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 2024 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Frederik Geertman, Chief Executive Officer. Please go ahead, sir.

Thank you, madam, and good afternoon, everybody. Welcome to our second quarter conference call. We present a very encouraging set of results this afternoon. I would take you straight to the presentation, briefly go through it and then, as usual, open up for Q&A. I'm on Page 4 of the presentation. And what we deliver in Q2 is a net income of EUR 46 million. That's a 3% increase year-on-year. First half net income, EUR 94 million. That comes on the back of very resilient revenues in all divisions. And we are happy to say and to record that the bank seems to be able to deliver fully on offsetting the cost of funding increase and even increasing its financial performance. We've reduced the sensitivity to net income by using a couple of levers. The first one is increasing the duration of our Gov's bond portfolio. The second thing is growing in the mix of fixed and variable rates, commercial business growing the fixed rate business. So, we're using the -- apparently longer time that the central banks are taking to reduce rates to diminish our sensitivity to the rate cuts and thereby improving the sustainability of the results that we are presenting. On asset quality, we maintain a very positive risk-return performance of the loan book. That's still extending into 2024. You've heard me comment before on it. We usually share the outlook, but we have no signs of asset quality deterioration. We have some anecdotes, but nothing widespread. So asset quality is confirming its contribution to our results. And we reiterate that we are not using the overlays yet to -- that we put aside on the performing book. So the numbers you see are actual numbers. They are not improved by recourse to the overlays. On the back of this, we confirm our 2024 guidance of EUR 160 million. We have to take into account that Q3 is usually characterized by a bit of softer commercial activity. It's usually the slowest quarter in our year. So we will see how that goes and for now consider that we confirm EUR 160 million net income for the year. Cash position, very solid, EUR 1.7 billion of variable cash and counterbalancing capacity. We've almost completed our TLTRO repayment. What remains is EUR 0.4 billion to be repaid in September, which means that we've already reimbursed over EUR 1.6 billion, and we are in the liquidity position that I mentioned. So that is certainly a thing that we can put behind us in terms of challenge. Capital, CET1 ratio growing to 15.3%, including the net income after deducting the accrued dividends. We confirm the dividend policy. So, we'll be paying an interim dividend in November as we did last year. Going a bit more specifically, Page 5, revenues. Revenues are EUR 189 million, significant growth year-on-year. Commercial Banking, EUR 87 million. As we mentioned, commercial performance, there is a bit of volume growth and pricing discipline offsetting the cost of funding increase. So if you would consider gross revenues, right, we are up 13% year-on-year in the division. NPL revenues once again resilient, EUR 86 million, growing vis-a-vis last quarter, driven by some slightly more judicial activity. Q2 '24 includes a contribution from Revalea, which is a transaction we are quite happy with, and it's already contributing positively to our results. Noncore and G&S, finally, EUR 60 million revenues, a bit more trading activity, confirming, as you saw last quarter, recurrent and stable contribution to revenues. So overall, we think we are, as I mentioned, delivering on offsetting the cost of funding increase, obviously, a relevant item given our business model. Page 6, mitigated net interest income sensitivity. So we decided to share some transparency on that. What happens in case of a theoretical shock of 50 basis points decrease in the reference rate. A quarter ago, we would have had a negative impact of EUR 11 million to EUR 13 million, in June that's EUR 9 million to EUR 11 million that's given both the increase of the duration of the bond portfolio. The increase of the origination of fixed rate products and deposits in Bank of Italy decreasing also given the repayment of our bond and given the repayment of the TLTRO. Now of course, we maintain a very sizable counterbalancing capacity. So the overall liquidity position is, as I mentioned, extremely comfortable. We will keep working on these levers. So as it seems we will be given a bit more time to prepare for the reduction in rates. You'll remember that at the start of the year, we had forward curves that indicated very rapid and strong decrease given that these scenarios did not materialize, and we seem to have a bit more time. We're using that time to increase the resilience of the results you're appreciating today. Page 7, commercial. So factoring stable year-on-year. We took a lot of attention to making sure that we have some resilience of the turnover, meaning that the turnover leads to loans, right? Of course, there are 2 different things. If the invoices are paid right away, you won't have a lot of loan stock, right? So customer loans are up 7% year-on-year versus a market that's basically flat. And we maintain a very, very rigorous stance on pricing. Average spread is up 14 basis points year-on-year even though the base rate obviously increased. On leasing, right-hand side of the slide, new leasing equipment and technology in line with the market, new business on automotive, significantly more growth in the market. You see it 10% year-on-year. That's obviously always a bit driven by external factors, specifically tax incentives, right? So when these programs become active is when the SMEs decide to invest in an equipment and technology that obviously drives our volumes. On automotive, I reiterated, we have a focus on premium and luxury segments, margin discipline, and we make sure that we have remarketing agreements in place, meaning that we do not expose ourselves to a sizable risk of stock of cars that we financed decreasing in value. Certain brands execute certain pricing strategies to then reverberate into the residual value of the assets. And we make sure, given the remarketing agreements we have in place that we're not exposed to that. Page 8. NPL portfolio, quarterly