Banca IFIS S.p.A. (IF) Earnings Call Transcript & Summary

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Banca IFIS First Half 2021 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Frederik Geertman, CEO. Please go ahead, sir.

Thank you very much, and good afternoon to everybody. Thank you for being in the call, considering it's August 5, and there are many conference calls for the results these days, thank you twice. We hope to make it worth your time. We're presenting Q2 numbers that we think confirm and strengthen what we saw in Q1. We think they are constructive numbers, and they're encouraging. We have a net income of EUR 28 million plus EUR 8 million versus Q1 on Page 4, which makes EUR 48 million total in the first half of '21. Net revenues of EUR 155 million, which is a peak in the last 5 quarters. Obviously, 2020 was a bit depressed for obvious reasons. But even going back to 2019, that's a nice number. If we exclude the PPA, we end up with EUR 151 million, and that's a record for the bank. And we think it is a good indication of our ability to replace PPA with real core income. NPL cash collection, like the previous quarter, peaked at EUR 89 million, so a record. And loan loss provisions at EUR 26 million including EUR 14 million extra provisions that we made, both in NPL and in our commercial banking portfolio, where we find additional ways to, let's say, prudently account for long-term COVID impact. CET1 is 11.44%, which is slightly down from where we were in Q1, 11.77%, but it doesn't include first half '21 net income. So with a reasonable estimate of what dividends might be, right? You can add up probably some basis points, and you can see that we're more or less stable, I would say. Without Scogliera perimeter consolidation, 15.51% CET1 ratio. We think we are benefiting from a progressive recovery. So in the absence of any ugly surprises in the rest of the year, we provided guidance, which some of you asked me for the last quarter. I took some time at that point because I was a bit hesitant to give numbers so early in the year and also so early in my tenure, frankly. Today, we gave a guidance, and I'll comment on it a bit later when we get to the chart. I'd go to Page 5. Here, we have the revenues. That said, EUR 155 million, total EUR 151 million, excluding PPA. Both on the NPL side, we have a nice progression plus 11% Q-on-Q driven by further normalization of the courts, right? You remember that we had bit of a backlog due to 2020 when they were closed. Also some management actions on productivity in servicing. We're having -- seeing the impact of quite some projects there in terms of how we organize the servicing and that's paying off. Commercial banking, plus 15% Q-on-Q. That's also a very nice number. There are some impacts there of investments that we made that has paid off, but all the business units are progressing very nicely, 15% Q-on-Q. Page 6, a little bit of an update of -- on digitalization. You know that we like to talk about this. It's not because we fall in love with a project or something, but because we think it is long term, very relevant for the bank. What this is, it adds distribution capacity with very low additional cost. And it also allows for volume growth with a very attractive marginal cost/income ratio. So as these projects and these platforms go on stream, you can actually see it, right? You will be able to appreciate it in the numbers, and that's why we think it's relevant, and we want to keep you updated on how it is going. So on the left is just a reminder of what we're talking about. It's digitalization, both of the client side and of the Banca IFIS internal side. On the client side, for factoring, it both benefits the client and it's debtor, right? So it's really value chain digitalization. On Q1, we mentioned to you that we were operational with a few things, digital marketing, clients onboarding and supply chain functions, which is mostly regarded debtors, right? We launched in July, and we have an ongoing rollout. Full digital factoring means that the clients that are -- have been onboarded are fully digital. It's not just uploading of invoices. It is the whole management of the credit, right? So including request of delays, increasing of platforms, the whole after sales part and the whole dematerialization part is included, and it's -- we think it is a really, really client-oriented state-of-the-art supply chain digitalization. On Q4, we have further plans. As you can see, we'll be integrating additional products. And this is an ongoing project, which is on track. Let me just tell you that in terms of digital marketing, we have an ever accelerating production of high-quality leads, meaning that we have literally thousands of SMEs, which are being processed and are becoming progressively customers. Compared to 2019, we have roughly doubled the size of high-quality leads. And Q-on-Q, we have roughly -- and sorry, against the 2020, we have roughly a 30%, 40% increase, meaning that, also on the commercial side, the bank appears to have the capabilities to generate new customers. Enough about digitalization. I'll go to Page 7. Small focus on NPLs. As we said, EUR 89 million cash collection. That's a record number, significantly higher than 2019 before COVID, obviously higher than 2020. Management action is both reducing the time frame of recovery of risky exposure. So where you have very uncertain repayment plans, push for saldo e stralcio, as we call it in Italy. It's still, obviously, a moderate use of the tool. We will not use it where we will, long term -- where we would long term leave value on the table. And on top of that, management action in terms of productivity, where you have to imagine, for instance, a little bit of extra judicial activity before the judicial activity starts, use of AI to weigh the propensity of payments and, therefore, prioritize those debtors that are going to give us more cash in the short term, some anticipation of those files that are subject to calendar provisioning, some preventive actions