Good afternoon, everybody. Let me jump directly on page four, where I would like to highlight the key messages. First of all, if you look at the numbers, we had a steady growth in almost all business lines. Operating profit as well as net profits are up 4%. Looking at the numbers, this is the best result in the last 12 years. If we don't take into account 2005, 2006, and 2007, which were affected by extraordinary products following the recapitalization, 2019 is the best ever profit for BCV since 1845. Based on those results, we will suggest or propose at the general assembly to increase the dividend by CHF 1 according to our distribution policy we disclosed, I think, something two years ago. Finally, Thomas will highlight also the second proposal at the general assembly to go for a 10-for-1 stock split.
Let me go on page six. You see the different, let's say, volume growth. Maybe comment on mortgage. We're back at 4%. I think last year we had something like 3%. In the previous year it was inferior to 4%. 4% is also the growth in the market in canton Vaud. Switzerland is something like three point something, 3.5, and Vaud is growing slightly more rapidly. I think we are back at a growth rate in line with the market. I would like to stress that we haven't changed our credit policy or criteria. It's more due to a more, let's say, aggressive sales force approach, as well as some commercial, let's say, initiatives and some price reduction that we see then definitely in the margin.
After a couple of years where we had a growth which was below the market, we decided that we don't want to lose, again, market share for next couple of years. We want to stay at a market share of roughly 30%, and this is why we decided to slightly decrease prices where it was necessary in order not to lose businesses and to be more aggressive on the sales front side. Sight deposits, although there is no let's say, positive rate on those sight deposits since we pay zero. Basically this is still growing. This is clear that if we want to change that, we would have to pass negative interest rates to a retail customer as well as SME, which we don't want to do for the time being. AUM, +12%, of course, there is an impact of market performance.
Thomas will go into more details. The rest is quite stable. On net new money, I think you can read for yourself. This is on one part individuals, but mainly institutional and large corporate, but mainly institutional. Page seven, I'm not going to comment. Directly on page eight. Our four business lines, the first is retail banking. The growth is 4%, totally in line with the market. Customer deposit is high, +7%. This is due to kind of arbitrage from the customer. Not between banks, between the market and the banks. Clearly for many retail customer, they're not happy with 0%, but they are nevertheless quite happy to make sure that they get their money back in two years at the same amount, even though they don't get any interest rates. That will continue, I'm quite convinced about that. Revenue, quite stable.
You see here the price pressure on the margin. Definitely, you see the volume going up at more than 4%, and the revenue is only at 1%. I think you have exactly the same trend in every single bank in Switzerland as far as interest revenues are concerned. Operating profit, +28%. There is a part which is basically cost reduction in the business line as well as some changes in the cost allocation between divisions. Okay. Corporate banking, three different, let's say, messages, quite strong growth in SME, as well from the customer side as well as on the credit side. The large corporate, this is always volatile, so significant volatility here. The numbers, they are +8 , but they could be +5 in two months or -2.
You know that we just look at profitability in this business, so the volume are not really important for us. Trade finance, slightly down, on average in 2019. Basically, this is due mostly to the, let's say, the commercial discussion between the trade discussion between China and U.S. This is clear that today in the world of trade finance for most banks, China plays an important role, and this is the same for us, and probably due to the latest health problem in China, we might see trade finance going slightly down in the next couple of months. Actually, we already see some trends going downwards due to the health problem in China and in Asia, and now mostly everywhere in the world. The rest, in terms of revenue and profit, is quite stable. Important to notice here is the quality of the loan book.
Very low new provisioning needs for 2019. Wealth management. Here, I repeat, this is a bunch of different activities. You are in the mother company, the private banking onshore, which is the biggest part, the private banking offshore, the asset management business, and you have also here the subsidiaries, Piguet Galland as well as Gérifonds. Growth, which is not a surprise given the very good financial market last year. Positive net new money, especially from institutional clients. Pension fund being in the French part or in the German part of Switzerland. Quite happy that our, let's say, our office in Zurich is doing quite well. You see also an increase in revenues and operating profit reflecting the increase in volume, basically. We have decided for institutional asset management to implement ESG criteria.
