Dear ladies and gentlemen, welcome to the conference call of Addiko Bank. At our customer's request, this conference will be recorded. As a reminder, all participants will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions. If any participant have difficulty during the conference, please press star key followed by the zero on the telephone for operator's assistance. May I now hand you over to the Addiko management team who will lead you through this conference. Please go ahead.
Good afternoon, ladies and gentlemen. I would like to welcome you to Addiko's Presentation of the Results of Last Year, 2021. We have prepared the following agenda to you. I will start with the executive summary and refer to the recent events. Ganesh will present you the status on our business transformation activities. Our CFO, Edgar, will give you the details on our financial performance and on the capital position, followed by Tadej, who will show you the risk view. After that, I will present you our midterm targets and the outlook for 2022. Finally, we go into Q&A. We are quite content with our financial year 2021, as our transformation program is showing already visible effects. I will come to the financial key figures in a minute on our next page. Let me start with the bottom line results.
Our net profit for 2021 increased to EUR 13.6 million, after EUR 1.5 million in the previous year, despite a challenging environment. Since 1st March , our capital requirements are significantly reduced based on the final SREP letter. The Pillar 2 requirements went down from 4.1% to 3.25%, and P2G went down from 4% to 2%. Also, we might see some adjustments on P2G depending on the results of the stress test going forward. As said, we see already traction in our transformation program. Ganesh will show you later that the targeted change into a smaller, more profitable ticket size started to work well, while at the same time we were successful to reduce less profitable non-focus business. Our cost exercise, led by the CFO, was also very effective.
The operating expenses for the full year are at EUR 171.1 million, which is EUR 2.9 million better than the guidance. Tadej, together with his risk team, we are also very successful with our special topic, non-performing exposure reduction. They have managed the NPE volume down by 20%. As the CEO of the group, I'm quite happy with the progress, and I can assure you that we will continue with full ambition to work on all streams in 2022. Now, let me give you the additional key highlights of the results of 2021. The net profit after tax for the fourth quarter was at EUR 4 million, supported by a strong new business generation, which was up 15% compared to the fourth quarter in 2020.
Risk provisioning accounts for EUR 13.2 million or 0.4% cost of risk. The operating result went down to EUR 54.9 million, mainly driven by extraordinary effects like restructuring costs and management changes, but also due to regular bonus accruals compared to 2020 as there was no bonus payout. The return on tangible equity at a 14.1 CET1 ratio was at 2.5%, and the earnings per share amounted to EUR 0.70. As already mentioned, the NPE ratio was very actively reduced by the team to 2.9% and to 4% based on on-balance loans. In addition, the overall exposure in moratoria was reduced to only EUR 2.4 million, and the quality of the business portfolio behavior remained quite stable. Tadej will show you the details of this positive development later.
Our NPE cash coverage stood at 71.9% after 71.2% in the third quarter. The funding situation remains solid at EUR 4.71 billion customer deposits with a liquidity coverage ratio of 225%. Our capital ratio is again very strong and improved significantly to 22.2% CET1 ratio and 21.6% fully loaded. On this page, you will find the overview of our guidance for 2021. We want to show you that we achieved all mentioned numbers with one exception, namely the gross performing loans number. The development in this category was intentionally based on the accelerated rundown of the non-focus portfolio, as this made strong sense from the risk return and also from the capital point of view. Ganesh will come back on that later in his presentation.
Now, let me come to recent crucial events in order to comment on potential impacts for our bank. The war in Ukraine caused by the invasion of Russia is a human tragedy which causes enormous refugee movement, deadly consequences on human lives, and a huge economic damage. As you all know, this war has also serious impacts on the financial markets and on the banking system. At the time when Russia entered Ukraine, we started an internal initiative under the leadership of Tadej to clarify potential consequences on our business at Addiko. The important messages in that context are, first, we did cut respective limits to potentially affected banks in time. Second, our direct exposure to Ukraine, Russia, and Belarus is minimal, meaning below EUR 10,000. Third, our indirect loan exposure is in total around about EUR 13 million.
This exposure consists of customer loans with partial business relationships in these countries. All of these loans are currently performing, and we don't see any immediate deterioration. Our risk management is further analyzing the situation and managing these exposures. Of course, the overall global impact of the crisis and knock-on effects, not only for our region, cannot be assessed at this point in time. Unfortunately, it will keep us all busy for the time being. The second external factor which keeps us busy is the unconstitutional Swiss franc law in Slovenia. I don't want to repeat all the topics which I explained in our last extraordinary call, but I want to reiterate that we, as the management, do everything in our power to avoid the payout of the money and to fight this onerous law.
On February 28, Addiko, together with 8 other affected banks, filed an appeal against the Swiss franc law before the Constitutional Court in Slovenia, combined with a request for suspensive effect. In addition, Addiko filed a request for arbitration with the ICSID in Washington against the Republic of Slovenia, a so-called BIT claim. After an intense exchange of our views with the local regulator, the Bank of Slovenia, they filed an appeal before the Constitutional Court in Slovenia, and also the government of Slovenia issued a five-page argument in favor of suspending the law. According to all our lawyers, Slovenian and international ones, based on the Slovenian and on the European legislation, one must expect that the court has to decide in our favor. Edgar will give you more background on this in his presentation.
