Good day and welcome to Grenke AG Q2 2022 conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Anke Linnartz. Please go ahead.
Good morning, ladies and gentlemen. Welcome to our earnings call. I'm Anke Linnartz, Head of IR at Grenke, and with me today are our CEO, Michael Bücker, and our CFO, Dr. Sebastian Hirsch. We will start off with the presentations by Michael Bücker and Dr. Sebastian Hirsch, and are going to have a Q&A session right after the presentations. I stop here, and I pass the call on to Michael Bücker.
Thank you. Welcome, ladies and gentlemen. We are very pleased you're joining us today. Some of you attended our capital markets update in Frankfurt just about three months ago. At that time, we presented our strategic focus and growth targets to you in detail. At the center of the strategy stands our ambition to double our leasing new business and net profit by 2024 compared to the 2021 financial year. We also explained how we intend to achieve these goals. To name three of our focus topics, firstly, global growth in both our existing and new markets. Secondly, expanding our product portfolio in areas such as medical technology and green economy. Thirdly, opening up new reseller channels in these new product segments. I'm happy to say we are delivering.
The solid results for the second quarter, which we will present to you in a moment, confirm we have taken the right course. With the results of the second quarter, we are also very pleased with the overall development of the first half year. Leasing, ladies and gentlemen, has taken center stage. The reason is clear. Interest rates, along with inflation, are exploding. Prices and costs for energy materials and intermediate products are rising across the board. For most companies, and especially for small and medium-sized enterprises, it's a question of how to employ capital as carefully and efficiently as possible. Right now, with regard to inflation in the current environment, leasing is, without a doubt, the most sensible solution for small and medium-sized enterprises for financing their investments.
Especially in times of macroeconomic uncertainty, leasing is the opportunity to make investments with predictable installments while customers preserve their liquidity. Although all lessors can benefit in this environment, we benefit even more because we are the international market leader in small-ticket leasing. Grenke is a specialist for small volume leasing contracts. Our average volume is only about EUR 8,000, and typically, the investments we finance reach up to around EUR 25,000. Of course, we finance almost everything indispensable in today's everyday business environment, from photocopiers to laptops, to mobile phones and other items such as medical technology and e-bikes. As well as an ever-growing number of objects that accelerate the transformation to an eco-friendly economy. We are also right in line with the current trends emerging in these areas. There are no limits in our customers' needs.
In Finland, for example, we finance electric snowmobiles and transportable huts for watching the northern lights. Our diverse object portfolio allows for a broad risk diversification and, at the same time, serves as a foundation for the strong resilience of our business model to the current global uncertainties. This small ticket segment, ladies and gentlemen, is not only a particularly robust segment, but also extremely profitable. Grenke has a robust business model that offers sustainable potential. Despite the fact that we are in a really challenging environment, we managed to increase our leasing new business now three quarters in a row. After a successful first quarter, we also achieved a very solid result in the second quarter. We are right on target. In Q2 2022, our net profit was EUR 20.9 million.
This was an increase of 14.6% compared to the same quarter of the previous year. Because our contracts have an average term of four years, some of this profit, of course, has resulted from contracts we have concluded in the past. The new contracts from the second quarter are the basis for our future profit growth. In Q2 2022, our leasing new business reached EUR 587 million, which was almost 50% above the same quarter last year. All in all, the first half of 2022, Grenke generated leasing new business totaling EUR 1.1 billion, along with net profit of EUR 41.5 million. We are also able to increase our equity ratio to over 20%. Exactly 20.2% as of the end of the second quarter. In addition to these figures, the second quarter was distinguished by two positive events.
First, we acquired the two franchise companies located in the USA and Singapore. Second, we are able to resume our cooperation with NRW.BANK, the Bank of North Rhine-Westphalia, after a break due to the corona crisis, virus. Within this framework of a global loan of EUR 20 million, we are offering favorable lease financings to medium-sized companies in North Rhine-Westphalia. Ladies and gentlemen, let's now take a look at the geographical distribution of our business. Although the numbers by region vary, we recorded growth in the second quarter in all of the regions we operate. As explained at the capital markets update, we have divided the more than 30 countries where we operate into three clusters. In our established core markets, we achieved considerable growth of around 43% in the last quarter.
