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

Good morning, everybody, welcome. Also on behalf of our Deputy Chairman, Ernesto Fürstenberg Fassio, who's with us today and all the management team who is present on the left. Welcome to the presentation of our 3-year plan. It's a very exciting day for us. We hope to be able to transmit some of the enthusiasm that we feel for this moment and for this challenge. This morning, I will very briefly go into the full year results of 2021. I'll keep it short. We will most likely spend more time on the forward-looking part, probably more interesting, which is the plan. So just a few slides on how we closed last year, the basis for our plan and then let's see how we think we can deliver on the promise. Starting with 2021. The key messages on the first slide, we produced net income of EUR 101 million, excluding minorities, slightly above the guidance of $90 million to $100 million and above 2019, which is significant because it shows the ability of the bank to recover from the COVID pandemic. A couple of records. Net revenues of EUR 603 million are a record for the bank plus year-on-year and also plus versus 2019. Net revenues in Commercial and Corporate Banking, plus 16% versus 2019. Record NPL cash collections, which went very nicely, at EUR 259 million in 2020, so plus 33% year-on-year. And record NPL purchases, we had a very significant transaction at the end of last year, roughly EUR 2.7 billion, leading to a total of EUR 3.7 billion in the year. And that's a solid base for continued growth and success in the NPL division. CET1, it's by now almost old news, 15.1%, of course, benefiting from 450 basis points roughly extra that comes from the elimination of a very old penalty, if you will, that we had from the inclusion in the consolidation perimeter of La Scogliera. Our shareholder moved the legal [ fee ] of La Scogliera Switzerland. And therefore, we deconsolidate and then therefore now benefit from all the capital that's already present in the bank and that always was present in the bank, leading to the real CET1 ratio of 15.4%. $0.95 dividend proposed payout ratio slightly above 50%. And last but not least, yesterday evening, Moody's published their press release. We have a Baa3 rating, issuer rating and that makes us investment grade. A couple of focus, and then we'll move on to the plan. Quarterly revenues, you see that we're slightly below Q3 in Q4. But remember, Q3 had EUR 10 million extra from TLTRO bonus given that we met the credit targets. Excluding PPA, so the extraordinaries on the bottom right corner, EUR 150 million, so that's more than Q4 2019, once again showing the resilience of the bank and the fact that we moved on from the COVID pandemic. A little bit of focus on NPLs. The collection is at a record high. You see that relative to fourth quarter '19, we are at plus 24%. I mentioned the transaction that we made, the large portfolio we bought from Cerberus. We also, in Q4, received 1 minus servicer rating by Fitch, for the small ticket unsecured capabilities we have. That makes us according to the rating, the best in the country, so confirming our specialization on small tickets unsecured. And finally, I want to mention that we sold EUR 600 million of portfolio in Q4, leading to a slight capital gain. We like to mention it, both because it's a confirmation of the market value of the way we price the portfolios when we have them on the book and also because it's the type of transaction that we will probably repeat because we'd like to travel light if you know, right? So not just add portfolios, but once we've managed them also be able to maybe release them as we did in Q4. Asset quality. In Q4, we end with a gross NPE ratio of 6.4% and a net of 3.9%. That would have been a bit lower had we not had the application of the new [indiscernible] on credits to the National Health Service. So the new definition of default, which everybody was assuming would enter in '22 due to the sentence of the Italian constitutional court came in, in Q4 2021. We therefore placed in past due, EUR 64 million of these credits and this slightly increased our ratios. In Q4, we had loan loss provisions of EUR 15 million, which, however, included that is written there, EUR 1 million of extra provision in the NPL review that brings the total to EUR 18 million. So the provisions we made in the NPL portfolios in 2021 for long-term COVID impact, safety, if you will, adds up to EUR 18 million, last EUR 1 million in Q4. And another extra element was EUR 7 million on some older vintage receivables, which might lead to write-backs in the future, but prudently, we put EUR 7 million there. So that leads EUR 15 million minus EUR 1 million, minus EUR 7 million to EUR 8 million, which would have been the natural cost of risk in Q4, very low. Finally, the capital ratios. It was already mentioned, so I'll go quickly. We see the 456 basis points impact in Q4 of Scogliera. Then we have some pluses and minuses. You have a 116 basis points impact of RWA increase. That includes the peak at the end of the year, that's classical of our factoring business, where we closed the year with typically with a peak exposure. This more or less concludes the overview of 2021. Once again, it's a solid base, but it's just that. So let's look forward. And let's not dwell on the past and talk instead about the challenge that we're taking altogether with my team that I'm watching here now. And so let's go into it. We'd like to start with a slightly high-level perspective. And what characterizes IFIS. On the left, you see what we think are relevant long-term characteristics. A long-term approach shown by the continued participation of the shareholder, the key shareholder with a controlling stake. And that we've also recently seen, given their delivery on the 2019 promise to solve the capital issue that was done. Strong capital ratios over time always growing. Consistent returns to shareholders also in terms of dividends, so generous policy through time. Sustainability before it was fashionable. So over time, right? And finally, focus on the IFIS people, our very beautiful and competent community of colleagues. So our plan on the right-hand side is a continuation of this essence. It's fully in line with our values. Another thing that's a continuation is that we remain focused on profitable growing businesses. Here, you see the core, if you will, right? Of the bank, factoring to SMEs. You can see profitability ratios, growth ratios. But within this business, you should just imagine that IFIS has roughly 4%, 5% of share in turnover in the country, but roughly 13% of share in revenues. That say something about profitability and the ability to receive the value from the clients. In leasing, we're focused on auto and on tech, right? So it has reasonable profitability, as you can see there. We have 0 exposure to real estate leasing, which, in Italy, makes up roughly half of the leasing business, right? NPL investing and servicing, obviously, fast-growing business, obviously, profitable business. Within that, we are a leader, roughly 46% market share last year of what was bought in small tickets unsecured, which we think, for our skills, is the best part. So a plan that is in line with our long-term history, that keeps focusing on places where we can earn. And how are we in these businesses? Well, we're a challenger, but with 40 years of track record. So on the left-hand side, specialized bank for SMEs, market leader in certain niches, right? Pharma business, for instance, SME factoring. A very light commercial branches -- a very light commercial network. We don't have branches. We don't have a mass market legacy business. And the customer interaction with a reputation, I'm looking at Raffaele now, for efficiency and for effectiveness, right, Raffaele, leading to about 100,000 enterprise customers, EUR 7 billion of loans but 75% of which has a duration shorter than 1 year, so versatile. On the right-hand side, the NPL business, investor and servicer combined role, we price, we buy, we work, we work on the portfolio. We do it all. We live with our mistakes, right? So we try not to make them. Good execution track record with originators, proven collection strategy over time. We publish in our appendix always the model, cash collection and the real cash collection. So by now, we have track record. 2 million debtors records, EUR 1.5 billion loan book, right? So purchase volumes. 6 years roughly to get to twice times of cash -- twice times the cash that we laid out, right? Obviously, there are costs to get there. But roughly, we get to twice the cash in 6 years. So we're a bank, as you see below, with know-how in small tickets, short-term maturities, proven capabilities in risk management, pricing of our purchases in NPLs are done by risk management people not by commercial people, and flexible capital allocation. So a challenger with 40 years of track record. We like to grow, but we don't think we are naive in terms of risk. Solid starting point, this was mentioned before in 2021 numbers. I just showed this, so I'll go very quick. EUR 101 million, excluding minorities, net profit. CET1 ratio of 15.4%. Very comfortable liquidity ratios, probably leading to the investment-grade issuer rating that we received. And NPE ratios which are roughly in line with the Italian market, keeping in mind, though, that we are serving SMEs, right, with certain margins. So actually, a slightly higher ratio might even be economically justified, I think, but still a prudent bank, with good coverage ratios. All right. What's the commitment then? This is the net profit we are committing to, and that we think, on the basis of our core capabilities, as I hope I'll be able to show in the next couple of slides, is entirely feasible. EUR 102 million, this year, excluding the minorities, EUR 120 million, EUR 140 million, EUR 164 million, or excluding the minorities, EUR 101 million, EUR 118 million, EUR 137 million, EUR 161 million, very progressive growth, with an ROE leading from 6% to 9%, roughly EUR 400 million accumulated net income, of which 50% is disbursed as dividends. So roughly EUR 200 million dividends during the course of the plan. I'd like to draw your attention to 2 things on this slide. One is the dark blue part, industrial profits, going from EUR 85 million to EUR 161 million. So we are gradually substituting PPA and other gains, one-off gains with core industrial net profits. And the other thing is what's written on the right. Because with this development of profits, we can maintain what we believe is a very attractive risk profile, structurally protected liquidity positions, so short-term assets and longer-term liabilities. Marginal contribution of extraordinary revenues, diversification, we saw the various businesses, and we saw it also during COVID work for us, the diversification. Fragmentation of exposures, small tickets. And finally, a 3-year plan, as you'll see, that doesn't have big upheaval, no big restructuring, no