Alpha Bank S.A. (ALPHA) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. I'm Myrtle, your Chorus Call operator. Welcome, and thank you for joining the Alpha Services Holdings conference call to present and discuss the first quarter 2021 financial results and strategy update. [Operator Instructions] And the conference is being recorded. The presentation will be followed by a question-and-answer session. [Operator Instructions] At this time, I would like to turn the conference over to Alpha Bank management. Gentlemen, you may now proceed.

Good morning, ladies and gentlemen, and thank you for dialing into the conference call on such a short notice. This is Vassilios Psaltis, Alpha Bank's CEO. I'm joined today by Lazaros Papagaryfallou, our CFO; Nicholas Chryssanthopoulos, Head of Strategy; and Dimitrios Kostopoulos, our Head of IR. Today, together with announcing our financial results for the first quarter, we will provide you with our latest strategy update, reflecting the changes in the market environment since our last strategy announcement, along also with an EUR 800 million growth capital increase. In terms of order, allow us to start with the strategy update, and then towards the end of the presentation, Lazaros Papagaryfallou will apprise us on the first quarter results. Before, however, starting the presentation, allow me to express my great appreciation and thankfulness to the full transaction team that managed the impossible, to deliver on an accelerated schedule after working 3 days around the clock. Let's go straight to Page 4. Following an unprecedented financial crisis that has lasted for over a decade and on the back of the fiscal actions implemented to mitigate the impact of COVID pandemic, Greece has now come at the economic inflection point. It has managed to significantly improve its sovereign risk profile, has already regained the trust of capital markets on the back of highly successful issues of short and long-term government bonds and has facilitated the cleanup of the Greek banks and teams through the establishment of Hercules programme. Greece is also one of the largest beneficiaries from the unprecedented funding package from the EU next-generation recovery and resilience facility, or RRF, as you will hear me calling it to the rest of the presentation. That is expected to bring both direct and indirect benefits to GDP growth and the economy as a whole. As a result, Greece is well-positioned to grow at a rate above the European growth rate for the next few years, with the RRF expected to contribute at least 1.2 to 2.0 percentage points per annum to our GDP growth. Banks are expected to be both significant supporter of this growth and beneficiaries of the normalization of the economic outlook. The Greek banking system has already made great strides in cleaning up its legacy issues and is now looking ahead towards a period of strong growth and improved investor sentiment towards the Greek economy. Capturing the full potential of this opportunity is expected to be the single most important goal for the banking system, and for Alpha Bank, in particular. At no point in the medium term, should banks be constrained to serve the duty of supporting the Greek economy, be that financial, governance or skill-set-related constraints. With that in mind, we are proposing a bold but well-balanced plan to raise capital of approximately EUR 800 million in order to be in a position to fully reap the benefits from the RRF growth potential. Securing at the outset of this growth capital we expect to deploy over the next few years, this will allow us to reach our profitability target sooner, provide us with the flexibility needed to commit financing to high-value projects as deemed fit, allow us to be selective on the profitability profile of such projects and simultaneously enjoy a position of meeting all of our capital requirements throughout our business plan horizon. Importantly, this will also provide us with significant flexibility to optimize our capital structure and deploy our dividend strategy. As you can see on Page 5, 2021 is expected to be a year of strong economic recovery, while during the coming years, real GDP is projected to grow at a higher pace. We need to focus on the following very significant drivers. Firstly, the economy is expected to rebound strongly on the back of strong base effects and a monumental RRF funding program. GDP is expected to grow by 4.6% on average in the period of '21 to '24, and this is considered conservative by most market participants as it only acknowledges a 1.2 percentage point increase in annual GDP stemming from the RRF. Secondly, a GDP growth will be investment-based with investment expected to skyrocket in the coming years, rising by 15.1% on average per annum in '21 to '24. This massive new investment inflow, both public and private, is expected to support economic expansion and create large fiscal multipliers for the economy. And finally, it seems we are now managing to attract significant foreign direct investments. The country's successful structural reform agenda, coupled with an improved debt risk profile, has been uploaded by the markets in recent GGB issues. The average 10-year GGB spread averages 1.6% during January '20 to April '21, and this compares to an average spread of 8.3% in the previous decade. Turning on to Page 6. There, you can see that the national recovery plan code named Greece 2.0 is expected to provide a unique opportunity for revitalizing the Greek economy and transforming its productive model towards an investment-driven growth, supported also by an increased extroversion of the business sector. As depicted in the graph, the cost of economic growth in coming years is expected to acquire distinct and critical quality characteristics based on the high ratio of investment funds as compared to the past when the increase of the GDP was mainly driven by consumer spending, which in turn was fueled by rising public debt. National recovery plan anticipates a 7% increase in real GDP by 2026. This implies a 1.2% of voice per annum on average beyond the expected recovery over the medium-term, with a prerequisite of the full absorption of available funds and the implementation of the already planned structural reforms. Long-term benefit beyond the '21 to '26 horizon are much greater, driven by the restructuring and reengineering of the country's production model. As you can see on Page 7, you can depict in the left-hand side graph, the crisis of the last decade left an adverse legacy through causing considerable impairments on the country's capital stock and productivity. This investment peaked, while physical capital depreciation remained higher than fixed capital formation for a prolonged period, resulting in the erosion of capital stock and the expansion of the investment gap. It is apparent from the graph that the main driver of investment reduction in the last decade was the collapse of residential investment. The impact of the pandemic on total investment in 2020 was relatively small, thanks to a timely increase in public investments and strong construction activity, which operated with limited restrictions during the lockdown periods. According to the Greek Ministry of Finance, French investment is expected to increase rapidly, with a share of investment to GDP rising from 10.3% in 2019 to 16% in 2024 shall investment-led recoveries and the quarters, relying on the available resources of the national recovery plan as well as the banking sector efficiency to optimize money allocation through the loans from the RRF. Moving on to the right-hand side graph. There you can see that gross savings ratio remained negative from 2011 until 2019, reflecting that households spent a large amount of their savings during the period of 2012 to 2019 to cover their consumption needs as well as the fixed after the tax obligation payments. In 2020, the reduction in private consumption outpaced the drop in households gross disposable income as the sizable fiscal impetus, aiming to support employment and alleviate tax obligations underpin households disposable income and prevented further losses. Thus, households gross savings ratio recorded gains in 2020, returning to a positive territory after 9 years. According to the latest available forecast by the European Commission, households gross savings ratio is projected to remain on positive grounds. The efficient implementation of the vaccination campaign is expected to enable the realization of purchases contributing