Banca Sistema S.p.A. (BST) Earnings Call Transcript & Summary

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Banca Sistema First Quarter 2020 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Gianluca Garbi, CEO of Banca Sistema. Please go ahead, sir.

Thank you very much. Good afternoon to everybody. As usual, I'm -- even though in a different mode, I have Ilaria and Carlo connected also over the phone. You have received the presentation about the result. But before starting with the presentation, let me introduce with a quick brief on the situation. Since the end of February, we have proactively implemented a set of measure to mitigate the COVID-19 impact to our employee and to our customers for all the 3 business division that we are involved. We have made a communication through a press release on the 24th of February, where we explained to investor our -- the situation coming up in the current circumstances. Group branches of banking as well as the gold/jewelry-backed loans have always been open even though with some restriction in term of opening hours and more recently also making access to client-only by appointment. The bank headquarter in Milan had allowed smart-working since the end of February, and we are still -- at the majority of the people, the vast majority of the people, we are still working in smart-working. But besides that, the activity was not affected by this new way of working. In the first quarter of 2020, we did not suffer any particular slowdown in our productivity and as you may see in a second with the result that we'll provide you also the actual situation of the production of the bank. As you will see, we have registered 1/4 with the growth in profitability even if, unfortunately, the unexpected increase of the contribution to the Single Resolution Fund has partially influenced this extremely positive result. Without this unexpected item, our profit before tax will have been plus 26% compared to the first quarter of last year, but with this item, the result is still very good but 15% of increase. Now I move to the slide and to comment the various bullet point that I've included starting from Page 2. The factoring turnover has increased 10% on a year-on-year basis, equal to EUR 0.7 billion. The tax receivables segment registered a higher growth on a year-on-year basis. Our origination through the agreement with Italian commercial bank has been slightly lower comparing to last year, and this is mainly because branches of commercial bank have been partially limited in their activity. But other clients have more than compensated this situation of the shutdown from our partner bank. On the CQS and CQP, the outstanding has reached EUR 186 million (sic) [ EUR 866 million ], with an increase of 22% on a year-on-year basis and is also up on a quarter-on-quarter basis, mainly thanks to the purchase of loans from intermediary that represent 90% of the volume on the first quarter, which is equal to EUR 86 million. While the direct origination, where -- through agent is mainly to agents and also contributed positively in line with our expectation. The gold and jewelry-backed loans outstanding is at EUR 13 million, which is higher on a year-on-year basis. We have registered a very good performance over the first 2 months of 2020. Then on the month of March, the volume were low as a consequence of the lockdown measure introduced by the government to mitigate the impact of COVID-19. While in April after the introduction of this Phase 2 by the government, the turnover is back to the normal turnover that we have produced in the first 2 months of the year. Interest income are equal to EUR 15.9 million with an increase of 9%. The funding cost has been lower at 0.7%. And in general, we see that the market is very liquid, and our strategy of funding implemented since the second half of last year was even more effective because we could have leveraged and taken advantage of the initiative offered by ECB. The total income is equal to EUR 22 million with an increase of 14%, driven by factoring contribution. The cost of risk is equal to 28 basis point, and the loan loss provision is EUR 1.9 million. We have not seen so far critical situation on our private portion of the factoring outstanding, and nothing has changed also vis-à-vis the exposure towards public administration. The total operating cost had an increase, but as I mentioned at the start of my presentation, the main driver of the increase was the higher unexpected contribution to the Single Resolution Fund for EUR 0.7 million, which is -- in term of a percentage compared to the last year is an increase of 82%. The pretax profit increased at 15%, as I mentioned before, which is equal to EUR 6.8 million, and without the increase of the contribution, as I said, will have been plus 26%. The net income is equal to EUR 4.5 million and also here, if you make the adjustment taking into account this increase of the Single Resolution Fund, will have reached 5% with an increase of 12%. The wholesale funding, which represented pretty much 47% of the total funds, is composed by the ECB funding for EUR 658 million, of which the TLTRO III is equal to EUR 108 million, stable on a quarter-on-quarter basis, while the remaining part is the LTRO that is also used due to the lower cost of rate, actually is a negative cost. The pro forma core Tier 1 ratio is at 13.4%, and the total capital ratio is at 17.1%. I -- in the presentation, you have also the non-pro forma, but taking into consideration that the European Commission have presented an amendment to the regulation in order to advance the entry into effect of the reduction of the CQ capital absorption probably is more correct to look also in the perspective. This number, as it looks like and very likely that in June or at the latest at the beginning of July, we will have this reduction of the RWA from the -- of the CQ from 75% to 35% that represent for us 220 basis point in term of core Tier 1. Moving at the next slide. As you can see, the factoring outstanding trend show a decrease on the quarter-on-quarter, mainly driven by the sale of portfolio, as we did also in the last year, and some quicker and unexpected payment that we received on tax receivable. The turnover on the first quarter has been supported by our revolving factoring, which is -- historically is around 40% of our turnover. When I say revolving, I mean those agreement that we have in place with client that sell their receivable every month on a regular basis. The turnover growth on the first 4 months of 2020, so including also April, is stable and confirmed at plus 10%. The split by channel is the same that of the past, as we reported also in the previous quarter. At the end of the quarter, also tax receivable, I said, represent 23% of the total outstanding, but we expect further growth to this segment. The CQ and gold/jewelry-backed loan have registered a good increase, as I explained before, and CQ purchase in April were EUR 13 million, so not too much far from our expectation. In April, also, just to give you maybe an additional month of information, the branches of our ProntoPegno, our jewelry-backed loan, as I anticipated before, has returned to normal activities involving -- in consideration of the restriction by -- imposed by the government, and the turnover as we turn to the standard level also with some increase in some branches. We also expect to complete the acquisition of the business [Technical Difficulty] Okay. Thank you, and I apologize for the technical inconvenience. I don't know at which stage my audio has been stopped, but I was on the page -- Slide #3, where I was concluding giving an update on April 2020 on the -- our subsidiary of the gold/jewelry-backed loans that have registered higher flow of the customer and new volume. And I also added the fact that we expect to complete the acquisition of the business unit from Intesa Sanpaolo in the third quarter of 2020. Now I will leave the floor to Ilaria Bennati that will provide you more details on the result.

