The conference is now being recorded. Good afternoon, ladies and gentlemen, and Welcome to the Deutsche Pfandbriefbank AG Conference Call regarding the Preliminary Results 2021. At this time, all participants have been placed on listen-only mode. The floor will be open for questions following the presentation. Let me now turn the floor over to your host, Walter Allwicher.
Good afternoon from Garching. Thank you very much for making yourselves available for our full year results call. Here with me is Andreas Arndt, our CEO. Andreas will lead you through the results and will also talk to initiatives and the outlook for 2022. Finally, he will also be available for your questions following the presentation. Andreas, the floor is yours.
Thank you very much. Welcome to our analyst call regarding full year 2021 results. I hope you and your families are in good health, in good stead, with good health, being not a minor point in reflection of two years of pandemic, persisting COVID-19, and then, in consideration of all the other challenges which we have on top of it. Today, we are reporting on a financial year that was still influenced by the effects and side effects of the COVID-19 pandemic, but which shows, and which did show clear signs of economic recovery over the course of the year. The global economy grew by almost 6% last year and more than made up for the previous slump in most countries.
The demand for the real estate asset class, and in particular, I'm talking about prime and core real estate, has also recovered significantly, which also and still applies into 2022. This is a big but. While we were all hoping for further steps towards the return of normality in the current year, we're now horrified by the war in the Ukraine. The resulting human sufferings put the economic successes and results of companies into perspective, and as such, also overshadows PBB's good results. We are aware of this when we report, and we keep in mind when we report today on our annual results 2021, and our plans as well as on the possible economic effects of the crisis. Keep mindful both of the enormous sufferings of people in the Ukraine, and the significant uncertainties in the global economy going forward.
Just this much in advance on the current crisis impact. In the countries of Russia and Ukraine, we do not have anything which directly affects our business and indirectly only to a very negligible extent. There are some secondary effects, that is any, only to a small extent. The general economic collateral damage from sanctions and geopolitical crisis is currently very difficult to assess in terms of economic performance, supply chains, inflation, interest rates, and so on. However, we assume that what usually happens in times of significantly increased risks and uncertainties also will happen here, namely flight to quality, flight to value-preserving investments, as you may observe with bond yields or precious metal prices, and this should also apply to commercial real estate in the prime or core segment.
That is exactly where we are positioned and where we should be, despite or perhaps because of difficult times. This gives us confidence that we will continue to stick to our plans for 2022 and beyond. Prudence is the brother of confidence, and therefore we stay cautious and attentive to the actual developments. Should it prove necessary, we know which levers to pull. We were able to emphatically prove this during the pandemic crisis. This brings me now to the results, 2021. As already mentioned, 2021 has marked the year of gradual recovery from the pandemic, macro-economically as well as for the real estate sector with investment volumes going up again.
Against this backdrop, PBB has shown strong performance with no major credit defaults and a significant upturn in new business volume, resulting in our second-best profit since IPO with a PBT of EUR 242 million. With that, we even exceed our guidance of upper end or slightly above EUR 180 million-EUR 220 million. As a dividend stock, we want to have our shareholders again to participate in this strong performance. In line with our dividend policy, we intend to pay out 75%, i.e., 50% as a regular dividend and 25% as special dividend.
This translates into a dividend of EUR 1.18 per share after an exceptional low tax rate of 6% and after deduction of the AT1 coupon of EUR 17 million, thus providing an attractive dividend yield of more than 10%. Now, I'll lead you through the highlights on page 4. PBT, as I said, 242, is up EUR 90 million or 60% versus previous year, which was affected by the COVID-19 pandemic. Operating income is up by more than 12%, especially driven by an increase in NII and NCI, which is up 4%.
Significantly higher prepayments, which is about three times as much as we had the year before. Low-risk provisioning levels at EUR 81 million, plus higher income from fair value measurements with a positive EUR 10 million versus EUR -8 million the year before. NII has shown a strong and stable quarterly run rate during 2021, having benefited from slight increase in average financing volume and a slightly increased portfolio margin. Floor income is also a positive in this calculation, and so is low-rate financing costs supported by positive TLTRO effects. Downward pressure, the bits and pieces which you know, they continue to come from lower returns on equity and liquidity book and from the rundown of the value portfolio.
In addition, operating income was significantly supported by a further strong increase in prepayment fees, well above our expectations being the main driver for realization income. As I said, the full year figure is now at EUR 81 million, significantly up from last year. On the operating cost, we think we did our job. We kept it under control. Increase of general and administrative expenses in Q4 is in line with our expectations, which includes EUR 11 million provisions for our efficiency initiatives. The underlying operating cost base is only slightly up from EUR 204 million to EUR 208 million due to higher project costs, which turns in a cost income ratio of 40% after 42% in 2020.
Risk provisioning is significantly down year-on-year by EUR 81 million from last year's figure of EUR 126 million, while at the same time having built up a management overlay of EUR 54 million. We did justify that by a steep rise of infections in the last quarter of the last year, especially the Omicron thing, and remaining uncertainties of delayed economic and real estate market impacts. In the light of the current political conflict and potential economic impact, as of today, this seems to be the right thing to do. New business volume has recovered visibly from last year's level up to EUR 9 billion. That is 20% up. At the same time, we don't record any change in risk provisioning. We keep low LTVs with an average of 56%.
Average gross interest margin levels were slightly down. You have already sort of recognized this from last year's reporting. Slightly down by 10 basis points to 170, which was quite stable level throughout the year. Offset by the high new business which we did deliver in Q4. The end of year margin came down a bit, but the annual average remains at 170, and they were well above the pre-COVID levels of 155, which we did show in 2019. The REF portfolio is modestly up from EUR 27 billion to EUR 27.6 billion as new business over compensated for regular repayments and higher prepayments. While the NPL ratio is at 1%, the NPLs are slightly up from EUR 470 million to EUR 580 million.
I'll come back to that in due course. Funding continues to run well, with a focus on Pfandbrief in foreign countries, foreign currencies, U.S. dollar in particular, also British pound and Swedish krona, matching our asset side and Green Senior Preferred, while European Pfandbrief issuances have been largely substituted by TLTRO. Excluding our own issued Pfandbrief for collateral for the TLTRO, total new funding volume adds up to EUR 5.1 billion after EUR 3.6 billion last year at over one-third lower spreads. Capitalization remains overall strong with risk-weighted assets already calibrated on Basel IV levels and with a CET1 ratio of 17.1%. That includes the pro forma profit retention for 2021 after the deduction of intended dividend proposal and the adjustments to the expected loss shortfall.
The market increase in CET1 reflects an RWA relief according to CRR II, i.e., the reduction of risk weights from SME supporting factor for SME exposure, a measure which we have backed for some time for technical reasons, but according to our knowledge, is now uniformly applied by the market. To sum it up, again, I would say a good strong performance for 2021. In view of recent events, we could have stepped back from giving a precise forecast for 2022. However, we have chosen to provide a guidance that takes into account previous assumptions on general economic and interest rate development, and at the same time reflects the PBB positioning in terms of risk and capital and the intended growth initiatives.