to private consumption growth from 2021 onwards, while households are expected to benefit from savings accumulated during the pandemic. The expected increase in the propensity to save of the private sector, combined with the low negative interest rate environment, can support demand and prices in financial investing. On Page 8, you can see that the real estate market is exiting from an 11-year steep downward repricing as a result of the deep recession that hit the Greek economy. Since 2018, there are clear signs of recovery of the real estate sector as a result of increased stability of the macro fund and attractive pricing of Greek real estate. Most assets are still traded at below replacement cost levels. Values in all real estate asset classes are on a long-term upward trend. Office, logistics and residential assets retained or increased their price levels even throughout the pandemic based on the latest published data from the Bank of Greece, residential prices in the first quarter of 2021 compared to the quarter before in 2020. During this whole period of 1 year, we have seen them increasing by 3.2%. The outlook for the real estate market is positive on the back of solid fundamentals and increasing foreign investor interest, primarily in office, residential, hospitality and logistics. Turning on Page 9. You see that the Greek economy is the recipient of a multitude of stimulus packages, all aimed at different and complementary parts of the value chain. The RRF is the most important of the programs with a total pocket of circa EUR 34 billion, and the National Development Program, the European funds, and the cohesion funds all contribute to a total envelope of EUR 82 billion over the next 6 years. As the RRF is a real catalyst going forward, we are going to spend some time in the next few pages to go over its components in a bit more detail. And starting on from Page 10, you can see that the national recovery plan, which operationalizes the RRF, constitutes a real game changer for the Greek economy not only because it is -- not only because of its sheer size relative to GDP, which is the highest in Europe, but more importantly, because it's a detailed, cohesive and well-researched program. Greece is expected to be beneficial -- benefiting by around EUR 31 billion, of which EUR 18.2 billion will take the form of grants and EUR 12.7 billion in the form of loans. Additional funds of up to EUR 26.5 billion are expected to be mobilized, both in the form of bank debt and sponsor equity, resulting in total mobilized program funds of EUR 57 billion. The allocation of the national recovery plan, as disclosed, is evenly balanced between green transition, employment and social cohesion, digital economy, innovation and private investment and extroversion. Now let's go on Slide 11, where we can see the opportunity for the Greek banking sector through the total envelope of EUR 57 billion of the RRF. The EUR 18 billion of RRF grants are expected to mobilize an additional 40% of funds for circa EUR 7 billion. Of those, banks are expected to finance circa 60%, claiming around EUR 4 billion of potential credit. The EUR 13 billion of RRF loans are expected to mobilize an equal amount of bank loans, i.e., another EUR 13 billion, while also mobilizing nearly EUR 6 billion of equity. Banks would probably consider financing of up to 20% of certain equity position, subject to sponsor balance sheet structure. This would result in circa EUR 14 billion of potential credit for banks. The above EUR 18 billion of RRF-derived credit expansion is only part of the growth story. The economy is also expected to grow on a stand-alone basis, enabling credit expansion of another EUR 15 billion. The RRF fiscal multipliers would probably contribute to part of this growth. The sectors that are not direct recipients of the program would still enjoy its contribution to economic activity. The expected total business credit growth until 2026 is EUR 33 billion, while the same amount during our planning period, i.e., up until '24, is estimated at around EUR 24 billion. Now let's turn to the next page, Page 12. Our loan swaps on this inflection point for the Greek economy is our venerable franchise on the corporate and SME segments. Alpha Bank has long been the corporate bank of choice in Greece. As a result, we have a substantial market share from which we will hold upwards. Why? We take a holistic corporate finance approach, advising our clients on the optimal capital solutions. This approach is of particular significance in the project-heavy RRF, which will rely on BPS, concessions and asset privatizations. This approach enables us to generate business beyond the straightforward balance sheet lending and to offer the full spectrum of capital tools to both corporates and investors starting with our market-leading asset management units. On Page 33, you can see some credential on our side, spanning across the capital stack. Now on Page 14. On the back of this positive macroeconomic backdrop, our franchise's strong positioning and our operational readiness to capitalize on this opportunity, we are launching an EUR 800 million capital raise, which will allow us to secure the growth capital we expect to deploy over the next few years. This is the last piece of the puzzle that will allow us to reach a 10% return on tangible book value by 2024. The way we see the buildup of a 10% return on tangible book value target for '24 is as follows. First, we are continuing with our NPE cleanup with focus and discipline. With Galaxy already signed, we are launching EUR 8.1 billion of new NPE transactions, that will allow us to normalize cost of risk at 60 basis points by 2024, as we will be reaching a group NPE ratio of circa 2%. Nonperforming assets, management operating expenses are also expected to be significantly reduced by circa 65% as a result of the decrease in our nonperforming asset stock. This will contribute at least 4 percentage points to return on tangible book value. Secondly, we are streamlining the core bank, driving efficiencies through our transformation plan. We expect an annual cost reduction of more than EUR 60 million between '21 and 24, while front-loading more than 75% of the restructuring cost to achieve such savings. This will contribute circa [ 1-4 ] percentage points to return on tangible book value. Thirdly, we expect to see significant growth in fee income, driven by RRF lending activity, sustained growth in wealth management assets under management and the development of our bancassurance partnership with Generali. We will focus on our partnership DNA to expand our fee-generating potential. This will contribute another percentage point to return of tangible book value to reach 6%. Fourth, the releveraging of our balance sheet is expected to have one of the biggest positive uplift to our return on tangible book value on the back of approximately EUR 8 billion credit growth we expect in Greece. This is the reason we are raising equity capital, as it will allow us to double our expected loan growth in Greece by 2024, allowing us to increase our net interest income by EUR 150 million in the next 4 years as well as generates additionally EUR 35 million net fee and commission income. All this comes on top of what we would be able to do without the capital increase. This will contribute circa 3 percentage points return on tangible book. Finally, we have a strong franchise in Romania, the only Greek bank to have retained the presence in this large and high potential market. We want to become a Tier 1 bank in the country, and we will deploy capital towards profitable growth. This should contribute the final percentage point to our return on tangible book, so as to reach 10%. Moving on the next page. Alpha Bank is entering the last mile of the NPE cleanup that has started in 2017. Since then, we have managed to reduce our NPE stock by almost EUR 18 billion through both organic and inorganic means, with the latest step being the Galaxy securitization transactions for which closing is expected in June. Project Galaxy has been the largest securitization transaction ever executed in Greece. Despite the outbreak of the pandemic crisis in 2021, Alpha Bank managed to successfully launch and follow through the transaction until signing within just 10 months. Once again, we drove great confidence for our internal capacity and capability to deliver large-scale transactions even amidst very adverse condition. The final leg of our NPE cleanup includes additional NPE