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 BPM Group Results Full Year 2022. I'm sorry, excuse me, the full year 2022 of Banco BPM Group results. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Roberto Peronaglio, Head of Investor Relations. Please go ahead, sir.

Thank you very much. Good evening, everybody, to be here with the presentation of full year results of 2022. As usual, before leaving the floor to Mr. Castagna for the presentation, let me remind that you can find the presentation on our website on the Investor Relations page, and the Q&A section is we sell only 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 for the 2022 full year presentation of Banco BPM. We are very happy and proud to present this full set of very good results, which are basically our record in our 6-year history since the merger between the 2 banks. We have reached a net income over EUR 700 million and adjusted net income of EUR 886 million a royalty of growing from 5.5% to 7.4% with a cost income down from 56% to 54%. And a further reduction in gross NPEs down from EUR 6.4 billion to EUR 4.8 billion, reducing the gross NP ratio to 4.2%. Also vis-a-vis the guidance we just gave you 3 months ago in November for the Q3 presentation, we are able to present a set of better results, starting, of course, from a better NII growing to EUR 2.3 billion versus EUR 2.2 million, which, of course, leave the total revenues to EUR 4.7 million, always EUR 100 million better than we expected with the same operating cost and pre-provisioning income, EUR 160 million better than the expectation. With the loan loss provision slightly below what we expected, we are able to present an EPS of EUR 0.46 vis-a-vis the EUR 0.45 that were our guidance in November last year. Also very good and strong common equity retail one well above our 13% guidance at 13.3%, including the effect of the Danish compromise. As we announced the distribution of 50% of our net profit will lead to a DPS of EUR 0.23, which is 21% than last year. On Page 7, I would like to give you a very quick remind of the last 6 years since the merger of the banks. We had basically 3 years of full restructuring of the bank, reducing NPEs from 24% to 9%, starting 2017 up to 2019 and also with a very effective cost reduction down EUR 400 million in the first 3 years. Then starting basically apart from the 2020, which was affected by the convene starting from 2021 up to Q3 '22, we presented a very steady improvement of our results, both in terms of core revenues and pre-provision income always bettering but with a very constant pace of results, improving also our efficiency, thanks to the bancassurance deal that we performed this year and the half for we have done during this year in digital transformation and with a full ESG focused approach. In Q4, thanks to NII, we have a new acceleration in our trajectory. We basically -- thanks to these Q4 results, we are able to present core income at level, which is already better than our expected result in 2023 and '24 of our current business plan at EUR 4.2 billion versus EUR 3.9 billion expected in '23 and EUR 4.1 billion expected in '24. The same is for pre-provisioning income at 2.2 versus 1.92.1 with loan loss provision already reaching the target of 2023 with a further room of better 10 basis points to reach the target 2024. With this set of results of Q4, we are even more comfortable in repeating our guidance of more than EUR 0.60 for 2023, increasing the EUR 0.49, which were originally targeted in our strategic terms. Just to remember, some of the move that we have done in terms of bancassurance in order that we have already acquired BPM Vita, consolidating line-for-line since Q3 in our budget. We are in the way to be recognized at the financial conglomerate, which is a precondition to obtain the Danish compromise. We have concluded an agreement with Credit Agricole in order to have a new joint venture for the P&C bancassurance business -- as soon as we will have also exercise the option to buy 65% of [indiscernible] on expected by year-end 2023. In terms of digital, we have reached very good results starting from [indiscernible]. We were at only 11% of remote [indiscernible] sales. We have already reached 35% with a target of 50% of our strategic plan for 2024. And the same apply also for the transaction concluded by [indiscernible] grow 3x in the last 3 years. Also, in terms of ESG-focused approach, we are very proud to announce that this year, we have granted new -- dream new lending for EUR 11 billion. We have done a very significant issuance of social in green bonds from 2021 to Q1 EUR 3.3 billion, which is the first issue among Italian banks already above the full target for the strategic plan '21, '24. Also in terms of people and community, we have reached a lot of the accomplishments that we had in our business plan. Let me just stress the new hiring of almost 750 people, 90% of which below 30 years. And also, very important for us, the increase in women in managerial position 15% year-on-year. As far as the numbers on Page 9, let's concentrate on Q4 and full year results. In Q4, there was an enormous increase in NII, driven by the capability to keep the deposit cost very low in front to the new pace of Euribor. Commission were