Thank you, Gianluca. Good afternoon to everybody. As usual, I will focus my comment on the main earnings figures and KPIs. So if we move on to Slide 4, we see some comments on the balance sheet. As shown in the table, total asset is stable quarter-on-quarter. And in particular, govies portfolio is now that would offer EUR 1 billion with an average duration of slightly more than 20 months. Loans at amortized cost is down 1% year-on-year and now stands at EUR 2.6 billion. And specifically, among the various asset classes, we have factoring receivables down 5% at EUR 1.6 billion, in line with what Gianluca said before; CQ loans are up 22% at EUR 866 million; and finally, gold and jewelry-backed loans are up year-on-year and also quarter-on-quarter despite what Gianluca mentioned before about the COVID effect during the month of March. And as we all know, this asset will be significantly higher in 2020 following the announced acquisition of the Intesa Sanpaolo business. On the liability side, due to banks has increased quarter-on-quarter due to higher ECB funding, and I'll cover this in more details when we discuss funding specifically. Due to customers decreased quarter-on-quarter is mainly driven by term deposits. The foreign component, in particular, has decreased since year-end following the reduction in the interest rates offered on the online platform, which is part of our funding strategy. Finally, debt securities has slightly decreased quarter-on-quarter due to the amortization of one of the CQ securitization that we had outstanding. We now move on to the next page to discuss some P&L dynamics. As you can see, interest income in the quarter is up 3% versus last year, where the growth is mainly driven by higher income contribution from the factoring business. If we look at the top-left table, total interest income is now at EUR 22.4 million, where EUR 15.5 million is related to the factoring. Year-on-year increase of the factoring income is mainly driven by one component. Indeed, the tax receivables have had an extremely brilliant performance over the quarter, and this is actually the second quarter in a row where tax receivables have exceeded expectations. LPIs, on the other side, had a slightly lower contribution year-on-year. They accounted overall for EUR 3.4 million this quarter compared to the EUR 4 million in Q1 last year. In particular, we have that accrual account for EUR 1.2 million, which is lower year-on-year, while extra collections account for EUR 2.2 million, which is higher year-on-year. As far as margins are concerned, we can refer to the top-right table where we see that the adjusted income margin is slightly low year-on-year. It's now 4.2% compared to the 4.4% in Q1 last year. This is the result of the CQ margins trending slightly lower over time, as we had already anticipated in the previous calls, and the higher weight of the CQ on total customer loans. This effect is almost entirely compensated by higher factoring margins. If we were to also include the positive effect of the sale of a factoring portfolio of credit versus private debtors, which I will describe in more details in the next slide, we would add another 20 basis points to the margin, achieving 4.4%, which is in line with the Q1 last year. Finally, the stock of LPI, bottom-left table, stands at EUR 144 million, of which EUR 100 million is part of the accrual perimeter. This is down quarter-on-quarter mainly to cash collections of LPI. The amount of LPI currently recorded in the balance sheet is EUR 48.1 million, slightly down quarter-on-quarter for the same reason. We now move on to comment total income performance on Slide 6. Q1 total income is up 14% year-on-year, and the growth is mainly driven by higher net interest income and also higher other income, specifically trading and dividends. Net interest income increase is driven by the factoring -- the contribution of the factoring, which I described earlier on, and also by lower interest expenses. Indeed, total cost of funding, which was 0.8% in 2019, is now 0.7%, as Gianluca mentioned before. I'll spend some words here on trading and dividends. This item includes EUR 1 million gain from the sale of a factoring portfolio of receivables versus private debtors. We look at this type of transactions in an opportunistic way with the aim of optimizing our capital. So this is the driver. We've done a similar transaction in Q4 last year, and this activity might become recurrent in the future. As I said, it's totally opportunistic. So we only do it if there are the right pricing conditions. A bit of comment on pawnbroking business. Its contribution to total income in Q1 has been EUR 400,000. It's still more in absolute terms but it represented double-digit growth. To finish, we had stable contribution, EUR 1.5 million, from the govies portfolio, of which EUR 0.9 million is in the net interest income. We now move to cost on the next page. Operating cost increased year-on-year by 23%. And most of the increase, as Gianluca mentioned, is due to the higher contribution to the Single Resolution Fund, which is worth EUR 700,000 increase. In the comparison versus last year, we should also consider the impact of the cost base related to the consolidation of Atlantide, which accounts for EUR 600,000 on a quarterly basis. In terms of personnel expenses, they account for 43% of total cost and they are also higher year-on-year also due to the addition of 21 head count from Atlantide, whose cost is already included in the EUR 600,000 that I've just mentioned. Finally, other costs are higher year-on-year, mainly due to the following reasons: We had the slightly higher admin expenses again due to the Single Resolution Fund and also to higher -- slightly higher adviser expenses. We also had higher net provision for risk and charges, which account overall for a EUR 300,000 increase. Now we move on to funding on the next slide. Funding mix continues as this had to be balanced or well balanced between wholesale and retail. The retail component is now 53%, wholesale is 47%. As mentioned already, cost of funding is lower both year-on-year as well as quarter-on-quarter. The wholesale component increase is mainly due to higher ECB funding, as already anticipated by Gianluca, which is now equal to EUR 658 million. As we said before, the TLTRO III component accounts for EUR 108 million, stable versus last year, and the remaining EUR 550 million is related to a participation to the LTRO program, which is a new funding scheme set up by ECB to cover this emergency situation after -- through June 2020. For others, it's almost funding the cost of minus 50 basis points as well as the cost of the TLTRO, which have been decreased down to 50 basis points for us, again, to address this emergency situation. Retail funding is down quarter-on-quarter mainly due to the decrease in term deposit stock. As I mentioned earlier, the stock originating from the growth channel has been managed down through a sharp reduction in interest rate that has been ongoing since the end of 2019. So it was absolutely anticipated. We now move on to the next slide to discuss asset quality very briefly here. Gross nonperforming exposure is up in the last quarter, while the net bad loans is lower versus year-end, being now at 1.1%. The increase in NPE is due to the increase in past due, while bad loans stock is down quarter-on-quarter following the classification and performing of some municipalities, which have exited the conservatorship status. On the contrary, unlikely to pay increase is due to provision versus municipality, which -- for which the conservatorship procedure has been established. So as a result, Q1 cost of risk is down since last year. It's indeed d now 28 basis points versus the 36 basis point that we registered at year-end. I now hand the floor back to Gianluca.