transactions that we will discuss in more detail later on. The respective capital impact is fully absorbed within our existing capital buffers and internal capital measures. This will allow for a group NPE ratio of 7% and a group NPL ratio of 5% already by the end of 2022, which is a reduction by 90% versus the 2017 levels. While by 2024, the balance sheet is expected to be restored at full health. The decisive reduction of the NPE stock, apart from restoring the health of the balance sheet, will also restore the health of our P&L as the primary driver of our current cost of risk is the management of the NPE portfolio rather than any deterioration of our performing loans. As such, cost of risk is expected to be reduced at circa 60 basis points over net loans, thus providing an uplift for our return on equity by circa 4%. On Page 16, we outlined the main driver of cost efficiency enhancement within the next 2, 3 years that will allow our recurring cost basis to be reduced from over EUR 1 billion in 2020 to almost EUR 850 million in 2024. As you can see, more than EUR 120 million of cost improvement is expected from the reduction in NPE management cost, in line with the resolution of our NPE portfolio and reduction in associated services costs. Moreover, Alpha Bank has already launched its operations transformation program, which aims at modernizing the bank, increasing speed and quality of processes through optimization and investments in technology and automation, delivering a better and faster service to our customers. The transformation program is also focused on optimizing third-party spend throughout spend categories, both through internal demand management and through renegotiation of arrangements with service providers. We expect significant benefits from this effort in outsourcing costs and in property and facility management expenses. On Page 17, there we portray some additional details of our transformation program across its 3 dimensions: growing with our customers; tailoring our operating model to their needs and characteristics, revamping our return on operations, streamlining processes and third-party spend, but also empowering our people through a modern performance management and reward system. The transformation will support our targets in both enhancing our revenues and increasing our efficiency through investments of more than EUR 160 million. On Page 18, we lay out our ambitions on increasing fee and commission generation as well as key pillars we expect to drive this. Our expected strong growth in fee income is driven by a mix of favorable external conditions. Our strong strength that make us very well-positioned to benefit from these external drivers as well as our business approach based on forming strategic partnerships in order to benefit from specific expertise that partner can bring in. External environment, such as unprecedented lending volumes in coming years, is expected to drive lending-related fees for the sector in general. Additionally, expected growth in the affluent segment and wealth creation is expected to drive the demand for asset management products and related asset management fees. Alpha Bank's strong position in corporate banking, including advisory business as well as our market leadership position among the mass affluent clients, should allow us to benefit from this market growth. Additionally, as we already discussed in our full year results, we have signed an exclusive bancassurance agreement with Generali, which is the second largest non-life and the third largest life insurer in Greece, and we expect noticeable growth also in bancassurance fees. Lastly, in light of our rationale of attracting strong partners with specific expertise, we also intend to sell a stake in our merchant acquiring business in order to form a joint venture with a strong partner. This will allow us to capitalize on the growth of the Greek payment sector, whilst leveraging the technological expertise of a partner. Page 19 underpins the reason for our capital raise and demonstrates the growth benefits that it allow us to achieve. As shown on the top left-hand side, we expect a total of EUR 24 billion sector net credit growth for businesses in Greece, fueled by the RRF. As shown on the top right-hand chart, Alpha Bank expects to capture at least EUR 5 billion of that by 2024, after taking into account the participation of IFIs or debt capital markets in the total envelope. Here, we outline our projections for the total net new loan disbursement for business across the business plan's duration but also our estimates for the period until 2026. As you can see, the growth is higher in the initial years of the plan after RRF program is launched, and we want to be best placed to take opportunity to capture this growth. The projected EUR 5 billion of net new disbursement to businesses is expected to contribute almost 50% of the expected total net credit growth for the group of EUR 10 billion by 2024, that also includes loans to households and to shipping as well as net credit growth of EUR 2 billion in Romania. The loan growth is expected to be the key driver behind the enhancement of our group return on tangible book by an additional 3 percentage points through both the interest income generated by the increased loan volumes, but also through the fee and commission income to be generated upon underwriting and through ancillary business associated with the new lending volumes. On Page 20, you can see that what happens -- this is what happens when opportunity meets preparation. A dedicated RRF PMO will access the nexus of activity accommodated by an already sanctioned risk appetite framework and middle office function rightsized for the occasion. We have set up an open architecture to leverage our efforts with a partnership network of big 4 firms and RRF field service providers, but we aim not only to throw a wider net, but also to support our clients to promote better RRF projects. And in addition, we want to offer the RRF opportunity directly to investors in individual savers via RRF field investment products. Now on Page 21. We're moving to our international footprint. And we believe Romania is an attractive growth market with a GDP that is similar, actually higher, to that of Greece and with a growth outlook that is commensurate to Greece as it is also a significant beneficiary of the next-generation EU funds. The Romanian banking sector is relatively underpenetrated with significant catch-up potential to broader review levels. At the same time, it is quite profitable with an average return on average assets ranging from 15% -- from 13% to 15%, which is one of the highest in Europe. Having said that, though, it is evident that size matters in Romania, hence, our willingness to further expand our asset base. Finally, we cannot ignore the fact that the banking sector is also ripe for consolidation given the relatively low concentration in market share of the top 5 players. This is something that always we will be willing to look and potentially contemplate. On Page 22. There you can see that all the strategic initiatives path supported by capital increase underpins our financial targets for 2024, enhancing shareholder value. As you can see, by 2024, Alpha Bank will be profitable, while capitalized bank with an NPE ratio on par with European average. Such financial standing will also give us flexibility for dividend distribution. And on Page 23. Alpha Bank is well-positioned for transformation and will rely on its core competencies to deliver the strategic plan. We are the oldest privately owned bank in Greece with strong competitive positioning, not only overall in Greece, but more particularly, we're also perceived as a reference bank for corporate customers in Greece. We have delivered significant digitalization efforts already and have become a leaner and more agile bank. These efforts were also more accelerated by COVID crisis, which have already helped us deliver significant efficiency gains. Additionally, historically, we have been seen as the best-in-class bank in Greece in terms of organic capital generation and the largest bank in absolute EPI terms, and we believe our plan will set us apart from our peers even further. Lastly, our revamped strong corporate governance structure, strong management team and reinforced performance culture will be the key enablers for us to deliver on the plan we have set forward. And I think at this stage, I should pass the floor to Lazaros for his part of the presentation.