slightly below, which is quite normal in our Q4, and we believe that we can recall the previous pace starting from Q1 '23. All in all, net fee and commission and NII stands at 14.3% above last year. Meanwhile, on the NII was 31% above last year. Total revenues are still 10% above last quarter with the pre-provisioning income after operating cost strictly above -- slightly above the Q3 at EUR 650 million with pre-provision income 18% back in the last quarter. After loan loss provision and fair value on tangible assets, we have profit from continuing operation pretax at EUR 333 million, 14.3% better than Q3 and the net profit from continuing operations, 15.8% better than last quarter with the net income due to the lower contribution to the systemic charge in Q4 amounting to 93% better than Q3 at EUR 210 million vis-a-vis the EUR 109 million of Q3. As far as the full year, we have a 13% increase in NII, a 6% increase in NII, net fees and commission with a further increase of total revenues of almost EUR 200 million to EUR 4.7 billion vis-a-vis EUR 4.5 billion in 2021. Operating costs were almost in line to EUR 2.39 billion, and we have a pre-provisioning income of 8.6% better of last year. Loan loss provision much better, EUR 200 million lower than last year, which led our profit before tax to EUR 1.3 billion versus EUR 920 million in 2021, which is a 42% better results. After taxes, EUR 900 million is 35% better than last year, and the full result, net income is EUR 703 million, 23.5% better than '21 results. Revolutions on the adjusted data is 9.3% versus 6.9% in 2021, with the cost-income ratio going down to 54% versus 56.6% of last year. Let comment on Page 10. The main factor for this increase, of course, is the strong rate sensitivities to support the growth that we have realized, but even more the faster growth, we think we can be able to realize in the next quarters. As you know, the ECB facility grew 300 basis points up to 2.5%. We have currently [indiscernible], which is in line with the facility. And our sensitivity went down to EUR 220 million to EUR 160 million, mainly because of the increase of deposit EBITDA, even though, as you can see on the right side of the bottom part of the slide, our cost of deposit is still very much below the beta that we consider in our sensitivity. We have a bet at 46%. Our deposit base is still at 37 bps. All in all, the new guidance for 2022 for NII will be EUR 2.7 billion, higher than EUR 2.7 billion, EUR 200 million better than the previous one. We are still continuing on Page 11 to support our clients. We have increased 3.3%, our core customer loans. The pace of the business plan is 3.1% so we are very well in line with our expectation even though since H2 '20 to, we are very cautious in granting our loans to our client, referring, of course, to be concentrate on the better client , quality of clients and in loan guaranteed or by collateral or by guarantee of the state. Also, the geographic distribution of our loans give you an idea of the quality of our asset book, 75% in concentrate in the north of Italy, 18% in the same, 5% in South and Ireland and 1% in the rest of the world. New lending was very high, increasing 17% from EUR 22.7 billion to EUR 26.5 billion, mainly due to the growth in corporate enterprises, small business segment, which grew EUR 4 billion from EUR 18.5 billion to EUR 22.8 billion, a small reduction in the households from EUR 4.2 billion to EUR 3.8 billion, mainly due to the lower performance in Q4 for mortgages impacted by the increase of the interest rate. The safe profile of new lending is bettering also our asset quality book increasing the lending reserve for low medium risk to 96% with only 3.4% mid-risk and 0.6% to high risk, mainly, of course, collateralized or guaranteed by state guarantee. The gross NP ratio down to 4.2% from 5.6%. In terms of net NPE ratio, we are at 2.2% with the EBA definition, we would be below 2% at 1.9%. The total derisking of this year was impressive, including, of course, EUR 1 billion of new inflow in nonperforming, we were able to reduce EUR 2.6 billion, outperforming the guidance of EUR 2 billion we gave for 2022 mainly the vast majority are due to the workout activity. We also were able to reduce in Q4, a significant amount of single names disposal with no impact on cost of credit because of previous provisioning. As you know, we have also upfronted additional disposal for almost EUR 500 million in the planned ride, which we are confident to be able to do in 2023, mainly bad loans and small tickets. Overlays grew to EUR 163 million from EUR 125 million of September '22. On Page 15, another clear evidence of the impressive derisking and solidity of our capital position comparing the figure before at the time of the merger and the current one. As you can see, we started a 11.4% of common equity Tier 1, and now we are 13.3% as well as the common equity [indiscernible] versus minimum requirement or MDA, it was 160 points, now it's EUR 464 million with an increase of more than 300 basis points. Excels ratio down from 16% to 20% and an impressive dynamics in reduction of NPE, which started from EUR 30 billion, including the inflow in the thesis, derisking was 53 billion leading to EUR 4.3 billion, which is the current NPE