These core markets, including Germany and France, contributed the largest volume amounting to around EUR 430 million. At approximately EUR 140 million, the volume contribution of our hidden stars was significantly lower, but at over 57%, their growth was still higher compared to the same quarter last year. Our absolute growth champions are our future core markets, which include Canada and Australia. We have been operating these markets for only a short term, so we are starting from a low level. Nevertheless, the growth rates in these countries, which top over 70%, are promising. Ladies and gentlemen, perhaps Grenke's most important asset, apart from our employees, of course, is its resellers. Our dense global network of specialist resellers gives us access to our hundreds of thousands of customers.
Through the decades of Grenke's existence, these long-term partnerships have continued to evolve and grow. The coronavirus causing a temporary hiccup. Here we had also seen the lows by the end of last year and have since returned to a growth course. Our number of resellers today is almost back to pre-COVID levels with a nearly unchanged constant customer base at the same time. Following this consolidation, we are now moving to expand our reseller network and thus broaden our growth base. For example, we have started to target resellers who specialize in segments embracing future megatrends. Included here, above all, are products supporting the green transformation. Now, ladies and gentlemen, I would like to hand over to Sebastian, to our CFO, Dr. Sebastian Hirsch.
Yeah. Thank you, Michael, and also a warm welcome from my side. The first two quarters are already behind us, and we can safely say today that we are fully in line with our planning and our guidance, not only for 2022, but also for the years to come. Our new business is growing. Our profitability in absolute numbers is on the rise. Our profit is up, and our cash flow is fully in line with our planning, as we decided to bring down overall liquidity to a level of EUR 500 million. We will see that later. Interest and inflation are rather an opportunity for us as we already largely priced increased interest rates into conditions. We all know that adjustments of conditions are a longer process.
This is not only true for us, it's also true for our competitors, and it seems that this time is more difficult for some of them. Inflation in raw materials is not an issue for us. However, we see extensions in rents which reflects supply bottlenecks. Leasing, as Michael mentioned, is currently objectively the most sensible solutions for small, medium enterprises for their small investments. Let me now first talk about the development of contribution margin one and contribution margin two. In comparison with the second quarter of the previous year, we have to take into account the overall view of 2021. Because the second quarter was still characterized by the pandemic, and we focused on new leasing business with high margins, lower volume, and the average ticket size was below 7,500 EUR per contract.
Starting with Q4 last year, we accelerated new business with a clear focus on volume and more number of new contracts, and that acceleration was at the right time. With rising new business, average ticket size came up as planned to EUR 8,000 in Q1 2022, and maintained above this threshold in Q2 2022. The small ticket approach is as important as it was in the past. Roughly 95% of our contracts in new business in 2022 is less than EUR 25,000 per contract. At the same time, we had to deal with a very dynamic interest development and rising interest rates at the market. Which brings us to the migration in our leasing rates to pass it through, which I will explain to you on the next slide. Overall, we are satisfied with the absolute volume development of our CM2.
The increase of the CM2 in absolute terms gives us confidence for future earnings. On this slide, you can see two things. At first, on the left hand, CM2 in Q1 2021 was well above our target level of 17%, which was due to the different sales approach I mentioned, where we focused on even smaller tickets and a very low risk profile in our leasing books. A normalization of the margin to our target level of 17% during the year 2022 seems fair. Now let's switch to the right side and compare CM2 margin Q2 2022 to our target level of 17% in the middle of that chart. What you can see here is the impact of higher interest rate, which led to decrease in margin by 350 basis points.
We were already able to pass on two-thirds of these higher interest rates through to our customers by adapting our contractual conditions. Usually, it takes roughly a quarter to amend conditions in our leasing contracts. Our target is to increase margin step by step in order to deliver on our 17% target level, and let me tell you that I'm pretty confident that we will get there. Our profit and loss statement overall is absolutely in line with our planning. Driven by a softer contribution of new business to our portfolio in the recent years, our net interest income came slightly down as we recorded fewer lease receivables. At the same time, costs for settlement of claims and risk provisions have dropped significantly. We saw a 29.1% decrease of settlement of claims and risk provisioning to roughly EUR 60 million.
