Expenses. Net interest income, despite a very, very difficult interest landscape, has improved compared to 2019. How is that possible? This is due to the development of volumes. We originated loans to our customers to an extent that has given us a good basis for 2020.
And in 2020, again, we saw a positive development in terms of volume. We expect our loan volume in 2020 to exceed the 2019 value in the mid teen range. This shows that our customers trust our services, particularly in such difficult times. Net fee and commission income is determined by the economic framework in the second quarter. It was active business, was very limited.
Physical exchanges with our customers could hardly happen. And therefore, via George, our digital platform, which has been rolled out almost to the entire region, so George has enabled us to remain in contact with our customers. So our net fee and commission income is sturdy, robust, I would call it. As regards the net trading and fair value result, in 2019, we had generated a record result. And with the exception of March and April 2020, this year can be qualified as relatively normal, but this is not as important a component as net interest income and net fee and commission income.
The 2% drop in operating income year on year is noteworthy. It shows that our colleagues across all our countries have been doing an excellent job. Let's take a look at our expenses. There are two effects when you look at 2020 as a whole that counteract one another. At the beginning of the year, and we discussed that several times, we had topics such as wage inflation, pressure from the labor market because there was full employment in certain regions.
Of course, things changed rather quickly. Now we are concerned about rising unemployment due to the impact of the economic crisis. So we have a flat development in terms of personnel expenses. And in countries such as Austria, but also in Slovakia, where because of the interest landscape, we find ourselves confronted with a really challenging situation. And there, we were rather prudent and cautious in terms of expenses.
As regards other administrative expenses, you can see the effect of our cost discipline. This results in a very sound operating result for the first nine months. Risk provisions reflect the dimension of the economic crisis. We've chosen these three diagrams because they clearly show what's happening on our balance sheet and not just ours, but also that of many other banks. Our risk colleagues have done an excellent job.
When we first saw that what the effects of the crisis would reacted immediately, and we took major steps to prepare for the corona winter. In accordance with accounting rules, we set up provisions in the second quarter, less so in the third quarter, as we said already during the analyst call this morning. So we will be in the range of 65 to 80 basis points as regards costs of risk. And as you can see when you look at the NPL coverage, we have taken the necessary measures. The NPL ratio so far hasn't changed at all.
It's because of the moratoria, because of the guarantees that were given. The real risk hasn't materialized yet. Not yet, I think that's the way to put it. And as I said, we've made provisions for a very challenging winter and very challenging months ahead of us. On Slide four, I'm not going to bore you by elaborating on the individual items, but it's quite clear.
The orange bar in the middle, that is risk costs, that has been the overwhelming effect year on year, the effect on our net income. Risk costs are the major factor impacting on our net income. Over the first nine months, a net income of €637,000,000 has been generated, which is well significantly below the first three months March 2019. In all other areas, our business model has proved to be extremely robust because the development is almost flat there, and we hope that it this will be will continue to be, though. Most of you know this slide, except for the very last block, which this time is 14.1% instead of 14.2 This is a minimal variation because this does not yet represent our result for the third quarter.
I love to show you this slide. Why is that so? Because the capital position, in addition to our business model, is the absolutely essential basis that enables us to support our customers, to support the economy in the region. Without this strong capital position, we would not be able to do what we are expected to do, that is preserving prosperity in the region even in a very difficult period. We've therefore defined our dividend distribution policy.
We engage in dialogue with the regulators in order to create a sound basis for our activities. Bernd, I'm sure you will say more about what it takes to support the economy, to support our customers. I thank you for your attention. I think we're now going to see a short video, and then Mr. Spait is going to continue.
Well, you will ask me why. Are we showing at the conference this ad? This is not coincidence. This is a strong conviction on our side that we all have a deep respect of all these corporates and personalities. They create jobs.
They create prosperity in a time that is particularly difficult. And I think we have to bow to these people. They are in our region, and they build up our economic position, and we rely on them. We have a lot of entrepreneurs in our countries that can really do something for their country. What one must also understand is that we, as a region are quite robust and well prepared for this crisis.
As a bank, we can help and assist. And I can say this because I've been working for this bank for more than thirty years, and I've witnessed a number of crises. This crisis is hard. It burdens us, but it will be over at one point. So we have to be prepared for the time after the crisis.
What can we do in order to leave the crisis and to take everything along that follows in the time of an upswing? And I think we're well prepared for this, and this is what our region stands for. There is a time after the crisis, although times are difficult at the moment. Another essential thing. Nobody is happy about a lockdown.
