Welcome, ladies and gentlemen, and thank you for joining our Q3 2024 earnings call. My name is Franziska Randt. I am head of the Strategic Division of the IR Department, and I'm very pleased to say that today here with me is CEO Dr. Sebastian Hirsch and our CFO Dr. Martin Paal. We will start with the presentation, and right after, we will enter into our Q&A session. If you would like to ask a question, please press the raise button with the hand symbol on it. Once I call your name to ask a question, we will open your audio line. Please also make sure that your device is unmuted. You can also type your question in our webcast chat via the Q&A button. With that having said, I would like to turn the call over to Sebastian. Please go ahead.
Thank you, Franziska, and also a warm welcome from my side. Thanks for joining us today for our earnings call. Ladies and gentlemen, as announced two weeks ago, the third quarter of 2024 was marked by a different setting than we initially had planned at the beginning of the year. For the first time, the challenging economic situation has also materialized in our numbers. We saw an increase of insolvencies, especially in three of our core markets. At the same time, we see a decline in the main interest rate by ECB, and this has a little effect on our success in settling leasing contracts with a solid and very good CM2 margin, as we will see in just a second. The amount of lease requests submitted in the third quarter provides us confidence that the demand for leasing remains unbroken.
I would even like to add that small-medium enterprises which go for lease contracts now are healthy. Why? Because after all, leasing is always an investment case. And if things are not going well for small-medium enterprises, they would not invest. Two weeks ago, as I mentioned, on October 29, we was a tough day for Grenke, a tough day for us, but also for me personally. We had to lower our guidance from the beginning of the year for group earnings, initially EUR 95 million-EUR 115 million to now EUR 68 million-EUR 76 million. I know this came as a surprise to you as well as for us. At the beginning of this year, we did not, and I argue that we could not, anticipate this strong increase of insolvencies and its impact throughout the year.
The most common question of the past week with capital market participants, with you, was: How could you not see this coming? And why was the impact so significant? First, we saw it. We reacted, and we communicated immediately, but allow me to provide some insights. Let's start with the portfolio we are talking about, because we have to take into account two numbers. Firstly, our numbers of running contracts or the leasing receivables of the performing leasing contracts. We are talking about EUR 6 billion leasing receivables and 1.1 million running contracts. And from a risk perspective, that's a potential portfolio where we are estimating our expected credit loss with our scoring system at the beginning of a contract. And for this portfolio, we make provision in IFRS as well. Very decisive here is the PD, meaning the probability of default and this estimation.
Secondly, we also have a non-performing receivables portfolio. Bad debts from previous periods at the beginning of this year with an amount of EUR 460 million, and here it is decided what we are expecting in terms of recoveries and bad debt collection, because the default, according to the PD, has already been realized, and the sharp increase of insolvencies has an impact on both dimensions. Of course, we see more defaults and a rising number of non-performing receivables. It increased to EUR 521 million. However, we also had to realize that the recovery performance was worse than expected, or in other words, we saw more insolvencies in our bad debt portfolio than usual. How fast we are able to track it depends on the timing of a default, and for the healthiness of our running portfolio and the payment behavior, we have implemented some early indicators which are still relevant.
Especially, we track the chargeback quota, and secondly, we track a dunning-notice quota. And why did it not work perfectly to see this impact earlier? To put it in short, insolvencies, as I mentioned, within two different impacts. Firstly, insolvencies that happened so quickly that we were not able to spot them in one of the aforementioned quotas. The numbers of defaults without any dunning or reminder increased. And secondly, as I mentioned before, we saw a higher quota of insolvencies in our bad debts as well. So the payment performance in the bad debt portfolio is worse than initially expected. The effects in France, Spain, and Germany are relevant for us because all the three markets are part of our top five core markets. And as you can imagine, that had a significant impact on our settlement of claims and risk provisions.
Yet I'd like to underline the fact that the Q3 loss rate of 1.5% is at our historical average. This is why we say that it's more or less a normalization from a long-term perspective. And the loss rate we saw throughout the past two years was very low. We ended 2023 with a loss rate of 1.0% and took this level plus a little buffer of 10-20 basis points for our planning for the fiscal year 2024, which at the time felt like the right level. And we also have a growing portfolio. And that's a huge difference to the 2009 financial crisis or 2020, the pandemic. There, the loss rate was under pressure from a higher risk and a lower volume. Our new business is well on track.
