Welcome back, everyone. I think we will enter the Q&A portion of the Investor Day. I will be the emcee, so I will take the questions and try to allocate amongst my colleagues. What am I doing? Oh, we're doing questions in the room. OK, I'm looking at my iPad here. It would have been good for somebody to tell me that. Vishal, go ahead.
Thank you, guys, for taking the question, and congratulations on the results.
I think maybe taking the mic here, yeah.
Thank you. So congratulations on the results. So two questions, really, from me. The first one is on the two deals that you have closed. Clearly, you're getting a sizable customer base from those deals. Can you just tell us how do you plan to expand your product offering? How much of that is baked into your revenue growth assumptions? And on the flip side, how do you plan to sort of manage the loss of customers through the integration? And the second one is probably the most important one, I think. Your last slide, which is probably a very exceptional slide, which talks about how you can make a 20% plus RoTE even in a less than 100 basis points rate environment and 25% plus in the current rate environment.
So if you could elaborate a bit more on the building blocks of that, what gives you confidence that level of super profitability can be maintained?
Why don't we start, Enver? Why don't you take the rate development, and then we'll go to Sat on the customer development.
I would just say two things on the, I think, the element of that is rate sensitivity, right? What we have seen, the ECB rate going pretty much from 400, now expecting going to 200. We said we feel not relaxed about it, but we have seen that the NIM is holding up in that kind of reduction during that rate reduction. What we are saying, going below 150 basis points, it will start to hurt because that eats into your natural deposit margin. But having said that, if you put it then in context, that's why we laid it down on the page. Structurally, we'll still be making more than 20% even if it dropped below 100 basis points. So there are two components. One is more technical in a particular year. The other one is structural through the cycle. And that's why we thought it is valuable to say that.
Yeah, and it also shows you that we don't realize much in comparison to other banks. We are deposit-funded, and we have a high sensitivity. But overall, we care more about asset margins than the deposit margin itself.
Right.
Yeah, so moving on to the acquisitions. So let me hit both of them individually. So Knab, there are three main components, right? It has the 400,000 transactional banking customers. Those customers, they bring along the EUR 13 billion of deposits as well. So that's kind of one piece of the puzzle. Then there's EUR 13 billion of mortgages. Those are disconnected. They are originated on the brokerage platforms throughout the Dutch market. So the products right now, Knab is a very monoline product, effectively. It's just that transactional banking account. They have a few other add-ons that they do sell. For us, what we will do is we're going to bring, we're going to introduce working capital facilities. So if you think about, these are self-employed individuals. They need certain types of lending. And in that transactional banking account, you can introduce new products within there.
So I think that's one that could be introduced rather quickly in general. But I think the focus will be in the next 12-18 months is really doing that integration. And then after that, we'll also bring on other types of products, leasing, and bolt-on products that we can introduce through our overall product portfolio that we have. Then let me hit Barclays, and then I'll come back on the overall integration and the customer piece. Barclays effectively also is just the credit card issuer. They have two types of customers. They have the full payer credit card individuals. So those are the individuals that use their credit card during the month and then pay off the full balance at the end of the month. And then they have the revolving credit card piece, which is the very attractive portion that we focus on.
They also have EUR 4 billion of deposits. Between both deals, the customer base is very engaged on the mobile apps that they leverage. And so they do have a history of being able to cross-sell or sell other products into the customer base. So on the Barclays side also, we'll probably introduce a few types of maybe installment lending or certain other products. But I think they have a very strong foothold of what they're doing in the product offering. So you've got to watch out and not cannibalizing as well on the features that are being offered. On the integration in general, look, what I would say is we have done 12 integrations. We've done, on the Barclays side, there'll be a systems migration to an extent. On the Knab side, it's mostly taken out the overhead costs and the TSAs that we spoke about earlier.
So there's not a major impact to the front end of the organization. So there might be some friction as we do this stuff with the customers, but I don't really see it being a major disruption. So I think what we're going to see is both businesses have a very good trajectory. They're growing their customer base. They play in an underserved area. I think we're going to continue to see that growth overall. You might see it slow depending on what happens in the markets, but feel pretty comfortable with the customers.