Nobody is happy about all the restrictions of personal freedom. And nobody enjoys not being able to move. But and let me say this quite explicitly, such a lockdown is the right thing to push down the infection rates. It's a good means to have the right provision in terms of health. So we will also support this since we are the leading bank.
But there is a way out of the crisis. We don't have to wait for what's going to happen afterwards, and let's hope we'll have a vaccine soon. Much rather, we have this model. If you have this time now, you should use this time in order to prepare us and our country for the next upswing, for the next rebound. I have this one slide here from our report.
I picked out four figures here that are important. How's our business going? 2.6% higher loans volume is what we have at the moment, almost €5,000,000 net. We have more loans. There is no credit squeeze at all.
We like to hand out loans within the framework of sale programs, but we are strong enough to support the economy here with our loans loan extension. Also, the deposits have risen 6.3%. This is enormous, an enormous figure that shows that people trust in us. Our deposits are sure with us, and people trust in us. It's an enormous figure from the we're talking about the period from the first lockdown now.
Over 1,000,000 customers were supported and helped. No matter whether it was moratoriums or whether it was state guaranteed programs or other instruments. In order to push this into the economy, euros 18,000,000,000 were moved in order to implement these measures. In other words, banks are not a problem in this situation, much rather they are part of the solution and part of a very good and strong solution. And this is essential here.
We can help in health to play our role in health induced crisis. This is a bit more complicated, what I'm showing you here. Across our region, how does the economies and how do the economies develop in these countries? I'm not going to focus on the individual figures, but it's very simple. In March 2020, the economy was switched off business was switched off in all countries.
It was very effective because the infection rates went down decisively. And with a certain retardation, this will this means that the economy will go down. In macroeconomic data later on will show us that. But in 2021, there will be this upswing, this rebound, especially with these new shutdowns in Austria, in Slovakia, in Czechia, no matter where our markets are. We see this recovery path, and it will not be linear, but there will be a recovery path.
And on our way, we have to consider a number of things. We have to jointly consider what meaningful contribution we can make, solidarity, cohesion, interdisciplinary thinking. And thinking of solutions is what we need. No nagging, no blaming others. This is not what we need.
We have a situation where there are no clear success recipes. What we need is the readiness, the preparedness to contribute to something that will improve. However, it's a fact that we are active in a region where there was this setback. And next year, the region will grow again.
And
if you consider the connection between health crisis and economic crisis and how are we going to get out of this, let me summarize this. The governments in our countries said at a time where there is a virus that is spreading, whose characteristics we do not know, where we have no vaccine and no medical treatment. In times like this, we try to reduce the contagion until I can help in a medical sense. And you can also reflect this in the economy. The economy also needs a vaccine In a time where results and profits go down, we have to support the economy with capital, with equity capital.
We have a lot of capital that is not working. We have a lot of SMEs that need capital. And how do we get these two situations together? How can we form a bridge between capital and SMEs? If we create these meaningful structures where the off board capital market, we will create a turbo for the recovery of the Austrian economy.
And we as a bank can play a major role here. And politicians can also play a major role here without spending too much money just by creating the measures. And this, I think, is my major appeal to you. We have these great companies. We have a great region.
We have a robust and solid bank. Here and now, what we have to do is start this thinking process brought about by the lockdown and the standstill. We have to be prepared. We must not hibernate at the moment, much rather we must do our homework to be prepared. This is pretty close to our hearts.
As to the general outlook, I think I've said most of what is written here. Of course, in the short term, we will suffer, and there will be a recovery later, and we will be prepared for the rebound. I think we've handled the situation so far very well. We've protected our employees and our customers. And in a shutdown and reopen situation, we reacted very flexibly.
We're a critical infrastructure, and we will provide our services in the second shutdown. Thank you very much for your attention. I'm looking forward to your questions. Thank you.
Thank
you very much. We're now available to take questions. Raise your hands and wait for the microphone. We have a question from Depressse and from the person courier and a question from Bloomberg. Let's take these three questions.
Those of you who are watching online, just enter your questions. They will appear on my iPad. Could you say more about what you said last about strengthening companies with equity? You mentioned an over the counter capital markets. Are there any other possibilities?
I think there are several elements. First of all, we need to create the right regulatory and legal framework. There are always two sides. On the one hand, there is the provider of equity and on the other hand, those who need equity. Now who can provide equity?
Mainly institutional investors, but also private investors. For them, opportunities must be created to invest in a market of medium sized businesses. The legal framework for investors has to be changed for that. Tax incentives have to be created. As regards private investors, measures will have to be taken as regards withholding tax or holding periods.