Let's go to the macro picture of our region. The positive message on this chart is that in 2021, the growth rate exceeded previous forecasts significantly. We expect that this trend will continue. We still believe that our region will do better than the euro area on average. One aspect in that context was also how people handled COVID-19 and how they limited the impacts on the local economy in 2021. Nevertheless, we believe that inflation will further gain momentum driven to a certain extent also by the conflict in the Ukraine and the respective consequences on energy prices. Despite all potential macro impacts, we stay quite positive on our business model. Why? That you will hear now from Ganesh.
Many thanks, Herbert. Good afternoon, everyone. I'm glad to share some progress around business growth in the next few slides. On page eight, I would like to highlight some key messages about our focused loan book development. Our focused loan book grew EUR 94 million and delivered 4% year-over-year growth due to the fact the large exposure and the low-yielding SME medium businesses was run down consciously in Q4. However, excluding the SME medium business portfolio, the loan book grew 9.5% year-over-year. The positive trends are also reflected in the new business growth in lending, which is up by 34% year-over-year. The current focus book represents 74% of the core-performing portfolio, and our midterm ambition is to escalate to around 95%.
On bottom left side of the page, you could see the effect of reduced lower yield SME medium business portfolio getting compensated by the growth in high yield micro and SME businesses. Moving on to page nine. On the non-focus portfolio development, we took a decision and defined strategies to run down less profitable and large exposure corporate and public portfolio faster than planned. We are seeing the first effects of the non-focus portfolio reduced by EUR 411 million, which is -33% less year-over-year. We believe in the short term, it will reduce income generation. However, in the long term, this will help us to free up our capital, improve our yield, and increase our focus in our core segments in consumer and SME. Moving on to the next page. 2021 has been a foundational year for growth transformation.
In this page, I would like to highlight three key transformational growth initiatives in 2021, followed by an update on revenue levers. Firstly, we launched best-in-class and digitally initiated loan origination capabilities in all markets. This channel has not only provided our customers a convenient way to apply for loans during the pandemic situation, but also has contributed 36% of our loan originations. Secondly, our existing digital loan engine has provided a scalable plug-and-play platform to bring point-of-sale lending to newly signed 90 partners and will act as a growth multiplier this year, enabling us to generate more cost-effective customer acquisition, compensating our declining physical footprint. Furthermore, I'm glad to inform you that we also have signed a Buy N ow P ay L ater fintech partner, enabling us to tap into the untapped Buy Now P ay L ater market.
Thirdly, on the SME front, our experiments to offer better services to underserved micro and small SMEs through our digital platform are seeing good results and amount to 50% year-over-year growth in new business with high margins. We believe there is a good scalable market opportunity to drive profitable organic growth in the focus area for the future. Please, let's have a look at four key revenue growth levers in 2021 in consumer compared to 2020, highlighted in the charts. Our first lever is growing gross disbursements. I'm glad to inform you our several growth initiatives, together with strong marketing, sales, productivity, and digital performance, have resulted in 47% year-over-year growth in gross disbursement. Most importantly, we have outperformed the market by three times. The second lever is about growing our active base.
Our key growth initiatives, like driving digital business and launching the fast cash loan with a lower ticket size and lower tenor loans, are driving higher than 50% growth in new customer acquisitions. Thirdly, driving high margins is a key revenue driver. With higher digital contributions, we believe that we have reached a sweet spot in risk-adjusted margins for driving growth. The market launch of risk-based pricing in all countries will further enable us to test the price increases going forward this year. In page 11, I would like to highlight more the vision and the yearly plans to deliver Addiko ecosystem. Please refer to the right side of the slide.
Our desired state of the future is to provide a solid plug-and-play financing platform which enables our partners, for example, car dealers, electronics sellers, small merchants, or big retail chains, in a modern digital marketplace to provide financing to their consumers and small businesses at every touch point, thereby creating a new ecosystem, making financing accessible and provide that extra boost and whenever and wherever the customer needs financing. The work we have been doing in 2020 and 2021, as presented before, laid the foundation for this ecosystem by building the digital capabilities and the product stack. As a result, we have a platform as an enabler for this transition at an early stage. This year is a stepping stone on the path to enable Addiko's ecosystem as we are developing in three essential areas.
Number one, launching the Buy N ow P ay L ater services in key markets with a FinTech partnership. Number two, we will enhance our platform to the best-in-class card offering. Number three, we are enrolling new partners in each of our markets, having our focus on the lifestyle areas with highest importance for our target customers. In the area of mobility, we prioritize second-hand car dealers. In the area of housing, retailers selling furniture and refurbishment materials. For consumer goods, electronics and IT gadgets. Yeah. Number four, we will amplify our marketing and PR communication, why we exist as Addiko, by introducing a new brand character and a brand image that clearly communicates Addiko's brand promise with a modern tone of voice. We're already seeing a strong start to the year, driven by the transformation initiatives.
