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 Full Year 2020 Results Conference Call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Frederik Geertman, CEO. Please go ahead, sir.

Thank you, and welcome, everybody, to our full year 2022 results call. I'm here with my team, with Martino Da Rio, the Investor Relator. We will make a short presentation, and then we'll take your-- we'll gladly take your questions. Today is a special occasion. We present the first year of our business plan, and we hope you will appreciate that we are quite pleased with the way it's coming along. I will start going through the presentation. I will take you directly to Page 4, where we present the core net income. We are at EUR 141 million net income in 2022. That's a record, excluding the PPA. And it also means we achieved the 2023 business plan target of net income, a full year in advance of the business plan. The business plan stated EUR 137 million for this year, and we are posting EUR 141 million. We're well above the EUR 120 million, I think on guidance that we had given that included some prudent assumptions in terms of macro environment. The reason we are posting EUR 141 million is that we have strong performance from all profit centers that more than offset the negative one-offs that we upfronted in 2022. In Q4, we made EUR 22 million provisions in the NPL business due to an adverse regulatory change, the so-called credit out, which increased the threshold for capturing the pensions at EUR 1,000. We also posted EUR 7 million provisions for potentially lower NPL cash collection due to inflation that impacts as a negative revenue cost and I remind you that in Q1, Q2, Q3, we had made EUR 11 million prudential add-on provisions on the performing loans, adding to our prudential management overlay. On Page 5, we dive into the fourth quarter net income of EUR 36 million, that's 8% Q-on-Q, notwithstanding the negatives and 74% year-on-year. The negatives were EUR 29 million. One is the creditor, which I've already mentioned, and the other is the potentially lower cash collections due to inflation as they potentially given that we are not really seeing that yet. Net revenue is EUR 192 million in the quarter. That's a plus 16% Q-on-Q and plus 25% year-on-year, driven by what we consider our outstanding performance in Commercial Banking and in NPLs. Factoring turnover in Q4, 8% Q-on-Q and 9% year-on-year, both excluding the factoring of invoices versus the public administration and new business in leasing, 47% year-on-year. We confirm a record quarterly cash collections of the NPL portfolio another time another time EUR 100 million, stable Q-on-Q, plus 7% year-on-year. Operating costs are at EUR 112 million, plus 20% Q-on-Q, mainly due to the increase in the NPL variable recovery costs. So the overperformance that you see on the revenue side does translate partially into an increase in costs and external costs. We'll get into that later. Loan loss provisions of EUR 29 million, including, however, the 22 million negative one-offs in the NPL segment. So the actual provisions on credit risk were still very low at EUR 7 million in the quarter. We confirm the resilience and the quality of the loan book that we had illustrated to the market in Q3. You may remember we had a slide on high priority sectors or sectors that we take a specific look at maybe because of energy costs or supply chain constraints. Page 6, focus on revenues. This is really the driver of the performance. And we consider it really encouraging. We have a plus 25% versus Q4 2021. How does this break down? Commercial Banking, EUR 93 million. It was EUR 83 million in the third quarter, reflecting the positive correlations that we have connecting to the interest rates. The NPL business delivered EUR 83 million. That was EUR 66 million in the third quarter. It's a net increase driven by the digital work out performance, truly outstanding and the increase of the legal interest rate on the order of assignments that was-- that generated increase in revenues, about EUR 6 million, EUR 7 million. and provisions against potential lower NPL cash collections due to inflation, which is a negative. So the combined effect of this is that we go from 66 to 83 another contribution to our surpassing the guidance. Non-core and G&S at EUR 15 million, it was EUR 16 million in the third quarter. Showing you a little bit more flavor on the commercial activity, Page 7, here, we see the factoring turnover, we did plus 9% year-on-year. The market did plus eight, that includes the factoring that we used to do for the public administration, where we basically reviewed the business model or I should say, drastically reduced as exited the business of buying invoices of the Italian public health system. We consider the business not really compatible