On that basis, we still target the full year result of 2022 with a PBT in the range of EUR 200-EUR 220. It goes without saying that if the crisis persists or further worsens, new framework conditions would apply. These cannot be reliably and finally assessed or predicted at this point in time. Despite the increasing uncertainties, we decided to keep focus on expanding our core business in the years to come, through product innovation, more green lending and expansion of U.S. business, and thus to elevate our sustainable midterm operating profit levels. Now page 5, I would skip, that's basically the reflection of the figures I just gave to you, and we turn to the market section.
I would start with slide seven on Ukraine and Russia crisis and give you a bit more details on where we stand. As already mentioned at the beginning, PBB has no direct exposure in or to Ukraine and Russia, i.e. there's no direct lending or nothing against properties located in the Ukraine or in Russia. Indirect risks from respective countries are only marginal, such risk which may tie up with Russian nationality or potentially sanctioned sponsors and so on. Furthermore, we've looked diligently through the portfolio. There's no material tenant risk as far as we can see. There's no exposure to Ukrainian and Russian banks. There's no direct effects from SWIFT sanctions. There's no ruble currency position, and there are no direct service relationships.
Last but not least, there are no employees and offices in the respective countries. If looking to markets, spread widening so far was only moderate for senior unsecured, while Pfandbrief proved to be very robust. PBB's were pre-funded, having already issued €1 billion each on senior unsecured and on Pfandbrief. That is 40% of our annual plan for 2022, and comes on top of a substantial carryover from last year. All liquidity buffers and ratios show healthy levels. The macroeconomic challenges, however, are expected to arise from sanctions, and potential impact on growth, on inflation, on monetary policy, on interest rates, and so on, is very difficult to estimate or to foresee or to forecast at this point in time. Having all that in mind, we believe that PBB continues to be well-positioned.
We are where we should be these times, i.e. we stick to our conservative approach with focus on core, European or U.S. prime locations, prime clients and prime assets. In times of crisis, there's flight to quality, especially prime core and core assets should benefit from increasing demand. Secondly, PBB has proven good resilience throughout the COVID crisis, confirmed by ECB stress tests and provisioning levels, which we show. Last but not least, we can build on a strong capital base supporting profitable growth even in difficult times, thus allowing us to realize our plans. So much for the most actual topic of the day.
With a quick view on markets in general, which I intend to have as a short go through, and with any questions to be taken later on, let me start on slide 8. In line with the overall economic recovery, investment volumes have recovered significantly in 2021. In Europe, almost back to pre-crisis levels. U.S. development significantly more and more pronounced, making even an all-time high. Even though the economic recovery supports investment and occupancy demand, an ongoing strong differentiation between A or prime property versus B or C property or locations, as well as increasing differentiation between green versus non-green properties can be observed. While we see strong performance and good transactional levels in the prime segment, non-prime remains almost illiquid.
While office and residential prices, as long as being prime, are holding up or even increasing, property values in hotel and retail remain stressed. Logistics is more or less stagnating at high pricing levels, slightly trending to overheat. It remains unclear how supply chain problems will affect the logistics segment, whereby I personally believe that the less efficient supply chains work, the more logistics space will be needed. Developments continue to perform and suffer much less than expected from delays and rising costs, a development which we closely observe, but for now have no reasons to be overly worried about. In fact, we have no actual provisioning needs on developments. Our assumption cost inflation, which we build into our cash flow projections, prove to be sufficient.
Despite occasional delays or cost overruns, the vast majority of developments, which we find is run according to plan and sells better than planned. There is, as I said, clearly more which we can discuss, but I'll leave that to your questions. Coming to the financials, and sort of in good order of past presentations, I would go through a couple of lines here and focus on the main lines such as NII and so on, for the forthcoming pages. Net income from fair value measurements is positive at EUR 10 million, up from last year's minus EUR 8 million, reflecting a recovery from COVID-19 related credit spread widening last year.
The net other operating income is only slightly negative with EUR -2 million and compares against the positive figure from last year with EUR 22 million, which benefited from the release of provisions. Also noteworthy is expenses from bank levies and similar dues are slightly up versus last year, reflecting significant increase of the target volume of EU levies. The tax rate of 6% is positively impacted by deferred tax benefit due to the improved earnings perspective and changed accounting treatment. On the contrary, 2022 taxes were burdened by expenses for tax audits in previous years and high non-tax deductible risk provisions. Turning to slide 11 on lending business. Income from lending business, NII and NCI has benefited from, as already mentioned, slight increase in average real estate financing volumes at increased portfolio margin.
The flow income was up year-over-year, but recently last quarter and also now this quarter at diminishing rates, given rising interest rates in Q4 and with a, say, more pronounced and more visible impact in the first half of 2022. Low refinancing costs also played into that, partially supported by positive TLTRO effects with some pickup in volume in June last year, scaling up the TLTRO from 7.5 to 8.4. Of course, we come back to that point also due to low refinancing spreads. Downward pressure continued from low returns on equity and liquidity book and from the rundown of the value portfolio. In total, NII and NCI increased more than 4% from EUR 482 to EUR 502.
In addition to that, operating income was significantly supported by a further strong increase in prepayment fees, well above our expectations, after a figure of EUR 26 million, additional and unexpected figure of EUR 26 million in the fourth quarter last year. It adds up to EUR 81 million, which as I mentioned, is significantly up from last year's figure of EUR 24 million. To put that into perspective, it is a reflection of further increased property value, especially in the prime segment, the segment which we strongly focus on even during the pandemic crisis, providing investors with attractive exits of their investments and accepting therefore high prepayment fees. It reflects the structural challenges which we have observed during the last few years and throughout the corona crisis.
While B or C assets, i.e., those assets which are in peripheral locations, assets with structural impediments such as shopping centers and hotels, assets without potential to upgrade into green categories and so on. While these assets in the B or C category remain almost illiquid and the prices were under pressure, A assets did transact, were liquid, and in case of very good locations and very good quality, were attractive, were sought after, and subject to visible appreciation. The bank was and is structurally favored by its positioning in this context, but also by the fact, and that relates again to last year, by the fact that in 2021, three larger transactions accounted for nearly half of the prepayment fees in 2021.
The increase in prepayment volumes and thereby the loss of future NII run rate, however, was significantly less pronounced than the rise in fees. This is positive as it is, as it well supports the operating income while losing only moderately on the volume side. Given continued strong demand for prime properties and the structural challenges for real estate sector in particular, we expect elevated levels also for 2022, but clearly below the levels which we have shown last year. Now, on risk provisioning, which is page 12, it's significantly down from 126 to -81, and comes first of all from Stage 1 and Stage 2 provisions were mainly model driven, and model driven risk provisions have been noted, including a management overlay which counterbalances model-based releases resulting from actual observed and improved macroeconomic parameters.
However, since the underlying assumptions do not fully account for the remaining risk factors, we decided to apply a management overlay or override. High infection rates in Q4 and other uncertainties around the expiry of state support measures were such factors. The total management overlay now amounts to EUR 54 million, providing a solid buffer and a release potential into 2022. As a reflection of a more conservative estimation of underlying risks, we shifted EUR 3 billion volume of Stage 1 REF sub-portfolios into Stage 2. Also to be clear in this instance, on this topic, this was not triggered by any deterioration of credit quality as such, but a management override of model-based thresholds and triggers.