This is fully implemented, and we will do the same in the course of 2020 for private clients. Also we have made a rollout of a new application and a new service line for our advisory services for the private customer. Trading. Trading is again up. You remember we always said that this is linked also to the volatility in the Forex market, since most of revenues are Forex-driven. There is no prop trading. This is a customer-driven activity. We had this decrease in the last couple of years. Probably now we have reached kind of a bottom. This is roughly stable between CHF 45 million and CHF 50 million.
Quite stable in terms of Forex, but some, let's say, small gain of activities in structured products and fixed income, but this is quite marginal compared to the main activities, which is basically FX trading for customers. That's it for the business. I'll hand over to Thomas for the detail on the financial numbers.
Yes. Hello, everybody. I am on page 13, with the income statement. Well, the overall picture you know, +2% of the income, 4% operating profit. I will come back to the different sources of income and the different kind of charges. At this page, I would like then to insist on the point that starting from 2019, the new tax regime applied, with 13.8% as the corporate income tax. Now, the difference in tax charges between 2018, 2019 actually slightly overstates this change, given that there was net extraordinary income in 2018, which also had its tax part. It is rather kind of CHF 37 million on a comparative basis.
With regard to the different sources of income, while I always insist here that we are happy to state that net interest income is only half of our total income, which is the most diversified situation of a cantonal bank in Switzerland. It is up 2% in net terms, I will come back to that later. Our commissions are up 2%. Actually, we must take into account that, of course, on the wealth management part, there was an upside given the higher market valuations. It was slightly slowed down, this increase, given, as mentioned, Pascal, the trade finance was little bit lower than the year before. Keeping in mind that trade finance has as well our interest income as commission income.
Here you have trading total revenues from an accounting point of view across the bank, not from an initial point of view, what Pascal just has been showing. The comment is the same. Well, let's go deep into Net Interest Income. What is obviously, I think, very important to distinguish is what is happening on the interest on the yield curve side, on the commercial pressure, which basically you see in the NII before loan impairment charges. I will comment secondly on the risk element, which is the evolution of loan impairments. On this gross element, before loan impairment, you see that we are stable.
Actually, the dynamics which are going on here is that, obviously, there are still mortgages which are repricing now at lower rates, whereas on the liability side, you understand basically, the deposit prices or the rates repay don't decrease any further. This gives pressure on the income. You add to this is also, as Pascal mentioned, with regards to the commercial pressure, we are a little bit more aggressive. It's not only the yield effect, but also the commercial margin effect, which brings in lower rates on the mortgages. Now, this pressure is compensated by the volume increase of 4%. Which is, of course, a dynamic which is a little bit dangerous because more business, same revenue over time, this will provide further pressure on cost management as this goes on.
The other element, which is the loan impairment, this is the whole situation with regard to risk, credit risk. My overall statement here is, if you take a more broader view on that, is that for years now this is low. It has been minus six of new provisions, net provisions in 2018. Now in 2019, we even see reversals, right? Keeping in mind that there are gross new provisions every year of something like CHF 10 million, CHF 20 million or CHF 30 million, and they are reversed every year of something like CHF 10, CHF 20, something like that. Now, if it turns out that year, the matching of those two gross numbers brings in net reversals, right? It's overall reflecting the positive economic cycle in which we are living. It shows out to be a pretty high number in terms of net reversal this year.
Taking those elements together, we then have the Net Interest Income increasing by 2%. With regard to charges, some comments, right? Other operating expenses, we were able to increase them, particularly on the IT side. With regard to the personnel cost, I would like to draw your attention that there is still the same rigorous cost management. Actually, the increase you see on personnel cost, I would even say, is a good news, because we insourced about 20 IT experts, which before basically worked exclusively for BCV, but were external. By insourcing them, we already basically take out their margin and their VAT, which is always an improvement. We can even manage them more efficiently. This will work through the balance sheet.