The performance in Spain also led us to write off the entire goodwill of our Spanish subsidiary, the EUR 4.4 million. It's a non-cash event. Now, with the additional data we gathered, we will analyze our early warning systems as we do always and become even more precise when signing leasing new business with our current systems. That is and was always a treasure in a situation like this. Now, allow me to provide you with an overview of our internal highlights in 2024 so far. Not only is our customer base growing steadily alongside our leasing new business, but also our lease receivables that reached new historic highs with well above EUR 6 billion. Also, from the cash perspective, we see a strong development in the first nine months of 2024. Martin will provide you with more details on that.
We proved that we are able to establish Grenke in the benchmark bond level with our third EUR 500 million bond in September this year. We were able to finish our share buyback program by the end of September. We now own roughly 5% of our own shares. As for our ESG efforts, we are happy to come first place in the corporate governance scoring rating in SDAX. The scorecard evaluates several topics around AGMs, the annual report, transparency, and governance, like the declaration of conformity and accounting. In the third quarter, in terms of new business, we have strongly underscored our ambition to generate recurrent new business of more than EUR 3 billion this year. The very robust third quarter was another milestone following a strong first half year. Recent interest rate cuts by central banks are likely to stimulate new investments in leasing.
The first indication of this is the increasing number of lease requests we are currently receiving for small-ticket financing. Our cost-income ratio came in higher due to the one-off effect of the write-off of the Spanish goodwill. With that being said, let me hand over to our CFO, Martin. The stage is yours.
Thank you, Sebastian. Ladies and gentlemen, I would like to start with our key performance indicators, as usual. In the first nine months of 2024, we saw our group earnings come in at EUR 57 million, which is a decline of 11.5%. And this was mainly due to a higher amount of settlement of claims and risk provision and the goodwill write-off in Spain. As for the loss rate, we are still in our guidance with 1.3%. However, it is higher than we expected and planned for at the beginning of the year, yet still within our historical average, as mentioned by Sebastian earlier. The issue of the benchmark bond led to a reporting date effect on the balance sheet. The additional EUR 500 million caused our equity ratio to come down to 16.1%.
By the end of Q4, we expect our ratio to reach the target level of at least 16%. In the first nine months' reporting period, we are also well on track with our cost-income ratio now being at 58.4%. We remain confident that for the fiscal year 2024, we will manage to steer the cost-income ratio around 58%, as initially guided. But more on our cost-income ratio later. Most of the figures that you can see on this slide were already published with our preliminary results on October 30, two weeks ago. I would like to point out here three most important points that you can see on this graph. Firstly, the continuous growth of our leasing new business of the past two years is now visible in our net interest income. Increasing profit from new as well as service business further supported our operating income.
Yet, and that brings me to the second point, our P&L was under the impression of the higher settlement of claims and risk provisions. And on the latter, we saw an increase of an additional EUR 13.3 million in the third quarter compared to last year's third quarter. As for Q4 of this year, we expect roughly the same amount to materialize in our books. And thirdly, you can see the impact of the goodwill write-off for our Spanish subsidiary that increased our costs by EUR 4.4 million. Currently, we do not see the necessity for further impairments of the goodwill of other subsidiaries. And those three effects led to an operating result of EUR 76 million of group earnings of EUR 57 million for the first nine months of 2024. Let us now take a look at the risk provisioning among our three levels of IFRS 9.
Most prominently here, the absolute amount of impairment in Level 3 grew from EUR 325 million per end of last year to EUR 357 million per end of September. And the reason for this was twofold. Firstly, volume effect. Our steadily growing base lease receivables evidently led to an increase of impairments and risk provision. And secondly, the insolvencies. The insolvencies we saw per end of Q3 2024 are equally reflected in this increase. And this means that the impairment and risk provision increased especially on our non-performing loans, as earlier pointed out by Sebastian. Ladies and gentlemen, what this slide shows perfectly is that without the one-off impact of the goodwill write-off in Spain, we are on track for our guidance to lower our cost-income ratio to below 58%.
