A wonderful good morning, ladies and gentlemen. I would like to welcome you for the presentation of the half-year results of the Erste Group. If you're following the live stream today, I would like to ask you to ask your question even during the press conference in our online tool. After the press conference, during the Q&A session, I'm going to read out your questions. For those in the room who have questions after the presentations, please wait for the roving microphone so that the colleagues in the live stream can hear your questions as well as the answers. Thank you very much, and I'd like to hand over to the CEO of the Erste Group, Willi Cernko. Thank you.
Allow me to start with a quick look back to the year 2022. Without any doubt, you can see that we had excellent growth rates in the region.
Please don't forget that this also reflects some catch-up effects from the COVID pandemic. Let's take a look at the current year. You can see that we have a quite a differentiated picture. You see moderate growth, but we must not forget that it's not too long ago that there have been quite a few people who would have bet that we would have a major recession, but this didn't happen. This isn't the case. You see somewhere between 0% and 2% growth, and of course, we should not forget the fact that this economic area is also largely dependent on the developments in Germany and the economic development in Germany, which in the past two quarters has experienced a technical recession, and now we are seeing 0% growth, more or less. Looking forward, you can see clearly some positive first results.
We're convinced that these positive signals will also materialize, and it's important to show that this region, where we are invested in long term, will continue to show better growth than the rest of the Eurozone countries. Why is that? Well, at first, because the transformation of the economy into a sustainable economy will happen on a major scale. There's a lot of finances available for 2023 all the way until 2027. In this region, we are talking about funds worth EUR 150 billion. You can see that there are opportunities to grow. We are convinced that these opportunities will be made good use of. Let's take a look at the budget deficits.
What we are seeing is that, well, there are some downward trends that we are clearly seeing here, and there are also numerous one-off support measures in the various countries that are expiring. There's also a common approach that, any further support measures will be much more targeted than has been the case in the past. Now, let's take a look at, state debt. Public debt levels for the Maastricht criteria, that is something that has been reduced in terms of no longer being at the top of the agenda, but there are some positive trends on the one hand, and on the other hand, there's also some leeway for future challenges. Of course, we should also consider the EU funding that's available for the transformation of the economy, and I think that we can be quite optimistic.
As far as the inflation dynamics are concerned, it's also showing a downward trend. We have to say quite clearly that we were surprised because originally the expectation was that we would see completely different rates of inflation in 2023. This didn't happen, so we did see that inflation is still sticking around in a stubborn way, and of course, this also means that maybe we reacted too late. Of course, let's not talk about bygone things. We believe that in 2024, we will see a strong downward trend. As far as the 2% goal is concerned, well, I think it'll take until 2025 or 2026 until we see 2% interest rates.
If we take a look at the interest rate developments, the expectation that interest rates will move south very quickly, well, this is something that we, we cannot confirm. What we are seeing is that the interest rates have leveled off. We're no longer talking about we have seen the peak, but what we are seeing is that probably the interest rates will remain at this level for a longer period of time. Now, let's look at the Czech Republic. This is also a historical look back at the past, and in the first quarter of 2023, there was expected to be a reduction of interest rates. That hasn't been the case, and now the Czech National Bank has recently stated that the level of 7% will be continued throughout the year.
Of course, we are still optimistic that in 2024, we will see some first rate cuts, and maybe in a more moderate direction. I'm not talking about a crisis, but this is a challenge, and we are seeing a very robust employment market. Of course, there's also the other side of this medal. The employment market is very robust, the labor market is showing strong signals, and there's also a shortage of skilled workers. Not only that, there's also a shortage of workers of various levels of qualification, also auxiliaries. What is an issue here is that we have not really diverted our full attention to the problem of what we need to do in Europe, what we need to do in Austria, in order to make sure that we facilitate the immigration of qualified workers, of skilled labor.
I've. Well, I think we need to look at people who are coming here to fulfill their dreams, people who are university graduates. Two-thirds of the people with a university diploma go to Australia, the U.S., or Canada. Well, why are they going there? This brings us to the capital markets. They can realize their dreams there. They can fulfill their expectations. They don't come here to have a 32-hour working week. No, they want to go where they can best fulfill their dreams and their ideas. I believe that the labor market and the opportunities that arise out of this situation of the labor market should be focused on. We should make sure that qualified individuals, people who want to make a contribution to this urgently needed transformation, that these people find a safe haven, a safe haven here.
We also need to provide them with the right setting to make sure that this becomes an opportunity for them, and funding and bank loans alone will not be enough for that. Let me hand over to Alexandra.
