative consensus-derived rate scenario. We assume average ECB interest rates of 2% and five-year rates of 2.28 in 2024. The forward rate at the end of Q3 was around 100 basis points higher.
Not only is there uncertainty on how the yield curve will develop, there's also uncertainty on how many deposits will be moved from non-interest-bearing sight deposits to other products paying interest. We have already seen first attractive products launched by some competitors in Germany. The higher rates are, the bigger the incentive to move. How much this will be and what pricing will be required depends on many factors, and it's hard to predict as we have not seen a rising rate cycle for more than 10 years. We assume a deposit beta of around 35% in 2024. This would result in a EUR 950 million improvement of the NII compared to 2021. The sensitivity to changes in these assumptions is high. One percentage point change in the deposit beta is equivalent to EUR 45 million NII per year, all other parameters being unchanged.
Thus, if the beta should turn out to be 25%, we expect around EUR 450 million additional NII. 100 basis points parallel shift of the interest rate curve, assuming constant beta, would result in around EUR 350 million extra NII in 2024. Given these uncertainties and sensitivities, we have decided to use these prudent assumptions in the update of our Strategy 2024 targets. Let's move to cost on slide 13. Our cost management measures are well underway. The headcount reductions as well as branch closures and lower usage of external consultants show their impact. On the flip side, compulsory contributions have further increased. We stick to our 2022 cost target of EUR 6.4 billion. So far, our cost measures have overcompensated effects from inflation and compulsory contributions. However, pressure from inflation continues to increase.
An additional one-off cost we will face in Q4 is the inflation compensation premium payment to our employees that we have just announced. Also, variable compensation might be higher than originally planned. The next three slides detail the risk result. The year-to-date cost of risk on loans has reduced further to 32 basis points and is still dominated by the TLA booking in Q1. We continue to see a high resilience of our customers at a low level of defaults. Our Russia exposure has been actively reduced by around EUR 100 million during the quarter, resulting in a partial release of the top-level adjustment. This has led to the positive risk result in Corporate Clients.
Following the EUR 64 million reduction of the TLA in Q3, we still have EUR 500 million available to cover potential direct effects from Russia, as well as secondary effects like supply chain disruptions, higher energy prices, and an economic slowdown. What is not covered is the potential effect of a gas rationing scenario. So far, there has been no need to book a TLA for a gas rationing scenario. Germany has made significant preparations for the upcoming winter. Storage facilities are largely full, non-Russian imports have been increased, and the government is providing substantial measures to support private households and corporations. However, a significant reduction in demand is required to avoid a shortage. While feasible, this is not guaranteed. In case efforts should fall short, resulting in acute shortage, we expect unemployment to rise and GDP to contract more sharply.
The impact will be cushioned by measures from the German government. Nevertheless, in this scenario, the booking of an additional top-level adjustment of EUR 500 million-EUR 600 million is a possibility. Obviously, this is not our base scenario, but we can't rule it out. Having covered the key profitability drivers, I will now quickly touch on other income and the tax rate. Underlying other income largely reflects the provisions for Swiss franc mortgages in Poland. Concerning the tax rate of 85% this quarter, this is a result of the extraordinary burdens in Poland that are not all tax deductible. From today's perspective, a tax rate at around 35%-40% is likely for the full year. The next slides cover the operating segments starting with private and small business customers. The securities business has been impacted by lower equity and bond markets, reducing securities volume by EUR 6 billion.
However, we have continued to see an inflow of net EUR 600 million despite the current market environment. Mortgage volumes have been impacted by higher rates and economic uncertainty. In Q3, we have seen around 40% lower new business compared to the average in 2021, in line with the overall market. The back book has remained stable at EUR 94 billion. For the next quarters, we are expecting stable to slightly lower back book volumes. The deposit business has seen continued inflows. So far, there has been no material passing on of rates to customers. Some competitors have started with teaser products to attract new customers and deposits. We will carefully adjust our pricing to market conditions and expect an increase of deposit beta over time, gaining pace in 2023. This brings me to the performance of PSBC on page 19 and 20.
