Banco BPM S.p.A. (BAMI) Earnings Call Transcript & Summary

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Banco BPM Full Year 2020 Group Results Presentation. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Roberto Peronaglio, Investor Relations Manager of Banco BPM. Please go ahead, sir.

Thank you very much to be present with us tonight for the presentation of the full year result. Before leaving the floor Mr. Giuseppe Castagna, let me remind that you can find the presentation on our website in Investor Relations page and the Q&A section is reserved for investor -- for financial analysts. Thank you very much. I leave the floor to Mr. Castagna.

Thank you, Roberto. Good evening, everybody. Thank you for being with us with the -- for this full year 2020 presentation. Let's start immediately on Page 5, where we have summed up some significant performance, which our bank was able to reach in this very challenging environment of 2020. The first part is related to the asset quality, which we managed through credit management initiative, linked to the moratoria, to the state guarantee loans and to an effective monitoring very in deep to our portfolio. The second is the cost management. We were able to adapt a very flexible business model in order to reduce the cost and offset the lack of profit -- of revenues of the first part of the year. The third part is the very strong commercial return we registered in the second part of the year, in H2, with a very effective commercial activity from our branch network, but also leveraging on digital banking. This produced the very solid rebound in H2, with pre-provision income up 43% vis-à-vis H1. All these result allowed us in a complicated year in which, of course, we expected some rules to respect also in terms of dividend distribution, encouraged us to be very cautious and prudent both on a conservative provisioning policy. We have -- in the last quarter, we have done EUR 1.3 billion disposal between portfolio and single name. We have increased 500 basis point the coverage of NPE. We have upfronting with IFRS 9 further amount in order to foster new disposal starting since 2021. At the same time, we were able to front-loading restructuring cost, able to foster 1,500 early retirement person scheme for 1,500 person and a closure by June this year of another 300 branch, which sum up to the 750 we already have closed since the starting of the merger. This allowed us, all in all, to be back to distribute a dividend of EUR 6 per share. And overall, to be very positive on the outlook of 2021. On Page 7, we wanted just to give an outlook on the [ 4-year ] of our merger, in which we think we were very much able to build up a track record in derisking and capital generation. As you know, we have reduced for EUR 30 billion to EUR 8.6 billion the amount of NPE. But at the same time, we were able to increase common equity Tier 1 from 11.4% to 13.3%, which is the result of 2020. Needless to say that in the -- in between, we have financed something like 1,000 basis points coming from revenue generation and asset management transaction, which allowed us to reduce of EUR 21 billion the amount of NPE during these years. Starting from the credit profile. Let's have some look about the main action of this year. Of course, the action were very much linked to the pandemia and to the measures taken by the government. We wanted to reach target in sustaining the economy and we were able to reach a new record lending, new lending in 2020. After EUR 21 billion 2019, we were able to lend EUR 27.6 billion, including EUR 10.2 billion assisted by state guarantees. We still had, at the beginning of the year, almost EUR 4 billion of new loans ] assisted by state guarantees in pipeline, of which in January, we were able to deploy EUR 1 billion. The second target was to uphold the portfolio quality through the reduction of NPEs 15% down to EUR 8.6 billion and 7.5% NPE ratio. Thanks to a very favorable migration rate, we had only 1% of default rate. To a very low market share in the moratoria, 5% versus 7.3%, which is our natural market share of loans. On checking very carefully the quality of the moratoria, both for the one who already expired in December, which were an amount of EUR 3 billion with a very marginal default rate of 0.5%. And the same rate we are experiencing in the early engagement campaigns for the moratoria, which are coming just at -- expiring in the next few months. We have, as we will check later on, reviewed a big amount of this kind of moratoria, and we already have some good expectation about the potential repayment. The other step was, as I mentioned before, to reinforce, to massive reinforce the coverage. We have reached, for the first time, a total of 50% of NPE coverage, particularly, we have upgraded the UTP coverage to 43.7%, 46 basin (sic) [ 460 basis points ] year-on-year. But if we include the Django disposal, the amount of coverage was even more than that. All these, considering a tough scenario for 2021, of course, related to the COVID and also provisioning further amount to start the risk, further derisking since 2021. The last objective was to contain the capital absorption and we think that we had reached also these results, having 86% of loans assisted by state guarantee at 0 risk weighting. On Page 8, a focus on the moratoria. As I mentioned, we started with EUR 16 billion of total request. In December, we had EUR 3 billion of the moratoria expiring, with again, a default rate of 0.5%. For another EUR 1 billion, more or less, we had some different measures often linked to state guarantee. The remaining portfolio as of end of the year is EUR 12.2 billion, of which EUR 10 billion coming from the government and EUR 2.3 billion from the ABI Moratoria. This EUR 12.2 billion are -- 80% of these are clients of low medium risk as rating, 12% mid-high risk and only 8% high risk. If we go into the sector more hit by the -- with more impact from the COVID, we have a total of EUR 2.7 billion, EUR 2.8 billion of risks under moratoria, of which EUR 2.4 billion under the best rating category. In order to check into this couple of billions, we have