I don't want to get into technical elements here. The overall effect on operating result is positive, even if you see a personal cost increase. Depreciation and amortization slightly up, reflecting our positive development of digital banking. Headcount, well, basically here is the same point I just mentioned before. The 20 people coming, joining us and which explain the increase in headcount. Total assets, well, the same story, continued story, right? Increase in cash and equivalents at the Swiss National Bank, and liquidity at the Swiss National Bank, given that on the liability side, we have an ongoing inflow of deposits, which Pascal comment already.
On the business side, we have the 4% increase in the mortgages. Loan and advance to customers were rather flat, because on one hand side, we saw the very positive developments on the SMEs, but as mentioned, trade finance, which also is a balance sheet part, is a little bit lower. On the liability side, I mentioned the inflows on the deposits. Even if you will see later our distribution policy, there is an ongoing increase of shareholder equity up 2%. assets under management. Right. Well, of course, for all actor in the market, beautiful market performance, adding CHF 6.4 million to our total assets under management. We were able to do net new money of CHF 3.8, of which there is Well, on the onshore side, the CHF 4 billion up and CHF 1.7 from the private customers and the SMEs.
They represent the kind of continuous inflow of net new money. More volatile are the large corporate institutionals, which show up at CHF 2.3 billion, but this is a very volatile number. Still a little outflow on the offshore, but the strategic refocusing, which we had mentioned in the previous years, is done. Capital ratios, while beautiful, I guess you agree with me, still about 70%, and the leverage ratio above 6.3%. On the LCR side, I can really say we are above target here with regard to the LCR, given the inflows of the deposits. Also the systemic sight deposits are on the interest to fill up our account at Swiss National Bank, because as you know, we have a franchise there, where for a quite significant amount, we can put money there at zero interest rates. With regard to dividends, right?
Basically, most of you follow us annually, and well, you see, we walk the talk, right? We told you that the new tax regime, right, basically means that we pay kind of CHF 27 million, CHF 28 million less taxes, and that we will bring that back to the shareholder. Actually, this new tax regime, this increased tax charge means CHF 3 per share. Our new proposal is CHF 33 + CHF 3. If you take where we have been before, I'm not looking at 2018, which has been marked by excellent income. I look at 2017, we were at CHF 33. Now we do + CHF 3 , and it's CHF 36. That's what we have been explaining for a while, and that will be proposed to the general assembly in few months.
Basically, we lift our search horizon of our distribution policy, which now is between 34, because it started in 2018, before the new tax regime, and 38. Now we have been reworking our business strategy, and Pascal will comment more on this. We have in that same time also restated our strategic financial targets. As we go forward, first of all, we continue at a cost-to-income target at 57%-59%. There comes something which we must admit we have always been a bit complicated on that point, but it's a very interesting point. There comes a point where we say, basically, this bank would be perfectly capitalized at 13%, and we call this minimum equity level or minimum target level. Which means that economically speaking, the equity which is above 13% is excess capital, right?
If you consider the balancing of a bank as a production unit, you need those 13% for this bank to be run on a solid base, and basically the corporate value should include that. You could add on the corporate value CHF 500 million for the excess capital. It is very important, and it's a little bit theoretical, but it is really significant because annually we do capital queries, very aggressive stress tests. Not the kind of ECB stress tests, but real stress tests. They always confirm that this bank would be perfectly capitalized at 13%. It's an important message.
I apologize, but the theoretical game continues a little bit, because then we say that if we had the situation on the accounting side, that our capital would be at a level that our CET1 would be at 13%, then that at minimum target, our ROE target is 35%-45%. I will immediately answer a question you might have. If you do that kind of calculation game by end of 2019, our ROE at minimum target equity is 13% right now. Okay? Well, maybe you may have further question on that in the Q&A later. This was the part of real tough financials. We get more into the soft part, right? Because all of you know that the stock split has nothing to do with corporate value or with financials, and makes no change in the value of the company.