big ugly things, right? Leveraging on skills, so limited execution risk in our opinion. I'll go through a couple of qualitative slides now, which are meant to illustrate why we think it is a reasonable projection. For some analysts, they may be the less interesting part. For others, including me, actually the more exciting part. Let's see what we plan to do in order to deliver on these financials. So we called the plan leadership in small ticket specialty finance. That's what's common to all our activities. IFIS D.O.E.S. as opposed to IFIS stocks, of course, IFIS D.O.E.S. D-O-E-S, Digital, Open, Efficient, Sustainable. Digital with a fully seamless omnichannel experience in SME businesses, we'll get to it. And with multichannel debtor strategies, debtor contact strategies and the use of technology like robotics, artificial intelligence and recovery. Open, our openness to partnerships. Distribution partnerships for our credit products, but also partnerships with co-investors, partnerships with third-party services in our NPL business. Efficient, self-financing the growth through process redesign, right, Fabio? And rigorous management of our purchasing, with a new procurement function that we very recently set up. Sustainable, of course, some of these things have been announced already are subscription, right? To the net zero banking alliance, which entails real commitments for 2030 and 2050 in terms of our lending book. The establishment of a social impact lab, a very cautious and, I would say, fair approach to debtors in NPL collection, and, finally, sustainability rating that we already have at Level A from MSCI, where we think, we hope, it's their decision, of course, that we might further grow. And that's certainly the objective of the plan. So let's go into a couple of these initiatives, starting with digital. What do we have in mind? And what I would like to transmit here is the focus, right? So we think we have a very clear picture of where the investment should go. Expand web marketing solutions for digital distribution. Omnichannel distribution with a really seamless experience for the SME where you can purchase all our products and interact with us on all our services through digital channels. An enhanced commercial suite for our partners that distribute our products, that can integrate into our CRM. Workflow digitalization and automation in order to gain efficiency, and, finally, a unified digital credit process for all the products, right? On the NPL side, it was mentioned, multichannel debtor contact strategy, so lower contact costs. Robotics and artificial intelligence in order to improve our effectiveness and reduce cost, right? For lower value-added activities, use robotics. Artificial intelligence has to do with finding the appropriate collection strategy for each loan and finding it quickly. And have a single control tower, if you can call it like that, so a place where we define which type of debtor is exposed to which type of strategy. A couple of KPIs. Online client acquisition going from 25% roughly of what we acquired today to over 40% in our ambition. Time-to-yes, 12 days down to less than 1. 95% of the decisions being taken within 3 days is the ambition, I believe. Contact frequency increasing in the NPL business by 45% with lower costs and 1/3 less time to onboard a new portfolio, right? All these things lead to efficiency, but also effectiveness. Very brief, but I think very relevant consideration on why we think this is feasible? Why we think we can do this type of digitalization? It's IT architecture. And it can seem boring, but in effect, it's very, very relevant. I'll go through this clockwise, starting top left right? Our architecture involves the core banking systems being outsourced. There's very limited value added there and lots of compliance cost. So there, we reduce costs by sharing it with others. Around that, top right corner, we've built an integration interface, right? An API layer, which shields the core banking system from our innovation and our development. So the applications we develop, bottom right corner, and that are used by our clients and by our colleagues, these applications talk to the integration layer. We don't need to mess with the core banking system, which is where it gets slow and expensive if you develop. So we have a very agile digital application environment with an internal IT factory, scalable capacity, no lock-in by vendors, it's very relevant, and where we can be distinctive in our services in the niches where we specialize. And these apps, they talk to the integration layer. That integration layer is built. It's already there. So we develop quickly. Bottom left, the data. Data can go into cloud. We will leverage the cloud if and when opportune. What you see on the right hand of the slide are things that were done in the last year. I'm not going to go through them. They are just listed here to give you some comfort that this type of architecture actually delivers in terms of speed of innovation, intensity of innovation, and therefore, we are comfortable with what we showed on the previous slide in terms of digitalization agenda. We think we can do this. In fact, roughly 1/3 of what I described is already done. Open, the second pillar of the D.O.E.S. acronym. Bank-as-a-Platform, an openness to partnerships. More or less, I think I already touched on it on the left-hand side. Banking partners, noncompeting banks that like to work with us for credit products, wealth managers, typically. We are in a pilot phase with Banca Generali, very relevant wealth manager, who is proposing to the SMEs of their wealth management clients our credit products. Industrial partners as well. We have, as you see there, listed a large number of also prestigious, right, industrial partners that benefit from our leasing and from our rental products. Digitalization of those products and expansion into adjacent products like, for instance, rental to individuals, right? Where today, we already do tech rental for companies, huge additional market, right? Will add to the growth that we project. On the right-hand side, NPLs. What this partnership means? It means that we will, in some cases, where there's interest, get into longer-term agreements with the originators, forward flow agreements, and where -- and we will co-invest with other players who like to be exposed together with IFIS to this type of business. Where necessary, we'll work with specialized services. If we buy a portfolio that might be mixed, right? And where we might have something in there that we don't think we're the best player to work with. So openness to partnerships. And this is also, we think, a reasonable answer to the calendar provisioning challenge, which we addressed on this slide through First of all, the use of vehicles that deconsolidate the purchase of these calendar provisioning portfolios with co-investors. And secondly, an adapted collection approach, right? Where we have slightly more attention to saldo e stralcio, so to one-off, right, settlements. You can see on the right-hand side that we expect roughly of the EUR 650 million purchase that we expect to do during the plan, between EUR 100 million and EUR 150 million, we expect them to be done with these vehicles in order to deconsolidate. And on the servicing strategies, you see that we plan to have a slightly less recourse to judicial strategies and to have slightly more settlements. And this -- I look at Katia for confirmation, is roughly already what happened in 2021, I believe, right? So it's not a huge change. So the combination of these 2 elements, in our opinion, lead to a very modest impact at the end of the day of capital provisioning on our bank. So we will not entertain hypothesis of debanking, breakup and all that stuff because it would be very, very, very costly and disruptive and it can be managed, in our opinion, slightly more elegantly in this way. Third pillar, efficiency. So these are the other administrative expenses. You see that they're more or less flat, but I'd invite you to look at the composition, right? On the right-hand side, you see the growth rates, minus 7% running expenses per year, plus 6% variable NPL recovery costs, plus 10% change expenses, which are investments in changing the business basically, right? Even though they are expensed. Is that reasonable? We think it is. You see what initiatives are at the basis of that statement. Reduction in unit costs through centralized purchasing function and renegotiation of contacts with basic -- of contracts with basically all our suppliers, also in the NPL business. Cost integration from synergies, the acquisitions that we made. Efficiencies in NPL recovery, the technology that we discussed, lead us to have a high confidence that this minus 7% can be delivered. And that's how we self-finance the growth, right? So 6 percentage points of cost/income improvement from 62% to 56%. Getting to personnel. Also here, a very careful, I think, approach. We add 50 FTEs during the course of the plan. And there are 2 ways to look at this. One is to talk about people, which is not on the slide. So what it means in people terms, is that we expect an attrition of 150 colleagues who will leave the bank, and we will hire 200 new colleagues, net plus 50, okay? The attrition is what we observe. We seem to be attractive. People come to IFIS for specific skills. It cannot be fully stopped. I guess at the end of the day, it can also be a source of pride. So plus 50 people. But when you look at composition, it gets a little bit more interesting, we will have job substitutions, so minus 80 plus 130. 