We're not we don't need to reinvent the wheel. We don't need to wait for the European Union. It's all there. We just need to do it. So on the investor side, investors must be allowed to invest in a small scale Austrian market.
Tax incentives have to be created and structures structures for for the the securitization of these investments in the form of security so that they become negotiable and tradable. As regards those who need equity, there are two elements which are particularly important. Many Austrian companies are family businesses who do not want to sell their businesses at the end of this investment process. All they do want is bridge capital, so to speak, equity that helps them overcome a critical period. But at the end, they want to be independent again without external participation.
So we have to think about various forms of equity. And again, something for the regulator to do, equity must not be treated less favorably than debt because interest paid on debt is tax deductible, not equity. It wouldn't cost any money to change these rules, but the rules have to be changed. It's essential in this discussion to understand that we have a supply side and a demand side. And at the same time, we need to understand that this must not allow any short term speculation gains.
We don't want people to buy up companies cheaply. No. We want investors who believe in the recovery in Austria. And if these investors stay invested in companies for three, five or seven years, they can participate in the update uptake. The representative of Bergenkuria?
Well, same topic. I think there is no one in this room who cannot subscribe to these statements, but these are things that concern the environment, that concern policymakers. But what could the bank itself do in order to increase equity ratios? When you go to a bank, you can take out a loan. So that's, again, debt, borrowed capital.
But could you imagine that ERZ Group or ERZ Bank set up an SME fund to participate for a certain period of time in SMEs and create additional equity for these SME. Yes, I believe that we need initial assistance, and we believe in the economic justification of such a fund. But in terms of economic policy, I do not think that we should become an owner of companies in the long term. It wouldn't be good for the state either. But if you want to be credible and if you want to make sure that this works, we are good at networking.
We understand where capital comes from, where capital is needed. And our main role is to build a bridge between these two poles. But I agree, we ourselves are willing to accept a certain amount of risk because we believe in it. So the answer is yes and yes. A gentleman from Bloomberg.
Same topic again. Even today, there are private equity houses that are doing exactly that. And such investments could be pulled in a fund for institutional investors, not for you as a bank, but if you were to create such a fund that is open to investors and that can engage in small scale investment. Now why don't you do that? What is missing?
What needs to be done? Well, there are two answers to that. We're not going to wait for anything. Even if nothing happens, politically speaking, we'll do our utmost. But the framework is missing in Austria.
We need different investment criteria for institutional investors. We need the right fund structures like SICAVs in Luxembourg or other countries that permit investments flexible investments in securities. And we also miss the possibility of securitizing investments in SMEs without having to resort to some exotic places to be able to trade in these. We're going to support all that because we're convinced that Austria needs that. We are bottom of the list as regards equity of SMEs.
And I think we should use the occasion of this crisis to create a culture which enables the building of equity for SMEs. We want to create a framework that is more easily accessible. A follow-up question? Yes, a question about the dividend. When you're talking to the FMA or to the ECB or the Austrian National Bank, What do you expect?
What's going to happen next year? There are various models. One is to wait for another round of stress tests. Another model is introducing a cap and only allowing distribution of so and so much in terms of percent. What do you think the regulator is going to do?
A fundamental statement on that first. And then I'll try and differentiate a bit. It's not up to us to speculate on which model is going to prevail, particularly at ECB level because it's the ECB that sets the rules. I've been asked how many percent will be allowed for distribution. I can't answer this question.
This would be pure speculation. One thing, however, is quite clear, and it's reflected in all the documents on this topic. The regulators are fully aware of this tension. On the one hand, it's absolutely clear that the regulation of capital investments and the regulation of dividend distribution has major impacts on how this the banking sector can be regulated, but it's a topic not just for banks, but also for other sectors. It's problematic for investors that invest in a region, in a segment, in a company.
And if they can't know for sure if they will ever get their capital back or earn a return on capital. Now the question is for how long should this last? It's the crisis of the century, as I said earlier. For how long should we accept such restrictions for other reasons because the economy is to be strengthened in terms of equity. For how long can this be justified?
I'm in two minds about this. I understand the regulators' trend of thoughts, and I understand that those who are in positions of responsibility have a heavy burden to bear. There's a discussion going on There are three possibilities for the coming period. There is a clear recommendation, and Bernd Spijt mentioned it in the analyst call.
It's called a recommendation, but really, it's a requirement. And we have always said that we will not act against this recommendation of the regulator. So the current recommendation is until the end of the year. So one possibility is prolonging this recommendation for another one or two quarters. Second possibility, the recommendation will be lifted altogether.
