Bank of Cyprus Holdings Public Limited Company (BOCH) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. I'm Myrtle, your Chorus Call operator. Welcome, and thank you for joining the Bank of Cyprus conference call to present and discuss the group financial results for the 9 months ended 30th September 2020. [Operator Instructions] And the conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Panicos Nicolaou, Chief Executive Officer; Mrs. Eliza Livadiotou, Executive Director of Finance; and Mr. Demetris Demetriou, Chief Risk Officer. Mr. Nicolaou, you may now proceed.

Thank you, Myrtle. Good morning, everyone. Thank you for joining us. As we announce our regular quarterly results, importantly, today, we are also updating our medium-term strategy, and the majority of our presentation will focus on that. As a result, our Executive Director of Finance, Mrs. Eliza Livadiotou, will give a brief informal update on our 9-month financial results, after which I will update you on the medium-term strategy and targets. Whilst our comments on the results will be brief and [ informal ], our disclosures are unchanged, and you will find all the usual information in our presentations past and associated materials. I will now hand over to Eliza to take you through our performance for the first 3 months of 2020. Eliza?

Thank you, Panicos, and good morning from me, too. So I'll start from Page 5 -- Slide 5, which summarizes the key highlights for the quarter. I will briefly go over this. Signs of economic recovery to pre-pandemic levels marked the third quarter of the year with Cyprus economy showing more resilience than initially anticipated, demonstrating its open, small and flexible characteristics. However, as we all know, a second wave of the pandemic is impacting all European countries, including Cyprus, resulting in partial lockdowns, which is likely to cause some loss of momentum in economic recovery in the fourth quarter. During the third quarter, we continued to support the recovery of the Cyprus economy and extended a further EUR 288 million in new loans, up by 20% compared to the previous quarter as new demand increased post-lockdown, driven by retail and housing. Overall, we have granted EUR 1 million -- EUR 1 billion of new lending in the first 9 months of the year. At the same time, we continue to monitor the credit quality of loans under moratorium. In the third quarter, we have generated total income of EUR 137 million and a positive operating result of EUR 44 million. Cost of risk was maintained at below 100 basis points for Q3. Overall, the third quarter was profitable, and the profit after tax was up EUR 4 million. In the 9 months of the year, we reduced our total operating expenses by around EUR 40 million, or 13% on a yearly basis, reflecting our ongoing efforts to contain costs. The 4% increase from the Q2 levels reflects the lower cost base in the second quarter as a result of the restrictive measures for COVID-19. The bank's capital position remains good and comfortably in excess of our regulatory requirements. As of 30th September, our capital ratios on a transitional basis were 18.2% for the total capital ratio and 14.7% for CET1, both pro forma for Helix 2. Deposits remained mostly flat in the quarter at EUR 16.4 billion, and we continue to operate with significant liquidity surplus of EUR 4.1 billion. During the third quarter of the year, we maintained our focus on dealing with legacy issues. The pace of organic NPE reduction returned to pre-lockdown levels as we reduced NPEs by a further EUR 230 million. Together with the phase of loans achieved earlier this year, that is Helix 2 and Velocity 2, we have substantially reduced NPEs by EUR 1.5 billion in the first 9 months. Overall, we have now reduced the stock of delinquent loans to EUR 2.4 billion and our NPE ratio to 21%, both on a pro forma basis. NPE coverage was maintained at 59%, reducing the residual risk on our balance sheet to EUR 1 billion. As Panicos mentioned, today, we will update you on our medium-term strategy and targets. In summary, we have a clear path to reduce the NPE ratio to single digits by end of 2022 and to 5% in the medium term. We will return to revenue growth in a more capital-efficient way, capitalizing on our strong market position. We are planning to improve our operating efficiencies through digitization and automation, navigating a clear path to sustainable profitability, delivering shareholder returns. We are committed to generating a return on tangible equity of around 7% in the medium term. Now focusing on the macro conditions. I'll take you to Slide 6. The pace of economic contraction has slowed considerably post-lockdown to a minus 4.4% in the third quarter compared to a minus 12.3% in the previous quarter, proving that the Cyprus economy is more resilient than