run, we are still running early engagement campaigns, activated on a total portfolio of selected mid-high and high risk clients amounting for EUR 2.2 billion, out of which only EUR 2.8 billion (sic) [ 2.8% ] are nowadays in watchlist and only 0.6% are with signals of default. The outstanding moratoria related to our performing loans amounts to only 12%. On Page 9, we start with some figures. Starting from asset quality, again, coming back from 9.1% to 7.5% in gross NPE; from 5.2% to 3.9% on net NPE; 39% to 43.7% for UTP coverage; and 56% to 59% to bad loan coverage, if we include write-offs, we reach 65%. At the same, I would say, at a very good level, we, of course, have also our liquidity and funding situation. LCR is -- and higher of 191%. NSFR ratio is much higher than 100%. We have EUR 20 billion of unencumbered eligible securities. And we have reserves, both on amortized cost and HTCS, respectively, for EUR 875 million and EUR 198 million, with a very, very strong capital gain. Coming to capital. Again, we reached 13.3% coming from 13% of December '19, with an increased MDA buffer, thanks to the many issues we had in 2020 and the beginning of 2021 of AT1 and Tier 2. The total amount passed from 250 basis point to 450 basis points in January this year after the last issue. Again, we propose a dividend distribution of EUR 0.06 per share, which amount to 2.8% of dividend yield on the last quotation, which is above 3% if we consider an average over the first month of the year. On Page 10, we have some figure about the operating performance and the commercial performance, both very encouraging. Second half on first half, NII, plus 8%; net commission, plus 3.7%; operating cost, minus 5.4%; pre-provision income, plus 43%. And this shows also how we really had an impact from the first wave of the COVID, but basically, we were able to neutralize the negative effect of the second wave with these results. The commercial performance is also very good. Core net performing loans, plus 8% year-on-year; new lending at a record of EUR 27.6 billion, plus 29% year-on-year; deposit, EUR 13 billion plus; and assets under management, 2.2% year-on-year, 3% on the last quarter 2020. Again, cost savings with a number of maneuver, which almost -- many of them, we can consider extraordinary. We were able to offset the partial lack of revenues, especially from asset under management. We reached the further saving of EUR 174 million, but the profitability we have generated allowed us also to provision EUR 260 million gross in order to foster the agreement with trade unions already provisioned in 2020 and with an exit forecast of 1,500 people and closure of 300 branch. This was also facilitated and also the decision on closing further branch is coming also from renewal activity on digital banking, which strongly supported the commercial activity. We have some figures in Page 11: Mobile transaction, plus 61%; app users, plus 26% to 1.3 million; investment orders executed, plus 21% and so on; with a share of digital transaction up to 83%. On Page 12, there is some specific action we have taken and we're still undertaking in order to increase even more the digital approach. The first one is related to the advanced analytics capabilities we have adopted in order to foster more than 20 customer journeys on main commercial areas, which were able to allow more than 10 million remote digital contact with our clients, driving over 20% of contribution total retail sales. Another important step was the full digital platform serving SMEs and private client in order to finance the Superbonus and Ecobonus initiatives. We have already 3,000 operations in pipeline only after a few weeks. And this is also completely digital. We enable all our personal relationship managers and wealth manager adviser to remote advisory. Nowadays, all the transaction can be executed from remote. We launched also a new mobile-first platform, app platform, which was ranked at best level from the main customer ratings and had registered an increase in customer usage of 24%. Finally, we are now onboarding individual customers with the digital identity in order to reach the complete paperless relationship with clients by this year. On Page 13, also on ESG, we wanted to mention some achievements we have reached. We have started an ESG committee, headed by the CEO, to coordinate and control the ESG activities. The Board oversight is allocated to Risk Control Committee, the executive remuneration is linked to ESG KPI. Also on environment, clients, people and community, we have started many initiatives. Some of them already quite successful. Likewise, the 100% of usage of renewable energy, with a strong reduction in CO2 emission; the credit plafond for clients investing in sustainability; again, the Superbonus digital platform; the asset under management fully compliant with this ESG policy amounting to more than EUR 17 billion. And then, of course, our internal work with our people on different inclusive program aimed at valorizing the talents. Also in the community, we were able to distribute more than EUR 6 million of initiatives in order to help our communities during the difficult period of COVID. Let's go to some figure on Page 14. As you will see, we have put vis-à-vis the H1 and H2 in order to make you understand better how the reaction of the bank allowed to reach the results we are mentioning. On NII, we increased 8% almost in the second half, allowing the bank to reach the same result of 2019. Of course, even though we increased almost 4% fees and commission, this was the results we paid more difference in terms of lower revenues vis-à-vis 2019. We had something like EUR 120 million of difference vis-à-vis last year. We recovered something in NFR, where we had some one-off like the Nexi and SIA transaction, but also a very good return for -- from the govies and trading activity. All in all, total revenues stand up to EUR 4.152 billion, almost EUR 200 million less than last year, but we were able to recover almost EUR 170 million with lower cost, showing how the flexibility we can use on cost can also offset difficult period, of course, coming