Good day. Thank you for standing by. Welcome to the BAWAG Group preliminary full year 2022 results call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you will need to press star 1 and 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one and one again. Please be advised that today's conference is being recorded. A transcript thereof will be publicized on the website. I would now like to hand the conference over to your speaker today, Anas Abuzaakouk, CEO. Please go ahead.
Thank you, operator. Good morning, everyone. I hope everyone is keeping well. As usual, I'm joined this morning by Enver, our CFO. Let's start with the summary of full year 2022 results on slide three. For the full year 2022, and on an adjusted basis, which excludes the City of Linz write-off, we delivered net profit of 509 million, earnings per share of EUR 5.81, and a return on tangible common equity of 18.6%. The underlying operating performance of our business was very strong, with pre-provision profits of 849 million, up 14% versus prior year, and a cost income ratio of 35.9%. Total risk costs were 122 million, of which 39 million were related to continuing to build up our management overlay provision.
The fourth quarter was strong, with a net profit of 132 million and a return on tangible common equity of 19.6%. Despite accounting for the unwind of the TLTRO hedge, resulting in a net negative impact in other income of 14 million and booking an incremental 18 million to our management overlay provision. We delivered on all our 2022 targets, with profit before tax over 675 million, return on tangible common equity greater than 17%, and a cost income ratio under 38%. We also distributed 592 million of capital in the form of a EUR 267 million dividend and completed a EUR 325 million share buyback during 2022, reducing our share capital by 7%, which now stands at 82.5 million shares.
In terms of customer loan growth and capital, average customer loans were down 1% quarter-over-quarter and up 4% versus prior year. We generated 250 basis points of gross capital for the year. We ended the year with a CET1 ratio of 13.5%, net of the 2022 dividend accrual, and excess capital of EUR 261 million versus our CET1 target of 12.25%, with an additional management overlay provision of EUR 100 million, equal to almost one year of annualized risk costs. We will be proposing a dividend of EUR 3.70 per share, or EUR 305 million, to the AGM on March 31st.
We are purposely maintaining dry powder for organic opportunities and potential M&A in the coming quarters, while staying conservative given the overall uncertain macroeconomic environment. If specific opportunities do not materialize, any potential buyback in 2023 will be under 100 basis points of CET1 as we remain prudent and conservative. Above all else, we aim to be good stewards of capital, making sure we are prudent in our capital distribution plans, maintain our fortress balance sheet, and be ready to capitalize on unique opportunities to grow our franchise. With the strong momentum on the back of a record year in 2022, we are setting the following targets for 2023: A profit before tax greater than EUR 825 million, a return on tangible common equity greater than 20%, and a cost income ratio under 34%.
We are also targeting earnings per share of greater than EUR 7.50 per share and a dividend per share of greater than 4.10, which excludes any potential buybacks. We are accelerating and upgrading our 2025 financial targets, which we set during our investor day in 2021 to this year, 2023. Despite our strong record of performance over the past decade, with an average return on tangible common equity of approximately 15%, we have under-earned over this period defined by negative interest rates. We have an opportunity to deliver more normalized returns in the years ahead. Going forward, we are targeting a return on tangible common equity greater than 20% and a cost income ratio under 34%. We should never confuse the benefits from a normalized interest rate environment with the daily execution of our strategy.
Our focus on managing costs and maintaining a conservative and disciplined risk appetite are more important than ever. The resilience of our franchise lies in our ability to consistently deliver results for our stakeholders across all cycles. Moving to slide four, a recap of our full year results. We delivered a full year adjusted net profit of EUR 509 million and an EPS of EUR 5.81 per share, up 6% and 8% versus prior year, with a return on tangible common equity of 18.6%. Overall, strong operating performance across the board, with operating income up 8% and operating expenses down 2% versus prior year. Risk costs were 122 million, up 28% versus prior year as we decided to book EUR 39 million of additional management overlay provisions.
Tangible book value per share was EUR 32.78, down 6% versus prior year and up 4% versus prior quarter. This considers the full year 2022 dividend accrual of EUR 305 million. On slide five, our capital development and distribution plans. At year-end 2022, our CET1 ratio was 13.5%. We generated 250 basis points of gross capital as we continue to consistently generate significant amounts of capital despite negative impacts to OCI from both credit spread widening and FX movements. As of year-end 2022, and after deducting the full-year dividend accrual of EUR 305 million or EUR 3.70 per share, we have excess capital of EUR 261 million versus our CET1 target ratio of 12.25%.