Net additions to Stage 3 amount to EUR 47 million, which is slightly down from last year and predominantly reflects increases from adjustments on U.K. shopping centers, which make up almost three quarters of the entire amount. That is annoying, but it is attributable to one portfolio of shopping centers only, where overall development turned more negative than we did expect a year ago. The values of other shopping centers proved to be stable or slightly upwards even. One of them was sold as a small top-up of a book value. In 2021, only 4 loans were newly transferred to Stage 3, but with only very small provisioning needs. In fact, 2 of them with zero LLPs.
There were one case of a Netherlands hotel which went in without provisioning that was unlikely to pay case where the client missed the repayment of the loan by 12 hours. Therefore, for regulatory reasons, we had to attribute that to an unlikely to pay situation and shift it to Stage 3. The money is in and we are in the queuing period and expect this engagement to come off the NPL list shortly. There's a small German shopping center with a small provisioning. That's a re-provisioning, I should say. We have seen that coming for some time. We have another case which we have already discussed one or two quarters ago. I call that the green fee case in Poland.
The office which we financed, where the tenant did claim for an extension under the assumption that significant investments will be made in order to bring up the building to green standards, which the landlord so far has refused and received the exit note from the tenant. Now I think he has better knowledge now and is entering into the respective investments. I think they have signed an MoU with a new tenant, so I would also expect this one to go off sometime this year. The last addition to that is an office building in Boston in the United States. Again, this is about the departure of a larger tenant in 2023.
We believe that any addition to Stage 3 status has a precautionary effect that will be reversed also in due time. All in all, you look at and we look at a stock of risk provisions of 358, almost 360, by the end of the year, which provides a coverage on our real estate finance portfolio of well above 100 basis points, i.e., 119 to be precise, of which approximately 50%, 52% or EUR 186 million account for general loan loss provisions in Stage 1 and 2. On the cost side, slide 13, I'll keep it short. I think as usual, things are more or less under control.
We've added EUR 11 million to the HR costs in 2021 as provisions for our efficiency initiatives and efficiency measures. That's a one-off and is in view of things which we expect end of 2022, 2023 to come. The underlying operating cost base is only slightly up from EUR 204 million to EUR 208 million due to higher project costs, especially for strategic measures and for digitalization projects. Again, the cost income ratio stands at 40% presently, which is a tall order to keep to, by the way, in this year, next year to come. The new business, page 15.
The new business volume has recovered visibly with an overall or alongside with the overall recovery of commercial real estate markets, up by more than 20%, from EUR 7.3 billion to EUR 9 billion, with a strong fourth quarter showing, well exceeding our guidance and our guidelines, which noted EUR 7 billion-EUR 8 billion last year. This once again demonstrates PBB's origination strength and our selective approach despite increased competition in the prime segment. Also to be noted, EUR 9 billion. To put that a bit into perspective, EUR 9 billion is still way below, well below the levels which we have seen pre-corona prices, which were hovering around EUR 11.5 billion-EUR 12 billion. We do not observe any visible change in risk positioning. We stay at a continued low LTV of 56%.
There are no new commitments on property types such as hotel and retail shopping centers since March 2020, except for some extensions. To state the obvious, when we do extensions also in that field, we do it on a conservative basis only. Any case which looks like forced extension, of course, is reclassified. Average gross interest margin I mentioned that is at 170, quite stable throughout the year. In reflection of high new business volumes in quarter four, the year-end margin came down somewhat, but we were able to keep the overall average at 170. Regional focus is in line with the strategy. Predominantly German business with 49% against the portfolio figure of 47.
Followed by U.S. exposure of 15% of portfolio, still building portfolio at 12%. France 13% on both aspects, and CEE about 7%. Thus the U.S. is once again the second important market for PBB. While we were exceedingly cautious and careful on the U.K. exposure, which contributed 7% to the new business with a portfolio share of 9%. Just to recall the figure which we did show 3-4 years ago, probably, which was in the vicinity of 20%. With regards to property types, focus remains unchanged on office, which now stands at roughly 59% of our efforts. Residential with 13%, logistics is at 16% and compares against 12% in the portfolio. Whereas retail further dwindles down and so is it with hotel business.
As a matter of course, the statement which I probably give every time, we continue to focus on core properties with stable cash flows, top tenants, as well as low re-letting risks. Furthermore, we focus on professional crisis-proven investors, low LTVs and strong covenant structures. Very briefly on portfolio quality. As we have not changed our risk focus on the business which we take in, you should also expect that the portfolio as such remains largely stable with an average LTV on the level of 52% and expected loss classes with no major structural shift. LTV levels continue to provide solid risk buffers, especially on the background of even more intensive and comprehensive reviews of the portfolio over the last two years, which we were subject to by Bundesbank inspections.
On Ukraine and Russia, as I said, no change expected from recent developments, no direct exposure. How the global economy is going to affect the portfolio and how that will sort of turn out on the bank's books remains to be seen. On NPLs already mentioned at the beginning, we shifted that from EUR 470 to EUR 580. I gave you already a quick walk through the engagements which are responsible for that increase. I'll leave it at that. I think it's one of the lesser concerns and touch wood on that. Funding activities on page 20 and 21, slides 20 and 21, have been strong with new market funding volume of EUR 5 billion, 40% up against last year.
While spreads have come down by one-third, predominantly non-euro Pfandbrief funding, with sort of matching the asset side on the U.S. dollar, British pound and Swedish krona side, plus the green senior preferred. With two $750 million Pfandbrief issuances in 2021 and the first $750 million Pfandbrief in February this year. PBB is by now the most active U.S. dollar covered bond issuer in the Eurodollar offshore market. The EURO Pfandbrief funding predominantly was substituted by TLTRO, which I mentioned already, was increased to EUR 8.4, taking advantage of the favorable conditions attached to it. And green financing. Now, our green bond framework was completed in 2020.
We issued our inaugural green bond benchmark, i.e., EUR 500 million senior preferred in January 2021, followed by an equally successful and heavily oversubscribed second EUR 500 million green senior preferred benchmark in October 2021. With two green benchmarks, PBB has been one of the most active financial issuers in the green senior market in 2021. In 2022, as mentioned, we have successfully issued another EUR 750 million senior preferred green benchmark, which brings the total green bond at presently outstanding at EUR 1.75 billion, and we have all intentions to increase that figure further. Capital is being described as slide 23. It remains overall strong. It is, as you know, already Basel IV calibrated, and if I say CET1-Basel IV calibrated, it means on fully loaded basis.
It is up from 16.1% to 17.1% end of last year, with risk-weighted assets down by roughly EUR 1 billion over last year as a result of the removal of a conservatism add-on for SME exposure according to CRR II, which we applied in Q4, which I think I mentioned that most competitors have already enacted. In the capital position at year-end, you can see already known effects from reduction of expected loss shortfall, as well as the retention of profits from 2020 and 2021. The SREP requirements which we are subject to did not change, but some comments should be said and should be made on the expectation and the impact on upcoming changes in country-specific counter-cyclical buffers and the German sectoral systemic risk buffer.
As already communicated in the past, we already now anticipate for any forecast in capital ratios, a counter-cyclical capital buffer of 45 basis points. On this background, we expect only a moderate increase of the total effect of upcoming changes in the range of an additional 20-25 basis points. Not much to write home about that. The fact that especially the systemic risk buffer is very much focused on residential property in Germany, and we have a relatively small amount only on that, the way and the degree by which we are affected, on that, systemic risk buffer is very moderate. Now we come to, how shall I say it? Not the highlight of the day, but certainly one of the most important things on dividend.
