Good afternoon, ladies and gentlemen, and welcome to the First Quarter 2022 Conference Call of Raiffeisen Bank International. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Johann Strobl, Chief Executive Officer. Please go ahead, sir.
Thank you very much. Good afternoon, ladies and gentlemen. Thank you for taking the time to join us today. In what has been an eventful few months since we last reported, I am happy to report a strong set of results for the first quarter of this year. Before I delve into the financials, we must recognize that the outbreak of war in our region has had a devastating impact on millions of lives. Our thoughts are with all that are bereaved, displaced, and otherwise tragically affected.
We're inspired by the tremendous support which Ukraine has received from across the world, and I am particularly proud of the solidarity shown by many of our colleagues in the regions. Hundreds of employees in Poland, Slovakia, Czech Republic, Hungary, Romania, and Austria immediately volunteered with accommodation, transport, food, and money, and continue to do so today.
As a company, we're also doing our part. We are supporting more than 1,100 colleagues from Ukraine and their families. In Vienna, we have assembled a team of over 200 helpers and volunteers, donated EUR 10 million, and raised EUR 8 million from employees and customers. All of our network units in the region have also launched their own initiatives, including direct financial support and coordinating volunteer efforts.
Moving to the financials, the consolidated profit of EUR 442 million for the quarter reflects the very good first two months of the year, in line with the very good trends which we observed in the second half of last year. This is particularly the case for the NII, which comes in higher than fourth quarter, where we had a large one-off from the TLTRO bonus. These include unusually high volumes but are otherwise also very satisfactory.
Loan growth was good in the first two months of the year, and in Central and Southeastern Europe, most of the countries grew at low- to mid-single-digit rates. These strong results nevertheless include prudent provisioning with 97- basis points provisioning ratio. Hannes will walk you through this in full detail. Our CET1 ratio, including first quarter results, comes in at 12.3%. Just as we have been prudent on the provisioning, we have also upfronted as much of the RWA inflation as possible in the first quarter.
This includes both the previously flagged inorganic effects as well as the rating downgrades in Eastern Europe. Accordingly, we expect the CET1 ratio to revert back to our 13% target in the coming quarters. Moving to the next slide, let me talk a little bit of other activities away from Eastern Europe.
Here I can report that our strategic initiatives are on track. Thank you. Sorry for this disruption. I assume you could hear me till I had covered the first slide, the overview, the executive summary, and I would now like to continue on slide five. Here I wanted to focus and report on our strategic initiatives where I say these are on track. For the past few years, we have been focusing on our market position in Central and Eastern Europe. In Serbia, we had success with Crédit Agricole subsidiary acquisition. We closed it on the first of April, and we are also making good progress with the disposal of Raiffeisenbank Bulgaria.
Here I can report that both parties are committed, and we expect to close this probably at the end of the second quarter or the beginning of the third quarter. I think equally important for us was the technical integration of Equa bank and the good onboarding of the ING retail customers. With the uncertainty we're facing in Eastern Europe, in Central and Southeastern Europe is more important than ever. Within our capital planning, we will take the necessary steps to ensure that there we can grow continuously.
We have built buffers in the first quarter as well, and if you look at the increased stock of risk overlays, which is now at EUR 516 million, I think you have to put this into perspective, and this is around 50- basis points of our CET1 ratio. We have reduced our ruble hedge. We are currently fully immunized against euro-ruble volatility, and by this reduction, we have locked in EUR 230 million of gains.
I have already mentioned it, I repeat it, that the RWA inflation, which is expected in Eastern Europe through the downgrade of the sovereigns, has been booked to a large extent as we have reviewed individually more than 2,500 counterparts. We also reduced our cross-border exposure, which is now less than EUR 400 million cross-border exposure to Russia.
Finally, we also postponed the planned dividend for 2021 to bolster our CET1 ratio. I think we have been very busy in the first quarter, but we are well prepared for what lies ahead of us. Moving to the next slide, the income statement and the KPIs. I think it's important to say that the annualized gross income at risk from customers which are sanctioned, and this probably is always a question for you.
This is if we take the 2021 as a proxy, is around EUR 60 million on group level. Here I have to say that the first quarter was comparatively normal, so that the impact will come from now on in the second quarter till the year, and one might say pro rata.
If we look at the distribution of it, then we can say that around 75% is related to Raiffeisen Bank Russia and the rest to the head office. Also, if you want to split it between NII and NFCI, then it's a similar ratio. If we move to the next slide, then I mentioned the good development in the NII, and I mentioned that this development could fully compensate for the TLTRO bonus, which we recognized in fourth quarter. Given the strong trend, I think we can expect with all the uncertainties what we have from FX rates and all the other elements an NII somewhere between EUR 3.7 to 3.9 billion in 2022.
This assumption is based on the continued low growth in the core regions, Czechia, Slovakia, Hungary, Romania. We also have a positive impact from the rate hikes, which we had in 2021 and in the early 2022. Of course, the loan book was filled nicely till the end of last year, so the asset base is good. With all these developments, we expect that net interest margin will be around 2.1% to 2.2% in 2022.
Of course, also we still have quite a lot of surplus liquidity in this improved rate environment. This is now positive. When talking about the NFCI, again, there we can expect the mid-single digit growth, and in absolute terms, this might be EUR 2.1 billion. Of course, this is also supported by the good development in FX commissions, what we had in the first quarter. When turning to the next slide eight, overall, we expect a flat development in loan volumes in 2022, as we have to assume some further weaknesses in currencies.
But as I said before, focus will be on loan growth in the core countries, Czechia, Slovakia, Hungary, Romania and Serbia. Of course, one has to expect that not only because of the weakening of the currencies, but also with the recession ahead of us, that banks in Eastern Europe are reducing their loan book to be prepared for this difficult period which lies ahead of us. When moving to the next slide, which is number nine here, you can see that we have very solid liquidity ratios.
We had experienced a deposit outflow with the beginning of the war in some countries, somehow impacted by the way of the closure of Sberbank Europe. We have recovered very nicely, and you see this also in the good LCR ratios in all the countries. When moving to the next slide, the CET1 ratio. Of course, here I have to say that the downgrading of the sovereign and the direct and indirect impact on the risk weight brought our CET1 ratio down to 12.3%.
On the slide you see the various elements, we included the retained earnings, we included the dividend in this number, so these are pro forma numbers. In addition to the RWA increases, and direct inorganic effects.
I also have to stress that, because of the continuous inflow of litigations, Swiss franc litigations in Poland, we had another increase in RWAs, also in the operational risk driven by that. If we then move ahead, one might ask, with my statement, how, when starting with 12.3%, how might we come to close to the 13% at year-end?