We decided to do a stock split, and as part of the initiatives and the things we have been reviewing, given that we have been reworking our strategy last year, it is not a thing we would have started on its own. We said, okay, it would be a good point now to do this share and the split one to 10, because basically on the Swiss market, we would be closer to comparables, banks comparable, which are quoted and which are significant as a bank stock in the Swiss market. Secondly, there is also an argument that we might broaden our private investor base because for private people, it is easier to do a decision to buy a stock of CHF 80. It is easier to manage this private portfolio, where you can increase and decrease your portfolio by CHF 80 instead of CHF 800.
Maybe this in five or 10 years will even create more private investors and more identification with the shareholder approach of BCV within the local media. That's very easy for you, very easy to understand. If accepted by the annual meeting, it will be effective by 28th of May. On 28th of May, it will not be a stock crash, but a split.
Okay, thank you. Let me go very quickly on the next slide. As I mentioned in our last call, that in 2019, we were in the process of, let's say, checking our strategy, revisiting our priorities. I think it's a sound exercise. The last time it was 2013, 2014, so five years down the road, I think it's not bad. It doesn't mean that we don't think between those five years at several initiatives, given the changes in the environment. Nevertheless, it was in-depth thinking, but as I told you also that you should not expect huge changes because, I think we have a clear strategy. We are a cantonal bank, so we know what we can do, what we shouldn't do. The business model is quite clear. Basically, as I told you, there is not a lot of changes. Maybe a couple of points.
If I try to imagine BCV in 2025, take a picture of BCV 2025, what I would like to see. Basically, I would like to see something very similar compared to today on a couple of strong fundamentals: being the business model, our customer franchise, our strong financial, and very solid governance, a very good well-functioning executive board, and board of directors. That's basically the fundamentals that should not and will not change. I'd like to improve, to put BCV on a new S-curve at a better level, in six dimensions. First of all, the customer service. As you know, this has been for the last five years, a priority. It will remain a priority. I'm convinced this is a key differentiator for a bank like BCV or for any continental or regional bank. We decided to start this journey five years ago, and that will continue.
Second is basically everything which is linked to digital, so multi-channel distribution, mostly focusing on digital. This is nothing new, but this is a priority. The third point is, I think, something that we can do better. We are basically the largest bank in Canton Vaud, also in the French part of Switzerland. We have all business lines, which is not the case of some competitors. This is certainly the case of UBS and Credit Suisse, but this is not the case of Raiffeisen or PostFinance or some private banks. I think we should better leverage, let's say, the synergy between our different business lines to try to tap some opportunities. We want also to increase our value proposition towards employees. There is really a war, let's say, for good banking employees.
It's amazing to see that young people are not, as it used to be, attracted by banking, by finance, less than before. It's more difficult to recruit good people, here we have to be more attractive to make sure that on a long-term basis, we keep the best guys, because this is quite key in a sales business. We will also carry on what we did in the last couple of years. To do some process improvement, process streamlining, where we believe there is potential for automation, for standardization, and to try to get some productivity improvement. Finally, everything which is linked to social responsibility being in the direct manner that we've done for a long time. Climate consciousness, trying to improve our carbon footprint, those kind of things.
Also now more and more on the indirect part, i.e., trying to support our clients, our customers, to do their part also for the environment or for the society through some products being for institutional investors, also for private customer. For example, mortgage, we will launch in the course of 2020, some product mortgage with some advantages in case the client is investing in climate-friendly equipment for his or her apartment or flat or whatever, or house. We believe this is a trend. The demand is not that strong for the time being for private customer, but I'm convinced that it will come in the next two to three years, so we want to be ready. Finally, to tell you, although we could imagine that this is a kind of boring, unsexy firm, this is a cantonal bank, but we have a clear target of growing.