to -- on ongoing payment plans to make sure that they're not discontinued. So a whole range of -- let's put it this way, areas of sophistication, which leads, in our opinion, to a sustainable increase in cash collection. And that's really why I'm going into a bit of detail. We like to underline the sustainability of the approaches that we have. Page 8. Moratoria. It's probably very much in line to what you've heard from the other banks. The Italian banking system is getting out of this moratoria phase. For most banks, including us, many clients are restarting their payments. We are now down 71% from the EUR 799 million, that was the original exposure on moratoria. You have to remember that for those clients who asked, it was available to continue the moratoria until December on the capital side. The interest was -- the interest would have been -- would have restarted. But still, we have only 29% of the clients, which are still in moratoria. We are assessing these, as you can imagine. And we have a fairly benign view on what will happen with these remaining EUR 233 million. So if you compare that with what we have on the right-hand side of Page 8, right, EUR 31 million provisions, additional provisions, on a sector-by-sector basis in 2020, another EUR 8 million in the first quarter of '21. You may remember, another EUR 5 million in the second quarter of '21. The bank is, as you can see here, actually looking for prudence, looking for long-term prudence about the impact of COVID because as we've seen last quarter, the natural provisions remain very low. We will comment on it may be a bit later. So we feel very comfortable with the overall picture. We think a minority of this EUR 233 million will, in the end, have problems, and we feel that the provisions that we've made are really adequate. Guidance, it was a request from some of you in the previous call. Let me be a bit precise here because it's a formal thing, and Martino is watching me. So we benefit from the progressive recovery of the macroeconomic environment that we can read in the paper, that we can see with the clients, that we can also visibly see in the economic activity that we see around us and also from the NPL normalization, right? On the basis of that, so without any ugly scenarios in terms of COVID, no harsh lockdowns, not in Italy, not elsewhere, especially U.S. and Europe, right, where we have obviously a market exposure. Lacking these negative developments that we don't expect, we expect some trend in revenues. We expect to make some further credential provisions on the NPL on commercial banking portfolios. And on this basis, we think that we will end up with revenues between EUR 540 million and EUR 560 million, and the net income of EUR 80 million and EUR 90 million -- this EUR 80 million to EUR 90 million. This will take into account that Q3 is normally a bit slower. It's slower on the NPL side. It's also slower on the commercial banking side. So we have to expect, like in every year, a slightly weaker Q3. We're expecting on this basis, if these macro outlooks are confirmed, we're expecting a nice Q4. And if that happens, then this is roughly what will materialize in terms of economics, right? Capital ratios, Page 10. As you saw, a little bit of minor changes and then 49 basis points due to risk-weighted assets increase. Now of course, this is slightly negative as a perception because what you see here. You don't see the effect of the profits that we make because they're not included in the CET1 calculation, but you do see the effect of the commercial activity because the risk-weighted assets increase. They also increased, by the way, because there's a little change of perimeter connected to Aigis. On that basis, we end up with 11.44%. At the end of the year, when we will add in the retained earnings, we can confirm that we will be between 11% and 12%, and in my hope or aspiration, a bit closer to 12% than to 11%. Obviously, there's the project of La Scogliera's transfer to Geneva. If that happens and that is subject to the satisfaction of conditions precedent, then there will be roughly 350 basis points impact, positive 350 basis points impact on Banca IFIS. In terms of timing, these conditions precedent, they can be met. [Technical Difficulty] I believe, we -- the line was interrupted. So we're back. I will assume that you can hear me and then resume the presentation. My apologies for the technical glitch. As we said, the transfer to Geneva of the holding company is subject to conditions precedent, and these will be hopefully met or, in any case, will be clarified between Q3 and Q4. We will present a plan in Q4. Or if these condition precedents are not fully resolved by then, we may shift it to Q1 of next year. Hopefully, Q4. But once again, we don't think it would make a lot of sense to present a plan with this uncertainty around such an impact on the capital, and therefore, we will wait for the situation to clarify it. As we said, we think the completion of this transaction is probable, and therefore, we think it is opportune to wait. On Page 11 and 12, just 1 comment before I leave the floor to questions. 11, remember that 2Q '21 figures includes the P&L and balance sheet impact of the acquisition of Aigis. P&L is not so material for Banca IFIS. Balance sheet impact, you see it on customer loans and funding. You also see it a bit on risk-weighted assets. So that's something to remind yourself of when you look at the numbers. And on Page 12, the only comment I would make is the breakdown by business line, is that all of them are contributing nicely to net income. And in terms of business activity, all of them are progressing Q-on-Q nicely. So we are quite encouraged by the capability of the bank to benefit from the macro environment that progressively improves and normalizes. Thank you for your attention this far. I would make myself available for your questions. Martino is here, too. So in case I'll need some assistance, he will jump in. And I'm happy to take your questions. Thank you for your attention.