Here, we have to consider that the net impact of the M&A activity, so the sale of Bulgaria and the consolidation of the participation in Serbia will bring in total a 74-basis point improvement. Of course, you also expect over the next three quarters, additional retained earnings in a region of 25 to 40- basis points.
We have, to a much lower extent, also, somewhat downgrades, some loan growth. If we add this up together and with the inorganic effects, what we have lacked, which will be compensated by countermeasures like securitization, we would end up close to 13% at year-end.
When moving to the next slide, having a look at the capital ratios in total, and as I have mentioned already, the CET1, let me focus on the total capital ratio here. You have to consider that because of the regulatory amortization of issued instruments, so it had an impact of around EUR 70 million or a total capital impact of 7- basis points.
Because of the downgrades in the IRB portfolios, this led to an increase of the regulatory expected loss, and this reduced, on the other hand, the IRB surplus, which is part of the total capital. In total, this impact was around EUR 170 million or 16- basis points on the total capital ratio.
If we move to the next slide, MREL, always of interest for you. We have a surplus of around EUR 400 million. In the course of the current and the next two quarters, we have some ideas of issuing, which will be supportive for the MREL-eligible securities. This can be or will be a tier II issuance, probably, and also a senior preferred one.
Of course, also, as we have this Multiple Point of Entry approach, we also outlined here the requirements of some of our important network banks. Moving to the next slide, a few more information on Russian network bank and the cross-border exposure. You're aware that we have announced that we are looking at different options for our Russian business. I think it's important to state that as of today, we did not made any decision so far in which direction we are going.
For us, most important for day to day is that the bank remains very well capitalized, very liquid, and that it maintains its excellent operations. On the capital side, we have suspended new lending and will generally look to offset the rating downgrades and other inorganic effects by reducing our exposure.
Our approach here is not to pursue new clients and new lending and only selectively rolling existing exposures. This also benefits to the liquidity, but we also can report a strong deposit inflow. We have been very clear that we are under no obligation to provide any fresh capital or funding to RBI RU, and we do not expect that RBI RU to require it anyways. We're exploring all our options.
One is to sell, but we may also consider other possibilities, such as giving up control and deconsolidating Russia from the group while still retaining a financial interest. We still see value in our Russian franchise, and the question is then how to best deliver value for our shareholders.
A lot of the work we're doing today is to evaluate the options, the various scenarios, under which we can make then the decision. This might also include a new business model for Raiffeisen Russia, which requires significantly less capital and balance sheet. This does not preclude a sale in part or in whole. I will not make any statement today on the timeline. I can only reassure you that we are working hard on it, and as soon as we have clarity, we will share this information with you.
Let me reassure that we will take as much time as necessary to achieve the best outcome for our shareholders. I have mentioned already the reduction of the ruble exposure and so the net cross-border exposure as well as the reduction of the ruble hedges.
Let me now move to the next slide, which is 15. What you see here is that, of course, we had to adjust the sector loan growth outlook, inflation. We start feeling corporate loan growth might be below nominal GDP trends, with some exceptions in smaller countries on the Western Balkans. The higher interest rates leads to a cool off of the housing loan market in several countries.
Moving to the next slide, 16. Of course, the inflation, the war in Ukraine and also some other disturbances, what we see, lead to a reduction in our GDP growth assumption. Of course, the very negative impact comes in Ukraine being at war, but also the sanctions will bite deeply into the Russian GDP development and also in Belarus.
Coming to the next slide, we have suspended for the time being the medium term outlook. We want in this uncertain times mainly give a guidance on the 2022 development. Here I can sum up what I presented during my speech now. We expect an increase by high single-digit percent on the net interest income and the mid-single-digit percent increase in fee and commission income. We expect a stable loan volume with mid-single-digit growth in our core markets in Central and Southeastern Europe.
We expect high single-digit percent OpEx growth, plus an additional EUR 100 million integration costs for the acquisitions of Equa bank and Crédit Agricole in Serbia. Nevertheless, we expect that the cost-income ratio will be around 55%. The provisioning ratio is expected to be up to 100- basis points, and this will lead to a consolidated return on equity in the range of 8% to 10%. The CET1 ratio at year-end should be close to our 13% target. With this, I hand over to Hannes.
Thank you, Johann. Good afternoon, ladies and gentlemen, and thank you very much for taking time to join us today. The war and the devastation that we are witnessing daily in Ukraine is beyond words, and millions of lives have been tragically affected. Before we discuss the impact on RBI, I would like to first recognize the remarkable effort by our colleagues in Ukraine who have kept the bank up and running throughout the war. Many of our colleagues have been displaced, and yet they're still working from Western Ukraine or neighboring countries.
Throughout the war, all normal banking operations were maintained, most branches remained open, and even cash in transit and ATM restocking was sustained. We are grateful for the effort and inspired by their sense of duty. RBI is entering these unprecedented times in a very good shape.
We have reflected nearly all the expected impact on our CET1 throughout RWA inflation, a sustainable stock of risk provisions, plus additional overlays. Our portfolio quality is very good. Our non-performing exposure at record lows, and we have minimal exposure to sanctioned entities. In Russia and Ukraine in particular, NPE ratios are below 1.5%, with a stage 3 coverage ratio of 65% and 96%, respectively. While the recent events may have been difficult to anticipate, I'm confident that we have done everything in our power to be as prepared as we can be.
Risk management is about managing the future, and in the past years, we have implemented a number of processes and controls which serves us well today. The strict monitoring of the overall exposure to Eastern Europe was designed to ensure the group's resilience in even the most extreme scenarios. This approach has been the cornerstone of our capital allocation policy to Russia and Ukraine in recent years. We also have been operating with very strict concentration limits on Russian entities, precisely for times like these.
In 2018, we implemented a watchlist of counterparts who could possibly become subject to Western sanction. It is no accident that after six rounds of sanction, only 3% of our Russian and Belarus exposure is under asset-free sanctions. You are by now very familiar with our approach to currency hedging. We learned our lesson in 2014 and 2015. We have since then substantially reduced the sensitivity of our CET1 ratio to large ruble moves.
Of course, since the war started, we have been very busy. First of all, to ensure our clients' liquidity needs, we fully restocked our ATMs and branch networks in Ukraine in anticipation of our customers withdrawals. We immediately downgraded Russia and Belarus to one notch above default and Ukraine into one notch above debt. This led to a number of automatic downgrades, and we have performed over 2,500 further rating reviews, focusing on sanctioned entities and customers who are directly exposed.