Thank you, Ilaria. Now on Slide #10, where I already mentioned before, but here, you have some more details. The regulatory capital of core Tier 1 ratio and total capital ratio are slightly lower on a quarter-on-quarter basis, and this is mainly due to the "held to collect and sell" reserve from the government portfolio -- or government bond portfolio that I remember -- I remind everybody that has a duration of 2 years. So consequently, this situation will automatically improve. As I explained in the -- at the beginning, the regulatory capital is -- of the core Tier 1 is 11.2%, and the total capital ratio is at 14.3%. But as the introduction of the reduction of RWA is very likely to enter into effect very soon by June or beginning of July, the pro forma CET1 is at 13.4% and the total capital ratio is at 17.1%. As you could imagine, we have decided in the Board to postpone the approval of the 3-year business plan and -- which is going to happen now most likely at the beginning of 2021 because we would like to see a more stable situation on the macro data before starting to work on the new 3-year business plan. I'm also happy to stress that with our business model, today's expectation on 2020 and our core Tier 1 ratio, we believe to be able to distribute the 2019 dividend, which is equal to 0.093% (sic) [ EUR 0.093 ] per share, which is already embedded in these numbers. So the number that you see in the presentation already include the deduction coming from the distribution of the dividend that -- unless some change in legislation will happen in October this year. We continue to support our customers in all the business division. We also are prepared to consider the -- to provide to our factoring a selected group of factoring client, the possibility to use a government guarantee credit line if a certain condition will apply. We will continue as a bank to protect also our employee with the highest level of safety standards. I conclude here. Now I leave the floor for question. Thank you.