anticipated earlier in the year. The comprehensive measures introduced by the Cyprus government and the EU have played a vital role in mitigating the impact of the pandemic. However, as the number of new COVID cases have increased in recent weeks and local restrictions have been reimposed to contain the spread, this is likely to lead to some loss of momentum in economic recovery in Q4. The contraction in Cyprus is now expected to be less severe than in the euro area, which is currently expected to be at minus 7.8%. Economic activity is expected to rebound during 2021, and GDP growth is estimated to range between 3.7% and 4.7%. Unemployment, which stood at 7.4% in Q3, was contained by the government job protection schemes and business subsidies. As expected, the international tourism arrivals over the summer were also impacted by the lockdown. Now turning to Slide 9. Here, we provide an update on the loan moratoriums. As of 30th September, EUR 5.9 billion worth of gross loans were under the moratorium, out of which around EUR 5.6 billion are performing loans. As you probably know, the moratorium launched in March 2020 was very generous, and for many customers, was considered as a benefit with no cost. Business loans under moratorium amounted to EUR 3.8 billion or 76% of the non-legacy loan book. And private individual loans amounted to EUR 2.1 billion or 52% of the non-legacy book. As you know, the sectors mostly impacted by COVID are tourism and trade. Our total exposure to these sectors was at EUR 1.1 billion and EUR 1 billion, respectively. Both sectors continue to operate with considerable surplus liquidity that has increased in the third quarter and amounted to EUR 340 million and EUR 930 million, respectively. More information about the sectors is provided on Slide 57. As shown on the bottom graph, around 31% of loans to private individuals under moratorium have paid at least one installment as of October, giving us confidence that the generous moratorium hasn't negatively impacted the payment culture. We note that the payment of installments during 2020 are accounted for as prepayments towards 2021 installments. In May, we have initiated a review campaign of all loans under moratorium, and by mid-November, approximately 80% of the reviews have been completed with no significant change in the unlikely-to-pay status. However, given the increase in the number of COVID-19 cases in the last few weeks, along with a stricter measures being imposed, the monitoring and review of the credit quality of loans under moratorium remains ongoing and dynamic. Finally, we have now in place packaged solutions for the customer that may continue to face difficulties after the end of the moratorium. Now let's move to the income statement on Slide 12. Net interest income remained broadly flat on the prior quarter at EUR 82 million. Margins decreased to 1.79%, reflecting the increase in liquid assets resulting from the EUR 1 billion participation in the TLTRO in June. Noninterest income reduced to EUR 55 million, negatively impacted by lower insurance income and revaluation loss on financial instruments, partly offset by higher net in commission income as the transactional volumes gradually recovered post-lockdown. Total expenses were at EUR 273 million for the 9 months, down 11% year-on-year, reflecting our ongoing efforts to maintain costs. Total expenses for Q3 were at EUR 93 million, up 7% Q-on-Q and were in line with our Q1 cost. The Q-on-Q increase reflects the second semester contribution to the Deposit Guarantee Fund of EUR 3 million and the normalization of staff costs post-lockdown. Total loan credit losses, provisions and impairments were EUR 38 million for the quarter compared to EUR 50 million in Q2, driven mainly by lower impairments on properties. Noncredit losses for Q3 were at EUR 31 million, reflecting a cost of risk of 97 basis points. The overall result was a profit after tax of EUR 4 million for the quarter and a loss after tax of EUR 122 million for the 9 months. Now let's also turn to Slide 18. During the third quarter, we generated around 40 basis points of organic capital through operating profits and around 10 basis points from the decrease of risk-weighted assets. The recent amendment in capital regulations resulted in a benefit of around 10 basis points in the third quarter, and a further 10 basis points benefit is expected to be recognized in the fourth quarter of the year. These were offset by loan credit losses and impairments of around 30 basis points. That completes my brief review of our 9-months performance. And as Panicos said, all our usual disclosures are there, and we would be happy to deal with any questions either at the end of this call or afterwards on separate calls. So with that, I'll hand back to Panicos on medium-term strategy and targets.