This provides us with confidence that we are well on our way to drive forward efficiency in our cost structure and that the leasing new business growth is increasingly reflected in our income side. The increase in staff costs was mainly due to a higher number of employees and an increase in variable compensation, but overall, staff costs are on target, and the remaining cost components, such as IT project costs, other selling and administrative expenses, are only increasing at a very low pace, and you can rest assured that we will continue to be vigorous with our cost discipline. In the first nine months this year, our cash flow from operating activities amounted to roughly EUR 658 million, thereby exceeding substantially previous year's level. This increase is mainly due to the following effects.
On the one hand, we recorded an inflow of payments from lessees of EUR 1.9 billion in the first three quarters due to increased incoming payments. And this resulted from our higher volume of lease receivables. And on the other hand, significant portion of our bond refinancing, excluding the deposit business, led to an additional cash flows of EUR 2.8 billion. So cash and cash equivalents as of the end of September 2024 came in strong at EUR 1.2 billion compared to EUR 978 million as of the end of last year. September's benchmark bond issuance also had an impact on our funding mix. Now, the senior unsecured pillar accounts for 46% of our refinancing, followed by Grenke Bank with 24% and ABCP programs with 14%. And this underscores our ability to react to different refinancing opportunities, always staying true to our credo of having a well-diversified funding base.
With that, I would like to turn the call back to Sebastian.
Thank you, Martin. Ladies and gentlemen, this slide shows you our guidance for 2024 and the midterm outlook. As we talked about today and as we talked about two weeks ago, we adjusted our guidance. You see here in group earnings, we are well on track to achieving our EUR 3 billion target for leasing new business. And also, in terms of the CM2 margin, we are well on track with our condition, also reflecting the expected risk provisioning, the expected credit loss in our new business, the current situation, and also reflecting the lower interest rates compared to last year. Martin talked about the cost-income ratio, group earnings we talked about, and from the equity perspective, we are also well on track. As you have to take into account the one-off impact because of our bond issuance end of September.
And so the balance sheet looks a bit bigger per end of September as it normally is because of the cash on the one hand and the liability side on the other hand. And we are well on track there with our 16% equity ratio. And ladies and gentlemen, after the bad news two weeks ago, I would like you to not lose sight of how far we've come and what we still have in front of us, a historic milestone within the leasing new business of EUR 3 billion. We remain cautious, and especially with the data we've just generated, we have a treasure, as I mentioned before. We keep our CM2 margin strong. We take care for the current risk situation and a well-balanced between conditions on the one hand, interest rates, and the risk premium on the other hand.
We increased also our cost efficiency and that's our task from a long-term run to becoming better and better on that side, also in line with our Digital Excellence program, which is still running and in plan. And last but not least, with our solid funding, we have a huge base for liquidity to achieving our new business and business on the one hand, to having a growing leasing portfolio at the end of the day and to making a profitable and good new business over the next quarters. And with that, I will hand over back to Franziska.
Yeah, thank you very much, Sebastian, Martin, for your presentation. We will now enter into our Q&A session. If you want to ask a question, I repeat, please press the raise button with the hand symbol. Once I call your name to ask a question, we will open your audio line. Please make sure, as I said before, that your device is unmuted as well. If you wish to remove yourself from the question queue, you may press the raise button again. You can also use our chat function via the webcast if you click on the Q&A button. So let's wait one moment for the first question. Yes, from the call. Mr. Thormann from HSBC, I would like to give the stage to you. Mr. Thormann, please go ahead.
Thank you very much. I had to unmute. Okay. So first question is on the risk cost. You argue that the higher risk costs were caused by unexpected defaults. Can you specify more the magnitude in Spain, France, and Germany in absolute amounts so we get a better feeling which country has really caused this? And then also in this context, the difficult macroeconomic environment was known to everybody. Will you adjust your risk model? Have you done any tweaking and added an element for unexpected defaults, or do you keep your risk appetite for new business unchanged? Secondly, on the financing and balance sheet, you don't show your Bundesbank deposits anymore. At least I haven't found them in the annual report. Can you first of all say the amount?
Secondly, on the equity ratio, you just say 16% again, but normally after the strong drop from above 18% by more than 200 basis points, should we see a recovery to 17% year-end, or is it really that you're already tight around the 16% at year-end level in your planning? Last but not least, on your cost efficiency, yes, you target 58% and say you're fine in line, maybe. Midterm 55% is no improvement. Even if I look at your chart in the appendix where you show that this year is still burdened by EUR 15 million of one-offs for the digital initiative. In some years, we have EUR 31 million benefits. So we talk about a EUR 40 million-EUR 50 million swing. So the cost income should benefit much more. What is the realistic cost income target in the long term? Thank you.