And I think, Vishal, you were asking, is any of this in the plan? None of it's in the plan in terms of the cross-sell opportunities. So that's all potential upside when we underwrote the deals. Here you go in the back. Just to spread it around. Here you go. He's got his hands up.
Hi. Thank you for the time. I wanted to ask mainly about NII. I'll just go with three questions. So first of all, on your NII growth, how much of the growth comes from the deposit hedge rolloff? How much of the growth comes from margin expansion within the Barclays book, if at all? And then can you remind us what's the kind of maturity of any cliff edges in your hedging approach? That was it. Thank you.
I guess it's obviously for you, Enver, so.
The simple answer is that the biggest impact is from the two acquisitions. If you look at the NII development, it's a step function going from EUR 1.3 billion that we have in 2024, and then we have a significant increase in 2025, right? That is mostly from these two acquisitions. The next evolution is from 2025 to 2027. I guess you were asking about 2025 to 2027. I would say the biggest part is the asset mix part and the growth of that. The deposit hedge rolloff is basically offsetting the compression that we will see in 2025. What happens? In 2025, we will lose some of the deposit margin because we'll hit the low point of rates, right? We'll have a recovery from the deposit hedge in 2026 and 2027.
But like for like, 2027 and 2025 will not be completely different in terms of deposit margin contribution.
In terms of hedging effects or.
We don't have cliffs. So we have a rolling hedge. The structure of the hedge is designed in a way that we have like 20% of the hedge deposits are on a three-year rolling basis every month. And we do have the structural hedge, which we would refer to as the deposit hedge. And that's a 10-year rolling, which gives you an average maturity of five years. And it's also monthly rolloff. So we don't have any cliff effects. It's quite a smooth hedge.
We've got more.
Hello. A couple of questions. One is on your P&L guide. I think you guide us to EUR 1.4 billion or more than that. I think if we start from, or if we look at it on a comparable basis, you were a bit below EUR 1 billion as of 2024. And you tell us there's going to be EUR 350 million or potentially more accretion from the deals. So if I just add the deals to your 2024 performance, I would get to EUR 1.3 billion. And you are telling us you can deliver more than EUR 1.4 billion. So you assume earnings growth in the rest of the business. Is this really all driven by the margin recovery or the deposit spread recovery we discussed or anything else to consider? That will be my first question.
Yeah, I think the key components, definitely top line that we have said, we have seen expansion also in the NCI side to a lesser extent, obviously, than the NII. But the NII is the main driver. And OPEX. We said OPEX in 2027 is going to be lower than in 2025. So these are the big contributors. Maybe just to be a bit more accurate on the starting point, because it's around EUR 1 billion going to EUR 1.4 billion. Just if you look at the billion, we had, as we discussed earlier today, management overlay release. And we already had two months of Knab in the numbers, right? So from a standalone perspective, your starting point is somewhere closer to EUR 920-930 million, like for like going to above EUR 1.4 billion.
OK, OK, thank you. A couple more questions, if I may. One is on, I mean, just in terms of the here and now, macro environment, relatively volatile, market turbulence, including today. I know you are not particularly geared to tariffs, but how do you think about the likelihood of having to create macro overlay provisions and any sensitivities you can share around that?
David, you want to.
Yeah, so I think the way that we always look at it is our biggest sensitivity in our stress testing is through the unsecured book. And that obviously is related to unemployment rates. I think it's hard to forecast forward-looking on tariffs. But what we did when you think about the management overlay was that was built back over 2020 through 2022 or so. And that was in the face of it started with COVID pandemic, then the war that pressed on. All of that uncertainty, what we did is we took that and we built that into our models to maintain it for the most part. Then we had, on the other side, we had commercial real estate, which was something that we basically reduced from EUR 600 million in the U.S. on office where we were most concerned down to about EUR 300 million today.
So that's gone to half, and we have a lot more transparency. So we took that management overlay and layered it into our models to capture that uncertainty. It's just really a transfer of reserves from one ECL bucket to another ECL bucket. So I don't think it's gone away, that uncertainty in tariffs or however you wrap the sort of macro concern around it. We wanted it captured in our models, and that was the exercise at year-end in capturing that on the retail side.
OK, so I think if unemployment rates went up, you would, or you saw unemployment rates increasing, you would create more overlays?