Thank you, Eliza. I will today outline the position of Bank of Cyprus. The focus that we have made is [indiscernible], you can expect from us over the next few years. I will start with some key remarks on Slide 28. The bank operates in a more open and flexible economy, which has proven in the past that it can quickly recover from economic crises. We are the leading financial hub in Cyprus with strong franchise and customer base. Around 3/4 of the population are customers of the bank. We have a leading market position in both loans and deposits, with marketshares of 42% and 35%, respectively, as of the end of September 2020. Our team, led by proactive and strategically minded Board, has an excellent track record and is fully committed to deliver shareholder value. Our strategic priorities are clear: complete the restructuring and derisking of the bank as soon as possible and set the bank on the path for sustainable profitability, and of course, deliver on shareholder value. Slide 29 provides an overview of the journey the bank has been on these past few years and where we want to be in the medium term. We have been through a period of considerable change. We are now laying the foundations for delivering greater shareholder value. Today, our near-term priorities include the completion of our balance sheet derisking, as before, through organic NPE reduction and prudential disposal as well as ensuring our cost base remains appropriate while further investing in our digital capabilities. Over the middle term, our priorities will evolve. We will increasingly focus on capitalizing on our strong market position across both banking and financial service products to enhance our revenue. At the same time, we are very focused on improving our operating efficiencies and driving down cost. Combined with the expected normalization of the cost of risk, we have a clear path to generating sustainable profitability. Slide 30 to 33 contain information that you already know, in order to address people that look at the bank for the first time, and so I will not spend much time on this. Slide 30, the Cypriot economy has outperformed the European Union over the past 5 years and growing market confidence can be seen in the sharp fall in sovereign spreads. Despite the negative impact from the pandemic, Cyprus maintains an investment-grade rating. Turning now to Slide 31 very briefly. Our market presence in Cyprus remains very strong with large market shares across all key products. Moving to Slide 32. As noted, we have been on a transformative journey since 2014. Today, we have a modern, healthier balance sheet. We are well funded and enjoyed a capital ratio considerably in excess of regulatory minimums. But as shown on Slide 33, the balance sheet derisking has come at the expense of operating performance. Our loan book and revenues are down sharply over the past few years. And although we have managed to reduce our cost base to some extent, it hasn't been enough to protect profits. I will now outline how we expect these trends to reverse direction over the next few years. Moving to Slide 34, we have the starting point of our medium-term strategy. We are the leading bank in Cyprus with 655,000 private individual customers and 50% market share in household and corporate loans. We are a diversified financial group with profitable subsidiaries in our field of business with high market shares in operations like insurance and credit card services. We are the leading digital bank in Cyprus with 285,000 users of Internet and mobile banking and the widest range of internet and mobile functionalities. Finally, we have an excellent track record on delivering against strategic objectives. As a reminder, we have reduced NPEs by more than 84% in the last 6 years. Moving now to Slide 35. We have 4 key strategic pillars, all important building blocks for us to deliver shareholder value. Firstly, we will complete our balance sheet derisk. Secondly, we will return to revenue growth, and that growth will be in a more capital-efficient way. Specifically, we will aim to enhance revenue generation by a growth in less capital-intensive banking and financial services businesses. Thirdly, we are planning to improve our operating efficiency through digitization and automation. And finally, we are building a forward-looking organization with a clear strategy supported by effective corporate governance aligned with ESG priorities. Starting with derisking on Slide 36. We have a clear path to reduce NPE ratio to single digit by 2022 to 5% over the medium term. Our track record here has been excellent, achieving an 