Thank you, Mr. Thormann. So I would like to start, and Martin will add some answers at first in terms of the loss and risk provisioning, unexpected defaults at first for, let's say, the bigger countries. You can see it in our reports a bit when you look to the Stage 3 leasing receivables. And there you can see when you take the report from last year and that year, the increase in France in last year, receivables roughly EUR 112 million in Stage 3. And that year, we are talking about EUR 150 million. And that is the most important impact in France because of volume from a group perspective. In Germany, there's also an increase, not that significant. We're talking about EUR 30 million last year and EUR 36 million that year. But it is an increase, and that was in Germany not in that intention expected.
And in Spain, it's roughly, I would guess, EUR 10 million more in the stage three performance. And those are the three most important countries in terms of risk provisioning and that performing as I described in my speech. And as I mentioned before, you can see the Stage 1, Stage 2, and Stage 3 levels for the three big countries, Germany, France, and Italy. And there you can also see a bit the development and the numbers. For our risk model, it means at the end of the day that the method and the risk model itself is working. It's a bit a question of parameters, and that is what we are adjusting now and checking now. Are there parameters changing, and is there a change needed in the expected probability of default?
Means the probability if there is a contract we are going for, we're not reaching the whole lifetime. And the second one is loss-given default. And it's always the case in the crisis that you will become more precise on the one hand. On the other hand, you have to be a bit careful to reflect out of a crisis into the future. And that was the case in 2008, 2009. It was the case in 2020. And so we are rare to deal with that numbers, and we are doing so. And the other thing is to being better in early warning indicators and to seeing as soon as possible the performance in a settled portfolio. Because when a portfolio is settled, then you have to deal with that, and then you have to deal also with the impacts.
And to summarize it up, at the end of the day, in the overall perspective, the loss rate now is with 1.5% on a more or less normal level on a historical level, which is okay also. Sorry for the situation. It's okay. And the initial planning level was less than 1.5%. And when we see now what means 10% more or less on the EUR 6 billion leasing receivables portfolio or EUR 10 billion in terms of net acquisition cost portfolio, it was not wide enough in our planning from today's knowledge. And then there was a question in terms of equity. I would like to say, okay, 60% is okay. It's a fair estimation. You know the 60% is a number of the past. We were always happy with 16%.
Also, in the time where we had more goodwill, there was, before 2019, more than EUR 100 million goodwill on the balance sheet, which you have to reduce, and all regimes taking care for equity. That value is very low today, and from a technical perspective, linked to rating agency, linked to the requirements of the supervision, we are very happy with 16%. There's also buffer with 16% to fulfill all the requirements in terms of equity, and maybe you can go ahead, Martin.
Yes, sure. Just one addition on the equity part. Yes, we have a target towards something between 16 and 17 towards the end of the year. And yeah, I just can confirm that we are really confident that we will reach that. And this also plays together with another effect you just mentioned with the Bundesbank cash or cash at Bundesbank of EUR 1.2 billion at the end of September 30th. Nearly everything was held at Bundesbank. However, this is really a date effect because the bond was issued right before the end of that quarter, coming in EUR 500 million of cash. And afterwards, we had, for example, a bond that was due with a smaller portion, EUR 100 billion-EUR 200 billion. We paid back other lines.
So this cash position has already come down, and we are given our growth in the fourth quarter, still investing that cash into new leasing business. So this effect together with this equity ratio is really a date effect. And the third question or the last question you had was on cost efficiency. Our target is really to bring the cost income ratio down this year around 58% and next year even below 58% towards 55% in the region of that, maybe a little bit higher. That depends a little bit on our planning still. We will have an increase in our cost base as well because we are growing, and that will never go without increase in personnel costs as well. However, we expect underproportional growth in that so that we have the increase in operating income. That is the flip side of the cost income ratio.
In total, we are really expecting a cost-income ratio to come down.