PSBC Germany operating result is better year-on-year and also quarter-on-quarter if adjusted for the benefit of EUR 90 million from early mortgage repayments in Q2. When adjusting for a cleanup of inactive client relationships in the quarter, customer and revenue churn remain very well below expectations. mBank's result is dominated by the burdens from credit holidays and Swiss franc mortgages, pushing mBank to an operating loss of PLN 528 million. In Q3, excluding these charges, mBank would have reported a record result of PLN 219 million based on higher revenues driven by PLN 73 million higher interest income quarter-on-quarter. With the increased provisions for Swiss franc mortgages, mBank has a coverage ratio of more than 50%. This should be sufficient for most scenarios.
With the politically imposed burdens, mBank will likely not be able to contribute positively to the group result this year. The next two slides cover Corporate Clients. In Corporate Clients, we have continued our active portfolio under RWA efficiency management. Loan volumes have grown and average RWA efficiency increased to 5.7%. We have now received the preliminary permission from the ECB to move some portfolios from our internal models to the standardized models for RWA calculation. The switch should therefore become effective in Q4. This will lead to some RWA increase in Corporate Clients that will be offset by reductions in others and consolidations. In the deposit business, we have continued to see inflows and have ended deposit charging in July. The volume of interest-bearing deposits is currently about one-third of the total mainly term deposits. The volume is basically unchanged to Q2.
In Q4, we will probably see some increase of interest-bearing deposits as rates at 1.5% makes this more attractive. With EUR 536 million Corporate Clients reach its best quarterly operating results since Q1 2015. This is based on improved revenues from all customer segments and product types. The biggest driver has been underlying NII, which is up 25% year-on-year. In addition, costs continue to be managed down. Overall, the pre-provision result has doubled year-on-year. The operating result further benefits from a positive risk result, thanks to a partial release of the Russian TLA and a low number of defaults. Others in consolidation report a Q3 operating loss of EUR 47 million. Revenues cannot fully cover the operating expenses and were affected by the dislocations in the UK market at the end of the quarter. In October, this effect has reversed again.
For the full year, we continue to expect a slightly negative or balanced operating result. Group risk-weighted assets have been reduced slightly due to a decrease in credit risk RWA from securities positions in others in consolidation. Capital has also improved due to the positive net result. In total, this has led to the improvement of the CET1 ratio to 13.8%. Now to our outlook for 2022 on slide 25. Our outlook continues to be based on the assumption that there will be no severe deterioration of the economic environment, which would require the booking of a large additional top-level adjustment. For the financial year, we expect interest income above EUR 6 billion and a commission income slightly below the previous year. We stick to our target for operating expenses of EUR 6.4 billion, although pressure from inflation continues to increase.
The risk result is expected to come in around EUR 700 million, assuming usage of the TLA. Further, we expect a CET1 ratio above 13.5%, and we continue to expect a net result of more than EUR 1 billion. Last but not least, we target a payout ratio of 30% of the net result after 81 coupon payments for the business year 2022. I will now give you an update on our revenue and cost expectations for 2024. Slide 27 starts with the revenue outlook. We raise our revenue target by EUR 900 million to EUR 10 billion in 2024. The target for mBank remains unchanged. We continue to expect EUR 600 million higher adjusted revenues than in 2021. However, Polish interest rates should come down from the current very elevated levels and NII should therefore be around EUR 200 million below this year's level.
We have, however, adjusted the outlook for euro interest rates. NII from deposits is assumed around EUR 950 million higher in accordance with our base interest rate scenario covered earlier. We have not assumed a net change in loan volumes and margin as lower mortgage volumes should be compensated by growth from overdraft facilities and business loans. Also, our assumptions for commission income have not changed materially. The next slide covers the cost trajectory. We are well on our way to implement the cost reduction measures that are the heart of our strategy. Without additional headwinds, we would be on track to reach our originally 2024 target. However, we see increased staff costs and administrative expenses primarily due to higher inflation. We also must implement some new requirements that were not part of our original plan.