84% reduction over the past 6 years, the vast majority, organically. We've had a highly experienced and highly effective team in place, and we expect NPE reduction to continue in 2021 through both organic and inorganic actions. We expect to have a tight coverage of over 50% in the near term, excluding any collateral. Moving now to revenue growth, and I will start with net interest income on Slide 37. The net interest income challenges are clear to us, and we have a plan of action in place to mitigate the pressure we face. Firstly, over the middle term, the performing book is expected to grow by 10% and broadly offset the foregoing net interest income from the declining legacy book as we successfully exit NPEs. We will address challenges from low rates and surplus liquidity. We will intensify our efforts price away or price correctly deposits through liquidity fees and improve credit spreads. Finally, the funding cost for MREL compliance is expected to reduce as we successfully complete derisking. We are looking to build a bank with better quality net interest income, and overall, we expect revenues or total assets to improve from 260 basis points to 280 basis points over the medium term. Turning now to Slide 38. Our fee and commission income is expected to grow, driven by cross-selling and pricing initiatives. Now I realize that you may well have heard before banks promising to improve cross-selling metrics. Let me explain why we are confident that Bank of Cyprus can deliver. Firstly, as you know, that we have spent the past half-decade focusing on derisking, understandably improving revenues from existing customers, which most of them were NPEs, was not a major strategic focus. It is now. Secondly, we have, for the first time, the system in place to deliver on our plans, in particular having made and continued to make considerable investment in our digital construction and analytical capabilities. And we have some clear practical measures to help us deliver. For example, starting early next year, we will extend the liquidity fees to other group of customers and introduce a new price list. Both actions are expected to increase our fees. We will also aim to increase the average product holding through cross-selling to the underpenetrated customer base. And more widely, we are working to gather new revenue sources through the introduction of a digital economy platform, leveraging the bank's market position, knowledge and digital infrastructure. These initiatives are expected to improve our fee and commission income over total losses by 50 basis points in the middle term, and revenues per RWA are expected to increase to around 6% from nearly 5% currently as many of the initiatives improve revenues in a more capital-efficient way. Turning now to Slide 39 and 40. Slide 39, one of the important sources of increased revenues will come from our insurance business. In the past, we haven't spoken about them in much detail. But over the last few years, our life and nonlife insurance subsidiaries have delivered sustainable healthy profitability. Our life insurance business, operating under the EuroLife brand, has a leading market share in Cyprus. However, we believe it can deliver more. We are aiming to grow total regular income by over 35% in the middle term by expanding its products and customer base and further leveraging on the bank's strong franchise. On Slide 40, our general insurance business, known as General Insurance of Cyprus, similarly has a strong market position and has delivered rising profits. Here, we are making some important improvements. We are revamping our bancassurance channels while extracting more synergies with our life insurance sales network, and we are expecting to enhance the digital sales. Overall, we expect our market share in general insurance to rise considerably over the next few years, and our gross written premium continues to grow by more than 50% in the middle term. Let's now move to Slide 41. A significant enabler for our revenue growth strategy is our digital transformation program, which continues to progress well. We are aiming to leverage on our leading digital capabilities to serve customers and the Cypriot economy, creating shareholder value. We have around 285,000 active users of Internet and mobile banking, and currently, 74% of our customers are digitally engaged and 84% of the total transactions are performed through digital channels. These statistics will allow us to further improve our operating efficiency through further automation and brand rationalization, and of course, will support our efforts to improve cross-selling through