[Operator Instructions] The first question is from Christian Carrese of Intermonte.

I will start from the guidance on total NBI, the net banking income. Looking at the number you provided, we should assume some decrease in the second half. So if you can elaborate a little bit on the trajectory. I understand the seasonality in the third quarter. In particular, I would focus on NPL business because it was -- the performance was very good in the second quarter, flat compared to second quarter 2019 with a very high collection rate. I was wondering what do you think could be the run rate on an annual basis of the NPL division? Should you assume in the area of EUR 240 million, EUR 250 million revenues on this division? Second question is on the operating costs and the positive trend in NPL business. So some -- also some pickup in cost related to the division due to the collection, the variable cost. Can you give us some outlook for the second half of the year? And on the digitalization process that will be part of the new business plan and you already started to implement, should we expect some extra cost related to the digitalization in the second half of this year? The third question is on cost of risk. You made some provision in the factoring business due to high [ vintage ] of the portfolio. You did also announce the NPL business. You checked 50% of the NPL portfolio. We believe that impact in terms of provision, if I'm not mistaken, around EUR 9 million in this quarter. Looking at the full year figure, we expect to do some extra provisioning to free up some resources for 2022 profit. And finally, the common equity Tier 1 ratio is not including the first half profit. Is it correct? So assuming that contribution, the common equity would be more or less similar to the previous quarter, 10 basis points lower than previous quarter, could you -- can you give us an update, if any, on the process for the Scogliera holding and so on, on the new organization? On that end, the dividend -- and finally, sorry, on the dividend, you already made an accrual of the 2019 dividend. It's not in the common equity Tier 1. We know what ECB decided on the dividends. So if you can give us an update on total dividend to be paid after September 2021.

Yes. Thank you, Christian, for the questions. Let me, first of all, do the easy one, right? So CET1, I confirm, it doesn't include the profits, okay? And yes, if you make a reasonable assumption on payout ratio, then capital would be -- CET1 ratio would be more or less flattish, right, not materially moving, staying above 11.5% which is where we like to be comfortably. Dividend, another easy one, so I'll just take that out. Yes, 2019 dividend is booked as a debt, okay? So you don't see it in the CET1. It's like it was already paid. What's going to happen there? Well, what the authorities said ECB and Bank of Italy issued a press release just a few days ago on the subject. And the message is please be prudent. And we are going from a general guidance on the authorities side, you would call it indication probably, right? From a general policy of no distribution or very limited distribution, we're going to a specific policy, where we will talk to the banks and we will take a forward-looking view around their capital situation and how their dividend -- their intentions or the dividend will compare with the capital situation. So it's slightly delicate for me to talk in the place of the authority. So I'll avoid it. Let me say it like this. We will have this conversation, obviously, with them during the month of September, I assume, right? And we're not expecting -- but once again, I can't talk for the authority, but we are not expecting any issues around the 2019 dividend, especially given the way it's already accounted for. So -- and then I look at Martino, it's EUR 1.1, I believe. That's EUR 1.1 per share, which is sitting there and that, in case we don't get any objections, that's going to come right after September 30. Cost of risk. You asked us whether we were -- maybe had the intention to -- maybe have a little extra sacrifice in '21 and maybe free up some extra profit in '22. That's not very elegant. My CFO is looking at me is disapprovingly.

