Good afternoon, ladies and gentlemen. I'm here with Edgar, Tadej, Ganesh, and Constantin. It's a pleasure for us to welcome you to the Presentation of the third Quarter Results of Addiko Bank. We have prepared the following agenda for you. I will start with the key highlights of our third quarter results and give you an overview of the key developments. Ganesh will update you on the positive progress we made on the business side. In the second chapter, Edgar will provide you with more details on our financial performance and the way we work through the market's perspectives. At the end, I will do a quick wrap-up and give you an outlook before we finally move to Q&A. Let's start with the highlights. The third quarter was a very positive one in terms of progress on the business side.
This led to a third quarter result after tax of EUR 7 million. As a consequence, the year-to-date net profit doubled from EUR 9.6 million in 2021 to EUR 19.6 million in 2022, and our earnings per share rose to EUR 1.01. Our cost of risk amounted to 49 basis points and EUR 16.3 million, including post-model adjustments. They will share more details on that later on. Our internal tangible equity and the 14.1 CET1 ratio increased to 4.6% with a low 2.1% last year. Our operating results stepped up by 28% year-over-year to EUR 65.6 million as a result of our increased operating income generation and the reduction in operating expenses.
Furthermore, we were able to improve our coverage ratio to 78.8% based on a stable NPE volume of under EUR 63 million. Our NPE ratio of on-balance loans stands at 3.9%. We are happy that our brand repositioning activities are showing traction and that our efforts in the transformation program are paying off. Altogether, it has resulted in a double-digit growth for both focus areas, consumer and SME business. In addition, it led to a positive momentum in net banking income and our new focus business grew significantly, 30% year-on-year. At the same time, we intentionally reduced our non-focus business by 34% since year-end 2021 in line with our strategy. Our funding position remains stable and solid with EUR 4.7 billion customer deposits and a liquidity coverage ratio of almost 250%.
Our technical situation is very strong at an IFRS nine fully loaded CET1 ratio of 21.3% compared to 18%-18.8% end of June. This improvement is based on ECB data for structural effects and on the mandatory reclassification of parts of our loan portfolio based on our changed strategy. More on that on the next page. According to the definition of our new business strategy last year, we changed our ALM strategy, our treasury strategy with the aim to mainly invest in long-term, high-quality bonds to generate different income until maturity without interest earning. Hence, we had to review our accounting approach. Confirmed by the expert opinion of our group auditor, we came to the conclusion that we must reclassify our treasury portfolio in the EU and in legal entities.
This accounting change is currently in the approval process with the Austrian regulator. Edgar will give you more background later. Let me also share our expectations on the extra page changes which will be effective from the third of January 2022. From today's perspective, we anticipate no material changes in our CET1 requirement and a P2R guidance of around 3.25%. We will receive the final results before the end. I would like to inform you that after the share buyback program later this year, we will prepare a new share buyback program to be used for all purposes in accordance with the authorization of the AGM, which we will put forward for renewal in 2022. Concerning ESG, I can tell you that our broad action plan is well on track and our new ESG policy is in the finalization phase.
We will publish it together with the year-end results. Let's move to the business environment. The elevated inflation putting pressure on costs does become more and more visible. An improvement of the macroeconomic environment is also not predictable for the time being. Consequently, we recalibrated our criteria. In addition, we continued repricing activities, although in some of our markets, many direct competitors are still waiting to act on that front. Nevertheless, they're quite positive, we are quite positive that we are able to continue our growth path with our focused business despite all of these limitations. Let's look at the current development more in detail. The definition of the new business strategy last year, we changed our M&A strategy with the aim to mainly invest in place. Our transformation program is paying off also on the business side.
Also, we intentionally decreased our medium SME business by 16% to reduce concentration risk and improve margins. We did achieve a 10% growth rate in our focused book in Q3. Without the medium book, we increased it even 15%. Our new business generation went up 30% year-on-year. The focused book grew by another three percentage points in the third quarter to 81% of gross performing loans. This development was driven on the one hand by a strong 10% increase of our consumer book since year-end, and on the other hand, by a 27% jump in our micro and small SME book. All of that has been achieved based on our proven risk approach and newly calibrated underwriting criteria to reflect the macroeconomic environment.
Now, on the back end, I'd like to hand over to Ganesh to give us more insight on the business development.