Thank you very much. Really, the unemployment rate is a good password, as the labor market is a very strong pillar when it comes to the risk profile. You can see that, in spite of an unchanged, very demanding environment, we see a stable situation and the risk situation on a very high level. What does it mean by way of figures? To remind you, because this is not self-explanatory, we show our risk costs in basis points of the credit volume. If we take 2022, 15 basis point means 0.15% of our loan volume. When you see a minus before the figures, which was the case in 2018 and in the first half year of 2023, this is a net release. We did not form as many risk costs as we then released.
What does it mean for the first half year? We of 2023, we have three basis points. This is about EUR 800 million less in provisions than released. What is the reason for this? It does not have to do with the fact that our crisis-related risk provisions would have been released. You see it on the right-hand side. In the first half year of 2023, we have roughly EUR 900 million of risk-related loan provisions, which have been on our accounts, and they remain available also in the future. The macroeconomic environment, should the macroeconomic environment and the portfolio worsen, we have hardly any losses. This was the case in the first and in the second quarter.
There's one or the other individual loss, but there is no structural worsening in the portfolio, in any parts of a portfolio or a segment. Throughout our whole region, we see the same very positive picture. This then brings me to the next page, our non-performing loan ratio. You do not see it on this transparency because it is rounded to 2%. It's 1.97%, to be exact, for the first time in our history, we are at an NPL ratio of below 2%. The NPL coverage, that is the extent to which the non-performing loans are covered through provisions, not through collaterals. They would come on top, but only merely through balance sheet provisions, and this is nearly 100%.
For the overall year of 2023, we do assume, from what we've seen in the first half year and in July, that the NPL ratio will not change massively. It'll stay at about 2%, maybe a bit slightly higher, but only to a minimum extent. The NPL coverage ratio will slightly go back, but also on a very high and comfortable level. Why is the situation so good? Why do we have a positive risk cost in the field of net release at such a low NPL ratio and such a high coverage? I may be repeating myself, but it's important to stress that this is the result of a very disciplined and responsible loan granting over many years. This didn't happen recently.
We are speaking of at least 10 years of very responsible change standard for the granting of loans that lead to such quality in the portfolio. Of course, we have a very strong labor market, which is also a very important driver for the retail portfolio. Here we see no worsening in the ability of our customers to pay their loans back and no higher losses either. We see a very, very strong and resilient business environment, which reacted very flexibly to the many challenges of the recent past. As I said before, there has been adequate- have been adequate state support during Corona.
You see me, you see us here in a very confident mood, where our starting position is an excellent one, and our customers, when it comes to financing technological transformation, our customers will be accompanied very reliably. I would like to pass on to my colleague, Stefan Dörfler. Thank you very much.
Operating income is rising significantly. Why is that? Well, in our core business, we built up our business over many years, and we have a loan portfolio that has a very high quality, as Alexandra has just said. Of course, the rising interest rates are helping us in the short term, but the net interest income is carried by the strong loan portfolio that has an optimum quality. For liquidity purposes, we also hold an investment portfolio, and we have to, of course, have that portfolio. That's also benefiting and receiving some tailwind from the higher interest rates. Now, it's important to point to the net fee and commission income.
That is a strategic, of strategic importance for us, that it is profitable, this net fee and commission income. It's supporting us for further investments. We've seen a continuous improvement. Now we have EUR 1.275 billion that we generated in the first half of the year. Now, let me briefly talk about the net trading and fair value result, gains and losses from financial instruments at FVPL. Due to the turbulences in the market and due to the short-term rising interest rates, it came under pressure. This year, it is normalizing again. In a year-on-year comparison, we have a positive contribution from the net trading result. It is not our main goal to increase the net trading result. It's back to normal, I would say. Now, let's take a look at the operating expenses.
It is hardly surprising that enormous inflationary pressure has also had a significant impact on our costs. For the full year of 2023, we expect our operating expenses to rise from by 9%, maybe even a bit more, and the personnel expenses have gone up by 12%-13%. Now, the background of this is, first of all, the strong inflationary pressures across all the countries where we are present. We have also guests from CEE, who are present here physically in the room and also joining us online. In most of the countries of Central and Eastern Europe, inflation rate is higher than the already very high inflation rates here in Austria. That's one driver.
Another driver, and we quite consciously decided that in countries such as the Czech Republic or Romania, we would use the good income situation in order to invest into our digital future. You can see by the headcount in those countries, and it's also been the case in Austria recently, we are pursuing very ambitious goals. Willi Cernko has reported on this repeatedly, and that, of course, has an impact on our cost base. We do expect that there will be a reduction of rates starting in 2024, which will have the effect of reducing our costs, and the top line will be supported by the investments we're making today. Now, it'll be very brief and talk about the loan demand, while Ingo Bleier as well as Willi Cernko are going to discuss this business development in corporate and retail in more detail.