80 Jobs disappear because of process improvement because of robotization, because of new technologies being used, 130 jobs are added in commercial capacity for Raffaele or in new businesses. That's job substitution with a net plus 50, which matches of course, with the head count that I just described. Then on the right-hand side, you have the 750, and we wanted just to show it relative to the overall size of our workforce, those are the people who will be in upskilling or reskilling paths with some significant effort in retraining, right? So it's a very, very significant investment in keeping the upgrade, right, of our workforce. The initiatives on the right have already been discussed so I'll or skip them. Last pillar, sustainability. We make it a core integral element of our plan as our Vice Chairman likes to say, it's integrated into the business plan. It's not something that we do on the side. We use the ESG framework like everybody else. E, Environment. We joined the Net-Zero banking alliance. That means that we'll be making explicit commitments on going to net-zero in 2050 with intermediate targets in 2030. We will assist our SME clients in their transition with scoring mechanisms with consulting services. On the social side, we established a social impact lab. We keep with very rigorous KPIs in a very quantitative way. Developing our debtor-friendly collection model, our ethical collection model. So we make that hard KPIs. Investing in the IFIS people, I'll talk about it on the next slide. And finally, governance. First of all, the quality of the governance of the bank, of course, right, that has to do with the Board, with board representation with all the mechanisms that are in place, but also an ESG committee, a sustainability committee chaired by Ernesto Fürstenberg Fassio, that oversees all these transformations inside the bank. Finally, ESG rating. We have an A. It's not for us to say, but we can work on it, and we definitely -- we have the ambition to grow on that front. Last qualitative slide before we get back to the numbers, the people. We are blessed with a young, skilled and diverse workforce. Under the little arrows, you'll see what we do to further, right, develop in that way, 150 of the 200 new hires will be young people that come just out of university. We keep investing, as was mentioned, top right corner in the specialization of our people. We do very specific things. We think we have to be very good at them, right? And that has to do with technology, but also with celebrating the competence of our people and investing in it. And finally, diversity -- as you can see, looking at the management team, we have a 40% representation of female top managers, which we're proud of, that might even grow a bit further. We also have diversity in terms of background. We will develop during this plan, further inclusion programs, and we'll also launch very soon next month, a highly innovative approach to flexibility in work hours and in smart working, which, if I may use the term, is maybe slightly more similar to what you would expect in Silicon Valley than what you would expect in Italian banking, right? So we think this would certainly help to be an attractive employer and a modern employer. Back to the numbers. These are the assumptions we put in the plan. GDP comes from Prometeia, it's, I think, pretty mainstream projection. I won't spend time on it. Rates require a little bit of explanation. The green line is in our business plan. So we keep rates negative throughout the business plan in our expectations. The gray line ending at 0.8 is taken from Bloomberg yesterday. Those are the forwards that the market is trading on today. The difference is about 100 basis points. If the market is right, that means, for us, a significant additional amount of revenues in the interest margin because we are positively correlated with Euribor. And to quantify that in terms of revenues, that could be in excess of EUR 40 million roughly, right? So it's not peanuts. NPE disposals. This comes from our [indiscernible] from our research department. They've slightly updated the projections we made on the NPL Presentation Day in September, slightly lower, but not so material. We expect to buy roughly EUR 2.5 billion gross per year. right? This is then the P&L that we propose, right, that we've built. I'll concentrate on the growth rates because, I think, that's probably where the essence is. We expect 5% revenue growth. If you consider that PPA is, in the meantime, disappearing, it's closer to 7%, industrial revenues. Costs, 2% operating cost growth. A little bit of one-offs disappearing. So the overall growth of cost is actually slightly lower. 17% net profit growth and then the indicators that you see below, right? So 6 percentage points of cost/income. The growth rate of customer loans is in line with the revenue, so not particularly a surprise there. Slightly reduced cost of credit in terms of basis points, where in 2022, so the first year of the plan, we do expect, of course, a little bit of flow towards nonperforming given the end of the moratoria and given the end of the government interventions. We have very ample reserves, as we'll see later, in order to accommodate the financial pain of that. CET1 ratio, at the end of the plan, 15.1%. ROE, 9%. Keep in mind that in 2021, in the first quarter, we were still slowed down a bit, right, by the COVID experience. So if you look at the run rates of the last quarters, the year would actually look a bit better than what you see here now, right? So the growth might actually be a little bit less in real terms. This is our usual opening up of the P&L between the divisions. I'll just state a few things, there are many numbers here. Top right corner, G&S and noncore, there you see the PPA disappearing from EUR 61 million to EUR 24 million. Also, the treasury will be a bit more generous with the divisions in terms of cost of funding. Growth rates of the revenues in the 2 divisions is aligned 7%. Net income contribution of the 2 divisions is very similar. So where is it? EUR 83 million roughly from Commercial and Corporate Banking and EUR 94 million roughly from NPLs. ROAC, Raffaele, reaching 10%. So double-digit on allocated capital. And NPL going from 18% to 40%, that benefits from a significant regulatory tailwind and because during this year, risk weighting of NPLs will go, if you purchase them, like we do, goes from 150% to 100%. So we have a lot less risk-weighted assets connected to the NPLs we bought leading to a boost, right? In -- on top of the operational improvement, leading to a boost of the NPL, ROAC to 40%, making it, as you can see, quite a nice business. Cost of risk, EUR 77 million in 2021 included very significant investments in sustainability, let's call it like that, right? In safety, in prudence connected to COVID. It's all obviously -- I'm looking at my CFO, correctly quantified. So we expect a reduction to EUR 62 million, and we think this is really feasible given the type of the book and given the provisions that we made. The book will grow from EUR 7.5 billion to EUR 9.3 billion, client book, right? Gross NPE ratio is going from 6.4% to 5.7% in 2022. This year, we expect an increase given the moratoria situation, right? So expect in 2022 this to reach 7.2% at least. That's what we've prepared ourselves for, right? 6.4%, 7.2% and then down to 5.7%, the gross NPE ratio. Coverage going up 4 percentage points on the UTPs and 6 percentage points on the NPLs. These are our own NPLs, right? They're not the purchased ones, obviously. And this is -- well, it's actually quite often confirmed when we sell them, right? We think it is entirely adequate. On the right-hand side, a whole bunch of initiatives that were already taken in order to further strengthen the risk management and the prudence of the bank. The capital walk from 15.4% to 15.1%. You see all the contributions that you might expect, profits adding, dividends detracting, then you have the impact of the risk-weighted asset growth, right? You can see the 0.4%, green, is the regulatory effect that I just mentioned on the NPL business, slightly offsetting. Then we have the impact of calendar provisioning, 40 basis points. It's not entirely offset. 15.1% as an endpoint in 2024. We commit, as you see in the title, that we will remain above 14%. We could have maybe said we'll remain above 15% because technically, it's what comes out of the simulations, right? I prefer to state we'll remain above 14% given maybe some regulatory novelties that we can't foresee or maybe some opportunities, right, that we may want to capture, so expect us to treat 14% as a minimum target. Even though, as you know, this rep is at 8%, right? So very comfortable capital position by all means. We wanted to test the resilience of these numbers in adverse scenarios, right? So here are a few. Of course, there is no limit to the downside that you can simulate. But this is what we thought was reasonable to simulate. What if the LIBOR stays at current levels or at the 2021 levels, EUR 9 million net profit less, right, down to EUR 152 million. What, if it's 50 basis points higher, 0.27%, EUR 16 million more. Credit quality, we've made quite some reserves, right, for COVID effects. So we said, okay, what should we simulate. So let's assume that all our Stage 2, on top of what we have imagined, right, coming out of the COVID situation this year goes to UTP and then to NPL, right? That would mean 20 basis points of capital so still quite comfortable, I would say. And we don't have any indication that this EUR 80 million of Stage 2 actually will migrate in this way, right? So I want to be clear about that. It's just a simulation tool. BTP-Bund spread, always there, if you live in Italy. It's already been increasing a bit the last few days. Now most of our -- the vast majority, I'm looking at Saverio, of our bond book, our proprietary bond book is in fair value against other comprehensive income, meaning we're not exposed on the P&L of BTP-Bund volatility, but it will go against capital. So if we go to 300 basis points of BTP-Bund spread, that will cost us 60 basis points of capital, right? Pretty nasty scenario and still, as you can see, quite comfortable. Last 2 simulations. What happens if we can't buy the NPLs that we thought we would buy? We're assuming worst prices for us, so more expensive NPL purchases. What if we can't buy EUR 7.4 billion but we can only buy EUR 6 billion? That would cost us roughly EUR 10 million of net profit, right? On the other hand, if we get to buy EUR 9 billion, we bought EUR 3.7 billion this year, I remember, that means EUR 10 million more, right? What if calendar provisioning is much bigger than we thought? We assume roughly EUR 1 billion of the EUR 7.5 billion that we're going to buy, right, subject to calendar, and therefore, bought with these vehicles where you share part of the upside, right? So it's very efficient in terms of capital, but you give away some revenues, and you give away some profits, obviously, right, to your partners. What if it was EUR 2.5 billion rather than EUR 1 billion? EUR 4 million less, so it's really not the big an impact. Of course, for this, you have to assume, and this is our assumption, that the vehicles, the structuring strategy that we put together is okay for the regulator with whom we are talking and is okay for the third-party investors with whom we're talking. Those are assumptions, right? Closing up. This is what we think we can deliver in 2024. A bank that's digital, that's open, that's efficient, that's sustainable -- one back, please, that delivers EUR 160 million of net profits in the final year, EUR 400 million accumulated, EUR 200 million dividends, and an ROE of 9% done in this way, being an example in sustainability and being, which I think is a reasonable ambition for us -- reasonable ambition for us also probably one of the more interesting places to work in Italian financial services. And one of the more interesting places in which to live as a professional. So with that expectation and hope, I would leave you to questions. And I would ask Martino Da Rio, our Investor Relations executive, to join me on the stage, together with the 2 chairs that we have there, and we will now take your questions. So from this point onwards, Martino will take control of the situation. We -- you will pose the questions to us.

