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

Ladies and gentlemen, thank you for standing by. I am Gaily, 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 quarter ended 31st March 2022. [Operator Instructions] 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; Ms. Eliza Livadiotou, Executive Director of Finance; Mr. Demetris Demetriou, Chief Risk Officer. Mr. Nicolaou, you may now proceed.

Thank you. Good morning, everyone. Thank you for joining our first quarter of 2022 financial results conference call. I'm joined by Eliza Livadiotou, Executive Director of Finance and Legacy; Demetris Demetriou, Chief Risk Officer; and Annita Pavlou, Manager, IR and ESG. After my introductory remarks, Eliza will go into more detail on our financial performance, and then we will turn to Q&A. Of course, we remain available for questions both during this conference call and afterwards. I will start by highlighting some of the key messages for the quarter on Slide 4. First, we see healthy loan growth momentum, an extended record of EUR 618 million of new loans. Our net performing book grew by further 2% this quarter, average, EUR 9.55 billion compared to EUR 9 billion 15 months ago. Second, we delivered a hefty profit after tax before nonrecurring items of EUR 37 million with an underlying return on tangible equity of 6.7% converting to our middle term target of over 10%. A main component of this performance is our non-interest income that amounted to EUR 75 million in the first quarter, which represented over 50% of total income, driven by higher fees and commissions and higher insurance related income. Our insurance business reported a 24% increase year-on-year and is a key contributor to income growth. Third, our current position remains robust. As of the 31st of March, our capital ratio on a traditional basis were 20.3% for total capital, a 15.2% for CET1, both pro forma for trades and remained well above our target of maintaining a capital ratio of 13.5% to 15.5% for the period 2022 to 2025. Fourth, the process of balance sheet de-risk is now largely complete. During the quarter, we reduced our pro forma NPE ratio to 6.5% and 2.7% on a net basis. We remain well on track to achieve our target NPE ratio of 5% by the end of the year and to less than 3% by 2025. Our quarterly cost of risk increased modestly to 44 basis points in the quarter, but remained well within our normalized target range. And finally, as we look ahead, the group has set the foundation to enhance its organizational resilience and ESG the agenda and continue to work towards building a forward-looking organization with a clear strategy supported by tested corporate governance, aligned with ESG agenda priorities. In 2022, the company received a rating of AA by MSCI and we're working hard to improve these ratings further. Our transformation plan is already in progress and aims to enable the shift to a modern banking organization. The banks digital infrastructure and initiatives provide alternative solutions to our customers to carry out their daily banking transactions. Our active digital users continue to increase. Since the beginning of the year, active digital users have increased by 3% to 383,000, whilst our active mobile users have increased by 5% to 335,000. Moving now to Slide 5. Clearly, a lot has changed since we communicated our mediocre guidance in February this year, and so I wanted to share with you our thoughts on how this will likely impact the bank. As you're all aware, the macro environment is one of the high inflation and some slowdown in near term growth, offset by a large positive change in the shape of most interest rate curves. For both Cyprus, another fairly positive were both earnings and capital. Our income will clearly benefit from higher net interest margins from next year, more than offsetting unexpected slowdown in volumes and fees. Higher inflation may lead to modestly higher costs. I'll say there are already plans in place to mitigate the impact. In the near term, we expect some upward pressure on cost of risk, but the normalized cost of risk target remains unchanged to 40 to 50 basis points. Together, however, we expect this to add to our ROTE per annum, which in turn means we now expect to reach double digit ROTE a year earlier in 2024. Higher levels of profitability will be positive for our CET1 ratio, which we expect to be further boosted by next year following the implementation of IFRS 17. Specifically, we estimate the adoption of IFRS 17 in January 2023, to have a day 1 benefits on group tangible equity of circa EUR 50 million, and having group CET1 ratio by 50 basis points. They have both put us in a stronger position from which to build a sustainable dividend. We're increasingly confident in resuming meaningful dividends earlier, subject of course to regulatory approvals. Moving now to Slide 6, which provides further details for our performance in the quarter. I will briefly go over these. The Cyprus economy had a strong start for the year with GDP growing by 5.6% in Q1. However, it is clear that the events in Ukraine will have an impact for the fall of 2022. We expect the economy to grow by 2.7%. During the first quarter of the year, we generated a total income of EUR 146 million, up 7% year on year, driven mainly by 13% year-over-year increase in net fee and commission income and fire insurance related income, partly offset by 7% Lower NII, reflecting the path of NPE trades. Despite inflationary pressure, we have managed to keep our total operating