Many thanks, Herbert. Good afternoon, everyone. As Herbert mentioned, I'm pleased to inform that our transformation has produced strong business results in the third quarter despite the challenging macroeconomic environment. On page six, I would like to highlight quarterly results in the focused areas consumer lending, followed by our priorities in Q4. As a specialist in consumer lending, our strategy is to grow active customer base with low- ticket size loans in our partnership and digital channels using speed and convenience as a USP. As a result, we were successful in driving substantial 150% growth in new customer acquisition compared to last year, complemented by strong repositioning and marketing campaigns.
Furthermore, our upselling of acquired customers through our brand channels and new business generated by newly signed 200 partners this year has incrementally contributed to a 27% growth in our gross disbursements, from EUR 373 million to EUR 475 million compared to last year. Additionally, we also cross-sold acquired customers with account packages, insurances, and cards to deliver 16% year-over-year net commission growth. We believe card sales number, which grew 78% year-over-year, is also a key long-term income driver. Last but not least, with elevated interest rates and inflation, we have gradually increased the fees for the services and prices for new books as a first mover in the market. We will continue to build on these achievements by further improving the frictionless and fast lending with whenever and wherever financing needed to make customer lives easier.
On the SME front, our key focus is to scale lending to underserved micro and small segments through our digital platform with the speed as a clear USP. We are working on further automating our end-to-end digital lending platform for micro and small SMEs to enhance it and bring new functionalities to make our services faster and even more convenient for our SME clients. Overall, we are seeing more exciting results in our micro and small SME loans. Our customer loans in micro and small area is up more than 38% year-over-year, and this is accompanied by approximately 70 basis points year-over-year increase in newly contracted interest rates in the total SME segment. Based on these remarkable results, we achieved to elevate our new disbursements in these two segments, an outstanding growth rate of 64% year-over-year from EUR 268 million to EUR 439 million.
Unfortunately, for Q4, elevated inflation, energy crisis, and the geopolitical situation has changed the market conditions, and it is fair to expect economic growth to slow down, and therefore, we need to adapt our business models. We adapt our business model in the following ways. Number one, we are introducing variable pricing and also increasing fixed pricing reflecting the market condition. Number two, our team has tightened our underwriting criteria to be extra prudent. Number three, we are focusing on further improving end-to-end paperless lending capabilities in both the focus areas. Moving on to page seven. Achievements this far. Firstly, technology has been the key enabler for our business strategy. On the consumer front, from expanding our partnerships or enabling Euro or introducing variable price or the card development, and also introducing buy now, pay later with a key partner, the key product with our partner.
Technology has been at the forefront to differentiate us from the competition. The same is true for SME. We have introduced a new mobile app in Croatia, followed by enabling variable prices and seamless integration into a lending system. We are working on further optimizing our paperless end-to-end lending model. Secondly, we also focus on reducing our IT vendor and bank costs. We have roughly saved EUR 1 billion so far compared to last year. Last but not least, technology has been a pioneer in driving operational excellence, one of our focus topics going forward. Moving to page eight. Now let's take a quick look at the progress of our work on the Addiko ecosystem.
I would like to highlight that we are on a good path to deliver our vision to become the best specialist bank in the region, and we are convinced that Addiko ecosystem is the key to achieve the specialist status. As you can see on the slide, we've already implemented four of our top tier ecosystem priorities in 2022. Fortunately, they are positively contributing to the excellent results in customer acquisition. Furthermore, we are working on fully digitalizing our SME processes and are expecting to launch end-to-end digital lending capabilities in our key markets in the second half of the year. The implementation of all priorities this year will be important step to extend our ecosystem. This will give us also the opportunity for further expansion and to become an attractive plug-and-play embedded financing platform for our consumer related and SME partners.
With that, please let me hand over to Edgar.
Well, thank you, Ganesh, and hi, everybody. Now page 10 to our performance in the first nine months this year. Starting on the left side of the page on the composition of the P&L. Our year-to-date unaudited net profit amounted to EUR 19.6 million, or more than double last year's result for the same period, which includes a quarterly profit of EUR 7 million. The operating results, where the year-over-year increase was further improved to 28%, provided momentum for the bottom line increase during the third quarter. This is due to strong business development that continued in the third quarter on the back of the solid first half of 2022 that Herbert and Ganesh pointed out already.