The loan deposit ratio in all countries, those are the aggregated numbers that you're seeing here. The loan deposit ratio is very healthy in all countries, which is quite important in a year where liquidity has created some stress in the market. We are extremely well-positioned, and our loan deposit ratio level is very good. This brings me to the last two slides that I would like to share with you, and here I would like to emphasize, on the one hand, that in 2023, so far, at the half-year date, we had a total net result of a bit less than EUR 1.5 billion. I've already discussed the operating income, the operating expenses, and Alexandra Habeler-Drabek talked about our risk costs. We must not forget taxes and other results.
Normally, we don't talk about this very much because it's just a normal item on our balance sheet, but I would like to briefly emphasize this for a few reasons. On the one hand, what's behind this is a very good result of our Sparkassen Group. You know that, savings bank group, the Sparkassen Group, is consolidated, and where we're not, the owner, it's, of course, something that we can deduce from the net result, and would like to congratulate our colleagues so far on this excellent result so far. A higher pre-tax result also leads to higher tax payments, which is only normal, and that is an item which has gone up in a year-on-year comparison, and that's only normal. Last but not least, under other operating results, you can see also the contributions to the Deposit Insurance Fund...
That already happened in the first quarter, but of course, we also need to see it in the full year perspective. On the whole, and this is very important, as many of you know, we are continuing to strengthen our capitalization based on a good, income situation, and this is important for three reasons. On the one hand, this enables us to continue to have a forward-looking approach, a very open and aggressive approach. We've made some small acquisitions, and wherever there are interesting portfolios, well, we try our luck. Sometimes we win, sometimes we don't. On the whole, the result is very satisfactory. We already communicated this morning that the goal for 2023 is EUR 2.7 per share, so we want to offer our shareholders an attractive dividend.
That's part of our overall business model, and we've also expressed this in today's announcement. The third thing, and that is actually the most important point, is the financing of our customer business, and I think this has been done in a very sustainable and a very consistent way in the past, and for that, we need a strong capitalization. I believe this is the right point for Ingo Bleier to take over from the customer business on the corporate side.
Thank you, Stefan. Ladies and gentlemen, what are we doing for our customers in the area of the Corporates and Markets segment? If you take a look at the left graph, you're going to see that the loan growth has slowed down, so the demand for new loans is weaker than last year, where we saw a very dynamic growth of corporate customer loans.
We are still seeing a growth of 3.5% since the beginning of the year, but in the second half of 2022, it was actually 7.5%. That's not the case because, as it is often reported, that we have a more stringent underwriting criteria, or we're pulling the reins tight. No, we are seeing a weaker demand situation in most segments that we are in charge of. What we're very pleased about is that within this loan growth, we also have granted EUR 1 billion worth of green financing. That's financing for renewables, for sustainable and energy-efficient buildings and similar projects. Let me provide you with an outlook. Of course, Willi Cernko will also provide you with another outlook, but it'll be about 5% until... For the full year.
We have seen a very dynamic development of the issuances. In the center of the slide, you can see a diagram that shows you the volume that we are supporting on the capital market. That's IPOs and debentures, loans and Hidroelectrica in Romania. It's a hydropower plant operator listed at the Bucharest Stock Exchange. You're going to see these results in the second half of the year. Even though some markets were closed, we had a very high level of issuances, and we're gaining market shares also from other regional banks. We're also continuing to grow in the area of assets under management. That's the total volume of funds that we're managing in the asset management group. We had a very difficult year, 2022, and this year we have significantly better growth.
We are selling in retail and also for institutional investors, and we are also seeing nice growth in the area of sustainable funds. That's Article 8 and Article 9 funds for the experts among you under the disclosure regulations of the European Union. We are seeing different growth rates, but of course, we continue to see growth on the customer side. This brings me to digitalization. Something we're also doing for our corporate customers is we continue to expand George. In Austria, you will have noticed the George Business campaign. You will have seen many of us with pixels, pixelated faces, on various internet presentations in the first half of this year. Meanwhile, we stand at more than 9,000 corporate customers who are using George Business, and our plan is to continue to roll this out in Central and Eastern Europe.
In the medium term, in the entire region where we have a presence, we want to provide our corporate customers with a unified platform, where we can offer online services. We will mainly offer our own services, but of course, the more customers are on this platform, the more this will be interesting for third parties. We have started some cooperations with providers that are also going to use the George Business platform to offer their services. We started in Austria and Romania. They already started the friends and family phase, as we call it, and at the end of the year, we're going to launch also in the Czech Republic. In Austria, we now have more than 9,000. At the end of the year, we'll probably have 15,000 users of George Business.