situation. Let's go to some -- main figure of P&L, NII, again, strong growth supported mainly by the commercial spread. So split the increase to EUR 724 million is due mainly to commercial activity with clients and bond portfolio income, which experienced an increase in the field. Of course, there is a reduction due to the TLTRO and net results, which is negative for EUR 66 million, mainly due to the cost of deposit facilities. All in all, we think that EUR 724 million has also been impacted, if you want, from the old regime of TLTRO in place until 22 of November, if we eliminate the advantage of this contribution for the first 50 days, the Q4 pro forma would-be EUR 650 million. The commercial spread grew more than 100 basis points, mainly due to the liability spread, which, of course, increase almost in the same proportion of the increase of EURIBOR from 33 to 141 basis points. Net fees and commission on Page 16, good results in terms of commercial banking activity, driven by fees on lending, plus 15% year-on-year, payment service, plus 9% year-on-year credit cards, plus 18% year-on-year, and this result were able to more than offset also the higher cost of the [indiscernible] which impacted the negative for EUR 21 million. In terms of management termination and advisory fee, we have a reduction of slightly below 5% impacted also by the Q4. As I mentioned before, the product placement activity for the full year '22 was much lower than the record activity in 2021, which we placed more than EUR 18 billion of product. This year, we stood at EUR 14.8 billion, with a reduction from Q1 to Q4 from EUR 4.5 billion to EUR 3.1 billion. As I mentioned before, already in January, we grew again to EUR 1.3 billion in February is started even better. So we are confident that we can go again at a very good pace towards the record of 2021. Operating costs, on Page 17, like-for-like, I mean, excluding the cost associated to the insurance, we have almost matched the cost of 2021, notwithstanding the inflation dynamics, thanks to the staff cost. In staff costs, thanks to the early retirement scheme, we were able to reduce almost EUR 70 million the cost of the staff. Meanwhile, we grew EUR 40 million in other administrative expenses, especially as cost of energy and maintenance inflated cost, and we have a one-off cost in D&A, especially in Q4, which is not replicable in future quarters and should lead again towards EUR 70 million per quarter, the pace of the D&A costs. If we add to the banking business cost, the insurance cost, we grow from EUR 2.524 billion or EUR 50 million to EUR 2.539 million. Coming back to cost of risk. The core cost risk is very similar to last year. It's 52 basis points versus 55% last year. But in absolute terms, there is a reduction of 23% mainly due to the contribution of the disposal that we have done during the last 2 years. Let's say that out of this cost of risk, only half of this is related to cost of inflows of new NPE new wider rest is the maintenance of the portfolio and the cost of the reduction in the quantity of NPE, in the volume of NPE. The default rate, as you know, for '22 was very comfortable at 0.94 basically the same moment 2021. Names and rate almost the same at 10% with a very remarkable workout rate, which was almost 30%. But if we exclude some single main transaction operating in December is 22.7%, still a very, very good pace of workout considering the reduction in volume that we have NPE. Coverage ratio increased in terms of bad loans in 1 year of 620 basis points. There is instead reduction due to the disposal of signal names in UTP from 44% to 40.3%. But this comes together with the reduction of the vintage of TP of 25% from 4.4 million year to 3.3 years. All in all, total NPEs registered an increase of 170 basis points year-on-year. Some indication about some structure and quality of our portfolio after this intensive activity that we had in the quality of our loans, we have that now the total of our household and nonfinancial companies, which is EUR 91 billion for 67.7% is either collateralized or state guaranteed precisely, 19.4% is state guaranteed. If we exclude the households, so only relation with nonfinancial companies, this rate increased to 28%, 28% of our nonfinancial companies' loans are guaranteed by the state. Also, if we -- even better if we go to, let's say, the potentially more risky loans to smaller SMEs, in this case, we drill from 10% of state guaranteed to 43% with a total collateralization at 72.6%. We have also concluded our early engagement campaigns on the company affected by the increase of energy and raw material was a very good output because out of around EUR 10 billion of -- related to 7,400 clients, 90% of these are in the better pluses of our portfolio not experienced any problem from the increase of this cost. We have classified prudentially EUR 1.8 billion Stage 2, but there were EUR 2.5 billion in September. So we are already experiencing some exits from Stage 2 to Stage 1, and we have classified only 100 EUR 50 million S&P, which is a default rate in this category of 1.5%, which is, of course, above the total default rate that is completely under control. Let me give the floor to Edoardo Ginevra for some consideration on funding bonds of portfolio and capital.