Thank you, Vassilios, and good morning to everyone. We are now on Page 25. As Vassilios has portrayed in the first part of the presentation, Alpha Bank aims to achieve a double-digit return on tangible book value and approximately EUR 600 million net income by 2024. Let me walk you through the key profitability levers and initiatives behind these through the rest of the presentation. Going to Page 26. The first pillar of profitability increase for the group is already in motion. After the imminent completion of Project Galaxy, the group NPE ratio will stand at 26%, and it is expected to be reduced to 7% by the end of 2022, following a series of NPE securitization and sales transactions as well as the organic evolution of the remaining book. On the back of Galaxy, we expect to reduce NPEs by another 75% until the end of 2022, reaching a 90% reduction by 2024. We will discuss more of the planned NPE securitization and other transactions in the coming page. The NPE stock reduction is expected to drive cost of risk down to approximately 80 basis points over net loans in 2022 towards full normalization in 2024 at a modest 60 basis points. Turning to Page 27. We're confidently delivering an upsized ambition on our NPE deleveraging through a series of new transactions on the back of: a, a successful Galaxy transaction and the forging of a partnership with debits on capital at CEPAL; and b, our capital process, which is sufficient to absorb the cost of the additional transactions. Our planned transactions adapt to a total gross book value of EUR 8.1 billion, equally split between HAPS and non-HAPS deals. Our asset protection scheme transactions include projects Cosmos and Solar. Project Cosmos is a mainly resi secured portfolio of EUR 3.5 billion gross book value. We are quite advanced on the time line and expect to receive the rating within the summer of 2021, so as to have a finalized transaction by year-end. CEPAL is going to be designated servicer. Project Solar is an SME portfolio of EUR 400 million gross book value for Alpha Bank that has been assigned by all systemic banks for management to an independent servicer. This is a portfolio which is quite mature in its underwriting, and this is expected to greatly benefit from a HAPS structure. We expect the process to run in the early 2022. On non-HAPS transactions, we include project Orbit, Sky and certain single-ticket wholesale and leasing exposures. Project Orbit is a retail and secured portfolio of EUR 1.3 billion gross book value. It was initially part of Galaxy and was excluded on the back of unfavorable market conditions during the COVID lockdown of 2020. Significantly, unsecured portfolios across Europe and Greece have proven resilient and investor interest appears strong. We expect to launch the transaction in the second half of the year with an aim to finalize by year-end. Project Sky is a mixed portfolio of residential mortgages and corporate SME exposures in Cyprus of a total gross book value of EUR 2.2 billion. Having created our own credit acquisition company in Cyprus, we have already assigned all NPEs of the Sky perimeter to this entity, and we are quite advanced in our preparations to launch a transaction in the second half of the year. Our target is to finalize a deal in the first half of 2022. Finally, we have a small number of wholesale and leasing exposures of up to EUR 700 million gross book value, for which we're working with CEPAL to identify the optimal transaction structure for a trade in 2022. As a result of the overall transaction activity, we expect to incur a total incremental loss of EUR 1.3 billion or 16 basis points per billion of gross book value shown. Around 25% of this loss budget, namely EUR 300 million, has already been provided for in our first quarter 2021 results. Our total expected a RWA relief is EUR 4 billion. Turning on to Page 28. We further elaborate on our view on NPE formation in coming years on the left-hand side of the slide. As you can see, in 2021, we expect elevated NPE inflows, half of which expected from moratoria. So we expect a positive overall NPE inflow this year of around EUR 600 million. However, going forward, we expect to return to trends seen in previous years of net NPE outflows, partly driven by an effort on closing procedures. On the right-hand side of the slide, you can see further information on our cost of risk evolution. As you can see on the top part of the slide, a large proportion of our cost of risk was historically driven by transaction costs, which we expect to normalize after 2021 when we finalize the NPE cleanup. Additionally, a large part of our annual loss provisioning relates to remedial management of the legacy stock of NPEs as opposed to new defaults. And as shown on the bottom graph, we expect the underlying cost of risk to also decrease significantly going forward as we reach normalized NPE levels. On the next page, page -- Slide 29. There, we show that Alpha Bank aims to achieve significant cost reduction in the period of the business plan and reach a cost-income ratio of below 45% by 2024. A major part of this reduction is going to be driven by the reduction of the cost associated with the management of our perimeter of nonperforming assets. After the already implemented carve-out of our NPE management operations to CEPAL, the key component of noncore costs is external servicing fees. The reduction of the applicable perimeter will also drive the respective costs, which give us high certainty of achievement. The second pillar of efficiency gains is our transformation effort, which is going to affect both internal and external costs through process optimization and automation as well as a reduction of third-party spend through internal demand management and through the reconfiguration of a major outsourcing contract. In our international perimeter, costs are going to be further reduced through the sale of our operations in Albania and the United Kingdom, a reduction, however, that is going to be counterbalanced by our growth initiatives in Romania. Overall, cost reduction from 2021 to 2024 is expected to reach more than EUR 170 million, and the bank is expected to be operating at a cost-to-income level of below 45% in 2024. Moving on to the revenue generation, Slide 30. Alpha Bank aims to leverage its leadership position among affluent segment clients and the partnerships it has entered into to grow our net fee and commission income by approximately EUR 140 million by 2024 from 2020 levels, which we know have been affected by COVID, and as such, should represent the absolute base for our finger. By 2024, we expect to almost double our fee contribution to revenue versus levels seen in 2020. On the following page, we elaborate more on the key drivers for the fee growth. One of the key drivers for higher fee income in the coming years is expected to be higher business activity and improvement in lending volumes in light of higher RRF-driven lending, which would drive the growth in lending-related fees as well as any ancillary M&A advisory as well as ECM and DCM business fees by approximately EUR 35 million versus 2020 levels. Additionally, we believe there is scope for us to double the bancassurance fee income by 2024 on the back of the exclusive partnership that we signed with Generali in December 2020. This partnership expands our product offering across life and non-life segments and allows to benefit from Generali's expertise, combined with our distribution capabilities. We also expect to see significant growth in asset management related fees. With higher economic growth, we expect to see growth in assets under management from current low base. Whilst we do expect to see some pricing pressure, especially from digital competitors, which we have embedded in the plan, we still see a scope for approximately EUR 45 million expansion in asset management fees by 2024 on the back of almost double AUM volumes by 2024. When it comes to cards and payments, we expect to form a partnership by selling part of our stake in our merchant acquiring business later this year to a strategic partner. This would have the potential for improving the overall growth in cards and payment fees on the back of additional expertise. However, due to the deconsolidation on merchant acquiring, we expect the card and payment income fees to have net 0 impact on our income statement by 2024. Whilst on one hand, it might appear an ambitious target to grow our fees by close to 10% per year by 2024, we see this as a realistic target as we have significant room to still improve our fee generation capacity, not only when we think of our own operations, but also when compared to our Southern European peers in pre-COVID years. All the initiatives we have put in place and higher economic activity should allow us to significantly narrow the gap to them by 2024. On the following slide, resuming on our expected net interest income evolution until 2024. As a result of the deleveraging of NPE book by approximately 90%, driven by our planned NPE transactions, the net interest income associated with these exposures will also be fully gone. This will result in a reduction of our interest income by approximately EUR 400 million. This reduction, however, is partially set off by