A strong growth in customer base, followed by new business volumes, in both the segments, is a clear indicator of our transformation being worked out. To summarize, we pursue a purpose-driven transformation with clear vision to grow and extend our platform into a bigger ecosystem as an enlarged space where customers find simple and fast lending solutions to whatever lifestyle needs they have. We believe this is key to continue providing strong differentiation to the other players that are active in our region. Please let me hand over to Edgar.
Well, thank you, Ganesh, and hi, everyone. Now on page 13 to our financial performance in a nutshell. Starting on the left side, where we print our usual illustration on the composition of the P&L for the full year and the fourth quarter 2021. Our audited net profit amounted to EUR 13.6 million compared to EUR 1.4 million last year. This includes yet another solid fourth quarter profit of EUR 4 million. Net banking income continues on a good track with NFCI's main driver year over year to compensate the accelerated reduction in non-focus, as well as the sharp reduction in low yielding and higher ticket medium SME loans, which is mainly reflected in NI.
This accelerated reduction in non-focus, as well as the sharpening of our focus towards micro and small SMEs within the SME segment, which carry a higher risk-adjusted yield, we already alluded to in our last call. As both Herbert and Ganesh pointed out already, the intentional reduction of these medium SME loans during the fourth quarter last year reduced our gross performing loans to roughly EUR 3.3 billion, versus our guidance of roughly EUR 3.35 billion. Now, this included a reduction of more than EUR 70 million in this medium SME loan book, while in addition, we managed also to sell a non-focus portfolio in the amount of EUR 23 million in Slovenia, all during the fourth quarter. The other income, comprising the net results on financial instruments and the other operating result, is down versus last year.
This is mainly driven by, and I think we explained that, in previous calls, by lower realized gains from the sale of our financial assets that are part of the liquidity portfolio. We sold less of our highly liquid bonds in order not to further increase the already high cash position and, to keep the interest income. Now, with the current volatility in bond markets, we would continue to expect less gains in this year, also based on fluctuations in market values as a result of the current volatility in the overall market. From a credit perspective, however, we have a very stable bond portfolio, predominantly issued by governments of our region. In addition, we had one-off restructuring provisions of EUR 5.3 million for the full year 2021.
This includes a fourth quarter top-up of EUR 2.6 million, which is predominantly related to front-loaded restructuring costs in our largest entity, Croatia. This now completes the restructuring charges in the context of the transformation program, but also includes costs for the termination of contracts, such as for the executed branch closures that Ganesh alluded to. Maybe just as a comparison, 2020 was also influenced by positive one-off, such as from a tax refund in the amount of EUR 1.6 million. On a positive side, we had lower deposit insurance costs in 2021 compared to last year, which is mainly related to Croatia.
Now, briefly on deposit insurance costs in Austria, so not related to 2021, but related to 2022 onward, we currently expect an additional charge of just shy of EUR 500,000 per year for three years, which is directly related to the liquidation of Sberbank Europe in Vienna. We are clearly not happy about such extra charge, but, unfortunately, we cannot avoid this. Now down to operating expenses, which have been one of the key priorities of the transformation program during the second half of 2021. Our operating costs would be on a more like-for-like basis, actually at EUR 162.3 million. If you take out the following main items.
First, as Herbert mentioned already, regular bonus accruals for the entire group, which were not included last year, and second, the cost for management changes, EUR 1.5 million, which happened in the first half of 2021. Back to reported OpEx of EUR 171.1 million, which is almost equal to 2020 related to these mentioned factors, as well as a more normalized spending, specifically on marketing activities. Like for like, costs would actually be down 4% year-over-year. The other result is predominantly influenced by impairment on non-financial assets such as investment properties and a renegotiated IT contract that will and already does bring down costs of a main provider going forward.
In addition, we had a charge related to a BIT claim and limited top-ups for legal provisions, in Croatia and Serbia, reflecting the team's continued and prudent approach on legal risks as well as the dynamics during the fourth quarter. Now the credit loss expenses, which remains benign due to the stable portfolio quality. On this one, Tadej will share an update and provide insights, in one of the next slides, also on our significant reduction in NPEs during the fourth quarter. Briefly over to the right-hand side of the page with the key operational P&L drivers and their development over the last five quarters. In a nutshell, continued economic recovery, first visible results from the transformation program. Business activities have picked up, as Ganesh pointed out already.
This supported good development both on NI and NFCI during the fourth quarter after a strong and usually strongest third quarter. This despite less income coming from the non-focus loan books. Fourth quarter OpEx usually comes in the highest in any given year and came in at a run rate of EUR 43.6 million, following a third quarter of EUR 41.6 million, which was also influenced by positive one-off in Q3, as discussed in our last earnings call. You already see the savings, part of the savings as a direct result of the transformation program. Going forward, this is part of our 2022 guidance. We expect a pure operational OpEx run rate of roughly EUR 41 million-EUR 42 million.