We face additional costs for increased cybersecurity measures and new regulations. We also decided to invest more in our two-brand strategy in PSBC. Compulsory contributions will also be raised further, adding around EUR 100 million to our cost base. All this will be partially offset the net cost reduction, and we expect a EUR 6 billion cost base in 2024. We will continue to further optimize our cost base as a top management priority and confirm our target to reach a cost-income ratio of 60%. To summarize, with revenue growth more than offsetting cost increases, our operating result is expected to reach around EUR 3.2 billion in 2024. We assume that most effects from a potential recession would become apparent next year and booked accordingly. Therefore, we anticipate an only slightly increased risk result in 2024.
This leads to an unchanged cost-income ratio of 60% and a net ROE above 7.3%. With our prudent planning, we are confident that we can reach these targets and should be able to absorb some potential negative effects from the more uncertain economic environment. Thank you very much for your attention, and Manfred and I are now very happy to take your questions.
Ladies and gentlemen, if you would like to ask a question, please press nine followed by the star key on your telephone keypad. If you wish to cancel your question, please press nine followed by the star key again. Please press nine and star now to state your question. The first question comes from Kian Abouhossein, JPMorgan. Please go ahead.
Yes, thank you for taking my questions. It's specifically, first question is on NII. If I take slide 11 plus 12, and then I compare to slide 27, with your new NII target, clearly, if I take the third quarter annualized and I adjust for even the EUR 200 million lower expectations on mBank, and I include the historic churn rate of EUR 300 million that you talked about, I believe, clearly I can get easily above the EUR 6.3 billion. And I just wanted to see how we should square slide 11, 12 plus adjustment equal to 27 on NII. The second question I have is on corporate banking.
I mean, you have done really well on NII on Corporate Clients, and I'm just trying to understand, historically, we would see higher deposit betas in this area and, just wondering how we should think about Corporate Clients going forward in terms of NII generation specific in that segment. Lastly, if I may, very briefly on cost, personnel inflation, cost inflation on page 28, what wage settlements do you assume?
Okay. Thank you, Kian. On the NII, I mean, if you take the third quarter is a difficult one to take for the quarters to come for two reasons. One is, I mean, there were first decreases started, but we really didn't have a lot of deposit beta already implemented, and that will definitely increase. This is the 35% which we see for 2024. That makes a big difference as we have shown the sensitivity on the deposit beta. The other thing is, and that relates also to your other question on corporate clients and the very good results in the third quarter that you have a kind of a double whammy effect in there.
We had a deposit pricing still in this quarter for corporate clients. On the other side, we have already seen the benefits from the interest rates and indeed, the rates discussion with the corporate treasurers just started. You will see an increase in deposit beta over the next quarters. Overall, I mean, you basic ally will see, in the moment, the EUR 450 million additional, which you see for 2022, there's slightly more coming from corporate clients, and that will turn a little bit around in 2024, where you will see more to come from the private client side.
On the cost side, I mean, we have already baked in certain inflation because we have for the pay scale workers we have an agreement for this year, but we also expect more to come. The usual increase, which we normally would have included, like 1.5%, is clearly not enough. We went above and specifically also in the foreign locations, we see salary increases between 5%-10%. And we not only see that with our own headcount related costs, but also with respect to our suppliers and service companies who all come now and ask for basically higher prices and higher fees.
Okay. Can I just follow up just on the NII? I mean, even if I take a run rate of, let's say I make adjustment of EUR 1.5 billion and then I take slide 12. I realize the deposit betas are going up from nothing almost. Even if I do that, I should add up, considering interest rates are going up and forward curves, I should end up well above, you know, the numbers that you have. Am I missing something? That's what I'm trying to understand.