Thanks a lot, [indiscernible], and good evening, everyone. So on funding and liquidity, Page 20 on the top left shows the intense activity that we had as issuer especially in the green bond category, where we have been the top issuer in Italy during 2022. The total of our insurance reached EUR 2.7 billion, of which more than EUR 2.05 billion with green features. This has also continued during the first month of this year with an issuance of senior preferred again with pressures, green features for EUR 750 million. Rating agencies have provided a positive recognition of our progresses during '22 with DBRS upgrading or main ratings by 1 notch in October each giving us the first rating in the first part of this year and is also in May 2020 to upgrading all the main ratings for the very static. So in total, our funding position is characterized by almost EUR 14 billion of current accounts and deposits position with ECB, which is of EUR 26.7 billion, a net position of EUR 14.5 billion worth also mentioning that, on average, generally, our net position has been around EUR 5.6 billion because of the optimization of the treasury activities. Liquidity position is made up of almost EUR 58 billion of cash and encumbered liquid assets, of which EUR 21 billion is eligible. Liquidity and funding ratios are well above the [indiscernible] with a CR about 190% in progress versus the September 2022 and above EUR 100 million requirement. Page 21, position in terms of debt securities portfolio, this has increased in December at EUR 34.9 million, but this has been concentrated in the amortized cost component, which rose from EUR 21 billion to EUR 25.5 billion composition of this increase is focused, especially in Col-Europe with Italy plan covering a smaller part. So the amortized cost component, which is fully hedged for the cover protected from any capital impact is now at 73% of the total . On the right part of this slide, you also see that the share of [indiscernible] remains below 40%. It's 36.7% was the rest is 63.3% is not involving. So bear in mind that the beginning [indiscernible] end of 2016, more than 99% of the portfolio was made of Italian [indiscernible]. Page 22, some color about the capital and P&L impact of the bond portfolio. So stability [indiscernible] overall, the level of the markets at the end of December was very similar to the end of September. So this explains the fact that reserves stayed more or less at the same level, EUR 626 million negative. But the progress in January, the net level, for example, at the end of January was EUR 550 million. Net financial result was slightly negative for EUR 9 million. This is because in the stability in the state with a stable level of December didn't have any longer the impact that we had in the previous quarter, our hedging contract that created positive income as opposed to the negative behavior negative trend of reserves and also with an influence of such items is next, which as you know, is kept at fair value and contribute to the net financial result. In the contribution of the various geographical areas to the level of reserves is shown in the pie chart on the left in the bottom, with Italy contributing for only 15%, 52% made of [indiscernible] meaning that most of the level of the reserves 85% basically is attributable to pure rate effect and not to credit effect. Capital sensitivity has been significantly reduced in the end of the year, declining from EUR million 2.6 to EUR 1.2 million [indiscernible] with negligible contribution of all the Italian profits well also [indiscernible]. Capital position, now Page 23. So we had given a guidance by end of the previous quarter to end the year 13% after the compromise proforma content compromise, and this has been more than respected as shown by the capital work in the top part of the page. We closed the quarter at 13.3%, actually starting from 12.4% adjusted for [indiscernible], basically, first, the performance contributed for P&A performance contributed for 36 basis points, dividends, negative contribution for 20 bps. Balance sheet management, mostly synthetic reputation, positive contribution for '22 at a mixture of elements, 7 bps. So the total before [indiscernible] compromises 13%. The impact of this compromise you may remember it was conservatively estimated in 34 bps 3 months ago. Now after the conclusion of the PPA process on Banco BPM Beta is quantified in 51 bps. On top of these elements, there are additional 33 bps from the removal of the current provision interaction which went from the market in December after the conclusion of the settled expertise for CB in 2022. The total now is 13.3% or 13.8% stated before the is component. And again, 15% has been reached even before the removal of the current provision reduction. Few comments on the remaining part of this page, tier 1 and total capital are well above minimum requirements, respectively at 15.6% and 0.6% after both with respect to the minimum capital requirement, the CET1 requirement. And with respect to the total capital requirement is 464 bps in this case, again, adjusted for the [indiscernible] with all the buckets of Q2 and an additional Tier 1 field. I'll give the floor to Mr. Castagna for the conclusions.