with the new definition of default, continuing would have meant generating a very large amount of past dues, and we decided it was not sustainable in this form. So we are compensating that exit with other business, as you all appreciate. New leasing truly outstanding, plus 47%. I want to underline here that it's excellent commercial productivity of leasing to SMEs. We did not make a change in our small ticket focus, so there are no large single transactions in there that need explaining. And we have a very nice acceleration in equipment and tech leasing, which is where historically, our leasing business excelled and where we really see the competence of the bank delivering this growth. You can see it also in the automotive part, we had a plus 31%, growing more or less as the market did. But most of the growth, as I've explained, we find it in the traditional equipment and tech leasing business. So describing what's coming out of this quarter and of this year, I should say, and really characterizing the bank slightly more long term, slightly more structural on Page 8. I think we can now ascertain that if this represents a natural inflation hedge and that it's further accelerating a very solid commercial performance. What do we mean by that? Firstly, we have clearly a positive interest rate correlation. So variable rates have historically been predominant in factoring, leasing, structured finance and also normal lending activity. We have more than 85% of the customer loan book [indiscernible]. So we benefit clearly on the interest rate side from what's happening on the rates. But additional to that, which, in my opinion, is specific to this bank and to our business model is the inflation hedge. Not many businesses could state that the inflation translates in volume of factoring invoices basically one-to-one. The inflation in prices of equipment to capital goods further contributes on the leasing side to the new underwriting. So these are 2 elements that really help, also keep in mind that when you think about inflation, you would normally have in mind the regular consumer price inflation numbers. In reality, what happens on the B2B side and on the capital goods side is that inflation tends to be higher than the consumer price inflation, right? So our invoices, which are typically B2B, they grow even more than the elevated inflation numbers that you already see. And this is mechanical. So further inflation will lead to further growth and therefore, a hedge in the factoring business. Add to that, nicely growing client franchise, active factoring clients increasing from 8,100 in 2020 6,200 during 2020 to 8,100 in 2022, quite impressive and also increasing retention up six percentage points in both years. So we're keeping our clients a little more and we're adding clients, adding active clients. Many of them are also reactivating previously present relationships. And finally, digitalization. We had a slide on it. Last time, we won't go into it in such detail. I'll just remind you that we have 100% of our factoring clients now on our ESIC business platform. That means that we can increase turnover and volumes due to the digitalization at a modest cost increase and that translates into the numbers of Commercial Banking. Revenues up 12.6% year-on-year, costs up 3.8% year-on-year. So cost income growing to 49.8%. And that's really the delivery of one of the promises, right, of the industrial plan, digitalization, process improvements leading to business growth with a less than proportional cost growth. And that's, in our opinion, definitely an engine that can give us benefits in the future. Point 9 or Page 9. Let's take a look at NPLs, -- confirms a very resilient and well-positioned portfolio, small tickets unsecured, it's mechanical or statistical, I should say, industrial business, it's processes, it's digitalization, it's what we call the legal factory. And even in the current environment, we see these collections growing and holding up at very elevated levels. We posted EUR 100 million cash collection in Q4, roughly the same as Q3, 51 million extra judicial 49 million judicial, leading to a [ PnL ] where the revenue growth offset the one-off negatives that we had envisaged. So we -- let's start with the revenues, right, point one. We had negative revenues posted one-off against the potential impact of inflation. We had announced that. We want to be prudent. It's not really happening now. If you look at the cash collection, but we have adapted the models. And when you touch the models, you touch expectations of forward flows and therefore, you get a negative one-off. And that goes into revenues. But we had also a plus EUR 8 million coming out of the increase of the legal interest rate in the order of assignment. I will admit that we haven't really factored that in