And according to the Stock Corporation Act and the minimum capital adequacy requirements, distribution of dividends will again be possible. And the third option is one that is based on certain criteria: profitability, SREP, that is special analytical criteria regarding the risk bearing capacity of the institution concerned. This is an option, a possibility, but I can't tell you if and to what extent the ECB favors option one, two or three. But one thing we know for sure, on our Management Board and in dialogue with the Supervisory Board and the regulator, we have discussed our proposals, which will be submitted to the AGM We have put forth our arguments, and we have received signals that what we are doing is okay, that our procedure is highly professional, but we haven't got any statement to what extent the ECB is going to choose this or that approach.
So much as of today, November 2. I'd like to read out two questions that have come in online from Konen Saitung, a question about debt moratoria. Do you have any idea what's going to happen at the end of the moratoria? How many retail customers are going to have a problem to expect any defaults? That's a topic which is a matter of concern for all of us, not just banks, but also supervisory authorities in all countries.
There are studies almost every week. And these studies are along the following lines. How many of those who benefited from a moratorium have already lost their jobs? And those who haven't lost their jobs, what are going to what are they going to do with the money they have saved? Will they repay their debt or not?
And the current situation is that many of those who benefit from moratoria are saying, I haven't lost my job yet. I still have my income. And I put a certain amount of money aside. There is a high savings ratio because people want to have a cushion, so to speak, a buffer. It would be irresponsible to give you a percentage and to say how many people are going to have payment problems in the long term.
But we believe that we are not going to see a cliff effect when the moratoria expire. Of course, it depends on for how long they will have to be prolonged, how long the crisis is going to last and what's going to happen in terms of unemployment. For the time being, I can tell you that we are not yet expecting drastic impacts. We I have another question to read out. What are the political prerequisites for an over the counter capital market?
I think this question has already been answered. I now have a question from NZZ Handelsplat.
I don't quite understand what you are saying. These funds have certain expectancies as far as returns are concerned, But the companies are not in a position to reach these returns because otherwise they would have more equity. We're not in a position to hold back profits in order to build up equity. So in other words, these companies should not only become more profitable or show another entrepreneurship, because I don't think this is controversial. I think that companies have to reconsider their policies.
I don't think that such funds are suitable to support business models that are not sustainable. Such capital should be provided for companies that have a business model after the crisis as well. And I also believe in the following. As far as supply and demand is concerned, what are entrepreneurs prepared to pay for such a bridging? And what are banks prepared to shell out?
But we are analyzing this at the moment. And I think this will lead to a very situation interesting situation, the crossing point. What is the result that I expect? What is the risk that I expect? And what, as an entrepreneur, am I prepared to accept as being a partner?
And this type of analysis, where do supply and demand meet, this is ongoing at the moment. But it's not controversial in any way. And it's not trying to exclude the other just because somebody had a different dividend policy in the future. I don't think this will hold for the future as well. To my mind, equity capital has different forms.
There are shares in the returns, etcetera, etcetera. This is one instrument that over a certain critical period of time, where the returns go down, this will help prevail in this situation, believing that after having overcome the health crisis, this business model will be successful again. So not enough equity. Have they not earned much? Have they taken out too much money?
Or were the banks too generous? What is the reason here? That's a very difficult question. Because I think that not sufficient stimuli were created to build up equity. In Austria and in our region, There is no real stimulus that says it's better to have equity than to be financed via loans.
We, as Austrian and European economy, depend too much on debt financing. And this has to be changed in a regulatory and structural way. Why should an entrepreneur now leave equity in his company? He can take out debt. And he can also write this off as expenses as operating expenses.
Capital stays what it is. We also have to consider the balance sheet structure that I want to promote, 40% equity or 5%. What is the structure? What is the correct structure? And many entrepreneurs behave in that way because they act rationally.
Thank you. One question from Hungary. I'll read it out in English.
Birchen from Telex in Hungary. Sirs, what is the experiences about the state banks relations in your CE countries during the pandemic? Do the regional states give special tasks, for example, payment delays or special taxes to banks like in Hungary? Or do you get some possibilities from states, for example, in transferring some COVID packages, lending new loans? Want to I take
can try to take this. The experience which we made so far is that very generally, we see a level playing field. The banks, no matter whether they are state owned or not, are treated the same that the states are implementing very robust fiscal packages, which we try to accommodate. And we don't see any meaningful discrimination between different kind of banks. Everybody I mean, there is a strong national approach towards what helps my economy.