I'd now like to hand over to Willi Cernko for the retail segment.
Thank you very much. To take over here, when it comes to retail business and George, with more than 9 million or 10 million are active throughout all the countries, with one exception, that is Serbia. Why not? This has to do with the fact that the current core banking system was rolled out anew, and thus, the prerequisites were created also for Serbia then to make available George by 2025. One more comment on digitalization. When looking into the future, we usually assume, and here I'm speaking of the coming three to five years, we do assume that all those who want to be successful in banking and withstand, the prerequisite will be to have a platform-based digital interactive solution that is made available.
It will become self-evident for people and companies to do their daily business from home or from wherever they may be. This will not be such a big difference that we can make here. In the future, the human factor will be decisive. Given all the digital offer we have or the solutions we are developing, when it comes to decisions that are important for life, this may be the purchase of an apartment, the construction of a house, or some old age provision, or be it the education of someone's children or grandchildren, this is very subjective and individual, but here the human factor comes into play. Our employees, this human factor, needs to be supported also with the help of artificial intelligence in such decisive moments to generate added value.
Let me come back to the retail segment. I'd like to address two topics here. On the one hand, we see interest rate hikes, and we are all asked again and again, without preempting your questions, why the deposit interest rates are not adjusted at the same speed as the loan interest rates? What we're experiencing for the first time in seven years, we have a 0% interest rate and a decreasing, the tendency borne in mind. This is a period of 12 years where we haven't seen any, any interest rate hikes. In our subsidiaries, a quarter of our employees, for the first time in their professional life, have been confronted with an interest rate hike, to put it into the right context.
What we are observing today, we see a very massive tendency towards fixed interest rates, but also a tendency towards the securities business. The securities segment, which we set up some years ago, here we see a clear increase. Together with our customers, we try to make use of the liquidity that is available in the medium and long term, to invest it into forms of investment that may provide for a value increase. On the other hand, when it comes to those liquidity positions of our customers which relate to the coming six to 18, 24 months, which they will not touch, then we would like to provide an attractive interest rate offer. We have adjusted the interest rate levels also after the interest rate hikes by the European Central Bank.
For 24 months, we have 2.75%, and for 12 months, 2.5%, and for less, 2%. These are certain tendencies. There is some movement in this, and this requires a day-to-day liquidity as well. This is something that is not something we can make use of to our full avail, as is the case with our customers. We do see some movement towards forms of investment that also render by far better and more intense results with regard to this interest rate development. As for the second part, the graph in the middle and on the right-hand side covers the funding of the housing loans.
You may have asked yourself, given this modest part of new business, how can it be the case that the stock volumes, more or less, do not decrease, but increase on the contrary? This has to do with the fact that the major part of our customers, over the last years, that is 90% of all customers who asked for a housing loan, agreed fixed interest rates, and at the moment, they do not care what's happening on the interest rate side. Luckily, many customers followed the recommendation and the advice to invest 1.8% to have regulatory security and security of planning, and they now have this advantage.
Many of our customers are not concerned by this interest rate hike, which we find at the time being. There are hardly any paybacks because the customers find themselves in a reasonable financial situation. The portfolio will not be revolving that much. Concerning the volume of new business, here you see a very harsh correction of about 60%. On the very right bar, you see that there is some hope on the horizon, that the soil formation, as we call it, has already happened, and we see some increases. We attach great efforts, and I make great efforts to also fulfill the KIM regulatory framework and to reevaluate it in autumn.
We will do so, and I'm convinced that the reasons, that, but are no longer given for it, and, we should not overlook the fact, and I'm coming back to what Alexandra said, that we, have a very highly regulated, transparent and, business that is closely accompanied by the supervisory authorities, and we do not need any regulations on top. When it comes to the rules of, the, of play, we, do, not have to exaggerate. We do not want to foster speculation. We want to give an opportunity to young people to have their own dream of ownership, of house ownership, be materialized. I'm very optimistic that in autumn we will arrive at a very reasonable discussion, and I do assume that, as in other places, that in the...
As in the Czech Republic, where they have done a very smart move, that we will follow suit and take a similar step. This brings me to the outlook. Some things have already been mentioned. Let me summarize. Nevertheless, we assume that there will be a lending growth of around 5% the first half year. Here, we are still lagging behind, but we are very optimistic that in the second half of the year, there will be some supportive moments that will help us achieve this. We find a very favorable risk environment, which will continue to be favorable for quite some time.