Sorry, some follow-up questions from my side. First of all, on the cost income, the 55% is so low as 26% to be seen. Is that correct to assume? And secondly, how much, if I look at your unexpected defaults and increase in NPLs, Germany, the increase relative to the book was 0.5%. In Spain, it must be 4x or 5x as big looking at this. And so is there something different in Spain than in Germany? And then last but not least, how much are you impacted by the loss of your Chief Risk Officer as you currently have nobody running that department? Thank you.
Just let me start with your question on the Cost-Income Ratio. We are just entering in our planning for the next year, so it is currently too early to really give an outlook here or precise outlook, so to speak. But yeah, around 26%, maybe a little bit earlier, maybe or later, the 55% is definitely within our targets. On the long term, we really want to go even below 55%.
Sorry, I was muted, so I don't got it perfectly, but my colleagues provided me with your first question, the difference between Spain and Germany. The overall portfolio structure in terms of risk is different. In Spain, let's say the common risk level is higher than in Germany. It's quite normal. It's also in Italy and other Southern European countries the case. When we start with an expected loss estimation in Germany, we're talking about 3%, 3.5% over a total period means for roughly four years. In Spain, we are talking about 6%-7%. It's roughly the same level like in Italy. So the starting point from a risk perspective is higher, but also the margin in that countries are even higher. And when it ever comes to a deviation between expected and real losses in absolute numbers, the deviation then is higher.
That is the reason why the impact in Spain there is higher. That's right, roughly 0.5% in Germany. In Spain, we're talking about roughly 5%.
Thank you.
Thank you, Mr. Thormann. The next question comes from Marius Fuhrberg from Warburg Research. Mr. Fuhrberg, please go ahead.
Yeah, hi. I hope you can hear me. I have a couple of questions as well. First, on the risk position as well. What is your current new business provision for, or which kind of loss rate do you reflect in your new business? Is it the current running 1.5% or higher or lower? And also with regards to the existing portfolio, what is the actual or the initial provision to loss ratio that you have reflected for the portfolio and compared to your current ratio? Or put it differently, by how much is your current loss exceeding your expected loss?
And the last question, you said you have to be careful when projecting into the future from crisis times. But is it possible that we currently see the other way around, that you were projecting too low of loss ratios from, yeah, I would say easier times and now facing actual higher losses?
Thank you for your question. And first, the loss rate we are calculating in our portfolio is roughly in line with 1.5%. We're talking about 6%-6.5% with a total period in the group portfolio. And within, when you take into account the higher ticket size, the average of four years in new business and the volume-weighted average is a bit higher than four years, that's absolutely in line with that estimation. And when we're talking about portfolio impacts, we have to take into account quite an important thing when you're talking about PD. And when you estimate a portfolio of two contracts, let's make an easy example, and you estimate a probability of default of 50%. So you estimate that one of these contracts will go in default.
After one day that contract is going in default, then the main exercise is, what is the estimation for the other contract? If you are right or not, you will see at the end of the portfolio. Always in a time like this, when the crisis is coming, when the macroeconomic is not that good, we had seen this also in the past, earlier terminations. That means if one contract we're estimating will go in default, that default is earlier. But from a long-term run in our system and with our projection, we are right with our PD estimations. That means the second contract or the probability that the second contract will survive is pretty high. On a P&L perspective, it means you have very early high risk provisioning.
You have to take care for higher risk provisioning for the running contract because of macroeconomic parameters and IFRS 9 and so on. And after four years, you know, okay, your initial estimation in your scoring was right or not. And that we did in 2008, 2009, that we did in the pandemic. And we are very cautious and careful in going in the right balance between leasing conditions and our risk premium. And the data are very helpful we're collecting today to being more precise. But overall, as I mentioned before, the risk model is working. And I don't think that we are too aggressive in new business. And also with looking forward, the investment case today might be a good investment case in terms of a scoring system, in terms of credit risk.
Because a company who is going to invest today in a crisis is more healthy than maybe a company who's not investing, and that was good to do so and to do so in the past, and we will go forward with that, so I don't see that we are not in line with our overall and on a whole period of time risk models.
Yes. The next question comes from Mr. Lukash from Kepler Cheuvreux. Mr. Lukash, please go ahead. I think you have to unmute yourself, Mr. Lukash. Your line is open. Maybe your device is still. Now. Yes. Perfect.
It took some time. Yeah, I had to unmute.