We will never grow at 10%, but we will carry on growing 2%-3%, steady growth, very sustainable growth, like we did, I think, in the last 15 years. We carry on on that path. Now, maybe second chart on strategy. We have revisited the objectives in terms of growth or in terms of market positioning for our different businesses. We believe that in some areas, it will be difficult to grow more than the market. In retail banking, we already have, I don't know, 35%-45% market share, depending on the product, on the business line. For example, here we want to grow at the market pace. Which is already kind of a challenge given some new potential entrants, given the strong competition in mortgage in Switzerland right now. We believe that in some areas we can target a number of market growth.
When I say above market, it means maybe 20%, 25% more than the market. I'm not talking market would make 3%, and we will suddenly grow by 6%. If the market is at three, probably, we could target four. Some businesses, in terms of volume, for us, this is not a priority. Priority is clearly profitability. If growth is profitable, we will grow. If growth is not profitable, we will stay at the same level or maybe downsize if necessary, which is not the case for the time being. Clearly those four businesses that you see here, profitability is the main target. The offshore activities, as you know, given the current situation in terms of market access for Swiss banks, it's quite difficult to imagine growing without taking huge risk. We don't want to do that. Basically we have existing franchise.
We have some customers, they are all now tax compliant. Everything is fine, is okay. If we don't get market access, which Swiss banks will not get for the next five years, I believe, it's very difficult to grow this business. The best we can do is to try to manage a normal attrition that will take place every year by, I don't know, 2%-3%. There is a trend here, a slight decline going forward in those offshore activities. Okay. In terms of economic numbers, how we see the future, you see here the estimate in January 2020. Those are the numbers of December. They were published in January, but they are December numbers by Lausanne University and some economic people. I don't believe those numbers.
Given the latest news on the coronavirus, I think we will see a decrease in growth, in China, definitely also in Europe. I don't know how much, you don't know either how much, I believe that we will rather be 2020 between 1.2%-1.4% instead of 1.5% or 1.7%. I don't expect, at least as of today, being below 1%. That means this is basically kind of, let's say, continuation of the current situation, ±0.5%. In terms of real estate, this is the same picture as six months ago. It means basically, prices went up again. They are quite high, I believe. Now they are pushed by the low interest rates. As long as interest rates will not go up, I don't think that the trend will change.
You would agree with me that probably interest rates will remain low for a couple of years. Negative, we don't know, but certainly low for a couple of years. I don't think that here there is a risk short-term or even mid-term of a problem. If there will be a problem in the real estate market, it will become in the, let's say, residential markets, where we see pricing going up, many pension funds buying large house, for private people. Here I expect that if the trend carries on like that means we bid quite a lot and the growth of population is flattening. In the last 10 years, I think we have average growth of population around 1%, 1.2%. 2019, it was 0.7%, I think. You can imagine that the vacancy rate for this market, housing for rent will go up, is going up.
You see that in the numbers. Probably also the, let's say, the promoters. The people trying to buy new houses will also notice that. That means there might be also a flattening effect, going forward. Nevertheless, in some areas, we can already see that the vacancy rate is above 2%. If there would be a problem in real estate, it would come from a too large supply and not from an increase in interest rates. I think that's important to notice. Basically, we will carry on the same policy, target growth 3%-4%, no change in our criteria. This market, which as I believe is quite dangerous, this is the housing, so the house for rent, we don't finance that. This is mostly 80% equity finance today by insurance or pension fund. For us, this is not a problem.
The only problem, there is an effect on the rest of the prices of the market, but we don't have any position in those segments of the market. This is basically equity financed by pension funds mostly. The outlook for me, 2020, similar to 2019. Difficult to say today whether we will break the record or have a new record in our result, but I don't expect to be very far off from 2020. Thank you very much for your time.
The first question comes from Andreas Venditti from Vontobel. Please go ahead.