Hello to everybody. We'll take the questions, starting from the portal. [Operator Instructions] Or you can follow us in meetings, with the roadshows that we have organized, Equita in Italy and Switzerland and KBW in U.K. and U.S. So I leave to you the questions.

What Martino is going to do is he's going to case by case decide if I take it, if he takes it or if one of the colleagues, who are there, they all have microphones, if they can take it and give you a bit of appreciation of the team that's behind the plan that you've just seen.

Andrea?

Can we get a microphone to Andrea because otherwise, people won't be able to hear you.

First question is about the plan and which is the highest execution risk that you find in the plan and which contingencies are embedded in your targets? The second question is on the CET1? You are saying that you want to stay -- you are expecting to stay with us CET1 above 14%. My question is, which is the minimum level of CET1 and so you are working -- you are accepting to work with -- you're confident to work with? And in particular, if that delta can be used, I don't know, for additional dividend distribution buyback or M&A? And the last question is on the M&A. So can you provide us an update on your M&A strategy? Are there some sectors that are more interesting than others? And where maybe are you more focused?

These are mine, I think, Martino, right? Execution risk, well, everything that's not under our control, right? So you have market risks, obviously, big upheaval in Italy, big inflation spiraling out of control completely, right? Those types of things, these are always there. I mean on a 3-year period, right, this has to be considered. We put in the simulation some reasonable scenarios, right? But of course, as I mentioned, there's no limit to what you can fantasize about, right? So execution risk, in my opinion, is not so much internal, but much more connected to the market. Of course, as these things would materialize, we could have mitigating strategies, right? And you saw in the simulations that the bank is quite resilient. So the impact of these things within reasonable, right, boundaries are not so big. On the other hand, there could be upsides, too. You saw that the revenues increased by roughly EUR 90 million, right? From 2021 to 2024. If the interest rates do what is today in the forwards, roughly half of that growth is already done. That's the way banks work when interest rates go up, right? So some downsides, but also some upsides. CET1, well, we didn't know for sure until, obviously, quite recently that we would have the 450 basis points. And we were operating quite nicely between 11.5% and 12%, right? We wrote a plan that was very similar to the one you see today, almost the same, right? Starting with that capital base. So I'm not saying we will go there because we state that 14%, right, is a threshold that we don't think we will go below, but I was very comfortable a few months ago operating between 11% and 12%. So not uncomfortable at all, right? But I'm not making this a prediction, I want to be clear. We're saying, given that we have this situation right now, which is very positive, we'll stay above 14%. And there are no plans to do buybacks, extraordinary dividends, things that are aggressive. See it as a buffer to protect a generous dividend strategy, okay? With a long-term view. This is the indication I get from the controlling shareholder to -- who's listening as I speak, and with whom we've had many conversations on this. It's a long-term bank. So a 14% CET1 ratio, as a minimum, and 15% as a projection, 15.1%, is part of that. M&A, the bank has always been open, right? Bank has history of purchases. We did a small one ourselves just in May with Aigis. We will remain open. And criteria are, it has to be in or close to our core businesses. We need to be obviously the right owner for the business that we buy in terms of skills, so we need to be able to add value. We need to see synergies, and it needs to be respectful of capital, right? I'll use this term, respectful of capital. It doesn't mean that we can't use it. It means that we have to treat it respectfully, right? Having said that, I would prefer to have a significant part of the plan executed before we get into major distractions, right? So definitely, nothing in terms of scale transformational. And definitely, the preference would be to execute for some time and show that we are delivering, right? Before we create complications also in reading the numbers as in distraction of the management and all this stuff, right?

Do you have other questions? Manuela?

I have 3 questions. The first one is, who are your biggest competitors in the Commercial Banking and NPLs? Why did you not decide to enter the secured NPL market? The second is, if revenues come worse than expected due to weaker macroeconomic environment and/or the commercial partnership do not work, what action do you plan to offset lower revenues? And finally, what is the time frame for the application of the change in weight of risk-weighted assets from 150% to 100%? And what are the benefits in terms of [ common equity 1 ] ratio?

Okay. Martino?

You.

Me? Biggest competitors in the Commercial Banking arena. Well, universal banks on the niches where we work tend to be not so focused. And we're not yet feeling any real impact of the fintechs. I'm not saying it won't happen. I'm just saying that if we look at practically the market and what's going on, right, we don't really suffer any loss of business or any problems in that respect. So we're in places where we have medium competition, I would say, right? Especially because the clients, the SME clients tend to recognize that we have very high service levels, right? On the NPL side, it's increasing a bit. I think the competition also in our places where we have Mediobanca Credit Solutions. We have Kruk, right? We have Hoist, right? These I would mention. So probably on a more opportunistic basis, maybe some funds that come in and then go away, right? As more stable, I would mention these, right? These 3. What to do if the revenues don't come? Well, if -- the nice thing about being diversified is that if something, right, doesn't quite work, you have other things that might compensate. So the first thing we would look at is revenue substitution, right? So it maybe -- who knows -- on the NPL side, things go a little bit worse than that means maybe Commercial Banking can do a bit more. So we will definitely start with revenue substitution. Then keep in mind that quite a part of our cost base is variable. The NPL side has -- if the revenues don't come, a significant part of the costs don't come, right? I showed that also on the slide, right? It's the reason why we took NPL recovery costs separate. I believe also we had that quantified, Martino, I don't know if you remember the number, the part of the NPL cost that is considered variable.

EUR 83 million out of -- in 2021.

Perfect. Martino knows everything. So it's quite sizable also in terms of amount. And then finally, when the revenues don't come, you can work on costs, right? So we have 200 net hires or 200 gross hires, right? So we might make them later or not make them, right? If the growth doesn't come. So we have some levers to pull. Risk-weighted assets. The impact is you were referring, I believe, to the NPL business, right, to the risk weighting of NPLs from 150% to 100%, right? That is -- okay, so that's an EBA regulation that is now gone from the European level to the national level, and that process is underway. We expect it to be done in Italy in Q2, roughly. The impact is 80 basis points. So what you would see is, this year in 2022, we would actually go through the 16% CET1 barrier and then go down again, right? As the business grows, right? We have a peak this year above 16%, actually. Is that okay?

There was also a question on the evolution of the asset quality, correct?

So on the asset quality, can you describe the evolution in terms of operation and cost of risk? And then I have a couple more. When do you expect to issue the Tier 2 and the senior bond in 2022? And what is the sensitivity to the increase of 50 bps and 100 bps in Euribor?

So evolution of ratios and cost of risk. The cost of risk year-by-year decreasing quite linearly down to the target in 2024. Ratios, NPE ratios peaking in 2022 and then going down to the level that you see in 2024. Why are these 2 things apparently decoupled? Because we have made very significant reserves in the last 2 years. So we're going to use those reserves because they were there for a specific reason, they were for COVID, right, as the moratoria and everything disappears.

I would like to add also that regarding the asset quality evolution, on Page 24, we have put the sensitivity, okay? In terms of assuming the EUR 80 million, which are the largest Stage 2 position will move from performing to UTP and UTP to bad loans. And you can see the impact which eventually would be just -- in terms of CET1 just 0.2%. So we'll end up at around 15% in any case.

Sensitivity to rates, it's on the slide actually, right?

I think in this case, we leave the word to Paolo Formigoni, the Head of Planning and he has performed all the sensitivity that you see in the plan. So I will leave the word to him.