Sorry, EUR 41.5 million, not taking into account the euro implementation project costs as a one-off in Croatia. Now to page 14, which provides some flavor on the potential impacts from the Swiss franc law in Slovenia. As Herbert pointed out already, Addiko has pulled all legal countermeasures at our disposal against this onerous law that actually favors just a few people with large payouts while creating a damage of EUR 100 million-EUR 110 million for Addiko Slovenia and a lot of additional operational work. This law does not influence 2021, since this is a subsequent and non-adjusting event, but it kept us quite busy over the last weeks.
As you can see on that page, more than 60% of this potential impact is related to historic loans that are not anymore in the books of Addiko Bank Slovenia. To be precise, as of the year ending 2021, Addiko Bank Slovenia had EUR 42 million in Swiss franc loan exposure to 981 clients. We are currently waiting for the core system provider in Slovenia to program all the necessary changes and deliver the exact calculations for the affected portfolio. This change alone, by the way, cost us EUR 60 ,000 and expected to be completed by the end of March, beginning of April. As it stands today, and based on a very limited sample of these test calculations, the damage could also be less, but it's still too early to provide more concrete numbers on that.
The key message is, however, the damage we disclose as a worst case still is a worst case. Now to page 15, which illustrates our capital position that further improved in the fourth quarter of last year. The overall development in terms of capital is predominantly related to changes in RWAs, as you can see in the waterfall chart. The significant reduction in RWAs during the fourth quarter is mainly related to our accelerated reduction in non-focus, also getting out of low yielding, higher ticket, so low value adding medium SME loans, the NPE reduction as well as Bosnia and Herzegovina getting the status of an equivalent third country according to the CRR. All this overcompensated the RWA growth from growing our focus book, as Ganesh pointed out earlier.
That all adds to a fully loaded CET1 ratio of 21.6%, up versus 19.3% last year, while the transitional CET1 ratio increased to 22.2%, up versus 20.3% in 2020. 2021 includes the full year profit, the full year audited profit, and no accrued dividend for the year 2021 following the situation of potential losses that could arise in Slovenia, given the recently introduced onerous law, as explained already.
Now, briefly on SREP. We have disclosed the new SREP, which is valid as of 1st of March 2022, and includes a lower P2R of 3.25%, as mentioned already by Herbert. Also, includes the usual structure in terms of capital composition. That means, in contrast to the last SREP, P2R does not need to be held in CET1 in its entirety anymore. P2G came down to 2%, Herbert mentioned. We still remain cautious on future P2G since among other factors in the environment, the AQR comprehensive assessment stress test is based on an already stressed year, 2020, which itself would imply a higher capital depletion and could lead to a higher P2G again in the next cycle.
Nevertheless, we appreciate the step in the right direction, and we will continue our work and dialogue with our regulator. Now over to Tadej for an update on our solid risk metrics for the full year and the fourth quarter of 2021.
Thank you, Edgar. Let's go on the page 16. I'm happy to report that credit portfolio remained strong throughout 2021. Portfolio structure from days past due perspective remains unchanged and actually even improved by the end of the year. On top of our focus of keeping portfolio stable and conducting sustainable business, we put our efforts in a successful NPE decrease, which we see on this page. Decrease of EUR 50 million resulted in NPE share of 4% or slightly below, according to EBA definition. Low NPE share was achieved even though in December we recognized AQR feedback we received from ECB. That feedback led to higher NPE formation, which you can see in the right part of the slide as a higher NPE formation in SME segment.
More than half of that increase that you see on this chart was due to the prudent recognition of AQR feedback. Still, NPE formation on the yearly basis stayed below our expectations for year 2021. On the next page, we show a development of moratoria in Addiko Group. As predicted in the previous quarter, moratoria have run out and no new measures were introduced in the countries where we are present. Share of moratoria in the portfolio is at negligible level of 0.03%, that is EUR 2.4 million. From the quality perspective, we can confirm what we saw already in the previous quarters. That is, the portfolio that was in moratoria has a higher percentage of exposure that worsened compared to the portfolio that was not in moratoria.
6% of expired moratoria exposure, that is EUR 47 million, have worsened, measured with days past due compared to the first quarter of 2020. However, at the same time, EUR 36 million of exposure that were in moratoria improved, leaving us with 11 million of net worsened portfolio with expired moratoria. Based on that, I would conclude that obligatory moratoria that were implemented in the region had very small impact on our credit risk performance. All positive credit risk development resulted in a low cost of risk that we can see on the next page, please. We concluded the year with credit loss expenses of EUR 13.2 million. Loss expenses were supported by ECL model releases that were based on positive macroeconomic scenarios. These releases were partially compensated by increased post-model overlay to reflect prudent approach in the face of volatilities.
At the end, I can conclude that from the credit risk perspective, we finished the year 2021 strong and better than anticipated. Going on, we are expecting further economic growth. However, risk and volatility that was before arising from the COVID uncertainty was substituted by tragic events in Ukraine. Therefore, constant portfolio monitoring, improvements of credit risk approach, and potential mitigation measures remain our daily focus. With that, I would hand over to Herbert for the outlook and mid-term targets.