This is a result of the good and stable payment behavior by our customers. The corresponding loss ratio was only 1.3% compared to 1.9% in the first half of 2021. Earnings before taxes came in at EUR 55.6 million and with a tax rate of 25.4%, we have a net profit of EUR 41.5 million. Here I would like to explain cost-income ratio again, because we are often talking about new business, earnings, contribution margin, but in addition to that important KPIs, also the cost and operational leverage have always been important for us, and it is important for us, especially looking into the future.
We want to keep the leadership in managing small tickets efficiently and will manage our cost-income ratio from a long-term run down to a lower level, below 45%. This is what we aim for. As already pointed out on the occasion of the Capital Markets Day, I would like to remind you of how we measure the operating leverage and the cost-income ratio for our operating business. To get more transparency regarding the cost-income ratio and the cost structure, we are focusing on the operating cost based on the IFRS P&L. There's no extraordinary impact of costs, et cetera, included. For the income, we are taking the elements of the operating income also in accordance to the IFRS P&L. It's adjusted by the risk provisions and settlement of claims.
The cost-income ratio does not include any risk provisioning or any other earnings. Our target level for the cost-income ratio is below 52% for the full year 2022. In the first half of the year, cost-income ratio stood at 53.3%. The current level is mainly attributable to the temporary reduction of net interest income based on our more restrictive portfolio management during the crisis. To higher costs, especially in personnel costs, as we decided that our employee compensation model should better fit with appropriate market conditions. Also, consulting costs are higher in the first half of the year, and they should continue to come down during the next half year, because we are continuing to process all of our findings and are making progress. In addition, our own employees are increasingly taking on all tasks relating to our internal control system.
As announced, we are in a transition here. Let me ensure you that we have our risks under control. Performance here is very strong. Hardly any real defaults and very stable incoming payments. We have no interest rate risk due to the funding and at matched maturities in the portfolio. This is unchanged. Now, what do we have here on that chart? We see the development of settlement of claims and risk provisioning as of end of June 2022 compared to end of December 2021. We provide a view to the balance sheet perspective and its risk provisioning on the leasing receivables by stages under IFRS 9. Let me summarize the major points for you. The risk provisioning in stage one increased slightly, and that's driven by the growth in new business.
That's normal and just a volume issue because of the expected credit loss we have to show for each leasing contract. The risk provisioning in stage two went down as receivables moved on to stage three. That's a normal, a common process. Please note, the outflows to stage three are bigger than what moves on from stage one, simply as a result of lower business volume of the prior periods and because of the strong payment behavior and the strong performance in our existing portfolio in 2022 so far. Finally, stage three. Stage three was up by roughly EUR 60 million, which is based on a conservative risk approach due to the current economic climate. Our loss rate in the first half decreased to 1.3% compared to 1.6% at full year 2021.
All in all, we are well covered with the risk provisioning level for the moment and with our best guess for the existing portfolio also looking forward. As some of you may know, and you was participant on the capital markets update, we shared also that slide with you. That's our ambition for growth in new business, leasing receivables, and CM2. Today I talk in accordance to our P&L, which is always looking backward about the decrease of leasing receivables in the previous periods as a base for the interest income. That was also the base for the interest income on the first half of 2022. When you would like to have a look in our balance sheet, then you see that our leasing receivables are rising. The bottom is probably behind us. Leasing receivables are rising.
may remember, I promised that at the beginning of the year. Here in that chart, the dark line divides the bars into existing portfolio below and the new business above that line. This is based on our planning. The first light blue boxes below the line represents what we already recorded in 2022, the leasing receivables of our existing portfolio because of the new business in 2022. We delivered our targets here. Meanwhile, the overall portfolio is building up, and that's the basis for our future earnings, which is initially expressed in our CM2. We are managing today more than 1 million running leasing contracts, a benchmark that we have historically broken for the first time, a new dimension for us.