cash collection, EUR 94 million. That excludes Revalea, okay? So it's like-for-like. You can compare with the previous quarters. From judicial and actual judicial activity revenues, you can see the increase. It's once again showing a very healthy performance of our portfolio. You may remember that when we acquired Revalea, we became a bit more selective on purchases. It doesn't mean we are not in the market. We are purchasing, but we're purchasing more selectively. And even in this scenario, not including Revalea in these numbers, right, you can see how the portfolio is performing beautifully. Page 9, costs. Of course, we have a continued impact of inflation and that also reverberates into maybe contracts that are expiring that you need to -- they are expiring, so that you need to renew. So there's a bit of time lag, as you know, right, in inflation that comes in. If you look at other operating costs that are exposed to that, we have a EUR 1.4 million increase due to IT and marketing expenses. We keep investing in the future of the bank and EUR 0.5 million more software depreciation. That's a consequence of the very significant IT transformation that we invested in the last years of the plan. We include here EUR 8 million of IT expenses that are substantially stable, right, as we execute on the business plan project. Costs directly linked to NPL recovery are stable and cost of personnel is stable Q-on-Q. That obviously feels a gradual impact of the new Italian labor contract. You remember that that feeds into the actual cost over a number of years. There was a very sizable increase that was negotiated by the banking association, and that's gradually coming in. A word on projects. We are now halfway into the third year of our business plan. We had shared with the market a program of digitalization and transformation of the bank that has been almost delivered where we're into the last bits and pieces. So, capacity to execute digital transformation and also infrastructure or IT projects and a lot of regulatory work that also has IT implications is something we are really, really very happy with. We will close this plan not only with financial results but with a business system that we think will be fundamentally transformed both on the client-facing side and on the internal side. Page 10, asset quality. So we have loan loss provisions in Q2 of EUR 7 million. As I mentioned, stable overlays. We didn't use them and coverage remaining at very comfortable levels. Bad loans, 78%, UTP, 45%, Past Due 7%. The ratios then on the bottom part of the slide, gross NPE ratio from 5.7% to 5.4% net from 3.3% to 3.0%. We like to look at the darker-colored parts of the bars given that 1% point of that number is, as you know, classification of loans to the Italian public health system. And we expect in the next quarters that 1% to further decrease, but especially, we note that the ratio is excluding this effect. So the dark blue and the green elements improved from 4.7% to 4.4% and from 2.2% to 2.1%, respectively, gross and net. Consider that we are a bank that does not benefit from a large commercial retail mortgage stock, for instance. So we don't have in the computation of these ratios, those types of low-margin but low-risk businesses that -- and therefore, what you see here is NPE ratios of a traditional factoring and lending activity to Italian SMEs. So if we consider that that's the portfolio we're talking about. These numbers are, we think, very solid. And in terms of the Italian health system, we will be seeing further decrease in the next months. I always get questions on the outlook of risks. As you know, we have this rather sensitive gauge of the health of the -- the financial health of the Italian corporates, that's given by factoring. So on Page 11, we start with that -- so how are the companies paying? Normally, when you enter into a higher risk, higher financial pension phase, you see these days increasing. And that's even before they get into past due, right, just approaching the contractual terms. And what we see here is that the payment days are at historical lows. There are even 10, 15 days below what we had last year. So we have no signs in our customer base of financial stress in the system, important to note. Another element that you might take a look at is Stage 1 and Stage 2, right? The mix more or less stable, not a lot there to report. So there too, even though this is slightly more backward-looking, right, we don't see anything that would anticipate an increase in UTPs or NPLs. Rating migration is a consequence of these things. You can see we had more upgrades than downgrades this quarter, 16% improvement, 69% rating flat, 15% deterioration. So thereto really not a lot to report. And as a consequence, the probability of default in our portfolio that remains below 3%. Are we seeing an increased risk? Just at the single company level, nothing widespread. We are having some first -- and it didn't happen for a couple of years. We are seeing some cases of industrial corporates, maybe slightly more leverage, slightly undercapitalized running into some issues. It's really single cases. As we mentioned, the loan loss provisions were EUR 7 million. So very moderate without recourse to overlays. And so there are single cases. They're few and far between. Very, very unlikely that this is an indication of an imminent deterioration. We can be, I think, reassuring on that regard. Page 12, quarterly results. I would not get into the detail of this. You can probably analyze these numbers yourself. And I would go to Page 13, the capital ratios evolution. CET1 ratio increasing by over 30 basis points. Part of it is net income after deducting dividends that were accrued and then there were 2 very minor contributions of calendar provision and risk-weighted assets increase. We received a SREP indication from the Bank of Italy that places the SREP at 9%. It was slightly lower, so a very moderate increase in SREP. So at this point, we have 6.3% points between the SREP level and our current capital position. Definitely solid and that might potentially further increase during the year. At this point, I think I presented the most significant facts. As I mentioned, we're quite pleased with the way the year is going. And I'm encouraged by it, and I would be very happy to take your questions if you have any. Thank you.