from not internal reasons, but coming from the general situation, in this case, from the economic effect of the pandemia. All in all, so we were able to have a pre-provision income basically at the same level of 2019, only 1.4% lower year-on-year. Of course, we were very attentive as much as -- as far as the loan loss provision were concerned, we prefer to be very consistent and very prudent on this side. We not only financed the EUR 1.3 billion of disposal, but we decided also to front-load some IFRS 9 provision, apart from building up more coverage on UTP and bad loans. We will see after what -- how much is the core activity in -- related to loan loss provision, how much is what we consider one-off. Then, of course, we have the restructuring cost, which I mentioned, the EUR 260 million gross, which are EUR 187 million net; systemic charge for EUR 143 million, which lead us to a net income stated of EUR 21 million, but an adjusted one of EUR 330 million. Let's go back to the revenues. On Page 15. We have, again, some core revenues split per quarter on the right side and for half year on the left side. We will see some much details in the next page. So on Page 16, we will have net NII, which in the second half was 8% higher than the first half. This was mainly due to the TLTRO. As you can see, the third and the fourth quarter, of course, experienced a massive increase vis-à-vis the first 2 quarters. The reduction in the 4Q -- in Q4 of around EUR 10 million comes up from the reduction of the Euribor. So the liability spread coming down from minus 0.57 to minus 0.62 and partially also from noncommercial activity, especially the cost of the liquidity we place from TLTRO. On Page 17, the dynamic of the net fees. This is 3.7%, second half on first half. If you compare the Q3 and Q4 to Q2, which was, of course, more affected by the pandemic, we have an increase of 11% and 14%, respectively, which is still growing. We are having, as you can see on the right side, month-by-month revenue generation is increasing to EUR 150 million in December. But I have to say that also January and the first week of February are at a record level of investment product placements. We can see better on Page 18, investment product placements. As you can see, after a quite good first quarter of EUR 3.7 billion, only partially affected the March by the pandemic. We had a very low Q2, EUR 2.4 billion, then rebounded to EUR 3.2 billion and EUR 3.7 billion for a total amount of EUR 13 billion of investment placement. On the right bottom side, you see how the first month, the January 2021, was 17% higher than January '20, which was, in turn, a very good month for us. And the first week of February is already EUR 600 million of production. As far as lending is concerned, on Page 19. Again, plus 29% year-on-year, EUR 27 billion of new loans, EUR 24 billion related to enterprise and corporates, EUR 3.3 billion to private individuals. If we split ordinary business and COVID measures driven business, we have 63% in ordinary business, 37% of state guarantee measures. On the right side, some indication about the asset spreads. In the first half of the year, we still were lending at a lower spread vis-à-vis the outflows also for the starting of the COVID measures under EUR 30,000, which, of course, were being 100% guaranteed with the one at a lower spread. But in the second part of the year, we only recovered the spread of the new loans to 175 basis points but also we registered some positive basis point vis-à-vis the outflows of second half, which more or less is not that different from the outflows that we will have in 2021. So if we will be able to maintain the same pace of new asset spread, we should have some bettering -- some better figure as forecast of 2021. On Page 20, the quality of the portfolio. And first, on the left side of the slide, you can see the flow of new lending. As you can see, both the ordinary business and the cost measures are for the best quality of our client, only 5% and 2%, 7% all in all. Both on ordinary business and COVID measures are in the medium-high and high risk, only 1% in the high risk. Meanwhile, the stock is on the lower part of the slide, still continue to improve, showing more lending vis-à-vis low-risk client and progressively lower lending vis-à-vis high and medium-high risk client. All in all, in the best part of our portfolio, we have reached 88.6% of our stock. As far as further increase of state guarantee loans. On the right side of the slide, you see that we had still a pipeline from 2020 of EUR 3.7 billion beginning of the year. EUR 1 billion has already been provided to our clients in January. We will consider potential estimates for up to EUR 5 billion for 2021. On Page 21 is, again, the amount of core loans and deposit and assets under manager (sic) [ management ] we already mentioned before. Let's go directly to the operating cost on Page 22. Since the beginning of the merger, we had EUR 630 million of reduction in cost. You will see on the right side of the slide, we started at EUR 3.060 million -- EUR 3,060 million in full year '16. Of course, this was excluding the restructuring cost of the merger. And we ended up this year to EUR 2.43 billion. Of course, we can see that at least EUR 120 million comes from savings on personnel, which are linked to the pandemia. So -- and coming from reimbursement and this respect for people not able to work, to lower variable remuneration which, of course, are not repeated in 2021. But still, we are further room to improve the normal activity in cost management, thanks to headcount reduction of 1,500 people, which will be massively utilized in 2021. We believe that we can have, by the year-end, 1,300 people, most of them in the first part of the year, which will leave the bank starting to factorize at least EUR 40 million, EUR 45 million already in 2021 coming up, going up to EUR 109 million in 2022, and the total consideration of EUR 125 million in 2023. The same, we will have some further savings on the reduction of the retail network. We consider that even though for this year, they will have only a minimum of [ EUR 3 million, EUR 