expenses, excluding levees and contributions, broadly flat in the quarter at EUR 8 million, EUR 6 million, reflecting our ongoing efforts to contain costs. The cost to income ratio stood at 59%, 1 percentage point down year-on-year. The important result for the quarter was a net profit of EUR 31 million compared to EUR 8 million a year earlier. Deposit increased in the quarter by 1% to EUR 17.7 billion and we'll continue to operate with a significant liquidity surplus, but now total EUR 6.4 billion. Slide 7 provides an overview of macroeconomic conditions. The escalating geopolitical risk following the outbreak of the Russian-Ukrainian war, the sanctions imposed on Russia have profoundly changed the global macroeconomic outlook and increased uncertainty in a very short time span. In Cyprus, GDP continue to grow in the first quarter by 5.6%. However, the growth is not anticipated to slow down and the Ministry of Finance recently downgraded GDP forecast to 2.7% in 2022, before accelerating again in 2023, underpinned by the implementation of the recovery and resilience plan that is expected to support the domestic activity and employment. As in many other countries, consumer inflation in Cyprus has accelerated significantly from the third quarter of 2021 as a result of supply chain disruptions and higher energy and other commodity prices. In April, inflation accelerated to 8.6% after rising by 5.7% in the third quarter. Russian and Ukrainian tourists accounted for just over 1/5 of tourist arrivals in 2019, the last pre-pandemic year. But despite the loss of tourists from these countries, other tourist arrivals in 2022 are expected to be higher than the 2021 level. Now coming to Slide 8. Slide 8 provides an overview of direct and indirect impact of the Russia-Ukraine war. The indirect impact on the group is expected to be limited as the group does not have any banking operations in Russia or Ukraine following their sale in 2014 and 2015, respectively. The group has only a very small legacy exposure, net exposure of EUR 5 million in Russia, which is being run down. We have no exposure to Russian bonds or banks, which are subject to sanctions. In terms of assets, again, the group has limited data exposure to loans related to Russia, Ukraine and Belarus, presented only around 1% of net loans as of the 31st of March 2022. The net book value of this portfolio is around EUR 100 million, out of which EUR 90 million are performing. The portfolio is granular and secure mainly by real estate property in Cyprus. Customer deposits related to Russia, Ukraine and Belarus and trust domestic account for 6% of our customer deposits, as at the 31st of March. This exposure is non-material in the context of the group's strong liquidity position. Finally, only around 3% of our net fee and commission income is derived from Russia, Ukraine and Belarusian beneficial owners. Moving now to indirect exposure, we are aware of the challenges that the current economic landscape entail and increasing uncertainty. However, at this stage, it is considered that the main impact on Cyprian economy is expected to come from higher inflation and a consequential slowdown in economic activity with a tourist to be likely most impacted. Cyprus is not an importer of Russian oil and gas, although of course it is indirectly affected by the intensifying pricing pressures in the international energy market. Cyprus mainly imports oil from other countries such as Greece, Italy and Netherlands. Professional services account for around 10% of GDP of which some relate to Russia-Ukraine, and that's expected to be adversely impacted. That is, however, not a big exposure and the sector is not levered. While Russian gross FDI flows in and out of Cyprus may be quite large, these are often reflecting the typical setup of special purpose entities with limited actual impact on the Cyprus economy, hence likely to have a limited impact on domestic activity levels. Shipping in Cyprus is mostly German-dominated, hence it is expected that there will be no impact on the sector from any sanctions on Russian ships. Overall, the group expects limited impact from its direct exposure, while any indirect impact will depend on the duration and severity of the crisis and likely reflects European and global TAM. The group will continue to closely monitor the situation, taking all necessary and appropriate measures to minimize the impact on its operations and financial performance as we are allowed to manage all the related risks and comply of course with all applicable sanctions. Turning now to Slide 9 of new lending. As I have mentioned earlier, new lending granting in Cyprus reached a level of EUR 618 million for the first quarter, up by 31% on the previous quarter and 25% year-on-year, reaching higher levels than the equivalent period pre-pandemic. The constant increase is driven by increased activity essentially across all sectors, mainly shipping, international, and corporate. New lending continued to be carefully considered against robust assessment criteria and 99% of new exposure in Cyprus since 2018 is performing. We have high-quality originations, supported by prudent underwriting standards that will make meticulous assessment of the repayment capability of our customers. As at the 31st of March, the outstanding performing loan book grew by a further 2% in the quarter to EUR 9.55 billion, only 11% of lease loan book is restructured. I will now hand over to Eliza to take you through our financial results for the year. Eliza?