This is the Chorus Call conference operator. We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Irene Rossetto of KBW.

So you reported a net income of EUR 94 million in the first half. Shall we expect [ is it ] to be to the net income guidance of EUR 160 million for the full year? Then what are your expectations for 2025? And when do you expect to present the new business plan? And finally, what kind of M&A opportunities are you considering also in terms of size?

So yes, EUR 94 million is certainly a very constructive number considering the full-year guidance we have out there. When we prepare those numbers, we obviously use a base scenario, a slightly negative scenario in a better than base scenario, as you would expect. And we presented the central scenario, right? When we planned for EUR 160 million, we had priced in 3 rate cuts of 75 basis points in total. And we had priced in especially some more significant asset quality deterioration than we've seen. It is my opinion that what we've had in the last years cannot probably be considered indicative forever. There are reasons why the asset quality deterioration was so low in the Italian banking system. And they have to do with the enormous amount of liquidity that was provided by the banks. And by the recovery of the economy, that was a bit faster probably, and there was a bit more also probably good for Italy, right? So it appears things are moving better. We -- it appears on those things that things are moving a bit better. We'd like -- before we touch the expectations for the full year, we'd like to see how Q3 goes. It's traditionally a much weaker quarter. When we have the evidence of how that develops, we will present Q3 numbers, and it will be November. At that point, we are in a much more comfortable position to reevaluate if we will do it, the guidance. So for now, I would say that we are looking at it with a lot of confidence, but we're not ready to increase the guidance yet. We will examine first Q3, and we'll see how that goes. So expectations for 2025. We do not have a business plan yet for the next 3 years, right? This is the last year of the plan. And we will work on it this fall in the first months of 2025. So I'd rather not be too specific on numbers after the time horizon of the plan. What I would say, though, is that we are confident we will continue to grow the core business, that we will not deviate from a good risk-return profile. We always emphasize that we have a certain approach to liquidity risk, and we have a certain approach to credit risk, which is not just cautioned. Everybody can say they're cautious, right? But it's the structure of the balance sheet, right? So the duration of the loans which is short and the amount of underlying securities we have, right, in leasing where we have physical goods, in lending where we have the government guarantees, in factoring where we have the double risk evaluation of the client and the debtor. So we're looking at this development confidently. The numbers we present today are numbers of buildup of recurring revenue, of industrial revenues. There is very little financial gimmickry involved. I will -- I think I would comment so qualitatively on 2025 - in 2025 as I've done and not go further. I mentioned the business plan. Yes, we will start working on it this fall. We expect to present it before the summer. We'll choose a time. So somewhere in the first half of 2025. Better to have it solid than to rush on that. Once again it's a 3-year plan. I expect we will present 3-year projections. So somewhere in the first half of 2025 is probably the right time to do that. And then finally, in terms of M&A, yes, we -- actually, we've always been open to M&A, what normally gets underlying is criteria. Not so long ago, we bought Revalea for EUR 100 million and for EUR 150 million in debt. So the actual transaction size was EUR 250 million, not small. And this is the type of transaction that we would continue to evaluate. I wouldn't -- probably not on the NPL side, if I just look at targets. So maybe more towards commercial banking and those types of businesses. So if the transaction is -- has a reasonable size compared to ours, and if it is credible that we will benefit from the combination, be able to add synergies, and probably leverage on our skills, then we are definitely up. But I underline the selectivity on this. I think Irene, you had 4, right? I think I answered them all.

