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

Ladies and gentlemen, thank you for standing by. I'm Merdo, your Chorus Call operator. Welcome, and thank you for joining the Alpha Services and Holdings conference call to present and discuss the 9 months 2021 financial results. [Operator Instructions] The conference is being recorded. The presentation will be followed by a question-and-answer session. [Operator Instructions] At this time, I'm glad to turn the conference over to Alpha Services and Holdings management. Gentlemen, you may now proceed.

Well, good afternoon, everyone, and good morning to those dialing in from the U.S. Welcome to Alpha Bank's 9-month 2021 Earnings Conference Call. This is Vassilios Psaltis, Alpha Bank's CEO; and I'm joined by Lazaros Papagaryfallou, our Chief Financial Officer; and Dimitrios Kostopoulos, our Head of Investor Relations. For Dimitrios, it's going to be the last attendance at our results call as our Head of Investor Relations as he's taking up new important responsibilities within our group. Dimitrios will take on the CEO of Alpha Finance, our broker subsidiary. He's going to be succeeded as Head of Investor Relations by Iason Kepaptsoglou, who has recently joined our group from London, where he worked as an analyst covering European banks, at various investment banks, most recently at HSBC. So we wish both Dimitrios and Iason best of luck in the new responsibilities. Starting on now with our presentation, domestic activity recorded a stronger-than-expected rebound in the second quarter, with real GDP growing by 16.2% on an annual basis, supported by an overshooting in private consumption, a continued increase in public consumption and a rise in export of services, especially tourism-related activities while investments gained further momentum. The better-than-expected GDP performance and the overperformance of tourism in the third quarter prompted several institutions to revise the 2021 growth estimation upwards plus as witnessed -- we are witnessing an almost reshaped economic rebound in 2021 with a domestic economic activity rising by more than 7%. Furthermore, we envisage a strong economic growth rate in 2022, supported by strong investment injection, mainly due to the funding from the next-generation EU funds. However, growth performance in 2022 is subject to the future pandemic path being positioned or not of containments. Tourism performance exceeded expectations fueling economic recovery. Tourist arrival increased by 79.2% on annual basis during January to August 2021 period. Well, especially in August, inbound travelers rose by 125% year-on-year. The unemployment rate continued to decline, reaching 13% in September 2021 compared to 16.5% in September last year. Additionally, the economic sentiment indicator improved significantly in the first 10 months of 2021, while it has higher than 112.4 points in October compared to equivalent 2020 levels, supporting the expected growth of 2021 from the third quarter onwards. Retail trade continued its upward trend for the fifth consecutive month, reaching 6.6% year-on-year increase in August. Manufacturing production remained on an upward trajectory from November 2020 onwards, rising by 8.3% year-on-year in the first 9 months of 2021, signifying an improvement in operating conditions across the Greek manufacturing sector. Despite the heavy toll of the pandemic on economic activity, house prices in the construction sector remained resilient in 2020 and increased further in 2021. Specifically, house prices continue to rise by 7.9% year-on-year in the third quarter with private building activity also increasing sharply in the first 7 months by 46.8%. Strong inflationary pressures prevail into the second half of 2021 driven by rising commodity and energy prices. According to the latest available data, the harmonized index of consumer prices increased on an annual basis from minus 1.2% in May to 2.8% in October 2021. As a result, the average harmonized index of consumer prices inflation for the first 10 months of 2021 reached minus 0.1%, reflecting the negative inflation rate recorded in the first 5 months of the current year. Moving on to Slide 5. Here you can see that the growth of business loans is the cornerstone of our growth strategy, and we are happy to report that we have been able to deliver on our ambitious targets. We have fully negated high prepayments by delivering over and above our targets for new disbursements. At the same time, spread pressure has been less than feared. Our dominant position in Landmark transactions exemplifies the power of our franchise are shown in the next slide. Our business banking operations are outperforming expectations. In the first 9 months of 2021, we have already achieved 13% of our targeted full year net business credit growth with returns above our threshold. Looking forward, we have a strong pipeline for the rest of the year and expect net credit expansion to reach EUR 1.5 billion this year. We have already established a solid pipeline for the next year. Here when business lending growth is expected to accelerate with large projects that are already agreed or in advanced discussions totaling EUR 1.5 billion. It is important to note that this pipeline will first serve business as usual financing and does not include RRF dependent lending. Progress on the RRF operationalization continues on all fronts. We expect the Hellenic RRF to formalize our participation in the program imminently. Once done, the RRF will disperse the first tranche to co-finance investment projects that meet the eligibility criteria. We have set up a 5-month project that commenced in last September that is coordinated by our transformation office with 3 major work streams. On strategy, we continue to review our business client portfolio from a top-down and bottom-up view to match known RRF projects and loan eligibility criteria to our clientele. This is then syndicated with large clients and SMEs. The objective of this work stream is to expand and fine-tune our Project Tomorrow business plan with respect to the RRF. That business plan will constitute the external part of the work stream as it will be communicated to the RRF. With regards to marketing, we have set up and carried out a series of workshops to educate our relationship managers, risk and operational staff on the details of the RRF program. We've produced information material to be shared with our staff and with