Thank you, Edoardo. So very briefly, the Page 24 is related to the recap of very good results of this year. Net income at record level, both adjusted and stated a very good trajectory in NII, which will lead to an increase in our forecast, reflecting also an increase in pre-provision income in net results. Cost/income down as well as cost of risk with a core cost of risk at 52 basis points. We continue with derisking, reducing at the level we already anticipated the stock of NPE, and we are very comfortable around 4% and 2% in the net NPE ratio. Also, capital was better than expected, as I had mentioned, [indiscernible]. This allow us to reach an EPS of EUR 0.46, which is slightly better on the November guidance and EUR 0.23 of DPS. Let's go on Page 25 to remark the guidance and the outlook for 2023, we think that with some potential further increase due to the interest rate, we can have some better performance in net interest income. Meanwhile, we think that net commission will be broadly in line with 2022. We have also up a prudent assumption to NFR results because of the lack of the contribution of disposal of is that we had with the positive reserves in 2022. Meanwhile, now the situation is the opposite. We are recovering. Of course, we are having better results impacting the common equity Tier 1 from the [indiscernible], but we do not expect a contribution. A consistent contribution in profit and loss. As far as the contribution from Bancassurance, of course, 23 will be important, but due to the different extraordinary transaction, which will lead us to buy the 100% of there and then start the new joint venture with Credit Agricole, we feel that the most important part of the contribution will come as we expected in our strategic plan 2024. Operating costs, we will do our best, considering inflation and the new contract -- labor contract, which will be in place in 2023 to contain inflation at least at the level of the inflation expected, we think we can be able to contain the cost increase of below 3%. We had also some prudent approach vis-a-vis to the cost of risk due to the potential increase in the default rate due to the macroeconomic assumption. Again, we see some upside from a better macro environment, which could be possible if the forecast for the GDP and the default rate will be better than we expected a few weeks ago as it looks. So we feel confident in giving again our guidance of EUR 0.60 for 2023, but we also feel that these elements can allow us to give you some long-term sustainable P&L piece of growth on Page 26. On the left, we see the road map we have done this year and last year. The forecast for 2023, increasing the APS from EUR 0.49 to EUR 0.60. We also think that due the key drivers that now looks like able to support a better macro scenario with a strong NII, cost of risk normalization. And as far as we are concerned that full Bancassurance deployment, we could be able to increase also the strategic plan guidance for 2024 from EUR 0.69 to EUR 0.75, and this pace of increase could be extended also to 2025. The management team is very confident as we were when we announced the guidance for '22 and '23. And now, of course, we will -- we have also the renewal of the Board in April. And the second part of the year, it's possible that we will review officially the business plan we have out until '24, possibly extending to 2025. But again, the long-term outlook for now, for the time being, allow us to give some guys, some better guidance already in 9 months. I have done with the presentation. If there is some question, I leave the floor to you.