Thank you, Tadej. The Management Board in its new composition has been working together for a bit more than nine months. From August last year to December, we conducted an extensive planning exercise together with the local management teams of the countries and in alignment with our Supervisory Board. This was done in parallel to our restructuring measures of our transformation program. Now, based on our new midterm plan and on our accelerated focus book strategy, we redefined the midterm targets of Addiko Group. Let me highlight them briefly. First of all, we want to transform our loan book faster, and we want to reach circa 95% in focus business.
We increased the net interest margin target from 3.7% to 3.8%. We introduced a new double-digit target named Focus Loan Book Growth of 10% compound average growth rate. The cost of risk we would see at roughly 1.4% through the cycle. The loan-to-deposit ratio will leave unchanged at smaller than 100%. Cost reduction will continue to be a high priority target, and our midterm ambition for the cost income ratio will stay at 50%. The return on tangible equity shall be increased and double digits in the midterm. We left the management ambition for the total capital ratio unchanged, although the current capital requirements are lower with 15.75%.
We left the dividend payout ratio unchanged, although due to the current situation with the pending Swiss franc law in Slovenia, we are not in the position to pay out. If things will change in this context, we will update our targets. Now, let's come to the 2022 guidance. Given the current circumstances, a prediction is not easy. Nevertheless, we would like to give you our guidance for this year. Our gross performing loans should be around EUR 3.3 billion based on the double-digit growth in our focus business. Our net banking income shall stay stable despite accelerated rundown in our non-focus portfolio. We want to decrease our operating expenses further to EUR 165 million, excluding the extraordinary effect of the Euro project in Croatia. The total capital ratio will stay above 18.6% on a transitional basis.
The sum of other results and credit expenses on financial assets should be around 1% on average net loans and advances to customers. This guidance, of course, does not include any knock-on effects in the Ukraine conflict, nor any major impacts on the onerous Swiss franc law. Naturally, we see a macroeconomic risk going forward. On this note, we see inflation gaining momentum. This development is now accelerated by the effects on the energy prices triggered by the war in the Ukraine. This does not only concern our region, it's a global phenomenon. It is currently difficult to predict all consequences and the development of the Russian conflict.
However, and this is important, we remain particularly optimistic on our business model and on our strategy because we are convinced that our business approach has a great future, and we are confident that we are able to outperform our competitors. With having said that, I want to conclude our presentation. Thank you for your interest. We are now ready for your questions.
Okay. Operator, to you. Do we have any questions on the telephone line?
We have a first question. It's from Simon Nellis of Citi. The line is now open.
Hi, gentlemen. Thanks for the call. Yeah, I guess my question would be on the Swiss franc law, when do you think you'll get clarity on whether you have to take the hit or not? When would you distribute dividend out of last year's profit if the Supreme Court does rule against the legislation? I guess suspension is likely first, and then there'll be a prolonged legal battle. Yeah, I guess just what's your distribution thinking given the Swiss franc law? If you could elaborate. Thank you.
Okay. Maybe I start, and then I would hand over to Edgar, who is heading the task force on the law on our side. We got some positive news yesterday, to a certain extent, positive. As you might know, and we explained that in our extraordinary call, we took a series of measures, whatever is possible on our side in order to address this topic on various levels. We had intensive talks with the local regulators. We had a management conversation with the vice governor there, and we explained our situation also in writing.
We asked the local regulator also to join us in the exercise to file a claim vis-à-vis the Constitutional Court. We learned yesterday, according to our information, the Bank of Slovenia joined our exercise and also filed an injunction to this law. At the same time yesterday, a statement was made by the government also supporting our request for suspension of the law. Now, at the end of the day, the important question is how will the Constitutional Court react? Here we see two streams. One is the request, you know, the injunction to the law.
The other part is the more long-term final solution and ruling upon the law. What we know is that tomorrow there will be a meeting of the Constitutional Court. We don't know the agenda, we don't know what concretely will happen tomorrow. At least what we know is that they will come together, you know, on the topic of the law. Our expectation is that, given the judgment of all our lawyers, the local lawyers, the Slovenian lawyers, the international lawyers, everybody is of the opinion that, if the court would vote according to the law, they need to approve our injunction.
That's our expectation, and our expectation is should hopefully happen over the next weeks. On the final ruling, we don't know. We don't have any concrete view. I mean, we are getting very diverse feedback and also the prognosis of our lawyers are very diverse, so it could also last longer. We hope for the best, but we prepare for the worst. That's what we are doing in that context. Does that answer your question?
Yeah, yeah, but I guess just in terms of the dividend strategy. Thank you for that update, though.
Yeah.
Sure. Look, I mean, we closed the financials. Part of closing the financials is a way forward in terms of appropriation of profits. Now, this is also the usual topic for the AGM. Given the situation and also a dialogue with our regulator, we have now decided on a profit carried forward. Now, we will of course still have some time to go until we see how and if this law materializes, and if it materializes, in what shape. It's still very unclear, so that also influences you know the way, if and how and when you can provision what for that. However, the capital is still here. The capital is still here. We are not planning to allocate the capital elsewhere.