clients. Externally, we are preparing an online information tool for our website, which chose the interest of business to the RRF, provides core information and will also have an online tool to make a request. Operationally, and based on the framework agreement on our business objectives, we have reviewed the effects on our credit processes and what IT and reporting systems we need to set up and have designed templates for the standardization of RRF eligibility appraisal. This work stream goes mainly from staff in the risk, the middle office and the IT functions. Accompanying this action is on the ongoing setup of an ecosystem of partners. With our big 4 partner, we have been executing and implementing an MOU, which provides for joint marketing and origination efforts, the support by them of clients in the development of RRF investment projects and the continuous update on RRF program development. We're exploring further cooperation with third-party consultants who will originate and submit our RRF cases for our credit review based on template information. We anticipate formal initiation of the RRF loanable funds segment by December, with first applications in early 2022. Now on Page 6. It is important to highlight the progress we are making on Alpha Blueprint, Alpha Bank's transformation program. The program is currently in execution mode and is expected to be the key enabler of rapid and successful change, driving the bank towards a more flexible and efficient business and operating model. The program aims at creating a bank that is more simplified, more innovative and ultimately more resilient and profitable. It is not just a vehicle for achieving financial goals and creating value for our shareholders, it is a program that will intervene in the core banking and will after years of crisis, bring our attention back to our people, to our society, to our customers, to our personnel. More specifically, the program seeks to achieve a higher level of services with modern products for customers, minimize bureaucracy, reduce costs and increase efficiency and organizational effectiveness. Focusing on the 3 pillars: customer-centric growth, operational model improvement and strengthening organization effectiveness, the bank has set measurable goals, including improving its productivity by 25%, reducing the average processing time and operational risk and achieving a net reduction in annual operating costs by EUR 60 million through the utilization of technology, improvements in efficiency and the streamlining of the operating model. The plan which requires a total funding of EUR 430 million, representing total investments and restructuring costs will support the bank's targets in both enhancing its revenues by more than EUR 230 million in businesses and EUR 130 million in households from both interest and fees and commission income. Our transformation plan, which in its current format is expected to be completed in 2023, a strong foundation that will allow the bank to maintain its leading role in the Greek banking system. We are executing the transaction leg of our business plan swiftly and decisively. As you can see on Slide 7, in October, we reached a binding agreement with Davidson Kempner for project Cosmos, a EUR 3.5 billion securitization, taking us one step further towards the full normalization of our balance sheet in securing the economics for the largest of the remaining NPE transactions. As it was the case with Project Galaxy, DK will acquire 51% of the Mezzanine and junior notes whilst we will remain 49% of those before subsequently distributing 44% to our shareholders in the first half of 2022, subject to corporate and regulatory approvals. The transaction is expected to close in December, and the resulting risk-weighted assets release will fully neutralize the impact we have seen this quarter from the transaction, thus making its capital neutral growth. As depicted on the next slide, we are making good progress on the remaining inorganic NPE reduction. The conclusion of Project Orbit is eminent as we will see -- as we will soon be assessing binding offers, whilst investor interest on Project Sky is high, and we expect to receive binding offers by year-end. Together with Project Cosmos, these 3 transactions will allow us to reach a 13% NPE ratio by year-end, securing the economics for 85% of our NPE transaction plan. Preparatory actions for the remaining EUR 1.1 billion perimeter is scheduled for 2022. These are progressing well, and we expect to show solid progress in the first quarter of 2022 for the majority of this envelop. We're also nearing the completion of our business development and capital generation transactions. As you can see on the next slide, Slide 9, earlier this month, we reached a binding agreement with Nexi on the sale of the merchant acquiring business that will add minimis 45 basis points to our capital ratios and cement the long-term growth prospects for this business. The Synthetic Securitisation and the sale of our subsidiary in Albania of projects Aurora and Riviera, respectively, are expected to be concluded imminently as we are advanced in our assessment of the binding offers. The development of our real estate joint venture, which is Project Skyline and the sale of our London subsidiary called Project Crown have attracted nonbinding offers and are progressing towards the next phase. Throughout these past few quarters, we have demonstrated our ability to comfortably deliver on a large pipeline of projects well within the time line and economics that we presented during our business plan, thus decisively reducing execution risk. On the next slide, Slide 10, you can see that the same is true of our financial projections. Within the first 9 months of the year, we have already generated EUR 0.3 billion of normalized profit after tax versus a full year target of EUR 0.32 billion. This quarter, we are revising our guidance for cost of risk for 2021 to 90 basis points from 120 basis points on the back of better asset quality flows. Trends elsewhere continue to evolve largely according to plan. The majority of the NPE cleanup and cost reduction already secured, focus is now squarely on the commercial activity of the bank as that will allow us to achieve our target of delivering double-digit returns with growing capital buffers. And with that, I turn the floor to Lazaros Papagaryfallou for a closer look on our financial performance in the third quarter.