Yes. Thank you for taking my questions. First one on net interest income. If we look at half-yearly numbers, we see actually quite a difference between H1 and H2, roughly CHF 8 million or 3%. Could you explain a bit this move in By the way, net interest income pre-provisions, obviously, and provide some guidance, what would better reflect a run rate going forward on this number. In this context, you could also help us understand a bit better what impact BCV might have from the increased threshold by the SNB from 1st November onwards. On the strategy update. Thank you for this as well. You mentioned growth of 2%-3% that you would imagine, would you expect to keep on going.
My question is how easy or difficult is it to achieve in your view, given or assuming that interest environment will not change? Also, I think you mentioned that as well, new entrants coming into the market. Maybe if you could elaborate a bit more on this. Finally, on trade finance, you mentioned some impact you're seeing already at the beginning of the year. Maybe you could also elaborate a bit more, provide more details on what exactly you see there. Thank you.
Okay. Maybe I start with the last two questions. The first one on trade finance, or the second one on trade finance. It's difficult to be more precise. My point is that we already see a decrease in the number of transactions. Nothing to do with price. It's really the sheer number of transactions. We have also decided to be quite careful with China, because, see, when you send goods to China, you don't know exactly The boat is coming at the harbor, and then for the time being, there is nobody to take the goods out of the boat because people are confined at home. We have to be careful. I expect that if nothing changes, that our business volume with China will not be zero, but will decrease by at least 20%-30%. China is an important part of our portfolio.
It's not the majority, it's not 50%, but nevertheless, I could well imagine that the decrease roughly, or I don't know, over the year of 10%-15% in trade finance would be possible due to the problem in China. Being more precise than that is ridiculous for the time being. My point was just to say, we can already see something, okay? Whether this is 5% or 2% is another discussion, but people pretend that there is no impact on the economy and on the trade of goods for the time being due to the China health problem. This is not true. We can see it. That was the question on trade finance. The other one was the 2%-3%. Very good question that you asked. I was more referring in terms of volume growth in our main activities.
You're right. If I translate that into revenues, for the interest revenue, that's difficult. That's quite tough to be very precise. What we want to achieve in the minimum terms is to try to offset the, let's say, the pressure, the reduction in margin by volume growth. We will not change our criteria, loan policy. That would be completely wrong. Also, as you mentioned, the SNB has modified.
Thresholds
The threshold on the basis for the threshold calculation. That will help us as well. I expect rather here kind of a stability in the coming months. What I was referring about 2% to 3%, it's a kind of strategic growth. It's clear that this is totally influenced by interest rates. If you don't take, let's say, a pure financial analyst view in the next 12 months, if I may say so, but I take a more strategic, let's say, CEO perspective for the bank. I wanted to mention that I don't expect BCV making a 10% growth, but I don't want also BCV to make a 0% growth. We are committed to have a sustainable growth of around 2% to 3%. I hope that answer partially your question. Maybe Thomas?
Yeah, okay.
Thank you.
I take the first question. The decrease in net interest income in the second half of 2019 was clearly linked to the slowdown in trade finance. Going forward, Pascal gave already part of the answer, that effectively, there is a positive impact of an increased threshold of the SNB, which is slightly up. We don't communicate those numbers, but it has a positive impact, but it's one digital number. Of course, this uncertain variable, which is the trade finance income, is difficult to comment. The comments have been made. Currently, the expressor is coronavirus. These things can also change in three months, so it's an open question. All in all, you see there is a positive effect coming from the threshold, which makes us confident on a continuous development of interest income.
Thank you.
The next question comes from Stefan Stalmann from Autonomous Research. Please go ahead.
Good afternoon, gentlemen. I have three questions, please. The first one, starting with your strategy slide number 27. If I look at the businesses that you discussed there, is your approach in any of these businesses changing compared to what you have done in the, let's say, the last five years? Is it basically business as usual in most of these businesses? The second question goes back to the point on the deposits, where we have seen quite remarkable growth in the second half of the year. It seems that a lot of them are actually coming from corporate deposits, and also if I look at the LCR disclosure, from less stable wholesale deposits, so basically large corporates.