Net banking income continued its upward trajectory and is showing an improvement of 4.8% year-over-year, with NII further inching up despite the average loan book decreasing by EUR 192 million year-over-year in the transformational bridge year 2022. The positive momentum in NII we started to see in the second quarter also continued in the third quarter, and it proves that our strategy to reallocate capital to the focus areas is working. Together with higher NTI, this allowed us to compensate lower revenues from the reduction of the non-focus portfolio. During the first nine months of this year, we delivered a roughly 10% growth in the focus loan book, offsetting the intentional and accelerated rundown in non-focus as well as low-yielding high ticket medium LTV loans.
In short, we remain on track in the transformation of the loan book. The other income, comprising the net result on financial instruments and the other operating results, continues to be mainly driven by two things. First, lower gains from the sale of financial assets, which is fully in line with our new business and treasury strategy to keep our mainly government bonds until maturity to localize net interest income. Second, higher deposit insurance costs. Now down to operating expenses. Our operating costs are down year-over-year, which also includes EUR 1.8 million costs for the implementation of the euro in Croatia and front-loaded marketing spend on campaigns related to our brand repositioning with the introduction of Oskar.
The other results remained influenced by charges related to active and passive legal claims, including our initial costs for a big claim against Slovenia. Together with the quarterly review of the legal provisions related to Croatia, this reflects the continued prudent approach on legal risks and recent developments as assessed by our legal team. Now the credit loss expenses. In short, portfolio dynamics still remains benign. The post-model adjustment booked in the second quarter to reflect the current volatility remained unchanged in the third quarter. They will provide an update on the main highlights in a few minutes. We go to the right-hand side of the page with the key operational P&L drivers and their development over the last five quarters. As was pointed out earlier, we have positive results from the transformation program on the business side and a strong third quarter.
The chart on the upper right-hand side of the page illustrates further improvements during Q3. In a nutshell, growth in net banking income and improvement in NIM continued in the third quarter, also supported by decent tourism season. This improvement is even more visible when looking at yields as the average loan book is lower by roughly EUR 190 million compared to last year, as I already pointed out. During the last months and within the third quarter, we also see first results from repricing of new business and to some extent, repricing of the variable loan book. Now back to OpEx, which came in at EUR 41.9 million in Q3, while the pure operational run rate was once again beating our previous guidance of EUR 41.5 million per quarter.
While our transformation program enabled us to continue reducing our cost-income ratio further during this quarter, the dynamics caused by inflation are already visible, for example, in staff costs. The spending of the euroization project in Croatia will peak in the last quarter of this year, and we still expect mid-single-digit EUR million one-off costs for it. The significantly elevated inflation across all our markets, as pointed out already, will continue to influence the remainder of this year and be more pronounced in our cost base for the next year, reflecting pressure on wages, cost of energy, and general supplies. While the environment remains challenging, we are, however, confident we can achieve our cost guidance for this year. Open page 11, which illustrates our strong capital position.
On this page, we printed the fully loaded capital ratio in summary view, and we also added the 2022 market value development of a highly affected Croatian government bond in our portfolio as an example, which is the gray shaded area between the waterfall steps. At the end of the third quarter, our CET1 ratio, excluding interim profits, is back to 2021 levels. During the third quarter, we obtained the opinion of our group auditor that the reclassification of the treasury portfolio in our EU entities is mandatory to reflect our new treasury strategy with the reclassification being effective from the first of July 2022.
As established by IFRS nine, the stopping of the old business model, hold to collect and sell, and the starting of the new business model, hold to collect, are both representing an activity significant to the bank's operations. As Ganesh pointed out, this reclassification is currently in the clearance process with the Austrian regulator, which means that theoretically, this could still change. Now to RWA. As disclosed together with our half-year results, we received the ECB's waiver and structural FX during August. The waiver is now fully embedded in our RWAs and allows us to reduce RWAs by more than 90 or 90 million from the roughly 150 million increase related to that topic earlier this year. That all leads to a fully loaded CET1 ratio of 21.3%, while the transitional CET1 ratio stands at 21.8%.