Thank you, Vassilios. Good afternoon, everyone, also from my side. We will now take a closer look into the third quarter financial performance. So with regards to third quarter 2021 performance, I provide a summary of the key financial trends, looking at Slide 12 of the presentation. This quarter, following the signing of a binding agreement in October Davidson Kempner on our Cosmos securitization transaction, we have reclassified the EUR 3.4 billion portfolio to the held-for-sale category leading to lower loan balances. We should note that although an application has been submitted under HAPS2 for the provision of guarantees on Senior notes of an amount up to EUR 1.7 billion, issuance of the notes, which the bank plans to retain has not yet been affected. Our group NPE ratio pro forma for the Senior notes has come in at 19.9% with equivalent number of our Greek operations at 16.6%. Moving to the operating performance. Our core pre provision income in the third quarter was materially affected by lower NPE related net interest income due to the recognition of Galaxy and supported by an improved recurring OpEx line on the back of the deconsolidation of Cepal. As a result, core pre-provision income increased by 16.4% in the third quarter to EUR 192 million. Total loan loss provisions are materially higher this quarter, reflecting additional transaction-related impairments of EUR 354.5 million, associated with Project Cosmos and Orbit. As of the third quarter, the bank has reclassified servicing fees paid to Cepal, which amounted to EUR 24 million in the third quarter from general and administrative expenses to the impairment line, reflecting the Cepal deconsolidation. In the third quarter, the underlying impairment charge declined further to EUR 59 million from EUR 90 million in the previous quarter, reflecting better asset quality trends, driving the underlying cost of risk to 60 basis points over net loans, and for the third consecutive quarter, below the 1% mark, allowing us to revise our 2021 guidance of 120 basis points to 90 basis points as previously mentioned. On a normalized basis, 9 months 2021 profit after tax stands at EUR 297 million, confirming that the bank is on course to beat its near-term target of 5% return on tangible book value in 2021. Including the losses from Galaxy securitization booked in the second quarter, reported loss after tax stood at EUR 2.5 billion. On capital adequacy, our total capital ratio stood at 16.5% at the end of September or 17.2% accounting for the RWA release of the Cosmos securitization, which is anticipated to be realized in the fourth quarter. Now turning to Slide 13. In terms of new credit, we continue to steadfastly support our customers. As we disburse a further EUR 1.5 billion of new loans in Greece this quarter, bringing the total to EUR 3.8 billion, addressing credit demand mainly from businesses. Net credit expansion namely disbursements minus repayments, has accelerated further this quarter and stands at EUR 0.8 billion for the 9 months, driven by EUR 1 billion expansion of credit towards businesses. As highlighted in the bottom right chart, at the group level, our performing book, excluding the senior notes of Galaxy, expanded to '24 to EUR 8.4 billion, or EUR 0.3 billion year-on-year with the year-to-date expansion well ahead of our full year target, and we expect momentum to hold in the fourth quarter of 2021. Lending spreads on performing exposures continue to see some expected pressure but are for now evolving mildly better than feared. Spreads of our new production remained resilient and at very satisfactory levels, which, together with positive mix of net credit expansion should support the profitability of our loan book. Credit demand is expected to further accelerate in the coming quarters on the back of a significant pipeline of projects beyond the RRF projects that are expected to materialize from 2022 onwards. As already mentioned earlier, Alpha Bank is currently in the process of underwriting significant projects not related to the RRF. The current pipeline includes projects, mostly in energy, hospitality and infrastructure sectors, with disbursements of EUR 1.5 billion expected until year-end 2022. On deposit gathering, on Slide 14, the group's deposit base expanded by EUR 1.5 billion in the quarter, comprising 70% of the bank's total funding sources. At the end of the third quarter, domestic deposits stood at the highest postcrisis level, reflecting inflows from core deposits that now account for more than 80% of domestic deposits. The continued shift of the product mix produces an overall positive impact on the bank's interest expense. On a year-on-year basis, our group deposit base has expanded EUR 4.9 billion, that is 11.7% up year-on-year. Liquidity