the expected growth of outperforming book by close to EUR 8 billion of net new disbursements in the period in Greece, which will contribute an increase of close to EUR 300 million in interest income. This is taking into account some expected pressure to the tune of 35 basis points on our lending margins for business loans, which will constitute the key component of the overall increase. While for household lending, we expect a stable evolution of spreads during the business plan period. No significant change is expected for the contribution of our securities book in total net interest income as the interest income from new assets booked for LCR purposes is expected to counterbalance the spread pressure on the existing book of sovereign debt. On the funding side, we expect to continue growing our deposits base, in line with recent trends of growth and a continued shift of the product mix towards core deposits, thus, producing an overall positive impact on net interest expense. However, in compliance to our MREL requirements in the period, we have planned additional senior debt issues, which we expect will more than counterbalance the positive effects from deposits, thus, driving an overall marginally negative on net interest income from the funding side. Finally, our projected net asset growth in the international perimeter is expected to have a small positive contribution to the overall net interest income EBITDA. All in all, we expect a slight decrease of net interest income in the period of the business plan, albeit with a substantial improvement in its quality, while we expect net interest margin to maintain a healthy level of 2%. Next page, moving on to our expected loan book evolution. The first thing to note is the significant derisking of the portfolio as nonperforming exposures are expected to be reduced by over 90%. At the same time, performing exposures are expected to grow in total by close to 35% in the period on the back of the RRF fuel growth that we foresee for the coming years. Moreover, we also expect a noticeable shift in the composition of the book towards business credit exposures as business lending is expected to grow at more than double the pace as household lending overall for the period -- with household lending growth coming also at a later stage. As already discussed, Alpha Bank holds a strong position in business lending, and our credit risk appetite is aligned on capturing our fair share of the upcoming opportunities as we see significant value creation potential, targeting a return on risk-adjusted capital of more than 15% on the new business. Moving on to the next page. Our ambition in Romania, as discussed, is to develop into a true Tier 1 franchise. We are currently the only Greek bank with presence in this market and ranked 6 based on gross loans among privately owned banks. We are convinced that asset size and return on tangible book value are closely correlated in this country, with the largest banks commanding a significant performance premium versus mid-tier players. Valuations for such top-tier players are among the highest in Europe with an average price-to-book of 1.1 to 1.5x and a PE multiple of 10. Our operation benefits from a very strong management team, a comfortable capital position with over EUR 400 million equity deployed, a balanced funding position, specialization in mortgage and green lending and the platform that has been built for a larger balance sheet size. We have also forged strong partnerships with IFIs and are exploring options to further enhance our scope of cooperation. Our plan is one of organic and inorganic expansion, aiming to nearly double our net loans in the period and to deploy all of our excess capital in new risk-weighted assets. Through this strategy, we will conduct with rigorous discipline. We will aim to quadruple to our net profit and deliver return on tangible book value of more than 11%. That will also allow Romania to contribute more than 10% of group's net income in 2024. Moving on to Slide 35. We also have 4 smaller projects ongoing, meant at generating additional capital through disposals or partnerships. The most significant one, Project Prometheus, includes finding a partner for our merchant acquiring business. This transaction should conclude this year and result in strong positive capital impact. The next 2 projects with Yara and Crown involve sale of our subsidiaries in Albania and London. The overall impact on capital from those should be positive. However, we view this exercise as more of streamlining our operations and limit management's attention spend on markets where the relative contribution to our business remains negligible. Finally, Project Skyline involves forming a joint venture with a real estate partner so as to capture the positive momentum and form a unique investment proposition in the Greek market. This would be a capital-accretive transaction through the consolidation of nonperforming assets but would also serve a significant business development role, generating management fees and profits for the group. Overall, we expect a meaningful capital gain from both transactions, coupled with the release of almost EUR 1 billion of risk-weighted assets, which further supports mobilizing capital for growth we are envisaging. Slide 36 provides additional clarity as to how we see the capital development and use of proceeds in the context of our business plan. As you see from steps 1 and 2 in the first waterfall, Alpha Bank has enough capital to absorb all the negative effects of the ongoing NPE cleanup exercise and still have a pro forma total capital ratio of 16.9%. I want to pause here and reiterate this point. For several quarters now, we, as the management, have been adamant about the ability to deliver NPE cleanup without resulting to shareholders for additional capital for that. This slide demonstrates that, indicating that nothing has changed in this respect. We do, however, see significant opportunity to releverage our balance sheet, and the combined credit expansion between 2021 and 2023 is expected to consume circa 2.5 percentage points of our risk-weighted assets. This is where the proceeds of capital increase are deployed, supporting the growth and gradual restoration of the profitability. The next slide should provide you with full confidence on the strong capital position of Alpha Bank throughout the forecast period on both transitional and fully loaded basis. We have also indicated the applicable regulatory minimum. Currently, as part of our plan, we have not assumed any AT1 issuance. In 2021, on fully loaded basis, we expect to report approximately 11.6% fully loaded Common Equity Tier 1 ratio pro forma for capital increase as well. However, this does not take into account part of the RWA relief we expect to realize also in 2022 after completing part of NPE transactions that would boost our fully loaded Common Equity Tier 1 by further 80 basis points to 12.4%. You can see that at any point in time, on a Common Equity Tier 1 level, we boast more than 200 basis points buffer over the required minimum, even on a fully loaded basis. This buffer keeps growing as we move further into latter years and creates the opportunity for us to increase the efficiency of our capital base further by also providing us with optionality to optimize our capital structure in outer years by resorting to dividend payment from 2023. Next page. Few highlights of the financial focus to indicate where we go from here and how we see the key financial metrics developing. And just as you can see on this slide, it includes much more data than you would normally expect to see in similar situations, which underscores management conviction in the numbers presented. On the top line level, the most important point to note is that core income drop driven by NPE resolutions is more than offset by the growth agenda and increasing fee and commission income. We are reaching close to EUR 2 billion of core income in 2024. With the continued cost improvement, this translates to EUR 1.1 billion of pre-provision income in 2024, up from EUR 800 million we expect this year. With cost of risk gradual normalization to 60 basis points, which we believe is still conservative with European average at around 30 to 40 basis points, we see that net income growing to above EUR 600 million in 2024, which translates into return on tangible book value of 10%. It is worth highlighting 2 points: the profitability is already expected to look much better in 2022, with close to 7% return, while our capital advocacy ratio stays comfortably above 14% throughout the forecast period, reaching 18% in 2024. Finally, any NPE cleanup impacts have been budgeted to happen in 2021 to ensure that bank operates on a normalized, fully cleaned up basis from 2023 -- 2022 onwards. With all impacts accounted for and capital increase effect, the year-end tangible book value should exceed EUR 5.4 billion starting with the 2020 year and EUR 7.7 billion tangible book value. The main impacts are decomposed into the following items: first, EUR 2 billion negative impact from Galaxy and CEPAL; second, EUR 1.1 billion negative impact from the NPE transactions and internal capital measures; and third, EUR 800 million from the capital increase.