This means that we have taken most of the RWA inflation in the first quarter, and only small amounts may materialize in the following quarters to come. As mentioned in our outlook, we expect the CET1 ratio to recover to about 13% from here.
We have built up substantial provisions in the quarter in a variety of ways by updating the macro assumption in our IFRS 9 model, by reviewing the credit ratings of impacted customers, and by shifting the exposure to stage 2, and finally by building up more overlays in the expectation of risk costs to come. As of today, we have EUR 560 million of risk overlays available to us.
Since we spoke the last time on the first of March, we have been actively reducing our cross-border exposure to Russia, which is now less than EUR 400 million, and will come down further in the coming months. We closed out half of the ruble capital hedges near the wides, and thereby locked in EUR 200 million, EUR 230 million of profit.
Equally important, our CET1 ratio is still fully immunized from any volatility on euro-ruble. Let me now focus on a couple of slides. On the first slide, now focusing on page 19, you can see that we have booked EUR 319 million of risk costs, 97- basis points. Risk cost overlay is EUR 516 million, NPE ratio 1.6%, and 61.8% of coverage. In the middle of the slides, I have added some of our core beliefs, and all of them, of course, very much impacted by the war.
Of course, we will see that there is a sort of a slowdown, but not yet a recession in Europe. Inflation will come in higher interest rates to be expected. Supply chain disruption and increased geopolitical risk goes without saying, causing also some second-round effects. The sanctions regime on Russia and Belarus, we assume will be long-lasting. Finally, the Green Deal and the energy independence got a new boost. All these leads us that we guide now for risk cost of up to 100- basis points. What is very important for me here is this is a gross number.
This is a gross number and not assuming that we use any overlays by these 100- basis points. But of course, if some of the events which we have presumed in our overlay allocation would materialize, of course, we would make use of it. Let me move on to the next page. When talking about second-round effects, we were opening up our mind and asking ourselves who again might be heavily impacted by these second-round effects.
Is it energy or is it any issues on the supply chain when it comes to semiconductors? The obvious one would be the car industries, also airlines and chemical, leisure and hotel industry would still also suffer. Again, you can see here that our exposure towards these companies is rather limited. Again, to emphasize that we have really done a very comprehensive work, 2,500 case-by-case customer reviews have been conducted, and therefore reflecting the current risk assessment.
We have downgraded the sovereign foreign currency rating for Russia, Belarus, and Ukraine, just about the default rating and leading to more automatic corporate downgrades. On the next page, you can see after six rounds of sanctions, and the date we are using here, the cutoff date is the end of April.
You can see that we came down from EUR 705 million, down to EUR 613 million by heavily reducing this exposure to the sanctioned corporate and financial customers. Just to remind ourselves, this equals 2.5% of the total exposure outstanding to Russia and Belarus. What can you expect how we are moving on? You can see this on the right-hand side, what are the maturities of the exposure towards the sanctioned entities and how this rundown could look like over time. I move on to the next page on 2022, and there is so much talk about this RWA development. Let me give you some of the insights.
In total, credit risk increased by EUR 11.8 billion, and asset quality effect was of course driven by the downgrades in Russia, Belarus, and Ukraine, mainly in corporate, sovereign, and FI portfolio. The first two months have been characterized by good business demand, and therefore we also see an uplift in new businesses. Op risk, there was the explanation given. This is in the context with the Swiss franc mortgages. Market risk has a minor impact, and then you can also see because of the FX devaluation that there is also a little bit less of RWAs because of FX.
What do we believe that you would have to assume over the next coming months, sir, on RWA effects? Yes, unfortunately, the litigation in Poland will pursue and therefore also causing the one or other RWA increase out of op risk. I was talking about the one or other spillover effect, but this we think is very much contained, and we would currently assume just another EUR 1.5 billion of RWAs. You can remember that there was this EBA guideline on the so-called repair package.
Finally, please do not forget that there is a RWA relief as well from the Bulgarian deconsolidation. Let me move on to the provisioning and the composition of the provisions in the first quarter 2022. What you can see that in the stage 1 and stage 2, because of all these rating reviews, we see an uplift, an increase of EUR 160 million. The macro update converts into EUR 150 million of uplift.
We allocated some EUR 50 million, some EUR 46 million so when it comes to geopolitical risk, and some EUR 59 million when it comes to sanction risk in Russia. Part of the PMA we have released. What you also can see that stage 3 bookings have been extremely low. Meaning when we talk about our risk cost guidance, that most of these 100- basis points are being allocated to the Eastern European region.
What is also important for me when talking about the EUR 390 million, and I can recall when we have presented our 2021 numbers and our 2018 numbers, when we have been asked, "Hey, guys, listen, why are you allocating some provisions to sanction risk or geopolitical risk?" You could also add another EUR 150 million, what we have collectively booked over this period of time, towards the EUR 390 million.
I move on to page 24, and I would be fast forward because there is little change and I don't want to steal your time. This brings me to my last page on the NP ratio and NP coverage ratio. 1.6% NP ratio, good coverage with around about 62%.
There's just one thing which I would like to guide you through is if you look on the line regarding Eastern Europe, you can see that over the years, over one year, we have brought down the defaulted exposure from 2.2% to 1.4%, and at the same time, we have increased coverage. Having said all this, we are now more than happy to take your questions.
Thank you, gentlemen. Ladies and gentlemen, we may now start the Q&A session. If you wish to ask a question today, you will need to press star one on your telephone keypad. Please ensure that the mute function on your phone is turned off or we will not receive your signal. Once again, if you wish to ask a question, you will need to press star one. If for any reason you need to remove yourself from the queue, you can do so by pressing star two. We will pause for a moment in order to allow a queue to assemble. Our first question comes from Isabelle Duerbeck of Morgan Stanley. Please go ahead.
Hello. Thank you very much for the presentation, for taking my questions. Firstly, I had a question on Russia. I was wondering if you have any update for us regarding a potential sale, and if you have received any approach from potential buyers. Alternatively, I wanted to follow up on the point you made around the consolidation. Would you be open to potentially spinning out this business into a bad bank SPV type of structure? Did I understand that correctly? Is that something which is an option on the table?
My second question, moving on to the business outside of Russia. I wanted to ask you about the evolution of deposits, because I saw that the bank had outflows in some countries like Czech, Slovakia, Hungary.
Could you share a little bit of color on what drove the deposit outflows? Also, have you taken any pricing measures to stem these outflows since then? Finally, I had a question on the cost of risk guidance of 100- basis points. How does that break out between Russia, Ukraine and the rest of the business? I think on the Russian update call, you gave us a very useful guidance around your expectations around expected loss increase. Maybe if you could update us on that would be great. Thank you very much.