drawn from ECB reached EUR 30 billion, reflecting the further utilization of our TLTRO III borrowing allowance, or circa 18% of our total assets. Benefiting from the low-cost liquidity drawn from the ECB, the bank's blended funding cost remained in negative territory in the third quarter at minus 7 basis points and continued to support net interest income. Finally, the group's robust liquidity position is evident by the strong liquidity coverage ratio, which surged 189% at the end of the third quarter, far exceeding the regulatory threshold. The material improvement in loan-to-deposit ratio 77% versus 96% for the previous year. Let's now see the drivers of our net interest income performance during the third quarter in more detail on the next slide. NII in the third quarter stood at EUR 318 million, down by EUR 52.5 million, mainly affected by the derecognition of Galaxy. Starting from last quarter's reported net interest income, the bank has recognized a one-off TLTRO retrospective benefit for the second half of 2020 of EUR 6.9 million as a result of the accrual of minus 1% for the total amount of ECB borrowing of the respective period. In the third quarter, the bank saw an additional negative impact of EUR 54.1 million as a result of the Galaxy derecognition in June 2021. The underlying performance of net interest income was flattish in the quarter as the positive contribution on the asset side exceeded the negative contribution from the liability side. More specifically, on performing exposures, higher volumes were partially offset by continued spread pressure. To the contrary on nonperforming exposures, lower volumes were offset by higher spreads. The contribution from deposits was lower quarter-on-quarter to EUR 0.8 million, as the positive impact from repricing and mix effect was fully offset by the increase in balances. Funding came EUR 2.9 million lower due to the increased cost from the EUR 500 million senior bond issuance in September and a TLTRO impact, while Bonds and Other saw a positive effect of EUR 4 million, reflecting the impact from bonds and derivatives. On top of that, the bank also recognized higher income of EUR 6.8 million in net interest income due to a restructuring of a specific large corporate loan in Cyprus. On the bottom of the page, we portray an intricate sensitivity analysis of our debt interest income to higher interest rates, according to which an increase of 200 basis points of the base rate from current levels leads to a 9% increase of our top line. Turning to Slide 16. We show the main drivers of our fee income generation. On a quarterly basis, net fee and commission income surged EUR 109.8 million, up by 15% Q-on-Q on a recurring basis excluding a EUR 10 million one-off fee booked in the previous quarter related to an early termination of previous bancassurance agreement with AXA. This strong underlying performance was driven by increased revenues from credit cards and payments due to higher transaction volumes, higher fee generation from asset management and a surge of business credit-related fees on increased origination. On a yearly basis, net fee and commission income witnessed a solid recovery in the first 9 months of the year, up by 20%. The main contributors to this performance were new loan generation and asset management while the cards business was also a key driver. The observed pickup in commercial activity, the growth in asset management, along with the recently announced business development initiatives that strengthen our franchise positioning, allow us to be confident that we are on track to meet our fee-income generation target of circa EUR 0.4 billion for the year. On the OpEx side, on Slide 17, we show that third quarter recurring OpEx decreased by 5.8% Q-on-Q or EUR 15 million, reflecting a decrease in both staff costs and general expenses due to deconsolidation of Cepal. It is important to highlight here that the bank has already looked -- locked in circa 50% of its envisaged cost savings for the next 3-year period communicated in Project Tomorrow with the benefit materializing already in 2022, allowing the bank to target a cost base of less than EUR 900 million for the group in 2022. To this end, the significant progress on the 3 main pillars that underpin this commitment. First, the savings for the sale of the merchant-acquiring business are now secured. Second, a large part of the internal efficiencies deriving from the bank's transformation program, as discussed previously, are also secured following the successful completion of a voluntary separation scheme in Greece in early October. This will drive FTE base in Greece to circa 5.5000 and rebase our local cost base to the lowest level seen in 15 years, driving the productivity of our Greek operations on a per