Now including the strategy update -- concluding the strategy update presentation on Page 40. We, at Alpha Bank, believe this is a unique moment for Greece in the banking sector, which we have not seen since the global financial crisis. For over 10 years, we have been dealing with negative implication of the crisis going through phases of public shareholding, deep restructuring of the bank, capital management, and finally, cleaning up the bank's balance sheets from nonperforming exposures. For the first time in more than a decade, we see a unique opportunity to see strong real GDP growth and loan growth, given by the increased flow of EU funds, including the RRF, and this is why we have spent so much time discussing it today. In that context, Alpha Bank is the best positioned to capitalize on this growth for all the reasons we have been discussing: strong capital base, premium corporate banking franchise, deeply transformed leaner and more agile bank. The proposed capital increase will support us on the path to 10% return on tangible book, a level which position us among more profitable banking franchises in Europe with increased ability to restart after almost 15 years of shareholder distribution. This transaction represents a unique entry point to a franchise poised to deliver on this ambitious plan. I'm turning back the floor to Lazaros to just highlight a few points on our Q1 results.

With regards to the first quarter 2021 results, I will now provide the summary of the key financial trends. Looking at Slide 43 of the presentation. Despite adverse conditions due to COVID-19 pandemic, our corporate provision income generation, namely our recurring profitability excluding trading gains and one-off costs, increased by 16.4% quarter-on-quarter, reaching EUR 237 million. This solid performance reflects in group core banking income generation and the continued focus on cost discipline. More specifically, net interest income stood at EUR 400 million for the quarter, up by 3% versus the fourth quarter of 2020, mainly reflecting a substantial de-escalation of funding costs. Net interest income in the first quarter takes into account a benefit of circa EUR 36 million in relation to the application of the minus 1 negative rate granted by ECP due to the accomplishment of the objective related to TLTRO 3 for the period June 2020 to March 2021. Moreover, fee income generation stood resilient in the quarter, demonstrating a quarterly increase of 0.5% to EUR 84 million, mostly attributed to a higher contribution from cards, asset gathering and bancassurance. On the OpEx side, recurring OpEx reduced by 5.6% versus the previous quarter, reaching EUR 258 million, primarily due to lower staff and administrative expenses. As a result, the corresponding cost-to-income ratio declined to 15.2% versus 57.4% in the previous quarter, improving operational efficiency. Total OpEx line for the group reached EUR 418 million, negatively affected by EUR 160 million of restructuring costs and other one-off charges, out of which approximately EUR 97 million are mostly attributed to a provision for a voluntary separation scheme cost, EUR 19 million to replacement of infrastructure on the back of our transformation program, while EUR 27 million is related to goodwill and intangible assets impairment. Reported pre-provision income stood at EUR 137.5 million versus EUR 537.1 million in the previous quarter, impacted by the one-off charges and lower trading gains. In the first quarter, trading income amounted to EUR 61 million versus EUR 430 million in the previous quarter. Impairment losses came at EUR 391 million in the first quarter, out of which EUR 317 million are related to inorganic NPE actions with the majority attributed to the upsizing of our NPE portfolio sales perimeter in Project Sky, I have been talking about. Excluding these impairments for transactions, the underlying cost of risk would have been less than 1% in the first quarter. As a result of this transaction-driven impairments and restructuring costs booked in the quarter, we recorded a negative bottom line with loss after tax at EUR 282 million. On capital adequacy, our total capital ratio stood at 18.3% in March 2021. The total capital ratio was negatively affected by the period's result and the anticipated annual phasing in of IFRS 9 and Basel III amortization recognized in the first quarter, while it was also impacted by lower fair value for OCI reserves following the crystalization of gains from our investment securities portfolio and the impact from the deferred tax assets that exceed the 10% threshold. On the positive side, capital was impacted by decrease in risk-weighted assets as well as a successful Tier 2 issuance of EUR 500 million in March 2021, providing a buffer of EUR 1.9 billion, overall capital requirement of 14%. Galaxy impact of 280 basis points is anticipated to be booked in the first quarter of 2021 -- in the second quarter of 2021. Our Common Equity Tier 1 ratio stood at 16% as of March 31, 2021. The group's fully loaded Basel III total capital ratio stood at 16.5% at the end of the first quarter and the fully loaded Common Equity Tier 1 at 14.2%. On deposit gathering, the group's domestic private sector deposits have expanded by EUR 300 million in the first quarter, stemming mainly from inflows by households. In terms of new credit, we continue to steadfastly support our customers, and we disbursed EUR 1.1 billion of new loans in the first quarter. Liquidity drawn from SCB increased to EUR 12.9 billion at the end of the first quarter or 18% of our total assets, reflecting the improvement in the bank's borrowing allowance following the SCB's modification to the TLTRO 3 terms and conditions announced in December 2020. Finally, on the asset quality. A flattish movement on NPE stock was observed in the first quarter with organic inflows being offset by curings and repayments, leading to an underlying cost of risk of less than 1%, as we mentioned earlier. At the end of March 2021, the NPE ratio in Greece pro forma for Galaxy stood at 24% and the NPL ratio at 13%, while group cash coverage pro forma for Galaxy was further increased to 53%. And now let's open the floor to questions, which we'll take from analysts in this call.