The dividend of EUR 2.70 has been mentioned, and I also find it extremely important when it comes to the location of Austria, Europe, Eastern and Central Europe, I think what is really important is the European funds to provide for financing the green transition. If I may conclude by mentioning these three topics, yes, we have a very good, strong operative result, but we are also convinced that this transformation can only happen when we have a well-positioned liquid part banks. Why is that so important for Europe? The capital market, that this is a wish that this be developed, but the economic situation, the businesses, the small businesses in Europe, to a very high extent depend on the competencies of the banks when it comes to providing the right loans and advances to them.
Subsidies will also play a role, and the capital market needs to be developed. If we want to arrive at a situation where not only well-talented and gifted people move to Europe and materialize their dreams, and if we want this transformation of business and economy to be implemented in practice, there will be no other way to embark on. There's one common denominator: If we want to pursue the goals of transforming the economy into a sustainable economy and business, then we all together speaking of three-digit billion figures that have to be contributed by private parties. Let me give you one reference.
In Europe, the private households have more than EUR 10,000 billions in deposits and cash. By 2030, we will via the capital market, we will require EUR 500 billion. This is a large part of those 10,000. We require the right structures, we require rules and regulations that invite private investors to come on board, otherwise this will not be possible. We will render our contribution for sure. Thank you very much.
We are again, like- Thank you very much. We continue with the round of questions and answers. A colleague from the Czech Republic, please.
Local, the Czech Republic, you, this is the question for... This is a question for Willi Cernko. You emphasized that the developing of the, of, of the capital markets, this is a problem not just for Austria, but the whole of Europe, of course. Can you elaborate a bit on this? What steps do you believe to be, to have to be taken to achieve this? I, I, I think the, one of the first steps will be the abolition of the capital tax, as, you discuss in, in Austria. What, what else? Or the green transition hugely depends on this, I guess. Thank you. Should I answer in English or in German? In English, please. If you, if you, if you can. You would hear it in English in your ear easier. Yeah, it's the translation is a little bit shaky. Not shaky. [crosstalk]. But, not good quality.
Let's do it in English. Yeah. Capital Markets Union is not an idea that is developed ourselves.
... It's a European initiative. What we can see is we are lagging behind in all aspects. What we did, I was in Brussels a couple of months ago. I was forwarding a document with 13 proposals, the way we would, let's say, bring it alive, this Capital Markets Union. There are many, many elements in them. If you wish, if you're interested in, we want to forward to you this document. It's a tiny little paper. It's easier than to run through all the proposals we have, but just to pick one out of it, it is what is the incentive for a private investor to invest via capital market instrument when he is not able to get access to tax benefits?
In Austria, we talk a lot about how long do you have to keep your investment until you have benefit from, from a certain tax benefit. It's an ongoing debate. But we are pretty sure the more we come up with concrete proposals, and the more we, we stress this as a relevant topic to, to get the business transformation, towards a more sustainable business, up and running and really happen at the end of the day, without any capital market, it's not gonna work. I want to forward to you the document, whoever is interested in, we are doing the same.
tell- „ Bitte das Mikrofon warten. Danke.„ Ihnen.
Could you say something about the funding that is made available from Brussels for this transformation? You also talked about the shortage of skilled labor, what does this mean? If we don't have the skilled labor, then we can't invest the money. Nobody in the West will migrate to the East, right? No qualified people will go from West to East. This simply doesn't happen, then those countries, people don't want any migration in the first place. There's a lot of funding that's made available, but there's a shortage of skilled labor. Well, I don't want to have a political discussion about this, but I believe that there are several elements that we need to openly discuss.
I know that when we talk about migration, well, it may sound as if, there's no problem, but if we take a look at where highly qualified people go to, which countries they go to, and why they choose those countries, well, we see the same pattern time and again. It's about where we can implement and realize our dreams and ideas, and those are countries such as the U.S., Canada, Australia, and the U.K. Of course, we can continue to work with the Rot-Weiß-Rot – Karte, the equivalent of the Green Card, but we know at the end of the day why certain highly talented people take their ideas to other countries.
We have highly qualified people, if there is a possibility to realize your own business ideas in those markets, because there is an existing capital market, I know we are starting at a very low level, at some point you need to start, I believe that it's about having the courage to take those first steps. You will see the document that we drafted, this is not rocket science. These are small, practical ideas that we believe will help develop the capital market step by step. That's it. People want to stay in their own country and realize their ideas there. Why do they leave? Because they don't have the right setting and prerequisites there. Ingrid?
Well, I'd like to ask a question. We talked about the capital markets, and this is a difficult issue here.
I know you don't want to start a political debate on this, but how likely is it, and I assume that you also talk to the government or the Ministry of Finance, so how likely is it that anything will happen in the coming five to 10 years in terms of that? Then I have another question: You said that we will have a reasonable debate on the KIM ordinance or the KIM Regulations, so I guess you will discuss this with the capital markets. This is about the funding of real estate transactions. Mr. Bleier, you said that there's a reduced dynamics in, in loans. Can you give us the reason for that?