[Operator Instructions] The first question comes from Antonio Reale of Bank of America.

I have 3 questions, please. One on NII. The second one on your EPS guidance for the full year and lastly, on capital returns. The first one on deposit betas, please, your market leader in parts of Northern Italy and you've decided to sort of take a conservative stance with respect to deposit EBITDA using 46% level. Can you tell us what you're seeing from competition and what you're seeing from your client base when it comes to deposit pricing, where deposit bidders are today in your portfolio and give us a sense of the upside to your NII estimates? I see Slide 15, you provide the liability baba, which is -- I don't think is a good proxy for deposit Beta. So if you can share your evidence so far that will be very useful. And then just checking doing back of the envelope numbers, usually your Slide 10 on a Evof3% and deposit EBITDA that is close to 40%, you'd be close to an NII number of about EUR 2.9 million. And I just want to check if something that resonates with your figures. That's my first question. The second one, on the EPS guidance for 2023 and 2024. You guided to about EUR 0.60 in '23, and you flagged that you had the ambition to be at EUR 0.75 in 2024. So if I take your NII guidance for this year, with your comments on asset quality. Can you just help us with that bridge in 2023? Because again, based on what you said, it sounds like you're going to be above EUR 1 billion of net profit this year already. And I just wanted to check some of those numbers with you. And lastly, just to understand your message on capital returns. I think you have good visibility on earnings. You're sitting on level is close to 13%. Your PE ratio is below 4.5%, which is a remarkable achievement. I wonder what prevents you from increasing shareholders' remuneration here. You've not shied away from being more ambitious on this point in the recent past. So I wonder what we need to see or what you need to see to increase dividend payout or introduce her by [indiscernible].

Thank you, Mr. Reale. Starting from NII, I hope to have understood your question. We say that we have reduced static NII sensitivity from 2020 to 160 because of the EBITDA deposit EBITDA assumption, which, of course, meanwhile, the interest the of the [indiscernible] up, of course, are a bit more aggressive than before. So now we think that the EBITDA, the new EBITDA could be 46% vis-a-vis 40% that was in the previous forecast. The current level of cost of deposit is very much below because we are around 35, 57 basis points. As far as the competition, of course, there is some few requests for increased deposit but remuneration on deposits. But please keep in mind that we have almost EUR 75 billion to EUR 80 billion, which are very much spread out in our retail customer base with no major volume at stake. Of course, we are following very closely the corporate and institutional, but up to now, it looks like all the banks are keeping the same attitude to leverage on a deposit cost, which is at -- up to now to a very low level, and we expect to remain at this level for the next months. Of course, we will -- if the interest rate will go even higher, there would be some impact, but in any case lower than the advantage of Euribor price. In terms of guidance, no, we already gave some update in September on 2023 because, as you know, we have out a strategic plan target in '23 and '24. Of course, now we are a bit more confident because of NII and also of the global scenario, you will remember that a few months ago, there was a much gloomy attitude towards the macroeconomics in 2023. Now we are beginning in the second month of the year, we still don't see major inflow in NPE. We still see a good attitude in our client to invest to borrow money. So we feel that at least for the first part of the year, this should change, and we are a bit more confident that, of course, adding a prudent approach, of course, in terms of cost of rigs. So this on the other side, could be interpreted as a buffer for potential increased results, this could be a good -- is, of course, a solid part of our [indiscernible]. This time, we are also -- I wouldn't say updating the plan because this will be done formally when we will review the plan. But given the situation as of today, we feel that we can increase the expectation of our same pace of growth also for 2024 and going ahead. But again, it's still not a review of the business plan that we will most probably do by the end of the year. Capital return, again, the step-by-step approach in the business plan, we had 40% of return for shareholders. Now we increased to 50%. Let's say maybe 2023 would be a good year to change our policy. Let's check and see if we can reach the results and we will take a decision during the year.

The next question is from Giovanni Razzoli of Deutsche Bank.

A couple of clarifications on the capital work. The move of calendar provision deduction should come automatically. So shall we take them as granted as you already applied for them? Or shall we still wait for some regulatory steps. And another question again on the capital and on the regulatory. It means that most of the banks adopting IRB models are recording in these days, what you expect in 2023? Do you remember that you still have some adjustments in the last few years. So I was wondering whether there are any class projections on something for change in the parameters of the IRP close as a result of some regulatory price. Again, another question and the last one on the 2020 and '23 guidance, I will try to rephrase what the college is saying. You basically -- let me put you more simple. You're basically guiding a net income from more than EUR 2.5 billion to more than EUR 2.7 billion, which gives us something like EUR 150 million of higher pretax profits given a take. So the EPS guidance remains above EUR 0.06 as a headline number, but my should become more than 0.7% of EPS or as being equal. Is my understanding correct? Or is there something that we have to add and so not everything is equal.