I'm wondering whether this signals that you are less aggressive than your competitors in imposing negative interest rates. I don't know if you could comment a little bit on that. Also, I'm wondering, you basically took in about 1.5 Billion more deposits in the second half of the year than you granted loans. I was wondering if these CHF 1.5 billion of additional excess deposits in the second half were actually losing money effectively. The final question is regarding credit quality. You have seen quite a remarkable decline of your impaired exposures during the second half of the year. A lot of this has come from portfolios with a lot of small exposures like retail, SME. I was wondering if there's any particular cleanup effort going on or if there's anything changing definitionally that would explain this. Thank you very much for the moment.
Let me take the first question on the different businesses. This is business as usual. We want just to put more emphasis and to put more resources where we believe we can grow faster than the market. In terms of activities, product, market approach, this is business as usual. The second question, I think you've got a point here. Probably we are slightly nicer than some competitors in terms of negative interest rates, or the application or the transmission of negative interest rates. I can tell you we look at that every two months. We are right now in the process of pushing that further. This also helps to achieve, let's say, without losing revenue due to market pressure in terms of margins. Overall, I think you're right. We could be a bit more aggressive. This is right. You have a third question.
What was the third question?
Credit quality.
That's the fourth one, credit quality.
The less aggressive.
I guess the question 3B was whether you actually lost money on these excess deposits that came into the bank in the second half of the year.
No, I think those are. It's difficult for me because we have one important client. You could imagine who. That makes huge volatility in our business. It comes back.
It's a AAA rated canton
There is no risk, but those huge swings are due to this single customer, which, by the way, pays negative interest, also. The last one for Thomas, the credit quality.
Okay. With regard to credit quality, very clear answer. No change in definitions and policy, no cleanup action. This is really due to the match of what happens with regard to new provisions or increased provisions on a gross perspective, and what happens in terms of reversals, on a gross perspective, and adding those things up together turned out to be a net reversal. I want to pinpoint you to one element. That is that when we have a credit loss provision on off-balance sheet exposure, it is on the operating provisions line because we cannot put it on net interest income.
Right.
If you look down on the P&L, there is an effect which kind of diminishes a little bit this net reversal.
I see.
It's still marginal. As a matter of fact, it's still a net reversal. Which is, honestly, if you think in orders of magnitude, where we have gross provision needs additional, kind of CHF 30 million, CHF 40 million a year, or sometimes CHF 25 million. In front of this, we have net reversals, which can be CHF 15 million, which can be CHF 25 million or CHF 30 million.
These are independent numbers, and by the end of the year, you add them up and you get the distribution, which is somewhere between minus CHF 10 million and plus CHF 10 million. The bottom line of this whole story is this economy is evolving very positively. We are in a positive cycle here. This economy is doing very well. That is really the key message. 2018 already was very good, a minus CHF 6 million. 2019 is very good, plus CHF 10 million. I always comment that the over the cycle number is a credit loss cost, net cost of kind of CHF 10 million, CHF 15 million. We are in a very positive cycle, as a matter of fact. This was now a particular outcome.
Could I maybe just follow up on this, Thomas? I was actually mostly curious about the fact that your impaired loans went down so much during the second half, so independent of how you provisioned for them. The impaired loans were down, I think almost 15% versus June.
Yeah.
That came from portfolios which typically don't move around so much. If you have a large exposure in a corporate and that goes impaired or not impaired, that makes a difference. If you have a retail portfolio where your impaired loans go down by 30% in six months, I was wondering if there's something else at play, whether you had a particular.
As a matter of fact, even in the retail portfolio, you have mortgages which even at my provision level had almost no provision because the real estate in front was really enough in value. The workout succeeded, right?.
Right
Impaired loan can then be CHF 5 million-CHF 10 million, and was resolved.
Okay.
With regard to small numbers already, this is quite significant.
Yeah.