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

I apologize if you already answered to my question at the beginning of the conference call because I was in another call that went long. The first question is on the business, the 3 lines, let's say. So for sure, you did the right choice to look at the salary-guaranteed loans due to the fact that you will have a positive impact from the regulation. And on this point, I'm curious to understand when you're going to have the capital relief in the second quarter or later on because, if I'm not mistaken, maybe in credit, [ most are being said there ] already into second quarter. So this, from a regulatory point of view, is a good business. The pawnbroking, unfortunately due to the COVID crisis, should show very high growth, but still are 2 businesses that represent a smaller part of your total revenues. The big part is related to trade receivables or public administration. So on this point, if you can share with us your thoughts. So what are you expecting in terms of net interest income? So I presume you are not going to see a pickup in terms of cost of risk but rather a delay in the payment. And if you can tell us in March, April, how was the business because it's difficult to understand public administration if it was working or not. So all the loans are being processed or not. The second question is on -- so I suppose also that the LPI on legal action should be lower than expected. So if you can give us some indication and guidance on that. The second question is on another -- on SME, state-guaranteed loans. You exited this type of business in the past. It was not profitable. I don't know if you are thinking about this business again after the government move. And on -- the third question is on cost of funding. If you can tell us -- maybe it was in the press release that I wasn't able to read, the maximum TLTRO pickup you can get and what could be the benefit in terms of cost of funding. And I would say on the final question on dividends. I see that you're one of the few banks that still have deducted the dividend from common equity Tier 1. If you can tell us why are you so confident to be able to pay dividend after October 1. And also, if you feel that the government will start to do a sort of moral suasion to banks, maybe to commercial banks due to the fact that it's going to give some state aid, let's say in terms of guarantee, not to pay dividends in 2019. Your business is a little bit different, but I would like to see your thoughts on that.