Thank you.
Thank you. So good morning. Thanks for taking my questions. I'd like to focus on risk costs, also defaults and the capital management. You cited on the strong increase in insolvencies in Spain, France, and Germany we just discussed, which basically triggered the strong risk growth provisions increase for Q3 and also the guided Q4. Could you please share the exact timeframe that you were referring to here? And secondly, on the Stage 3 increase, as you mentioned, I mean, the Q3 was actually much more benign than it was the case for H1. So was the strong increase in risk provisioning driven by recorded changes, so the past, or was it much more forward-looking? On capital management, three questions or small questions here, please. First, what is the exact plan for the EUR 55 million in own shares?
Secondly, also in the past, you mentioned that a kind of 15% equity ratio would serve your purposes. So should we expect you to operate below the 16% going forward? And finally, at what level would you consider capital increase? And what kind of percentage point increase would you target then? Thank you.
Yes. I will start. Thanks, Mr. Lukash, for your question, and the exact timeframe of the development in Spain or in the other countries, I guess, to take into account the two things I mentioned. First is the time of termination. So when our contracts are running in a running process, we're within payments and we're deciding by our process to terminate a contract and then it switched from a performing contract to a non-performing contract and is about that. And that was across the year, especially in Spain, but in Q3, we saw that it remains on a higher level as it was initially expected, and especially in Spain, but also in France, the second impact is very important. That's a performance in the bad debt was worse than in the past. And that is linked to the second impact I described.
We saw more insolvencies in the bad debt status. Means there was a termination maybe in last year or at the beginning of the year, and it was not because of an insolvency. It was just a mispayment from our data. And we're talking about a small ticket approach, you know that, and it's very common in our business. And then after that, there was an insolvency, and so there was no further payment expected. And so you have to write off your receivable at the end of the day. And that materialized during Q3 or within the preceding in the last weeks, the figures of Q3, the dunning processes of Q3 and collecting all the information. And from a group perspective, you're talking about several countries. It's not just Spain, also the other countries. And that materialized over the last couple of weeks.
Then we saw on the one hand what was the impact on the past. The second question is, what is the impact in the future? What should we expect for the fourth quarter and also for the future? Then we decided because of the overall development that year, that the risk provisioning now is higher, but we expect also a higher risk provisioning for Q4. We will also expect in the last, in the next year, a risk provisioning level more or less to 1.5% and not lower than 1.5% as we saw in the last quarters before Q3 and in the last year.
Yeah. To add on this, we had roughly EUR 38 million of risk provisioning in the P&L in the third quarter. This is also to give you a ballpark number of what we expect for the fourth quarter of this year. What is the plan for the shares that we bought back? Well, we have not decided on that yet. There are various options like giving them back to the capital markets. That should be at a point in time where it would be helpful for us as well. The other point would be to use it as compensation for our employees or as a currency and M&A transactions.
Though we have not decided on that yet. But what is also the case is that these EUR 55 million volume is already reflected in our equity ratio. So it has a negative impact on the equity ratio so far. The effect is between 20 to 30 basis points. Already also planned for where we expect the equity ratio towards the end of the year. We are feeling, I think we mentioned it, feeling really comfortable with 16%. However, we target for a little bit higher level towards the end of this year, and for that, we do not see a capital increase in the near future.
Thank you very much. The next question, Mr. Lukash.
Yeah. If I may, I mean, in terms of the capital management, maybe we can look a bit into 2025. Surely we'll go for a similar amount of new business or even an increase in new business, which will considerably increase the lease receivables you have on balance sheet. So we should see more capital consumption on that side. So I was just wondering, it's like if we were to keep at that rate, we started with a 19.1% equity ratio. Now we're down at an adjusted 17.2%, adjusted for the excess cash, basically. That's almost 200 bps within nine months. So if we stay at that rate, it would definitely be below the 16% by Q1 or H1 next year.
So I was just wondering how you are tackling that if you, again, then go below the 16% or if we do see measures because I guess you would not cut on the new business growth here? Thank you.