Well, I mean, one thing is also that, and we said that clearly, that we have not based our 2024 targets on the current forward rates, which are apparently higher.
Mm.
We just took 2% into account for 2024. That also makes a big difference. There's also. I mean, it's basically something which is piling up. You will see if we would show now 25 and 26 numbers, you will see a constant increase because as we have seen this easing out of negative interest rates and the revenues, you see also partly an easing or adding up over time now of the positive interest rate environment. It's numerous effects, but the most important one is really the deposit beta, and you should not underestimate the effect of do we calculate with 30%, 35% or whatever. I would say.
Great.
We have been clear on that. We are rather prudent on our 2024 targets.
Great. Thank you very much, Bettina.
The next question comes from Johannes Thormann, HSBC. Please go ahead.
Good morning, everybody. Johannes Thormann, HSBC. Three questions from my side. First of all, on the deposits and deposit beta. Probably you can provide us with a breakdown of your PSBC deposit base of EUR 153 million in your presentation. How much is basically savings deposits, term deposits and sight deposits to better understand why you are so cautious on the 35% deposit beta, which is puzzling me as well. Probably also you can elaborate a bit more on page 11 and 12 why you just expect uplift to 175 pips with the current move. What is driving your economists or your forecast and not expecting 2% or 250, for example, like getting closer to market rates?
Secondly, on your mortgage business, please, could you say how much new business you did in Q3 versus the other quarters and what is your expectation for Q4? Did you change your underwriting standards? You now want less amortization, or you still go for 3%-4% amortization? What kind of volumes do you expect for 2023? Last but not least, on the OpEx, unluckily you reduced the transparency. I can't find any breakdown of personnel, other, depreciation in any of your documents. Could you share this breakdown to probably see how the headcount reduction is personnel cost?
Probably also in the long run, how do you square the EUR 6 billion targeted costs versus now, what will run down more sharply, the personnel costs or the other costs or depreciation, looking also at investments? Thank you.
I mean, on the deposit beta, the 35%, is something which is the average and the blend of Corporate Clients and private clients. We all know that there are differences. On Corporate Clients, we calculate even on the sight deposits with some deposit beta, and then it goes up for the term deposits. On the private client side, we still have the assumption that on the sight deposits we would not pay any deposit beta, but only on the term deposits and the savings accounts. Clearly, we very much oriented ourselves on historic data, because apparently nobody knows how clients are really reacting.
We took what we have seen in the past, where we also did never pay on sight deposits, a deposit beta and things like that. All in all, it's very much dependent on how much, how the clients react. We assume the substantial shift from sight deposits to term deposits is really a higher double-digit billion EUR number, which we assumed. The true story is we will know when we see it. Also, I mean, we see some competitors out there with some quite aggressive attractive products. We need to see how things are developing.
The 35% are currently our best guess, based on the blending between the two segments and the historic data we currently rely on. On the second point, the second question, I think you were relating it to Johannes, to mortgage business, right?
Yes. The mortgage business. First of all, the new business volume, what do you expect also in the next quarters? Did you change your underwriting policies now with the jump in rates, like expect or do you model less amortization into the rates, for example, again?
Okay. Let me start. Yeah, it's the book of business is still stable, but we know that the new business volume in third quarter is 40% below the average of last year. Yes, the new business volume in mortgages is down. We are very strict and still tight and applying our existing tough underwriting standards. Yeah, the margin is slowly up, slightly up. We are strict, but we already had very, very tough standards before which we are applying. It's true, the new business volume is 40% down in comparison to the average of last year. Now I think back on the personnel costs.
Yeah. I mean, you see the split on how costs are developing on page 28 of the presentation. It's equally split, the inflation part on personal costs, inflation and administrative cost inflation. If you take just year to date, 2022 versus year to date, 2021 on the headcount related cost side, we have seen a reduction of -5.4%. For the other costs, -4.8% unfortunately offset by our beautiful increase in compulsory contributions, which is hard to influence from our side.