Okay. So maybe on the question about the cost of funds, I will leave to Ilaria but I will try to answer to all the other questions. About the business, the entry into effect of the change of legislation. Now the commission -- European Commission have proposed the anticipation of what has been already decided by the Parliament and by the commission. And therefore, this is a way to free up capital for banks. Bear in mind that it's not only the CQS but it's also the SME supporting factor. So it's a package of positive element that allow banks to reduce the usage of regulatory capital. Now as far as I understood the Parliament approval and the European Council, so the Head of State approval is a pure formality at this stage because it's pretty much in the end of the commission. So if this is the case, we do expect that based on the -- what we have been told also, thanks to the Italian Banking Association that this will happen in June if -- late or later beginning of July because it depends when the decision will be published on the gazette. But it looks, at this stage, almost guaranteed that this change will happen now in June, so 1 year ahead of what was supposed to happen. In terms of pawnbroker business, it is true that there was a slowdown in term of the new contract. This is also true, the fact that because people were not allowed to enter into branch, they will not allow even to withdraw loans. And so the outstanding remain stable even in the month with the lower activity. As being reported in the press but we also see -- experience, maybe we are a bit better organized than others. But it looks like that there are people queuing outside the pawnbroking business. And even though today, this is a smaller and marginal business with the acquisition of Intesa, this will become a more relevant business for us. And unfortunately, for the -- clearly for the country, due to the current situation and the current environment, we do expect that this will grow a lot in term of business. One of the things to mention is that 30% of the contract on the pawnbroking business have been done through the app that we have developed last year. And so people are able to get a quote from the branch online to negotiate the price online and to take an appointment in the branch online and then they come to the branch to close the deal and avoiding to have queue outside of the branch. In term of factoring, we do expect and we will have -- expect a delay of payment from public administration. But so far, based on the number we have seen, there was no delay of payment from public administration. So it looks like that they're -- one way or the other, they are able to make payment. This is a different story for LPI because in term of LPI, the court has been suspended and closed. And therefore, we expect some delay in collection of LPI and -- but this delay is, in any case, paid in term of interest because during this period, the ECB plus 8% continues to accrue. So the fact that they are delayed due to the shutdown of port is not -- will not have a negative impact in term of return on assets, may have a negative impact in term of contribution to the quarter P&L because rather than collecting now, we may collect later. But when we will collect, we will have more money because we have an additional 8% during the period. Now in term of the second question about SME state guarantee, let me say that first of all, a small correction that we stopped the business not because it was not profitable with -- enough to become less interesting, but for the bank, this was a business that was profitable, then interest rate moved down. Every banks start to provide loans. So it was less interesting for us going forward. And so we reduced -- we did -- we stopped the business. But we have all infrastructure, contract, technology to reopen this business. And we are looking at not reopening the business as in the past but to provide loans to clients that are our factoring client. This will allow also to use the 2 contracts together, so the loan with the government guarantee and the factoring where a portion of the monthly credit can be used to amortize the loan. And to avoid that, the -- we have to claim for the guarantee. While when we had the SME activity in the past, we were able to finance any sort of client in the country without any other relationship of other business of the bank. So it was a stand-alone business. So what we are considering now is to finance factoring clients only using government guarantee credit line, which allow those client of ours to receive [ endowment ] that can go up to 6 months -- 6 year of duration. In term of dividend, clearly, we have been softer, the moral suasion and not to distribute the dividend. So there was no reason due to our business, due to also our quarter result, not to distribute the dividend. We have seen our -- when I look at the peers of other bank, not traditional banks, but when I look at maybe the 2 other Italian listed bank that are specialty finance, they also are taking the same approach. So we're happy to postpone to October but there were no -- there was no reason not to pay the dividend. So unless there will be an imposition for the time being, the general assembly has approved that the dividend discussion will be postponed. And by the end of November, this was what has been resolved by the general assembly. There must be another general assembly for the dividend. So it's not a question of -- in the end of the Board of Directors. That was the general assembly that approved the postponement of the decision but at the same time asked the Board of Directors to call for a new general assembly by end of November. So we will have a general assembly. So unless there are going to be any change in legislation, there's no reason. And if you consider also this capital relief coming from the reduction of the CQ, there's absolutely no reason for not distributing the dividend. Bear in mind that we are only distributing 25% of the profit that represents 40 basis point in term of core Tier 1. So with the change of the CQ, the -- our core Tier 1 will be 13.4%. If we include the dividend, it would become 13.8%, which is certainly an amount that regardless of anything, it seems also a bit reasonably high and will not justify withdrawal of distribution of dividend. Then, of course if they introduce a law or they impose something, we have to consider it. At this stage, moral suasion -- it would be a moral suasion to shareholder because the Board will not be able to stop to call for a general assembly. Ilaria, if you'd like to comment on the cost of fund and the amount of -- maximum amount of TLTRO?