We want to have our shareholders again participating in the strong performance and therefore in line with our dividend policy, we intend to pay out 75%, i.e. as I said, 50 + 25 for the special dividend. That translates into €1.18 per share, based on a low tax rate and the deduction of AT1 coupon. With that, PBB once again underpins the ambition which we have to perform as a dividend stock as we did in all the years before. As we did in all the years before, we consider our decision to pay a dividend and to size the dividend on a number of aspects, which are, first of all, the overall economic and sector-specific risks, the regulatory requirements, the communicated ambition level with regards to capitalization, including cautionary buffers and future growth and investment measures.
We take all that together, make an assessment of that, and for the 2021 dividend, decided that all these points are to be taken with a positive comment and therefore that we are in the position to propose this dividend to the annual shareholder meeting. Now, slide 26 is a bit of a change from the usual. Given the challenges ahead, given the wide scope of initiatives and investments which the bank has designed and set up in order to respond to such challenges, we have decided to augment our outlook section significantly. This should provide more transparency and should add plausibility to our investment rationale. The bank, a thing that's visibly and impressively to be seen from the slide.
The bank has shown remarkable resilience and stability over the last 7-8 years, returning a stable upward sloping trend of around EUR 200 PBT and an attractive dividend yield on the pbb stock. Mostly unnoticed goes the fact that the PBB stock since IPO has outperformed most of the European stocks, measured by the STOXX Europe 600 Banks by 40% on basis of total shareholder returns, which nonetheless is owed to a significant degree to the attractive dividend payouts which we hold ready.
Our business model, based on risk conservative approach, has proven robust and resilient since IPO, also signified by the fact that we built up, you may call it intrinsic capital by building up EUR 200 million of loan loss reserves over the last two years during the pandemic, with over 50% of the risk provisions being in Stage 1 and 2. This strong performance allows for building dividend payments in the total of more than EUR 700 million, since IPO, providing for an attractive average dividend yield of around 7.5% per annum. With that, we've delivered as a dividend stock without undermining our strong capitalization. This all together, and I believe, demonstrates our robustness and resilience, allowing to generate a stable and attractive shareholder return also in future.
With that foundations, we aim at higher midterm PBT levels based on organic and differentiating growth measures. Green financings and significant investments in and the implementation of the digital infrastructure that unearths efficiencies as much as it ties up clients and provides a platform for growth. The challenge, to be quite frank, lies not only in the usual banking-related challenges as such. We are contrary to universal banks with large retail deposits, and due to the fact that we maintain, since inception, a risk-neutral NII positioning, we are not favored by increasing interest rates. Rising interest rates work negatively on realization of zero interest flows, as you know, and also the discontinuation of the TLTRO program in 2022 and 2023 does not really help either. Compensating effects from rising interest do exist.
They do exist, but materialize with a time lag on our books, bridging those impact points, plus building a book with higher NII contribution while keeping conservative risk profile. That is the challenge of the next three years to come. Now, what are the challenges and the opportunities? We denoted that on page 27. Now, first of all, of course, much-discussed political and macroeconomic risks are rising, while the new and current geopolitical development certainly makes things more difficult and are not yet factored in. Some uncertainties around COVID-19 will remain, however, we believe that the impact will be decreasing over the year.
Second point is, with regards to its bank book, PBB is basically interest rate hedged or interest rate neutral, as I just explained, protecting from negative impacts in case of decreasing interest rates, thus stabilizing income, but also, on the other hand, dampening or delays positive impact in case of rising interest rates. Challenges, at the same time, but also big opportunities are coming from ESG and digitalization, both moving on a transformation path, not to miss, but to take advantage on. Last but not least, regulation and monetary policy, with continuously increasing burden from the regulation in particular, needs to be denoted here as well. Now, how do we cope with these, and how do we respond to these challenges? The answer is very easy, so to speak.
It's the differentiated build-out of core competencies based on the focused business model with risk-conservative approach. Now, what is behind that? What is not behind that is that we expand on a linear trajectory of more of the same, but to gradually expand into adjacent business opportunities, all based on and tied together by the bank's conservative risk approach. We are in the process to broaden our product range for commercial real estate lending. We want to build out our regional footprint in the United States, and we will capture green opportunities by building out green sustainable lending combined with client advisory and sustainable, sorry, sustainability matters. Digitalization is another firm element as an enabler of growth efficiently and to provide the bank and clients with digital access and digital credit process.
This we did bundle in three initiatives, which complement the bank's base plan for the next three or four years to come. Those three initiatives are organic growth in our core business through product innovation and expansion into U.S. business. Secondly, green finance, i.e., fostering of green loans, green development loans, and the push for green CapEx facilities, i.e., lending for transformation of non-green assets into green assets. The third point, the third project, so to speak, the scaling of digitalization to support organic growth.
As I said, we will not push for an undifferentiated across-the-board approach to increase our book by linear extrapolation of present exposure, but we have taken pains to analyze and target product specifications and country profiles which fit into our risk profile and acquisition strengths and result not only in higher revenue contribution, but also leave the average risk profile intact in terms of LTVs, in terms of PDs, LGDs, and overall risk weights. Green plays a special role in all this, not only because our responsibilities and duty as good citizens to foster and support climate protection, but also because green provides significant business opportunities going forward. I come back to that point. Now, with a bit more detail on the initiatives, and they sort of translate into ambitious midterm plans over the next three to four years up until '24, '25.
The first, again, to mention is organic growth, which supplements and cautiously builds out our senior lending profile. First of all, new products which have been launched recently are loan on loans and conservative slices or junior slices of mezzanine tranches, the latter for the U.S. market only. Sorry. In the loan-on-loan business, PBB does not extend loans directly to real estate investors. To a third party who then grants the loan to the real estate investor and enriches the financing structure with additional equity, for example, from a debt fund. Together with the real estate investor's equity, LTVs stay in line with PBB's conservative risk strategy. With this new product, PBB is opening a new market for ourselves, with an attractive risk-return profile, which, and that is important, is Pfandbrief eligible.
After having the second point to mention, after having established successful track record in the United States over the last five years, we are well equipped to further broaden our footprint in the U.S. market by cautiously expanding our traction and our coverage and our business with American sponsors. Presently, we have invested 12% of our book in the United States business. In four years' time, we would expect this to increase to something like 16%-17%, which is, by our standards, admittedly a significant step, but I think it is a manageable one. The last to mention under this headline is low-leverage lending, which is not new.
Prime or focus business in competitive times requires more focus on low-leverage lending, and this is very much justifiable by low LTVs, low-risk rating, low capital attribution, and comparably higher after risk contribution margins. Combined with our green initiatives, we expect to grow the real estate finance book up to EUR 32 billion in 2024, 2025. That takes me to the second block to talk about the green finance. The real estate and construction industry accounts for more than 40% of the world's carbon emissions. By channeling funds into climate-neutral investments, such as green buildings, we support the European Commission's Green Deal. We do this as a commitment to society at large, but we also see, as I already said, a significant business opportunity.