[Operator Instructions] The first question comes from the line of Floriani, Jonas with Axia Ventures.

My first question is on Slide 35. You are mentioning the sale of the stake in the card business and also the real estate JV. I was just wondering if you could give any color on this contribution to capital. I'm trying to understand the contribution on the EUR 1.1 billion, that is the sum of the hit from the NPE transactions and the capital gains from the internal actions that you're going to take. Second question, also on capital, I take the comments from the call that you're not accounting for any AT1. So just wondering how shall I think about this going forward? Are you going to play according to market conditions? And shall we still expect that an issue could come in the next quarters or maybe over the short term, if the conditions are in line with our strategy? And then finally, questions on Slide 27. I see the upsize the -- in the Cyprus NPE transaction. So just wondering if this impairment you took any booked already in Q1 covers the transaction in full or if there's any more adjustments expected? And also wondering if on this transaction, you'll be also attaching the existing services agreement that is currently in place. Also, any views on the plans of the franchise? I mean, I see a lot of detail on the Romania business also given it's slightly bigger than Cyprus. But how are you thinking about the plans for the Cyprus operation?

Jonas, this is Lazaros. Coming to organic capital generation, as depicted on Page 36 of the capital waterfall, we provide for transactions which are going to support organically capital at 1.1 percentage point. This is depicted in the space under 2 of the capital waterfall. There, you see the internal capital measures of 1.1. There, we include we include performing securitization of approximately EUR 2 billion, plus the profit from the sale of merchant acquiring, a joint venture that we're planning to effect in the second half of the year. The sale of foreign subsidiaries are expected to bring additional benefits, mostly on RWA relief to the tune of EUR 600 million, whereas the joint venture on real estate is expected to bring an additional RWA deleveraging of EUR 0.4 billion. All that is definitely supporting internally capital and helps counterbalance the impact of additional transactions that we have put in our new NPE plan. You will see in the capital waterfall, Page 36, the additional transactions of EUR 8.1 billion have a cost -- an estimated cost in capital terms at 1.9 percentage points. The bulk of it is counterbalanced by these internal capital measures. And in addition, we will have the RWA relief out of these NPE transactions, which will account for an additional 0.7 in capital terms. So that's how the NPE plan takes care of itself through internal capital generation. Next question on the AT1. No, we do not have a plan in the business case here we present to issue AT1. It's not embedded in our figures to meet the capital thresholds. However, as you can see in the capital slide, we expect to have excess capital in 2023 and predominantly 2024. At that point in time, we will consider capital optimization with a view to revise our dividend strategy. So AT1 is part of this capital optimization exercise, not a means to reach capital targets. Your third question is about Sky, the Cyprus portfolio sale. Actually, we're selling the entire stock of NPEs we have in Cyprus in a single outright sale. We have booked EUR 317 million of losses to support this transaction in the first quarter of the year, and we expect some more to come. Under IFRS 9, we use the probability weighting to account for the NPE plan as quarters come by and we assess the situation and the progress of these projects. As I have guided, the loss budget of the new NPE plan accounts to approximately 1.2 -- EUR 1.3 billion, out of which EUR 300 million is booked in the first quarter of the year. The remaining is to be booked in 2021, and that will be part of our cost of risk guidance for the year to support the new NPE plan.

The next question comes from the line of Memisoglu, Osman with Ambrosia Capital.

Just on your cost of risk evolution to 2024, given that you're significantly plan to reduce significant to the NPEs. Are you conservative for '22 with 80 bps? Is there room for that to come lower? That's my first question. And on the cost side, would it be possible to elaborate a bit more? I know you've touched upon it, the efficiencies from the NPE management and also other plans that you have on cost side. Any further color would be appreciated.

We have tried to portray what will be the impact from the reduction of the stock of NPEs. A good part of NPE management costs under the current configuration relates to servicing fees for what we have on balance sheet as we deconsolidate this servicing fees will fly out of the balance sheet. Moreover, you will appreciate that there are additional costs in the bad bank operation that relate to other expenses and fees, including taxes, legal fees and other servicing costs, which we have credibly portrayed in this plan to go down by almost EUR 100 million. And that is the bulk of NPE cost reduction in the period. Additional efficiencies are planned in the Greek operation on the back of the transformation plan, further investments in bringing efficiencies both at the level of the branch network and the head office through various initiatives that have been launched and now are operational. Therefore, we have also front-loaded some restructuring charges to enable further streamlining of our operations in Greece, enabling further voluntary separation schemes. That is a cost we booked in the first quarter of the year with initiatives already becoming operational in 2021. Your next question has to do with cost of risk. As you correctly pointed out, the reduction of the stock by itself will lead to a significantly lower cost of risk. The bulk of our cost of risk in the last few years was about managing the stock, our organic NPE management write-offs, debt relief, liquidations and movement within the NPEs, that was all creating lots of noise in our P&L with the deconsolidation of the NPEs and the losses that we will incur upfront to clean up the balance sheet. The cost of risk figure is expected to dramatically go down in 2022. Now as I have described in my presentation, still we feel this is a modest and rather conservative trajectory for cost of risk in the coming years, still at 0.6% cost of risk in 2024. This is double the cost of risk we see in Europe. However, given that we are in a post-COVID period, and we expect also a significant leveraging of the balance sheet, we would rather prefer to be conservative around projections than anything else.

[Operator Instructions] The next question comes from the line of Manolopoulos, Konstantinos with Optima Bank.

I have 3 questions, if I may. One is on your NPE reduction plan on Page 27. The other one has to do with the capital increase and your thoughts on the time line. And the third one is a technical one, on the new provisions coming from Galaxy and the new transaction. So going to question number one. On Page 27, you present your plan for the NPE -- further NPE reduction. Could you please give us more color as to the expected losses for each transaction? I think you said during the call that the total losses including the benefits from your internal capital generation are seen at EUR 1.1 billion. So can you please give us more details as to the level of losses, please?

Yes. So this is. Our NPE transaction envelope of EUR 8.1 billion is quite a complex, I would say, perimeter. It consists of both HAPs and non-HAPS transactions in multiple jurisdictions. So we have allowed for an end mill of EUR 1.3 billion to cover for any eventuality in delivering this ambition. And at the same time, we are keeping within, I would say, the Galaxy loss budget metrics of around 20 to 21 bps of loss per billion of transaction deployed. So we would rather keep the flexibility to work around this, and at the same time, deliver within our initial expectations. Don't forget that the incremental loss budget of EUR 1.3 billion also has EUR 300 million already booked in Q1 2021.

Okay. Now on a technical note, how should we treat these losses accounting-wise? I mean, will you book the Galaxy losses and the incremental losses from the new transactions on your provisions line? Or it's going to be a separate line at the P&L?

You will appreciate that following the highest down, we now have a holdco opco structure. And some of the impact will be recorded at the level of the holding company, which will be having the senior -- the mezzanine and equity notes of HAPS-related securitization. So at that level, we will record the bulk of the losses for the HAPS-related transactions. For other transactions, namely the Cyprus transaction, the losses will be recorded at the level of the operating company. So yes, you will see at the group level the entire loss budget being recorded in the year. And of course, we will also record again at the level of the group, at the holding level, the loss coming from Galaxy as per previous guidance.