when we made the guidance. Legal interest rates didn't move much in the last years, they were updated. I won't say it's fall into our labs, but close to it. So we had an EUR 8 million one-off positive and that was booked in this quarter. The EUR 22 million on the loan loss provisions, which are normally 0 there in the NPL business because of the business model we already discussed, leading to a net income of EUR 4 million. So still even with this phenomena, the bank posted a profit in the NPL business. Costs, EUR 32 million, you see a quite sizable increase versus third quarter, and that was both the judicial workout and the onboarding and assignment of a very sizable newly acquired NPL portfolio that was executed in the fourth quarter. Page 10, costs. I go to the lower left part of the slide. If you take the sum of operating costs and provisions, you see a progression of EUR 106 million, EUR 101 million and EUR 108 million, also connected obviously to the volume of business on the NPL side. There's always this phenomenon of the feet and SRS that were booked as provisions in the third quarter and then released and booked is costs in the fourth quarter. So in the fourth quarter, we had no net impact from there. The other operating costs where you have the impact of inflation, right, which was more than offset by a very, very disciplined methodical professional, I would say, activity of contract renegotiation and demand management. We also have EUR 9 million of IT spend in there in the quarter as we keep investing in the transformation projects. Then we have the cost, the green bar, which are directly linked to the NPL recovery have the external lawyers, the external recovery services. So there you have the effect of the judicial workout and this large portfolio that came in. Cost of personnel substantially stable year-on-year. We're being quite prudent in adding headcount. It is growing as was envisaged in the plan, but not a particularly elevated rates. Page 11, cost of risk. So the actual classical cost of risk of our credit business is on the top left of the chart in the dark blue box. We go from EUR 8 million to EUR 7 million. So we're not seeing any effect of slowdown in the economy, supply chain disruption, companies getting in trouble because of energy bills. We have shared with the market last quarter, the rating breakdown due to the changes in the macro environment. Nothing more to add to that, very gradual impact of -- on the probability of default and almost absent increase of real defaults. I remind you that we have EUR 50 million provisions present against potential macro risk. That's the management overlay. So those are provisions on the bonus portfolio. They have various justifications because, as you know, you can't just -- even if you're being prudent, you can't just do what you want. So we have titles there such as concentration risk, sector risk. So everything that has to do obviously with the disruption, there was cost in the energy markets and the war, and that has been further increased this year. We had already had some in code years. That's where a significant part of those EUR 50 million was first posted. Those were not taken back and booked as profits. They were left there. They were reassigned to macro risk and that represents a buffer as we go on in '23 and '24 against a potential downturn. Page -- on the bottom part of the page, the NPE ratios, solid improvement from 7.4% we go to 5.9% growth. Both elements decreased. So we have the loans versus the public health system. Those are past dues, right? So these are loans that will be paid in the end that this history shows us that these are fundamentally always collected. It may take time because sometimes you have to go through legal proceedings. We have further collected and also the benefits from some transactions. And on the dark blue bar, you can see that the, how should I say, normal NPEs, right? So the ones that come from our business have decreased from 5.3% growth to 4.3%. The net goes from 4.8% to 4.0%. Page 12, the capital walk. It's also, we think, a very positive development. You may remember that in Q3, we had posted a CET1 ratio of -- in excess of 60%. We had taken the benefits of lower risk-weighted assets in the NPL business and another one-off -- this capital was put to work in Q4. So that's basically a risk-weighted assets increase. So selective investments in financial and corporate bonds at an attractive risk-return ratio in November, December. That was when the yields on those instruments was particularly high, even in our opinion, in fundamental absence of real risk. Those are very, very high-quality issuers. So we made a EUR 580 million increase in RWAs on that side. And the peak performance in Q4 of the corporate exposures, another EUR 351 million. And the combination