4 million ] of cost savings, this will come up to EUR 50 million already from next year, EUR 50 million of savings. Going back to asset quality on Page 23, some figure about the stock reduction and coverage. We went down EUR 1.5 billion. On the right side, you can see the reduction starting from EUR 10 billion, we had EUR 1 billion of new inflow, the default rate. We had EUR 1.4 billion of basically workouts and cure rate. And then the disposal of EUR 1.1 billion related to Django and Titan. The total consideration so now amount to EUR 8.6 billion. The migration rates for 2020 were, again, 1% default rate; 7.5% danger rate; and 3.3% cure rate. Of course, default rate and danger rate were better because of the moratoria. Cure rate was worse than last year because of the difficulties in having judiciary composition agreement with clients and auctions, of course, due to the closure coming from the pandemic. On the right side, we will have the full coverage split into different categories. Again, we think we have reached a very cautious amount of coverage, especially considering that we have 60% of our secured -- of our NPE, which are secured. On Page 24, NPE ratios. Again, this is an outlook on the upside of the slide about the massive reduction we had both in gross net NPE and in Texas Ratio starting from the merger and reaching very comfortable 7.5% and 3.9% net and a Texas Ratio of 39%. If we follow EBA definition, we are down to 6.7% of NPE ratio. Some detail about LLPs. The global amount of EUR 1.337 million (sic) [ EUR 1.337 billion ] we have split into 2 different categories. One is the core drivers, which amount to almost 70 basis points. And the other one is both the disposal, the effort we had from the disposal and the strengthening of the coverage on UTP and bad loans and also the IFRS 9, but both on performing loans due to the deterioration of the forecast and also front-loading provision for possible future derisking starting from 2021. And this is an amount of more or less 50, 55 basis points. So all in all, we take advantage from the results in order to be very cautious and pave the way to a much better 2021. On Page 25, some number about balance sheet. I already mentioned the liquidity and funding. Let me say that we have bonds outstanding for EUR 19 billion. We had quite active issuing during 2020 and January 2021, you will see the different issue we have done both in senior nonpreferred, AT1 and Tier 2. On Page 26, I would say the Italian govies are still having a lower impact vis-à-vis the total securities portfolio. And in 2021, due to the reduction of the spread, we will forecast another consistent reduction in the percentage of Italian govies on total securities. Let me just take your attention on the very low duration of our portfolio. Finally, Capital adequacy. We are -- we feel that is a very solid position, both in terms of capital, in terms of buffers. The capital -- through this capital walk that you see on Page 27, we started 13%, we ended up to 14.1% in September where we anticipated the effect of the headwind we expected for the last quarter in almost 50 basis points. End of the day, they were almost 50 basis points. So it's 13.6%, the post impact numbers. Building up the performance due to the increasing LLPs and restructuring cost of 2000 -- of the Q4 and some positive effect from regulatory. This coming especially from the treatment of the software. We reached 13.4% and after the proposed distribution of the dividend, we end up to 13.3%. Much even better, the MDA buffer, where we started 250 basis points, which we consider also our target level in the midterms, but as a matter of fact, after the issue of the AT1 January this year, we are up 40, 49 basis points for common equity, fully phased at 16 -- 614 basis points for phase in. As far as the common equity Tier 1 phase in, we are at 14.6%. So all in all, to have a quick recap. Significant rebound in the second half of all the revenues, which is very encouraging for 2021. Strong and attention and safe award for the quality of portfolio, both in terms of action [ in telling ] in order to detect at the first level any possible hint of deterioration and also increasing massively the coverage in order to foster higher reduction in NPE -- further reduction in NPE. Again, the cost efficiency, not only in 2020, but also with the already booked provision for the retirement scheme in order to offset partially the one-off cost of 2020. Some outlook on 2021 on Page 29. We think, thanks to the TLTRO, which of course, will last for the entire year in 2021 and we are also higher capability to draw TLTRO and in our funding plan. We think we can expand of another EUR 10 billion drawing TLTRO for this year. We think we can reach a very consistent increase in NII as much as we think we can have a very strong recovery in commission, both coming from investment products, thanks to the results I mentioned. And we are already experiencing the beginning of 2021 and also to the commercial activity, where we had some maneuver, which should give us some room for increasing the commercial banking fees activity. Total income is expected to be higher than 2020. On the cost side, of course, I already said that we can only partially offset the massive reduction we registered in 2020. But we are confident that with the pace of reduction we have done during this year, we can be able to have a PPI slightly better than last year, notwithstanding lower RNF results. Cost of risk. Also in this case, let me split in two different part. We think that the normal cost of risk will be more or less at the level of what we provisioned under the normal cost risk, the 70 basis points for the ordinary activity. But of course, we have considered that there will be still a macroeconomic environment, which may entail some additional noncore provision which, in any case, we expect to be at a lower level than the one we registered in 2020. For capital, we confirm that our CAR targets remain MDA buffer at 25 -- 50 basis -- 250 basis points and common equity Tier 1 at higher than 12%. Thank you for your attention. I leave the way for your question.