Yes.

The next question is from Manuela Meroni of Intesa Sanpaolo.

I have a few. The first one is on the sensitivity. You reduced your sensitivity to 50 basis point rate move from EUR 11 million, EUR 13 million up to -- down to EUR 9 million, EUR 11 million. I'm wondering if you are planning to put in place additional action to further reduce the sensitivity and if you have, let's say, a target point for that? The second question is on the loan loss provisions. Could you please provide a breakdown of your loan loss provision in the second quarter of 2024? And could you please share if you are seeing some sign of economy slowdown? Third question is on the capital. Your risk-weighted asset has remained broadly flat quarter-on-quarter, while your loans are increasing by over 3% quarter-on-quarter. So I'm wondering if you are adopting some risk-weighted asset optimization action and what we should expect going forward in terms of risk-weighted assets evolution and risk-weighted asset density. Another question is on your government bond portfolio. I'm wondering if you are going to apply the sterilization of the government bonds in the fair value through the OCI reserve and what is the value of this reserve as of June '24? Another question on the TLTRO. You still have EUR 400 million of TLTRO. Are you going to repay that in September this year? And finally, on the guidance, you confirm your guidance of '24 opening the door to a potential revision maybe in the third quarter. I'm wondering if you are still confirming also your dividend policy and the payment of EUR 110 million last year?

That's quite a bit. I think I have them all. I would -- you started with, I think, the net interest sensitivity. I would turn that over to our CFO, Roberto Ferrari, and then take back for the sequel. Thank you.

Yes, positive. Actually, we are taking additional actions to reduce our sensitivity. Clearly, the target is to be below EUR 10 million. And actually, I would say, between EUR 5 million and EUR 8 million negative impact with 50 basis point decrease in rates. And clearly, the guidance that we have this year already embeds 3 cuts. So we do expect to land this year EUR 325 million and we will start next year with a lower sensitivity to a reduction in rate. Thank you for asking.

So I'm taking it with respect to your question on loan loss provisions. So referring to Page 10 and 11, right, on the provisions we had and on the outlook. So first of all, breakdown of the provisions, I think I can answer like this. So we have 7 million, right? It's leading not a lot. Most of that comes from flows to default, so new UTPs and new Stage 2, if you would consider a default technically, that is obviously still performing. We don't have a lot of deterioration from UTP to NPE to NPL, for instance, or deterioration in the coverage. It's mostly single cases of new flows. With respect to the outlook you asked for, yes, the outlook is -- I keep saying every call in this quarter, I keep saying so far, so good. We still don't see even prospectively any issues, as I mentioned. And we also don't see any sectors that are really worrying us. Keep in mind that there are places where we are not present, though, right? So you won't find commercial real estate lending in our bank, for instance. You won't find real estate leasing in our bank, for instance. You won't find -- so there you don't find construction to a significant extent, right? So there are sectors that we don't really see. And it might at least internationally in some other cases, provides some cost for concern. And where we are, which is basically the industrial base of Italy, we don't see anything sector-wide that would worry us. More diversed, undercapitalized single cases where you have issues, they are progressively appearing. I would expect them to continue appearing. But once again, we're talking about in the semester, EUR 15 million of loan loss provisions is really a low number for an SME bank. So I wouldn't put too much statistic relevance into the single cases. Sterilization of the gov's in fair value OCI. Yes, we will apply it. As of 30 June, the negative reserve sterilized at a value of minus EUR 21 million. I think you asked for the number. So there you have it. On TLTRO, yes, only EUR 400 million left to be repaid in September. September is a deadline, so that's not optional for us, right? That's a given. So next time we talk, you can be sure that TLTRO will be completely behind us. I reiterate that we were able to repay EUR 2 billion, most of it in advance because 80% is already done. And we're coming out of that exercise, including the repayment of a bond that happened just this June for another EUR 400 million with EUR 1.5 billion, right, of liquidity, so that's both cash and counterbalancing capacity. So obviously, that's very comfortable. How is it that we became so comfortable? Because we invested in it. So we made a significant push in retail deposits in December, January, February. That added up to roughly EUR 0.5 billion of growth in retail deposits, very serious number. Obviously, the costs. We came out with the issue of the new bond that was -- you may remember that was so significantly oversubscribed. We came months early with that. We would have done it maybe if we if we planned it, we would have done that maybe during the summer. There was no real liquidity reason to do it. It was just that we had such favorable market conditions that we decided to execute. So, these strategies that lead to this anticipation of repayment of the TLTRO and its very comfortable liquidity position. These have a cost, right? And you can see that in the cost of funding, obviously. So the good news is that we took these prudent fans, but we managed to offset the impact. Moving on to what I think was your final question, dividends. Yes, dividend policy is unchanged. So if we deliver EUR 160 million in the year, which is obviously a guidance, it's not a certainty, but we reiterate our confidence in that. Then mechanically, we would pay EUR 110 million in 2024. And therefore, yes, the answer is that's what we plan for. And of course, if things would go better, then the dividends would increase a bit. You had a question on risk-weighted assets. I see that the CFO, Roberto Ferrari, is voluntarily candidating himself to reply probably on a more technical level than I could. So I'll gladly pass over to him, and he will be certainly more specific.