The acquisition of Peak Bancorp or Idaho First Bank in the United States, which has received shareholder approval but is still pending regulatory approval, will consume 25-30 basis points of CET1 capital. We are purposely maintaining dry powder for organic opportunities and potential M&A in the coming quarters while staying conservative given the uncertain macro environment any potential headwinds. If specific opportunities do not materialize, any potential buyback in 2023 will be under 100 basis points of CET1 capital as we remain prudent and conservative. Moving to slide six. Our retail and SME business delivered full-year net profit of EUR 442 million, up 22% versus the prior year, and generating a very strong return on tangible common equity of 34% and a cost-income ratio of 33%.
Average assets for the quarter were EUR 22.5 billion, up 7% versus prior year and flat versus prior quarter. Average customer deposits were EUR 27.8 billion, flat versus prior year and versus prior quarter. Full-year pre-provision profits were EUR 689 million, up 22% compared to the prior year, with operating income up 12% and operating expenses down 3% versus prior year, resulting from several operational initiatives and the continued focus on driving synergies across the franchise. Risk costs were EUR 81 million, up 34% versus prior year, of which eight million was tied to the proactive buildup of our management overlay provision, despite solid credit performance and a reduction in our NPL ratio to 1.6%, down 30 basis points versus prior year, driven by the proactive sale of NPL portfolio.
We executed on various operational and strategic initiatives last year and will continue to do so in 2023. We expect continued earnings growth across the retail and SME franchise in 2023, driven by strong operating performance despite an expectation for subdued loan growth throughout the year. On slide seven, our corporate real estate and public sector business delivered full-year net profit of EUR 146 million, down 5% versus prior year, but still generating a solid return on tangible common equity of 17.8% and a cost income ratio of approximately 23%. Average assets for the quarter were EUR 15.1 billion, flat versus prior year and down 3% versus prior quarter from proactive portfolio management and deleveraging from customers that are taking a more cautious approach. Pre-provision profits were EUR 242 million, flat compared to the prior year.
Risk costs were EUR 36 million, up 25% compared to prior year, of which EUR 33 million was tied to the proactive buildup of our management overlay provision, despite solid credit performance and a reduction in our NPL ratio of 10 basis points, landing at 70 basis points for the full year. We continue to see solid and diversified lending opportunities with a good pipeline of commitments in the first half of 2023. We will continue to maintain our disciplined underwriting, focus on risk-adjusted returns, and avoid blindly chasing volume growth. Moving to slide 8. Our cash position, including money held with central banks, was EUR 13.2 billion at year-end 2022. Of this, TLTRO III funds accounted for EUR 5.4 billion.
We paid down EUR 1 billion in the fourth quarter, another EUR 2 billion in January of this year. We will pay off the remaining EUR 3.4 billion by June later this year. Excluding TLTRO funds, our LCR at year-end would be 130%, more than ample liquidity buffers. Our investment book or securities portfolio was EUR 5 billion at year-end, up 6% versus prior quarter as we saw more opportunities to deploy capital at higher spreads. The investment book is 100% investment grade, of which 71% is single A or higher, has a weighted average life under 4 years with solid diversification across both geography and issuers. With that, I'll hand over to Enver to go through the financials and outlook in more detail.
Thank you, Anas. I'll continue on slide 10. We had a solid fourth quarter. Core revenues up 3% versus third quarter, with continued growing net interest income up 4% and stable net commission income. Compared to prior year, core revenues were up 9%. Our income was -EUR 14 million for the quarter, mainly resulting from the accounting for the unwind of the TLTRO hedge, resulting in a net negative impact. Operating expenses remained stable at EUR 118 million, reflecting our ongoing disciplined cost control. Total risk costs were EUR 36 million, of which half came from an increase in our ECL management overlay, bringing it to EUR 100 million, which equals a full year of normal risk cost. On slide 11, key developments of our balance sheet.
Average interest-bearing assets and risk-weighted assets were down in the quarter 2% and 3% respectively, mainly from proactive portfolio management and deleveraging from customers that are taking a more cautious approach. Customer deposits remained relatively stable, while we increased our own issues by more than EUR 1 billion or 16% through issuing covered bonds and senior preferred notes. CET1 ratio improved by 50 basis points, net of dividend accrual, while we completed our EUR 325 million share buyback. Moving to slide 12, core revenues. Stronger net interest income up 4% versus prior quarter despite lower interest-earning assets. Adjusting for the TLTRO benefit in Q3, NI would actually be up 6% quarter-over-quarter. Net interest margin improved to 243 basis points driven by high interest rates. Our interest rate sensitivity remains unchanged with approximately EUR 100 million for every 100 basis points.