[Operator Instructions] The first question comes from Antonio Reale of Morgan Stanley.

I've got three questions, please. The first one is on NII. And if I look at Euribor, it dropped further in Q4, then you sold some unlikely to pay loans and deposits have been growing quite steadily, actually. And these are all drags on interest margins. You've also reduced the sovereign bond portfolio significantly Q-on-Q. And so I'm wondering what makes you confident on the NII outlook for 2021. If you could elaborate sort of all the moving parts, including loan growth, of course, that would be great. The second question is related to the first one, actually. And I'm curious to understand what was the contribution to NII from TLTRO in 2020. And what would you expect it to be in 2021, please? The second question is on costs. You've talked about cost inflation next year as the costs related to the sort of lower activity from the pandemic are expected to come back and as you increase your IT digital investment spending. Can you help us quantify both of these effects? For example, how much of the benefit did you see in terms of cost savings in 2020 related to this? And my last question is on the moratoria loans. And I would like to understand your core cost of risk estimates, which if I understand right, is at about 70 basis points, and you've confirmed it for next year. What does that 70 bps assume in terms of default on this moratoria loan? So what percentage of the EUR 16 billion do you assume could default? And remind us if any provisioning overlay have been set aside to cover for this already.

Okay. Thank you. Starting from TLTRO. Of course, you have to consider not only the 6 months on top of last year, but also the increase that I mentioned of around EUR 10 billion. So we think that we have a gross effect of EUR 180 million, unfortunately, offset from the -- how we will use the liquidity because, of course, not all the liquidity can be used to positive interest rates. So the net effect will be around EUR 100 million, EUR 110 million. As far as the costs are concerned. We had, again, something like a reduction in variable remuneration, quite consistent, 45% of what we forecast for this year, which should be around EUR 45 million. We had reduction, of course, in general expenses due to lower cost of personnel. We had some reimbursement also from the government for people who could not attend to work due to COVID. All in all, is something amounting to EUR 140 million, of which we think a part of it, of course, can be slightly repeated this year. That's why I mentioned EUR 120 million as the difference of cost of personnel. Digital is, of course, is not immediately or directly linked. But for instance, we are still imagining cost for fully deployed potential capability of our digital activity, which, again, will help us in the next year to further make more cost effective our branch network and our people. The last is moratoria. Again, I say that the normal cost of risk is 70, is not what we expect for 2021 because, of course, we know that there could be some effect, especially in the second part of the year. The -- currently, what we have experienced for the -- what was expired in December, what expired in December, what is expiring in the next few months is a very, very low default rate, again, 0.5%. Of course, we expect this to increase, will depend, of course, from the situation -- economic situation. Let's say that we have, in our forecast something -- a figure, which is around 2.5%.