Even this strong number of running contracts delivered a strong cash inflow from payments by lessees of EUR 1.15 billion over the first half of the year. I'm pleased to say that we have turned our liquidity into new business, as indicated earlier this year. However, despite new business growth, we maintain a strong cash position of about EUR 0.5 billion, and we feel that is the right level for us to run the company on the current balance sheet volume. To manage our liquidity overall in line with our new business, our funding pillars we have in place are quite important for us. Moving to our funding mix. Here we continue our well-diversified strategy, which we see as a substantial competitive benefit. S&P only recently confirmed our rating with BBB+.
We have three debt pillars, as you know, which are unsecured funding, retail customer deposits of our Grenke Bank, and as well our asset-based financing. The relative importance of each of these pillars is quite stable looking over the last quarter, so there's not really fluctuation expected also, not from the future. Senior unsecured was roughly 40%, the most important one, but also the Grenke Bank part of funding was roughly 20% is and will be important for the future. Last but not least, our very strong and comfortable equity was 21%. Maturities continue to be matched to our underlying leasing contract base, giving us a high level of comfort and shielding us from the fluctuations of the economy and interest rate fluctuations with respect to our existing portfolio.
Last but not least, Michael mentioned that we took over the shares of the US and Singapore. We are also on the best way to take over the other franchise companies. Due diligence process is currently running. We are well in progress there, and we stick to our goal to finalize the acquisition by the end of this year. With that, back to Michael.
Yeah, Sebastian, thank you. Yeah. Let me take this opportunity once again to give you our ambitious outlook for the future. Of course, we need to adapt to the changing environment. Supply chain bottlenecks are still affecting our economy. However, this is not really an issue for us. For example, our leasing products allow our customers to extend their existing rents until the new equipment arrives. We have to align with the challenges of the increasing interest rates that Sebastian mentioned. In Q2, for example, most of the increase in interest rates we have priced in already. However, as you all know, this is a permanent process. We need to increase our conditions further and keep adjusting to the market situation.
As we have already communicated, our target by 2024 is to double both leasing new business and net profit compared to 2021 financial year. In the case of the net profit target, this excludes the gain from the sale of our viafintech shares. We remain firmly committed to our ambition, despite the uncertainty surrounding the current global macroeconomic situation. The strategic measures to achieve our targets include expanding our reseller portfolio even beyond the pre-corona levels and broadening our product portfolio, particularly by adding green economy objects. At the same time, we will pay full attention to cost to ensure we maintain consistently high profitability in the long term despite this growth. We also reaffirm our guidance from the current financial year following our performance in the first half year, which was in line with our forecast.
Overall, we are within the range of our expectations. Ladies and gentlemen, as you can see, Grenke is on course. On course for further growth. To sum it up, even with all the challenges in our macroeconomic environment, Grenke is and will remain the number one in small-ticket leasing. This makes Grenke one of the most important financial service providers of investments for small and medium-sized enterprises. We finance the backbone of the economies we are operating in. Thank you for your attention. Back to Anke Linnartz.
Yeah. Thank you for your presentations. We are now ready to enter our Q&A session. As you know, to register for a question, please Press Star one. We start with the first question from Marius Fuhrberg, Warburg Research, please.
Yeah. Thanks for taking the questions. First on the contribution ratio of one, just to tackle on the effect of also the pass-through by higher interest rate.
Excuse me, Mr. Fuhrberg. Sorry. The line is really bad, and so I was wondering whether you could just try it again and repeat what you have been saying so far. Thank you.
Is it better now?
Um
Just a bit.
Not yet. Just slightly. Slightly better.
Yeah. Okay. Sorry. I was using headphones. I hope it's better now.
Yeah, it's improving.