Given the refixing structure of our assets, it takes around 4 to 5 months to see the full effect of a rate increase reflected in our run rate, which means that the NI improvement will gradually materialize in the coming quarters, and we expect NI run rate to reach the peak around Q2 or Q3 based on the current market rates. Net commission income was very stable at EUR 75 million in the quarter, which also seems to be a good run rate in the current market environment. Despite an overall subdued customer loan growth outlook, we have a very positive view on the coming quarters and expect core revenues to grow by more than 12% in 2023, mainly driven by an increase of net interest income to over EUR 1.2 billion. Moving to slide 13, operating expenses.
We continue to maintain operating expenses at stable levels despite significant inflationary headwinds. We will also continue to focus on absolute cost out targets through multiple initiatives, including continued process streamlining and ongoing centralization of group functions. For 2023, we are confident to manage operating expenses at +2% year-over-year, considering wage inflation effect and consolidation of Idaho First Bank. Taking into account significant improvement of operating leverage, we target a cost-income ratio of under 34%. Slide 14, risk costs. Overall, stable underlying trends and strong asset quality with a record low NPL ratio of 0.9%. The underlying risk cost run rate stands at EUR 18 million for the quarter.
We added another EUR 18 million to our ECL management overlay, which now stands at EUR 100 million and is equal to a full year of normal risk costs, which we believe is a very prudent and comfortable buffer for any unexpected developments. For 2023, we expect an underlying risk cost ratio of around 20-25 basis points, assuming no releases of the management overlay provisions. With that, I'll hand back to Enver to go through the outlook and our performance since IPO.
Thanks, Enver. On slide 16, our outlook for 2023 and targets. As we enter a normalized interest rate environment, we are targeting core revenue growth in 2023 of greater than 12% with a net interest income of over EUR 1.2 billion while containing operating expenses to 2% growth despite significant inflationary headwinds. Based on stable underlying trends and solid asset quality, the underlying risk cost ratio is expected to be between 20 and 25 basis points. With the strong momentum on the back of a record year in 2022, we are setting the following targets for 2023, a profit before tax greater than EUR 825 million, return on tangible common equity greater than 20% and a cost income ratio under 34%.
We are also targeting EPS of greater than EUR 7.50, and a DPS of greater than EUR 4.10, which excludes any potential buybacks. On slide 17, our first five years as a public company. Despite the changing sentiment in equity markets, navigating a once-in-a-century pandemic, dealing with significant inflationary headwinds and escalating geopolitical conflict, we have stayed the course, focusing on the fundamentals of running a good business, not chasing the latest fad or short-termism, and focusing on the things that we can control. We've strengthened our franchise by consistently growing earnings, improving our operating performance, and being good stewards of capital. When comparing 2017 to 2022 results, we grew absolute core revenues by 32% and reduced operating expenses by over 10%, resulting in absolute pre-provision profit growth of 43%.
In 2017, we delivered a return on tangible common equity of 15.6% and a cost income ratio of 47%. Five years forward, we've improved return on tangible common equity by three percentage points to 18.6%, reduced our cost income ratio by 11 percentage points to 36% and reduced our NPL ratio by over 50% from a already starting low point of 1.8% to a record low 90 basis points. We improved on every operational and financial metric by focusing on the things that we can control, being patient and prudent in pursuing sustainable and profitable growth. On slide 18, a summary of capital generation and distributions since our IPO. Since 2017, we have generated an average of 220 basis points of gross capital per year despite the volatility of the pandemic years.
We take pride in being good stewards of capital and aim to always be disciplined in our capital allocation. We paid EUR 1 billion in dividends equal to EUR 10.96 in cumulative dividends per share. We completed share buybacks worth EUR 725 million, reducing our total share count by 17.5% to 82.5 million shares. We executed our buybacks at an average cost of EUR 41 per share. We will be proposing to the AGM a dividend payment of EUR 3.70 per share for 2022, equal to EUR 305 million to be paid on April 6, 2023, subject to shareholder approval. This will take total distribution since our IPO in October of 2017 to over EUR 2 billion.