For the time being, I hope we know more in the first quarter financial disclosure. There is no dividend 2021 as indicated in our disclosure.
Yeah. Okay. My other question would just be on other income and other results. I think, excluding the Swiss franc law implications, which would go through other results. What's the outlook for these two line items next, well, 2022 and then going forward? Because it's kind of unclear to me what the right run rate is for these two items that continue-
Yeah.
to lag on earnings.
Maybe just briefly to avoid any misunderstandings here. Thanks, Simon, for the question. The other result does not include anything regarding the Slovenian Swiss franc law. This is a new topic that came as a surprise, to be honest, I think all affected banks in Slovenia. What is included in the other result? It includes impairments on assets. It includes an impairment on an IT contract, an old IT contract that was replaced with a new one that actually brought costs down by 20%+ going forward. It includes the already discussed Swiss franc-related individual lawsuits from Croatia. It also includes loan processing fee individual lawsuits from Serbia. All these topics I think we discussed quite a few times.
Now, what does it mean for guidance going forward? If you look at which page is it again? At our outlook 2022, just give me a second. Page number 21. We combined it once again with the credit loss expenses, and here we say, you know, circa 1% on net average assets. Credit loss expenses and other results together. On the other income, if you wanna go to that, it's there is two main components in there, so or a couple of components. We also have a page in the appendix, including all the deposit insurance, resolution fund costs and things like that. We have in 2020 quite a bit of restructuring costs in there.
As I mentioned before, the restructuring costs in the context of the transformation program, they're done with the year 2021, including some front-loading from the Croatian entity. Now, of course, the other costs that you would see in the appendix, you know, resolution fund, deposit insurance, they would remain. The other element in the other income, if you wanna summarize it, is the net result on financial instruments. Here, as mentioned before, we expect less gains because, you know, in volatile times like this, it doesn't make much sense to sell good coupon bonds with a good credit.
Okay. Maybe just last on the lending spread environment. I mean, it seems that your consumer yield is still under some pressure. You're seeing some increase in large corporate. Can you just comment a bit about the lending spread, the margin outlook, competitive environment?
Sure. Maybe I start with some, you know, finance stuff, and then I hand over to Ganesh on the real business drivers, so to speak. If you look at consumer, there is a couple of elements. Ganesh will go on the business topics, but you would also see that there is many more of the disbursed loans is actually for customers with a payroll account. They have lower risk. They also have a bit of a better pricing. This is something which is important also from a risk perspective, also gives us more data, and it has a digital component as well, as Ganesh will explain. On the corporate and the increasing yield, if you look, it's not a daily average calculation, it's a simple average calculation.
If you know, take out part of the loan book at year-end but still had 11 months of interest, the yield would go up. That's one element. The other element is of course that we front load in terms of accelerated rundown of the non-focus, specifically very low yielding, loans. Now, Ganesh.
Yeah. Just to add what Edgar mentioned. On the consumer side, as I mentioned, we are launching risk-based pricing in the market. And this what it helps us here is to focus on a more risky customers with risk ratings with a higher price, and more better customers will get a better price overall. Overall, we would like to increase our margins on the consumer side overall with the risky ratings overall. That is one aspect. Second, also, if you remember, we were discussing about how we want to accelerate the strategy in consumer through partnerships, as well as driving our digital business overall.
Partnership specifically, as we are bringing financing at point of sale, it helps us to charge, you know, higher margins. That is exactly why we are aiming due to the convenience what we are providing as USP, it will help us to increase our yields. These are two drivers on the consumer side. As Edgar pointed out, on the SME side, we are looking at going down in the less profitable low yield medium businesses and compensate that with higher yielding micro-businesses. We are basically doubling what our micro-businesses, therefore you can see also the margins would grow going forward.
Okay. Helpful. Thank you.
Thanks.
Before we start with the next question, here's a little reminder. If you want to ask a question, please press zero and one on your telephone keypad now to enter the queue. If you participate via the audio webcast, you can write a question via the Q&A function of the webcast by pressing the question mark button. The next question is by Mladen Dodig, Erste Group. The line is now open for you.
Thank you. Good afternoon, gentlemen. Thank you for the call, and congratulations on the successful year, considering all the environment, right? I would ask you one question regarding just as you were talking about this medium SMEs and the reduction in those tickets. I mean, are those the same name, the same clients are same clients, are they coming back in some way with the smaller tickets or this is a kind of interruption of cooperations with them?
We actually are kind of running down those relationships with the larger exposures, with the low yield business overall. There are some few businesses we do continue, but only with a different setting, with a much lower exposure, but also much higher margins. With these settings, if the partner is fine, we will continue. If not, we have already run down that in Q4. As you can see, Q4, we have already cleaned up this portfolio going forward.
Okay. Thank you very much. One question regarding the of course Slovenian Swiss law . Parliamentary elections in Slovenia are scheduled for April 24th. Do you have some local flavor on speculations, anything that the Constitutional Court might be silent until the election, and then which should probably brings you to situation that you will have to make provisions for this reimbursements, or your local lawyers might expect that this any reaction from the Constitutional Court might happen much earlier, maybe even on this tomorrow meeting?