of those 2 things has led to our outstanding revenue performance in Q4 that more than offset the one-off, so we consider a 15.01% CET1 ratio, basically the consequence of the execution of our plan, and we're quite pleased with the risk/return reward that we are collecting there. Page 13, are resilience. So we have a solid CET1 ratio. We have total 2022 dividends of EUR 73.4 million. That's EUR 1.40 per share. We have in the Board this morning deliberated to propose to the shareholders meeting EUR 0.40 dividend per share to be paid on May 24 of EUR 21 million. You may remember that in Q3, we had already paid EUR 1 per share that was paid out on November 23, leading altogether to EUR 1.4 dividends on these 22 numbers. Stable funding, so liquidity coverage ratio in excess of 500%. That's 5x the legal minimum, the regulatory minimum, net stable funding ratio in excess of 100% comfortable. We have EUR 2 billion that's expiring in September 2024. So it won't be a relevant issue in 2023. We're going to repay that. We have developed our funding plan for the next 2 years. That will be repaid both by asset and liability transactions, working on the mix and quantity of funding and also gradually reducing some of the Italian government bond portfolio over time. We issued, as you know, successfully EUR 300 million senior bond in January 2023 with a 4-year maturity. The NPE ratio, I already discussed, we have NPEs at EUR 173 million. It decreased by EUR 9 million Q-on-Q compared to the capital position of EUR 1.5 billion. I think that number speaks for itself. Looking ahead, Page 14. So compared to the plan that was presented only a year ago, even if the environment today is really completely different and it feels like a much longer time ago. What are we seeing? So in 2022, we had a business plan that stayed at 4% growth. The actual was 3.9%, a bit more in the first part, a bit less in the second part. The business plan set in 2023 that we would have a 2.8% growth in the coming year. We have worked out a guidance that I was to comment, assuming as most observers and institutions, the lower growth given the whole macro environment. So our current assumption is 0.4% Italian GDP growth. No contraction, slight growth. And most forecasters are more or less in the range between 0.4%, 0.6%, -- those are the numbers that you see. Inflation, the business plan assumed 1.5%. We were actually even quite on the high side back then. The actual was 8.4%, as is known, -- for 2023, we had visits 1.4%, and we assume next year 5.8%. So these are, of course, annual averages. So we assume a slowdown in inflation through the year of 2023. Euribor, business plan assumes minus 0.5%. We had 2.1 average. It assumes for 2023, minus 0.4%. We're assuming 3.1%, slightly below the forward curve. As you know, we are positively correlated to Euribor. So if it will grow faster than we would have a further increase of revenues. We also had some adverse change that we had discussed, right, in 2023, and so this year -- in 2022, I'm sorry. So this year, we more than offset the adverse regulatory impacts. And looking ahead in 2023, we see this environment where, fundamentally, the economy will grow less will have a significant inflation, and we have the arrival at further growing level. So where does that lead us? Page 15, obviously, delivering the second year of the business plan in the first year poses questions on what you assume, right, as you go into the second year. We're giving a guidance, increasing it to EUR 150 million. The business plan said EUR 137 million. The assumptions that are in there on the macro side, I just discussed on Page 14, I would add to that, no significant deterioration in the macroeconomic conditions relative to these numbers, right? So no major contraction, no real disruption continued stable inflation, a further pickup of rates, evolution of funding costs and spreads in line with market expectation. So funding is obviously more expensive now. It's not just a question of base rates, but also a question of the spreads that issuers are paying. And of course, we're assuming no major adverse regulatory changes. So on those basis, using the drivers of higher net interest income and very prudent provisioning, we give a guidance of EUR 150 million for next year. Very pleased to be able to share with the market such a faster and more rewarding evolution of the business plan that we had initially imagined. So I'll leave the presentation at that. You see on Page 16, we have more detailed numbers. They are the usual appendices. I urge everybody to flip through them. We gave a lot of detail and transparency on various businesses on rates, on pricing, on NPLs and so do slip through then, and I'm available for questions that you may have on these numbers. Thank you for now for your attention.