We also completed seven M&A transactions that were all self-funded and continue to build out our customer franchise. During the same period, our total shareholder return was over 30%, outperforming the benchmark European bank indices, the SX7P and the SX7E by 38 points and 43 points as of year-end 2022. For 2023, we are targeting an EPS of greater than EUR 7.50, a DPS of greater than EUR 4.10, and expect gross capital generation of over 275 basis points. With that, operator, let's open up the call for questions. Thank you.
Thank you. To ask a question, you will need to press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. We will now go to our first question. One moment, please. Your first question comes from the line of Hugo Cruz from KBW. Please go ahead. Your line is open.
Hi. Thank you very much. Just wanted to ask about NII and then M&A opportunities. On NII, can you please tell us the big assumptions behind your 2023 guidance, you know, around your arrival rate, deposit betas, loan growth? Has your sensitivity to further rate changes changed versus 3-quarter results? Related to these, you know, the current interest rate forwards imply a lower ECB deposit rate in 2024 versus 2023 year end. You think this could mean lower NII for BAWAG in 2024 versus 2023? On an M&A, and this relates to capital returns, you know, it sounds like you are assessing a few opportunities. Could you give us just a little bit of color there?
What kind of businesses or portfolios are you looking to acquire, and what could be the potential size? Thank you.
Thanks, Hugo. Enver, you wanna take the NII, and then I'll take the-
Yeah, sure. I think there were a couple of things on the NII. I think for this year, our assumption is based on the current Euribor forwards, which are around 340 at a peak, and then going down below 3%, and then next year, as you pointed out, will go down, I think, to 280 or 260. Starting with 2023, I think we said on the call, we expect muted loan growth, so we do not expect, you know, a significant recovery on that front. It's kind of based on stable to slightly increasing asset base. On the deposit betas, we don't disclose the exact number, but we said on average, this is going up to 40% on the deposit betas itself.
Just in terms of timing, I think, which is important to understand, we are always lagging a bit behind the current NII, on, in the current NII. What you see reflecting in Q4 is pretty much based on Q3 rates. What you are going to see in 2023 is always a quarter almost behind the current market curve, which, going into the question 2023, 2024, you know, helps a bit because you benefit from the tailwind. We don't give exact forecasts for the outer years, but I would look at it in the context of kind of stable, not declining NII in 2024. I hope this was helpful.
Thanks, Enver. Hugo, on the M&A front, I'm sure we'll get a number of questions. I'll try to be consistent. We are looking at a number of opportunities from small bolt-on acquisitions to potentially larger opportunities. We won't share more details than that. You've seen our track record. We've done 12 deals since 2015, and we've tried to be kind of consistent in our approach. Hopefully if one of these things materialize, we'll be able to provide more detail. That's why we're being prudent at the moment in terms of our excess capital. We've been committed to buybacks over the years. We've done EUR 725 million of buybacks.
I think we've been, we tried our best to be good stewards of capital, but we also see potentially unique opportunities and, we're gonna see how it develops over the course of 2023.
All right. Thank you.
Thank you.
Thanks.
Thank you. We will now go to our next question. One moment, please. Your next question comes from the line of Gabor Kemeny from Autonomous. Please go ahead. Your line is open.
Hi. Thank you. Just following up on the share buybacks. When you say you would not do more than 100 basis points in the absence of M&A, can you elaborate a bit further on this? I guess the starting point is more than 100 basis points of excess capital above your CET1 target. Just looking at your capital generation per year, looks like that is actually close to 100 basis points on the basis of what you delivered last year, for example. I guess my question is, why would you want to end the year at a similar capital buffer and not pay out more potentially if your capital generation remains similar? That's the first question.
My second question is also on the share buybacks. If I'd like to understand if the valuation of the shares play into your decision to buy back shares at all. I guess your shares are trading at around 1.7 times tangible book as we speak. It used to be more like 1.3 in the middle of 2022. My final question is just a technical one on the TLTRO accrual. Did I understand correctly that the quarter-on-quarter impact from lower accrual was around EUR five-six million? Thank you.
Thanks, Gabor. You wanna go and take the-
Yeah, sure.
The technical good stuff.
I think on the TLTRO, yeah, correct, Gabor. It's EUR 5 million-EUR 6 million. It would compare the NII EUR 270 million in Q4, would like for like be at EUR 254 million, EUR 255 million in Q3. Going back to the capital questions, 100 base points or up to 100 base points, versus technically we would have 125 base points, versus our CET1 target, right? If you consider Idaho First Bank, which will consume 25-30 base points, that's why we gave the guidance on the 100 base points, which is simple math. The 125 less 25-30 gets you to the below 100 base points.