To summarize, a strong capital position with substantial buffers, while these ratios do not include interim profit or accrued dividends. Without the reclassification, the CET1 ratio would have decreased from 21.3% to 19.1% on a fully loaded basis. Now, Retail CEB, as disclosed earlier, we expected the results of the comprehensive assessment stress test, so the CAST, which is showing a high capital depletion in the adverse scenario to have an impact on our P2G. Therefore, our current expectation is that the P2G for the next year will come in at around 3.25%, while on P2R, we don't expect any noteworthy change as Kevin pointed out already. To conclude, the current capitalization continues to provide significant headroom. Let me now hand over to Tadej for an update on risk metrics.
Thank you very much. Let's start with the credit risk metrics on the slide 12. On the left side of the slide, we can see that the NPL volume remains stable on the previous level of EUR 483 million. In fact, reflecting the NPL ratio of 20.8% or 3.9% based on-balance-sheet, which is in line with our expectations. For the last quarter of 2022, we have several measures in place to further reduce NPL stock. Over to the right side of the page, you will see higher inflows of NPLs during the first quarter of 2022 compared to previous quarter.
This development was driven by a few clients in the SME and large corporate segments, which however do not have a link to major clients recently, but rather defaults that are part of normal business operation. Let me just add here that one of the largest large corporate clients have already been through in October. Looking at the NPL inflows over the year, we conclude that they remain at an acceptable level and were well compensated by good curings. Overall, our asset quality remains at high level and is underpinned by still stable paying behavior of customers. For more information, I will refer you to slide 39 of the presentation.
If we continue on slide 13, credit loss expenses in the first nine months of 2022 were at a level of EUR 16.3 million, resulting in a cost of risk of -0.49% on a net loan basis. In the same period, the cost of risk in our consumer business was at -1.04%, which is in line with our expectations. In first quarter, we saw higher credit loss expenses in SME, resulting in -0.24% quarterly cost of risk. This is a result of previous decisions default clients. The higher credit losses in quarter three are following lower than anticipated risk costs in the first half of the year.
As I commented during our last earnings call, these better than expected developments in the first half of the year, specifically in the first quarter, back to a lower level that we would consider as being the course of normal business. However, looking at the first nine months of the year, credit losses in SME segment are still lower than what we anticipated. The loan focus segment remains the source of provision releases with a positive cost of risk of 0.1% in the first nine months. The post-model adjustment remained unchanged versus the previous quarter and stands at EUR 30 million. They were at EUR 9 million end of 2021, and an additional EUR 4 million were allocated in June this year to reflect our prudent approach in this current, volatile environment.
Again, I would like to refer to the same topic and the consultant fee shared before by Ganesh Krishnamoorthi in his round. We are reviewing our stress testing models that are used in the ECB stress testing. We want to identify areas where we currently apply elevated conservative assumptions compared to market practices and implement solutions that are better reflecting the quality of our portfolio, which we believe could possibly affect future stress testing results, and thereby also PTT. With that, I conclude, and we can hand over to Herbert Juranek for final remarks.
Thank you, Tadej. Let me give you a quick overview of the status of our transformation program. The program is well under way and is approaching its end. We are confident to meet our goals in all three pillars of the program. In the fourth quarter, we will complete the program and in parallel prepare the next steps for 2023. We will update you on the outcome during our next earnings call in the beginning of March. Now let's go to the remarks. We confirm our outlook 2022 on the grounds of our upwards revision in August. Based on the third opinion of our lawyers, we reiterate our expectation that the law will be turned down by Constitutional Court. However, we believe that this decision might take longer as expected, and happen only in the third part of 2023.
Anyhow, the management is committed to prepare an appropriate dividend policy, and we will start an alignment process with ECB at the end of the year with the intention to sign an agreement going forward. Concerning macroeconomic headings, we assume that the current difficult circumstances will stay in 2023. Therefore, we factor that in our planning assumptions for the coming year. We will continue to fine-tune our risk models for sustainable business growth going forward. Nevertheless, the board remains very confident that our business model is sustainable and that it offers attractive growth potential also in the given environment. I, as the CEO, together with my team, will continue to work with full ambition to improve the bank, to create value for our clients and for our shareholders. With that, I would like to conclude.
Our year-end results is scheduled for the 8th of March 2023, and the AGM is planned for the 23rd of April 2024. Now back to you, operator. We are ready for your questions.
Ladies and gentlemen, at this time, we will begin the question and answer session. Anyone who wishes to ask a question may press star followed by one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star followed by two. If you're using speaker equipment today, please leave the handset before making your selections. Anyone who has a question may press star followed by one at this time. One moment for the first question, please. The first question comes from the line of Hugo Cruz with KBW. Please go ahead.