[Operator Instructions] The first question is from Manuela Meroni with Intesa Sanpaolo.

I have five questions. The first one is on your 2023 guidance. Your new guidance is for EUR 150 million but if I look at 2022, you already made the EUR 141 million, including EUR 40 million of, let's say, nonrecurring elements. So I think that is a 43 tax novating elements, I can add to EUR 167 million of net profit in 2022, excluding one-offs. So I'm wondering if you are EUR 150 million guidance for 2023 is a little bit [ concervative ]. The second question is on the cost of funding. I'm wondering whatever are your assumptions in terms of cost of funding? And what is your strategy on the TLTRO so if you are going to repay in 2023? The third question is on the asset quality. Have you seen any early sign of asset quality retaliation. Do you expect the increase of interest rates to affect the ability of corporator to pay their loans? And what are the -- what is the cost of risk included in your 2023 net income guidance? The fourth question is on the regulation. Do you expect further changes in the regulation, which may impact the company? And last question is on the corporate bond portfolio that you just purchased. I'm wondering what is the yield attached to these EUR 500 million portfolio?

Yes, Manuela. Very clear, thank you. So on the guidance, I guess that's the key question. Let me phrase this -- considering all the moving parts, okay? So first of all, we are in a quite complex macro scenario without new historical references, right? So we exit from a global lockdown and we enter into supply chain constraints in an energy shock as we move out of there. We have central banks making statements that are certainly strong in terms of their determination to fight inflation. It's not clear whether they will be able to bring it down to their target of 2%, right, without maybe overshooting, causing a slowdown, they are draining liquidity very quickly. And we still have this geopolitical complexity, let's put it like that, which is not only present in Europe, but also in formation of reach of macro blocks, right, with reshoring and supply chains potentially being redesigned, right, with some cost impact. So in an environment in which central banks are clearly talking to the banking system and saying take into account a very serious deterioration of the risk environment, right, prepare for it and in which all this liquidity is drained, we have to, I think, do two things. The first is, and I'll get to the number that you asked later. The first is we have to assume that loan loss provisions will increase. We have statistical ways of estimating that. So that's a formal process, rating deterioration leading to cost of risk is something that banks are statistically quite capable to estimate. So we are assuming that. And we also have to assume that something may go maybe slightly more challenging, right? So business growth, right? We are assuming obviously a further development of our commercial activity. But when revenues of companies don't increase as much, then that means market share growth, which is obviously something that cannot take for granted too much. And I remind you that in the business plan, we had a 7% growth of our business annually, CAGR, right, in an environment which certainly is going to be more challenging than what we had imagined, right? So based on these assumptions, we gave a guidance of EUR 150 million, right? So if you assume a better macro environment or significantly higher rider scenario than that number may be actually increased. But in the current environment, we think it is a balanced and responsible increase from EUR 137 million to EUR 150 million, and we do in that number take into account an increase in cost of risk, very significant interest. You asked how much roughly? So I'll get to your question. I'll get to your question right away. We assume that the cost of risk in 2023 will be similar to the one of 2022. But with everything caused by real cost of risk. So it's like the one-offs, the prudence that we overlaid in 2022 would be replaced by actual cost of risk. Cost of funding, we assume an increase of roughly 2.5x. So the interest that we pay on the right-hand side of the balance sheet, right, the negative interest rate cost, right, would go from around about 100 basis points to around about 250 basis points. That is -- you can see the -- how strong the impact of the rates environment is. Now of course, you also have the beneficial impact, right, on the 85% of the asset side that's positively connected to the base rates, right? But on the liability side, we have the Euribor impact, and we assume a certain spread impact, right, because cost of funding in the last months has been elevated, not just because of the rates environment also because of the spread environment. TLTRO mix, first of all, we don't assume to repay it in 2023. We assume a gradual repayment in 2024. So we will prepare for that in 2023. And that's certainly one of the elements that constitutes an increase in cost of funding because you asked to prepare for the repayment, you have to put yourself in a liquidity position where you're comfortably able to repay the TLTRO gradually. We're also going to sell much less than half, but in any case, the part of the government bonds portfolio. Asset quality deterioration, I answered adverse regulation, we don't have any news, right? And we don't expect it. So we don't have some big number in there of x million, right, connected to adverse regulatory effects that we wouldn't know how to predict in any case. There's no particular issue on the table today. It may happen, but if it does, we'll see. Yields of the bond portfolio, that was bought at an average yield of about 6%. If you consider that these are truly high-quality issuers, mostly senior but not only senior, we also bought some Tier 2 and a very small amount of Tier1 at very, very wide spreads in those months. It was actually a way in which having the capital, having the liquidity, we benefited from a situation, which on the liability side would constitute costs, right? So 6% on more than EUR 500 million investments you can work out the numbers, right? We think it was a very good trade for us. Most of that is in held to collect. So that will benefit -- that will make us benefit over the years from these yields that we have locked in. It's not something that will disappear.