Yeah. We're sensitive to unemployment rates. As that goes up, we would expect there to be more defaults in primarily our consumer loan book, but across the retail, across the retail exposures. But I think really most of our sensitivity is in that consumer book, which is about 11% of the overall retail exposure.
If you had to narrow it, it's just looking at unemployment. That would be the single greatest variable that impacts them.
Thank you, and the last one, if I may squeeze in, the 375 basis points excess capital generation. Do you assume any further SRTs in there? And how do you see this potentially contributing to building more capital?
Sorry, Gabor, you were saying the 375 basis points that we say? The 375 basis points, that's annual just from earnings, nothing else considered.
OK, and how do you think about the potential to use SRTs to?
We think it's a good tool. And we plan to apply it. We have applied it so far. But it's always a decision also on the commercials of it.
Thank you.
Mate. Look at this table.
Thank you for the presentation. A couple of questions from my side. Number one, intra-group capital allocation. I think you're very clear, 90% of revenues, 90% of franchises now, retail and SME. You haven't heard anything essentially on corporate real estate, public sector lending. Could you talk about the rationale here? Is that the change in opportunity set, i.e., you've acquired some assets, some beachheads in growth markets, or it's the relative unattractiveness now of the corporate and real estate segment? And is it the right way to think about it that the current business in absolute terms remains roughly the same and you're growing other parts of the business? That's the first question. The second question would be on digital distribution. You said you mentioned 90% digital distribution. Can you clarify what that actually means? Is that presumably that's not all end-to-end 90% digital distribution, right?
To what extent does that still require human oversight, human interaction, and so on? Thank you.
I'll take the first one, Mate, the digital engagement. The question on business mix in the 90% retail SME, and we said 90% DACH/NL focus, is less about deleveraging the corporate real estate public sector. It's more a reflection of the growth both organically in the coming years, but more so the M&A. That's really kind of the redistribution. We don't assume a lot. We don't put volume targets on the corporate real estate and public sector. I mentioned these are niche lending businesses that we have. If there's great opportunities, we have the capital and liquidity to pursue them. We just don't assume that in our plans. If you had to say there's further opportunities, when Enver said there's excess cash, we just don't assume that volume growth. That's pretty much static. That has more to do with it than any redistribution of capital.
Quite frankly, the challenge is we generate a lot of capital. It's just finding the right risk-adjusted returns. You got to be patient on that.
On the digital distribution, there's two aspects to it. I'm not sure which one you're talking about, but let me clarify them. We have 11 core products, of which 10 of those 11 are digital, fully digitized. That is from an end-to-end basis. A customer can come in, open a current account, never have to talk to anyone, and it will be opened immediately. Brokerage accounts are very similar. That's one piece of when we talk about the 90%. The other piece we talk about when we talk about the multi-channel strategy. We have our branches and then our digital channels. In that aspect as well, through the digital channels, whether it's through the digital bank or it's through those strategic partners where we embed our technology at the point of sale, if you want to call it, or where they touch the consumer.
Within there also, the overall distribution of originations will be greater than 90% in the midterm. So those are the two digital distributions. I'm not sure which one you're talking about, but kind of clarifies that.
Thanks, Mate. Tracy, I think we have you on.
Yeah, right there.
Yeah, go ahead.
Thank you. So you mentioned being an active player in the European banking consolidation.
Yeah.
I was wondering, when do you think you will be in a comfortable position to explore M&A again, given the two integrations? Then, clarification. If I'm not mistaken, you mentioned that your targets do not include distribution of excess capital. I was wondering, what about the 175 million share buybacks? If you could comment on the timing and a little bit more about this. My last question was on growth, on the drivers of growth. You mentioned retail. If you could give us a little bit more detail on geographies, the products, and how much of this could come from a consumer in Germany since now you're starting from very little. Thank you.
Okay, maybe we have a couple of questions. Let me take the M&A. I think we're full for the moment as far as integration, so we're pretty busy, at least for the foreseeable future, the next 12 months or so. But as we mentioned, we have a game board internally. We have kind of a broad scope of things that we look at. I think we purposely don't share a lot of details for a variety of reasons. Hence, we look at kind of this DACH/NL, kind of Western Europe, as we mentioned. But I think for this year, we really got to make sure that we're on firm footing, we do a proper integration.