The point is also that in the impaired loan portfolio, we have a couple of large positions. If you clean one up, then you have the impact. Looking today, private customer, so basically mortgage customer, in their loan, this is almost nothing. It's mostly SMEs, corporate, and trade finance. If you just clean up one part of a position or the whole part of this position, that has an impact on the number.
Okay.
Okay.
Good. Great. Thank you very much.
Thank you.
The last question comes from Javier Lodeiro from ZKB. Please go ahead.
Yes. Hi. My name is Javier Lodeiro. I have a couple of questions. First of all, on the strategic objectives you have said. As I understand, it's more like evolution rather than revolution, but could you maybe elaborate if there will be some related costs which should be taken into consideration with this strategic objective? As well, if at some point in time you could see some kind of a revenue impact as well? The second question would be on the Expected Credit Loss which has been launched in November or December. I don't remember the month, but as I understand, there is really a large time frame until that becomes really live. Maybe you have some first considerations you can share with us.
The third question would be, if looking at the funding situation, this goes back to the other questions on deposits and to staff, bond fundings have actually declined by 2% throughout 2019. I've seen a lot of cantonal banks, a lot of retail banks launching bonds at really low launch yields. I was wondering if this is more a coincidence or what is just your view on funding with bonds, if that could be more of an issue for 2020? The last question, if I may, would be on your anniversary, your 175 years anniversary. I was more thinking if there could be any chance to have a special dividend in the current year. Sorry.
Okay.
Objective in term. No, it's a good question. Everything is included in the target. I expect really a continuous development of BCV, in the same trend as we had in the last 10 years. You see? We will get some new initiatives that will bring revenues. At the same time, probably revenue on mortgage will decline due to competitive pressure. We don't know exactly what's going to happen with negative interest rates. On the cost side, we will increase our investment in digital, that you can see in the amortization, but at the same time reduce our cost in the physical network, in branches. Basically, this is a whole. If I take everything and consider everything from an holistic point of view, we will carry on with the same kind of economics.
That was my statement when I said, if I take a picture of BCV 2025, I don't believe that we will get a cost income of 50%. We will be roughly in the same numbers as today. We will have the same kind of financial performance as of today, I hope, with some growth due to the five passing years. That was the question. For the anniversary, what was the question?
Dividend.
Dividend. That's a good question. We thought about it. At the end, we said no. There is no direct link between basically the dividend, the anniversary. We will do something for our employees, for our customer, for our client, and also the public in Canton Vaud. From a shareholder point of view, don't worry. We will not spend that much money. We will not build a kind of-
Telecabin
cable car above the lake. Don't worry.
I understand that.
We're talking about a couple of millions here. This is in the number. It will be low profile, but nevertheless, we want to be festive. We want to thank our customer for being faithful. We want to thank our employees for working hard. Also we want to thank the public of Canton Vaud to help BCV every day, basically. Nothing special.
Okay. I come back to more technical stuff. Expected Credit Loss regulation. That's big fun for us, because basically, it doesn't change anything for us. I remember you that we are an IRB bank. I remember you that our CET1 ratio is built on equity, which already has a deduction for Expected Credit Loss on the total loan book. This doesn't change anything. Which I'm saying is the CET1 ratio actually takes less equity into account as what is our balance sheet published. The only thing which will happen is our published balance sheet will show slightly lower equity and more provisions, and for the CET1 ratio, no change. On a technical side, we are fully prepared, obviously. This will be very smooth, and with no impact on the results.
Okay.
The third question is with regard to the funding. Well, marginal fluctuations, no change in style.
Okay. No change in style. Shall I interpret it more than the like 2019 was a little bit a rather exceptional year where bond funding actually decreased, or is it?
I think we didn't issue a bond, I think, a public bond in 2019. I think we did it 2018. We might do it in 2020. It depends on the condition of the market. Nothing to worry about or nothing to notice there.
Okay. Thank you very much.
Thank you. I think we can end the call. Hello?
There are no other questions, sir.
Okay, I think we can end the call.
Thank you.
Thank you very much.
Thank you very much everybody.
Bye-bye.