Thank you, Martino. Maybe we can go back to Slide #15. I just to remember the interest rate scenarios. Let me first thank you for your question. We used negative interest rates, sanction for financial projection during the -- in the business scenario over the 3-year period, right? As far as 2024 year-end results, we assume a minus 23 basis points in interest rates. And the hypothesis, we think, we can be considered quite prudent if we take into consideration the most recent market outlooks. We know there's a lot of volatilities there, but we wanted to stay sticky to this kind of scenario. If we assume, let's say, a positive scenario where we can see an increase of 50 basis points in the interest rates, what's going to happen is that we will realize EUR 41 million more interest income, but, at the same time, we will realize something like EUR 80 million more interest expenses. Net-net, means something like a EUR 23 million upside in the net interest income. EUR 23 million upside net interest income means something like EUR 16 million in the net income, as is shown at Page 20. The increase of the net interest income means something like plus 4% compared with the base scenario in the net interest income. Of that 4%, 3% is allocated in the Commercial and Corporate Banking business. If you want to go further and think about something like a 100-basis-point best scenario, let's say, you can double the numbers, and you have a ballpark figure of what's going to happen on our P&L in 2024.

We have still a question on the key funding strategy. On Slide 30, if you want to project. I would like also to stress before leaving the world to, of course, the CEO and say that, today, we have received a very positive news which is the rating from Moody's. The bank is investment grade, okay? [indiscernible] So I leave the word for the funding strategy.

Yes. So I'll start and then maybe I'll pass it on to Saverio right? If he want to add some comments. So this is the funding plan, right? It's in the back up. You can see for this year, right? That we have new issues of EUR 400 million of senior, senior preferred and EUR 400 million of lower Tier 2. We have a call date in September or October for the lower Tier 2 that we have out there. Let me say this because it is -- there are regulatory issues and everything, so I'll formulate very carefully. First of all, to call it, we need market -- we need regulatory approval, obviously. It's logical that before you call it, you issue a new one, in that way, the regulator is probably going to say yes. So we will, in the short term, look at the issue of an LT2, and we will be as market friendly as possible, okay? I'll leave to Saverio maybe to expand on this a little bit, if that's okay with him?

Okay. Fred. Just a few words.

You have to take off your mask. I'm afraid.

Okay. So a few words. Our strategy also for this business plan is important for the bond. The percentage will be from 10%, 11% to 18%. And this strategy is very important because we have to continue to diversify our funding mix. Regarding 2022, specifically, obviously, we would like to go to the market as soon as possible, but it will depend on the market condition on the spread, generally. But I think that the news of Moody's can give us a good advantage. And the last part of the 2022, we will issue, I think is it possible, obviously, another senior preferred bond. I would like if it's possible in the form of green or ESG, but we work and consistent with a strategy of net-zero banking alliance also to develop this kind of funding.

Manuela Meroni, Intesa Sanpaolo. I have 3 group of questions. I will start from the first one. It is regarding the regulation. What is the impact of the calendar provisioning that you are expecting after 2025? What is the impact that you have already seen in 2021? You talk about some mitigation actions. I'm wondering if these mitigation actions are already in place? And what is the feedback that you have received from co-investor regarding these initiatives? The second question is on the new definition of default. What is the impact that you have seen in 2021? And do you expect something more in 2022?

Thank you. These are 2 very central issues. So first of all, calendar provisioning. Well, we -- if the mitigating actions work, right? Expect the impact also in '25, '26, '27 to be very marginal, right? But there's an assumption there, and we have to be explicit about it. We like to stress it so that we don't say things that are not entirely under our control. Reasonably, we would expect the regulator to agree that if you structure things in a certain way, you deconsolidate. It would be very innovative approach to say that you don't. So we think we can be confident with this approach. We have had conversations with -- actually I defined them, AAA global investors about being together with us. And we, in general terms, right? Not on a specific transaction, we received interest because, from their point of view, I mentioned this in the presentation, they align with the player who prices, who on-boards, who manages and who has the same equity exposure as they would have, right? Who is considered the specialist in the country in this niche, right? With very long track record and everything, right? So when you propose a partnership like that, people obviously express interest. It's not entirely in our hands. We don't have signed contracts on specific transactions. So the combination of these things, reasonable market interest and the reasonable structuring, makes us, first of all, state to the market, right, that we think we have a solution that will be tested, right? Suppose it doesn't work. You're going to worry about, right, the extreme scenario, I imagine. Here, too, I wouldn't overemphasize the risk. If you just quantify it a bit, we believe, in the next 3 years, the gross book value of what we'll buy on the calendar provision is slightly below EUR 1 billion. That would go into a book of [ 26 ] in 2024 [ billion. ] So there's a huge book that is delivering its curves. So in any case, you have a very diluted gradual impact. That gives us years, right? It's about 3% at the end of the day of the volume at the end of 2024. We would have that thing, if we would just buy it, right? And you would have a few years in which to develop other mitigating strategies, do other things. So I don't want to say that we are certain because we're not. We're working in the world of assumptions. And I don't want to say that we're, how should I say, complacent about it, right? But I would suggest that it comes in slowly on a very sizable business. There is a solution in place. If the solution would not work or work partially, we have years in which to, right, work it out. On the [indiscernible], it's slightly less -- slightly more actual, right? And slightly less slightly shorter time horizon, the whole thing because what happened was this. For a certain type of COVID-connected decree, the exposure relative to the public administrations were not considered to be in default, okay? Any exposure was not considered to be in default. And that situation was meant to have lasted all through 2021 and Q1 2022. And that's all the market participants were operating on that basis. Then in December, a sentence came out of the Italian Constitutional Court that said, that decree is unconstitutional. The implication of that is that retroactively because the Italian Constitutional Court has retroactive powers contrary to others, right, you have to consider that the decree doesn't exists, i.e., you need to take a position on, if any, what part of your exposure to the public administration, in our case, it's the National Health Service, we buy their invoices, right, from pharmaceutical companies, for instance. What part of that business is to be considered defaulted, right? Given that the time of payment is very often long, right? I don't think the market has had time to get to a unified point of view. So different market participants, in these last few weeks, have scrambled, if you will, to get to a position. Our position was we analyzed the whole book. We applied certain rules. We discussed it with -- internally with the auditors. We discussed it with regulators. We told them what we are up to. Our view is that EUR 64 million of our book, that is in total roughly EUR 450 million, I believe, right? The EUR 64 million go to default, so go to past due, I should say, right? We think we'll collect it. And we don't think, in reality, this type of regulation has anything to do with past due to be honest, right? But you apply what you apply at the end of the day, right? It seemed to us reasonable. Other market participants are getting to other conclusions. So I expect that over the next few months, there will be some form of harmonization, which will lead us maybe also to fine-tune. More or less, I don't know. I have no idea, right? But we could have some impact there. We'll keep the market updated. I think it is really -- it's been a bit of a scramble for everybody, right? This is where we are. In any case, from a P&L point of view, no impact. From a ratios point of view, you could have some pluses or minuses depending on how this develops, right? So once again, I wouldn't overdramatize it. We're not complacent because we like to see ratios that make sense, right? But I wouldn't overdramatize it, okay? I think I answered all your questions. Didn't I? Yes.

We can go on with the second block of question. And the first one is on the NPL market in 2022, what you are expecting in terms of volumes and prices? And can you describe how the digitalization process may improve your collection of NPL? The second question is, again, on the digitalization process. You mentioned that you have already done part of the job. So can you please update on the digitalization on the Commercial Banking business? And third question is on your cost. Could you please elaborate a little bit more on cost and specifically describe what are the variable cost and fixed cost? You mentioned before something related to the NPL business. So if you can give a picture of the full group.

Fred, I think that for these that are quite specific. We can leave the person in charge to answer.

Yes. Absolutely.

So I will ask Fabio Lanza, the CEO, the Deputy General Manager and COO to answer the question on costs. And of course, to Raffaele, who is the other Deputy General Manager in charge for all Commercial division to answer the question on digitalization. And then Katia, the Head of the Nonperforming, to answer the question on the evolution of the market and the impact in the digitalization on the nonperforming business. So Fabio?

Thank you. Thank you for the question. I'm Fabio Lanza, Chief Operating Officer. I joined Banca IFIS last August, so I'm quite new of this fantastic team. If I can ask to see Slide #17, if I guess, I think that the cost structure, our cost structure is quite simple. But I would like to read again this chart, starting from the bottom part. If you can see our project commitment in terms of IT is moving from EUR 42 million in the last multiyear plan to EUR 76 million. It's 80% more. And we are confident to reach this target because in the last years, Banca IFIS has integrated 2 banks, release a new platform for the leasing digital business. So we have the capability and the understanding of what we needed to develop this kind of effort. But of course, this is not for free. We have to cut the so-called bad cost. So if you see this chart, as said by Martino before, we have EUR 83 million NPL recovery costs that will move to EUR 100 million. These are related to the business, to the portfolio that Katia and Serena are managing and to the revenue generation. Of course, also on this, we are working with NPL colleague to reduce the unitarian cost for each recovery, moving from [indiscernible] to settlements instead of judgment, let me say, final decision. This could cut the cost in terms of legal advice, but also increase the capability of the people to manage more portfolio. This is the 1 point. This is variable coming back to your question. Other running costs, EUR 88 million, this is the part that has to be reduced and to move to EUR 71 million to allow us to invest in digital and to support the business. The journey has already started because, in the last 4 months, we have already renegotiated roughly 27 contracts, obtaining 17% reduction in terms of fees. And this is an extraordinary job that is done by the new established procurement office that now is responsible for all the cost inside the group. I hope I have answered your question.