Green finance comprises green loans, i.e., sustainable green investment loans, which comply with the bank's strict standards in terms of, A, energy consumption or carbon reduction, B, green building certification, and C, other environmentally important criteria such as distance to public transport, type of heating, biodiversity, and other things. While we try to incorporate taxonomy standards, we have taken significant effort to establish a transparent and comparable scoring system that also already anticipates oncoming regulatory and market standards. Thus applies standards which we deem to be stricter and more demanding, or if you may say, more conservative than other standards observed in the market. In addition, based on the same principles, we want to build out green development loans. Apart from its importance to reach the overall climate targets, green development buildings are attractive in terms of risk.
Assuming otherwise good locations and so on, green buildings will display more valuation resilience and value stability than non-green or brown assets, which may become stranded assets if not upgraded in due time. We are one of the few commercial real estate banks in Germany and in Europe with a credible claim to expertise in development loans and may easily and very well combine this with sustainability and green competency. The third product, which is the green CapEx loans, follow basically the same rationale. The non-green or brown 52% LTV building in a good location may be worth 25% less in five years' time or so if not complying with green or taxonomy standards, but might be value-stable if turned sustainable by green CapEx loans that adds perhaps 10% to the assets LTV.
From the bank's perspective, as well as from the investor's view, a very reasonable and commercially viable investment that should turn the entire property value into green. We aim at a portfolio share of green buildings of approximately 30% in our total REF portfolio for 2024, 2025. Now back to the third big topic, digitalization. A big topic in terms of bank investment measures. The reasons were mentioned a number of times. Why do we pursue that? Now, the first one is client interface allows to digit...
It's a client interface which allows to digitalize the data exchange between bank and clients in terms of standard formats, in terms of readability, in terms of data out of documents, in terms of customized CP lists, in terms of archiving, deal team access, inclusion of external experts we want to have in this process, and so on. That is all working, and that has been very much accepted. The second point is creating a digital credit workplace creates a platform for more throughput of commercial real estate loans in future.
Given the fact that we see more than 50% of all transactions in our core markets in a year and do less than 10% of what we see, early detection of doable deals by means of digital workflows and analytical tools such as valuation tools, artificial intelligence-based risk assessments, tenant data analysis, and so on. Having all that in mind, it will be a decisive comparative advantage. Digital also means that we adopt agile forms of working. More than half of our processes go by agile standards, at least when we sort of are in full swing of implementation of the credit workplace. It means also employment of cloud computing, which is presently already in use for the client portal and in CAPVERIANT. The payoff of those investments is threefold.
For one, directly in terms of better efficiencies via headcount reduction or tantamount to that, headcount reallocation into new investments or new business. Secondly, scalability. A credit process platform with straightforward processing rules and modular analytical systems allow for better leverage of the bank's new business acquisition systems. Thirdly, better client services through more transparency. The client knows and the bank knows where we stand and where the client stands in the process, which documents are required at which stage, and so on. We have invested EUR 5 million last year, and will continue to invest in terms of admin P&A run rate a further EUR 5 million-EUR 7 million every year for the next few years to come, to set up a complete system for digital portal plus digital credit working space.
We expect at least 90% of our eligible business to be channeled through the portal by the end of next year, and a digital credit workplace to be fully operative by '24, '25. All three initiatives are hanging together. As we intend to build out our portfolio, we diversify our product range, we include green financing, and we build a scalable and more efficient platform for our business. The following pages cover my points in more detail to illustrate the state of work and the effort and the investment. I will not cover these pages now, but I'm happy to take questions, if you have any. With that, I turn to page 32 on the impact of the initiatives.
As already mentioned, and to make this very clear, the strategic initiatives are calibrated the way that we will not change our overall risk approach and risk profile. Thus, we aim at maintaining a stable average LTV, even though we expand conservatively into high LTV business in some cases, i.e., non-senior and green lending. We are, at the same time, there to foster lower LTV business, i.e., loan on loan and lower leverage lending as a sort of offsetting effect. The second point is we intend to keep loan loss reserves on stable, solid levels, providing solid risk buffers and leaving room for growth ambitions. As of year-end 2021, 50%, over 50% of loan loss reserves are related to Stage 1 and 2, including a management overlay of EUR 54 million.
Assuming a continued recovery or stable development, and assuming no further major accidents and risks, we expect provisioning levels to further decrease. As such, the management overlay may be released over time or reinvested, if you want to put it this way, for other risks yet unforeseen. In addition, we can build out our strategic growth ambitions on a strong capitalization with CET1 ratio of 17.1, already available, calibrated, fully loaded, and so on, leaving further solid room for further strategic measures if we were to pursue them. Now, let me conclude with the guidance 2020 and midterm ambition, before I go into quick summary. As already mentioned at the beginning, our guidance is based on what we know and cannot foresee the possible effects from the current geopolitical situation.
On this basis, we have chosen to provide a guidance that takes into account previous assumptions on general economic and interest rate developments, and at the same time reflects PBB's position and the growth of our business, the intention to grow and the plan to grow our business. If the crisis persists or further worsens, new framework conditions will have to be applied. For 2022, we aim for a PBT in the range of EUR 200-EUR 220, and thus tying in with a sustainable underlying level of previous years. This is despite, A, expenses for the expansion of our business, and B, less support from favorable effects such as TLTRO flows and prepayment fees, and C, it does not factor in, and I repeat that, prolonged or intensified Ukrainian crisis.
Now, prepayment fees are expected to decrease this year, but at least for the next 2 or 3 years, to stay above the 22 levels, continuing to benefit from flight to quality, especially for the prime properties. Risk costs are expected to come down visibly versus 21 levels. This assumes some post-corona recovery or stability, but of course does not cater for significant deterioration of macroeconomic parameters. The release of the management overlay, however, is not taken into account here. Operating costs are targeted to remain stable despite investments which we target for. With regards to operating business, we aim at a new business volume for real estate finance back to a level of EUR 9.5 billion-EUR 10.5 billion, supported by overall recovery in investment volumes. We will continue to be in the core segment.
Since we assume strong competition here, we expect further pressure on the gross new business margins, which should correspondingly fall moderately. The average financing volume of the real estate financing portfolio should increase also moderately in 2022. Until '24-'25, we want to pursue and implement our strategic initiatives aiming at, first of all, increase of the real estate finance portfolio volume to around EUR 32 billion. Increase green REF portfolio share to around 30%, and having thirdly, our client portal ready for nearly all clients and products, as well as the digital credit workplace fully established. With that, we sustainably enhance and strengthen our business model and aim to lift pbb to a high sustainable earnings level, while overcompensating for the fading support from favorable effects and maintaining our overall conservative risk approach.
We are aware of the fact that recent geopolitical developments may heavily interfere with our plans, but we believe that our risk conservative positioning, our strong capitalization, the cautious calibration of our initiatives and any flight to quality in difficult times favors our business model and our approach to risk. We have an enduring platform to work from. Thank you very much for your attention, and I'm happy to take questions.
Yes, please. Ladies and gentlemen, let's go to question. Please press nine star on your telephone keypad.
We have questions registered already, and we'll take them, of course, in the order of events. It will be Nicholas Hermann from Citi first, then Johannes Thormann from HSBC, Mengxia Sun from Deutsche Bank. I'm not saying finally, but at least as far as the list goes right now, Tobias Lukesch from Kepler Cheuvreux. Nicholas, please go ahead.