Thank you, Panicos, and Hi from me too. So starting on Slide 11 on the income statement. Net interest income was flat this quarter at EUR 71 million and down 7% year-on-year, reflecting mainly foregone interest on the NPE sale, what we call Helix 2, which amounted to around EUR 7 million per quarter as well as the trends which here have been close to stabilizing. Noninterest income for the first quarter amounted to EUR 75 million compared to EUR 81 million in the previous quarter, impacted mainly by higher revaluation gains in financial instruments in the prior quarter. Total operating expenses totaled EUR 86 million for Q1, down 2% Q-on-Q and up 4% year-on-year, despite higher levels of inflation. Provisions and impairments for the quarter of EUR 17 million comprised loan credit losses of EUR 12 million, and impairment of EUR 5 million. Provisions and impairments decreased by 26% from the fourth quarter, mainly due to higher impairment losses on revenue productive in the fourth quarter of 2021. Cost of risk increased by 9 basis points Q-on-Q to 44 basis points, following the update in the macroeconomic outlook to reflect the geopolitical risk. Compared to Q1, our cost of risk was down 22 basis points due to lower COVID-19-related charges. Profit after tax and before nonrecurring items amounted to EUR 27 million for Q1, with an underlying return on tangible equity of 6.7%, both similar to the prior quarter. Restructuring and other costs of EUR 4 million for Q1 includes EUR 3 million relating to a small voluntary CapEx plan in a subsidiary entity. The overall result was a profit after tax of EUR 21 million for the quarter compared to EUR 10 million in the previous quarter and EUR 8 million in Q1 2021. Now moving to Slide 12 on the guidance of NIM. Our net interest margin in the first quarter decreased slightly to 132 basis points, still negatively impacted the reduction in NII, following the NPE sales. We are encouraged by the non-legacy loan income evolution, which is stabilizing, with yields of 292 basis points, stable over the past 2 quarters and volumes growing over recent quarters. Our interest expense decreased in this quarter following the reduction of the old Tier 2 notes of EUR 43 million, which had a coupon rate of 9.925 in January 2022. Our TLTRO III borrowing stands at EUR 3 billion, approximately EUR 15 million potential NII benefit is being recognized in the income statement over the period June 2021 to June 2022. While as you can see, individual category spreads were relatively stable, the largest driver of the overall decline in net interest margin was the change in mix of our balance sheet towards small liquid assets. Let's now turn to Slide 13, where we discuss in more detail our gearing to higher interest rates. As shown on the graph, we have used conservative interest rate assumptions in setting our business plans back in mid-February 2022. We expect to observe an immediate NII benefit from the increase in ECB deposit rates as our balance sheet is highly geared to liquid assets. Specifically, around EUR 9.3 billion is held in cash balances with ATB. Based on current market forward rates, the ECB deposit rate is expected to increase from minus 50 basis points to plus 65 basis points in 2023, significantly higher compared to our planning assumption of minus 40 basis points at the same period. However, approximately 35% of net loans as of 31st March are floored to 0. The NII benefit when rates turn positive is expected to be even higher. This benefit is expected to be partly offset by higher wholesale funding costs and assumed partial pass-through to deposits, including the reduction in liquidity fees. Overall, the rising interest rates affiliates faster growth in net interest income with an overall net NII uplift potential of EUR 80 million to EUR 100 million per annum starting in 2023. It's important to flag that the uplift in corporate assumptions about the pass-through of the increase in rates to deposits, including the liquidity fees. Slide 14. In Q1, noninterest income amounted to EUR 75 million, down 8% Q-on-Q, mostly impacted by lower FX and other income as well as lower net insurance income and up 34% year-on-year as Q1 was impacted by the lock down, Q1 of 2021. Net fee and commission income was flat at EUR 44 million this quarter, and net fee and commission income was driven by the introduction of revised price lists in February this year and the extension of liquidity fees to a wider customer group in March 2022, offset by seasonally lower transactional volume. Net insurance income amounted to EUR 16 million, down 11% on the previous quarter, impacted by lower level of positive change in valuation assumptions and seasonally lower premiums, partially offset by lower insurance claims. Net effect and other income was reduced to EUR 10 million, down 33% Q-on-Q, mainly due to higher revaluation gains from financial instruments in the previous quarter. Now moving to insurance on Slide 15. The underlying operating performance of our insurance companies continues growing into the first quarter. Net insurance income for our life insurance company, EuroLife, amounted to EUR 9.6 million for the first quarter, up 29% year-on-year. And for our General Insurance business, net insurance income amounted to EUR 6.7 million for Q1, up 17% Q-on-Q. All increases were driven by higher growth rates continue, partially offset by increased cost and claims. Overall, the Insurance business is a valuable and growing revenue stream for the group as net insurance income contributes more than 20% of the group's non-NII. However, we believe it can deliver more. We are aiming to enhance its value by growing the business even further, supported by the utilization and our lean operating model. Based on current expectations, the IFRS 