employee basis to the top of the market. And third, lower NPE management costs on reduced balances and significantly lower servicing fees, which are expected to fall by 46% in 2022 versus current levels as we show on the lower right-hand side of the page. Moving on to the next page. Quarterly NPE formation in Greece increased marginally in the third quarter by EUR 61 million Q-on-Q as increased inflows from expired moratoria more than offset the further improvement in curings and repayments. This overall NPE formation in the 9 months is better than initially expected, allowing us to revise positively our target for the year to EUR 0.1 billion versus our previous business plan expectation for formation of EUR 0.6 billion. On the right-hand side of the slide, you can see further information on our cost of risk evolution. Overall, impairment losses on loans stood at EUR 437 million in the third quarter or 4.8% of our net loans, out of which EUR 355 million impairments or 3.9% are related to projects Cosmos and Orbit with a former already reclassified to held for sale. Moreover, servicing fees to Cepal, which we reclassified this quarter to the impairment line will reflect the Cepal deconsolidation, added another 30 basis points on total cost of risk charge. The underlying cost of risk, however, remained consistently below the 1% mark for a third consecutive quarter, coming in at just 0.6% of our net loans versus 0.9% in the previous quarter, paving the way for the full normalization of our impairment line post completion of the planned transactions. Finally, in the bottom right graph, you will see that our group NPE ratio has contracted further from 26% down to 20%, taking into account the senior notes for Cosmos securitization as the SRT and HAPS applications were already submitted and approvals are expected within the fourth quarter. Our NPE cash coverage increased from 54% to 56% or 104%, including collateral. Moving on to Slide 19. We expect to reduce our NPE volume by another 40% this year at group level by reducing gross NPEs from EUR 8.4 billion in September to approximately EUR 5 billion by year-end. This will allow us to reach an NPE ratio of 13%, which is 5 percentage points better than what we expected at the time of our business plan announcement. This will effectively be driven by projects Orbit and Sky with a total GBV of EUR 3.5 billion, for which we target to receive binding offers imminently. Based on our planning in the fourth quarter, the bank will have concluded 85% of its planned NPE transactions, leading the group NPE ratio down to 13%. It is important to note that pro forma for Orbit and Sky, the majority of the remaining entities will be paying customers as we can be seen on the right-hand side. We reiterate our guidance with regards to the total loss budget of EUR 1.6 billion out of which circa EUR 1 billion has already been incurred in the last 4 quarters. The remainder is expected to be equally split between the fourth quarter of this year and 2022. As we have discussed in the previous slide, organic formation this year has come in better than expected, allowing us to positively revise our year-end target. This has been a function of our year-to-date asset quality trends and the successful progress on our transactions. These developments continue to underpin our confidence in meeting our medium-term goal of reaching a single-digit group NPE and NPL ratio well within 2022, while converging to the EU average level by 2024. On Page 20, you can see the quarterly evolution of our capital. At the end of September, the group's total capital base stood at EUR 6.3 billion, resulting in a total capital ratio of 16.5%, up by 104 basis points Q-on-Q, providing a buffer of EUR 1 billion over the overall capital requirement of 14%. This was positively affected by circa 200 basis points from the share capital increase in the quarterly result, partly counterbalanced by the negative P&L impact of the Cosmos transaction booked in the third quarter, DTA's movement as well as an increase in credit risk. Pro forma for the RWA relief of the Cosmo securitization of 72 basis points, which is effectively secured and is anticipated to be realized in the fourth quarter, the group's total capital ratio stands at 17.2%. Beyond Cosmos, the transactions that we expect to conclude imminently including projects Prometheus, Aurora, Riviera, Orbit and Sky we will add 28 basis points to our capital base, further enhancing our position. The expected headwind from projects Crown, Skyline and the remaining inorganic NPE transactions is relatively small at 40 basis points. As per our plan, we expect our total capital ratio to remain above our management target levels of 16.5% throughout the period. Now let's open the floor for questions.