modeling customer needs and offering tailored products and services. Turning to Slide 42. We are revamping our operating model to further improve efficiencies through specific initiatives, including exit solutions to release full-time employees and further branch footprint rationalization. These initiatives are expected to deliver a reduction of operating expenses by approximately 10% over the medium term. In addition, restructuring expenses are expected to reduce to single digits following the successful completion of our balance sheet derisking. Our cost-to-income ratio is expected to rise in the near-term as revenues remain under near-term pressure and operating expenses increase due to higher IP and digitalization investment costs. However, we then expect our cost-to-income to decline over the middle term, which we expect to reduce to mid-50s. Let's move on to Slide 43 and Slide 44. Of course, delivering for our shareholders is important, but it's only one part of our responsibility to a wider group of stakeholders, who are working to build a forward-looking organization with a clear strategy supported by effective corporate governance aligned with ESG priorities. We will continue to evolve our ESG strategy and embed ESG priorities in our business targets. You can see on Slide 44, some of our areas where we're already delivering. Turning now to capital, Slide #45. Making a strong capital base has been a key tenet over the past few years, and that remains a nonnegotiable for the bank going forward. Our business plan is based on us maintaining a CET1 of at least 13% over the middle -- over the entire period of our plan. Our capital will be supported by organic capital generation, supported by focus on less capital-intensive businesses, the careful reduction of high-risk weighted assets and the Helix 2 risk-weighted asset benefit upon full repayment of the deferred consideration. At the same time, factors that could potentially impact our capital ratios include the IFRS 9 phasing-in and any potential regulatory impacts and one-off cost optimization charges. As a reminder, as of 20th September 2020, our CET1 ratio fully loaded pro forma for Helix 2 is up 12.9%. Until the completion of derisking and the restructuring of the business, there may be volatility in our capital ratios due to timing of potential future impacts from regulatory changes and one-off restructuring costs. Slide 46. Bringing all of this together, we are pleased to share with you our medium-term financial targets. We are in a strong position to take advantage of our many strengths over the next few years. However, we, of course, recognize that there are near-term challenges posed by COVID-19. And like all other banks, we have to manage through a constantly [indiscernible] environment and a constantly changing regulatory environment. We recognize that our shareholders have suffered over the past few years as a result of the considerable cost and effort necessary to derisk the bank. However, now is a time for us to raise our sights, and therefore, we felt it was very important to introduce a return on tangible equity target for the first time. The Board and the executive management team are committed to generating return on tangible equity of around 7% over the middle term. The building blocks behind that include a commitment to reduce total operating expenses and to complete the derisking of the business, demonstrated with an NPE ratio into single digits by the end of '22 and to around 5% over the middle term. And we expect our normalized cost of risk to reduce between 70 and 80 basis points, appropriate for a bank with our mix of businesses. As I mentioned earlier, making a strong capital base has been a key tenet for the past few years, and that remains a nonnegotionable for the bank going forward. Our business plan is based on us maintaining CET1 ratio of at least 13% over the entire period of our plan. Turning now to the last slide, 47. This is a new phase for Bank of Cyprus, a bank that has completed derisking becomes smaller and safer, but also a bank that will return to revenue growth as we take advantage of our market-leading position in most of our product areas. We have relationships with 3/4 of the Cyprus population. We have strong customer trust, while developing powerful digital knowledge and infrastructure. And we have a clear strategy in place to complete a turnaround and set the bank on a path for profitability and delivering value for our shareholders. This concludes our presentation, and we'll now open the floor for your questions. Thank you very much. Myrtle, the floor is yours.