I would add, Fabio, that if the target seems ambitious because it is and you are, of course, you have to keep in mind that this is an organization that has grown fast. And premium was on growth, developing the business, right? So what's been happening now in the procurement office and all this attention that the COO has given to this issue, of course, cost management, good costs, bad costs, right? Good costs being marketing expenditure, for instance, bad costs being waste, right? All that stuff is -- it's the first year that the bank has seen the necessity or the opportunity to really, really sit down and study on it. Because if you don't want to slash but you want to manage responsibly, it takes method, right? Effort, professionalism, benchmarking people with the right background that know how to renegotiate, right? And the reason that we have been -- and Fabio has committed to this type of development, right? This type of result is that there is -- at the beginning, when you start doing these things, it's obviously easier. So it's a new experience for the bank. And we're not criticizing at all because this was a growth story. It wasn't interesting to look at costs, right, in that phase. Now that we are a little bit more mature and that we're getting to a certain size, right? EUR 600 million, EUR 700 million revenues, right? Institutionalized certain type of management teams, certain type of structure, right? This becomes easier and also necessary and relevant, and therefore, minus 7%, it would maybe normally look like, right? Are you sure? We think we can responsibly say it, having looked at all the contracts, right, Fabio?

Yes, line by line.

Raffaele?

Okay. We have basically 3 topics to describe our digital evolution path particularly in the Commercial and Corporate Banking. The first one is it's about -- what marketing activity and omnichannel distribution. You have to consider that in 2021, we generated 25% of client in Factoring and in Lending sector through our web marketing activities and our contact center with inbound program. In the second half of 2021, we started with a test for outbound program, okay? For contact new customer. And we reached 25 new customers in terms of Factoring and Lending. Our program is to open to extend our commercial offer to other products of the bank, in particular, leasing and rental, and to improve our outbound activity outsourcing to an external contact center in order to minimize fixed costs. The second topic is the enhancement of the new commercial partnership that Fred Geertman said a few minutes ago. And we start to work with Banca Generali and with other partners. In particular, we have to build trust between 2 different sales networks. They are focused -- Banca Generali is focused on the wealth management and private banking, okay? And we are focused on the entrepreneurs as business owners. It's a completely different perspective. And probably we have the same target in terms of prospects, but a completely different needs to satisfy. For this, we focus on digital because to build trust between these 2 sales network, we have to guarantee them real-time response, okay? Tracking about their loan application on our website, the management of documentation digitally and remotely, okay? Third point is represented by the new change in our credit portal, okay, and in particular, in process evolution and automation because if you increase your leads through your web marketing activity. And if you are able to manage well, your new partnership, new commercial partnership, you have to avoid the risk to a bottleneck in your credit risk assessment, okay? For this, you have to consider that in 2021, we managed 75,000 of credit risk analysis with a team of 80 professionals. And if we are -- we will be able to increase the number of leads and the management of new commercial partnership. The risk is very high. We have to maintain a good track record in terms of time-to-yes, okay? It's about 12 days. And in terms of time-to-cash, it's about 3 days, okay? Probably it's a good benchmark if you compare to the traditional banking sector. But if you compare to fintech, for example, you have completely changed to remain in forefront of innovation, okay? These 3 topics about digital, in reality, talk about efficiency, efficiency to support growth in terms of new business generation, efficiency in terms of enhancement of high-quality partnership with institutional partner. And to release -- source the time of our people, the brain of our people and the capacity to transaction and to focus on relationship. This is our digital program.

In a nutshell, So much work in 3 minutes.

Katia?

Yes. As far as the NPE market and if it's approach to it, I would go to Slide 46. NPE flows are expected to increase in bank books in 2022, with a default rate that is expected to increase from 1% to 2.4%. And in this context, Banca IFIS expects volumes to increase overall from EUR 33 billion to EUR 47 billion. Main driver of such increase is expected to come from the UTP niche from EUR 2 billion up to EUR 12 billion in 2022, may also driven by the fact that some transactions that were expected by the end of 2021 were postponed to the beginning of 2022. Secondary markets, we expect this niche to contribute with a stake ranging from 25% to 30% in 2022. Banca IFIS, as you know, ranked top 5 investors in both 2020 and 2021. We expect to keep our leadership position throughout the plan. And this, I'm confident, will be confirmed in 2022. We expect as our CEO was saying to buy EUR 2.5 billion in -- on average over the 3 years of the plan. We also expect the price to be paid for our acquisitions to be fairly stable in 2022 when compared to 2021. We already faced, as Frederik mentioned, a slight increase in 2021 after the COVID first year that was 2020. So we expect average price to remain in line with what we paid last year. We also expect to be keen to invest in both primary and secondary markets, with, I would say, 50-50 split of our investments. Finally, as also was mentioned earlier, we bought EUR 3.7 billion last year. So, in any case, we are really keen to look at what will be hitting the market in 2022, but could eventually be a bit selective. So this -- I hope I answered your question. This was about how we see the market, and how we expect to position in the Italian market. There was also another question, Martino, if I recall correctly, on the digitalization on the NPE. Digitalization is key to streamline the NPE recovery process and to improve cash generation from our portfolio. In 2021, we made a deep review of our process and procedures, and we developed and launched our digital target operating model. As an example -- yes, thank you for the slide. I wanted to give you a couple of examples of what we have just introduced. We have introduced at beginning of this year an engine that is able to recognize, read and store all type of information. This engine will fasten the on-boarding process of our portfolio and will also help to better channel each single loan to the proper and best fitting recovery strategy. If you put in context the fact that we manage a portfolio in excess of EUR 22 billion, you can imagine that this type of activities might be very [ length ]. Another development we made at the end of last year was to introduce a robotic application that is capable at automatically recognize and link cash-in received to the relevant repayment schedule and repayment plan and debtor. As of November last year, these activities were carried out manually. We expect this robotic application to do that on its own and to be managed in -- to be able to manage in 2022, approximately 0.5 million payments. Obviously, our digital target operating model includes many other technological developments. Some of them are already in good shape and will be launched and will be fully operating in the next few months. Some others will follow, but we are confident we are on the right path to face our plan in a more digital matter than we did in the past.

I want to stress the chart that was shown where Katia showed the prices that we expect to see increase. So we're planning for a more challenging environment. It's not a problem if you're large and part of the technology and the development is to remain profitable in this scenario. So we're expecting things to get tougher. We think we have the scale and the resources and the competence and everything to protect the profitability, right? If I may be so bold, I would assume it would be a problem for others, right?

The last group of questions [ regards to ] sensitivity and some question on funding. The first one is on the sensitivity of your business to the inflation rate. Do you expect some impact from that? And the sensitivity of common equity Tier 1 to BTP-Bund spread. You mentioned -- you show before this slide, just to understand if the impact is leaner. And finally, on the funding, what are your umbrella targets? What is your strategy with the TLTRO? And what is the impact of TLTRO on your P&L?

I think for the question on TLTRO, I will leave the word to Saverio, the Head of Capital Markets. And we'll work together then on the bond issue together. So, Saverio up to you.

Okay. Regarding the TLTRO, now we have EUR 2 billion. Our potential financing is EUR 2.9 billion. So we use only for 65%, 70% around. And our strategy is to the end of business plan to be under this level, and we will consider our targeted EUR 1.7 billion. The impact in terms of percentage of TLTRO on the total asset will be soft by [ 5% ] to 10% because obviously, we have an increase of assets. So the effect is dilutive. And in terms of economics for the 2022, we have considered an impact positive of around EUR 80 million because we reached the target of minus 1% for the special reference period October '20, December '21. For the '23, we have an impact positive of EUR 10 million. For 2024, only EUR 7 million. So in relation to the [ all ] cost of funding for 2024 that we estimated in around EUR 150 million, the impact is around 5, 6 basis points only. So it's not irrelevant, but not the principal driver for our funding savings in terms of cost.