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

First of all, let me thank Dimitrios for all of his help and support over these last past years. And wish him and he has some good luck in the new positions. Now going into questions. I have a few questions on top line and also cost of risk. So top line relates to the lending guidance. I remember that your guidance guiding for a net increase in the book for 2022 of around EUR 1.5 billion. I also take Lazaros comment during the presentation that he expects demand to accelerate. So while we see that the drivers of lending are probably going on the positive side and you also have the variable part of the RRF, which also could play a part in 2022, it seems like your guidance still remains for EUR 1.5 billion, right? So I'm just trying to understand out of this EUR 1.5 billion if that still holds, how much of it is included in the RRF funds that you're aiming to disburse? And if you're seeing any kind of potential pickup also on the retail and mortgage lending, given that most of this is to corporates? Second, again on top line is related to fees and the drivers going forward. It looks like your progress in 2021 has been quite good and you already pretty much on track to meet the EUR 400 million guidance that you have. I remember that when you introduced Project, Tomorrow, your level was more at around EUR 335 million with the target to reach EUR 475 million in 2024. So I'm just wondering that now that we are close to reach EUR 400 million in 2021 or even higher, if the EUR 475 million for 2024, it's still the number that we'll be expecting to reach? And then finally, on your loss budget, just to clarify, out of the EUR 1 billion to be booked, we have half of it to be booked in the fourth quarter, as you mentioned, the second half of it, is it Q1 2022, right? So I'll leave it there.

Jonas, this is Lazaros. I will start with the latter question on the loss budget. Indeed, in the last 4 quarters, we have taken 4 transactions -- NPE transactions, EUR 1.026 billion of transaction-related impairment. And there's an additional EUR 600 million or thereabout to book in the coming quarters. We expect half of it to be booked in the fourth quarter of 2021, as we will be driving in the held for sale portfolios Orbit and Sky and a commensurate transaction impairment early 2022 as we will be doing the same for the remaining entry transactions embedded in our plan. Now on your second question regarding fees, indeed, we have done relatively well. And the expectation is for a high single-digit year-on-year growth of fees and commissions in 2021 versus the previous year. And this comes on the back of new loan origination, credit cards, for which we had a very strong quarter. Wealth management, where we have managed to increase year-to-date our assets under management, especially the non-money market mutual funds by 0.9% (sic) [ EUR 0.9 billion ], and that represents almost 27% of our 3 years target embedded in Project Tomorrow as well as the bancassurance and other transaction-related fees, which are doing very well in the context. So a very good performance in 2021, counterbalancing to a good extent the pressure that comes from NII as we deleverage our NPEs. Going forward, we expect the same drivers to drive fee income generation. I remind you that in 2022, we will not have the merchant acquiring business income in the top line. But based on our current estimates and budget targets, we are planning and targeting to fully replenish this income and go even further in order to support our top line. Now as far as the lending guidance is concerned, the lending -- net credit exposure is concerned, Indeed, Vassilios referred to EUR 1.5 billion expected net loan additions in wholesale. We expect some deleveraging in household lending by approximately EUR 0.2 billion. That should allow us to grow our performing balances at EUR 1.3 billion in the year, and that is excluding all the noise that comes from portfolio sales and defaults from PEs to NPEs. Just looking at the disbursement minus repayments, we expect an EUR 1.3 billion mark. And indeed, you are highlighting something which is currently driving us back to the drawing board. As far as retail lending is concerned, we see higher demand on mortgage lending and consumer lending, and we expect the market overall to increase in both segments in 2022, and we aspire to increase commensurately our disbursements and net lending exposure on both segments for the next year.