Okay. Sorry, but still, could you provide the exact breakdown of the cost currently, how it splits down in personnel, other, and depreciation? As well, I don't understand why you can't split down and break down the deposit mix in PSBC. We can probably better understand why you're so careful on the deposit beta there.
Well, I mean, I really like transparency, et cetera, but you will also understand that we are not revealing the complete deposit strategy given that we have also competitors out there. It's just simply the fact that we differentiate between sight deposits, savings accounts, and term deposits. We do that based on historic data. We also assume that a large part of sight deposits will move over time, specifically when interest rates are further increasing, from sight deposits into term deposits or savings accounts.
On the cost breakdown, I think we just need to look it up and provide it to you later, but it's an easy one because we just have to take the cost breakdown of the 5.4 and provide you with a cost breakdown of the 6.0. That's not a big problem.
Okay. Thank you.
The next question comes from Stefan Stalmann, Autonomous Research.
Oh, hi. Thanks for taking my questions. I had two, please. The first one is on capital. You talk now of a reliable capital distribution on slide four. My question is, are you still committed to the EUR 3 billion-EUR 5 billion capital return by 2024? Can you talk about share buybacks in there? I mean, given you're gonna make the EUR 1 billion net profits this year, can we think that share buybacks could already begin early next year? That's my first question. The second question is for Bettina, and I apologize, it's a super geeky question. But mBank yesterday showed just over PLN 2 billion of underlying NII, which at an average ex-FX rate of 4.7 should have been EUR 423 million of NII, yet you showed EUR 473 million, so a EUR 50 million higher figure.
Historically, you'll see NII's always been EUR 40 million a quarter lower because of the funding costs, and yet the last two quarters it's materially higher than what mBank's showing. What's going on there? What's driving that? Thank you.
Okay, Stuart. On your first question, I mean, indeed, we have also, when you look on 2024, capital ratios will be well above 14%. Apparently, there is then quite some potential out there, and I'm pretty sure we will touch on that also in the upcoming quarters and see how things are developing. On the share buyback thing, I mean, it's part of our capital return policy and, I mean we carefully have reviewed the strategies of our competitors. I mean, we have now seen quite a number of share buy programs, which indicates that also our regulator is supporting this measure and, it's part of our capital return policy.
We will definitely consider that. The order is pretty clear. First, deliver on the more than EUR 1 billion, and then we will discuss in February, March, about how to distribute that and we will consider all instruments. On your second question on mBank, it has a lot to do with averaging of FX rates, then you always have differences because of the consolidation and the internal businesses taking place between mBank and Commerzbank. Sometimes it's tough to compare, but there's no specific thing ongoing between mBank and Commerzbank. It's just the usual things and sometimes it goes in one direction and sometimes in the other.
That could revert to a negative in future quarters.
Might be. I mean, the thing is that also, I mean, we always have our assumption also when we put the outlook in, we have our assumption on the FX rates and, dependent on what FX rates you have, you have a positive or negative, impact on either revenues or costs, which you show here. That's, basically a matter of fact. Yeah.
Okay. Just finally back on the capital. That's a yes on the EUR 3 billion-EUR 5 billion, was it, or it's a maybe?
The thing is that, I mean, we haven't changed our profitability and target. We have even increased the operating income. Yes, I mean, given that, we also do not assume that we have a big shift in RWAs, et cetera, it's clear that we have a lot of potential.
Great. Thank you for taking my questions.
The next question comes from Tobias Lukesch, Kepler Cheuvreux.
Yes, good morning. Thanks for taking my questions. First, I would like to touch back on the NII and geosensitivity you provided. Given that, if I understood you correctly, that Q4 is likely not to be better than Q3, but potentially also not much worse, I think implicitly you would guide for a kind of EUR 6.1 billion NII in 2022. Comparing that to the EUR 6.3 billion in 2024, this is very conservative. I was just wondering if you kind of calculate a reduction in mBank's NII contribution based on this, or if this is a kind of run rate that we have currently seen in that number. Secondly, I'd like to come back to loan growth. If I understand you correctly, yes, mortgages suffered immensely.