Hi. Two questions really. First of all, thanks for the time. The first question is really around your loan growth. You've maintained a very strong loan growth in consumer, in micro SMEs. Obviously, you know, it's a difficult macro environment with a lot of uncertainty, and you're growing very, very strongly. So, you know, first of all, where are you getting the growth from? Is it the repricing is different from the competitors? Is it different types of products? And second, how do you expect to get, you know, how do you make sure that this growth will not turn into future losses? You know, can you talk to us a little bit about your, you know, credit requirements? How do you make sure basically you are underwriting good risk here?
My second question is really around the you know, you mentioned an appropriate dividend policy. You know, and just wanted to know if you could say a little bit more about that. You know, when do you expect to finalize your dividend policy? What type of returns are you thinking at the moment that you could target with that policy? That's it. Thank you.
Thank you for the question. I have to admit that I barely understood your question because the sound quality is so bad, and I have to apologize to everybody because we also now got some messages back from you that also on your side the sound quality is bad. Apologies for that. What I would suggest, I think Edgar understood the question. Maybe you can rephrase what you understood maybe.
Yeah, sure. Hi, Hugo. I hope you can hear me. I'm trying to speak a bit louder as well. The first question was about, well, it looked like you had some nice juicy growth on the consumer micro and small SME front. Exactly what we have been planning to do and how we ensure that in this current environment we remain as prudent as needed on the risk side so that this doesn't turn into trouble later, right? I think that was question number one. Question number two was around dividend policy, what's the timeline for revamping or discussing the dividend policy. Hugo, can you just briefly confirm if we agreed, yes or no, if this is a great summary?
Yeah, that's all correct. Yes. Thank you.
Super.
I start with the answer on the dividend, and then I will hand over to Ganesh Krishnamoorthi for the business part and put together with the group with Tadej Krašovec. Look, the dividend, as you know, we had a discussion before the Swiss franc loan came out with the regulator. From our perspective, we were already quite close to an agreement how we structure a dividend for 2022. The Swiss franc loan came, and we agreed with the regulator that we don't pay out this year as long as this loan is not clarified.
Now, going forward, we believe if we look now to our capital situation and also to the threat of the Swiss franc loan, we believe that first of all this loan would go away. Number two, if in the case the loan would come, we did a recalculation, and the potential threat would not be as we reported in the first place, about CHF 100 billion, would be rather now based on our new calculations in the range between EUR 85 million and EUR 90 million. So also, you know, if the worst-case damage also would be smaller as originally expected. Nevertheless, we believe that this, you know, this will not come as the loan will be turned down.
That's why we believe also given our business progress and our capital situation that we have a fair ground to pay out a dividend in 2023. Our idea would be that we start the discussion with the regulator on our view on our strategy and our intent by the end of the year. Our discussion will start already this year, and we will see where we will end up together with the regulator. Now I would hand over to Tadej Krašovec to answer the other question.
Yeah, regarding our risk criteria in some certain times or in the situation of the economic downturn, we are taking a several step approach.
By applying the forward looking changes of the risk criteria that are actually based on the predictions of economic growth under a more significant scenario, trying to exclude further business with the client that would have or we estimated would have higher impact. If the economy turns more into the direction that now our current predictions. We have prepared several step plans so that we will tighten the criteria based on the situation in the economy, but not to apply all possible steps or tightening's in the first place. With that, we believe that we can very well manage the prudent approach, but allowing the right side of business in a changing economic environment.
Okay, thank you.
Inaudible.
No, not for me. Thank you.
Thank you.
The next question comes from the line of Simon Ellis with Citibank. Please go ahead.
Oh, hi, everyone. Thanks for the opportunity. Yeah, just to follow up on that and to clarify. On the dividend, you're saying that you're hoping that you will be able to pay out something from 2022 earnings. That's basically what I heard.
So we have the-
I think I got it, Simon. Let me try again to do the sound quality translation. Your question is, if your understanding is correct, that we will try to pay out a dividend out of the 2022 earnings, correct?
Correct. Yes.
Well, as I said beforehand, we have an agreement with the regulator that on the dividend strategy, we need to align with them, and we will start this process, as I said, by the year- end. The intention of the management is clearly to pay all the dividends from the earnings of this year. Of 2022.