It is important to say that in the second quarter 2024, we disposed NPL. So we have a reduction in risk-weighted assets to the disposal of around EUR 70 million, EUR 75 million risk-weighted asset. This clearly is actually has a positive impact on our CET1 ratio. In terms of evolution, what we can say is that we do expect to end this year above 15.5% and considering also the impact of the sterilization of fair value OCI and government bonds. Thank you for asking.

The next question is from Fabrizio Bernardi of Intermonte.

Which is the level of capital that you believe is right for you? I mean, since your loan capital, you have a nice dividend policy, but this may be, let's say, enlarged somehow. I know that there are some issues about your shareholders. But you created, if I remember well, 34 basis points of common equity in 1 quarter, including the dividend. So what I'm asking is, let's say, relating to a question made before by other colleagues, let's say, if the dividend policy may be revised up just because is -- the capital level is very high. And secondly, I would like to ask something about the organic business in terms of factoring. If the current level of rates may put the factoring business, let's say, higher for longer. In the sense that if rates remain are high, the factoring business could [indiscernible] welcome for small mid-cap corporates. So this is a question not for you only, but for other, let's say banks, but it seems to me that with the rates high, this business can generate more revenues for everybody.

So on the capital, let me refer back to what we said when we presented the plan. We said that we would -- and we started it in the high 15s, I think. We said that we were through the plan remain above 14% of CET1 ratio. Obviously, it's gone better than that in terms of risk-weighted assets, right? So we have a higher ratio. And that means we have -- I agree with you, we have space right? The 34 basis points are actually not in a quarter. They're in a semester because we computed the contribution of profits, I think, over the semester. Still, right, we are creating capital, and we are fairly high. Now what we put in place is a dividend policy that is progressive. I need to be a little bit technical here, but it is useful because you will then, I think, better appreciate the answer. On the first EUR 100 million of profits, we pay 50%. On the remaining, we pay 100% meaning that even if we make EUR 160 million, just taking it as an example because it's the guidance, right, we pay out EUR 110 million. But if we would make more, we would pay out more because every increase obviously goes on the marginal part, which is fully paid out. That means that every year, as long as we make at least EUR 100 million net profit, we will add EUR 50 million of capital. Now EUR 50 million of capital is something that will more or less support, right, a 5%, 6% growth in the credit business, which, in our opinion, is healthy. So as a rule, we would put away the amount of capital that is needed for a healthy growth, provided that we are commercially capable of evaluating it. With respect to what we will do with the excess capital that seems to be available today, if you assume that 14% is a relevant benchmark, but you could argue that given the risk profile of the bank, it could also be 13.5%. It's a matter of, I think, judgment in the end. So if you assume that there is an excess capital at the end of the plan, then obviously that gives us space to put it to work. And that could be done in various ways. I don't think we would ever entertain the idea of maxi dividends or of one-off things. We would probably much rather invest it in growth, meaning also inorganic growth that could add to the P&L and to the generation of future profits. So dividend policy is stable, but keep in mind that when things go better, the payout ratio increases, the overall amount increase, but also the payout ratio increases. And a firm commitment, determination to put any excess capital to work. So when we will close this business plan, we'll take a look at the level at which we are. We might have even some further growth of CET1 ratio during this year. And that will be, I think, a basis for a credible, solid growth plan also inorganically of the bank.