No. Let's say that we are very prudent. We are very prudent. You just entered the group, so you want to look at the loan book in a proper way. You need some time.

I agree. Let me put it this way. I promised no kitchen sinking, and I reiterate the promise, okay? So we won't do anything ugly. And when I gave the guidance, the guidance will -- if it includes the assumptions we have today, right, on a little bit of further caution that we want to put in. So that's -- so if you take a look at the numbers we gave, and you think a little bit how many provisions more or less, right, you would expect, these provisions would include what we think we will do as further caution, as we work through the remaining 50% of the NPL portfolio, which we still need to do, okay? So it's housekeeping, really. And it's getting -- obviously, I mean, you need a rationale when you do these things. You can't just do them because it's comfortable. You need a rationale. And therefore, we found the rationale in terms of classification of these NPLs, which category are they in. And maybe can we be a little bit more prudent there given long-term unemployment, giving the value of guarantees, given some long-term COVID effects, right? But it's not endless, of course, right? So we're going to make...

Actually, if I look to the loans under moratoria, I would expect no deterioration in terms of -- no major deterioration in terms of default rate.

I agree. I agree. I agree with you. And if you look at what's coming in, in terms of cost of risk, naturally, you take our cost of risk of this quarter, you take out the 9 and the 5, you end up with a fairly low number, around 12. And in Q1 was also similar, right? So what's coming in naturally, in terms of cost of risk, not just in IFIS, by the way, you see this in other banks too. It's still very low. And the -- I think we can carefully start to conclude that everything that was done in terms of liquidity, moratoria, government intervention, banks intervention has, in fact, had the desired effect to decouple GDP contraction from NPL flows. It seems that the GDP contraction was obviously there, but the NPL flows are still very much subdued. And if you look at how the businesses are coming out of the moratoria, we don't expect something particularly ugly, given that there was a healthy book to start with. This is very important. It all depends on your starting position. So yes, fairly subdued cost of risk, more or less in line with Q1, Q2 for the outlook. A little bit of extra investment from us leading to the guidance that you've heard. Digitalization, your other question. Digitalization, and then I get to the guidance, especially on revenues, which you started with. I'm working my way back. Digitalization. Well, it's mostly CapEx. So don't expect an increase in costs due to that. That's just projects that are there. They are budgeted. Most of it goes to CapEx, so you wouldn't even see it right away fully in the cost line. So nothing particularly relevant there. You've seen an increase in cost, that is, in fact, very much connected to the increase of activity, the increase of NPL activity. What you may expect in terms of cost in the second half of the year is that if the Scogliera transaction is completed, we will have some success fees on the advisory side. And those will be visible in the cost. So you have a little uptick in costs, but only in the case with a full success on the Scogliera transaction. Otherwise, nothing is due. So in that case, we would have, on the one hand, some advisory fees paid on a success basis. But on the other hand, we would have 350 basis points of capital. Once again, the guidance takes this into account. Finally, first half versus second half revenues. What to expect? Well, two things, I think. Why is the second half a bit weaker than the first half, right? Because we're not multiplying by 2, obviously. You did the math, right, because of Q3. And some of that is on the NPL side because you don't have the courts for part of the month in August. So -- and that stuff is just mechanical. It -- this just happens. Also in terms of commercial banking, there's always a little bit of... [Technical Difficulty] Apologies once again, we seem to have issues with the line. I'll continue, Christian, to answer your question. So Q3, right, slightly slower because of the courts and because of the commercial banking things. And also, we have -- expect roughly EUR 5 million of PPA, which is slightly lower than what we had in the first half, where it was EUR 16 million. So all this together, leading to a slightly lower revenue in the second half. Cash collections, let's -- I mean, this is just an estimate. Expect, for the reasons we said, Q4 that's similar to Q2. Q3 that has the typical dip, right? If you look at the previous years, you can do the math. I hope I answered your questions. More specific then this requires a crystal ball, I'm afraid, Christian.

The next question is from Manuela Meroni of Intesa Sanpaolo.