Okay. Firstly, on the CM1, is the 1.2 percentage point that we observe in the CM2 due to the interest rate that you cannot pass through? Is 1.2 percentage point also true for the CM1? Could or should we assume that the CM1 increases again also by this gap once you are able to close it? The second question would be, could you add a little on the extension on rents? Is this a phenomenon that you observed just recently, and to what extent? Because in the past we have learned that especially extension rents are quite profitable for you. Overall, this should have quite some positive effect also on the CM1, I guess. The third one is with regard to your loss rate.
You had 1.3% in Q2, 2% now, which is below your guidance of 1.4%-1.7%. Keeping in mind the more challenging economic environment, and also the rather bad outlook for H2, would you assume that you experience a higher loss rate in H2?
Okay. Should I start?
Yeah.
I hope I got the question right, Mr. Fuhrberg. At first, the CM1 at the end of the day is not the main trigger for our business. The CM2 is quite more important to look into the overall profitability. That's right. That's, migration in conditions, is at first a CM1 issue, and we will see there a slight increase of CM1 over the next quarters when the interest rate will be stable. Otherwise, we will always have the temporary impact I mentioned before. At the same, we has also to take into account that CM1 and the expected credit loss, which is part of CM2, should be in a stable level. The CM2 increase and also the CM2 decrease we see now is not only CM1.
The second question was in because of the extensions of our leasing contracts, we see now, that's of course, let's say a recent phenomenon because of the bottlenecks, so it's not able, or it's not possible to get new investments just in time. It's quite normal that more leasing contracts will go in retention. Otherwise, also ESG is maybe driving that customers, clients, small, medium enterprise would like to use objects longer. At the end of the day, it's a good development for us because we are able to manage it. On the one hand, brings us extra earning because during the contractual time which was settled, we have a full amortization on our leasing contract, so that's an extra earning and it's part of CM2.
It's not a CM1 issue, it's a CM2 issue because the prognosis for that after sales, for the extension, for the extra earnings of that are part of our CM2. It's too early to say if that will reflect or if that we has to reflect in our future CM2 level because that's quite young and we are looking quite good to that monthly-wise, and then maybe we can adjust our prognosis, but it's too early to do that now. In terms of the loss rate, the 1.3% is quite low. The portfolio quality is very, very high because over the last two years the small, medium enterprises which are settling contracts with us are very strong small, medium enterprises, very healthy.
The overall performance is quite good because they are going in to invest in objects. They would like to use the object. We are not giving them liquidity, so the overall risk profile is better than in, let's say, a normal environment. We assume that may the loss rate could be a bit higher because of rising volume, because we have to take into account the expected credit loss. We have to take into account macroeconomic parameters in our risk model. Looking into our figures, we can't see there anything, any changes. The portfolio is quite stable and also the macroeconomic parameters we put into our conservative model, we can't see that today. The diverse portfolio is like a shield against the things they made to come.
Okay.
Mr. Bulthaupt, I would like to add, if you like. I think we have a different situation to the crisis before. This crisis we have here is also caused by the gas crisis in Russia and the industry is here affected. Not so much our customers, and that was in the COVID crisis. There was it our customers in Italy, the restaurants in France and the hotels and where else. It's for us, it's the complete opposite of the COVID situation at the moment and we experienced over the past years. The small- and medium-sized companies at the moment are not in the middle of the crisis, and they had not to close down their business. Everyone is going to holidays.
Everyone is going to France, where else? To Italy. The restaurants are open. That's good for us and good for our business at the moment. This crisis, we adapted. I think we adapt a lot in the COVID crisis. We managed it and this. While we are content, we will handle this situation even better.
Okay. Thank you. One follow-up, if I may, on the extension. Could you quantify this a little bit further? What is the percentage of contracts that are running into extension right now compared to, like, one or two years ago?
When we compare that to the last year, the first half of the year, we have now roughly 20% more leasing contracts in extension and compared to the level of 2019, it's roughly 40%. We're talking about roughly 50,000 contracts are in extension at the moment.
Thank you.
Thank you. We'd like to move on to Siyi Li from Deutsche Bank, please.