And then the reality is M&A has a lead time of 6 to 12 months from when you look at a deal to then you're into a process, and then if you get invited into the second round. So I think any real M&A of consequence, you're looking at 2026. And you start to maybe look at things in the second half of this year. And assuming, by the way, it's all idiosyncratic, the availability of opportunities. But yeah, M&A is a key feature. But as we stressed during the presentation, we're going to be patient. Sometimes you go cold for two, three years, and people say, why aren't you doing deals? It's because the deals don't make sense.
And then you get really fortunate, like last year, in two incredible opportunities, which ideally, if we could do it again, we'd rather not do it in the same year because I think the bandwidth is sometimes a bit challenging. But that's when you're able to strike, and you have the capital liquidity, and you've been reviewing these things. And that should kind of inform you as to how we look at opportunities. But we do want to be a player in the consolidation across Europe. And we think it's actually ultimately to the benefit of European banks in the European Union. We're big believers. I think so that was M&A capital distribution. Do you want to take that, Enver?
Yeah, yeah. So I think two parts of the question. The first one, any excess capital distribution is zero, nothing. So we have not assumed any excess capital distribution, also not the 175. On the 175, we changed the rules how we distribute excess capital, and we made it very mechanical. So we said anything above 13% will be distributed, special dividend or buyback today announced what the special dividend part is going to be. So by definition, the rest will be defined as a buyback. In terms of timing, the only thing that we have right now, we just closed Barclays in February. So we need to finish that. Once we have done that, we will look at distributing that EUR 175 million.
Then I think we'll do the consumer growth as well.
Yeah, so then on the consumer growth, I think it's going to be mostly so we haven't factored in any of the additional items that we spoke about earlier. So the consumer growth in Germany will predominantly come from the Barclays acquisition. So kind of doing what they're doing overall. We don't assume any other cross-selling into that or across the group either. So that's number one. A lot of the growth is going to come from so we have on the advisory side, we're seeing pretty strong securities and insurance sales in general. So we're doing pretty well there, and I think that's going to continue for a while. And then on the consumer lending side, it'll probably be around the consumer loans, installment loans, areas in that space. Mortgage is still suppressed.
The market is OK, but a lot of the returns or the margins that we expect are not there right now, so we're just maintaining the discipline, and I think probably next year we'll start seeing, or this year later in the year, we'll start seeing an uptick there. On the geographies, we've got the seven geographies. For the most part, I think it's going to be within those geographies. We're playing a little bit more in Ireland. As an example, we had a mortgage platform that we had put into play, I think, earlier in 2024, and that's going pretty well, so I think we'll see a little bit more of an uptick there, but that's pretty much it. None of the cross.
Retail and SMEs really tell two stories, right? Mortgages have been really muted, and that's for a variety of reasons that we've highlighted in the past. The consumer and SMEs actually have done quite well. Consumer loans and factoring and leasing, I think that's actually performing. If Enver went to it, this bigger picture, take GDP kind of collectively for the geographies that we're in, assume one-to-two points growth, which is, when we talk about the conservatism, not overextending ourselves. Hopefully, we do much better than that, but that's kind of what the plans are based on.
I just follow up on this topic. The technicality introduced. So what I was about to touch in, vis-à-vis exploring M&A options. Can we.
How can we think about the CET1 above 13%, exploring M&A options?
It's after exploring the organic and M&A. So if you don't have anything in organic or M&A, then above 13% would apply.
That's why the 175 is more straightforward, right? It's the here and now as opposed to you're talking about things in the next half year.
I was thinking just beyond the 175.
Beyond that, if you can deploy it in organic growth, we would rather deploy it in organic growth. And if we find M&A that meets all our requirements and also our return thresholds, we would deploy it into M&A.
Thank you. Tracy, if we just go across this table.
Johannes, from HSBC, three questions, please. First of all, you currently clearly benefit from still being a modest balance sheet lender with a niche status in most of the markets. And you said chasing the market and be patient. Is there any level and size where you think those rules will change for you, where you have to do new business to keep the model running? Because some of the larger banks definitely are in that trap. And secondly, on your revolving credit card business of Barclaycard, you previously said you want to export it to other countries. Can you put on some more ideas what's behind that? And last but not least, what gave you confidence to increase the U.S. commercial real estate exposure now in the fourth quarter so heavily? And also probably not related to commercial real estate, but what's the state with Idaho First Bank?
Thank you.
I'll take that last question on the U.S., and then I think you asked about if you have a substantive footprint in market, and I'm sorry, you'll take that, and then the cars, so actually, Johannes, we have an example, which is our market share, which we don't like to use market share because it leaves you to do unnatural things to protect market share, but you then actually bring on products or assets that don't meet your risk-adjusted returns, and in Austria, we have, I'd say, a decent market share in a number of products, and we haven't found that to be an issue. I think if you play the long game, and if you're patient, and if you don't overextend yourself in due course, and if you're efficient in your cost space, and you don't overextend on the risk costs.
There were some idiosyncratic risks in Austria that the one bank that did not have exposure to was BAWAG, right? If you do these things, you buy yourself time, and you can be patient. And then there's organic and inorganic opportunities. As far as the U.S., and I think you were referring to the commercial real estate, that is an acutely distressed asset class. And it still is a distressed asset class. I hope the takeaway is, even though we had exposure going in over the past few years, and David had mentioned this, it's a reflection of how we underwrite. And we took some losses. I think we ended up taking about EUR 30 million in losses across the years on our portfolio. But the worst is behind us. And the reality now is you see some really interesting opportunities.
But the underwriting for those types of opportunities, and we did a deal that David had mentioned earlier today in the presentation, a multi-office deal that was cross-collateralized, is of a different standard when you think about the debt yield, when you think about the advance rate. So there are some good opportunities. I think you can't. It's not one broad brush. The whole asset class is tainted. There are pockets of opportunity. And those are things that we're going to look to pursue. As far as Idaho First Bank, we've been very disciplined, methodical. It's going well. We built an online franchise as well in terms of deposits. But that's a long-term play. That was not for one year or two years. That's to have the bank license, to be able to raise deposits, to be able to do the community banking, to be able to look at the platforms.
And then, lo and behold, you get the diversification benefit. Our core is still the DACH/NL, but then you get Western Europe and the U.S. that gives you that product and geographic diversification, which I think will serve us well in the years to come. So I think the.
So on the Barclays question, I think the way you will see it, first of all, the first 12-18 months in that is going to be focused on doing what they do today, really focused on the German market, continuing to originate through the digital channels that they do do, and not really doing too much beyond that to an extent, mainly because they have a very strong business. They have a strong customer base, and with the integration, and we have a systems migration, we want to make sure things go well, so this is a little bit further out. But the first step will be taking their product offering and bringing it across the BAWAG Group. So if you think about in Austria, as an example, we have a credit card issuer there as well.
We have it for BAWAG and Easybank, which are our own cards. But then we also have a credit card issuer for various banks throughout Austria. And so there might be an opportunity to instill the revolving credit facility into those features there. And then I'd say the second thing is we'd enter markets that we know. So whether it's the Netherlands or other areas, I think there's opportunity there. So that's kind of really how we're looking at it in general.
Let me pause on the questions in the room just to make sure the folks online get a chance. So we have a question from Pierre-Marie Gurez. I hope I didn't butcher that last name. How do you plan to manage excess capital? Should we expect a buyback every year if no acquisition? Look at the framework.
I think it's going back to the same question. So our capital distribution policy is clear. Organic M&A first. And absent of that, the excess capital above 13% CET1 ratio will be distributed each year in form of special dividend or buybacks. And we said that right now we prefer buybacks over special dividends. I think.
Hello. I'm Borja Ramírez from Citi. I have two questions. Firstly, on deposits, I looked at the Barclays Ireland accounts, and the business that you acquired apparently had a very strong growth in deposits during last year. So it seems like a good, I think, opportunity, and also, there was a listed German bank that recently guided for strong deposit growth. So I would like to ask for your thoughts on the German deposit market opportunity, and then my second question would be on capital optimization. I did a very quick back-of-the-envelope calculation of the RWAs in 2027 based on your EUR 1 billion of excess capital, and I get to around EUR 25 billion of RWAs, but very rough estimate, and this is better than consensus of EUR 26 billion, so.