A few questions from my side. The first one is on the loans under moratoria. What is the default rate of the losses that you are expecting from those loans? The second question is on the guidance for the loan loss provision that is embedded in your EUR 80 million, EUR 90 million in your guidance, net income. So what is -- what are the loan loss provision that you have embedded in that guidance? Third question is on the nonperforming loans business. You got a relatively low amount of nonperforming loans in the first half. How many nonperforming loans do you expect to buy in the full year? Then on the SME business, the trend in SME business has been quite strong in the second quarter. What is the outlook for the SME business going forward? Then on the PPA, how much of the remaining PPA, and what is the expected time frame to -- for the reversal of it? And finally, you have been in Banca IFIS for a few months. Have you got any negative surprise or something that actually is below your expectation? Or maybe you had some positive surprises, just a feeling about that.

Thanks for the last question. I'll take it last, okay? I'll go through the other ones first. So thanks, Manuela. Very, very precise questions. Okay. So on moratoria, we have an exposure at the end of Q2 that's left of EUR 233 million. And on the basis of what we hear from the clients and all the dialogue that's ongoing, if I have to give you a number, I would say 10% of these remaining EUR 233 million could go bad. Obviously, lots of this is in leasing, so we have the equipment. We have the hardware that we financed. Some of it will be mortgages, so we have the guarantee. So not all of that will be lost, obviously, which is why, as I mentioned before, if you compare it to the provisions that were made last year and this year, we feel comfortable. And 10% is roughly what we expect. And in speaking to colleagues at other banks, it's more or less what people think. It's a really benign outcome if you think about it. It does depend on your book. So if you go into this situation with a bad book, then I think that might be a different story. But I think that banks that you know, including your own, for being -- having a good risk culture are going to have this type of number. We -- this is what we expect. Guidance for LLPs as a consequence, right? if I have to give a number -- and remember, we're giving ranges. So you put the range around this number, that I'll give you. I think EUR 80 million would be a reasonable estimate for LLPs for the full year. 8-0. Could be a bit less, could be a bit more. And it's good to take into account a little bit of further investment in prudence as we said. So it would take it into account. As we said, naturally, it's coming in -- what's coming in is quite low. So -- and I'm not expecting any real change on that in the next quarters if the whole macro situation doesn't change dramatically. NPL purchases. So first half of the year was a bit low. That's just timing of the auctions and it's a little bit lumpy, right? So there was one that was fairly sizable where we had partial success. So we bought a piece of it but not everything in terms -- it was just a matter of pricing. We have, currently, in excess of EUR 3 billion that we are actively looking at today. And we -- and on the basis of that, we expect that we will make our planned purchases for the year. So it's not going to be a lot more, but it's not going to be a lot less either. Of course, when we talk about these things, we're talking about auctions, and you can't know obviously the results until it's done. SME outlook. Going forward, much the same as now. So further, I think, strengthening and improvement. Every time we see an update of the statistics, I'm sure you read them too. You see a further increase of the pickup of GDP of Italy. It was 5-comma something. Now we're talking about 6%. So I think there's an overall strengthening of the GDP outlook. And on that basis, we expect things to be roughly as they were in Q2, maybe slightly better. But for us, basic continuity. So a bit of seasonality, Q3 and a good Q4. That would be my expectation, if nothing ugly happens on the COVID front. Your question on PPA, I'll give you the precise numbers. What's left is EUR 43 million. We expect to consume about EUR 20 million this year. Remember, we already consumed EUR 16 million. And it's one of the reasons why I just mentioned that the revenues in the second half are going to be slightly lower because we expect to have a further EUR 5 million more or less this year, leading to a total of EUR 20 million in '21. So EUR 20 million in 2021. If we have to guess 2022, would be in the region of EUR 10 million, probably. So that stuff is going down. But as I said, I think one of the important things of the numbers we see coming out of the bank is the fact that core revenues are replacing PPA in a very convincing manner. Finally, negative surprises. I guess, I'm boring, but I can't be more entertaining than just saying what I said in the previous quarter. I also see it in the numbers. It's a very resilient business. No ugly surprises, not even in going through the NPL book as we mentioned, right? So there are opportunities to do some good housekeeping, but no ugly surprises. We completed the team. We had 2 vacancies. There were vacancies when I arrived, so nobody was sent away. On the COO, where we hired Mr. Fabio Lanza from a large Italian bank; and Head of HR, where we hired Mr. Mauro Baracchi from another large Italian bank, two very senior leaders that we're really happy and proud to welcome on board. The team is now more or less complete. We're looking at some specific functions still, but that's going nicely. I have to say the bank is very solid in its know-how. It's focused on certain businesses, and it does tend to do this well, which is very nice situation to work in, obviously. I think the team dynamics, which is something maybe for the analysts less important, but for me and my colleagues probably very important given that we live in this situation. So I guess the team dynamics are becoming very positive, very pleasant, very energetic. We're working on the plan. So we'll see when we will be able to present it, but it's coming along. Today, we had a Board meeting where we discussed guidelines with the Board, and we've got some nice feedback. So no, I'm sorry, I don't have any negative surprise to share, but I have -- on the contrary, I have a bit of optimism to share. And hopefully, we'll be able to translate that into convincing numbers.