This is then translated into fiscal packages, where we are something like an intermediator. I do not see that between state owned or not state owned banks over our region, which we play with, very different.
Thank you, Mr. Spalter. I hope this worked with the translation the other way around. Okay. Got a thumbs up.
Any
further questions? Herko Waltscher from Ipresse. The second lockdown is imminent. What impact will this have on the business of the banks? Is there still enough leeway for loans, etcetera?
Well, this is, of course, not surprising question. We discussed this with our analysts today. You can well imagine this is a very heated discussion across all sectors and the management board. What we are looking at closely and our analysts are trying to differentiate this in the right way, what is the economic impact that we have in the short term, in the medium term and in the long term? Short term, this means let me inform you about the following that came.
The checks two weeks ago are massively hit by this second wave. We were not hit by the first wave, but since the October, they are in a very precarious situation. And they implemented a comparable lockdown that we have in Austria as of tomorrow. The analysts that our chief economist in Praha, who's got long standing experience and has mastered all situations very well so far. He said that in the short term, the measures of the Czech National Bank will have its effects.
The labor market situation, for instance, we entered this crisis as a region at a very high level. We didn't have enough skilled workers, etcetera, before the crisis. And now, of course, this is a major advantage, especially in Czechia. There, the expectations until about five, six weeks ago were that the Czech National Bank and the Czech Central Bank in the middle of the coming year will have to reverse its interest policy and focus on the local development of the inflation. This is taken out now.
And I'm talking about Czechia here at the moment. At the same now we have level situation and not a reversal of the situation. Whether there will be a cut or not, we do not know. In the short term, I assume that certain sectors will be impacted. But what we must not forget, and this is also the aim of the Austrian federal government, as far as I could understand this, the aim is to keep up the production sector in contrast to lockdown one that the business activities will be upheld and thus the economic impact will be reduced.
Of course, there will be an economic impact, no doubt. And I assume that the GDP outlooks for 2020 will have to be revised downwards by one or the other percentage point. In all, I would say that the short term impact for the 2020 result will be relatively limited with our doors open. We'll continue with our business activities. Well, the commission income will vary.
But as to 2020, there will be no special impact. However, what is decisive here that the duration of the pandemic into 2021 and the economic impact of this. So this is all what we can say now that lockdown too or partial lockdown will start. Thank you. Mr.
Schumi from the Konanzertung asked a further question. Mr. Spalt, you mentioned the savings rate. It should increase up to 15% as to the deposits. This is not reflected in the deposits.
Well, we're almost there. What we can see and what is important for our bank is that the deposits are rising. We have a 6% growth of deposits, which is much stronger than our loan growth, although no interest is paid out or hardly any interest is paid out. I think this need for safety, for a safe haven is very great, but also the need for alternative investment options. And I think our Austrian economy and the CEE economies are a good target for this.
Any further questions here in this room? No. Last online question from Alexandra Schwarzreuter. What makes you so optimistic that the risk costs in 2021 will be below 2020? And to what extent do you expect a downturn?
And what is the development of the NPL ratio? I'll start and Stefan will continue. So far, in our entire region, we haven't had the slightest increase in insolvencies in overdue loans. Of course, are a lot of state assistance programs that have been established. But in the second quarter, we set a lot of impairments.
So we will have a deep change in the economy next year. There will be more insolvencies, more unemployment. And we have actually worked up a lot of this. Next year, we think that the economy will rise again. There will be a slight increase of the economy next year, and there will be waves.
But we are confident that next year, we'll have fewer impairments. What about the NPL rate? Well, I can't give you a good forecast. 2.4% is what we have at the moment. We'll remain below 4%.
What we have to stress here is that this year, we have posted booked everything with the right basis points. And our analysts have said it will not be the lower end of the line. What is shown with 70 plus is not a reflection of what we have what will
be
realized today in the form of insolvencies, but is what we estimate that the crisis will bring in terms of risk costs. This is something that we have to be quite clear about. We are not depicting what is happening today in our books and what problems our customers have, then we would have much lower risk costs. But then next year, they would go up. So this is where we have to be preemptive.
And this is why I think that Benchmade is 100% right. We have to assume that this is a difficult pandemia, but it will not last forever. The health crisis will not last forever. So the risk costs that we have mentioned today can be realized. Thank you.
No more online questions. No more questions from here. Thank you very much, Stefan Dervre, CFO Bjorn Spalz, CEO and I myself, Peter Thier, would like to say goodbye, and thank you for following us on YouTube and on our website, etcetera. And don't stop believing in yourselves. Thank you.