That was just the back of the envelope.
Yeah, so. But it seems it's better than consensus. So maybe there's also, you're doing some capital optimization that's also to generate value. Thank you.
Let me just add that. Yeah. So great questions. A, the Barclays acquisition, when we underwrote the deal, and that was one that we had pursued for a number of years, we never factored in a deposit franchise. Lo and behold, they built a really strong deposit franchise up to EUR 4 billion in deposits. And that was a nice add-on that we were more than welcome. We more than were happy to take on. As far as the German deposit market, we're a small player. We're not the ones to comment on the overall market movements. We will be very tactical in how we price deposits and make sure it's strategic. But I don't think we're the ones that can really give you a broad sense just given our share. What was the other question?
25 billion is the back of the envelope calculation.
Yeah, back of the envelope, EUR 25 billion.
What I said before, yeah, we'll look into SRTs. Just if you take a step back, why it's interesting for us. We have a high asset quality on the one side, but also high risk-rated asset density, at least for retail SME, because we moved from IRB to standardized approach completely. So you have that sometimes that imbalance of high-quality assets with high risk rate. And obviously, these are perfect to do SRTs, right? And so yes, we see that opportunity in the plan, and we are making use of it.
We're going to jump to an online question here from Kiran from Amundi. Regarding the EUR 18 billion surplus cash, what are you waiting on before deploying? Backup in yields? How material could this boost be to earnings guidance provided? Well, we're waiting on a better spread environment. But yes, it's quite substantial. We'd love to deploy it into a security. As Enver mentioned, our securities portfolio today is about 5%. Historically, it was as high as 20%. But we're also not going to chase. The spreads have been at all-time heights. Look at the issuances that banks have been doing, and you get a sense of the very tight spread levels. We think that is a bit frothy. So I think being patient, picking your spots, and also the asset classes that you like. And we'll continue to be patient.
And hopefully, there'll be opportunities to deploy the cash, as well as into customer lending too, buying portfolios. And the reality is, everything that we bought from an M&A standpoint has had a deposit or funding overhang. That might not always be the case in the future, so. Thanks, Kiran.
Thanks, Johannes. Maybe continuing on that EUR 18 billion cash. So if you were to see these better spread levels, how much of that EUR 18 billion cash would you potentially be willing to invest and how rapidly? What kind of impact should we see, let's say, over three, six months? Could that be a quarterly jump effect that we suddenly see?
I would say, first of all, the cash, right? We say EUR 18 billion. But there's liquidity buffers. There's requirements. So it's not EUR 18 billion. But it's a lot. It's a lot. But you want to take it. Go ahead.
Yeah, sure. So generally, I think it's more the EUR 18 billion number is a big number. I would probably answer the question on the percentage of total assets, right? So 25% is very high. It's unnaturally high. Would we feel comfortable getting closer to 10%-15% cash? Definitely. Which would mean we would triple the current securities portfolio pretty much. And still would be around 10%-15% in securities, which would not be crazy. That is not the hard part. Patience and spread levels, that's the part. Deploying it. Sorry.
I'm sorry. There was a period where you could issue covered bonds. And we did a covered bond, a 20-year covered bond in mid-swap. Look at what the covered bond market looks like today across even kind of in the Germanic area where you're seeing covered bonds issued at spreads of 40, 50 basis points. It's not beyond the realm of belief that that will continue to reprice, and you'll see widening. So I only bring up that example to give you a sense of how things swing, right? And obviously, that was during a negative rate environment that did different dynamics. But I think if you're patient over a longer period, you will find these opportunities, so.
Yeah. Secondly, on the cost of risk, you guided for roughly 40 basis points. And when you were quite clear, there's around 5 basis points plus baked in from SRTs. So that makes 35. We have seen kind of 32 basis points over the past eight years. Just to understand the mechanics also with Knab and the buybacks. So maybe you can give us a bit of a trajectory where you come from BAWAG, what you see here as a base, how you see Knab adding to that, and then on top buybacks. And as a second part of the question, I mean, we have recently seen a bit more of provisioning for some German banks very active in consumer lending. You could almost call them one-trick ponies in consumer lending. So it's starting to bite there. And just your thoughts about is that baked into 25?