The next question is from Irene Rossetto of Stifel.

A couple of questions on my side. Can you please share what you are seeing in the NPL market in terms of pricing? And then on Corporate banking division, we saw a strong progression of revenues there. Could you elaborate on that? And what do you expect going forward?

Yes. So NPL markets, let me tell you first what I don't expect. I don't expect a tsunami of NPLs being brought on to the market. And therefore, I don't expect prices to go down, right, because of an excess of supply and investors not being able to absorb it. I don't expect that at all. So I expect a market that is, in terms of offer of NPLs, more or less stable, including a bit of offer on the secondary side, which is becoming more relevant. There are currently some auctions now on the secondary side, for instance. And I expect competition. So I think the environment is getting a little bit more challenging. And in terms of what it means for us, if you stand still, it's like you walk backwards, right? So what does it mean? It means that you have to invest in technology, processes and capabilities in order to retain your ROE in this business. We are planning for a challenging pricing environment, and we're very comfortable that we will be able and that we are able to remain very profitable in the NPL business in this environment. But I think there is competition and we are preparing for competition. And if you're a leader in a very specific field, as we are, then that's actually -- could even be seen as good news. So that's on the NPL market. Corporate banking. Yes, the progression is a couple of things. It is -- so commercial dynamism and factoring. And it's also the small business government-guaranteed loans, where we're having a -- and small corporate, where we're having a very good progression that's building up stock, and that stock is contributing to the -- obviously, to the P&L. So you have the situation, where on the asset side, you keep seeing the stocks increase and therefore, your -- over time, your interest margin will increase. Another thing that helps is that our cost of funding is improving. The cost of funding is improving in the market in general because of overall conditions, but there's been a very, very active program that's been ongoing now for, I guess, at least [ 3.5 ] in our capital markets team that involves restructuring of securitization. It involves smart issuance of financial instruments. It involves restructuring of existing lines. It involves gradually increasing the retail cost of funding, which we are reducing -- cautiously reducing every quarter and which continues to hold up very well in terms of volume. So another thing that's really helping on the corporate side is that given that we're able to keep the prices up, all the cost of funding benefit is adding to the P&L. And that's a very encouraging dynamic. I mentioned... [Technical Difficulty] Once again, sorry for the interruptions. We'll make sure that this doesn't happen again. I really apologize. So I mentioned this in the previous call. I think many people underestimate the importance of the space that exists in cost of funding, right? So if you're capable of keeping the prices up and given that we serve small companies, it's very important because the dynamic is not there if you serve large corporate. Given that we serve small companies, we are able to keep the prices up, and therefore, all the cost of funding benefit comes to us. And that's really, really encouraging. So that's, I think, an answer to your question about the development of the revenues. Also, I mentioned commercial dynamism at the start. I'll give you the progression of factoring turnover in the last 3 months. April, EUR 870 million; May, EUR 960 million; June, EUR 1,140 million. Well, that's the -- you would expect it in the quarter because normally it accelerates towards the third month, but that leads to an average that is a lot higher than Q1. So it's -- as I said, you see the economic activity in the country picking up and we're surfing that wave, if I may use the expression. Did I answer your question, Irene?

Yes.

The next question is from Andrea Lisi of Equita.

Several questions from my side. The first one is on the guidance. If you can tell -- elaborate on the continuous margins you have assumed in defining your guidance. Then the second question is on the salary provision you take on the NPL and the commercial banking, if you can provide more color, especially on the NPL side and on a medium write-offs, so which position are there? And why do you make these provisions? And is -- I understood that it is reasonable to expect other write-offs in this portfolio. And so when do you expect to complete the assessment of the portfolio? The other question is on the factoring business. I saw that in the quarter, different from the previous one, the loss provision were high. Can you explain reasons for it? I think that there are -- maybe there is some extra provision also. Also there, if you can elaborate on that? And also another point is obviously a bit difficult to answer. But in this quarter, you had a strong benefit from dividends and trading and so on. So what is a reasonable level for the next quarters? And very last question on the capital position. In case that there is the regulatory change in the risk-weighted asset of NPL, what is the impact you expect on the CET1?