17 implementation on the 1st of January 2023, is expected to have a positive impact of around EUR 50 million on the group's tangible equity and enhancing the group CET1 ratio by around 50 basis points. Moving now to costs on Slide 16. Total operating expenses for the quarter amounted to EUR 86 million, down 2% Q-on-Q. Staff costs were broadly flat Q-on-Q and year-on-year, resulting from the combined impact of the small, targeted voluntary staff exit plans in the previous quarter and the renewal of the collective agreement and despite Q1 inflation. Other operating costs for the quarter stood at EUR 36 million, down 3% Q-on-Q, mainly due to lower marketing costs and up 11% year-on-year, reflecting subdued spending during Q1 2021 lockdown. The cost-to-income ratio, excluding the special levy on deposits and other levies for the first quarter were up 59% compared to 57% in the fourth quarter and 60% in Q1 2021. The Q-o-Q increase of 2 percentage points was driven by the Q-on-Q increase on total income. Branch footprint rationalization continues, facilitated by the ongoing digital transformation of the bank. We're aiming to achieve a 25% reduction compared to December '21 as more of our customers become digitally engaged. By the end of July, the branch network will be almost half the size it was in 2018. Additionally, in 2022, we aim to substantially streamline our workforce with a target to reduce the number of employees by approximately 15%. Now moving to capital on Slide 19. Our CET1 and total capital ratio as of 31st March stood at 15.2% and 20.3%, respectively, both from pro forma for loans held for sale. During the first quarter, we have generated around 50 basis points of organic capital to operating profit, which was largely offset by expected loan credit losses and impairments of around 20 basis points and other movements of a further 20 basis points. The phasing in of IFRS 9 reduced the operating ratio by around 60 basis points. Our CET1 on a fully loaded basis was up 13.9% as of 31st March or 14.5% on a pro forma basis. The minimum requirement for 2022 for the CET1 and total capital ratio is set up 10.08% and 15.1%, respectively. The group continues to monitor opportunities for the optimization of its capital position, including the AT1 capital. Moving now to Slide 23, which provides an overview of the asset quality. The NPE ratio was reduced to 6.5% pro forma for held for sale and 2.7% on a net basis as we make progress towards our target of reaching 5% by the end of the year. The bank's NPE coverage ratio was stable at 60% pro forma for HFS, and when taking into account tangible collateral fair value, NPEs are more than fully covered. The coverage of the reperforming NPEs is relatively low at 30%, reflecting the lower risk associated with risk of NPEs, where coverage of core NPEs increased to 68%. And finally, on Slide 26 and covering cost of risk, our cost of risk for Q1 were at 44 basis points compared to 66 basis points in the previous year, reflecting mainly lower COVID-19 related charges and normalization of cost of risk as balance sheet de-risking is largely complete. The cost of risk for Q1 of 44 basis points included 20 basis points, reflecting the update in the macro outlook and management overlays on sectors, such as tourism and private individuals, expected to be impacted by the crisis in Ukraine and the heightened inflationary pressures. And with that, I hand back to Panicos his closing remarks.

Thank you, Eliza. I will close with our investment highlights and medium-term target on Slide 30. We remain confident in the key access plan for the bank lay down the foundations for sustainable growth and shareholder value creation. These are building our performing loan book, growing more capital efficient revenue, delivering on the operational efficiency, while investing on digital transformation and executing the last leg of de-risking. Clearly, a lot has changed since we communicated our middle-term guidance in February this year. For Bank of Cyprus, another factor that changed market environment is positive for both earnings and capital. Our income will clearly benefit from higher net interest margin from next year, more than offsetting an expected slowdown in volume and fees. Higher inflation may lead to modestly higher cost, outpace the plans in place to mitigate the impact. In the near term, we expect some upward pressure on cost of risk, but the normalized cost of risk target remains unchanged to 40 to 50 basis points. Together, however, we expect this to rotate per annum, which is intermediate, we now expect to reach double-digit growth a year earlier in 2024. Higher levels of profitability will be positive for our CET1 ratio, which we expect to be further boosted next year following IFRS-17 implementation, while increasingly confident in assuming meaningful dividend earlier, subject, of course, to regulatory approval. This concludes our presentation, and we will now open the floor for your questions.

[Operator Instructions] The first question is from the line of Daragh Quinn with KBW.

It's Daragh from KBW. First question would be on your comment around the upward pressure in the near term on provisions. If you could provide maybe just a bit more color around what kind of magnitude of upward pressure are we talking about? And is that something just for the next quarter or in the second half of the year? So just what kind of uplift in provisions do you think that implies? And then the second question would be around capital. You've highlighted the positive impact of IFRS 17 in 2023. And I was just wondering if in conjunction with meeting an NPE ratio of 5%, if you think there could be any downward now in your capital requirements? And is there any potential for paying dividends out of the 2022 results? