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

Good afternoon. This is the Chorus Call conference operator. Welcome and thank you for joining the Banca Ifis First Half 2023 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Frederik Geertman, CEO. Please go ahead, sir.

Good afternoon, everybody, and welcome to our first half 2023 results call and we have another special set of numbers for you today. We post a record net profit excluding PPA in the first half of this year. I would take you straight to Page 4 of the presentation for the summary. So net income for the quarter of EUR 45 million, 20% year-on-year. First half '23 net income at EUR 91 million, plus 26% year-on-year. We post these results due to loan loss provisions which in the quarter were EUR 6 million, of which EUR 9 million were provisions against macroeconomic risk so against performing loans, that's the management overlay. And the regular cost of risk is at minus EUR 3 million therefore negative due to writebacks on certain positions. Total prudential management overlay is now at EUR 65 million. We update the guidance to EUR 160 million for this year. Our previous guidance was EUR 150 million which we posted in February and our business plan target for this year originally was EUR 137 million. CET1 at 15.01% excluding, as we normally do, the net income of this first half year. And we have approved in the Board today the new dividend policy, which increases the payout ratio of the bank. We have a progressive mechanism with the distribution of 50% of consolidated net profit attributable to Banca Ifis up to EUR 100 million and total distribution of the excess of EUR 100 million net profit. Therefore, a significant acceleration of our dividend policy respecting of course all the need for capital for our growth and the regulatory constraint. Page 5, net revenues. We see good acceleration so year-on-year plus 8%. In the quarter we post EUR 173 million. The breakdown for Q2. Commercial Banking at EUR 87 million, it was EUR 88 million last quarter; but I remind you that that included EUR 8 million of capital gains on disposal of certain equity stakes. NPL revenue is quite resilient, EUR 67 million. They were at EUR 65 million in the second quarter of '22. And noncore and G&S at EUR 19 million continues to provide a recurrent and stable contribution. If we look at the first 6 months revenues bottom left, we also see plus 8% like the Q-on-Q. Very robust commercial activity on Page 6, this continues. The bank keeps outperforming in terms of market dynamics the market itself. So we have plus 7% factoring turnover. That doesn't include the effect of our restructuring of the business of factoring with the public administration where we have fundamentally reviewed our business model following the application of the new DoD. And on the right hand, new leasing underwriting plus 9% year-on-year, in line with the market. I always remind the audience that we don't do real estate leasing, we don't do nautical leasing. So it's always small tickets with quite a good acceleration in equipment and in tech that continued in this quarter, which is probably interesting in the light of the macroeconomic dynamic. On Page 7, I want to take a very brief moment to talk about the transformation of the bank. You will remember that we brought a business plan where one of the most important elements was the digital transformation. The meaning of Page 7 is that throughout the value chain the bank is on track, actually a little bit ahead, with its transformation. So we have on client origination and partnership, a by now fully active multichannel lead origination approach. We have a fully digital rental capability that we're deploying in tech. And we have new digital origination tools especially geared towards cross-selling and incorporation amongst business lines. The client onboarding is by now up and running in a fully digital mode. So we have a fully digital end-to-end sales process for lending, transportation leasing and rental tech. So no paper involved and all documentation done remotely. New digital onboarding tool for corporates. And we can state now that in the first half of this year, more than 70% of our contracts were digitally signed. This is progressively still increasing. On the aftersales side so client management and commercial development, the Ifis4Business platform keeps expanding and absorbing additional customer needs; interaction, transaction, cross-selling for all core banking products. So we now have all our factoring customers active on this platform generating more than 100,000 online transactions per year where transaction would mean for instance the upload of an invoice or the request to increase limit. In Q3, we will further customize and extend it to leasing and rental where we have another 70,000 SME clients waiting for this to be available for them. On risk and credit assessment, this is the part that's a little bit more internal. We are fully digitalizing the whole credit assessment and decisioning process. In leasing and rental, more than 60% of the decisions are automated. In general, we have an approval within 4 days for leasing products below EUR 200,000. The new platform is now becoming operational for factoring and within the year will be similarly active on digital decisioning for the low-risk decisions, therefore, freeing up significant operational capacity of the bank. It is really on all aspects for transformation of the business model. To NPLs on Page 8. Quarterly cash collection EUR 98 million. If we take the first half of the year, its best collection result ever. If we take revenues from judicial extrajudicial recovery, we post EUR 69 million in Q2. So we have negligible apparent impact from the interest rate or the inflation environment. We still don't see a significant effect on the customer's ability to pay as is apparent from the cash numbers. We keep obviously monitoring this. One would have to assume that at some point, some effect of the inflation and the GDP growth will be apparent in the debtors. But for now, the results are as we discussed. We sold tails of NPL portfolios for modest book profits. We sold about EUR 0.7 billion of gross book value in Q2. And we informed the market that we will book the Revalea integration costs upfront in the second half of this year. Similarly as in Commercial Banking on Page 9, the digitalization of the division is ongoing. That is true in the recovery strategy where we enhanced portfolio monitoring and especially we do a lot of data enrichment of the NPL positions therefore contributing to a higher quality recovery strategy. We have a semantic document reading engine based on AI that's now operational where we avoid to have to go through documents and classify them ourselves. 