Let me try to answer the first two questions. Of course, I'm continuously talking also to the Ministry of Finance, but the political reality is what it is.
You can subsume it and, well, they're trying to deal with the difficult jobs. Of course, this is part of my job also, to try to solve these hard cases. If we want the transformation of the economy to really happen, what we should do is, we should give those private households a chance to participate in this green investment opportunities and... to also have some tax benefits due to this increasing value in this segment... If you invest in a capital market product, well, people are still demonizing this at the ideological level. This is almost like you're going to a casino. That's how it is perceived, and we want to make sure that people invest in initiatives that are good for this planet, so that we can also benefit from the added value. We want that.
This is a tool to control the system. If people are invested for a couple of years, they should be able to get this without paying taxes on their capital gains. These are simple instruments that allow you to steer the money to those channels where you want money to go. If you say, "Hey, if you invest here, you will get the capital gains 100% without paying any taxes." It's about creating incentives for people to invest. I'm not going to give this up, because I believe that at some point, we are going to have to come to the conclusion that if we're really going to be serious about this, we need to start now, and it's better to start yesterday, actually.
As far as the investment in real estate is concerned, well, there's a body that has members of the financial market authorities and the central bank, and those are the people we are talking about. There's another question. What I meant is that this year we are seeing a weaker demand than last year, and this is certainly to do with the weaker growth rates. Willy Cernko said that we have seen a technical recession in Germany, so the investment volume has gone down. This is why the loan demand has also been reduced. If we have a stronger economic growth next year, the loan demand will be pick up. Now let me talk about the capital markets, if I may. Where I was talking about how Austrians not like or not wanting to invest in equities or securities.
Well, this readiness has gone up. In 2016, 50% of our retail customers had securities. Now, after Corona, this rate has gone up to 25%. We're seeing a strong growth, and people are more open towards investing in securities. You've also seen in our securities savings plans that these rates have gone up. People are buying individual shares and also securities plans. I think that the politicians don't see this yet, but the people are already picking up. What's going to happen in Eastern Europe if all of this funding meets a labor market that is quite restricted? Well, there's been a big diaspora from southeastern Europe.
They are living abroad in the West, the more perspectives and opportunities are, the more financial prosperity is created, well, the more people may come back to those countries. People are interested in going back and to strengthen the local labor market if the conditions are right. These are the more important perspectives. Thank you. That's what I wanted to add.
Okay, let's move to Mr. Sens from the Oberösterreichische Nachrichten newspaper. He sent us a question: "Are you expecting any major problems due to the rising number of insolvencies, especially in the construction industry and in retail? And in light of the good banking results, do you think that there might be a windfall profit tax levied by politicians? And if so, what do you think about this?" Well, I'll address the first question.
Well, for the coming quarters going forward, we are not seeing any problems due to a high number of corporate insolvencies. Well, we are seeing that the number of insolvencies is going up. What we shouldn't forget is that even with these rising figures, we are at a level of 2019, and the level of 2019 was extremely low. What happened after that was actually a zero insolvency ratio. This rise does not worry us, and in concrete terms, if you ask about the construction industry, well, we're of course, looking at all portfolios on a regular basis, and we are not worried about our portfolio. Well, as to the first question. Looking at the comments and the position taken by the regulators, there is no leeway for such ideas. The regulators are quite clear about this.
This also coincides with our approach, that if we want the banks to be able to provide support for people in light of these new challenges, then we need to have strong banks. Especially during the times of Corona, we have seen what it means to be available overnight, and we have demonstrated that we can be available. It's not about gratitude, but that has shown that the system is working, and we should not question that. Thank you. From Frankfurter Allgemeine Zeitung, Min: "I would like to come back to Eastern Europe, Mr. Cernko. The EU is going to distribute and make available a lot of funding in the coming years. You have referred to this repeatedly, but what we are seeing is that the prerequisites for paying out these funds are not right.
In Poland and Hungary, there are political problems. In Bulgaria, there have been a lot of problems to get the funding to actually spend this money. In Romania, there's even a deficit procedure of the EU, where the Romanians can maybe not receive these funds. Can we interpret this to mean that in Brussels, they will not look at all those, these obstacles or not consider them? Why do you believe that so many funds will be distributed in the coming years? Well, I think there are two things that we need to consider. The one thing is: Is it legitimate to only allow access to this funding if rule of law and other similar issues are, are given? Yes, that is legitimate. Full stop.