Very clear. And on the commercial NII, could you just share a bit more color on 2021 trend?

Commercial NII, again, we have some -- basically, we consider it almost flat. This will depend also for this year more from the liability spread, so from Euribor rather than the asset spread. For the asset spread, we think we can keep the pace of the second half this year, so to continue to lend at around 175 basis points. If there will be no acceleration in moratoria, we expect that the outflow is at a lower margin. So there would be some increase. We don't expect, on the other hand, a massive lending, likewise, the EUR 27 billion of the last year because, of course, the majority of the clients have already made regards to the government measures. So all in all, I would say, the same results for the commercial activity.

Next question is from Jean Neuez of Goldman Sachs.

I just wanted to ask on -- firstly, on the stage 2 loans. I read in appendices to your presentation EUR 6.9 billion balance at year-end, if I didn't make a mistake. And in comparison to BPER, which is the other inside domestic bank that has reported so far, it's very small -- I mean much smaller in relation to also the size of your book. And I just wondered whether you believe that there is more reclassification to be done there or whether you believe that this is the best presentation that you have so far of the shifting risk in your portfolio. And the second thing I wanted to ask is with relation to consolidation because you're often quoted in the press, Mr. Castagna, on this. I wonder to what extent you see this 2021 DTA monetization as something which shouldn't be passed on. So for example, if I look in Pillar 3, I found deduction of EUR 1 billion of DTA, and it's a lot of capital ratio, obviously, also a lot of your market cap even more. And I just wondered to what extent you believe this is imperative to this opportunity in 2021 to be able to monetize that asset. Or if you believe that the strategic consideration might not be there in order to justify trying to take advantage?