Yes. Hi. Thank you very much for taking my questions. Three questions, if I may. The first two are on cost. Can you give us some more color on the change of your compensation schemes to your employees, just to help us understand better how the staff costs will evolve in the future and in the following quarters and for next year? The second question is on the consulting cost. You said it was a little bit high in the first half of the year. Can you give us quantified numbers, how much was in the H1, and how much do you expect for H2? The third question is on the Q3 performance. We have already July and a couple of days in August.
Could you provide us the first insight of Q3 performance, both in terms of new business and also the customer payment behavior? Thank you.
Yeah.
Okay. Thank you, Siting Li. I will take the question. At first, yes, we changed a bit our remuneration system and the overall compensation system because over the last years, the variable part was quite high. Looking at the market, it was no longer the best way to get new employees to cover our existing employees because of the high variable compensation we had. That's why we decided to reduce variable compensation and to pay more fixed compensation. You can see that also when you look at our key figures, what is the part of variable compensation overall of staff costs in the past and today. That is the main change between that.
In the past, roughly 25%-30%, if I'm right, was variable. Today we came to a level of, let's say, 10%-15%. It depends a bit on sales. Variable compensation of sales is much higher than for the headquarter staffing. That will also affect a bit our Initial Direct Costs, because not the same level of costs is now part of the Initial Direct Costs, and that will have an impact for that year of EUR 5 million-EUR 8 million less IDCs. That you will see also in a lower income of new business. It's only temporary because that is part of the leasing receivables. Now the Initial Direct Costs are lower, and the starting point of leasing receivables are lower.
At the end of the day, the interest rate, the initial interest rate of the leasing receivables is higher, so that will come back over a duration of two years. It's only temporary from the P&L perspective, but it was quite important to staying at the market and to getting the right people and to covering the base of people we need for the things we would like to achieve over the next years. The consulting costs, there, I can give you a bit flavor. It was roughly EUR 60 million consulting and auditing costs in the first half of 2022 compared to the first half of the last year, it was EUR 20 million. For the second half of the year, the cost should come down in minimum by EUR 3 million.
Q3 performance, all we can see is going on. I mentioned we confirmed our goals and our guidance for 2022. It's positively ongoing also in Q3, and we expect no change in the payment behavior. Our business model is the financing of assets for day-to-day operations of small to medium-sized companies, and that makes us resilient, and no change in that.
Thank you.
Thank you. I have a follow-up question.
Follow-up. Okay.
If I may. Apologize for that. Just going back to the remuneration plan for the employees. You said that you increased the fixed cost proportion of the remuneration plans. Can you give us a proxy of the annual wage inflation that you expected for the following years?
Yes. It's that's like a balance. The overall costs are nearly on the same level, and the variable portion will come down, and you will see that. The fixed portion will come up.
Okay. Thank you very much.
Thank you. Johannes Thormann from HSBC, please.
Hello, everybody. Johannes Thormann, HSBC. Three questions from my side as well. First of all, when do you expect this income and net interest margin to grow again? Is this a question of quarters or years? Secondly, we've seen now two quarters of FX effects in your financial result. Will this be a continued feature in the next results as well, or do you expect the reversals or what should we put in the model for this? Last but not least, as you call them, your future core markets, so your franchise units, the way you're talking about the takeover. First of all, on the performance, because we've seen increased losses in Q2, is this what has been driving these losses?
Second, in terms of the takeover, how do you wanna pay for this? Will it be in shares? Will you issue new debt, or can you pay it out of your existing cash? Thank you.
Yes. Thanks, Mr. Thormann. When we look to interest margin, and I think you mentioned the P&L, then we should see a rising
Interest income over the next quarters, it depends directly to the leasing receivables I mentioned, and there the bottom is behind us, and that should be the same for the interest income. You see that also in our P&L when we look only to the quarters, the interest income in Q2 was slightly higher than the interest income in Q1 2022. The interest income, the net interest income, that depends a bit on interest development. From a year-over-year perspective, it's not that easy to say there will be an increase in the next year. Quarter-wise, we should see an increase over the next quarters. The FX effect. That's right.