75,000 documents that were part of an onboarding process were automatically classified in the last 18 months with a process accuracy that is extremely high as you can see. We automated also the collection so the payments that we make to the public administration and the collections. Payments that we make to the public administration have to do with all the courts proceeding obviously. You can imagine with our volumes, those are lot of payments. We integrate with the systems of the Italian Ministry of Justice to maintain fully automatic payments to all public administrations. Finally, reconciliation and monitoring. As you can imagine 1.6 million debtors, we receive a lot of payment so reconciliating those flows is a lot of work and giving the clients, the debtors, an easy way to pay that's digital obviously makes lot of difference. So we are now automatically reconciling close to 80% of all the payments that come in and we have the numbers that you can see on the payment that the debtors or the clients, however you may call them, make. So there too in the NPL business, the digitalization process of the bank is fully on track and we are, we believe, currently the industry standard in terms of small ticket NPL management given this technology that's made to work. Page 10, costs. We have the impact of inflation substantially countered by efficiency. You see that we have EUR 4 million costs that are basically regulatory contributions to the restructuring funds of the Italian banking system. Other operating costs, you see that the impact of inflation is more than offset by contract renegotiation and demand management. Here we have year-to-date EUR 15 million IT investments substantially stable Q-on-Q as these projects that I mentioned go on. We have plus EUR 8 million cost directly linked to NPL recovery. Those are variable. They are connected mostly to a very significant portfolio that was onboarded so it's connected to future revenues. And you see that we have some increase of cost of personnel that's still quite marginal driven by the accruals that we made for the collective contract renegotiations that are ongoing in the Italian banking system. So overall, you can see that we are financing the transformation of the bank through a very good control of costs where you see increases there mostly connected to -- they're variable first of all and secondly, they are connected to portfolios that were acquired. Page 11, cost of risk. So the loan loss provisions in this quarter were minus EUR 3 million. We made an additional EUR 9 million management overlay. We did EUR 5 million in Q1 and EUR 9 million in Q2. That's another EUR 14 million that now leads to a total management overlay of EUR 65 million. So that's reserve that's there in case we have a significant and strong deterioration of the macro scenario that until now has not materialized. So this looks like a very, very comfortable amount. It's more than 1% of the loan book of the exposure default, which makes it significantly higher management overlay than we see in the Italian banks in general. Ratios: gross NPL ratio at 5.9%. Excluding the past due versus the public administration, which is collectively a good payer but normally a late payer, it would be 4.5% gross. Net, 3.9% and 2.4%, respectively. Moving on to the macro scenario. So we talked about the provisions we made and the expectations we had at the start of the year. Prudently we had imagined a year in which the situation would become a little bit more complicated in terms of cost of risk. We had inflation already significantly picking up with energy costs significantly picking up at the start of the year and then the war in Ukraine came on top. So we monitor obviously what's going on. If we look at forward-looking indicators that the market likes to generally discuss with us, we have factoring of course, which is a business which is very sensitive to macro deterioration and normally you would see there indicators turning bad much before the cost of risk increases. So one of the things we monitor are the payment days. You can see that in Q1 and Q2 '23, those are actually at historic lows meaning the clients are particularly disciplined, at least our clients are particularly disciplined in observing the payment days. You can also see it in the ratings, right? You can see that there's substantially a balance in terms of increases and decreases of the rating changes of the customer base. We had plus 16% as an upgrade, minus 14% as a downgrade, no change 70%. So we also don't see any issues in the ratings and the probability of default as a consequence is still quite low. We're below the data we had at the start of 2021. So we reserved against macro risks. We always get questions on that. We're an SME bank and understandably the question is okay. Do you see impact of GDP contraction? Do you see impact of supply chain disruption? Do you see impact of the energy cost? We can discuss about the reasons. But what I can state is that until now, we don't have indications of the risk deterioration in the credit book not even using forward-looking indicators, which of course doesn't mean that it won't happen over the next 12 to 18 months. So it's not a prediction that things will remain like this. It's the statement that until now, we appear to be in an extremely benign scenario as also proven by the cost of risk. Page 