You also asked, I think, will we end the year-end 2023, I guess, at the same capital buffers and why we don't do more on buybacks? Just the technical timing, right? You will have, you know, we will have generated very likely, you know, earnings and gross capital generation by year-end, but then that take goes into the next year distribution and capital distribution discussion, not this year. I think the last one was on the valuation.
No. Gabor, on the valuation, look, we try to be, again, good stewards of capital. When you're making over a 20% ROTE as we're guiding for 2023, and kinda that's what our normalized return outlook is going forward, you put a whatever cost of equity on what you believe the company is. We still think at these levels it's, you know, it's accretive to buy back your stock. It's gonna be part of our capital framework or part of our capital tools to buy back stock. That's not what's driving our consideration, in terms of how we're treating our excess capital. It's about the opportunities set that we see.
That is the single, largest factor in terms of why you're not seeing, more of a discussion on the buyback today, is we just see some interesting opportunities. But if those don't materialize, what we always say during the course of the year, we'll look to execute hopefully on a buyback. I hope that's not the case, but we'll see what happens.
Okay. That's clear, I think. Thank you.
Thanks, Gabor.
Thank you. We will now go to our next question. Your next question comes from the line of Mehmet Sevim from J.P. Morgan. Please go ahead. Your line is open.
Good morning. Thanks very much for the presentation and for taking my question. I'll have a couple follow-ups, please, to the previous questions. Firstly, on the NII guidance for 2023, may I please ask about your guidance, particularly in relation to your previous sensitivity of 200 million uplift. Sorry, for the first 200 basis points of rate hikes? Because if you look at what rates are, and I understand you're using the forward curve in this guidance, it seems beyond the first 200 basis points, your guidance implies a very, very small benefit. Is there any color you can provide, particularly in relation to your previous sensitivity?
If I may also on the costs, what are the assumptions underlying the 2% cost growth target, which is obviously very impressive still, and which I'm sure is still on the conservative side. Are you able to talk about the individual components there, and how you see trends, this year? Finally, if I may, on the buyback again, your guidance of up to 100 basis points, I think brings the total payout to just 100% of last year's adjusted earnings, you know, if you take into account the 60%, dividends as well.
Does this decision have anything to do with the level of payout relative to earnings going forward, particularly taking into account the, you know, difficulties of getting the approval last year because it was excess, and how you're thinking about therefore, can we think that, you know, the strategy is shifting towards a more regular ordinary buyback with total payout below 100% going forward? Thanks so much.
Thanks, Mehmet. I'm gonna turn it over to Enver.
I'll start with the last one. You're absolutely right, Mehmet. In the past we had a situation of, you know, building up significant amounts of excess capital, which was due to different reasons. I think in the future we would like to actually to be more regular, have a regular cycle on distributions including, you know, dividends and buybacks, which most of the cases should end up, you know, below 100% of earnings, which should also help with the overall process. On the NII guidance, on the sensitivity, nothing has really changed. If I just go back a bit, right?
If I look at the world kind of before the rates started going up, we had an average NII for the quarter, even, you know, not considering the TLTRO and everything, but around EUR 240 million used to be our run rate. Currently we reported 270 million, okay? That's 30 million up or 120 million up for the year. That, if you go at the Euribor in Q3, that was pretty much where we have seen the first kind of 100 basis points uplift. If I look at the forward rates, there is another, compared to that level, 200 basis points, right? That will go from 100 to kind of 300 level. If you look at our guidance, we are guiding for another pretty much 200 million uplift on the NII.
It's been very consistent. It is 100 basis points, delivers 100 million of NII. Nothing has really changed there. I think on the cost components, the underlying assumptions, I think that the biggest two drivers is wage inflation and also taking into account the consolidation of Idaho First Bank. Net-net, we would have been probably stable, around stable without Idaho First Bank on the underlying. The wage inflation is gonna be in our forecast between 7%-8% is the underlying inflation that we consider.
That's super helpful. Thanks so much, Andre.
Sure.
Thanks, Mohammed.
Thank you. We will now go to our next question. Your next question comes from the line of Mate Nemes from UBS. Please go ahead. Your line is open.