I'll take the question on inflation. We have done some sensitivities. Of course, if there is an increase in inflation lets assume, let's say, 1% or 2% per annum compared to what is said, we have a positive impact, which is probably the one that Paolo Formigoni has described, which is on the net interest income. Then it's much more difficult to assess the impact on the macro environment because probably some sectors will be hit more than others. For example, it can be probably more inflation, more impact on the cars. So probably the leasing will grow a bit low -- at a lower speed. We can have some companies which can report a higher default. So overall, in the nonperforming, we can have a slight impact, but until inflation is, let's say, 1 -- I don't know, instead of 2% is 3%, there is not a big change. okay? So I think that the trigger here is the impact overall is positive, inflation up, interest rates up, positive for the bank. When if, and I hope not, the higher inflation and higher interest rates will impact the growth of the economy, then we will have an impact, but as the macro. So until inflation remains inside of 2%, 3%, probably the impact is still slightly less positive than the one that Paolo described. So instead of, I don't know, that probably slightly lower instead of 50 bps, so we can have 100 bps in terms of interest rates, 1% more in inflation rate, we can have in EUR 20 million, EUR 10 million in terms of positive impact in terms of net interest income. And with nonperforming profit slightly impacted, probably slightly impacted also in terms of asset quality, in terms of growth rate. But until this does not impact the overall growth of the economy, the overall macro picture, the impact is positive, slightly positive, okay? The bank will manage. If we speak about [ stag ] fluctuation, high inflation is another word, okay? Then in terms of the CET1 impact in the BTP-Bund spread, I leave the word to Saverio because he always mentioned. So he calls me every day about that. So it's a pleasure that...

So in terms of BTP-Bund spread, we consider a widening of over 200 basis points. So over 200 basis point. And the impact is on terms of fair value OCI of EUR 50 million because we consider, in 2024, the value of component of portfolio help to collect and sale of around 37%. And in relation to the EUR 2.5 billion that we consider we will have is around at EUR 1 billion. So the impact will be only on this part. You have to consider that we can obviously adopt specific strategy of hedging and another consideration, very important in that we didn't consider any kind of sterilization that now we have 40% regarding the potential loss of earning in fair value OCI. But in 2024, we consider that we will not have a sterilization. So it's a full impact.

Manuela, fine? Do we have other questions? Luigi?

I will try to stick to 3 as demanded at the beginning. So first, on these mitigated actions regarding the impact of the calendar provisioning -- the fact that you're going to move some EUR 100 million to EUR 150 million loans to SPVs, what's the revenue impact that embedded in the plan coming from these actions. Just to understand if you're going to do more what can we expect on this front? Second question is on the NPL area. If I understood well, you are going to manage the expected increase in acquisition prices by remixing your purchases from the primary to the secondary market where prices are more interesting, if I understood well. And on the Commercial Banking, the digital approach to Commercial Banking, which, of course, is very, very interesting from a strategic point of view. I mean, one of your competitive advantages is the service you're offering to your clients, to the SMEs -- small businesses and SMEs. How do you think you can differentiate yourself in a digital environment where we see that other players are entering in a pretty aggressive way? Of course, you have a lower cost of serve there that emerges from what you're doing. Do you see, in parallel, a pressure on the margins? So part of the savings have to be recognized to the client.

Okay. The -- what happens if you use vehicles, right? Is that you're sharing revenues and profits, obviously, but you become very efficient capital-wise, okay? So what we have in the plan includes the use of vehicles with this intensity, right? If you end up giving away a bit more, right? Because you take lower shares of the vehicle or because your co-investor wants a different structure or, right, it means you can purchase a bit more, right? Because as I said, the capital efficiency is very good, right? So what you have to imagine is that when we simulate it the use of these vehicles, we simulated a very attractive remuneration of capital and a very sizable sharing of revenues. You get some back, right? Because you do the servicing for most of the portfolio. You do -- you have roles as master servicer, right, which are remunerated you can have a certain sharing of the debt financing of the vehicle and a different sharing of the equity upside of the vehicle. So I guess it will depend case by case. I would rather not give you a number, right, a specific number. What I would just say is, of course, it's a sizable sharing. You can't expect, right, to give away 10% of the value and deconsolidate, right? But you have a bit of mitigation from the orchestration that you do, right? And you can -- given the capital efficiency, you can do more, okay? And in response to also earlier questions about how these vehicles will work, et cetera? We will experience it, right, and we will adapt our strategy on the basis of the structures that are in the end implemented, okay? Mix, primary, secondary, we don't care that much about what the actual price is as long as the price is right. So we could buy 100% primary, right? That would be more expensive. It doesn't matter, right? It's worth more. So we're not adapting the mix to counter the price rises. We're adapting the mix because the market we see is developing in that way. There are quite some structures that are underperforming. And these people either leave the market or want to restructure or they will sell a piece of the portfolio, right? So there's a whole business coming up connected to -- may I use the term, the mistakes in the past, right? We want to be ready for that business, okay? So it's just reacting to the market. It's not keeping the average price down as long as you price correctly. And in fact, you saw a positive, I think, confirmation of our flexibility, when a very sizable portfolio became available in the secondary market in 2021, we bought it, we bought EUR 2.7 billion, I think, it was gross, right, right away because the price was right. It wasn't about managing the average. Digitalization and the impact on customer service, distinctiveness and prices. I, for one, and I think Raffaele is very much on the same page with me, don't believe in a 100% digital SME credit service. Especially not in businesses like supply chain finance, Factoring and that sort of stuff. I think the illusion that you're going to have all these entrepreneurs sitting in their office, right, typing loan application, uploading all the documents and doing all that autonomously and giving you all the authorizations and doing all the digital signatures, right, that then authorize you to do credit checks, it's laborious, okay? In any digital journey, even if you design it really well, it's just going to be a lot right? So I don't believe very strongly in this world in which someone gets onboarded digitally, request along digitally, gets a digital answer starts using the factoring services digitally and everything without interaction. There are niche players, fintechs that cater to this. Maybe in their niche, they will be successful. I'm not saying anybody's making mistakes, but I'm saying we -- our experience is different, in general. So the approach that Raffaele described is omnichannel, meaning that you have competent relationship managers taking you through this, but leaving you the availability of an interaction when you want to do it digitally, where the company that you interact with is aware of what happened before, right? So is able to manage it really, right? That's tricky to do. That has to do with technology. It also has to do with understanding processes and understanding your business. Our story to the market is that we are the right ones to do it in a not so naive way. So it's going to be digital helping an omnichannel experience that is respectful of the realistic situation in which these enterprises are. They want to have certain things automated. They don't expect to be your back office function, right? They want to have certain things done differently. For instance, the whole invoice uploading and that sort of stuff, automatic recognition and everything, that's very nice for people that work with you, right? But on the other hand, they expect to have a dialogue about maybe new debtors that they want to give the invoices off, right? And they expect a coaching and explanations, right, and expectations. So it's about an omnichannel service that's modern, but that's still distinctive in terms of perceived service quality. And that, I think, also is reassuring in terms of pricing because we see no price pressure on us in the past years that has been terrible in terms of pricing in the market. It's been very benign for IFIS to use an understatement. We've increased prices last few years.

Can I add 1 point that I think that here we have Sergio Catalano, the Head of Information Technology that develops all the workload. But basically, Commercial and IT work together -- so that's why in the business plan, the CEO previously mentioned that we have, apart from 70 investment also a team of 70 people working with the business in order to create solution in the IT that works for the business, okay? And that creates something that is somehow unique for us as this was done in nonperforming in the software that helps us in the nonperforming or unsecured small ticket. So it's a combination and of the 2 functions working together. And we -- there is a continuous feedback among the 2 divisions, which helped us in the development. That's -- and we start from something. So it's not something we start from scratch, but we guide also the businesses, the SMEs into this journey, growing them together, so they become all IT literals and we advance with them. Of course we guide them in this process. That's probably also the difference that we don't start from scratch. We have existing clients who has experience, and we go together. I don't know if there is any further question from the portal, or if you want to move to the online, if any? I think -- Okay. I think that if we have a question coming from people in streaming, we can get from them.

We have recast from Simonetta Chiriotti from Mediobanca.

Can you hear me?

Yes, yes.

So in the business plan, you are targeting less judicial recoveries in favor of settlements. So I'm referring to Slide 10. As I understand, this strategy is aimed at reducing the time of recovery of your portfolios. So my question is, which is the average portfolio duration currently, and which is your target for 2024? And does this strategy have an impact on collection rates? So how do you see the trend in collection rates?