Maybe I start and then Edgar can chime in on numbers and his view. We had a lot of conversations, you can believe me, over the past weeks, on that topic with many different people on many different levels. What we learned is that we don't know how the Constitutional Court will react. We believe that he will act according to the law, and the law is not executable, so we believe that he will approve our claim.
However, what we also see is that the whole thing has also a component which, you know, is based on the election. That's for sure when it came to the parliament, this was certainly a driver for this law, a very populist approach on that. And also driven by almost all parties. I have to say, I mean, the official language was against the law. And if I look what the members of parliament did, everybody voted for the law except eight people, so there was a vast majority for it. Of course, there is a connection. If you understand a country like Slovenia, you know that everybody knows everybody, and there are long-term relationships between people.
You know, we are in this environment, and we are dealing with it. The honest answer to your question is we will see, you know, in the coming two weeks how they will react. As I said beforehand, they have tomorrow the first meeting on that topic. Based on all the feedback from the Bank of Slovenia, the official feedback of the government, we really believe that they will approve our injunction. Then, you know, the question is how they deal with the overall question. We would expect that there are indications that we will get sooner feedback. That's our hope. Edgar?
Yeah. I think not much to add from my side. Usually we heard that in historic cases, the Constitutional Court rules within 15-30 days. This is not a rule, it's more like market practice so far. Do we know if that happens in this case as well? No. If we don't hear anything until you know the first half of April, it's surely going to be a bit more difficult situation. Until then I think we keep on pushing and along the lines that Herbert mentioned before.
Until the first half of April, you will still, how should I say, not make any provisions regarding this?
No, well, if it comes to the provisioning question, I think here we have a clear opinion. Maybe, Edgar, you comment on that.
I think, look, on the provisioning side, it's very simple. You need to have a probability that it's more likely than not that the outflow happens, and then you need to have an estimate of the amount. Now, many lawyers tell us that the Constitutional Court cannot just kill one or the other clause in the law because then the whole thing falls apart. Until the Constitutional Court doesn't make a statement to that, it will simply be wrong, according to IFRS, IAS 37, to actually do a provision.
Now, the closer we come to actually having to send out letters or offer letters to those customers, to some very lucky customers getting very large payouts, the more difficult the whole situation is gonna get, where you need to say, "Well, okay, what parts of the law can I assess in terms of probability?" We are not there yet. Currently, I would expect more like April than March. The situation is fluid. It depends very much what we learn in the next weeks as well.
Okay. Thank you very much. I see your slide 40 with interest rate sensitivity. So I guess if I look at the markets, basically only Serbia right now with the central bank still keeps put would be the biggest move for your net interest income. Am I right?
Well, purely on the interest income, Serbia would, of course, you know, provide a good contribution. Don't forget also that the interest expense on our excess cash changes in that sense. If you look at NII, it's not just the loan book. There's not much coming from Croatia because in Croatia, we don't pay on. It's zero on cash
Mm-hmm.
national bank. Otherwise the number would be better, of course. This needs to be taken into account.
Okay. Good. Thank you. Thank you very much.
Thank you.
Thank you, Mladen. I hope you like the page.
There are no further questions for the moment, and so I hand back to you.
Thank you, operator. I received a couple of questions from Hugo Cruz of KBW. I will not read those which have already been answered, which is on the other result and the Slovenia CHF issue, which have been answered in full detail, and go directly to the outlook 2022.
You are increasing the loan growth in focus from 4% in 2021 to above 10% in 2022. Can you please explain the moving parts from going from 4% to 10%?
As I mentioned before, on the SME side, we will be actually increasing our micro business quite significantly, as we already our experiments, what we did in 2021, really paid off. We have very good plans to get this opportunity done. On the second topic, on the consumer side, we are expanding rapidly. You could see already in 2022 year-to-date results which I presented in the slide 11. Due to our digital positioning and partnership opportunities, and also on different products what we are introducing, basically, we will actually increase our loan book value there as well.
With this combination, we are pretty confident that we'll get there.
Maybe this is Edgar, maybe just to add, if you take out medium SMEs, we already had a growth of 9.5% last year. As I mentioned before, we did quite a reduction in the fourth quarter of low value adding higher ticket medium SMEs in that sense.
Okay. The next question, can you remind us of what the Euro project in Croatia is about?
Maybe I take that question. Since Croatia is joining the euro, according to the latest available time plan, next year, there is quite a bit of work that needs to be done in every bank in Croatia to prepare for the euro. You know, be it costs on the IT system, be it costs for staff, changing documents, changing ATMs, having the double calculation for quite some time. It's a very intensive project. It's mid-single digit OpEx cost that we see in this year. Clearly a one-off. You only implement euro once. But this comes on top, of course, in terms of operational burden to the growth story. We are still confident.
The next question, what is the amount of OpEx in EUR million that you can flex quickly in case you are missing on the other targets?
Well, one thing that can be flexed is obviously the bonus. I think we will get there when we see how the quarters evolves.