The second thing has something to do with bureaucracy, and if you talk to companies about this, such as, for example, companies that are trying to get access to this funding in the United States, well, they all saying there's less red tape there, less bureaucracy, and easier access to this funding. We need to ask ourselves the question whether it is really necessary for us to have so much red tape, so much bureaucracy, to allow people to get access to funding. I think it is legitimate. That's the first question, and yes, the second question, this is something we need to think about. I talked to Mr. Dombrovskis, and he clearly addressed the fact that this is work in progress because the feedback that we're getting in this respect are quite unequivocal and clear. Mr. Tiscza.
I have an additional question on housing loans. You said that in the Czech Republic, or the situation there is a role model. What's it like? Well, the Czech National Bank has passed a rule a couple of weeks ago. I immediately sent this out in a press release. It's a very simple approach. You know, our rules, which state that we need 20% equity, then the affordable limit is 40%, and the maximum duration is 35 years. The core of the problem, where we have the strongest friction and the biggest bottleneck, is the affordability limit of 40%. In the Czech Republic, they use a different rule that has also been applied in other countries, such as in Slovakia.
A few years back, they said that we will simply take the net annual income and multiply it by 9.5. What is the result? This corresponds to a very simple approach, where you can exclude that somebody might invest in a speculative way in a second, third, or fourth apartment. If you take our rules, where do people go? You know, the rental market. I have not seen a single landlord who would have checked the affordability limit. No, they don't do that. We have to ask ourselves the question whether, apart from our lending rules and valuation, it's all transparent. I mean, the regulators are aware of what we do, so they have explicitly approved our rules. We can use a more simple approach in order to make some adjustments.
Of course, this 0 interest rate has meant that some people thought that maybe at this low interest rate, maybe we should buy a second or third apartment. Asset class, residential real estate. That has changed, and that can be shut down by using such simple rules, and we believe that this is a clever approach, and we're going to suggest that this would be a possible way forward for Austria. We have a question from Paolo Laudani from Reuters.
Central bank could lower its interest rates as early as this autumn, or is this a change you think will happen more down the line?
I, I will take this question. It's, of course, very difficult to predict, if we, if we compare, the situation as it was like six to 12 months ago, then everybody, was expecting the Czech National Bank to cut rates already in H1 2023. Now, we sit here, in, end of July, and there is absolutely no sign so far from the Czech National Bank to cut, within the next two or three meetings. Even they were discussing, and with a very tight vote, in the meeting before the last, to hike rates further. My assumption would be that the Czech National Bank will very, very closely monitor the inflationary developments.
I think also, definitely compared to the data monitoring that the ECB has been communicating, and will most certainly not take a step in the next 1, 2, probably 3 meetings. There is a certain chance, if the core inflation substantially drops from, from, from current levels, that towards the end of the year or beginning of 2024, the Czech National Bank might consider cuts. Again, this point, point in time, I don't see that, and it has been pushing out any kind of rate cut considerations further the last couple of quarters.
Eine weitere Frage von Thomson Reuters. There's another question by Thomson Reuters.
Given recent troubles in peers in Austria and Switzerland, with UBS buying Credit Suisse, Raiffeisen under pressure by the ECB to divest its Russian assets, and BABA criticized by activist investor, have you observed an influx of clients in the first two quarters of the year?
I think, we should stick to the key answer. We don't comment on competitors.
Marton Eder von Bloomberg, bitte.
I have a question concerning real estate. We hear of strong devaluations in the last quarters, and I wanted to ask whether you have adjusted your loan portfolio to this development, and what are your expectations for this industry? I'm happy to start answering the question, and then you can add a comment. We regularly look at the value of our collaterals and the changes in the return on investment. At, in the quarterly call, I did mention this, we have a lot of real estate loans, not only in Austria, but also outside Austria's in CEE. Here, the devaluation potential is by far lower. What we see that this is also balanced through the rising rents.
We are not worried about the collaterals, but there is a regular adjusting, and this is fairly reflected in the portfolio. Well, one brief comment. Commercial real estate and corresponding risks were at the center of the stage till the beginning of the second quarter. We need to see at the specific country situations, the market situation. You may know the story about the Swedish and Scandinavian situation. Fixed interest rates are very decisive collaterals, as Alexandra just mentioned, all these items have been discussed with our investors and looked upon with our analysts. For the first group portfolio, we can take one to one what Alexandra said. The situation looks good. It's not relaxed.
I wouldn't call it relaxed, because this would imply that we see this very loosely, but this is not the case. Are there any more questions? Robert Kleedorfer from Kurier. You are drawing a good environment for the risks, and this is reflected in all your statements. The tendency is that the situation is also good in... For 2024. Certain voices from the business chamber and the industry see it differently. They speak about a long, dark winter, difficult winter, with regard to tariff negotiations. They draw a completely different picture. Could you also refer to Germany, which you mentioned as a side comment, that the economy might be, might be ailing there? Could you go into detail about this? Well, wanted to start with a very casual statement, but I will refrain from doing so.