Yeah. It's mainly the Swiss franc mortgage loan in Slovenia that's kind of making it a more-
Yeah. The Swiss franc mortgage loans was the trigger point when the regulator, you know, had a conversation with us, and we agreed with him to stop the discussion of the dividend policy.
We believe now with our current expectation of the loan on the one hand, with the reduced damage on the other hand, and also with the situation of the bank in terms of capital and results, we would like to take up this discussion, and maybe we can also. I don't want to, you know, now come to lead into the discussion, but we could also think about conditionality in terms of dividends, because, you know, we need to prepare for the AGM in April this year. As I said, the intention of the management would be to pay out the dividend.
Understood. Assuming that this Swiss franc mortgage issue goes away, I mean, it sounds like you think the total capital requirement will increase, including P2G to 17%, right? So what capital ratio targets longer term, assuming that's the regulatory requirement, do you think you need to hold?
Maybe I start, and I will hand over to the CFO. We are currently in the planning process for the budget of 2023. This shall be approved by the supervisory board in December this year. Connected with that is also a rework of the multi-year planning. Maybe I hand over to Edgar, because he's leading this process on our end.
Thanks, Herbert. Hi, Simon. As Herbert said, we are right in the process of running the numbers in the bottom-up process and, you know, bolting everything together. The target capitalization we would need to look at from two perspectives. One is what's the long-term capital target in that sense, and then of course, how is it influenced from the recent addition of the P2G. This obviously needs to go in sync with what Tadej pointed out before, because if you look at the benchmarking, so to speak, in the countries, for example, Slovenia, Croatia, Serbia, where Herbert stressed that data is available for other local banks, you will see there is quite a bit of a difference in terms of prudence.
We are on the highest prudence level. This comes back to what Tadej Krašovec pointed out before. Now, this doesn't change anything on 2023, but we still need to look at this topic and connect the dots here.
Okay. I mean, I guess what kind of buffer do you think you would need to have above your regulatory requirement? Where would you be comfortable? Would you rather not say at this point?
Well, you know, that's also a part where we have an internal methodology that is done on the back of the consolidated budget and calculated. We currently don't see a big deviation to our former buffers that we have applied. Take this not as a final statement because we are not done yet with the process. Of course.
Okay.
You know, requirements plus P2G plus the management buffer, this is the name of the game.
Okay. My other question would just be on the net interest income, which was quite nicely up quarter-over-quarter. How much of that? It sounds like most of that was coming from loan growth, right? Loan shift, I guess, not rates. I mean, what part was driven by rates? Going forward, can you share a sensitivity of NII to rate moves that we've been seeing?
Sure. Simon, thanks for the question. This is me again. So if you look at the NII improvement, and as I pointed out before, we see a first positive impact, which is not that much reflected in the quarterly NII as such from us pricing higher on the new business, right? That we ramp up. Of course, also first results from the repricing of the variable back book. So I would see the second topic as having a more pronounced impact in the third quarter, but both are relatively small impacts. We should see better impact in the fourth quarter.
Generally, the sensitivity of NII to rate hikes, euro rate hikes that we've seen, can you give us a rough estimate?
Well, we disclosed the last time the sensitivity with the half-year results. We didn't include it this time in the deck. Essentially we said from a half-year perspective over a 12-month horizon, if we conservatively look also on the liability side, we had, I believe 11 or 12 basis points on a 100% parallel shift in NIM.
Okay. Thank you. That's all from me.
Sure.
The next question comes from the line of Mladen Dodig from Erste Bank. Please go ahead.
Yes. Hello, I hope you hear me. I have a really big troubles following the call because the line is going very bad on my side. I don't know what might be the reason, so I hope I will also manage to catch up with the answers.
Mladen.
Thank you.
Mladen, sorry for interrupting. Well, we don't hear anything, but maybe someone else does. You were so kind and sent us in writing over the webcast also the question. Shall we answer them?
Yes. Yes, I did.
Excellent.
I remember that you want to have analysts live in the call. I'm here, but the questions are there, so yeah.
Okay. We will do that.
Your first question was what will happen when the transformation program will be finished? How do we continue on that? Do we adopt a successor program? We are currently in the process of discussing that. You know, if you look to our midterm targets, you see, I mean, despite the fact that we did very good progress over the last one year and a quarter, we still have some gaps to close in order to get to our targets. Certainly we will come up with something new. We are currently in the preparation of this program and we will define the elements.