Yes, sure. As you mentioned, the current amount of funding deriving from ECB at the moment is EUR 658 million. EUR 108 million come from TLTRO III program. The rest, as I said, is given by the participation to the TLTRO program. The total allowance under TLTRO III is EUR 490 million. So when the June -- when the LTRO program expires in June, we can simply continue with further drawings out of the TLTRO III program. Our total amount -- funding amount from the ECB channel is constrained by the total amount of the eligible collateral. At the moment, we have around of -- around EUR 750 million maximum funding from the varied source of funding provided by ECB, which is, as I said, constrained and limited by the eligible collateral. We know that there are discussions ongoing at various central banks' level in accordance with the guidelines provided by ECB to widen the amount of eligible collateral that can be posted in order to get funding. If -- so we have other assets in the balance sheet, for example fiscal credit as well as CQ asset that at the moment are not eligible. Should the criteria be relaxed, we should be able to have further funding from this subsidized channel. So we are clearly monitoring the situation very closely. In terms of the impact, our cost of funding, leaving aside for the moment the possibility to increase the amount of eligible collateral, considering the collateral available as well at the moment, there shouldn't be any impact with respect to the 0.7% cost of funding that we have at the moment. We were able to embed the impact of the new measures implemented by ECB already in our budget because we approved the budget when these measures were already announced. And the cost of funding that we have -- we are foreseeing at year-end is stable at 0.7% for the time being.

The next question is from Luigi Tramontana with Banca Akros.

Just one question on my side on the end of the VAT split payment, which I think is next month. And do you have any visibility on what the government will do if this will be renewed or not? And what do we have to expect in terms of impact on your business?

Okay. Thank you for the question. There's no visibility from the government what they intend to do. They are busy probably with other stuff. They -- so -- and I am not able to comment of rumors that can go on one way or also in the other way. For us, in any case, as I mentioned also in the past, it's neutral because as we are doing both business, buying VAT receivable as well as buying receivables, what will happen in case they will not continue the split payment is that the amount that we will finance on the receivable will be the VAT-able amount plus the VAT. So if today, we have an invoice of 100 plus 22% of VAT, so 122, today, we are financing only 100 and we are not financing the 22 because we will receive the payment only on 100. And using a different product and maybe giving also some time, we would be able to finance the VAT credit of the same company in -- when they file the tax return. So in another way, we are also able to finance the remaining 22% of VAT. In case they will take away the split payment, we'll go back as at the beginning, and so we will continue to do the VAT business for all the other cases besides the prepayment. But at this -- at that stage, rather than financing only 100, we will finance 122 so our outstanding and the amount of financing will be higher. There will be a slight impact in term of RWA because rather than being 0, it will be 20% or 50% depending of which authority is, but it's limited in that respect, while other business of tax receivable will continue because these are not driven necessary by the split payment. But in term of intention by the government, at this stage, I am not able to comment of rumors that I heard in both direction.