13, capital. We remain above 15%. You will remember that in the business plan, we said that we would over the business plan remain above 14%. Total capital at 18.04%. The changes, 15 basis points mainly due to factoring seasonality so a bit of pickup in risk-weighted assets and 7 basis points due to the increase of exposure under the calendar provisioning framework of our loans. Page 14, the guidance. So on the basis of this EUR 91 million of net profit, we increased the guidance to EUR 160 million. Key assumption being that there would be no in the second half of the year major geopolitical shocks, no significant deterioration in macroeconomic scenarios beyond what's already predicted, no relevant regulatory changes. So we update this guidance on couple of considerations. The positives; first of all, obviously the net income we posted in first half 2023. So we made about 60% of the previous guidance in the first half of the year, which is encouraging of course. The cost of risk being still below expectations reflecting very resilient asset quality. Historically, the prudent provisioning of the bank, right? So we have these overlays now at EUR 65 million, as I mentioned. Minuses for the second half of the year. The expected increase in cost of funding which we want to consider and the decision to account upfront for Revalea acquisition and integration costs, which will be in excess of EUR 10 million actually slightly closer to EUR 12 million with a few small offsets so you can count roughly EUR 10 million, right? So on the basis of these considerations, what we will not do is double the EUR 91 million that we had in the first half of the year. First of all, because Q3 historically is a soft quarter in all banks and that's also true for us especially in the NPL business when the courts were closed and also because we have these effects. So we want to account for those and we update the guidance there for EUR 160 million. Page 15, important confirmation. Our Chairman had announced in April I believe it was that the Board had started a review of its dividend policy. The bank has become over time recurringly and on the basis of its core business significantly more profitable than it has been historically due to synergies, due to commercial steering, due to digitalization, due to process efficiency, due to digital sales, to all the collection of transformation projects and the rate scenario. On this basis, the amount of retained earnings was significantly in excess of what we believe is necessary to fund the continued growth of the bank. Therefore, a progressive dividend policy was deliberated today by the Board where we have a payout ratio where until we reach the amount of retained earnings that we consider opportune to finance the future growth of the bank threshold that's been set at EUR 100 million net profit. On those, we apply 50% payout ratio that's what we had historically. North of that amount so in excess of that amount, the payout ratio increases to 100%. So we made a little example here. Let's assume in 2023 that the guidance is met, we would have on the left hand side EUR 160 million net profit. On the first EUR 100 million, we'd have a payout ratio of 50%. On the remaining EUR 60 million, we'd have a payout ratio of 100% for EUR 60 million. That would lead to consequent potential dividends in 2023 of EUR 110 million, which as last year, we will pay in 2 installments; 1 on the 9-month results and 1 at the closure of the year. Conditions for this to happen obviously beyond naturally making the guidance, which is hypothesis. First of all, we would apply these dividend policies if the supervisory capital requirements are exceeded by a significant margin. SREP1 today is 8.65%, CET1 is 15% so you can draw your own conclusions. We stated and we maintained that we want to keep the CET1 ratio in excess of 14% over the business plan period and we need obviously to be sure that we have the capital for the growth rate of the '22-'24 business plan. So on the basis of those confirmations, the Board will propose to the shareholders' meeting in April the dividend consequent to the policy that today has been deliberated. Funding plan, very relevant item in our world today. The banking system and financial system has obviously changed in the last 1 or 2 years. So we have EUR 2 billion TLTRO that expires in September 2024. We have reached very comfortable liquidity situation now that allows for a possible earlier partial repayment. Especially in this last quarter, I want to mention that we had the re-marketing of EUR 400 million of senior securitization notes from a leasing portfolio to a primary Italian bank confirming the asset quality. And we had another EUR 400 million transaction, which was the restructuring and ramp-up of the securitization of an unsecured NPL portfolio. Those are the judicial repayment plans, which are an innovative asset class obviously, but a very safe asset class. And so senior notes to be refinanced in the institutional investors' market. We like this transaction because it confirms our ability to finance ourselves also innovatively based on our asset mix by leveraging these very specific types of assets. I remind you that we have in excess of EUR 700 million proprietary portfolio that matures by September 2024. It can also not be reinvested. So on the basis of these things and of the future initiatives, we believe that the TLTRO repayment is definitely a well-managed issue. Next quarters we will issue senior bonds. We further increased the retail funding through different channels and maturities. And we have obviously the regular activity of the treasury in terms of repos with institutional counterparties. And those are our actions for the remaining part of the year. I will not take you through the quarterly results in detail as I'm sure you can read them yourself and I would like to make myself available for questions if you have them. And in the interest of time, I know you have probably other calls, talking to the analysts now. So I think in the interest of time, we can go to Q&A Thank you.