You have to look always to the holistic, let's say P&L, also to the comprehensive income. It's a bit more technical because on the one hand, we have some impacts on FX on our P&L directly in our other incomes or other expenses, but you will also see some impacts because of FX in the comprehensive income. At the end of the day, the impact in that quarter was more or less neutral. It depends a bit, is it part of the balance sheet? Is it part of hedging? The line in the P&L or comprehensive income is quite different. We have at the moment high differences between the valuation. Everything on the balance sheet, let's say like a leasing receivables and so on, the FX impact is with the FX at end of June.
You take the currency at the end of June. When you always look to derivatives, to forwards, you have to take not the middle of the spot rate, you will go for the forward rate, and the difference between forwards and overnight rates is quite high at the moment, and that we will always see in our P&L. Please take also into account the comprehensive income. There's a huge portion of roughly EUR 5.5 million linked to FX. Future core markets, I think you mentioned, the non-controlling interest, and there are all franchise units included, not only the future core markets, Canada, Australia, and the US. Also other franchise units are there.
Looking to that, yes, the loss increased a bit in Q2, but it's not a main impact. In some cases, we has also to adjust because of macroeconomic environment, the expected credit loss and also the risk provisioning, also for factoring business, but not that hard. The future core markets develop very well, and especially there, the development of new business is quite important to raising the number of dealers, to raising the number of clients and number of contracts. Takeovers, we are working on that, and at the end of the day, we are able to pay that in cash. That's always an opportunity. Maybe, if there are other opportunities important, then we will think about if we have the amount to pay, but we are able to pay that in cash.
Okay, thank you. To follow up, most likely you will pay it in cash. Secondly, the net interest margin, which has been, and over the last years, should this recover next year if you say it takes a bit longer? Would you say a recovery of net interest margin is currently impossible?
I think that should recover next year because with rising interest rates, let's say, also a more efficient management of liquidity, I think that could be the case. But again, it depends a bit on the time, like in funding, when we go, let's say, tomorrow for a new bond, then we have to pay high interest rates. We are now passing through the conditions. At the end of the day, it's a very good question, but it's not that easy to meet the prognosis quite in the right quarter. I think next year we should see a higher net interest income, and the margin depends on the overall developments in contribution margin one and in what has to be paid for our funding.
There's also a question, what is going on on the inflation side and on the interest rate side? We see now in America, inflation is going down a little bit, and this will helps us here. When this situation stops a little bit and goes the other way around, then you will see also the recovery in our margin.
Great. Thank you.
Okay. Next question comes from Tobias Lukesch, Kepler Cheuvreux, please.
Yes, good morning. Also three questions from my side, please. Firstly, touching on the NII effect again, since you decreased the deposit amount quite a lot in Q2, I was wondering if there is a kind of into Q3 effect based on that, i.e., that the interest expense might be lowered going forward. Secondly, on the mob business development in Q3, I think that was just asked before, but I didn't catch that. Maybe you can give us a bit of flavor how this developed so far over the last one and a half months. Lastly, on the risk modeling you also referred to with regards to your franchise companies. I was wondering, have you done any adverse stress test for your model?
If so, what would be the assumptions and what kind of loss rate would you expect in a, let's say, less favorable environment, as the Bundesbank's indicating with some 1%-2% GDP decline, basically? Yeah. What would be that outcome of your portfolio? Thank you.
Yes. Thank you, Mr. Lukesch. At first, decrease of deposits it was like planned because we would like to bring down our liquidity position overall and the most of the liquidity was held by Grenke Bank. That was planned to decrease deposits in line with our overall volume development with the leasing receivables and also with the cash position. Of course, yes, the interest expenses are lower looking to the deposit business, but we will always find a good mix between our several pillars. It was important for us in the first half of that year to go back to the capital market with a bond. It's also important for us to be present in our ABCP programs and also the deposit business is and will be important.
As I mentioned in my presentation, when we only look to the debt, Grenke Bank is roughly 25% of our debt funding. That is from our perspective a good portion to manage our funding. The interest rate environment in Q3 compared to Q2, it's more or less stable, so it was in Q3 not that dynamic. We see a more or less stable environment and the interest rates are not that volatile as it was in the first half of the year. It gives us also leeway to pass it through our conditions as we mentioned, and having at minimum a stable development on our contribution margin.