Yeah. Thank you for your questions. If I might start with your questions to Russia. Indeed, after the announcement of the seventeenth of March, we have been approached with unsolicited indications of interest. As of today, we have not developed to a stage where I can share additional information. To your second question, considering splitting, as I said, yes, we work on all potential options.
That one is included. When talking about outflows in some countries, I think there was this uncertainty with the start of the war. As I described it, the outflow came from some concentrated high-volume deposits, some other uncertainties. We did not immediately react with pricing measures, but of course the rate increases that we have seen in the countries also required rate adjustments, pricing adjustments, I would say as expected in the countries. The risk goes to Hannes.
Isabelle, on the risk cost guidance, just for those who did not participate what I said, at this time, I was saying, we have an expected loss in Russia around about EUR 110 to 120 million and I was guiding for up to EUR 480 million.
In Ukraine, I was talking about EUR 30 million and then taking a multiple between, let's say, seven upwards. What we can see when talking about Russia, and you have seen that in the first quarter, we added another EUR 220 million to Russia or EUR 209 million to Russia. Please bear in mind that we already have allocated risk costs and risk provision of EUR 60 million in previous years.
When talking about, and this is what I would confirm at this period of time, EUR 480 million. EUR 280 million are already done in stage 1 and in stage 2. We do not yet see any stage 3 issues and topics. Having said this I would confirm, and as said, sanctions usually take a certain period of time that they eat through the balance sheet and the P&L statement. EUR 480 million, I was talking about over a two-year period. By first quarter 2022, already EUR 280 million are available as provisions. When it comes to Ukraine, you know, we have, in this quarter, you can see that we have done EUR 92 million of risk provisions.
Please also add here the EUR 25 million, what we have done in the last period of time. Here I was guiding at this period of time, somewhere around EUR 200 million, EUR 210 million, EUR 250 million maybe. Also here, a big part of the entire provision need is already being done. Currently, colleagues, as I have said in my introduction, are very much focusing on fulfilling the client requests, at the beginning, at least when it comes to liquidity. We're in deep talks with the clients. Also to give you a reference, how big is the portfolio, which is really in the most severe zone of war, this would sum up to EUR 400 million as of today.
Belarus, I would not get lost in details here, but this would be my guidance when it comes to risk costs. Please do not forget that we have this EUR 500 million+ available for risk overlays. Thanks for your question.
Our next... [crosstalk]
Thank you very much.
Our next question comes from Mehmet Sevim from JP Morgan. Please go ahead.
Good afternoon. Thanks very much for the presentation. Just one question on asset quality. It looks like you've front-loaded obviously quite significantly this quarter with stage 2 loans up some EUR 4 billion. Just to confirm, is this just the conservative move on the back of the current situation, or are you actually seeing any early signs of asset quality deterioration, particularly in Russia? And similarly in Ukraine, how is the situation there from an asset quality perspective? It's, you know, obviously a very tragic situation.
Are there any forbearance measures that are currently in place? Are you seeing any issues at this stage with repayments, and what level of NPL ratios should we expect in the longer term? And one more question on Russia.
The second scenario you mentioned, which is giving up control and classifying it as a financial interest, is that an either/or scenario, or would you consider doing this and then looking for a buyer in the longer term? Would you say that with all the front-loading that you've done on the RWA front, if you deconsolidate, should the impact be more or less flat on capital ratios? Thanks very much.
Well, Mehmet, thanks for all your questions. You know, when talking about the asset quality and the stage two exposure, yes, I would confirm this, that we have chosen here a very prudent approach. Also already indicated with our call in the beginning of March that you will see that we try to digest the biggest impacts already in first quarter.
How it comes, you know, if you have the downgrading on the sovereign exposure, you also have immediately to adjust some of your corporate ratings. If the corporate rating jump goes beyond a certain threshold, the exposure immediately moves from a stage one to a stage two. You would find the sanctioned counterparts in this stage two criteria.
This is the reason why you see this pronounced move from stage 1 to stage 2. When talking about Ukraine, let me be a little bit more detailed when giving you the context. If you look at the entire country map of Ukraine, we see that we have certain zones where there is no war currently ongoing, and we must not forget, in the eastern part of Ukraine, unfortunately, there is war since 2014.
If you look at our portfolio distribution, you would find almost no exposure in Luhansk and Donetsk. Our exposure to this region is in Luhansk, EUR 0 , and in Donetsk it was EUR 2 million. What colleagues have done, looking at the entire country map of Ukraine and dividing Ukraine in three zones.
There's the green zone, where there is currently no war ongoing. There's the red zone, where there's heavy fighting, and there's the yellow zone, which is close to this red zone. In this green zone, you would find out of our entire portfolio 61% of exposure reflected. This converts into EUR 1.6 billion. In the yellow zone, it's EUR 0.6 billion or 23%. In the red zone it's 16% or EUR 0.4 billion.
Having said all this, you know, we are also in constant contact with our clients and banks. The entire banking industry, with the beginning of February, with the war situation, immediately have volunteered to offer a private moratorium.
We have asked our clients, "What do you think about the moratorium, and would you need any extension of the payment holiday?" On the BI side, 82% of them have confirmed that they would be willing to exit the payment holidays. On the SME side, 77% of our clients are intending to exit from the credit holidays. On the corporate side, we see 67% of corporates clearly confirming and committing to pay interest payments and then leaving the payment holiday.
This is how I could give you a little bit more insight to the distribution of the portfolio to the current impact. This, I think, could also give you a good guidance when talking about the different numbers and scenarios when talking about Ukraine.
Of course, on the forbearance measure, you know, since we now have done these deep talks, and we had these payment holidays, you can see immediately out of the one minus the numbers I have mentioned, how many of these clients would also then need maybe the one or other forbearance measure. For me, honestly speaking, the results have been extremely striking and constructive. Johann?
To your two questions, Russia, I can both answer with yes. It's part of our thinking that we might have a sequence of deconsolidation and later on, a sale. Yes, as of today, deconsolidation would be flat on the CET1 ratio, so no further negative impact. Thank you.
Great. Thanks very much for the details. Thank you.
The next question comes from Andrea Vercelloni from BNP Paribas Exane. Please go ahead.
Good afternoon. Three questions. The first one is on cost of risk. I just want to repeat some numbers that Hannes just mentioned. Cost of risk for the group and the BIPS, that's just over EUR 1 billion of provisions. Then correct me if I'm wrong, you said EUR 400 million Russia, up to EUR 250 million Ukraine, which leaves, somewhere around EUR 400 million for everything else. Does that mean that you are implicitly guiding for everything else cost of risk this year 40 to 50- basis points, or I got the numbers wrong? If I got them wrong, if you could, rectify them.