It's not automatic. As you know, we were the only bank to -- basically, I feel the only bank to deduct the calendar provisioning from the [indiscernible]. Meanwhile, other banks choose to have a slight increase in the P2R. We are in the Q2 -- in Q4, we are doing the same approach of the other banks. So we have decided to -- with the SREP, we had the impact on P2R. And of course, we are recovering on common equity Tier 1. As you can imagine on the impact of P2R, there is also the relief that is not 100%, but 56% because of the different bank. No authorization is needed for this kind of thing, but we think we will stay the same way. The first time we didn't know what the other bank would have done and now we are at the same level of the others. I didn't get exactly what you mean for a much higher tax rate. Of course, there is an increase in Euribor. We are considering in the guidance only 50% of increase in Euribor, which already applied basically because it's 250 basis points. Of course, as I mentioned before, if there would be some more increase, we have to consider this increase. That is only a guidance then the inflection is growing some way. The GDP will go some other way. So for the time being, we think that we have a solid base to say that we can reach the 60 bps. But of course, as I mentioned before, we have finance side, some room in NII and in cost of risk. On the other side, we have to be very good at replicating commission at a higher level and to keep the cost at the same pace of 2022.

Our next question is from Christian Carrese of Intermonte.

The first one on net interest income. I was wondering if you can elaborate a little bit on what kind of loan growth you have in projection? And if we have to take the net interest in the fourth quarter, net of center effects of around EUR 650 million as a starting point for 2023. And the deposit EBITDA maybe I missed the data. If you can tell us today [indiscernible]. The second question is on cost of risk. I saw that the current generation PP went down this year. So if you can give us an idea of the cost because I didn't get if you were to any cost of risk flattish compared to last year, maybe the core cost a risk around 50 basis points, if you can give us an idea, a figure on that. And if you want to keep some buffer to maybe to reduce some coverage on OTT? The third question is on fees. We read on the state with the proposal on a potential ban on inducement, if you've done some on work to see what could be the impact? And if you can change the more than maybe to become more advisory fee to offset any potential impact from that? And finally, some runoff on teams update by ECB, and we saw some benefit [indiscernible] quarter. We have done some securitization to boost capital what are the regulatory area you had in mind for 2023.

Yes, for having a proper quarter, you have to reduce by EUR 80 million, the contribution of Q4, of course, at the level of Euribor that was during the Q4, which was consistently below the current revival. Deposit beta, it does not change basically every day, as you can imagine. So we just in the possibility to have further increase when we had -- when we were doing the presentation, we had 50 basis points of increase, then there is a forecast to other 50 basis point. So we thought we have been prudent to increase the deposit beta to 46%. Cost of risk, as I mentioned before...

[indiscernible] On loan growth or what you expect...

Yes, right. You're right, right. Loan growth, no, we do not expect a massive loan growth, even though we are very well based in order to increase our loan book. Basically, even though as in 2022, we have not pushed especially in the second part of the year to grow. We have been able to grow more than 3%, which is basically in line with the business plan. We will be much more attentive to the quality of our assets. So again, for very good client for -- we will continue for sure to have all the opportunity given by the guaranteed loan but we are not pushing either in terms of being aggressive or in terms -- even more in terms of asset spread will be very attentive first to the quality of the portfolio, secondly, to the contribution of the portfolio. So I would say that it's impossible for us not to grow, but we wouldn't push to grow at a higher pace as of today. Post of risk, we have assumed in the macro environment, a deteriorating of the potential inflow of NPE. We think as of today, that is a prudent approach. But nevertheless, we think it's prudent to consider that the default rate could be higher. And this, again, will be a potential upside if the situation point way it is right now. So 50 is a normal cost of risk, but I wouldn't say that in our consideration, we have consider 50 basis points. I don't have an answer for the impact of the fees if they should…

Maybe on the asset quality, do you want to increase the coverage ratio on the unit pay? Or do you see that is an adequate level the current one.

UTP, we grew -- we wanted to be more or less 40%. We grew at 44% beginning of the year -- end of last year because we had the Argo transaction to perform in Q1 '22. So, it was something that immediately went down to 40% again. And we are now considering this coverage to be good also because we don't have that much UTP to dispose. We have just to work out. Again, we have some potential disposal to do but we imagine more on the bad loan side and on the [indiscernible]. So I wouldn't expect a major increase in UTP. May I go ahead?

Yes.