The best case when it will be stable going forward, better contribution margin in Q2. It depends a bit on volume. We are now going into the summer break in some countries, and, as always, and you are aware of that Q3 is a bit special because of the volume and in some countries, the summer break is longer and, that we will see presenting our new business figures for Q3. The risk model for franchisees that's, it's more or less, the same, structure and base model as we have for the other countries. It's not an extra model for franchisees. We are looking to what is about the leasing receivables, or may the factoring receivables.
When they are in different countries, we have also to reflect the different countries, the country risk on the one hand, and also, the macroeconomic environment of each country. At the moment, we are quite conservative on our risk models across regions. If I should expect a loss rate, of course the 1.3%, as I mentioned, is a bit low. From a long-term run, we would like to meet 1.5% in a balanced scenario where we have a balance between volume and risk development. On the other hand, we think that that is a good level to having a right risk premium to earn money and also to managing the risk at the end of the day.
Very clear. Thank you. Would you share a kind of adverse stress outcome for your loss ratio?
Yes.
For the whole globe and maybe also point to the countries where you see potentially the highest risk, right?
Yes, we can also look at that from a global perspective when we look to our portfolio to the volume at the moment. If we stress our risk provisioning, then I can't assume at the moment that we will see a loss rate higher than 2.0%.
Very clear. Thank you.
Perfect. The next question comes from Philipp Häßler from Pareto Securities, please.
Yes. Hello. Philipp Häßler from Pareto Securities. I have three questions as well, please. The first one is a follow-up. Did I understand you correctly that due to the change in the compensation program, the profit from new business is negatively impacted because it was down, although new business was up in Q2? Maybe you could elaborate on this. The profit from disposals were positive in Q2 after many, many quarters of small losses. Maybe you could comment also on this and give an outlook for the next quarters. Last but not least, the ECB lifted the negative interest rates. If I remember correctly, you were negatively impacted from this. Maybe you could also comment on this and give an outlook for the next quarters. Thank you.
Yes, I would take the questions. Thank you, Mr. Häßler. At first, yes, that's right, that compensation has for the first time a negative impact on profit of new business because of the lower IDCs. When you compare that line in our P&L to the last season, you would see that it's roughly EUR 3 million. As I mentioned before, over the whole year, it's between EUR 5 million-8 million. Depends a bit on the performance and the measurement of performance for the variable compensation at the end of the day. The profit from disposals quite positive because of more extensions we see. We have more extensions and leasing receivables at the moment and that bring us that good result.
From a long run, it's not easy to say if that is a long-term trend. We will see that higher number of contracts running and in extension from long-term run, it's not that easy to say. We believe from a year-over-year perspective that the result there should be positive that year and not change and switch into negative. The last point also quite right. The short-term lift from ECB quite important. In the first half of the year, we paid negative interest rates on our bank accounts of roughly EUR 1.6 million, and that is an impact for the second half of the year or minimum for the last five months of that year.
We will not see in the other interest income there that negative impact was over the last years. In size, on the one hand, we had a lower volume of liquidity, that's why the EUR 1.6 million compared to EUR 2.2 million in the last year is a bit lower. From a mid- to long run, we will not have to pay longer negative interest.
That's another positive impact because of the ECB and situation there. You see, some of our competitors who are banks, they were able to refinance over the ECB under now 0.5%- , and this will also stop. We see that the banks could make money and to make good offers there to their customers. Because of this topic with the ECB, and ECB will also stop this. This for our position at the market also really good.
Okay. Thank you. Very clear.
Okay. As there are no further questions for the moment, I just want to make sure that you have an opportunity to ask a question, and you know that you need to Press Star one. Okay. Thank you very much. This concludes our call for today. If questions spring to your mind after the session, please drop us a line or give us a call. Just to remind you, our new business figures are due on October fifth. Have a great day and best luck. You may disconnect now. Thank you.