Then on the ruble hedge, I was wondering if you can disclose what is the current outstanding loss, which would be at headquarters level, on the derivative instrument. Finally on net interest income, it's a qualitative answer. I would just like to know if in the countries where we are seeing interest rate rises, excluding Eastern Europe, I'm interested in Romania, Hungary, Czech Republic.
Are you all done in terms of sensitivity to rising interest rates or what we have seen in first quarter intra-quarter, what we have seen so far in Q2 will still be positive for your net interest income in those countries. If you can mention something about euro rate sensitivity, if you can say something on that. Thank you.
Andrea, thanks for the detailed questions. On this 100- basis points, this was the reason why we chose carefully in saying up to 100- basis points of cost of risk. I think this is very important, and you're a close follower of our BI group over many years. This was the reason why I said up to 100- basis points and also clearly flagging that this up to 100- basis points would not consider any utilization of the overlays. That's also very important, which are two important side conditions.
Yes, sir, on your calculation, I think what you need to bear in mind is, I confirm the number you have chosen for Russia, and big part of this was already done with the EUR 280 million over the years, so another EUR 200 million maybe to come. I think the biggest wild card is on Ukraine. I talked you through the different regions and zones. Please do not forget also Belarus in this calculation, in this overall calculation of risk costs, but this would leave ample headroom also for the remaining non-Eastern European region. Hopefully, this helps in interpreting the guidance.
Anything you want to share actually on the guidance for the rest, because the market essentially doesn't care about Russia, Belarus, Ukraine. They're gone from a market point of view. If you can guide us on the rest, probably it could be useful.
Sure. You know, I think that we could see, and this is a hard question because of the second round and third round effect, but as of today, let me be broad. It would be somewhere around between 20 to 40- basis points.
Thank you.
Coming to your other questions, which is the mark to market of the derivatives which serve as a hedge on the participations, here that as of the second of May, the valuation is - EUR 155 million. When talking about the benefit of rising rates, yes, especially in the countries where you have mentioned, it's still supportive.
Also, what you have to bear in mind is that customers more and more tend to restructure their assets in the direction of moving away from current account surpluses and savings accounts where the margin is increasing to time deposits which are substantially priced higher. You should not expect that every element of the rate hike goes into an improved NII or NIM, but part of it will do so. Thank you for your questions.
Thank you.
The next question comes from, Gabor Kemeny from Autonomous Research. Please go ahead.
Oh, hi. A few questions from me, please. Firstly, on the Russia hedge, I understand that you had an EUR 80 to 90 million trading gain, which is the interest component on the hedge, practically related to relatively higher Russian interest rates. What shall we expect here going forward? I assume you should have a positive impact from relatively high Russian interest rates still.
Secondly, on the Russia scenarios, the deconsolidation, would this entail practically giving up control and to deconsolidate and give up control, would you have to sell at least half of your interest in the Russian business? The second thing on the, you mentioned a scenario when you would not sell, but gradually shrink the business. Can you give us a rough sense, an indication of the size to which you would seek to shrink the business in a group context, in relative terms? Thank you.
Gabor, indeed, in the first quarter, there was a P&L impact of around EUR 45 to 55 million from the interest rate development, so the forward part of it, whereas the EUR 185 million was in the FX, which is in the OCI. If we are now looking forward, of course, both effects will reduce in the various elements. If you look at it on the standalone, the positive will reduce the positive contribution, partly what we have seen in the first quarter. I mean, you can guess with the EUR 155 million market value, what I have mentioned, in which direction it might run. Deconsolidation indeed means that we have to give up control.
This might be one way to move away from Russia, you know, which under certain scenarios it might be necessary, for example, with not going into much detail which scenarios would lead to such a step. But as I said before, we have to find solutions for all potential developments and scenarios what one can imagine.
On the other hand, explore also divestment opportunities like selling everything or part of the business. In terms of how far would we shrink the business in Russia, I think here it's probably if you assume a shrinking of the loan book by 25% to 30%, this is a reasonable assumption without destroying the bank.
I think this is given the problems which are ahead in the country. It's a prudent approach, and well, everything else will come along the lines. This does not mean that the assets would shrink in a similar dimension. I mentioned before that we have an inflow of deposits, and it might be that the overall assets shrink less than what we have indicated now for the loan book.
That, that's very helpful.
Thank you.
Thank you. Just another one perhaps for Hannes. You show in the report that in the FLI assumptions, your GDP assumptions, your GDP growth assumptions, which are a bit less severe for Russia and Ukraine than what I understand your base case macro assumptions are. Would you be able to give us an indication what the provision impact could be from moving to your base case macro assumptions?
We will do so. Colleagues will find it out, but I would like to share with you the exact numbers and not just guessing around. Coming back to this question, Gabor.
Thank you. Thanks very much.
Our next question comes from Alan Webborn from Société Générale. Please go ahead. Alan, please go ahead.
Thanks for the call and your time today. Could you talk a little bit about the shape of demand, loan demand in the first quarter? I mean, was it the case that there was a sort of, you know, a big rush towards great levels of working capital demand from corporates towards the end of the quarter? I mean, you've shown some quite, you know, strong growth numbers in some of the other markets outside of the EE. Could you just put a little bit of a shape on the drivers behind that loan growth in the first quarter? What do you expect to see in the light of your full year guidance once we've seen that?
You know, are we going to see quite a sharp stop in demand in some markets? Because it does seem fairly clear that, you know, the shape of the economic growth in the CE markets broadly was pretty strong in the first quarter, but things have changed rather a lot. That was the first question. You know, you touched on wanting to preserve your ability to grow in your core markets, and that you were preparing for that. Could you put a little bit more color on that?
I mean, it appears that, you know, just for example, the Sberbank Europe AG assets, which I don't think you are part of, but there do appear to be potentially more assets for sale than there were perhaps a year or so ago. I mean, does your capital position now really exclude you from, you know, doing anything from that perspective? Or do you think you could manage the two processes should they come up at the same time? That was the second question.
Third question. Are you seeing any regulatory pressure, political pressure, to, you know, push deposit rates up in the markets where, you know, deposits have been where interest rates have gone up? That would be interesting.
I suppose, also, a more political question. Your issue over Russia and Ukraine is above all a very delicate political one, and you have, you know, a clear pressure from Ukraine against companies that are operating in both areas.