For the fees, the new potential, new rules on the fee, frankly speaking, we don't have any sensitivity because we're still under discussion, something that we don't know is really -- will be applied. We have to consider, of course, in that case, how it works in the different business of life insurance or assets under management. We have, I think, nowadays, all the means to be able to switch to potential to better situation whatever regulation could happen. Now frankly speaking, we don't have yet any forecast on that. And sensitivity we have done on the future year is, of course, with the current rules. What else model update, should we have done, of course, some securitization here, we will do our other securitization also next year also because, as you know, the effect of [indiscernible] for a couple of years. So as soon as you start in 2 years, we have also some basis points coming back. So for sure, in 2020, we will continue to do securitization. Also because, as you were mentioning, there is this favorable possible doing on the model. We are on a way, we are confident that we have been approved our model well very recently after the merger. But of course, we are well aware that ECB is again doing another step of level plan field, we will see what happens. I think we have enough room to be safe on this respect.

The next question is from Noemi Peruch of Mediobanca.

My first question is on NII and again on deposit EBITDA. And I just wanted to check whether the 46 deposit EBITDA was also applied to your '23 guidance or just the sensitivity. And on the deposit and decrease in deposit EBITDA, did you change it because based on historical data or your future strategy on deposit pricing? And then I have a question on fees. If you could give us an estimation for the potential impact of the removal of the deposit fees linked to negative rates for 2023. And also, I wanted to ask on insurance. Was there a one-off in Q4? Or can we consider the Q4 as a run rate for 2023, of course, before the buyback of Catholic.

Good evening, my name is Edoardo Ginevra. So on deposit [indiscernible], we applied the approach for 2023. So basically, using modular where it is consistent with the figure we disclosed in this presentation, which is quite more conservative, much more conservative than the recent historical experience. So nothing comparable to what we have observed in our cost of the deposit base throughout the most recent quarters. For insurance, what happened was that we needed to restate the insurance contribution because we are forced to apply the IFRS 9 rules on the calculation after the fact -- following the fact that we haven't been granted the financial conglomerate yet. The financial conglomerate is sort of rationale for getting an exception that allows you not to apply the IFRS 9 applying the IFRS 9 legal to restate the accounts. But in general, I think that what we achieved throughout the quarter, so the total of the second half of this year is a good guidance to understand what can happen in ether future. And now... I take, again, the floor for the fee the estimates of the maneuver we have done to give back to our clients the impact of negative rates, it's around EUR 50 million. On top of that, we have other fees for the new securitization we have done, which will be another EUR 20 million every commission. So when I say that in our guidance, fee will stay flat, that means that we have to recover at least this EUR 70 million.

The next question is from Manuela Meroni of Intesa Sanpaolo.

The first one is again on the guidance on 2023, you confirm your over 60 end guidance while the NII is increasing by EUR 200 million in terms of guidance. Just to -- I'm wondering just to understand if there are some elements of the P&L that you expect to be weaker than originally planned? Or if we have to read this over 60% guidance is well above 60 et guidance per share. And the second question is on IFRS 17. I'm wondering if you expect any impact on your insurance business on [indiscernible].

Yes, of course, the guidance of NII is higher than the previous one. We didn't have, at that time, all the different contribution for instance, or NSR, which is very much reduced because of the reserves, negative reserves. So it's very difficult to consider a contribution of EUR 200 million for 2023. And that's why we have a prudent approach on that as well, as I mentioned before, a very celebration on cost of risk. So basically, we have possibly some room in NII. We will see if this will bring to something better than our guidance. But again, the guidance was 1 month ago, 2 months ago, I think is already an increase of EUR 0.11 vis-a-vis the business plan. We think it's very comfortable guidance for our investor with some room if the macro situation remains as it is as well as it will be in 2024 and in 2025. Sorry for the second question, I didn't get it. On my second question for insurance. So what happened this year reflects the fact that we have acquired 100% of Banco BPM Beta in July. So until the -- for the first half, we all included 19% of net profit in our accounts. Next year, 100% of Banco BPM Beta will be included, and this is fully factored into our guidance for 2023. On top, as far as the [indiscernible] are concerned, that the guidance reflects conservatively the contribution from 35% of these 2 shareholdings, why if we exercise the call and we start owning the full amount of the bars for the remaining part of the year, for example, let's say, second half, this will be a positive support additional support for our guidance. Did I answer the question?

The next question is from Andrea Lisi of Equita.