[Operator Instructions] The first question comes from the line of Floriani, Jonas with Axia Ventures.

Thanks for the detailed outlook and the targets. My first question is on asset quality and expectation for 2021. I remember, you had some comments that out of your exposures under moratoria, around EUR 1 billion or so would probably come into NPE flows in 2021. Do you still see that as a reasonable number? And I also remember that your idea was to offset those inflows with organic outflows to the same amount, so pretty much keeping up with the EUR 200 million, EUR 250 million per quarter, and then adding to that, a transaction has been the main factor of the decrease in the NPE stock. Then my second question is on your costs and your cost outlook, operating expenses. I was just wondering if there's not more room for further reduction, especially when you talk about your medium term target. I mean, I acknowledge that you referred to less than EUR 350 million. So this could be many numbers. But the run rate of 2020 is already around that level, right, if you annualize it. So I mean, if you can just explain a bit more the rationale behind your cost cutting. And also how that links to your cost/income ratio because at the same time, as you're expecting to grow revenues, your cost/income ratio doesn't necessarily -- at mid-50s doesn't necessarily strike as very, let's say, outstanding versus European average. So again, linking to costs, is there any figure you can share in terms of estimated IT or digital investments that you're probably also going to incur in the future?

Okay. Thank you, Jonas. Okay. I will take the questions. Starting from asset quality in 2020 -- 2021. What we have disclosed is that -- and this is still in place is that any new NPE flows will be broadly offset by the organic delivery. And we do project to have a reduction on our NPE ratio in 2021 through nonorganic actions. So 2021 will continue to be a year of reduction of our NPE ratios. And the big question -- and it's about moratorium because this is the main assessment being for next year. And as you all know, we have a moratorium that expires in December. This is an area of focus for us. We have some, cautiously, I would say, positive signs. We have -- once our retail clients start paying their loans. This is important in business. As Eliza mentioned, we have 2 of our major sectors, tourist and trade, generally increasing their liquidity, including cut-off costs, at the pre-COVID levels. And this is something that provides some comfort for next year. We have completed 80% of reviews of our clients in moratorium without triggering a UPT. Of course, we all need to be very cautious because on the one hand, we have the recent increases in COVID-19, and on the other hand, we have -- we do not know yet the timing and the effect of the vaccine to the strengthening of the economy and also to the people. So -- but we are ready as a bank. We have specific products for our retail company clients that -- which are viable, and we kept them going through the short-term financial difficulties. So overall, we expect a 2021 reduction in our NPEs. Going to the cost question, Jonas. Okay, I would like to remind you all that cost has been a priority for me from the time I took over. In the first year, in 2013, we have achieved great results. This will be remain a priority. I do not focus on specific actual cost or income numbers, but I mostly focus on the cost-to-income ratio, which, as you said, is mid-50s. It's mid-50s. It's -- for this bank, as a first step, I consider this to be positive. But of course, as you mentioned, as you implied, during the middle-term period, we need to continue investing in our IT expenses, which are material, without being able to monetize on all these initiatives within this period of time. And this is important for everyone to understand, and this is something that affects return on tangible equity as well. I mean, the investments in IT and some other corporate reductions are not reflected fully on this period, on this middle-term period. So this is something that we'll keep delivering to the bank ongoing in the years after the outlook. Okay. I don't know, Eliza, do you want to add anything on this?

No, Panicos.

Can I just add? I have a follow-up there on -- back on the asset quality. In terms of your expectations for trade in 2021, is there any progress you can share on that, I mean, in terms of perimeter, in terms of days? Is this a first half or second half event, something like that?

Jonas, this is something that we are currently looking at it. It depends. I mean, we are ready. We are progressing -- let's say, we're finalizing the perimeter. They all depend on our market conditions, market readiness. And this is something we are constantly reviewing. So I don't have anything specific to share with you right now.

The next question comes from the line of Boulougouris, Alexandros with Wood & Co.

Maybe if you could provide a bit more clarity regarding the REMU business unit on the strategy? And what is your plan to reduce the REMU portfolio? And also regarding the on-site inspection and the 50 bps that you mentioned in the presentation as a potential charge in the future, is there any more clarity on the timing of this? That is my first question. My second question is regarding your assumptions in the business plan. You mentioned that you assume a further inorganic -- an asset sale and NPL trade and a new VRS. I mean, could we have a bit more clarity on the timing of this? Do you expect this to take place in 2021 so we can include them in our numbers for 2022? Or it could be something a bit more longer term? And my third question is regarding cost of risk. You did mention the medium-term target of 70, 80 bps. Thanks for this. This is in line with what we see now in the numbers. Do we have any more visibility on 2021 or where the cost of risk would stand?