Yes, good morning, thank you for the presentation. I have two questions, please. The first one is on on loan growth and expected volume growth in 2023. I hear your comments regarding perhaps some slower growth in this year. I'm just wondering, did you explicitly expect the situation on the retail side where outstanding loans decline from current levels, i.e., fairly subdued origination in consumer loans and maybe still some fairly tight underwriting in housing loans? That's the first question. The second one is just going back to potential M&A.
I understand you can't really go into the details, but just conceptually, wondering if the fact that we are in a higher interest rate regime now, perhaps changed a little your desired profiles for the businesses that you're looking at. Also I'm just wondering whether in this environment you're still looking to perhaps get around mid-teens or high teens type of ROTEs, when deploying capital into M&A, or has that also gone up and it should be more or less in line with the 20% that you're targeting? Thank you.
Do you wanna take that question?
Yeah, sure.
Thanks, Mate. Andre, you go.
I think on the loan growth, Mate, what we have seen is, yes, it's tight underwriting, especially on retail on the consumer side, but that should be rather stable because the impact on rates is limited. On the housing loans, that's where we have seen a decline. Just, you know, customer loan demand has dropped significantly in the second half of 2022. We expect a bit of a recovery, but it will take some time. That's why we are quite cautious on the loan growth in 2023. I guess potential M&A?
Yeah. Just to add on to that, what Andre has mentioned, Mate. You know, if you look at our targets for 2023, we're just being cautious. If you assume when we say subdued loan growth, just assume it's static year-over-year from where we're at, we'll still deliver the results or targets, absent obviously things that are out of our control. I think we're trying to be prudent. You do see an impact on the overall market, and we're more cautious. Obviously the start of the year I think is more positive than most people anticipated, and we'll see how things develop. We're just trying to be cautious in terms of our overall look. Plus, we don't give volume targets, we've never done that in the past, and we'll see how the market develops.
As for M&A, absolutely, the return targets or thresholds follow the return thresholds for the whole bank, right? Franchise, which is over 20%. The dynamics have changed. Does the interest rate environment fundamentally change how we look at our opportunity set? Not really. I mean, you know, we tried to, I think, hammer home this point a few times this morning. Despite a normalized rate environment, the things that have made us successful over the past decade and the past five years since coming public, is really focusing on kind of operational rigor and having a disciplined risk appetite, looking at risk-adjusted returns. We take that same approach when we underwrite potential M&A, when we look at balance sheets and kind of the credit risk that we're looking at.
That's not gonna change, and it doesn't really change our valuation, 'cause the things that we look at are typically underperforming, right? That's something that hopefully, we'll see if there's these opportunities materialize, but those principles are pretty consistent regardless of the rate environment.
Thank you.
Thanks, Mate.
Thank you. We will now go to our next question. Your next question comes from the line of Johannes Thormann from HSBC. Please go ahead. Your line is open.
Morning, everybody. Johannes Thormann, HSBC. Just first of all, a follow-up question on your NII guidance. What are the underlying assumptions for your 40% deposit beta? Any shift in your deposit structure? Probably, what is the current structure currently offsite and interest-bearing deposits? That's my first one. Secondly, if we look at the muted fee income outlook, what is driving this? Rather the payments or the securities business or both? Could you probably add more details on that, please? Last but not least, what kind of Austrian wage agreement is baked in your 2% cost increase? Thank you.
Yeah, I'll take it.
Thanks, Johannes.
On the outside with the last one. On the agreement, it's not done yet. You know, there are still negotiations going on, but we have two agreements that are relevant for us. The one has been signed already, I think, at 7.5% early this year, and that's pretty much the same assumption that we take on the other one. We have a servicing collective bargaining agreement, a banking collective bargaining agreement, and we both see around 7%-8% that's baked into our +2% cost guidance for the year. On the NCI, it's really on the advisory side. Payments, you know, after the pandemic has recovered significantly and it's been quite stable. It really depends if the uncertainty goes down.
If it goes down, we see more appetite on the customer side to invest again. Right now, you know customers are quite cautious and a bit on the sidelines. The main driver behind that is really the market uncertainty in the advisory, in the advisory part. Structure of the deposits, very consistent with the overall market, you know, the overall market in Austria is, I would say, 80%-90% site deposits. That's where we are as well. We are completely in line with that. We see a bit of a shift probably over time to term deposits, nothing significant yet. It will depend probably on the kinda terminal interest rate.