All right. So I think that this is part of our strategy in the nonperforming. So the average collection rate is currently between 7 and 8 years, okay? Especially in the extra judicial. So this is a bit -- what we experienced is that is a bit long, so we try to decrease this time frame. And due to settlements, we can increase about 1 year, so probably even more. So from 7 to 8 to 6 to 7. So -- and this reflects 2 things. The first is that about every 5 years, there is a crisis. So we don't want our collection process to last too long, okay? The second is that -- we don't want to grow too much the size of our servicing because it's not only a process of collection, but also the process of monitoring the collection, and that's why we don't want to grow too much the size. So that's why we increased settlements. And also as part of the ESG as well is try to help debtors to be reintroduced into the financial system as soon as possible. So it's a combination of the 3. Then to estimate the impact in term of P&L is a bit difficult because it's a combination of this strategy. What we can say is that in the business plan, we say that the settlement will be about 10% of new purchases. Of course, we do settlement as well now. We'll try to -- let's say, to strengthen the strategy and to be grow this percentage going forward. But that's -- I think it's a normal trend into the market. So there is...

I would add that -- because here we talk about collection, right? So we're talking about what is the most efficient way to collect. I think you always have to think that there's a cost to collect. And I think what -- IFIS has been learning over time with a more refined view on how the costs are generated, I'm looking at Serena Sollecito, now the Head of our Servicing Business. And I think she's nodding. That certain very long drawn-out approaches, very legal approaches in certain cases, may lead you to collect a bit more but also lead you to incur more costs over time that offset that extra recovery that you might have. So I think it is a question not really of strong change in strategy, but rather of sophistication of your management accounting, that at some point, you understand that certain slices of the portfolio, if you shorten it a bit, you can release some value also leave it on the table. It's fine because at the end of the day, it's in the interest of both parties, right, that we just call it a day, right? So see it not so much as -- in fact, we see the 10%, right, appearing on Page 14, I think it is, on the calendar provisioning page, right? It's not a radical change of approach. It's a sophistication of approach that is aware of the costs and that leads to shorter times, and that gives a little bit of help also on the calendar provisioning because you're going to have some leakage, you're going to have some on your own books, and you can obviously be aware of it when you approach the debtors with settlements.

We have another request from Christian Carrese from Intermonte.

I have a few questions. The first one on margins. You highlighted the return on allocated capital on the NPL business due to change in regulation. I was wondering, you show in a slide that you said that you are expecting some increase in NPL prices. So the price that you have to pay. First of all, I would like to understand what are your assumptions? Why do you expect this kind of higher competition? And it's just -- it's also related to regulatory changes on capital or for other reasons? And still on margins, I'm referring to Slide 33 on the Factoring business, you show the high revenue generation and the higher margins you get in that kind of segment. Cost of risk is going down. So this is the [indiscernible] scenario, let's say. Are you going to keep this kind of spread? Or do you expect some pressure on turnover in terms of spread and in terms of cost of risk, is it correct to expect a linear decrease for the plan? The other question is on revenues. If you can give us an idea of the trajectory of the revenues within the plan, not just on 2024, but 2023, 2022. And a curiosity, Slide 26, I see the book value is going up by EUR 300 million from EUR 1.6 billion to EUR 1.9 billion. As a matter of fact, you are planning to make around EUR 400 million net profits within the plan with a 50% payout. So it would mean a EUR 200 million additional book value. So it's just a matter of rounding or there is something additional? And finally, on Slide 53, a curiosity, I did understand this kind of slide because you did -- you change for the Scogliera. So you have the benefits in terms of capital. But I see in that slide, Scogliera doesn't appear anymore. This doesn't mean that you are going to merge Scogliera with the Banca IFIS. So if you can elaborate on that.

Yes. So let me get that out of the way right away, right away. No, we're not going to merge Scogliera. It was the point that we don't have to. What we showed on Slide 53, thank you for the question, is the consolidation perimeter. In fact, we put it in the back up because I was expecting to be confusing. And your question confirms to me that it was a confusing slide. And I will also admit that Martino didn't want to put it in the deck. But -- so it was entirely my initiatives. But in any case, we show the consolidation perimeter Scogliera, legal fee goes to Lausanne in Switzerland to Canton of Vaud, therefore, it comes -- it goes out of the perimeter, but it doesn't cease to exist. We remain to have -- we remain, of course, with our controlling shareholder. Book value, EUR 1.6 billion to EUR 1.9 billion rounding error, I would assume. I think your math is perfect. EUR 400 million in profit, EUR 200 million retained with an increase of EUR 0.2 billion. So I guess something must have slipped or we have a rounding error.

Rounding.

More probably. Revenue trajectory, I'm doing it all in the opposite order in which you asked them. Sorry if it's confusing, but I have it written like that. Revenue trajectory, linear except 22%, slightly less and 24%, slightly more, okay? And it's not because we don't believe in the numbers, and so we pushed a more ambitious part out, right? Because you see that the profit projection is in reality, very linear, right? What happens is that in the short term, we have a little bit more satisfaction on the cost side and on the cost of risk side and that the projects that the team, both Raffaele on the Commercial side and Katia, Serena on the NPL side, the projects that the team puts in place realistically don't deliver in the first 6 to 12 months of the a plan, right? So you have to give a little bit of time for those partnerships, for instance, that were mentioned for them to come on stream. So luckily, in the first years, we have a little bit more help from the cost side and from the cost of risk side, leading to a very linear net profit evolution. You remember, EUR 120 million, EUR 140 million, EUR 160 million, that was -- I wouldn't say conscious, but we saw it, right? We're aware of it. With revenues in the first year growing a bit less than in the last year, growing a bit more. Margins, why do we think that the NPL prices will increase because Italy has become investable again, more investable, I should say, there are buyers. There's a very efficient market in servicing operations. So if you want to buy servicing capacity, it's there. There are large sophisticated groups that are available to sell it to you or rent it out, right? It's the appropriate way, probably. So if you're sitting on capital in somewhere in Northern Europe or in the U.S. and you want to have exposure to Italian NPLs, then that's quite easy to do. So buyers on the one hand and also sellers becoming more sophisticated, right, competitive situations. You have to also imagine that the years from 2015 onwards, Italy was digesting EUR 350 billion of stock of NPLs on their balance sheet. And it had to be done quickly because everybody was talking to the regulators and everybody was getting, let's say, encouraged to do it quickly. So that situation is going to normalize, right? So you have a little bit less pressure on the sales, a little bit more sophistication from the sellers. Potentially some more opportunistic buyers coming by also from abroad. In an environment like this, we think it is safe to assume that it's going to get a little bit more challenging. But as I said before, we welcome it. It's fine, right? The thing is that we need to develop too, right? We can't remain like we are. We need to reduce our costs. We need to make our collection strategies more sophisticated, everything that Katia just discussed.

And then for sure, the quality is slightly better in terms of vintage, in terms of documentation, in terms -- and this all impact the slight -- on prices.

Good point. it's also very true, it's part of the portfolio that's increased...

Yes, also the mix, sometimes it's slightly more secured. So the mix has also changed -- improved. So this is reflecting in the price. But for us, what really matters are margins. Because we invest. So it's not a question of price, the acquisition price, but rather the margins that we get from that, the IRR.

Factoring margins, yes, we've been able to protect them quite well. Cost of risk. The interesting part of Factoring is exactly this, right, because you have to double risk evaluation between the person who sells you the invoice and the data, right? And on that -- in that space, if you move smartly, you can finance medium-risk SMEs buying very good debtors from them. We don't see -- we see a lot of entrepreneurial initiatives now that come into our direction. So it's obvious that we're not the only ones who have seen it, right? It's a confirmation of the fact that the market has seen that this is an interesting play because you can have very benign risk and help people with medium risk to get financing in a controlled way. IFIS thinks it is the benchmark in that, right, with on the SME focus, we don't do Factoring for very large corporates. We just stay away from it. We don't think we would be competitive with the big banks, in doing those types of deals. But in the small size, it's really our business. So is the cost of risk -- is that the cost of risk coming down is that, in any way, not consistent with the margins to stay where they are, I don't think so. I think we have normalization of the post-COVID situation. And we don't see any reason for prices to go down. So I think it's a benign environment for Commercial and Corporate Banking. And we don't see a need to project it more challenging, like we did in the NPL side, right?

Are there further questions?

We have no more request of questions.

Okay. So thanks to everybody. We'll be at your disposal for meeting one-on-one and of course, with the CEO. And thanks for joining and for attending.

Thank you on behalf of all the team and of the all bank. Thank you.