Thank you, Mr. Neuez. Stage 2, we think we have done all the -- our internal homework in order to classify the best possible way and the most prudent way, having such an availability of amount to provisioning that, frankly speaking, we think that we have a quite good portfolio. I showed the PD and the rating of our client now is increasing towards the best category. Nevertheless, we have provisioned a consistent amount of around EUR 120 million to performing loans in order, of course, to accommodate potential increase in stage 2. So we are already protected, but still, we are not experiencing a strong increase. We think that due to our territory, as you know, you made a comparison with another bank, if you consider the different geography, maybe you can have some difference in the output of the good quality of portfolio. DTA, of course, I think you are mentioning M&A basically, which is the only way to capitalize DTA. As you know, we are quite open and outspoken on the possibility to reach some agreement. So far, we are still, I would say, at a preliminary internal homework in order to understand which one could be the best and most possible option in our case. Of course, it's one of the main target we would like to reach. But unfortunately, as a difference with our results, this does not depend only from us but also from others. So let's -- we will deploy all our efforts in order to try to have a fruitful combination in the interest of both shareholders of the potential combination. But still, we are at a very preliminary understanding.

The next question is from Domenico Santoro of HSBC.

Just a few clarification and some follow-up. First of all, on capital. How much of regulatory headwinds you expect this year, 2021? And also in 2022, if you can quantify the impact? And then on the -- let's put it this way, noncore part of your guidance on loan loss provision. Can you be more specific which part is model or which part is additional charges that you might expect from your NPE derisk? Even if my understanding is that you already charge -- you already booked something in Q4. Because my understanding is that this year, if things that don't improve, you might run with more or less the same amount of provision of 2020.

Okay. Headwind, I don't have any news respect to what we already anticipated. We are one of the few banks who give you all the details until 2023. I don't expect a lot of difference what already I anticipate to you. I would say that this depends a lot from the IRB model that will come up eventually in the first half of the year. And again, I think that the 100 basis points that we put as a total consideration could accommodate the different headwind for this year. That, of course, is something that's coming from ECB. As far as the NPE, now if I understand what you asked, I don't expect the same amount of this year, unless we don't want really to strongly derisk the bank. We have another, I would say, a gap of another EUR 2 billion, EUR 2 billion and something, not considering the new inflow to reach the 5%. Of course, if there are possibility, we will go also for reducing even more the NPE ratio. But this will depend also from the inflow, as you may understand. I think in the first part of the year, we will be able to reduce even more the NPE ratio. In the second part of the year will depend from the inflow. And we have a quite prudent assumption about that. All in all, having experienced this year 2020, let me remember that all -- everybody was very prudent and maybe extremely prudent when the pandemic come out hinting of some 180, 200 basis points end of the year, we have experienced a much lower impact on NPE. So we still think that 70 could be the core risk. Of course, we are prepared to pay some more tens of basis point in order, either to reduce the stock from the current stock or to offset the effect of potential inflow -- new inflow should this be much higher than we expect.

The next question is from Hugo Cruz from KBW.

So two questions. One, on the guidance or the outlook for 2021. If you could give some guidance for the trading income line. It's been quite volatile, so it's very hard to forecast excluding any kind of CVA effect. And then I wonder on the EBI kind of ECB stress test. You might have had the chance to look at the methodology. I wonder if you have any comments around it, if you expect it to be very stringent or not. That will be great.

On trading income, let's say, first of all, that we don't have any advantage in full year 2020 from the DTL because what was EUR 200 million in the first quarter of 2020 then end of the year is minus EUR 11 million. So we have a loss because of the bettering of our credit profile. Frankly speaking, the same we expect for -- from next year. I think the current also political situation should encourage, unfortunately, to have some offset in the credit profile. So some bettering in the credit profile, which will end up in some impact -- negative impact on the -- on fair value. The trading -- the normal trading income this year, as I mentioned before, we have quite a huge amount of reserves, both on ACE and HTCS. Is very probable that we will like to capitalize some of that. We think we can be in the region of more or less EUR 200 million for this year. I don't have as much comments, I'm afraid, on the stress test, unfortunately, as we are at a preliminary stage. We will see where we will end up, but I don't have any consideration to give you.

[Operator Instructions] The next question is from Azzurra Guelfi of Citi.