The next question is from Irene Rossetto with KBW.

Yes. Hello. I have a few. The first is if you can provide us with the expected evolution of the purchase price of the NPLs. And if you see pricing going down. The second is what is the impact in terms of cost of funding or the change in the test of the TLTRO. Then the contribution of higher interest rates in the fourth quarter and your sensitivity to interest rate. Then what was the driver of the strong revenue performance in the NPLs in the fourth quarter? And why operating costs picked up in the quarter? And finally, do you expect to pay interim dividend in 2023.

Yes. I got them all. Except the first one. Could you please repeat your first question?

Yes, if you can provide us would expect the evolution of the purchase price of NPS and the prices going down.

Okay. I'll start with that one. Pricing of purchased NPLs, you would expect in a market that has higher cost of funding and that may potentially also produce more NPLs, a decrease in the price. It's not happening yet. So we are seeing quite some transactions where yesterday's prices, as I would describe them, are still being practiced. We tend to be disciplined. So we reached our purchasing objectives last year in a slightly different mix, meaning that we also bought the secondary markets or portfolios, at what we think are much better conditions, certainly in what respect -- in respect of the way our models work. Looking forward, really hard to make a prediction. I think logically, the NPL prices should go down a bit. You have to take into account that somehow inflation will impact the ability of the debtors to repay. You have to take into account that the cost of these also specialized the funding cost, also the specialized players are going to impact, not really happening yet. So vibrant NPL market, there are some good news in there as well, right? I mean from a macro perspective, if for a second, forget about [indiscernible] the fact that there is still so much demand for Italian NPLs, I think is a good thing for the Italian banking system and it's a good macro message for the country because we still see a lot of capital being committed to these projects also abroad that therefore comes in here and that helps the bank deleverage. So vibrant market, no real slump in prices. logically, you would expect some -- logically, you would expect some decrease that's not happening yet. Impact of the TLTRO, -- I think what you mean is what's the impact of status becoming more expensive this year. If that's your question, I answered, it's not, you can correct me at the end. So the impact of the change that was made to the TLTRO conditions, by the Central Bank retroactively, by the way, I should say, is roughly EUR 15 million in 2023 compared to what we had written in the business plan, right? So that's something that's in our numbers and that partly offset the positive Euribor correlation. One of the reasons why we have a guidance of EUR 150 million, obviously, that has to take into account that EUR 2 billion of our funding has retroactively become more expensive. The contribution of the interest rate environment in Q4. That's an easy one. It was roughly EUR 10 million. I'll give you the sensitivities, again, we gave them in some earlier calls. So if you assume for a second, which you can't, but if you assume for a second that TLTRO is not impacted by Euribor at all, right? So you take it separate, then 100 basis points in the interest rates, parallel on the curve for Banca increase is between EUR 30 million and EUR 40 million additional revenues. If you assume it is technically not really true, but if you assume the TLTRO follows Euribor, okay, then it's reduced to EUR 15 million to EUR 20 million, roughly. And what are the drivers of NPL performance in Q4? Well, we had a nice progression of revenues, as you saw, right, from EUR 66 million to EUR 83 million of that. Judicial workout performance contributed EUR 18 million. And then we had another EUR 6 million, EUR 7 million impact from the legal interest rates on the order of assignments. And when you look at costs, that is something that we are actually studying. We are keeping a very nice overall revenue production and cash collection in this division with a slightly different mix, less extra judicial, more judicial. Now part of that is idiosyncratic as they would say, so is specific to EPS because we had a bit of a slowdown in extra judicial when we made some changes to the business model there with the external-- with our external partners. Part of it is probably connected to that of having a bit less free cash at the end of the month, energy costs and such. The consequence is that if we substitute extra judicial collection by judicial, then for every year we collect, we get a bit more cost because judicial collection is very certain, but it's also a bit more costly. You have the legal cost, the standout, the all-court system and everything, so that's long term, one of the things that we are looking at in terms of the health of the NPL division how to make sure that we keep the economics as they were. Finally, your fifth question, sorry, can you restate it?