However, you think to compensate with overdraft and other corporate loans, basically. Looking into 2023 and 2024, is there any loan growth you can share with us, potentially also split between the two things? Maybe lastly, a quick technical one, so to say, on the TLTRO. There was a very small amount booked in Q3 last year. There was no amount booked. What should we expect as a final TLTRO booking in Q4? In general, how do you think to continue with the TLTRO funds you have on balance sheet? Thank you.
Okay. As we said, perhaps a little addition to Stefan's question on capital return. I think it's also important to stress that share buybacks are only possible with the approval of the regulatory authorities. I just would like to add that to not have any misunderstanding that we clearly have to get that approval first. Now on your questions, Tobias. We said that we assume a reduction in NII if you compare mBank's 2024 numbers with 2022, given that we also assume in our rate assumptions that you will see probably starting in 2023, but latest in 2024, a reduction of the very high interest rate level in Poland, and that one we have reflected in here.
The rest I think I already covered. On the loan growth, it's very difficult to make a forecast in the moment for 2023. We see that our Corporate Clients have lots of investment needs, so we would expect further growth here. On the private client side, we are more cautious because we see this activity which has slowed down quite significantly on the mortgage side and on the consumer loan side. We will see that also at least continued for 2023, might recover in 2024. That's also why we forecast a slight decrease of the book back book in the coming quarters.
On TLTRO, I mean, we have shown quite significant benefits out of the two programs in the past quarters. This quarter we have shown EUR 9 million. There will be clearly a positive effect in the fourth quarter, given that the program only ends by end of November. This will be something in the double-digit million EUR size. Besides that, we have been in the lucky situation that we always had in our plans a negative interest rate environment. We never assumed benefits out of the TLTRO in the coming years.
When we did our new planning over the summer, where we apparently now have also calculated with a positive interest rate environment, we already heard about the rumors that ECB is thinking about changing the conditions and therefore we also didn't include it over the summer, which is now proved to be a smart thing that we have done it like that. Let me also state clearly that we haven't done any hedging of the TLTRO.
Thank you, Bettina.
The next question comes from Jeremy Sigee, BNP Paribas.
We hear nothing. Hello?
Yes. Just one second, please.
Shall we take the next one first and then see, but?
Mm-hmm. Just one moment.
Are there technical problems? Hello? Operator, I mean.
Yes. I'm sorry. Just one moment please.
Yeah. We are waiting here, everybody, right? Thank you.
Hello. Hello.
Yeah, we can hear you. Very happy to hear.
You can?
Yeah.
Oh, fantastic. Very good. Okay. I'm not sure what happened there, but good. Well, listen, thank you. I just wanted to ask two questions about credit quality. Firstly, on your 2022 scenario, you assume usage of TLA. I just wondered how much. Are you assuming the whole thing gets drawn down or the bulk of it? I just wondered what your thinking is on using the current EUR 500 million that remains. Then my second question was, just see how you think about the timing for evaluating the gas rationing scenario. You seem to see it more as a 2023 possibility rather than something that's likely to impact 4Q. I just wondered what you see as being the key pressure points that will tell us the answer on that scenario.
You know, will we know in December, January when we're partly through the winter? Will we need to wait till the spring or is it about the sort of summer refilling the storage? Just where do you see the key sort of moment where we'll be able to evaluate that, gas rationing scenario?
Okay. Thank you, Jeremy. On asset quality and the usage of top-level adjustment, I mean, we would assume in the moment that we would see, yeah, not the complete usage, but a good part of the EUR 500 to be used. That is our current assumption. In the moment I have to say, it's very calm so far also in the fourth quarter, but apparently this is a very, very long quarter until beginning of March. That relates also to your second question, whether we really see such a gas rationing scenario, such an event. I mean that could also happen in Q4. It's very much dependent on how things are developing.