Okay. And my final question has to do with the capital increase and its timeline. I know that you have called for an AGM on the 15th of June. Could you give us a broad -- more color on the time line? I mean, assuming that you get the green light from the AGM, when do you expect the process to initiate and conclude? And when should we expect more news as to the level of the price range of the end users to be offered?

Today, we published the invitation to the AGM to be held on the 15th of June. So you should expect a book building process and an offering in Greece to start towards the end of the month in June.

And I guess that the price range will be announced a few days after the approval, right, of the AGM approval?

That's the standard.

The next question comes from the line of Boulougouris, Alexandros with Wood & Co.

Quick questions on my end. Regarding the transactions in Cyprus, will -- do you plan to do this all EUR 2.2 billion in one transaction? Or it could be split into a couple of transactions within the next 12 months? That's my first question. My second question, I'm sorry if that is somewhere in the presentation, I couldn't find it. Regarding the NPE and the coverage evolution, cash coverage in your business plan from 53% that it was in Q1. How do you see it evolving in the next few years? Again, I'm sorry if it's already there and I haven't managed to see it. The other -- another question is regarding your assumptions on MREL. I think you mentioned EUR 2.5 billion on what is the expected impact on NII. And finally, regarding Romania, you mentioned -- I noted that you mentioned that the market needs consolidation and the good ROEs and so on. So you could you potentially consider also a bolt-on acquisition at some point in this market?

All right. This is Lazaros again. On the Sky transaction, we see benefits into bundling the total of exposures under one transaction. It's going to be one transaction. That's how we market the deal. On your second question, with regards to the evolution of NPE cash coverage, as you have seen, post Galaxy, the pro forma stands at 53%. I expect the cash coverage post new NPE transactions to trend towards the 47% level, and then in 2022, build up to 50%, and thereafter increase even more towards the 60% level. Your third question has to do with MREL. We plan issuance of senior preferred throughout the planning period by approximately EUR 3 billion. You should expect to see, starting from 2021, the issuance of benchmark issue each year. And for the costs, you can refer to recent precedents in the Greek market, which you can use as a proxy for issuance cost, which is embedded in the plan.

Alex, as far as Romania is concerned, Alpha Bank has set foot in the country in '93, which is one of the first foreign banks to be there. So we enjoy an excellent brand in the country. People do know us. And also we have an excellent management team on the ground. After also many years, well, also this country was constrained now, it is very obvious that it's not just already growing strong, but it will grow even stronger. And thus, the capital allocation already existing is the one that allows us to grow. Now in terms of finding inorganic opportunities to grow, this is something which is always circumstantial, i.e., we have, as a strategic directive the interest to grow in this country. And we will examine specific opportunities as they may not arise and if they pass the hurdle -- the internal hurdle amount.

We have a follow-up question from the line of Memisoglu, Osman of Ambrosia Capital.

You mentioned in your press release that you would consider priority for existing shareholders. Is it possible to elaborate on those plans?

Thank you for the question. It's really important for what we are contemplating here. We want to give to all existing shareholders at the specific record date, close to the AGM and the book building process, a priority allocation to the share capital increase. We do that in order to allow shareholders to preserve value and exercise if they wish or pro rata, their right to participate in the share capital increase. Formally, it is a cancellation of preemptive rights, that's what has been included also in the announcement, in order to shorten the period for the share capital increase. We have the new shares trading earlier in July. However, we want to emphasize this, all shareholders, retail in Greece, institutional shareholders in Greece, institutional shareholders outside of Greece, will have priority allocation to the book building process.

The next question comes from the line of Nagel, Alberto with Mediobanca.

Yes. The first one is just a clarification regarding the restructuring charges. If I understood well, you already booked 75% of the total cost in Q1. When should we expect the remaining restructuring charges to be booked? And if you expect also to book some other charges in the coming years to reach the cost target? And the second one is on the capital increase. As you highlighted that the capital is enough to absorb the NPE cleanup, and you are asking fresh capital to grow faster. Can you elaborate more on this? And which are the main reasons behind this even if you are projecting a fully loaded CET1 ratio above 14% in 2023, 2024? Yet on Slide 36, you are showing the capital evolution, where the capital increase will be fully absorbed by the credit expansion. Is the credit expansion including the generation of higher profits in the same period?

On your first question regarding restructuring charges, you are right. We're taking the bulk in the first quarter. There will be some further restructuring expenses through P&L accrued in 2021 and 2022. We had to use IFRS criteria to book upfront only what can be booked as per accounting principles for restructuring charges. So yes, there will be some further restructuring charges for 2021 and 2022 to the tune of EUR 40 million as portrayed in the relevant page. And that is P&L. That is charged through the P&L because in order to affect cost efficiencies and transform the bank, we are planning also CapEx in IT to the tune of EUR 270 million during the planning horizon that is already projected in the relevant page for transformation costs. Now your second question on capital. I think it's very clearly portrayed that the cleanup of the balance sheet and the absorption of the cost of the new transactions can be comfortably addressed through our existing capital buffers. You see that the cost of new transactions are at 1.9%. Even after Galaxy's booked in the second quarter, it trends towards the 17% level. Coming to Common Equity Tier 1, again, we are having a comfortable buffer against minimum. And at the end of 2021, which is the lowest year in the period, our fully loaded pro forma for the consolidation of risk-weighted assets that relate to this transaction is approximately 12.3%. So we feel that these are numbers which can comfortably support the argument that the existing capital buffers can definitely support the NPE plan. On the other hand, there is RWA growth relating to EUR 10 billion of new net disbursements in the period. So the 2.5% in capital terms, credit expansion, requires a share capital increase of an equivalent size of 2.5% in order to make sure that our capital remains at around the 17% level, which is the management target for capital adequacy.

And sorry, this 2.5% credit expansion includes also the benefit from generating higher profits.

There is a small portion of approximately EUR 150 million that relates to profitability relating to credit expansion. And it is included in the relevant bar that you see there, making the 2.5 percentage points, yes.

[Operator Instructions] Ladies and gentlemen, there are no further questions at this time. I would now turn the conference over to management for any closing comments. Thank you.

Ladies and gentlemen, thank you very much for your very large attendance of our first quarter results and strategy update call in such a short notice. Thank you for all your participation, your questions. And obviously, we are ready to take further your questions in the days to come, and we're looking forward to meet you also, any of you that would want to do so. Otherwise, we will be standing to -- we're looking forward to meeting you again at the end of August for apprising you on our first half results. Thank you very much.

Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for calling, and have a pleasant evening.