What we do see, as has been addressed by Alexandra, we see that, that, that resilience has increased. For example, when we look at the equity base of SMEs before and after COVID, it rose by 3% on the average. This does trigger in one or the other person that the payouts have been too lavish. To be honest, I, I am very cautious when it comes to criticizing COVID funds. The situation back then was unique for each and everyone. The challenge as such was unique, but also the massive scope and the speed at which we had to act. Do not know what would have happened if we had discussed for six months which industry, who of which industry, would have been eligible for certain funds. This is a fact.
Back then, we had the approach, whatever it takes. Of course, maybe there were overpayments made, but we have to be very sober. We have to say that today, when we look at the equity and the capital base of companies, and including tourism and the catering industry here, I would say that the muscles have grown and there are some reserves. When you look at the labor market, it could be maintained in a very robust manner, this is, of course, reflected in this environment. Of course, there may be certain adverse factors as well and certain measures that are called upon, and it is all too understandable that repeatedly we point at deficiencies and at the urgency to act.
I think it's important for this government to have a closer look at the situation, to listen more closely and react to urgent matters. Would like to add something, as Mr. Bleier said, what we see in customers is that there is a decrease in orders and a lower investment activity. We see this reflected in the demand for loans. Companies do react, they are flexible, and they do react in time so as not to worsen their credit standing to an extent that it would be reflected in their costs. There's one more question on the left-hand side.
Question, Branislav Rošović from Bloomberg Adria. How high on your list of priorities are new acquisitions? Also, are you pondering, acquiring Fintech or solely banks? If I may, another one. I would like to ask for more information on AI. Is the cooperation with the company Yokoy and George Business that you mentioned, the only corridor through which you are exploring, implementing artificial intelligence into your business, or is there another one? Thank you.
Let me start with your first question that is related to M&A. We have set a clear list, or let's say, set of priorities, when it comes to what extent we wanna allocate our, our profits. The first one is related, and this is really top of the agenda is organic growth. And our ambition is always to outperform local markets where we are present. Second priority is to stick to our commitment we have given to our shareholders. Our dividend policies, policy tells us, we have a payout range between 40%-50% of net profit. The third topic is related to, we call it build on acquisition.
It is to use the opportunities in our core markets to add, let's say, portfolios we see as interesting for us, interesting also from a perspective that this can add value short term. In other words, we are not interested in acquisitions where we have to deal with legacy problems for a couple of years. This would mean we are destroying values on the back of our shareholders. Fourthly, yes, whenever there's an opportunity for a larger transaction, in case it fits, it starts from the business model as such, and it has to add value midterm. In our core markets, we are clearly positioned as we wanna be an active player when it comes to further consolidation. Finally, and this is in the stage of getting approved, share buybacks.
This is also an element, we see for the upcoming years in case there is a surplus capital available. When it comes to Fintech-
We, we are in general, not interested to take over Fintechs. We are considering minority investments, in particular, if there is a cooperation potential for us. When it comes to Yokoy, we have started a pilot with Yokoy on George Business to offer an expense management system for our corporate clients in the combination with corporate credit cards. We are going to build an ecosystem around George Business. We have a partner for credit card acquiring, Global Payments from the U.S. As you know, we have a long-term strategic partner on the insurance business with the Vienna Insurance Group. Over time, we will add more and more third-party services on the George Business platform. As I said, on Fintech, minority investments, if there's good cooperation, potential, is, is possible.
Is there a final question you would like to ask? Let us have one last question. Concerning the banking stress test, we have received a result. I have the impression, Well, there is a stress test every year. Shouldn't the banking supervision know that you have a good capitalization by now? This is, well, good summary. In fact, we have several stress tests per year, because there's not only the EZB stress test, but we have the regulatory requirement to fulfill, that we have the internal, the comprehensive, the reverse stress test, the recovery and resolution stress test. We are well-versed here. We have practiced a lot. Concerning this exercise, this test, which is conducted every two years by EZB, we have rendered a solid performance, process-wise, but also with regard to the result.
It cannot be compared, one to one. The sample is a different one. On the one hand, last year it was 250 banks, now it's 70 banks. When, if we looked at the same banks that we looked at two years ago, we would be ranking 17th, and this is a solid performance. Will this continue? Yes, there will be further stress tests. There was the climate stress test, which was performed in the past, which will be further expanded. The stress test will become part of our daily life of banks' daily lives. In this spirit, we wish you a good lunch break and a good day. Thank you. Thank you very much.
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