The next question is from Manuela Meroni with Banca IMI.

Some question from my side. The first one is on the asset quality. I'm wondering if you could help us to understand the evolution of the asset quality and cost of risk in the current environment. It's clear that the correlation between GDP growth and the cost of risk of asset quality for you is less meaningful compared with the commercial banks. So I'm wondering what are the drivers that we should look at in order to understand the evolution of asset quality and cost of risk for you. And I'm wondering also if -- the deteriorated macroeconomic scenario, is there an impact on the generic provision that you posted or you're going to post in the next few quarters? Also, a guidance in terms of cost of risk for this year and next year would be, if any, helpful for us. The second question relates to the discussion between you, the sector association and the regulators on the adoption of the new definition of default and the calendar provisioning. I'm wondering if there are some news on this matter. Third, on the cost of funding, the cost of funding declined in this quarter. I understand the real reason behind this decline is just a mix effect or you're collecting money at a lower cost. Then on the SME supporting factor, you mentioned before that you may benefit from that. I'm wondering if you can give us any indication of the potential positive impact on the capital base as well as the potential impact of a lower reduction of [ software ] on the capital base. And finally, on the increase in the contribution to the resolution fund in this quarter, I would like to know if it is just a one-off for this year or it is recurring also for the next year.

Okay. So there are many question. Let me split a bit. I will pick up some of the question and I will leave to Ilaria to answer to the other. So the definition of default, nothing has changed compared to what we've commented in the past. So for the time being, we continue to consider that it will be a limited impact with the new definition of default in line with the association position in term of calculation of the overdue. In term of SME supporting factor, clearly, this is part of the package of the commission, but we don't have much SME. So for us, the factoring without recourse does not have any specific impact, the positive impact, because the amount is very limited. So I don't see this change to have an impact for us. If I misunderstood the question -- and the question is related to the funding with government guarantee through SACE or Mediocredito, that is something that is -- we are starting, but it would be very limited because we will offer only to certain type of client that are our factoring client. So I don't expect a particular impact in our number. In term of the Single Resolution Fund, already a few years ago, we wrote to the regulator asking how we can calculate the Single Resolution Fund. And the answer from the regulator was that basically, there is an algorithm, but in this algorithm, there is one who is the center, which is the fundamental one, which is undisclosed by the regulator. And for this reason, it's impossible to predict. First, we don't know why we had an increase of 82%. We don't know the rationale behind. I had some conversation at the level of banking association, and there are banks like us that have received almost twice the amount as the previous year, other banks where the increase was marginal. But there's no correlation vis-à-vis the result, vis-à-vis the market cap or other parameters where we can understand how will -- how this Single Resolution Fund is calculated. And internally, we have decided to write again to the regulator in order to understand and be able to predict this item and to understand where this is coming from, bearing in mind, which is another point, that we are not benefiting whatsoever from the Single Resolution Fund because we are not regulated by the ECB directly but we are a less significant bank. So we don't even understand why we have to contribute to a fund where we are not receiving any benefit. I will leave to Ilaria to answer to the question on asset quality and cost of funding.