I mean, we now have the benefit of a rather very warm start of the winter, to say it like that. The key question is do we show the reduction of the consumption we need that we do not enter into any constraints? That you will be able to see in already in December, when we see the numbers in January. We will closely monitor the situation and then it also depends on what the impact really is. This is the second part, which we have to review. I mean there are clearly some industries, and we have laid that out in the appendix of the document, which we see as the most sensitive and most exposed to a potential gas rationing scenario.
We will probably have a good feeling on that already in December, January, whether there is something in the fourth quarter.
Okay, thank you very much.
The next question comes from Anke Reingen, RBC.
Yeah, thank you very much for taking my question. The first is on cost. I just wondered on the path from the EUR 6.4 billion to the EUR 6 billion in 2024, will there be a gradual step down or, given inflation it's more flat and then step down in 2024? Then on the NII, just a different area. Obviously spreads have been widening. Do higher wholesale funding costs play a role in your NII outlook? I guess TLTRO could be one of the parts where you have higher funding costs. What's your plan in terms of repaying TLTRO? Are you intending to keep it as long as possible or haven't quite decided yet? Thank you.
Okay. On the cost side, I can combine it with the question of Johannes on the split of the cost. The EUR 6 billion are split in approximately EUR 400 million for compulsory contributions, EUR 3.2 billion for headcount related costs and EUR 2.4 billion for other costs. That's basically the split. Related to your question, Anke, for 2023, we assume and we expect a reduction, so not a flattish development between 2022 and 2023, but a reduction, so that we are further moving from. I mean, we now have year to date a 69% cost-income ratio. We target the 60% for 2024, and 2023 will be on our way there.
Clearly with a reduction of costs for 2023. On the NII, not really significant increase of funding costs, also no real spread widening, so that's not the thing which we have to take into account. On TLTRO, we have not fully decided what we do, and we will decide that probably in the next couple of weeks. I mean, the first thing is now up for decision, but we are still in the consideration process, to say it like that.
Okay, thank you very much.
The next question comes from Chris Hallam, Goldman Sachs.
Yeah, thank you for taking my question. Just two of them. First on deposit betas. On slide 12, is the way to read that 100 basis points unchanged deposit beta comment that we should assume that a 3% ECB deposit rate in 2024 would result in more or less the same deposit beta as 1.75 in 2023? And if so, what gives you confidence in that view from a sort of competitive standpoint, given Bettina's comments you made earlier about some of your competitors already moving on overnight deposits? Secondly, on ROTE, clearly the 2024 ambition has been lifted from a revenue perspective, but so too on costs.
I think you've been clear before that there would be some additional investment or reinvestment you might like to make in the business, as well as the inflation pressures you're seeing. So given the ROTE conclusion is more or less unchanged, should we assume that you're essentially managing the bank for 7%-8% ROTE in the medium term and reinvesting the additional NII upside in future efficiencies and technology, et cetera?
On the deposit beta, I mean, for the sake of also not creating too much confusion on the page 12, we decided to just take for the 100 basis point increase the same deposit beta, the 35%. If you read it, I mean, the higher the rates, the higher is also the deposit beta, that's for sure. It might be that if you would see an increase of a 100 basis points, that you would then also see a slight increase of deposit beta. It's just hard to tell, and therefore, we just decided to just keep the deposit beta at the 35% because we also believe that the 35% is a good, prudent assumption for 2024.
With all the caveats I already said that, we simply do not know how things are really developing, because we are not really used to the situation in the moment. On the ROTE, I mean, partly, yes, we also do some additional investments. It's not all related to the inflation. As I said, we see just also some requirements. Just take cybersecurity, which has really gained even more importance over the past months also due to the conflict with Russia. And that is one side of the story.