I wondered how do you manage this in terms of, you know, while you make your mind up, and clearly you've talked very sensibly about, you know, balancing shareholder interests at the same time as expressing your views on the situation. I wondered how you're managing that, because clearly it must be tough, both coming from politicians, also from areas such as the ESG investors. I wonder what your approach currently is. Thank you.
Thank you, Alan, for your questions and for showing some empathy for the management here, which came quite clear from the way you raised your question, which I highly appreciate. Now going to the answers. So if you look at the loan demand, we have seen a very good loan demand in the Czech Republic, where we, at least in euro terms, improved by more than 7%. Some improvements in Hungary with 2% and in Slovakia with 3% and in Romania with 5%, Serbia 5%. These are the core markets.
If I ask what do I expect over the next couple of months till the year end, then maybe in Central Europe some 4% to 7%, let's put it like this. Which simply means there is less than what we had expected before the war. Second, I would not see a sudden stop, as at least from all what I hear from our group, what I see in the loan applications. No signs for a sudden stop, which means no further loan demand. Also we see slightly changing patterns. I think the rate hikes what we have seen in some countries, now rates get expensive.
We see this, that in the mortgages, there is a little lower demand now than we had seen before. I have to say that also it's, you know, if you have high, quick rate hikes, it's difficult in these markets to immediately adjust the offered prices. You always have to accept some time lag, which makes it also less attractive to offer more of that. It's a combination of these two developments. When talking about your other question, which was, can we participate also in potential portfolio sales? Yes, we can. We would look at it.
You said if it would fit to our portfolio. I think what we see now, these are not in a size which we cannot adjust it, so we look at it. This relates to your other question, do we see political pressure in some of the countries to raise deposit rates? We see political pressure. It comes, and it's still in discussion.
There are some areas where politicians consider a cap on rates, which is not a surprise that then some central bankers are opposing it and rather recommending other elements like having bank taxes or whatever. This in some markets, this discussion is ongoing, not necessarily for higher deposit rates. Here, I assume it's the anyhow, the competition which adjusts this.
Cause, of course, now it's very interesting to acquire deposits. We are not anymore in this costly surplus situation at all. When talking about Russia and Ukraine and the pressure from politicians, so here the pressure, as you rightfully indicated, the pressure comes from Ukraine. We see an ongoing public discussion. We see also letters being addressed to us. We closely follow the discussion in the country with all the steps to even up to a nationalization of the bank.
This is what we are aware of. It's difficult to say from today's perspective where we finally would end. Of course, there are also voices from the country which say they are aware if nationalization would start, this would be very negative for an investment climate there. Of course, we have EBRD as a co-shareholder as well, so I don't know if this will have any impact on the political decisions. I think in any other areas it's not the political segment which is considering options for us, but rather other pressure groups. Yeah, Nobel laureates and others who come to conclusions which, yeah.
Okay.
I will not comment... [crosstalk]
So at the... [crosstalk]
Okay.
At the moment you feel you can continue with your review at the speed that you as a bank feel is sensible?
That's my feeling as of today, yes. We do not want to create an impression that at this point in time, we are slowing down. Not at all. We want to get an understanding as quick as possible what options we have and as I said, we had been approached by some interested parties. You know, it's not at the stage where we could see what is the real interest. This needs to be explored, and this we will do in the coming weeks.
Super, thank you.
Our next question comes from Máté Nemes from UBS. Please go ahead.
Yes, good afternoon, and thank you for the presentation. I had three quick questions, please. The first one is on the stock of provision overlays in this EUR 560 million. I think that includes sanctions risks as well as sectoral overlays. I'm just wondering if you could give a breakdown of this total amount across, you know, various purposes and reasons.
Secondly, it seems like that for deterioration of macro in Russia and Ukraine, you have taken significant provisions already. I'm just wondering if you have seen any further provisions for perhaps slower GDP growth and maybe higher inflation in areas outside of Eastern Europe, specifically in the CE region. The last question is related to Poland. If you could just provide some update or an outlook as to what to expect in terms of additional provisions in the next couple of quarters. Thank you.
Well, let me start with the overlay discussion and breakdown of the total amount, which is summing up to this EUR 560 million. What I have to share with you know, that still some EUR 300 million allocated for the special risk for because we have built up in the due course of the corona crisis. You see, you know, some of these things did not materialize as we have assumed, but this is EUR 300 million still in the crisis, you know, allocated to corona crisis. EUR 220 million are allocated towards sanction risk.
As said today, the biggest part of the portfolio would come with Russia, where about EUR 100 million are being allocated when it comes to sanction risk out of this EUR 560 million. Also, we have added EUR 71 million for Ukraine, the geopolitical risk, and the remainder belongs to Belarus. Bear in mind that also some EUR 80 million are being allocated to the retail portfolio. Is it because of the industry belonging of the people who have received some financing from us?
I s it about increasing yield to be expected? This is the way how these EUR 560 million do split up. I'm taking now your next question in the Ukraine and Russia already having a significant provision. Are we seeing need to increase in rest of the group? I think I gave a beforehand on one of the previous question an argumentation on what I believe is decent to be assumed for the remaining of the group, where I said guidance could be between 20 to 40- basis points.
Thank you, Hannes. On Poland, I would say, yeah, maybe we don't see any substantial changes so far, so there is still an inflow of litigations. If we have to extrapolate that, then one can assume that this year litigation provisions might be up to EUR 200 million, so EUR 140 million, EUR 150 million till end of the year. Thank you.
Thank you.
Our next question comes from Hugo Cruz from KBW. Please go ahead.
All right. Thank you very much for the time. I wanted to ask about, you know, your guidance for core revenues, both NII and fees. If you could strip out from that guidance your assumptions for the contribution from Russia, Ukraine and Belarus. My second question was around the CET1 ratio. I've noticed that, you know, you're not talking about transitional ratio rather than fully loaded. I understand the difference between the two ratios are just 20- basis points in first quarter.
I don't know if I'm making too much out of it, but, you know, I was just wondering the new wording around transitional. Is it because this, you know, the difference between transitional and full load will increase in the coming quarters or just nothing to worry about? Thank you.
Yeah. Let me start with the first question, which is the revenue guidance. Here, I said at the very beginning that it, the NII will be EUR 3.7 to 3.9 billion. The assumption is that, of course, the Russian, Ukrainian business, so the Eastern Europe business will be reduced over time by, as I said, the loan book will decrease by some 30%, up to 30%. If I then look at it, and if you would take out, let's say now Russia and Belarus, as these are also the politically discussed areas, then this might be reduced by net interest income, maybe down to EUR 2.8 billion or so.