Yes. Well, thanks for those. So Andrea, I'll take them in the order in which you posed them. Guidance on margins, I would say flat. As I mentioned before, we're quite happy with the pricing capabilities. I don't think we have lots of space to further increase. I think we'd be happy to keep them where they are. Obviously, if your cost of funding decreases and you keep your prices flat, then your margin expressed in that way. So against cost of funding, it might widen a bit. But I expect it to be flat. Extra provisions, why and what categories? As I said, we are looking at in the context of not wanting to underestimate what's going to happen and what has happened in the country in terms of real macro statistics in the retail side, which is where at the end of the day, we have exposure with the NPL business, because we have exposure to families. We started to look at what could be some long-term impact that we're not seeing in the cash collection now. So this is basically assumptions that you make on what will happen in the future. What could be some long-term impact of the situation? And what you then do is you take loans that are placed in a specific category where they get a specific model. You question whether they should be in that category or maybe they should be in another category. And the classic one would be, okay, does this person have a job because if he has a job, then the legal route probably is worthwhile. If the person does not have a job, then the legal route doesn't get you very far. Now of course, judicial collections have a certain model, which is a bit richer than the nonjudicial collections, right? So you asked for some flavor, that's the type of stuff you do in order to inject prudence in the way you allocate, you manage your NPL portfolio. It led to, as we said, EUR 9 million. What we expect further, we have a fairly good idea of what to expect. And the guidance we gave you includes it. When will it be done? Before December 31, 2021, we'll have it all done and sorted. So on factoring. I believe you asked for the provisions this quarter. They were slightly higher because we did a similar exercise there on the older vintages. Those are within the factoring divisions. Those are the older loans that were purchased towards the public administration. Now you can take the view that sooner or later, even if you have to go to the highest court in the country, you're going to get the cash. Sometimes, you have to go to the highest court in the country. And in Italy, that requires years and years. From a purely legalistic standpoint, we could take that position and therefore, say, we're going to get to the end. So even if we have to wait another couple of years, we're going to get to the end and we're going to get to the cash. From a prudence point of view, you're going to say, "Well, some of these are really a bit dated. Why don't we start assuming that the success rate might be a bit lower and then make some provisions?" And then that's in the factoring division, but what you see is that approach. And it's relative to loans vis-a-vis the public administration. Trading, dividends and other stuff. Well, we had some -- we had, in fact, some contribution, yes, on those elements. But I want you -- I would argue that these are core revenues, first of all. I mean it's not like selling a building that -- we did that, of course and we had a very nice contribution to the P&L from it last year. We have equity investments and a couple of those equity investments, one in particular, had a transaction that was -- made it necessary to recognize revenues from the holding that we have -- from equity holding that we had. So you can't explain -- you can't expect them probably to be recurring every quarter because they're a bit lumpy. But I would say that they will be recurring every year on a slightly longer time frame because it's core business. Once again, it's -- we have equity investments. We make investments in funds. We make investments in companies. We do it selectively. We do it through our structured finance team. When we see really nice situations and we get invited in, we have the flexibility to do it, then we do it. Maybe sometimes quicker and more decisively than larger, more structured banks that might run into all sorts of policies. We -- it's the advantage of being a little bit agile, I would say. So what to expect in the next Qs? Do not expect a repetition of Q2. But when you take an annual look, I think it's reasonable to expect IFIS to have these types of contributions periodically. Risk-weighted assets from the different risk weightings of the NPLs. Yes, so there is this EBA process that is ongoing. I think at the end of September, they will finish the period in which they take market feedback or feedback from market participants. It looks like there's not going to be a lot of objection, right? Because it helps obviously the NPL market. And from a regulatory point of view, I think it would -- it's absolutely counterproductive to keep it the way it is. I would want to help the NPL markets without penalizing any purchased NPLs. So yes, they would go down from 150% risk weighting to 100%. We expect it to happen within the year. And if it happens, it's a further roughly 60 basis points for IFIS. So Switzerland, [ 350 ] plus [ 60 ] would be [ 410 ]. Obviously, it's not in the bag. I have to add it every time I mention it. So the regulators hasn't fully confirmed or deliberated this different risk weighting, and there are conditions on Switzerland. So it's not in the bag, but we can look at 350 plus 60 roughly. I hope I answered your questions, Andrea.