To make it clear, Mr. Lukash, thanks for the question again. The 16% is not a hard line or a hard border. So we can operate also with 15, as you mentioned. We know that the 16% area is the target. And you have to take into account, as Martin mentioned, the one-off impact of the bond because on the one hand, we have cash inflow from the bond. We have also a higher liability because of the bond per end of September. We have cash inflow at 1st of October from our leasing receivables. And there was the maturity of a bond also with the beginning of October. And so there is, from that point of view, a one-off impact. And we are looking more or less fluently to our equity ratio, not just at one day in the year or in the quarter.
And looking at its 16% now is a bit too low. But you are absolutely right. When we're going for further new business, it could be that next year's equity ratio is less than 16%. But as Martin mentioned, with a growth in new business, with the ambition we have to achieve in that year, double-digit growth next year, we will be happy. And we are happy with our today's equity. And then we have to decide. It depends on the future growth pace if we need further equity or not.
Thank you very much. The next question comes from Mrs. Sun from Deutsche Bank. Mrs. Sun, please go ahead. We will unmute your audio line now. Thank you.
Thank you very much for taking my question. So three questions from my side as well. So the first one is also on the default that you have been seeing. So in the increasing number of default and also the increasing of the complete default that you're seeing, have you seen any cluster in terms of the duration of these lease receivables? The reason I ask is there has been some speculations that because of the fade out or phase out of the government support during a pandemic, and these customers who took the government support back at that time started to default. So it will be helpful for us to understand whether you see whether the increasing default currently is mainly coming from the loan that you generated four years ago or rather the new one. And also the second question is on the cost.
So the cost inflation has been quite substantial this quarter, especially in the personnel and also the selling and administrative costs. So shall we take this run rate as the basis for the next few quarters and also for the next year? And also the cost savings coming from the digital program that you conducted. As I remember correctly, that next year we should see break-even year coming from the cost savings and the cost that you're spending. Does that mean the cost base should reduce by EUR 10 million- EUR 15 million as you stated in the presentation before? And the last question is on the BaFin finding. Are there any updates on the BaFin finding and where are we standing now? Are there still something that you have to do? That's all from my side.
Yes. Thank you for your question. First, the impact you mentioned is right. The ending of the promotion of the governance or some maturity, some paybacks there has or had an impact on the performance in the portfolios. That's right. It's not only the new business portfolio of 2020 or 2021. It's more or less an overall portfolio. You see a bit of impact more on the 2020 and 2021 portfolio. But the impact, it's a low difference because the portfolio is quite old. We are talking in 2024 about a portfolio of 2020. And with the average term of lease receivable or new contract of four years, the impact is not that much. But we saw that, and especially in France, it was an impact and performance impact for some companies. On the one hand, the payment performance impact, and on the other hand, also from a midterm run.
So, starting that year with ending that program, also a trigger for insolvencies. That's right. Martin, maybe you can say something about the cost development further on? I will make one comment. The digital program is running. Of course, we are on track there, and we will reach break-even next year. But we have to go through the next year as well and to take the investments as planned. And Martin will give way more details. And there are no news in terms of BaFin findings. So we are also well on track and well in line with BaFin in the communication, in working on our findings, taking all the measures we have to do, we had to do. And we are well on track there and preparing us for the audit we see next year. That's the assumption we have.
As we mentioned in the last quarter or in the talks to you, the audit of Grenke Bank was last year in the beginning of that year. And we expect that we will have that audit as it is coming next year.
And as regards to the costs, I think we have to differentiate between the personal cost and the other selling and administrative costs regarding the run rate. Regarding the personal costs, the run rate should be lower for next year compared to what you have seen in this quarter or over the whole nine months of this year. And for the other selling and administrative costs, this run rate is maybe what you could expect for next year. In any case, a single-digit number for the next year.
The other one-off effect we already mentioned in terms of depreciation. This was a typical one-off depreciation. It will go down also in the next years due to the digitalization program because we are switching from more assets that we have recognized and then writing them down from an IT perspective, like hardware components and so on. This will be more switched into running costs, running expenses on the P&L basis because we are moving our software, for example, into the cloud. That means that we will see more costs in terms of usage or infrastructure as a service. So usage costs, usage fees for more, yeah, the cloud usage especially.
Thank you very much. We have a question or two questions from Mr. Pfänder from Oddo BHF on our chat that I will summarize for the moment. The question is leasing growth in a higher loss rate environment. So question one is, are we going to be more conservative going forward? And about the pricing also, if we will raise prices given to embed the worsening credit cycle.