Lovely. Thank you. Thank you for the presentation. Thank you for all the color on the outlook. All very interesting. Three questions from me, please. All trying to dig into a similar thing on your medium-term earnings outlook. 17.1% CET1 today against a 14% minimum that implies north of EUR 500 million of capital surplus. With a 55% real estate finance risk weight, an increase in the portfolio to EUR 32 billion would only consume EUR 350 million of capital. That's before any retained earnings. A lot of capacity still even then. Why not push harder on growth, particularly given the very large headroom between the 14% and the MDA? That's question number one.
I can stop there or we can just, or I can continue.
No, just go on, and we'll work-
Sure.
On the answers thereafter.
Sure. Question two, also on earnings. Helpful to get the portfolio outlook. I guess the question from me is, why not go further and provide a medium-term earnings target? I mean, you referenced the target for high sustainable earnings. Well, I guess, what does that mean from your perspective? I guess the last one you provided the earnings targets was the IPO. How do you see this targeted growth translating into earnings? At least how do you see the medium-term net interest margin, be it for real estate finance or the group? Then the final question, please, on digitalization. You referenced operating efficiency and a good payout on your investments on digitalization. How does 90% digitalization rate impact the cost base over time?
Those are my questions. Thank you very much.
On digitalization, I'm not quite sure whether I got your point. The 90%-
No, I'm just.
Have we reached that or
How do you reference the payout from digitalization? It's better operating efficiency, better headcount efficiency. I guess, how does the 90% digitalization rate? What does that mean for the cost base overall on a medium-term view?
I start with the easy one, and that's the earnings target. Now, there are two or three things to be said about that. I mean, first of all, we consider ourselves relatively audacious already to set out a sort of guidance or some sort of forecast for 2022, given that the whole world around us is pretty much in upheaval. I think there's presently no reliable guidance from any economic research institute or anybody else to say where the way is to go. We find it already fairly bold what we did. We had a lot of discussion around that over the last couple of days. As you know, there are banks out there presenting their annual results without giving any guidance.
I think that's probably less than we may have intended at an earlier point in time, but it is probably more than one can reasonably expect at this point in time. Now an indication, and that's sort of half an answer to your point, an indication of where we would expect earnings to come out in 3-4 years' time, just based on NII or just based on the increment in exposure in lending for real estate finance portfolio. You can take from the figures which we have provided because 32 is an uptick by EUR 4 billion in roughly 4 years' time. You know what we do on our average margin.
If you put this together and extrapolate that over four years' time, then you may get an, sort of an idea of what we would be aiming at in terms of, earnings targets going forward. Again, that's not sort of an official guidance which we want to give. That's a hint at this point in time, and it depends very much on the overall situation and how overall developments will evolve. That's on the earnings target. On the CET1, if I sort of recollect correctly what you mentioned, your point was that there is despite the fact that we do invest some risk-weighted assets in new initiatives, there's still some room, which could be, sort of set free for any kind of capital return or whatever.
Now in principle, that's our discussion between you and us. I understand your point, but on the other hand, let me set out three things on that. First of all, I think in terms of payout ratio, in terms of dividend performance, which we show this slide, I think it was page 26, very nicely illustrates what we have sort of returned to market in terms of dividend. When we sort of did a first calculation of that weeks ago, so the figure which we provided to market is a very sort of attractive and very impressive one.
To do both, to keep some capital back for risk, keep some capital back for investments is one thing, and to provide a very decent and very attractive dividend return on the other side, on the other hand is another thing. Also, I would tend to believe that, irrespective of the question of share buybacks, in terms of dividend and dividend payout, we are compared to other banks, very much sort of in the upper echelon of banks, if you set out for the right peers to look at. There's nothing, if I may put it this way, there's nothing to be ashamed of what we do. On the contrary, I think it's a very fair and it's a very good balance.
The third point in this respect is, even if we would have intentions to pay out higher ratios, presently, I think it is just not the time looking at the things which happen out there, and we need to see what is going on further. Therefore, I think we stick to our policy, we stick to our strategy. We don't want to disappoint markets. We don't want to scale back. We dish out a very attractive dividend this year. I think, if you compare the EUR 1.18 against the dividend of last- year or the year- before, it is a very attractive increase. Therefore, I think we feel ourselves very much confirmed in terms of dividend policy and dividend strategy as we go forward.
Now on the digitalization with the credit workspace, as I said, we will have various kinds and forms of efficiencies which we hope to unearth around that measure. One is certainly related to headcount efficiencies, which, as I said, do not necessarily mean that we have reduction in headcount. We may have other needs for people for redeployment of people, and therefore we need to see that as a business case. There is certainly efficiency and there's advantage on the client side, which is something where we can hardly put a figure against, but where we know it is highly appreciated.
It is the third point in terms of efficiencies. If we look at, say, roughly EUR 100 billion transactional volumes a year, and we do EUR 10 billion out of that, this is EUR 90 billion, which we just try to vet in a very cursory way. If we have more tools available to have a higher throughput through the system, that should work on the overall efficiency of the bank, irrespective of where we put the loans at the end of the day, whether they go into debt funds or whether we keep them on the book and so on. All that together sort of makes up the question of how efficient is the measure which we undertake.
I hope at least in qualitative terms, I have been able to give you a view on that.
Yeah. That's helpful. Thank you. If I could have one follow-up please on comments you made on the CET1. Since you mentioned the comments around dividend and buybacks, and capital return mix, it just sounds like from your perspective, a buyback is just a non-starter. It just will not happen. Sorry, it's nothing that you think is necessary. Just for you it is an ongoing innovative dividend deal is much more of a priority.
The question is why we don't do buybacks, or?
Yeah. I guess, yes. Sorry. I guess it's something that you will not consider.
No, I think I did answer that.
It's more simple than that.
Yeah, I did answer that. I mean, we can also take it offline because the extension of the line is probably not very clear. I think I also answered the point of at least for now and for this moment, the point of additional share buybacks, sort of to make whole of the delta which you have described. I think it's not the time to do that. Would we completely rule that out as a matter of policy or strategy? No. I think it is simply not the time to do that.
All in all, I would say dividend yield of 11%. I don't know how many banks are running around and providing dividend yield of 11% at this point in time.
Well, I guess that's very good. Thank you.
Thanks, Nick. We are moving on to Johannes Thorman. Johannes, please.
Good morning, everybody. Johannes Thorman, HSBC. Also three questions, please. First of all, on the prepayment fees. In earlier calls, you said you expected them to be and to remain at elevated levels. What would you think is an appropriate level for next year in your view? Probably, in that context, if we look at the risk situation, you said, if I understood you correctly, that the management overlay is EUR 54 million. When do you expect the U.K. problem zone to stop being a burden? Like, we always see every quarter some slicing on the valuation, but it's always the same habit. Isn't it time to make a more radical provisioning for that?
Is shop still the property type as the biggest area of concern for you? Last but not least, on your payout ratio. The guidance, I think, will for 75% run out in the next year. Is that correct? Or do you intend to keep the 75 for long term? Thank you.
Now, the last point is probably the easiest. Yes, you're right. Our strategic guidance for the dividend policy has been termed until or including the 2022 dividend, which is due to be decided next year. In the course of events, thereby, we will also make known what any sort of new or changed or other guidance as far as dividend is concerned will be. I would ask you for a bit more patience up until that point when we were to discuss that with you next year, same time next year. On risk, now, I said it is annoying again to talk about U.K. Shopping center risk provisions. It's annoying me, to be honest.