Jonas, if I may add to what Lazaros said in terms of off lending, a couple of things. Number 1, in terms of wholesale, one needs to appreciate the way that the RRF will create further demand for credit because it's one thing that it will take on board mature projects. And there, as we have said, the banks have a key role to play in order to accelerate all this process. But on top of that, there will be a key number of vendors that will be used in those projects. And these people will have more -- will have a need for more working capital and they are going to be the banks able to help them as well either as part of the RRF or not. So that is one of the areas where we expect the RRF to have an amplifying role within lending for businesses. Now in terms of households, whilst on the one hand we see things progressing well in terms of -- you see all the economic sentiment in this is going to the right direction. We see unemployment coming down to 13%. Indeed, the look and feel for all the households is that they are feeling much better -- in a much better footing to start taking financial decisions again. At the same spoken, we have this wave of energy increases, and that is something that puts them to pause a bit and reflect admittedly, this government is doing a lot to support something like 70% of the household will receive some form of underpinning towards the energy bill. So it is an evolving picture. What is important is that we keep the dialogue with our households open, and we're offering good and competitive products in order for them to pick up the movement if you're ready.

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

Just coming back to the loan side. On Page 13, regarding performing loans evolution, I see you're expecting an increase on the individual side, it's been declining. So I'm wondering if -- that's just pure demand or there's something else there? And where would we -- I know you may have touched upon a bit in the previous question response, but where do we -- where should we expect performing loan balance at the end of '22 with this movement happening regarding transactions to some of the PE volume?

This is Lazaros. Maybe you're looking at the top left part of the page, where you see increase of disbursements by EUR 0.3 billion in the 9 months for individuals. And that is true. That is disbursements. However, repayments are higher than disbursement. So that's why we have a reduction in the net in the 9 months, and that will be the case for the full year in 2021. However...

Sorry, I was referring to the bottom right chart where...

Yes, exactly, exactly.

Individuals are moving from EUR 10.4 billion to EUR 10.8 billion, which seems like quite a nice jump, is it for full year '21, right? I'm guessing it's more mortgage related than maybe some consumers? Is that what...

Yes, Yes. That is target -- we have -- the target we have in Project Tomorrow. And what we are seeing now is that we are going to see deleveraging in the full year in 2021 on households. And that is a function of repayment still being higher than disbursements. We see scope for significant increase of new disbursements in both mortgage lending and consumer lending in 2022. That's how we kind of position our budget for next year.

So for performing loan balance at the end of '21, should it be somewhat similar to Q3 levels then? Or any color on that front? Apologies if I missed it.

Because of the noise you have from the transactions, yes, that is true. We are trying to take out the noise that you see on the lower part of the table on the left side, and we focus on disbursements and repayments.

Got it. And for next year, you still have some transactions. I would assume the "leakage" to PE would be -- of transactions would be less, would that be fair to assume?

Yes, we're talking mainly about NPL transactions next year, mainly on wholesale. We don't see forming exposures being dragged by the NPE part of such portfolios, so there will be no noise out of these transactions in 2022. In 2021, in securitization transactions like Galaxy and Cosmos, because we've taken an obligor view, we have certain fees also included in the transaction perimeters. That's why you see some fees in portfolio sales.

Got it. And just a technical question, on your tax expense, you had a sizable income this quarter. How should we think about that for Q4 and beyond? Any color there would be helpful.

Yes. That is mainly attributed to DTA recognition on the Cosmos transaction.

So on a normal quarter, should we go back to the previous quarters then for a run rate?

Yes. We don't expect such DTA recognition every quarter. We don't have these kind of transactions every quarter. So yes, you shouldn't be looking at this quarter as a benchmark for subsequent performance in this line.

The next question comes from the line of Daniel David with Autonomous Research.

Just a couple of questions. First one on asset quality and noting the updates to your guidance. Can you just maybe talk about what you're seeing with your moratory balances? And also comment on your loans that have now moved into the Gefyra and step-up schemes? And then secondly, just thinking about your credit stack. Would you consider an AT1 transaction next year to optimize your capital position?