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

The first one is on your guidance. You updated your guidance for 2023 to EUR 160 million, but if I annualize the first half I can reach EUR 180 million. You already mentioned the one-off costs related to Revalea for EUR 10 million. But could you just explain us where do you expect the second half to be weaker than the first half? Maybe it's a longer provision that has been particularly low in the first half. And if you can please give us an idea of what is the cost of risk embedded in your guidance. And the second question that is related to the risk. What are the main risks that you are expecting in the coming quarter? Third question on the asset quality. I wonder if you are seeing some sign of economic slowdown and what are the key metrics that you use to monitor the evolution of the asset quality? And last question is on the cost of funding. You reported a significant increase in the cost of funding from 2.24% to 2.76% if I'm not wrong. Is this increase in line with your estimate? And how much is the cost of deposits right now and the increase quarter-on-quarter?

So on the guidance, I gave some elements already, I'll just go through them. Obviously like you did, we also imagined if you do EUR 91 million in the first half, where are you going to end up? We're not doing times 2 for I would mention 3 elements. First Revalea costs, we already said that. Secondly, net interest income. So the net interest income is going very smoothly if we look at the gross interest that we collect. Cost of funding in the Italian banking system is increasing. Keep in mind that we're not a retail bank so the stickiness of a large lake of current account deposits is something we can't benefit from to the same extent as a retail bank could. Therefore, you mentioned the cost of funding contributing, that's expected to increase a bit as it's been increasing in the first half of the year. So do not expect on this basis the net interest income in the following quarters to increase like it has in the previous quarters. So that's going to create a little bit of a slowdown in the growth. And finally provisions, that's probably a line item where we're being once again prudent. So for the second half of the year, we are posting -- we're imagining that we will post provisions that are far, far higher than the net fee that we would have had on the basis of a normal cost of risk without overlays; far, far higher. So we like to plan for a slowdown. If it doesn't happen, okay, then that's fine. But we have GDP contracting now in Italy. The last quarter's results that were published by the statistics office were confirming this. There's lot of uncertainty around. Normally when you have GDP slowing down or even contracting, after 12 to 18 months you're going to see it. We were expecting it a bit earlier, it still hasn't happened. But I think when we give the guidance to the market, we'd rather not assume that the macro scenario would be ever so benign forever. So the guidance of EUR 160 million does include, in answer to your question, a very different cost of risk than what we've had normalized in the first 2 quarters. Main risks, that's connected. So the main risks may come from macro scenario. We don't see anything internally in the bank that worries us. We might see further economic slowdown. We might see some economic or financial shocks. We had some issues with certain banks abroad that were a complete surprise. There's a lot of liquidity being drained from the market. So definitely 1 thing that we would like to monitor very closely is the liquidity position. I remind you that we have a liquidity coverage ratio that's north of 1,000% now. So very comfortable. The reason we did that was both to anticipate the funding measures that we need to do for the TLTRO and because we want to be in a position where in any scenario, we don't have to worry about that. Of course I also want to mention that we have the management overlay so we're not assuming to consume that at all in 2023. That issue will probably come up in '24 or '25. So we'll see if the macro scenario in the end doesn't warrant this type of extra provisioning and in that case, that will become obviously an item for discussion because at some point it should flow back, but we haven't assumed in the guidance to do that. Asset quality, we use the normal metrics. We look obviously at Stage 2, we look at past due, we look at payment discipline and we look also just in terms of investment climate, we look at the CapEx of the SMEs as we serve them with leasing products. So I won't mention all the things that you would expect in a bank and that we have because they're probably the same for all banks. But when we look at asset risk, we very carefully make sector differentiations and we follow sectors especially in terms of payment discipline. As I mentioned, it's maybe also because of the cost of credit being a bit higher. We see a lot of care of the clients in paying on time and in keeping the payment cycle short so 75 days. I would mention as a distinctive metric that maybe it's a little bit more available to us, I would mention that. Finally, cost of funding, your fourth question. So whereas on cost of risk, we had a year that's panning out rather more benignly than we'd expected when we made the budget. The cost of funding is going roughly as planned so that increase in cost is materializing. It's both materializing because of the base rates and it's materializing because for instance in retail we've had competition. And therefore if you look at just the rates that are offered for term deposits now in Italy, 12 months you'll see them between 3.5% and 4.25% on the market. A very flat curve because a 4-year term deposit pays between 4% and 4.5% on the Italian market so very flat curve. Already on 12 months, you see quite steep numbers and obviously you have the base rate effect. So I'll give you just a few numbers in terms of what's been going on in the funding book. So we have a Q-on-Q increase of 52 basis points overall in the cost of funding. Some of that reprice in a shorter time frame like debt versus banks 74 basis points, TLTRO 84 basis points, securitization 75 basis points whereas deposits are much slower. So it's still very attractive to fund ourselves with the deposits, it's lower in absolute terms and it's increasing less. So the increase in cost of deposits, which you asked for, was 35 basis points Q-on-Q. Vast majority of that is term deposits. So site deposits -- the increase in side deposits is 0 basically, but of course we have a lot of term deposits. So as you look at us, we've been able to both benefiting from the rate scenario and by a very, very robust repricing on the asset side, we've been able to definitely protect the margin and increase it. We are sensitive to cost of funding and we plan for it. I hope I answered, Manuela.