Our plan is to present it in the beginning of 2023 when we have our first earnings call. That's our clear intention here.
Thank you.
The question is, yields are still declining, so, when and if you expect this trend to reverse, I would like to give this question to Ganesh. Ganesh, please.
Hi, Mladen. Thanks for the question. The consumer yield is decreasing likely because of the spillover effects of the repositioning campaign. What I can assure you the trend will be reversing Q4. As mentioned in the call, first of all, we are introducing variable pricing in the market, which will help us to increase our margins, reflecting the market conditions. Number two, we are also increasing our fixed pricing also, you know, reflecting the conditions. I have to say, I haven't seen so far competition reacting to the conditions. However, we want to be here very focused and increase our margins here.
Okay. You also had a question on dividends. I think we elaborated on dividends already, and we would, you know.
Yeah.
Continue with the answers unless you have any other question. Then your last question is institutions are revising original growth again. Maybe if you could give us a current state of overlay provisions and the potential development. I would like to give this question to Ganesh, please.
Thank you. Thank you for the question. I don't have yet specific answer to that. As mentioned before, the current level of overlay provisions or post-model adjustments is EUR 30 million.
Due to the current environmental activity uncertainty, it is very unlikely that we would release that part. We are, as we are now in the process of finalizing the year, I would say, and preparing for the next year, also investigating if something additional would be needed in these overall provisions, but nothing specific for the time being.
Okay. Thank you very much for the time, for the answers, and once again, congratulations on the successful quarter, yeah, that's all from my side.
Thank you. Thank you.
We have a follow-up question from the line of Simon Ellis with Citibank. Mr. Ellis, your line is open.
Yeah. Hi. The question is about risk weight optimization. Your risk weight density fell over the quarter. Just wondering if there are other things you can do to further optimize. I guess longer term going out, as you increase exposure to consumer and SME, do you still expect the risk weight density to increase and to what level longer term?
Yeah. Sure. Thanks for the question, Simon. Good question. If you look at our risk weight density across the segments, you would find out pretty quickly that our mortgage book has a risk weight of more than 60%, and that our large corporate book is actually close to 100% risk weight. While the focus portfolio, so as you get consumer and SME is roughly around, you know, 75-ish%. Overall, one risk weight of asset optimization is actually running our rundown of the non-focus as well. Of course, once you move towards the midterm target, meaning circa 95%, in focus book without having the releases or risk weight assets, risk-weighted assets reduction from the rundown of non-focus anymore because it's mostly gone, you will have an increase in density.
You know, this is not something we are guiding for specifically in the midterm, but there is no significant component of change to what has been previously disclosed.
Okay. You think the 61% will last into, I don't know, next year?
Well, that's probably a fair assumption, with one addition, you know, about the ECB waiver and structural FX, right?
Yeah.
Which reduced our RWA by roughly EUR 90 million from the initial increase of EUR 150. This is related to kuna and Serbian dinar, so Croatian kuna and Serbian dinar. With Croatia joining the Euro from January 1, 2023, there is another reduction related to that in RWA because of structural FX alone. Besides that, we are actually running an ongoing RWA optimization. I don't wanna call it program because it's part of course of normal business where, you know, every little helps, so to speak, and different pieces are optimized as they are found in this process. I don't see. In a nutshell, I don't see a large scale RWA optimization potential, to be honest, on top of what we are doing anymore.
Okay. Just on the tax rate, can you give a little guidance on where that's going forward?
Well, I mean, our previous guidance on a normalized tax rate of 21% is, I would say, mathematically still a valid one. I know that in the last year where we had quite significant restructuring provisions, for example, and also so far this year, we are at an elevated tax rate, in that sense. I think the reason is very simple, because the taxation happens on the profit before tax, right? Positive profit before tax is happening in our entities. While in the holding, we don't have a positive profit after tax. If you look at before you attach the holding, it's actually lower than 21%. Once you attach the holding, it's currently higher.
On the midterm, we would still stick with the 21%.
Okay. Very clear. Thank you.
We have another follow-up from Mr. Dodig with Erste Bank. Please go ahead.
Yes. I apologize if you already talked about it. I'm really having trouble following. You said that the reclassification within the new treasury strategy happened, if I remember correctly, for the EU positions in EU. Would there be more positive effects than when this reclassification comes also, for example, for the Serbian portfolio of bonds?