On the other hand, I mean, we do, according to IFRS, valuations of properties, valuations of workout requirements, and so on. We have to go by certain rules which we apply. There's very little room as long as we see cash flows, as long as the thing is by and large performing, and as long as that is more a valuation matter than it is a cash flow or performance matter, there's very little room to make a sort of clean cut or a more radical cut to that. We'll have to live with the fact that if there's new knowledge about and new evidence about that particular shopping center or portfolio of shopping centers, then we will have to apply the rules.
That might be a creeping process and not sort of an awkward process, but that's what it is. Now, on the other hand, sort of as a balancing observation, all the other U.K. shopping centers which we have provided for seem to be fairly stable. They're slightly upwards trending in terms of valuation. One of them has been sold at a small add-on over book value, which we return to our books. Small one, but at least something. It is not entirely hopeless, and it's not as we would say, we hope that this sort of peters out in a more sustainable way going forward.
On the management overlay, now that is something whether this will be sort of earnings effective and releases are to be seen in 2022 or not. It is something which we will see in the course of the year how the risk parameters will change. For the time being, it is either something which is not factored into the guidance which we give, or it is something which is to be assumed as sort of a reserve for oncoming additional LLPs which may surface unexpectedly in the course of further political events. So it is a reserve box, if you want to put it this way. The audit colleagues may sort of forgive me for that kind of terming. It's a reserve box for either way.
Now on the prepayment fees, we were very clear we will not see a continuation on the elevated levels which we've seen in 2021, but we will also not see the levels which we saw the year before and which were sort of crisis-based will be the new level. If you go back one or two years further, you'll see levels around 35 to 45 to 50, which are sort of the structure and the kind of prepayments which we would expect and should expect over the next years to come because of those structural reasons which I tried to make. Is that sort of okay for you, Herr Thomann?
Yes, thank you very much.
Yes.
Just on the question which property type concerns you the most currently, probably if it's shopping or not shopping would be interesting.
Sorry? Which is
Which property type?
Is concerning us most in terms of giving us headaches? Well, it is the old headache which we have, but there's not much on top of it. On the contrary, I would say, I mean, we are still very sort of conservative on other types of retail centers. We probably would consider in the course of this year or next year, sort of to open up again for the retail parks, for instance, or factory outlets, which all have performed quite well over the last 12-18 months. There is a stabilization to be seen. I wouldn't call them any more headaches, but on a very occasional basis as an opportunity.
The same goes at some point in time for hotels. That is very much a regional thing. The interesting piece is, for instance, in London, we observed that the good hotels, the five-star hotels, the renowned hotels are all back to occupancy levels above 75%, which was even good in old times and shows that there is a lot of resilience there. The interesting point is that, I mean, even if you travel in Germany, but also in the U.K., the room rates are not the same anymore as they used to be three years ago. I'm not going to start doing propaganda now for hotel exposure.
I'm far away from that. There are a lot of things to be very cautious about. In some of the places we see some settling of prices, of valuations, and some increases in cash flows. We may have to look at that again, not exactly now, but in some time to come.
Okay. Thank you.
Pleasure.
Next on our list is Mengxia Sun. Mengxia, please go ahead.
Hi, thank you very much for taking my questions. Two questions from my side. The first one is on your organic growth. You said there is two new products, the low leverage lending and loan on loan. What kind of the margin level and risk profile are associated with these products or compared to your back book, and how big are the lending size you expected now? The second question is, can you speak on the current market competition in Europe as well as in the U.S.? Thank you very much.
Sorry, the last one. The composition of the markets in Europe and the U.S. also.
Yes.
Thank you. Now, organic growth, we will not give out sort of detailed and sub-segment targets for those respective growth initiatives. I think that the best we can do and will do is sort of to report from time to time on the overall progress on the matters. Also keeping in mind that, especially when it comes to new products, be it loan on loan, mezzanine or green loans, that is something where we start our efforts in the course of this year. Before we see actual additions to the portfolio, will take some time before it really takes off. That is a precautionary remark.
In terms of risk profile, mezzanine, which is a useful product only in a market which is very clearly defined in terms of senior lending, junior mezz, and B-type mezz, where you can clearly allocate yourself and clearly position yourself. That is from a capital effectiveness perspective, an interesting product because the add-on in terms of risk-weighted assets, which we have to account for by engaging in this product is comparably minor compared to the add-on which we would expect in terms of margins. There is probably sort of twice as large margin to be expected than at least for the junior or for the conservative mezz pieces, twice as much margin to be expected than you would expect on senior loan.
For loan on loan, the situation is somewhat different due to this two-tier structure. The look-through LTV should be, say, more conservative than the average LTV which we hold on our books presently. In terms of risk positioning, we are probably more on the conservative side there, but it is a new product for us. It's not a new market per se, but it's a new product for us, where so far only, say very selected players have played a role. That is partially due to the fact that it takes a lot of additional legal expertise in order to implement that. That is probably also a matter of how the product is structured, whether you are able to get it into Pfandbrief eligibility or not.
The latter piece is very important in terms of overall profitability of the product. In terms of risk profile, similar things go for the green loans where we talk about slightly elevated LTV level, which in our view, risk-wise, is compensated by the fact that we achieve more value stability in a green portfolio. Now, for the Europe and U.S. markets, very briefly, basically taking stock from observations which we had over the past weeks, not much trying to predict something about things which may come. Presently, we've seen, again, very liquid, very stable and very sort of value-accretive markets in the United States more than in Europe, to be sure.
Also the European market has recovered eminently over the last 6-12 months. The places we would go to are certainly the places which we are in. Scandinavian market is relatively small, but stable. We would expect due to the overall situation probably a little bit less business on the French side. We do believe that after some sort of economic shakeout on the U.K. side that U.K. becomes a more attractive market over the next months to come. We also have planned for higher contributions to the portfolio from our U.K. branch to come. Germany going forward very stable, but also very competitive. There's a lot of competition out there.
We will try to revive things not only for the first time, but I hope this time with more success on the Iberian Peninsula in Spain, where we have since one year now a new branch head with say a new view and a new access to the market where we should expect more business to come. That's by and large the regional aspect between Europe and the United States.
Thank you very much. Very clear.
Thank you, Miss Sun.
Thank you, Miss Sun. Tobias Lukesch is the last on our list for the time being. Tobias, please go ahead.
Yes, good afternoon. I will not touch on dividends and share buybacks. I think you have been very clear. Even so, I think you have even increased excess capital to a quarter of a billion EUR, in my view. Let's jump on the realization gains maybe again. I mean, if I now understood you correctly, you were guiding to 2020 as a run rate level. Is that correct? Because before I was taking kinda average of the earlier years and was around EUR 33 million and thought that a kind of cutting in half of the 2021 realizations around EUR 40 million would be a suitable run rate for the coming years. If you say that these will be higher.
Because looking at your new growth rates, that's a kind of a second question. You just said that you will not touch basically on the organic growth target of the REF portfolio. Maybe you can give us an indication. I mean, the increase of the new business growth that you're seeing, I mean, how easily is that achievable? Especially looking into U.S., for example, I mean, splitting between sitting in the driver's seat and structuring it yourself compared to being part of the syndicate and just taking part of a deal. I mean, how would you split that? I mean, is that a kind of 60/40 approach? Is that something you have targeted or is that something which happens?