The next question is from Simonetta Chiriotti of Mediobanca.

A couple of questions. So the first question...

Simonetta, we cannot hear you.

We don't hear you very well, Simonetta, sorry.

Can you hear me now?

This was a bit too much.

A bit louder.

Okay. One second. Okay. Can you hear me now?

Yes. Perfect, Simonetta. Thanks.

Okay. Good. So the first question is on the Corporate banking and lending division. That is becoming a major contributor to your P&L and also the main driver of loans growth. Could you help us to understand what the drivers of this growth? And being related to state-guaranteed loans, is this portfolio will basically continue to grow or remain in the next year? Or that we will see a runoff of these assets? And the second question is on capital. The outlook is potentially very, very positive from the NPL risk weighting and the transfer of La Scogliera in Switzerland. So my question is, you will have, hopefully, plenty of capital. Could you help us to understand how you will employ this capital in terms of growth? So in which segments do we expect to have the highest growth and to recap the dividend policy going forward?

Yes. Thank you, Simonetta. Very clear. So okay, first of all, do keep in mind that when you look at the growth of the Corporate banking, you're looking also at an injection of the Aigis book, which is -- which we were quite happy to take because it's really in line with what we do. So we got a couple of hundred million of state-guaranteed MCC loans from Aigis. And therefore, the growth that you see is not all organic. In terms of the use of the state guarantee in order to develop business, yes, it's been relevant in the last quarters. We will continue to use it. Can we be 100% sure that it will remain like this, that the programs will remain in place? No. But on the other side, there are additional things that are coming in, like for instance, Superbonus and that sort of stuff. 110% depreciation and that sort of stuff, right, or the traction, I should say -- sorry, for tax reasons. So there's a whole business that is really mushrooming now around the -- capturing these tax benefits. And that's driving, once again, a lot of loan growth. So -- you can't count on 1 thing, but there will be other things coming up, right? There are already other things coming up. So I would say, yes, state guarantee is a growth driver, but there are other things coming in. And we have a business of catering to small businesses and smaller mid-corporates. And I'm quite sure that we will find ways to serve them that will continue to allow us to develop the Corporate banking division right, the commercial banking division well. What we will not do, I mentioned in the previous call, is entering to plain vanilla Corporate banking... [Technical Difficulty]

Ladies and gentlemen, please hold the line. The conference will resume shortly.

Sorry, Simonetta. We're back. What we will not do, I mentioned in the previous call, is enter into a Corporate banking -- plain vanilla Corporate banking as pricing is really not -- and the remuneration of capital there is really too challenging. In terms of capital, where to grow? Let me say a few things about this CET1 addition that may come in. First of all, we are running numbers now and the bank as it is, is creating capital. It's adding capital. So suppose we wouldn't have it, could we write an attractive 3-year plan? The answer is yes. Because once again, the bank is creating capital fairly quickly and the bank is quite efficient, I would say, in the generation of risk-weighted assets. So I suppose that it does come in. What would this extra amount of capital mean? It would mean, I guess, reduction of the risk profile. It could mean indirectly reduction in cost of funding. It could mean that we have a little bit of extra security around a reasonable dividend policy, right? A little bit of extra buffer around a reasonable dividend policy, that would be generous, I would say, in any scenario because it's the nature of the bank. It would mean a little bit more, yes, engine for growth. So we could push a bit more in the businesses that we will elect in the business plan as businesses were to push. And these will be businesses where we make money. So we're looking at accelerating in places where we make money. It would also mean to have the option, the flexibility to do some tactical acquisition. Once again, no transformational M&A. No, forgive the term, stupid acquisitions. But a little bit more flexibility. I think that's the way you should read the extra basis points that are coming in. I think there are no more questions. So I think what's left is thank you all for your time and attention and for your questions. We will be -- for those that are going on holiday, happy holidays. We will be, obviously, in touch in the next quarters. And then -- and once again, thank you for your attention in this call. Good afternoon, everybody.