The last question from Hugo, are you already seeing an impact on client behavior due to the war in Ukraine?
So far, we haven't seen much impact.
The answer is no.
Yeah.
It's too early.
Good. I'll move on to the questions in the Q&A tool. Here are a couple from Wolfgang Matejka of Matejka & Partner Asset Management.
The first one, do you see some of your competitors struggling actually in relation to Russia, Ukraine, so that you can expect some positive market share developments?
Well, I mean, it wasn't struggling. I mean, with Sber we had a competitor which, you know, was directly competing in our customer segment. As you all know the story about Sber and also that the competitor banks in the local markets went to banks in most of the countries in quite a rush. All these banks, you know, have either a relationship with the state or are owned partly by the state. We see here a market opportunity for us, and we are preparing for, not only preparing, we are already working on taking these customers over. We prepared special packages for it.
What we see is clearly an opportunity for us to gain market share and to gain new clients. Ganesh, you...
Yeah. I mean, regardless of this, we will definitely see a positive market share developments. As Herbert pointed out also, we are growing around 10% on the gross performing loans compared to the market, which is growing 2%. We also saw the initial first week, there was a lot of inflow on the deposits and the accounts coming to us overall. Now we are hoping that also it has an impact on the lending side, too.
I mean, clearly, our ambition in that context is also to show you a bit more than in the coming events. We will have a presentation on the AGM. We will have a presentation with the first quarter results, and you will get more on that story as well.
Good. The next question, do you expect the changed treatment by the ECB due to the actual war in Ukraine in combination with the already imposed sanctions of the EU?
Thanks, Wolfgang. This is Edgar. Well, I would expect the ECB to be more cautious, not necessarily towards Addiko alone, but overall towards the general banking sector. We don't have much of a direct exposure or actually nearly nothing. So in that sense, we are more on the safe side. Of course, in terms of general economic developments, it's still early to say and how the ECB reacts for the total sector on this, we cannot judge at the moment.
Good. The next question is on the CHF law, I think, related to the timeframe of the activities. Everything has been explained. The second part of the question, can you please elaborate a bit on the worst-case calculation in relation to the still imprecise formulation of this law?
Well, thanks. This is Edgar again. Yes, it's very imprecise, and to a large extent, unworkable. I think, you know, all the banks also have addressed this in their claim in front of the Constitutional Court. We also have heard similar feedback from local regulator in this sense. Now, what does it mean, worst case calculation? We, of course, have loan data. We don't in all cases have the connection to the clients anymore that last more than 10 years ago. Based on this loan data, we addressed our view in terms of really coming to a worst case that a compensation, for example, would not reduce the principal. Higher principal means, you know, higher basis also for penalty fee, interest calculation, and so on and so forth.
We include a full charge for penalty fees of 8.5%. I think these are the main components.
The 8.5% penalty fees, they sum up in total to EUR 35 billion. You see a big chunk of it is just, you know, free lunch, because given the interest environment adding an interest of 8.5%, you know, I don't comment on that.
The other question is on the midterm targets. What time frame do you mean by midterm related to your targets?
Thanks, Wolfgang. The midterm targets were derived out of a five-year business plan.
Good. Here's the last one from Wolfgang. If the Slovenian CHF law decision would be cleared maybe in late April or early May, too late for the actual shareholder meeting, could you expect an extraordinary shareholder meeting being imposed to decide on possible dividend payments in 2022?
Look, as we said beforehand, we don't know what will happen and when it will happen. I think the short answer is we will not rule it out that we will do something like that. We need to wait until we get the feedback and the final ruling. We also need to know what are the final consequences of the bank. I think this is important for us, and this will be also important for the regulator to know what is the end impact and having a clarification on that.
I have one last question on the webcast from Csongor Németh. Considering the strong capital and liquidity position of the group, was Addiko's management happy or sad for not being involved in SRB's and other local regulators' decision regarding the recent takeover of the relevant Sberbank Europe subsidiaries, and why? Thanks.
Thank you, Csongor . To answer your question, the SRB took the decision that Sberbank is likely to fail. This led to several consequences, namely that all the local subsidiaries were cut off and then handed over in a very short process in two countries to banks where the state has an ownership at very favorable prices in Slovenia and in Croatia. I think the only country where it was handed over to the bank who already was involved in the selling process to buy Sber was in Serbia. There it went to AIK Banka.
In the only country where we were asked if you're interested was Bosnia in Banja Luka. Our response was that we are interested, or we were interested, but we learned that on the next day it was already handed over to the local Nova Banka. The other part of Bosnia, it went to ASA Banka. Overall, we didn't have any possibility to take over parts of the business or businesses. It's not a question of happy or sad because from our perspective, our opinion is that we anyway have the possibility to acquire the customers.
We are convinced that we have a great offering, and we are convinced that we are attractive for the customers of Sberbank. What we will do is we will fight in the market in order to get as many as possible customers from Sberbank and we see a good probability to be successful here.
Okay. I have no more questions on the webcast nor on the telephone lines.
If this is the case, I would like to thank all of you for the participation.