The other one is also that, when we decided to keep comdirect, at least on the front-end side, of the IT, separate to be just quicker and faster to the needs of comdirect customers, and that also comes at a certain price. It's a mixture. The majority is really dependent on the inflation effects which we currently see, but there are also some reinvestments.
Okay, thanks very much.
I mean, ultimately, it's also clear that 2024 is just an intermediate step towards our clear target to achieve cost of capital.
The next question comes from Riccardo Rovere, Mediobanca.
Good morning, everybody, and thanks for taking my question. Three or four, if I may. First of all, a clarification on Jeremy's question with regard to the phasing of the use of TLAs. It's not clear to me, Bettina, if you stated that you expect to use the majority of the EUR 500 million already in December 2022. Even if that did sound a bit strange maybe to me, as long as the situation does not deteriorate materially, maybe it would be difficult to allocate those TLAs to single names. But just want a clarification on that. Still on ECLs, when you calculate ECLs, you have your PDs and your LGDs based on the past evidence, plus you have a scenario overlay where those should move in the next couple of years, two, three years.
When you calculate the additional EUR 100 million, roughly, ECLs in respect to the previous targets, what kind of scenario do you plug into that, into those calculations to derive your brand new PDs and LGDs? Then related something to that, with regard to the gas rationing scenario, the additional 500-600, is the govern ment intervention related to the EUR 200 billion somehow, incorporated in those calculations, in those indications or not? Then, on capital returns, when you presented Strategy 24, at some point you stated, first of all, on capital return, we need to show our regulator that we are profitable, and the profitability becomes stable and something like that. Then we can eventually debate on capital return, the size and what means in what ways.
Is the macro situation changing anything with regard to the discussions that you have with the SSM? Is this macro making those discussions a bit more difficult? Or I don't know how to call them, you know, a little bit, a little less uncertain, a little more uncertain on that front. Thank you.
Riccardo, thank you for your question. On the top-level adjustment, I mean, yes, I said our majority we would expect in the moment, to use the majority of the top-level adjustment. However, it's also very clear if we don't see anything happening in our books, we will also try to keep it, for 2023. It's however, always a question which you need to discuss then also with your auditor, because also the top-level adjustment is just not a plug-in, something where we really have, concrete names, behind, the number of 500 and therefore, we take a look.
That's, by the way, also the reason why we reduced the top-level adjustment by EUR 64 million this quarter because they were related to certain Russian names where we saw a panic, and therefore we were able and also forced to reduce the top-level adjustment by this number. On 2024, the slight increase of the risk result is just due to the fact that, I mean, it's clear that we are entering a difficult 2023 year. I mean, also the GDP assumptions are quite diverging. We took now the consensus of the -0.9%, which is the most actual one of October. Our own economist department is out there with a -1.5%.
Moody's is around -0.4%. It's quite some broad or diverging assumptions out there. We believe that you will see the bulk of things happening if something is happening in 2023. We just wanted to be cautious that there might be also something still in 2024. On the gas rationing scenario, yes, we included or we assumed that there would be government measures. That is baked into the EUR 500 million-EUR 600 million that there are government measures out there. Your last question is, I mean, it has not changed.
First of all, I think we have been on a very good way in showing that we are much more profitable than in the past. We have now seen a significant improvement of our cost-income ratio. Last year, we still had 80%, we are now at 70%. That helps in the debates. We also said that we would be very prudent in our capital return. The 30% we wanna start with, I think is a prudent start. We now have embedded in the plans going forward for 2023 and 2024, a 50% payout ratio.
I think as long as we can show a very strong and solid capital ratio, which we currently do with a 13.8%, we have a good ground for our dialogue with the regulatory authorities.
All right.
Okay.
Thank you. Thank you very much.
Yeah. Time is again running out. I would, Bettina and myself would like to say thank you very much for your participation and questions. As always, I know there will be a lot of follow-ups coming up. The teams are ready for your contact and further questions. With that, Bettina and myself say thank you very much and looking forward for our contacts and speeches over the next time. Thank you very much.