Yeah. First, of course, it's a leasing business in an environment with higher risk, higher risk provisioning. And it's always the case to balance your risk appetite on the one hand, but also find the right balance between risk premium and leasing conditions. And you have to be aware of, and I know you know that about the adverse selection phenomenon because when you now rise in your conditions because of higher risk provisioning, you will not get the good clients in your new business portfolio. So it's very important now to be cool, to stay on your track, to have the right selection. And with our scoring system, we have fun.
And to find and collect also the score one and score two with a well-balanced risk premium for a good expected credit loss and also taking care for the higher scores with a higher expected credit loss and may to avoid some businesses on that higher score. That's absolutely true. And we did that in the past, and we will also do that today. Overall, the level of risk and expected credit loss we are having today, we are seeing today also with today's information in terms of compared with our contribution margin one and contribution margin two is okay. And in terms of interest rates and economic cycle and environment, we see now declining interest rates. And our leasing conditions is more or less the same before central banks decided to reduce interest rates.
It's always the case in exercise to find the right level when it is time to adjust pricing in terms of interest rates, when it's time to adjust pricing in terms of economic cycle and risk premium. And we are happy at the moment with our contribution margin development with our pricing. But we are also careful enough to see all the environments. And we have two things. On the one hand, the higher risk premiums and the economic cycle. And that seems to be for higher pricing maybe. On the other hand, the interest environment, it looks more to go for less pricing because leasing at the end of the day is more or less an interest rate-sensitive pricing on the long run. At the moment, we are happy with our condition.
Yes. Thank you very much. I think this also answered the second question we had about the bad debt where it says regarding the higher bad debt in some countries, what kind of requirements have been applied to design the impairment model to reduce the expected credit loss? Or has there been some changes?
A bit the same. On the one hand, you can define measures to reduce expected credit losses. And on the other hand, our task and our business model is to find the point of expected credit loss which will match the real losses because our business is taking risk, measuring risk, pricing in the risk from a long run. And so it's not avoiding risk. It's to finding the right balance, as I mentioned before. And on the one hand, we have some measures and action to reduce credit loss also in the bad debt portfolio and to having a very efficient process in the bad debt collection and taking care for that, that we will get our money on the one hand and maybe opening some opportunities in terms of what's the payment behavior, what is the right payment frequency, and so on.
And on the other hand, it's very important to avoid too high risk, yes. But for the other portfolio, it's important to measuring the risk and pricing and the risk of finding the right balance between risk premium and risk expectation at the end of the day.
Yeah. Thank you. We have one last question from the chat room that is asking about the factoring sale and to provide an update on that.
Yes, sure. For the factoring business, we are, I can say, in final talks with a bidder who assumes or who wants to assume the business there. And we are really heading towards an SPA, towards the signing of an SPA. We have already negotiated the key terms of the transaction, and we are really moving forward there.
Okay. Thank you. There are no further questions at the moment. Mr. Thormann, Mr. Thormann, please go ahead.
Yes. Just on the factoring sale, how big should there be in P&L impact this year? Or what are the potential profit improvements in the next year? Thank you.
Yeah. We expect really a single-digit number on P&L impact. It depends a little bit how the transaction is then structured in terms not only signing, but also closing. That means at which point in time will which entity move over to the new owner, and whenever this takes place over the next year, then the P&L effects will be on our side or already in the hand of the new owner, but it's really expected a single-digit number.
Okay.
This year and in the next years?
For the next years, the factoring business has always, unfortunately, made losses over the last years. If you have a look at the factoring, at the segment reporting, factoring was roughly between 3 million-4 million. Last year, we had a special effect that was a double-digit loss. But this is roughly the ballpark what we expect if we really have carved out or sold the whole factoring business if it once is completely out of our balance sheet.
Okay. Thank you.
Thank you for all your questions. And ladies and gentlemen, thank you for joining us today. And if you have questions at a later stage, please don't hesitate to drop us an email at investor@grenke.de. I'm sorry. On January 8, we will publish our new business figures for the year of 2024 in Q4. It was our pleasure to have you, definitely. Take care. Have a lovely time until the end of the year. The conference is now concluded. You may disconnect now. Take care and goodbye.
Thank you. Bye-bye.
Thanks.