Regarding asset quality, we are guiding for a flattish NPE formation for the year. That flattish formation has taken into consideration certain defaults out of the loans previously under moratoria. You see that on the upper part of the slide, and we are well within our guidance for this particular perimeter. At the same time, we have seen an increase in volume of curings and repayments, especially in the third quarter of the year, where we have noticed a propensity of clients to restructure, and we have increased restructuring activity in the third quarter, expecting next year higher curings from this particular restructuring activity. This has led us to kind of counterbalance pressure from inflows within the year and revise our guidance for 2021. Coming to 2022, obviously, we should be looking on certain cohorts of the portfolio that you have referred to including loans, which are currently under subsidy programs or they have received restructuring products named step-ups. The balances we have for the subsidy programs, Gefyra 1, Gefyra 2, they are -- they amount approximately to EUR 2 billion of -- shy of EUR 2 billion. They are good quality loans that have received subsidy for the balances that have expired -- they have exited the subsidy program so far, we see a good performance, and all of them are currently -- or the bulk of them, more than 95% is in bucket 0, which means they have no delinquencies at all. The first part is addressing mortgage borrowers with varying levels of subsidy depending on their performance status. The second part under Gefyra 2 relates to SMEs and small businesses, mainly the tourism sector, which has done relatively well in 2021. And again, the quality of the underlying portfolio is quite good. So we don't expect really cliff effects in 2022 out of this perimeter. Coming to clients who have received previously a restructuring product named step-up, we have some expirations at the end of 2021, approximately EUR 600 million. And again, for the performance of step-ups so far, we have seen relatively good rents. We expect them to continue for this particular perimeter next year. However, we should expect to see some clients in distress out of this particular perimeter, and they will definitely require an additional restructuring product. If this restructuring product is addressed to clients who have been previously in Stage 2, most probably, that would lead to Stage 3 migration and new defaults out of this perimeter in next year. So that is part of our projection for next year. And you can see in the relative asset quality slide, the expectation for 2022 in terms of organic deleveraging. You have also asked about our capital plan and nondilutive capital measures in the context of Project Tomorrow. We have issued 2 Tier 2 tranches, the last in February 2021. We're doing additional inorganic nondiluted capital actions like the sale of noncore businesses outside Greece as well as the sale of real estate portfolios that will give us some further RWA relief. And we are also expecting to conclude in December 2021, performing securitization of EUR 2 billion that will provide a EUR 1 billion RWA relief. This is a transaction to be announced imminently to deliver an additional 47 basis points of common equity Tier 1 within the year. All that is portrayed in the capital waterfall that you can see on Page 20. You will see that pro forma for Cosmos RWA relief at the end of September, our total capital adequacy stands at 17.2% and transitional common equity stands at 14.5%. Now with all the transactions which are near their conclusion, including capital accretive transactions as well as NPE transactions, namely Orbit and Sky in the fourth quarter, we expect an overall capital impact of 28 basis points. That is a positive impact. And on the remaining transactions to take place to 2022, the NPE transactions, we expect a negative impact of 40 basis points. So you will appreciate that these projections portray a rather comfortable capital position on the back of Project Tomorrow and our capital actions. So we do not expect any additional capital action in this respect. I understand that you may be asking about AT1. We have space to issue AT1 of EUR 800 million. We have not tapped this instrument yet. Obviously, this is part of our plan to fill the relevant regulatory buffers fully. And initially, it was planned to take place in 2023 so as to allow us to optimize the capital structure and devise a credible dividend policy in this respect. Now if markets are opportune and there is a window for us, it may be that we issued this earlier than 2023. But that is subject to market conditions in our business plan.

[Operator Instructions] We have a follow-up question from the line of Floriani Jonas with Axia Ventures.

Yes. Just a follow-up now on your last comments. So we already heard from peers and also local peers that now that NPE ratios are approaching single digit and the capital positions are somewhat stable at a reasonable levels. The discussions with regulator for capital distribution to shareholders will start in 2022. I just wonder if this is what you have on your plate as well and plan for the year? Yes, that's all.

Well, Jonas, this is something that inevitably has first to be thoroughly discussed with the regulator. The regulator has a central role into that. we have said when we announced our Project Tomorrow, the conditions when we may find ourselves with where we feel comfortable. And in discussing that, I think this is irrespective of the timing for what we are doing is we're working hard on the levers that will get us there. And so that would be the condition precedent to allow following engaging discussion with the regulator. Therefore, we don't want to speculate on timing. But the rest assured that this is very important to us, as you well know, Alpha Bank has been the only Greek listed company that has uninterruptedly given dividend out in the second world war until Greek bank said to take up state aid. So it's very close to our heart, and we are consciously working towards that direction.

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

Ladies and gentlemen, thank you very much for participating on our third quarter results call. We're looking forward to welcoming you next year at our full year results. Thank you very much, and stay healthy.

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