The next question is from Irene Rossetto with KBW.

Four questions on my side. The first one is about the TLTRO, if you can detail how you expect to see this in the EUR 2 billion. Number two, what is your 2024 guidance in terms of net income? Is the EUR 160 million target of the business plan still valid? Number three, assuming net income of EUR 160 million in 2023 your new guidance and 2024 business plan. Are you going to pay a total dividend of EUR 220 million in 2023-2024? So if my calculation are correct, it would imply a dividend yield of 25% in 2 years. And number four, the NPL revenues and cash collection are flat for both Q-on-Q and year-on-year. There is also a limited increase in order of finance and voluntary plans. So how do you see the NPL market? Is it mature or in your opinion does it still offer upside potential?

So on TLTRO, let me first of all remind everybody of the deadline. So the TLTRO is scheduled to be repaid formally in September 2024. So we are considering partial or early repayment. What you should imagine is to see it materializing at some point installments higher than EUR 500 million that materialize before the 2024 date. The exact timing we'll decide it a bit further out, but we are in a position where we can think about progressively reducing it rather than waiting for the deadline. I think the first possible installment could be within 2023, but we'll decide it in Q4 I guess. So installments of about EUR 0.5 billion, potentially the first one materializing at the end of 2023 potentially depending on how the overall situation develops. And that's possible I want to state it because we have anticipated, we've made the significant transactions on the securitizations. We've made them significantly earlier than we had planned just to get it behind us basically. That's behind the liquidity position we have now. That's obviously giving us now the flexibility to decide what to do with potential earlier repayment. Obviously moving these things earlier means that you get the cost of funding impact earlier so consider it an investment in prudence. Also remember that before 2024, we have maturing in the proprietary portfolio in excess of EUR 700 million of instruments. So those are mostly government bonds. That will be very easy not to invest and that could also therefore contribute to the repayment of the TLTRO. So I'm giving you the elements that make us very confident that it's a manageable thing. 2024 guidance, yes, we have -- so in year 1 of the business plan which was last year, we did the results of year 2. And in year 2 of the business plan, we're now giving a guidance that is equivalent to the target in year 3. So it appears that we are on track to remaining ahead of 1 year. So the question I think is natural, what to do with 2024. Our position for now is that we'll face it like this. We do not have reasons today or elements to significantly change the guidance of 2024. We want to see this uncertainty around cost of risk especially how this develops and also the management overlay how it develops, whether it will in the end be necessary or not. Before we have a bit of clarity on that, we think it would be probably premature to touch the guidance for 2024. So I would just consider the business plan target valid. If you look at what's been happening in the business until now, you can probably see why we are not overly concerned about meeting it. We try to meet it even this year. Touching it now once again we think it is premature. And in terms of also redrawing a business plan, the business plan is not just financials, it's also projects and products. So we are nicely on track with all the things that I mentioned on the 2 slides on digitalization. There's a lot of work that we want to do and we'd like to have it behind us when we make a new industrial story, if you will, that gives an industrial rationale for what we're going to do the next 3 years. So we're leaving the business plan there for now. We're executing on it and a little bit premature especially because of the risk scenario to touch the guidance for 2024. We'll get back to it in 6 to 9 months I guess reconfirming or maybe adding some info. You made a very simple calculation, I can't argue with the logic, on dividends. If I hear you correctly, you said so if you make EUR 160 million this year which is the guidance and if you make EUR 160 million next year which is the guidance or the business plan; based on this progressive system, you would have twice dividends of EUR 110 million and therefore you'd pay out