In the fee and commission income, maybe down to 1.5%, but these are just proxies, so thank you. When talking about the difference between transitional and fully loaded, this is, and I will have to look up these numbers, so that it's not big and it, of course, it will decline over the next few quarters as well. In the first quarter it was 17- basis points, so not too big.
Thank you.
Thank you.
Our next question comes from Alexei Logunov from Bank of America. Please go ahead.
Thank you very much for a very candid call. Honestly, it is remarkable how well you have managed this crisis, and I believe your investors should be thankful for that. I have a couple of questions on the fixed income side. You mentioned in the presentation that you plan two to three issuances of covered and senior preferred bonds in 2022 at the holding company level. My question is how much senior preferred potentially in terms of size? And my second question is about your additional tier one securities. Presently, the bond callable this year trades like it will not be called, it trades at around EUR 90 million .
Is it fair to assume that your policy will be to call only on economic basis? Also, as you are planning the consolidation of the Russian business, do you think it can dramatically improve your credit spread, so that maybe you know those bonds start trading like they will be called and obviously at lower spreads?
I think it might be the case that we want to come with maybe two issues, each of them EUR 500 million, so maybe a senior preferred could be EUR 500 million, and the rest depends on the market. I mean, it's yeah, of course, we have to consider when talking about the AT1s, the economic impact on it. Of course, some flexibility in our decision is for sure built in. Today it's too early to say anything on the AT1. Here I kindly ask you to give me more time to explore the situation. I mean, I do not want to be impolite and revert the question.
People here, of course, tell me that but these are experts in our bank tell me that if we move away from Russia, from Eastern Europe, then this should have an impact on the perceived risk profile of RBI and have an impact on spreads. Of course, you as the market expert would know better than I do. Thank you.
Okay. Thank you very much.
Our next question comes from Riccardo Rovere, from Mediobanca. Please go ahead.
Thanks. Thanks for taking the question. Sorry, I was cut off the call for 10 or 15 minutes, so apologize if I ask something that has already been asked. Two, three questions if I may. First of all is a kind of clarification. With regard to the capital gain that you should book on the sale of Bulgaria, I notice that the equity of Bulgaria has gone up quite significantly in the quarter by around EUR 70 million. Should we use the equity at the end of 2021 rather than the one in the end of first quarter when we have to take into account the capital gain from the sale of Bulgaria?
The second question I have is, when you mention that the loan book in Russia should go down by 25% to 30%, does this include an accelerated, let me call it, wind down of the local exposures? Or is it the normal run rate of the book when it comes to expire?
Obviously, this is not replaced. Just a bit of a clarification here. Another thing I wanted to better understand, when you mentioned that the amount obviously deducted increase or like the negative risk migration in Russia, Ukraine and Belarus is EUR 8 billion, around EUR 8 billion. When I look at the local balance sheets, the increase in RWA individual is around, is about EUR 9 billion, it's actually more than EUR 9 billion.
Was wondering whether the difference is that you posted some growth in the first two months of 2022, and then all of a sudden everything come to a stop. The other question I have is again a clarification for Hannes Mösenbacher, maybe, probably.
When I look at slide 23 and I look at the breakdown of the provisions that you charged in first quarter, when I look at the EUR 116 million, then EUR 116 million, then EUR 105 million, out of these numbers, is the EUR 116 million included in the EUR 516 million overlays that you mentioned, or just the EUR 115 million plus the EUR 105 million? Just to have an idea of that. With regard to COVID overlay, that if I remember correctly, was in the region of EUR 300 million, just about EUR 300 million in 2021. Could you use that for Russia or should you, let's say, release it and reconstruct then from scratch? Thanks.
Thank you for your questions. I hope we got all of them. If we do not answer all of them, you might immediately remind us what we have missed. To the question of Bulgaria. This is a fixed price, slightly above EUR 1 billion. You would deduct all the costs what we incur through the transactions, by the transactions. It's a locked box approach, so whatever the capital is at the time of closing, it's already KBC.
So, we only get this fixed price. When talking and answering your second question, the loan book in Russia, the 25% I mentioned, this is an assumption. So, what we do is we have relatively short-term loan books. So, what we see is repayments. There is no accelerated rundown or anything. It's based on the natural amortization. I said we would be ready to in areas also to roll over something. This is a natural amortization. There was a question of was there a loan growth in the first two months in Russia, Ukraine. Here I can confirm, I mean, this was before war times. We have seen activities there.
In Russia, we already see if we compare, if we look at the numbers since beginning of the year, a reduction in the loan book. When talking about Ukraine, I think there was a slight increase. Here we are supportive, especially in the agri finance, where we support now the planting period of the crops. The risk costs we finance.
Riccardo, thanks for your questions. On page 23, those columns shall sum up. As soon as you have raised the question, you know, I have recalculated, and there's a slight difference. The total amount is EUR 319 million, and the individual also should sum up to EUR 319 million. There is a slight gap for the one other pillar. This is the intention that these different pillars and columns are adding up. That's the first thing. On your last question, when it comes to making use of the overlays available, when talking about the EUR 300 million, special risk factors being built up during the course of the Corona crisis.
Usually, at least IFRS has it that after two years period of time, if you have allocated risk provision in this overlay structure, that you either have incorporated it in the models or you would be encouraged to release them. The way we would go forward, that we go segment by segment, bucket by bucket, where we have allocated these overlays, this part. Therefore would then come up to that we could release it, and many of them, I think, they would be now almost mature to release them, and then we could reallocate it for Russia and Ukraine.
Thanks. Thanks a lot. If I may just a quick follow-up, not sure I got Hannes your first answer.
Riccardo, I was just confirmed.
Riccardo... [crosstalk]
I was just confirming that the risk cost slide, it's all of these things added differently, working out. The EUR 116 million plus the EUR 115 million plus the EUR 110 million, then you would have... [crosstalk]
EUR 105 million. The EUR 35 million minus the EUR 52 million is EUR 319 million.
EUR 319 million.
Riccardo, maybe the bullet points do not add up, but, I mean, out of my head, I will recalculate it, but I think it should add up. At least, the graph should add up.
Yeah.
Thank you... [crosstalk] We will come back to you with a calculation.
All right. Okay.
Sorry... [crosstalk] Keep going with your question.
If I may just ask. Just a quick follow-up because I think you were providing this answer when I just rejoined the call. Did you mention that out of Russia, or let's say out of the Eastern European division, you expect risk cost to be in the 30 to 40- basis points? I just want to be sure that is correct. If that is, your guidance is roughly 100- basis points, and this includes Russia. If I got it correctly, would it be 30 to 40- basis points on the book excluding Russia or Eastern Europe, or 30 to 40- basis points including the book of the Eastern European division? Just to be sure I understood it correctly.