How easy is it actually to let's say add another EUR 1 billion or EUR 2 billion in new business growth to your portfolio? Maybe very lastly on the CET1 ratio development, I think that was a big surprise this quarter with the model changes. Is there anything, you know, like even with half the dimension, that could pop up in coming quarters or are we now with the let's say 55% RWA density on the ref portfolio at a level where you say this is fully Basel IV loaded and we as analysts talk about your Basel IV CET1 ratio can say that really nothing is to come on that side on the negative? Thank you.
Okay. I mean, the last one is a bit of a crystal ball exercise. You never know what happens. Now, I mean, with the level of risk-weighted assets which we have shown by the end of the year, we've done structurally what we can, what we should do. That is not an effect which sort of, how shall I put it, is a one-off effect that it goes through. It's basically structural, and which takes down the average risk weights, which as you correctly said, from previously 55% roughly to something below 50%.
We would, for the time being, see that as a sustainable level, always taking into account that there's no further significant iteration of risk parameters, which may, at the end of the day, also lead to higher risk rates. Ceteris paribus, we would say the structure which we have is also the structure which leads us into Basel IV and is the structure which we have and should have. Now on realization gains, I would simply agree. I mean, you named a few figures for sort of an average calculation that is probably not far away from what I said. It's probably a good indicator of what you have in mind.
For the organic growth, that's a bit more, say, complicated. I said we want to have not a linear extrapolation of what we do, but sort of a differentiated growth. That's not just sort of a buzzword, but it's trying to explain what we're actually doing. We look into slightly different differentiated markets with differentiating products, and that goes for loan-on-loan as much as it goes for the junior mezz as it goes for the green loan part.
That is something where we believe, if we get our act together quickly, that we have a sort of leading edge and advantage in going to this market and should be able to transact on that. You mentioned the point whether this is something where we would rely more on our own role or would go into syndication agreements or whatever. Now for the European market, it is typically the situation that we take a lead in the transaction, even if it is a syndicated one. We'll try to be the lead arranger in the syndication.
In the United States, the things were slightly different because we were newcomers to the market and tried to hook into existing transactions or tie up with experienced market leaders. Now, over the last years, that has changed because we have been recognized as a name in the market, which delivers in good time and reliably. Therefore we believe that we will also get more bilateral business which we lead and which we structure out of the U.S. market over time. The U.S. market, that's the difference to Europe, is not only more liquid, more transparent, but in terms of size, sort of different ball game altogether.
We are a small number there, whereas we are probably a little bit larger number here in the European markets. I would say that we have growth potential, we have upside potential in the U.S. market, in positioning ourselves, and I believe especially with the product suite, which I just mentioned, I think we'll have lots of clients which are already doing some business with us also being interested in the other products. It's differentiated for good reasons in terms of markets, but also in terms of products. By doing that and by consequently working on that and following that strategy, I think we should be able to achieve our goals.
Coming back to the green loan thing, it took a little bit time in 2021 to sort of get the messages home to everybody in the bank, why that is important, what we can do, and what kind of business potential that is. By now I can only say that our people in origination, but also in credit risk management are fully behind that. The big challenge is perhaps not so much the bank itself and the origination side of the bank. The challenge is to get the clients aware of the challenges which they have if they don't comply with green standards and what it means to the value of the property and what they need to do in order to preserve the value.
Because it's not nice if you go to a client and tell him it's, "You need to invest another EUR 10 million," and it chops off another, say, 50 basis points of your property yield, which is already low. But what is the alternative? To have a concept there where with the expertise which we need in green matters, in green criteria, in technical criteria, you need to be very much a technical specialist in order to explain that to your client.
To do all that, I think we are sort of very much at the forefront, not just doing some sort of plain green loans according to some dodgy green criteria, but to do that against conservative criteria, taxonomy-based criteria with a good technical understanding of what the client needs, is the way to take that forward and to make the business happen. Sorry for the long explanation, but I hope it covers sort of your question.
Yep. Thank you for that. Maybe one follow-up, if I may. I mean, you just talked about the size of the markets. I mean, looking potentially at Europe and the market, the products you're targeting, could you give us an indication, at least, you know, like of the size of the new business market in 2022 and in relation to the uptake of 9.5, 10.5? Is that possible or are there just too many moving parts basically to pinpoint that?
There's a lot of moving parts, but if you look at the European transaction volume last year, that was back up to some EUR 225 billion, of which we see approximately half, so EUR 100 billion to EUR 110 billion, which we actually see in some form or the other, where clients come to us and say, "Take a look. Maybe you're interested." Out of that, we sort of whittled this down to something like EUR 10 billion, which we actually transact at the end of the day. The used business is considerably larger. I don't have the number off the top of my head, but that's something which we can give you later on bilaterally. I would have to guesswork now. That's something which we have in the presentation.
Yeah. That's it. It's very helpful. Thank you. Very last one, if I may. On the tax rate, I mean, you just mentioned the deferred tax impact on Q4. You know, with the low profitable year, 2020, the tax rate went up to 24%. Now, we're down on that again. I mean, is it reasonable to again be considerably below the 20% in '22, '23, '24? Or would you rather think that 20% is a reasonable tax rate to apply here and
I mean, the tax rate which we would expect for 2022, and that's sort of the utmost which we get out of our tax people is around 15%, which we would guess for the year 2022. Yes. 2022.
15%?
15. Yeah, not 50.
Yeah.
One-five.
Yeah. Thank you.
Not 5%.
Thank you, Tobias.
Thank you.
We have one further set of questions registered from Philipp Häßler. Before we move on to Philipp, just a reminder, if you want to ask a question, please press nine star on your keypad as we intend to close the list with that call. Philipp, please go ahead.
Yes. Hello. Thank you. Philipp Häßler from Berenberg. Two very short questions. Could you perhaps remind us what you expect from TLTRO for 2020? And also on the current year bank levies, the expenses from bank levies have went up again in 2021. What do you expect for the current year? Thank you.
Bank levies, I think went up by some EUR 3 million, and that is something which is entirely due to the fact that with this low interest policy, the banks in Europe are inundated with sight deposits. So the insurance volume also goes up. That is something which we have to reckon with. We did have to reckon with in last year and probably is also a fact which we will see this year. Whether this is another EUR 2 or 3 million up, I can't really tell you. I would say that's on the upper side. Important to know is that context of the drivers of, or the calibration of bank levy, there is volume is one. Risk is the other one.
Risk profile of the bank or the risk rating of the bank, which was assumed as a calibration factor, has not changed. It is entirely due to the fact that in Europe, the deposit insurance schemes still expect the insurable volumes to go up further. On TLTRO, that's relatively easy. We contracted EUR 8.4 billion by the mid of last year. If you take that as a basis of your calculation and take 50 basis points, which we sort of get returned from that is the per annum figure, which you can apply. Now, this will be paid throughout the first half of 2022, and then we'll reduce to zero thereafter.
We get only half of the benefit this year and the other half sort of peters out next year.
Okay. Thank you.
As we have no further questions registered, we are prepared and ready to call it a day. Thank you very much for joining us today. We appreciate your interest, and we'll certainly be back with Q1 results in mid-May. Thanks again and take care. Bye.
Thank you. All the best.
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