We saw 3 banks reporting in the last few days. One made 1 basis point of loan loss provision for a number of reasons and the other made 25, 30. So you said that you don't see a big risk in terms of credit quality. Is this, let's say, possible because numbers are very, very different because from the bank we monitor we have many, many different guidance. Maybe given the job you do, sorry, you can be more clear.

Yes, I can only maybe repeat what we see and try to support that with numbers. Hard to say -- hard to comment on other banks, especially not knowing which they are, right, but I wouldn't even want to go there. I think there are a few things that may lead us to have a different point of view or different experience. First of all, you have to remember business mix, right? So I mentioned a couple of sectors and a couple of places where things can get bad pretty quickly. And these are places where we are not present, okay. So secondly, when you talk about basis points, you have to be careful because if you have a gigantic retail mortgage book that leads to intrinsically lower basis points, you should -- if available, you should compare us with the cost of risk of the SME divisions of banks if they publish it, right? With respect to our outlook, if I interpret you correctly, and then I also have a question on interest rates and factoring, it's still there. I'll get to it. If I interpret you correctly, you're saying how is it that you say that things are looking rather positive, right? When we hear other banks making more mixed signals, giving more mixed signals on this. Now I mentioned we have a few single cases of clients defaulting, but you should -- I mean you have thousands of clients, you should expect the bank to have single cases of clients defaulting, right. So that's happening, first of all. The actual impact of those things is EUR 15 million in the quarter, in a semester. In our opinion, when things go turn sour systemically, the forward-looking indicators that we shared with you, they look a lot worse. So I can only tell you, look, I can share some very specific data that are typical of an SME factoring business that, to my opinion, no other bank has. And it appears on the basis of the data that our client base, so there's obviously a selection before that, that our client base appears to be still very comfortable in terms of financial position because otherwise, you would see the payment days increasing even without delinquency increasing, just the payment days. To what extent that is our selectivity or truly representative of the whole Italian economy, I don't know. I think it is fairly representative. And therefore, I think I have data to sound constructive. Hard to say something intelligent and meaningful about the comparison with others as I don't really know what data we're talking about and what bank we're talking about. I hope I became a bit clear on this thing. I'll get to rates. You say when rates are high, factoring business becomes attractive, I think you're seeing 2 things. I think the real bottleneck on the growth of factoring is excess liquidity in the market. Because when you have companies that have all this money sitting on their current accounts, normally not well remunerated, right? And in the meantime, they can do factoring but pay our spreads, and they are not low, right? They would normally opt for using the excess liquidity they have at hand, right? And I think what we've seen in the last few years, the holding up of the factoring business, even in the context where we have so much liquidity in the system is a real testament to the commercial effectiveness of our network. So I think a real support to the factoring business might come when a bit of that excess liquidity has dried up further. In terms of rates, well, I think it will become less easy to finance short-term needs with long-term credit. That happened during COVID and after, but that stuff should go away. If reference rates remain so high, adding our spreads, the overall cost of factoring will remain fairly high. So I think, I'm not sure we can say that having higher rates will help the factoring business much because a company will look at its all-in cost. But I will say that the reduction of liquidity in the system should give us some help because I think that's the real enemy if I can use the term, right, of growth in factoring that you have all these companies, that have always money sitting on their accounts and that they can just pay the bills and not worry about maybe use the factoring without having the anticipation of the payment, yes.

Is there any business where you would like to be? Any other business, let's say, on top of those, you are already in.

Yes. I would love to have a gigantic mass market segment of free deposits. That would be really nice. And if you can help me get to one. Unfortunately, it involves building branches or buying traditional banks. So, these are not easy.

Buy a bank. I'm joking, sorry. But given the diversification of your group, this question, at this stage, it was, let's say, normal, let's say, like this.

No, no, I agree.

You have a longer capital position. You're paying a huge cash dividend. So the question was more or less normal.

I agree, and I take it as such. I think historically, we've been in places where there are margins and where industrialization and specialization helps. These are normally our preferred segments. So you could see there are a couple of places where we're not yet present, which might fit that bill, and these are the types of things that we would look at, okay.

The next question is from Simonetta Chiriotti of Mediobanca.