So the fifth was why operating costs ticked up in fourth quarter, and I think you partially explained with the judicial in NPS. And then the final was if you expected to pay an interim dividend in 2023.

Okay. Yes, sorry. I wrote it down, but I couldn't decipher my own handwriting. Interim dividend, yes, we did it once. We think it's a market-friendly thing. We noticed many leading banks do it. So we started this year, and we are definitely planning on conditions credits if conditions allow it, which we definitely assume to make that a recurring event. So yes, in 2023, I would assume within the second half of the year will be an interim dividend, yes. Payout ratio in case you're wondering, stable at roughly 50%.

[Operator Instructions] The next question is from Giuseppe Grimaldi with BNP Paribas. Please go ahead.

Is just one basically quick question on the cost of funding. Basically, you were guiding for 2x higher cost of funding, but I just want to understand if it is compared to 2022 levels or 200 bps, 150 bps in general? And maybe the second one is on the factoring business as you are phasing out to the public administration, where you are in the process? I mean you're completely -- you have completed the phaseout or you are still doing it at the moment?

Yes, very clear. So cost of funding, yes, and reply to your question, that was relative to 2022. So once again, negative interest costs going from about 100 basis points in 2022 to about 250, slightly higher actually. And that comes both out of base rates and assumptions on what we do in the retail part, right? Then there's obviously also the TLTRO impact, right, that hits quite strongly because we have assumed further rate increases by the Central Bank. As you know, as they increase the refinancing rate, then the TLTRO conditions now follow. So in theory, the business plan, right, would have said minus 50 basis points, right, originally. That's looking more like 250 to 300, right, next year. So all that feeds into the 2.5x weighted average that I mentioned. Factoring versus the public administration, where are we in the process. So we are -- we haven't fully exited. It means that we are still purchasing some invoices of those counterparties that do not typically lead to past dues, so more disciplined players -- we have stopped purchasing invoices from those counterparties that lead to past use. The portfolio is running down. I think what's left is less than half of what we had, probably around 2/3 that's right now being collected and the rest will go through a very slow and winding process as we work through it. We may accelerate this a bit with further transactions if we see opportunities. And as we said, on the NPE ratios, we've classified growth as past use. One of the one of the drivers we had of the reduction in the NPE ratios that we also worked quite hard on the ones that we generate on the commercial side. We had some big positions going back to bonus. We had some transactions where we sold. So the aggregates went down nicely. Not only the public administration went down, but also on the commercial banking side. It's not a complete exit of the business, but it's certainly a very different business than the one we had, where originally, the premise of that business was that the customer would pay late and that you would apply penalty rates of 8%. That's still possible, but you have to classify them. And from an aesthetic point of view, if you allow me this term, having all these past use on our balance sheet, we thought it was not opportune, right? Once again, every player in this business is making its own assumptions on the application of the new definition of default. This one is ours. We classify. It's very technical. We can't speak for other players, but this is our position and we -- in terms of sustainability and the type of businesses we want to be in, we thought this was the right decision.

[Operator Instructions] Mr. Geertman, there are no more questions registered at this time.

Great. It's, I think, close to 5 to 3. So we have stayed within the hour. I thank my team for the support in the presentation for the whole year. We're very pleased, as you might have heard and very confident about our ability to move forward with our plan. And I thank you all for your trust and your support and for your time in this call. Good afternoon to everybody.

Ladies and gentlemen the conference is now over, and you may disconnect your telephones.