Well, Riccardo, I think at least I could only partly follow. Let me start from the beginning how we come to this about EUR 1 billion. This what we said is up to, let me re-emphasize this, up to 100- basis points, not making use of any overlay. The way how we have thought, and this is what we discussed anyway, that in Russia, our way of thinking is that risk costs could sum up to EUR 480 million. This was one number I mentioned already right in the beginning of the crisis, and where we believe that the EUR 480 million would rather come over a two-year period.
Out of this EUR 480 million, which I mentioned at this period of time, you could see that we already have done EUR 280 million. Maybe another EUR 200 million, if we would see everything, still in this year. Belarus, we were thinking about that risk cost score could go up to 60 ±, but this is our way of thinking when thinking about Belarus. Ukraine is the most difficult ones.
I was sharing with you that the portfolio in the red zone is currently EUR 400 million, that there is also a very high commitment of our customers to honor their obligation. Some of them even say, "Guys, listen, we don't need any payment holiday more." On Ukraine, you could add something between EUR 200 million, and you make the choice on the upper end. I was saying that risk costs, which could then remain, is maybe some 20 to 40- basis points when talking about the remaining non-Eastern European exposure. Hopefully, this gives clarity.
Okay. That's clear. Thanks. Thank you very much.
You're welcome.
Our next question comes from Luis Garrido from Bank of America. Please go ahead.
Yes. Good afternoon. Thank you very much for the call. I have three questions, please. The first one on the strategy. Have you already reached a strategic decision on what to do with Russia and the rest is only depends on execution of how to execute a partial sale or a full sale? The second one is on capital. You seem to be confident that the risk-weighted asset inflation from rating migration has been front-loaded now.
Can you give us some sensitivities on what would need to happen to see more risk-weighted asset inflation and how big it could be? Is this included, for example, in the EUR 1.5 billion you give and spillover effects? Very finally on issuance, did I hear you correctly, you also contemplate issuance of tier II, and would this help you think about a target in terms of buffer over total capital requirements from the currently low 108- basis points? Thank you very much.
Yeah. If I start with your last question, indeed, till year-end, we are contemplating a tier II issue as well as the recognition in the total capital is reduced already, and so our capital structure is not optimal anymore. When talking about your first question, no decision is made. I think at this point in time, it's difficult to think about how to execute. Let's put it that way. The options we have and the strategic decision, they go hand in hand. At this point in time, we cannot separate them. I think if we, as long as we do not have a binding offer for a sale, other opportunities, other options have to be on the table as well.
It might be that at some point in time, we have to say that whatever is offered in a sale is less attractive than other solutions for the shareholders, like a spin-off or whatsoever. On this spillover, you know, I think, as I've shown, we have done a review of 2,500 corporates and have deeply analyzed. You know, we see currently inflations and then in other topics. I think this was just also on the industry outlook, which we reflect, that there could be another EUR 1 to 1.5 billion of inflation, RWA inflation. On the Eastern European part, you know, we have done our homework when it comes to re-rating.
Thank you very much.
Thank you for... [crosstalk]
There is one question in the chat. Sorry, operator. Meanwhile, there came in one question in the chat, which was asked by an investor, Rupert-Heinrich Staller. He says, "If we assume that we reached 13% of CET1 ratio till year end 2022, is it then right to assume that the postponed dividend for 2021 will not be paid out at all?" I mean, the 13%, let's say, there are maybe more options what we have in. I would not at this point in time fully absolutely say that this is out of reach. I would not now start a dividend discussion for 2021.
Let's say there is, with all the measures that we plan, 13% are really with a high probability that we will reach. With, of course, a lower probability we might be even higher, which then gives room for a new discussion. Thank you for the question.
We have a question over the phone from Gilles Dub os from Octo Finances. Please go ahead.
Yes, good morning. Good afternoon, thank you for taking my questions. I have two, please. The first one relates to the AT1. In the case, I mean, right now, if we add the, I would say the total capital ratio with the P2G, you are below the requirement. Well, I'm sorry. If at the end of the year, the fact that redeeming the AT1 would lead you to be, to have to post, I would say, a total capital ratio which would be below the requirement plus the P2G, what would you do? Would you be, in a way, obliged to postpone the redemption?
My second question relates to the sovereigns. If Russia or Ukraine were to default on their foreign currency debt, what would be the impact on the subsidiary in Ukraine and Russia? Would there be an impact, or would it be neutral since I imagine that you are invested in domestic sovereign, I would say, domestic issues and not foreign currency issues. Thank you.
Yeah. Coming to your first question. Indeed, with the total capital, we are below the Pillar 2 guidance as of now. If we consider the sale of Bulgaria, then I think this is a good measure to clear this issue. I mean, talking about the coupon on the AT1, I have to be very cautious. In all the other aspects, let me put it that way. If possible, we are willing to pay the coupon. That's the one thing.
No, I'm sorry. I was maybe not clear enough. I was talking about the potential redemption of the AT1, which has a call option end of the year. I mean, if you are not above the total capital ratio plus the P2G, how could you consider redeeming the bond? I mean, is there a discussion that starts with the ECB in this kind of scenario? Because obviously, even if it's not a requirement, it's still a guidance.
I think here it's very clear, no? I think there is almost no likelihood that we could repay the bond without having refinanced it. We touched this topic before. What is our calling policy and to what extent it's also driven economically. Here we can confirm to some extent. To a considerable extent, it's also driven economically. Here I cannot be more precise at this point in time. To be very clear on your detailed question. I cannot imagine as of today that we call them the AT1 without refinancing.
On the impact of the default when it comes to Russia and Belarus, you know, I think what we must bear in mind because of this low rating, this of course causes a very high risk weight. What we would see is that we would then see an RW relief, which is then higher than the increase in provisions for the regulatory expected loss. Therefore, the impact on the CET1 is either flat or even slightly positive.
Secondly, when it comes to repayment, you know, since these are local currency bonds, we would not expect any economic loss. We have to distinguish between the regulatory expected loss and the economic loss in terms of risk costs. Local investments from both countries, we would assume that they are being honored. That's the way, what would be the impact on the capital side. Thanks for the question.
Thank you very much. Thank you for all your questions. If you have any more, please remember to press star one on your telephone keypad to place your question. The mute function on your phone needs to be turned off so we can get your signal. As there are no further questions at this time, we will now conclude today's conference call. Thank you for your participation.
Thank you for your participation. Thank you, operator. Thank you for taking the time. I wish you all the best. Bye-bye.
Bye.
You may now disconnect.