A couple of questions on the NPL sector. So the first is on results. Revenues from this segment were very strong. Even stripping out the contribution of Revalea growth was very strong. So, if you could help us to understand what happened? If it is the level of profitability that then can be -- that we can see also in the coming quarter or if there is something particular in this quarter? And the second question is on the strategy in this sector. Many things are happening in terms of mergers between services, JVs in the European space. So how do you see the sector? How do you see Banca IFIS competing in this changing sector?

Yes, we had quite a nice revenue contribution from -- also from judicial. You can see it there on Page 8, right? That's also -- that's always a mix of things. And I don't think you should automatically assume that that will be the same in the next quarter. It's a mix of what? It's a mix of the timing with which we work the portfolios and it's a mix of court productivity, which is entirely unconnected to us. So as we -- as portfolios enter and we've had in the last years before Revalea, right, we've had obviously very significant purchases also on the secondary market. You will remember there were purchase of multiple billions of gross book value of certain portfolios. As you work through them, right, and you establish that there is space for judicial recovery, meaning that you have a place of work or an asset that you can repossess, right? Then that -- as you work through them at some point, you get to a point where you have that information and then you put in place the actions to make it happen. Separately, courts, they have -- they are a bottleneck, right? So as you move through the stages of judicial recovery, right, every time you move a step further, you get a little bit of revenue recognition on the loan, right? So the first stage, you have the [indiscernible], et cetera, right? You have this business system, which makes sure that the loans traverse this judicial system. So if the courts happen to produce a bit more, you get a contribution. And if the time line with which you work your portfolios, it works in your favor, right, then you may have a little bit of a seasonal bump. It's not really a strategy thing, and I don't think it is easy to repeat it or to -- or that something has materially changed and somehow it magically we are able to do a lot more judicial work. Actually, if you think about priorities, we're spending a lot of time thinking about extrajudicial so friendly-recovery. And we -- and if you were to ask me, I think over the next year, that's probably an area where we could have more impact of projects, of improvement in our capacity, improvement in the even the social aspect of recovery, right? So the offering the debt are off to financial re-inclusion, which is a big thing that we are working very seriously on given that we have this very relevant size and very relevant presence in this activity in Italy. So it happened this quarter. I don't think it is something that you will see repeat itself. It's partly endogenous, partly exogenous and it contributed nicely, right? Another thing I want to add, it wasn't your question, but I want to take the opportunity to share it with you is that we've been quite successful in selling [ sales ] of portfolios this semester. The CFO mentioned it when he said there was a risk-weighted asset reduction out of that. So what's happening? We've given the NPL division a fairly stringent indication to start making sure that the aggregate gross book value of the loans we manage will not keep growing. Meaning that at some point, when the portfolios are spent worked and when our recovery style has reached of the end of its use, right, then we package those and we sell them on to people who are specialized in working details. So we sold quite a significant amount of sales in this semester, and we will keep doing that so that we can present to the market a gross book value that will stabilize a bit and that we can get out of this multiyear growth phase, which, in our opinion, is something that is not necessary to have a healthy business. You mentioned on the NPL market, yes, the transformation, the things that are happening on the market. I agree with you. Well, first of all, the huge amount of nonperforming loans that the Italian banks had on their books, it was worked and it was transferred and that's now leading to secondary market transactions, both the restructuring of GACS and the sale of portfolios in the secondary market. So it's still coming to the market, but secondary. In any case, the big bonanza of banks selling huge amounts of portfolios under stress because the regulator was asking them to do that quickly, that part is over. You see servicers therefore, reaching for scale and I think it makes perfect sense. You mentioned the M&A going on and all that. We look at that from our specific position, which is market leader in small tickets, unsecured NPLs that does the servicing of the loans they own, okay? We think there will be a fairly continuous production of consumer credit NPLs in this country, also because the consumer credit inherently generates a certain amount of default, it's part of the business system, and because the consumer credit in this country is still growing and it's compared to other places, vastly underpenetrated. So if you look at it from a specialist point of view, does this type of work, right, we see the evolutions in the market but we are not so interested in looking for scale in servicing as were primarily an investor that services our very specific business with our very specific capabilities. That's our view.

I was wondering more on the part of the investment side of the business. If we should expect sooner or later, I suppose, so some activity together with partners to deconsolidate some part of the portfolio. I mean when the calendar provision is due to become something to be managed?