in 2 years EUR 220 million. Yes, that would be more by the way than the aggregate number for the whole business plan. We promised EUR 200 million of dividends over the time of the 3-year plan so in 2 years, we would exceed that and that would constitute; yes, the numbers are right; a dividend yield of 25% in 2 years. I can only confirm your logic and reiterate that obviously this is for the Board to propose to the shareholders' meeting. The Board proposes it if conditions are met. The conditions are entirely reasonable, I'll state them again. Excess of capital relative to the supervisory limits, which are much below where we are now still; CET1 ratio in excess of 14% over the business plan period; and of course that we make the numbers of the guidance. But this is something that we have to treat respectfully. There are obviously regulatory considerations. So on the basis of these conditions, which once again we consider entirely reasonable, that will be for the Board to propose to the shareholders' meeting. The NPL revenues, yes, so flattish Q-on-Q. Collections actually increasing a bit. We have this very nice cash collection performance in Q1 and Q2. On the market, for us it's a core business. We see the market maturing and I will share your words. You said do you consider it now a more mature market and I think there are elements to definitely consider it a more mature market. Lower NPL formation so that a huge generation of NPLs that happened between 2011 and 2015-'16 when it peaked is behind us thankfully. Slightly less buyers also, sometimes irrational buyers I would add. NPLs coming on the market being made available of ever better quality. You get newer vintages. Banks are becoming a lot more disciplined and consumer credit companies in terms of the quality of the documentation so you get better quality stuff. Primary market slowing down therefore so improving in quality and slowing down a bit less offer. The secondary market, however, very lively. Also I would say in some cases due to maybe some overly optimistic business plans that were subscribed to in the last years, which make it necessary or opportune or attractive for these investors to offload the portfolios. If you look at what we bought in the last years, the share of secondary markets has been quite relevant and those are very attractive transactions for us. So for us, the competition for our game is not necessarily on purchasing volumes, but it's on recovery efficiency. So a lot of what we're doing -- and that's why I wanted to mention it on the slide on the NPL digitalization. A lot of what we're doing is becoming always better in line with a very responsible collection approach I want to underline it in terms of social responsibility versus the debtors, becoming ever better at managing the stocks and what we buy as a market leader in small tickets unsecured, which is I think clearly the case. As a market leader in small tickets unsecured, for us the game we think is in excellence and sort of we can wait it out in terms of competition. Certainly we've had quite some options where we chose not to go into pricing levels that we don't think are in line with today's cost of funding and today's macro environment. In this respect, the Revalea acquisition is highly strategic. We purchased EUR 6.8 billion gross, [ EUR 250 billion ] net roughly that's pending regulatory approval, but I'm assuming now that that will come. So in Q4 we'll onboard these portfolios pending regulatory approval of course. What the transaction means for us is basically securing the purchases that we would have made throughout the business plan as of today. So our competitive behavior can be quite relaxed and selective in terms of what comes on to the market and that will definitely protect the profitability of the business. So yes, this market is maturing. It's probably going to be a bit more challenging for newcomers or players which haven't gone through a couple of cycles. I always point to the appendix, I urge everybody to read it. If you look at long term how the models predict we perform and how we actually perform. Through a number of cycles, we've been outperforming our own models, our own pricing models. So we're quite confident that the stocks that we have and the purchases that we make are done responsibly and therefore, we see the maturing of the business. But from a market leader's perspective, it's not something we necessarily worry about too much. Okay. I guess these were your questions, Irene.

The next question is from Andrea Lisi with Equita.