Sure. Okay. In terms of loss provisions, at the moment, we haven't really seen any impact on loan loss provisions deriving from the current situation. So we haven't set aside any further provisions because of the sanitary emergency. Indeed, as you could see, our cost of risk has decreased both versus year-end and also versus the first quarter last year. In terms of specific provisions, I remind you that on the factoring, 86% of our exposure is vis-à-vis the public administration. And on the CQ, 82% is versus either the national insurance system or versus public company. So only a minor component of both the CQ and the factoring business is exposure versus the private sector, which would be the most affected one from the current situation. So -- and in particular, with respect to our specific provisions, we haven't seen the need to increase the provisions and we are not foreseeing the need to do so in the future. We'll definitely monitor the situation closely and -- but at the moment, really, we are not seeing any effect. In terms of generic impairment, on the -- on LPI exposure, we do a fixed impairment of 30 basis point versus the public administration. So the forward-looking model will not affect that going forward. The only exposure that might be affected by a revision of our forward-looking model are exposure towards the private sector and for the CQ. At the moment, we are monitoring the situation. We are making considerations around the possibility to potentially embed the new estimates around the GDP growth or actually not growth in the model, but we don't have any -- we haven't come to any conclusion for the time being.

And on the cost of funding?

Sorry. On the cost of funding, the reason behind the decrease in the cost of funding is twofold. On the wholesale component, we clearly benefited from a lower cost of funding under the TLTRO or more generic ECB funding and also by an increase of the portion of funding coming from the channel. On the retail funding, the benefit derive from the fact that we are -- we have started to see the effect of the reduction in interest rates that we carried out starting from last quarter in 2019, which is actually giving the first results. So all contracts with higher interest rates has come to an end. So we are starting to see the benefit of that.

Let me only add one point on the funding side because we have issued recently a press release where we have launched a new securitization on VAT receivable because -- and this is a new -- it's a news. It's the first time that securitization of this kind is launched also because we had a partner bank that is keen to underwrite and to finance this securitization. And this will be another mean to get funding at lower level compared to what we already have in place. At the beginning, the amount is not huge because we are talking about EUR 100 million, but this can be a [ win ] as soon as everything will work after a period of time. So this is also another mean to finance through other method and to further reduce the cost of funding.

The next question is from Filippo Prini with Kepler.

Two very brief one. The first is on salary and pension-backed loans. I see that you posted a very nice growth of turnover in the first quarter, but I was wondering if you can share with us what do you see the evolution of the business going forward because I believe that nothing of the situation induced by the spreading of COVID-19 and the lockdown in -- on this figure of turnover. And the second, sorry to go back again on the funding, but I remember that we got one bond maturing this year and there's a private placement maturing next year. So is it fair saying that these 2 lines of funding could be replaced by the larger take-up of TLTRO that you are eligible to have starting from the auction of June?

Okay. So let me quickly answer. In term of CQ, so clearly, the current situation is that there is a demand because in particular, due to the current situation, there are more people that are obliged or forced to take this kind of individual loan on the CQ. The problem on the CQ is not demand but is more, in this period, the capability of collecting the signature to -- in order to provide the loan because even though we have implemented as well as all the other originator, have implemented the online capability to have been able to sign up a contract, consider that 50% of this product is again pension. So we are talking about individual that are not particularly young and may have more difficulty to use technology. And that is the only limit because we can now have one of our agent that physically go to the house of this individual to collect the signature. So what we see is that the demand is there and is -- unfortunately due to the situation, probably there is an increased demand. The capability of matching the demand with the offer is a physical limit which, hopefully in the next few months, will be able to be resolved, allowing more -- allowing people to meet and sign up their contract, which is what has to be done with certain type of client. In term of the fundings, I take the question. Sorry, Ilaria, it was to be a quick -- due to the TLTRO III, we don't need to refinance the bond that is maturing because the amount that we receive from ECB and the duration that we get through the ECB replace the bond that are maturing this year. For next year, we will look in the business plan. We will look whether there will be condition. But clearly, we always look at the cheapest way to finance. So if ECB financing with duration is available and is at a 0 cost, clearly, we prefer that way of financing rather than issuing a bond.

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

Okay. Thank you very much. Thank you to everybody. Have a nice weekend, and stay safe. Bye.

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