So you should expect 2 things. One is us being quite active on the secondary market. We've had very profitable transactions on that front, and we want to continue doing it. And secondly, working on structures that will allow us to keep -- to remain an investor and to remain a servicer whilst not running into the calendar provisioning limitations, and that requires co-investors. So we will be more specific on this when we present the plan, right? Because it still requires some work. It would request or conversations with the regulator and everything, but we are quite confident that we can have both. Quite a number of interested parties that would like to be with us in this business, firstly. And secondly, structures that will allow us to do that. And so you could see the company partly right, moving into an asset manager model and less -- and not only an on-balance sheet model.

The next question is from David Giuliano of Equita.

The first one is on loan demand. What are you seeing in terms of loan demand? Are the advertising campaigns you are doing bringing an improvement acceleration in new business generation? The second one on factoring. Can you give us some color on the net fee reduction on factoring in second Q despite in line slightly better turnover? I saw also second quarter 2023 was very strong. So maybe a comment on this. And if you see room for shifting some of the factoring revenues from NII to commission in the future? And the last one on cost of risk and overlays. Do you have any updates on the overlays release strategy? And are you evaluating a possible increase in NPE coverage in the second half in light of the uncertain macro scenario?

Loan demand hasn't been particularly high in our country for a long time. So it's a lot of effort to keep the stocks up. And certainly, advertising helps. Now you will never have the counterargument because you don't know what would have happened if you hadn't positioned yourself so clearly and communicated so much, not just on the advertising that you see, but also in the digital advertising and everything gets a little bit more below the horizon. So loan demand is not particularly high. It hasn't been since 2020. A lot of the long-term lending that was made has actually been substituting what used to be short-term lending, not just in our shop, but in other places. Having been able to keep up the stocks as we have, I think, is really a testament to the strength of the relationships, and the commercial activity, and the way that the network is proposing the loans. And what they tell me is anecdotal, is that having a bank that's more clearly positioned is very helpful. They used to have to explain years ago who -- it its was, right? And that's commercially not a good place to start, right? When you're entering in a conversation and you're seen as the SME bank that has a credible story, is positioned in that way and all that stuff. You start talking about the deal and not talking about who you are. So I would say loan demand is soft. A lot of commercial activity in order to compensate this and definitely the positioning of the bank is precious. And we will -- we have invested a lot. We know that. It should be clear to the market that we will continue doing this because this is really long-term. This is really long-term protection of the franchise in our opinion. Moving net interest income to commissions and factoring is an interesting idea. I'll just take this as an interesting suggestion. I'm not sure I have an answer to it. I think logically, it should be possible. I think it would be especially beneficial in times when payment dates are short, right? So you emphasized the service element, and you're not so dependent on the payment days of the clients. So I cannot comment more intelligently other than saying that it's a very interesting thought, and I'll take it with me on the holidays to think it through. Cost of risk overlays, are we going to increase the NPE coverage? No, not really. And I'll tell you why. Because normally, when we get to the end of the process where we either sell the loan, because we sell them to, right, the stuff we don't put our own NPEs in the NPL business. You know that, right? So we either liquidate it or we get rid of it. And normally, when we sell, we have gains in almost -- I wouldn't say in every case, but in many cases, right? So we have a situation in which coverage levels appear to be very, very comfortable. So not expecting that. So what's going to happen with the overlays? Well, the overlays needs to have a statistical and quantitative justification both for the regulator and for the auditors. They were put in place as a prudent measure in times of extreme shocks. The first part, COVID, the second part, inflation, Ukraine, supply chain disruption, energy disruption. And there wasn't a real methodology quantitative to determine exactly right, how much it should be. So we just put aside a significant amount in order to be on the safe side. And you've seen, I'm sure that we have about 120 basis points overlays currency, which is high. So in the meantime, work has been done to justify that, quantify it, put some rigorous method underneath those decisions. And this will lead to the fact that either they are used in a fairly short term, or they will flow back to the P&L. So expect that in 2025 and from 2025 onwards, if we don't have some really unexpected shocks, good part of the overlays will flow back to the P&L.

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

Well, thank you, everybody. That was -- and thank you for the questions. We had a nice conversation. I'm -- I'll be really happy to see you all with the Q3 results, and maybe we will have a little bit more clarity on how the year went. And in the meantime, I wish everybody happy holidays, given that is the 2nd of August. So thank you all for your time and attention.