Is that the same you have in mind for 2026, 2027? Or would you rather see a bit more of a pickup in SME, for example, in 2026, 2027? How is this composed, basically?
Maybe David, talk about the loss environment and then if there's something on the budget. Just what we're seeing kind of pre-close management overlay.
Yeah. So I think broadly, we've seen the delinquencies and losses come up over the last two years, basically normalized from the benign environment during COVID. And it's plateaued basically in the last two quarters. And so really, that sort of comfortability at the pre-2019 levels. And that's what we consider normalized risk cost in our book. And if you look at that and you just say, "Okay, of our retail book, we have about EUR 4 billion." We talked about it in the earnings deck today. We have about EUR 4 billion of consumer unsecured in that book. That's the preponderance of our risk cost within that. And so when we add Barclays, even though you are adding Knab at the same time, you're adding EUR 2 billion of credit cards and a little bit other into that mix.
And that simply is a mix effect that drags up your overall risk cost on a total basis. It's pretty much that simple. So what we do, we expect that normalized rates will continue because it's pretty steady at this point. The NIM goes up to accommodate that, right, because you're bringing a higher margin book on. And overall, we do price in a level of conservatism that there's some absorption within the loss forecast.
The reality is post-COVID, all the stimulus measures, that really made the risk environment pretty benign. So I think, as David mentioned, looking at the pre-COVID, that's probably a better baseline.
Yeah. Thank you. And maybe last one. In terms of the product, I mean, we quickly touched on it, but you were very precise about rather growing the retail SME business, right? I mean, into the 90%. We came from the 80%. What are now the real markets, niches, products where you can further accelerate growth? And am I right assuming that the corporate side is way less of an opportunity you currently see? Also, in terms of spreads, risk-adjusted returns. So here, we'd rather see a kind of flattish book development and not these kind of big opportunities where you might jump into.
The reality is we've never exited the corporate lending market. Just the market became so frothy. So you had spreads tightened, and you had underwriting standards loosened, right? Covenants nonexistent in some cases. And that's just not something we're going to participate in. But if that normalizes or firms up in terms of better spreads, better risk-adjusted returns, we'd love to be in the corporate lending space. So that's something that just we're patient. We don't put a volume target on it. And then just that overall business mix, we just see that's where the acquisitions, that's where the growth is taking place because of the add-ons and assuming that the rest of the business, the non-retail business, stays flat for the most part.
But is there a particular market or product? I mean, in the past, you talked about the Netherlands space, basically also with NHG mortgages.
Oh, you're saying a new product?
Exactly. I mean, the Irish market, which is always a whatchamacallit to it.
We'll tell you after we do it. I don't think it serves us well. The reality is we like factoring. We like leasing. We like mortgages. But the risk-adjusted returns oscillates between different jurisdictions. Nice try, though.
This one.
You have one.
Okay.
Besides the planned bank tax hike, do you expect the new Austrian government to introduce any other measures for the banking sector to support the budget?
I mean, the new government was sworn in, I think, yesterday. So we haven't heard anything.
It's good to have a government. That's always a good starting point. Oh.
Just some quick clarifications, please. So first of all, can you confirm what's the tax rate you assume in the plan? Because when I'm writing down, you're getting to something like a 28%, 29%, and I thought 25% was more normal. Perhaps I'm wrong. And then on 27%, do you assume an improved, like lower bank tax in Austria as well? And then a final question around excess extraordinary dividends versus buybacks. You said you prefer buybacks at the moment. So what would make you prefer extraordinary dividends in the future? Thank you.
You can take it. I'll take the buyback. I'll take the buyback. And then, I mean, that's a question. I think it's a high-quality problem to have if you're trading at a certain multiple. But the reality is on a forward basis, right? I mean, I think we put out the plans, and we feel very confident in the plans that we put out. And there's an element of conservatism to those plans. If you really believe those numbers, then buybacks at this moment are very attractive, right, on a forward-looking basis. At some point, and we don't draw a line in the sand, a high multiple stock is a really attractive currency to use for acquisitions as an example. But we're not at that point yet to debate buybacks versus dividends and kind of shelving the buybacks.