Thank you. Thank you, Alex. Okay. For the revenue, I will pass the question to Eliza. As you know, REMU is kind of approach of the bank, has been considerably successful in selling real estate assets over the last few years. It will continue to be a priority. It will continue to see the stock reducing because derisking that we will not onboard any more real estates on our balance sheet. So continue selling, we'll only reduce the product portfolio. On this, Eliza, can you elaborate more on this?

Yes. So Alex, I mean, actually, as you may remember, we were actually expecting this year to be the first year when stock would come down post-Helix 1 and Helix 2. COVID has delayed us. Although sales of small properties continue at pace than the larger sales, the larger transactions, inevitably we were impacted by both practical considerations but also macro conditions. So as for next year, for 2021, we expect to have the stock of properties to start being materially reduced, and we expect that to have -- to go down to, effectively, run rate levels by the end of the medium term.

Okay. On the...

Yes, on the odds that [indiscernible] among the on-site inspection, there is no further clarity on the timing. We have not yet been in discussions with the SSM on this. So it remains a pending point. And don't forget 2 things. One is that this 50 basis points -- or up to 50 basis points impact will be reduced as we sell properties in this universe impacted by the on-site inspection adjustment. And we are already starting to focus on this population of properties. Some of them, though, will go away. We sold -- we plan to be selling them in the -- more in the medium-term because they're larger. Some of the smaller ones, we may be able to successfully sell them relatively quickly. And the other thing to just remind everyone is that our real estate stock is still at 80% of open market value on the balance sheet. So we have an [ impairment, ] having built 20% buffer on the open market values.

Okay. Thank you, Eliza. On the NPE trade, Alex, I mean, if you move to Slide 36, you're going to see that during the short term, one of the drivers of NPE reduction is inorganic, and this is -- by that, we mean, trade. And the trading power is our immediate priority. So it's an important key driver for the reduction of the NPE. Regarding the question about the exit plan for the employees, this is, yes, part of our medium-term strategy, but the timing yet has not been confirmed and decided on this. On the cost of risk question, I will ask Demetris, our Chief Risk Officer, to -- pass him the question. Demetris?

Thank you, Panicos. Well, during the outlook period, we expect a gradual and steady decline in our cost of risk towards our medium-term target. As you very well understand, currently, there is the uncertainty of the resurgence of COVID-19, and we're working very hard to minimize the inflows and offer solutions. Within financial year, you could see volatility, which will depend on timing of any NPE sale. And it is reasonable to assume that for 2021, it will be higher than the medium-term target, but not significantly higher, as we will be gradually gravitating towards the medium-term guidance. The main message we want to give out is that we are prudent and we will continue to be prudent. And despite the better macros, we are adding 2 provisions, and we are going to be cautious about the impact of the second wave.

The next question comes from the line of Cunningham, Corinne with Autonomous.

Questions on moratoria, please. You said that you've reviewed 80% of the book. I didn't quite understand the residual 20%. Is that, that you haven't reviewed them? Or that they are not performing? And then if you could just give us a bit more color about the transition. So do all -- are all of the moratoria lifted in December? Or is there something then that takes over when that happens?

Well, thank you, Corinne. I'm starting with the last one. All moratorium are lifted end of December. So that's the result. The reason that we reviewed 80% is that because of the remaining 2020, it hasn't been reviewed. The target was to conclude the 100% by mid-December. So as we are moving forward, we want to have clarity on the whole book of the moratorium, of course, excluding those that are already NPE because part the moratorium, around EUR 300 million are NPE -- already in the NPE status. So very soon, we're going to have more view on the -- 100% of those in the moratorium. But we started, as you know, with the high-risk ones. So it's something that we'll constantly review.

If I may just clarify, the EUR 300 million, [indiscernible], were NPEs at the beginning of the moratorium. These are not NPEs that were created during this period. They were NPEs at the beginning.

This is what we call it not NPEs because one of the -- the only criteria of the moratorium was not to be in arrears, I mean, being current, and we have a number of NPE clients that are current and were current before COVID. And that's why they were eligible for the moratorium as well.

So no moratoria going beyond December? Nothing to follow that?