You know, it's kinda nice, kinda, you know, corridor to be between that 2.5% and 3% terminal rate because it's not too high, it's not too low. We don't think that the overall structure will change significantly, at least in the next couple of quarters.
Okay, thank you.
You're welcome.
Thank you. As a reminder, if you would like to ask a question, please press star one and one on your telephone. We will now go to our next question. Your next question comes to the line of Simon Nellis from Citi. Please go ahead. Your line is open.
Oh, hi, Enver. Hi, Anas. Thanks for the opportunity.
Hi.
A few technical questions remaining from me. Firstly, on risk weight density, I saw that it came down a bit in the quarter. Can you just unpack that and tell us where you think risk weight density will be going forward? I also saw the tax rate was a bit higher in fourth quarter versus earlier quarters. Is that gonna continue? Then on the dividend payout, you paid out, I think 59% of adjusted earnings. I guess that's higher than your dividend policy. Are you planning any change to dividend policy? I didn't see anything flagged. Then last, can you just unpack the consumer asset quality? I think in the past you said you were a bit worried about that, but it doesn't sound like you're as worried anymore given the risk cost guidance. That's it. Thanks.
Thanks, Simon. Rick, go on. Yeah. Thanks, Simon. On the RWA density, this is more technical because we have seen more deleveraging on the corporate side with high RWA density. That's why the overall mix change. That's the only reason. There's nothing more to it. On the tax rate, we had a bit lower tax rate in the first half. On average, I think it's around 25% for the year. The bit lower tax rate of the first half is now compensated a bit higher, but it's around, you know, less than one percentage point. On average is 25% is a good assumption on that. Dividend policy, no. We don't adjust the dividend policy.
It's 55%, which we decided, like we did also in some of the prior years, just to increase it, which you can read as a bit of an add-on dividend. In terms of credit risk, yes. I mean, the underlying trend looks very robust, still we are very cautious. We don't know what's gonna happen right now. You know, we don't see any deterioration of the portfolio, even to the opposite. You know, as we have shown, you know, it's a record low NPL ratio, and actually the underlying credit risk costs have been quite low for the quarter. We are, you know, quite positive about 23. We're trending at delinquency rates below pre-pandemic levels. Yeah.
If you take that and you take the adjusted underwriting over the past few years, and I think we've mentioned this a few times, we feel like we're in a pretty good spot. I would just caution, right, you know, I think everybody started the year, people feel really good. We're just kind of taking the long view to see how things play out during the course of 2023. We feel good about the overall asset quality, and I think we have more than enough buffers if, you know, things do materialize to the negative. That was why we put 100 million in management overlay, right? That's purely a management decision because of the uncertain outlook, so. Which was more, I guess, uncertain the fourth quarter than what we're seeing today. I still think it's still got legs.
Thanks, Simon.
Understood. Thank you.
Thank you. We will now go to our next question. We have a follow-up question from Hugo Cruz from KBW. Please go ahead. Your line is open.
Hi. Thanks again for the time.
You're back, Hugo.
Yes. I wanted to ask you a little bit more about deposits. I've heard you about the betas and the structure. I was wondering if you could give a little color around competitive dynamics, both pricing and volumes, for each segment, you know, Austria, you know, branches and online, you know, outside Austria. That'll be great. Thank you.
It's really hard to understand you, Hugo. I don't know. The line was real bad. Could you maybe repeat the question, please?
I, sorry. I just wanted to know if you could give a bit more color on competitive dynamics for your deposits, you know, around pricing and volumes.
Yeah.
-about the different segments, you know, the branches and online, ex-Austria. That would be very helpful. Thank you.
Yeah. Okay. We don't really see a lot of kind of pricing dynamics right now in Austria, which is, you know, main source of our deposits. Majority is through the branches. You know, we don't really have a lot of pure online deposits, maybe from the easybank franchise, that's it. Do we expect that it's gonna change? Probably. We expect in our forecasts, you know, in 2023 and 2024 that there will be a high pass-through on the deposit side. Overall, the market has been very stable. If you look throughout 2022 in terms of pricing, but also total volume, it hasn't really changed. Not a lot of dynamics, but we expect changes in the next two years.
Thank you very much.
You're welcome.
Thank you. I will now hand the call back to CEO, Anas Abuzaakouk. Please go ahead.
Thank you, everybody. Appreciate you guys joining the call this morning. Look forward to catching up with you during our first quarter results. Take care. Have a nice day.
Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.