Mladen Dodig, thanks. I understood bits and pieces of the sum. It's about reclassification. Maybe I try to answer more holistically from the starting point, and then you let me know if you want a deep dive in one or the other, you know. As a new management which came together in June last year, we immediately worked on what do we need to reshape in the business strategy, right? The business strategy which was approved in December last year is of course in sync with the business plan that was approved in December last year. On the back of that, this already included quite a significant change when it comes to how we deal with treasury going forward.
If you look at our previous numbers in those years, you know, 2019 over 2020, you will see that there were quite substantial financial gains from selling bonds in specific quarters, which for us is not our business model. Yeah, that was maybe years ago the case, but for us it's not our business model. Our business model is growth in the focus group and generating interesting common NTI. Therefore, we went through this exercise to actually align with our auditors or reflect the new strategy also in accounting, because in our view, this change needed to be done.
On the basis of the opinion of our auditor KPMG, the reclassification date, the correct reclassification date, following the decisions on the strategy plan and also on the detailed new strategy, in terms of treasury investment, the first of July was the adequate date for reclassification. Does that answer your question, Mladen Dodig?
Yeah. Okay. Thank you. Thank you. Okay.
I see a question coming from Stefan Glassman on the dividends. That the question is concerning your future dividends, is there a certain payout ratio you are aiming at? Look, currently we have to state that we don't pay out dividends, and we want to start the discussion, as I said beforehand, with the regulator again. Before that, our dividends goal was 60% payout ratio. Look, we now enter the discussion with the regulator. I don't want to come up now with specific numbers.
What I can tell you is that, you know, 60%, I think is something which is clearly doable from our perspective. If I look to our current equity status and the amount of equity excess equity we have, I think we also have potential for more in theory. You know, the final thing, we will let you know when we have closed the discussion with the regulator and when we have achieved an agreement. Then we will announce it.
We have another question from the telephone, which is a follow-up from Mr. Hugo Cruz, KBW. Please go ahead.
Hi. Thank you again. You mentioned that when Croatia joins the Euro, your RWAs will go down further. Can you give some estimate for the potential impact? Thank you.
Hugo, can you repeat that, please? Even I didn't understand.
Yeah. The potential impact on RWA when Croatia joins the Euro. You said the RWA should be going down.
We're not going to join this very soon.
Okay. Maybe I start from the financial perspective. We have year to date EUR 1.8 million booked as costs for the implementation of the Euro project. And EUR 1.1 million alone out of this EUR 1.8 million was booked in the third quarter. If you remember, that's what we guided for, that these costs will peak in the second half. Now, we also guided that the total charge, so one-off costs for this topic, is gonna be in the mid-single digits EUR million amount. You can from that perspective calculate, you know, what the range is that might be booked in the fourth quarter this year.
Now, going forward, and this is also nothing new, but just to remind everyone, we of course will have some impact of, for example, FX DCC income that we will not have anymore from Croatia because there is no Croatian kuna, it's the euro. This is already reflected in our guidance, mid-term guidance that we previously announced earlier this year.
Yeah, but just to follow up, I understood that you said on the call today that there will be a decrease in risk-weighted assets after Croatia joins the E.U.
The risk-weighted assets. Okay.
Yes.
The risk-weighted assets. Okay.
Yeah.
I don't wanna guide you for any amount, but it's gonna be at a low double-digit amount in terms of risk-weighted assets decrease out of Croatia joining the Euro. You will see that not in the credit risk RWAs, but in the market risk RWAs.
You said double-digit amount.
Sorry, I didn't get that. Could you repeat?
You said a double-digit EUR million amount.
It would be a low double-digit EUR million amount in RWA reduction out of that.
Clear. Thank you.
There are no further questions from the telephone. I'll now hand the floor to Constantin Gussich to read questions from the webcast. Constantin, the floor is yours.
Hi. Thank you, operator. We do not have any questions on the webcast anymore. Back to you.
You may want to have some closing remarks on your end.
Yes. Maybe my last comment. Thank you for joining the web call. In the name of the management team of Addiko, we hope that you appreciate the results of the third quarter. We will do our best in order to continue our growth rate and our momentum. We are confident that we can close the year by continuing our progress. With that, I would like to conclude. Wish you all the best and hope that you will be online in our earnings call next time.