The first one is on the securitization you have made. You said correctly that somewhere you anticipated some of the increase in the cost of funding. So just to understand which is the cost of the securitization [indiscernible] to know it. And the second is related to your statement about the evolution of NII. Do you expect NII to slowdown in the second half versus the first half? We already see some slowdown in the second quarter versus the first quarter. So just if you want to move on maybe to next year assuming volumes to be flat. Just to understand what is your point of view about interest rate stabilizing and then is it possible to find some repricing on the asset side that will more than offset the increase in cost of funding and so this to have a benefit on NII side or in general the increase in cost of funding given the slowdown in the second quarter -- in the second half would be even higher and so to more than offset the increase and benefit that you have asset side. So just to have your comment and your view also going on with the rates stabilizing.

So I'll take the second one first and then we'll go to the securitization. So to really answer this precisely, Andrea, will take probably a crystal ball so I'll give you some feeling for what we expect. We expect some further increase of the rates and some further increase and then a stabilization. I think the slowdown in Europe is now ascertained and I think it's just my opinion. But I think at some point, central banks are going to want to see the extent to which what they've done has been effective. So I expect the rate scenario to stabilize with a bit more increase and then I would assume just cautiously that it remains there. I wouldn't foresee it dropping very quickly. I don't think we have elements to imagine something like that. On top of that, I think we should argue probably or imagine a bit of spread increases, I don't mean government spread. I mean just spread in terms of competition for the deposits because liquidity being drained, TLTRO will be paid back. tapering off the asset purchase program is ongoing. So a lot of liquidity is going to disappear from the market. There's still a lot of it around. Companies are very liquid for instance starting to reduce a bit, but there's still an insane amount of liquidity on the corporates' current accounts. But some decrease of all that liquidity is probably going to lead to a bit of competition. So we have rates increasing and then stabilizing -- increasing slightly and then stabilizing, but we might see still some spread effect. So on the basis of that, what I would say is don't expect net interest income to continue growing as you've seen it over the last years or year I should say. We have levers in order to protect the margin. One is obviously repricing as you already said and if there's space for repricing? Answer's most definitely yes. If we look at the dynamism of the underwriting and the progressive expectations of clients that credit has become more costly, I would say yes, we can further reprice. And in this respect, I think this is a very interesting play because of the duration of our assets. We published last quarter the duration of the assets in the various loan books. So even the long-term loan books are around about 3-year duration. That means we don't have 20-year mortgage books, 20-year retail mortgage books. We don't have the very classical long-term corporate lending of 6, 7 years that's been done expansively by universal banks in Italy in the last years. Our leasing is relatively short 3 to 3.4 years I believe duration of the leasing book, medium-term lending similar. And then we are factoring, which is very big and which is very short and where we can do unilateral repricing if we have justification -- sorry for your time, but that's what you mean. So on a book like that you can reprice and if you reprice, you don't have to wait 50 years to see the effects. So most definitely one of the things we can do is reprice. Second thing we can work on is volumes. Now we spoke about capital adequacy, we spoke about liquidity. Both of these allow us to look favorably to market share growth and we don't necessarily -- being a challenger, we don't necessarily need a huge GDP growth to justify growth of the loan book. Market share for us is something we can expect to increase. And the whole competitive situation commercially of the bank makes us -- it's never easy because it's commercial, it's sales, makes us at least want to have the ambition to grow volumes. So if you combine that, I wouldn't say we would be comfortable or happy with the contracting net interest income. But our challenge will be to compensate the expected increase in cost of funding. That's I guess without making too firm predictions, but that's how we're dealing with this issue. In terms of securitizations, you asked for the costs. I'll just give you the numbers, okay. So the leasing securitization has Euribor plus 100 basis points as a pricing roughly and the NPL securitization Euribor plus a range of 140 basis points, 150 basis points. Does that answer your question? That's 3 years in terms of duration. Saverio Bonavita ask me to specify that to you.

[Operator Instructions] Mr. Geertman, there are no more questions registered at this time. I turn the conference back to you for the closing remarks.

That's good because it's 4 minutes to 3 and our audience has other calls. So we were in time, we were disciplined. And once again thank you for your time and attention. We'll talk again in 3, 4 months when we have the Q3 results. And once again we're quite pleased and quite optimistic about the way the banks are developing. We hope you can share this. Have a good afternoon.

Ladies and gentlemen, thank you for joining. The conference is now over and you may disconnect your telephones.