There will maybe come a point, and we'll be clear in terms of when we kind of make that switch. But at the moment, just given the opportunity set ahead of us, we still think buybacks are super accretive.
Yeah. On the tax question, so currently, I would say the normal run rate for tax would be 25%. It's a mix of 23% Austrian corporate income tax. And then what we have outside of Austrian, Germany, Netherlands, and partly in the , all higher corporate income taxes. Moving forward, we assume 26% in the other years. That's the average that we would assume. And that just reflects the different mix with the addition of the Barclays consumer business and Knab's business in the group. Netherlands is at 27%, and Germany is around 31% in terms of tax rate. If you put everything into the mix, you get to around 26%. Bank levy, two years. We just followed what the Austrian government announced, so we have no insights into it.
They said they will move the bank levy from currently EUR 170 million for the full sector, the total banking sector in Austria, to EUR 500 million in 2025 and 2026. For us, that means we are going from EUR 8 million roundabout to EUR 25 million for the next two years. Our total reg charges going from EUR 15 million to EUR 40 million. That's what's in the numbers. By 2027, the government said they will drop it to EUR 200 million again. So similar level that we are seeing as of today, and that's also reflecting the 2027 number.
Thibault.
Can you hear me? Yeah. Another question. I mean, you're highlighting in the slide that you have this EUR 1 billion of dry powder for M&A. There should be another tool in your toolkit now that is that thanks to all the great work you've done over the last few years, that you have a stock that is actually well valued that could also be used to fund M&A. So you've not mentioned that anywhere on the slide, but would that be something that you would consider potentially? And also, would that new tool also allow you to look at different types of assets in terms of size or in terms of even valuation given how the stock is swelling? Thank you.
Thanks, Thibault. Absolutely. I think if you have a currency that's incredibly valuable, we would be remiss not to use that as part of our acquisitions. I don't think we're at that point yet, but I think if everything comes to fruition and things come to fair value, hopefully, we'll be at that point and we'll be able to use that for our acquisitions, and then the second part of the question, what was it?
You don't mention it.
If you look at the M&A activity you've had, they were.
They're all sized, right?
Yeah. They were more focused on restructuring, turnarounds, run-offs, and value plays, right? So does it allow you to look at also bigger assets or more expensive assets, basically?
I'd say, Thibault, I think earlier we were doing more of the value turnaround opportunities. The last two, I would say, are less value. They're great franchises. I think we were disciplined in how we bought and kind of how we priced those particular opportunities.
We ran out of battery.
Okay.
Can you hear me?
Yeah.
Okay. Did it die out earlier or?
No, no, just random.
Okay. As far as the currency, obviously, we'll use that. We're not reluctant to use that. I don't think we're at that point yet because I think it would be dilutive. As far as the deals, the two deals that we did, I would not say they're value plays. I think they're great quality franchises. But we were disciplined in how we bought them, right? And I think that's EUR 600 million of capital. We generate also we create that value in the EUR 350 million of pre-tax profit. So there's work that goes into it, and you have to price that into any deal that you're doing. But we'd love to, I think, look at a whole host of things, quality franchises. We just are disciplined in how we buy things.
And like we said today, I think the questions around the cross-sell, the growth opportunities, we just don't factor that in because when you do that, you start to, I think, overextend yourself. And we try to be disciplined. Did we lose deals in the past that we should have probably pursued because we were too conservative? Probably. I can think of one or two. Are we reluctant to go after bigger deals? No. We'd love to go after bigger deals, but it's a matter of what's available. And A, is there a willing seller? B, is there a willing buyer? And can you come to terms on price? So that's something I think we'll try to continue to be disciplined on. So you're right. The currency makes a difference as well. I don't think we're there yet either. Other questions? Anything online? Okay.
So I think that wraps up our Q&A session. Again, I want to thank everybody here in the room, investors and analysts, as well as the many attendees online. This was great. I hope you guys appreciated this, and this provided a little more insights into how we run the bank. And we tried to be as clear as possible as far as our targets. So thank you. And yet again, thank you for all of you who supported us as far back as our IPO. We don't forget things like that. So I hope you guys continue to support us, and we'll do our best to deliver results. Thank you.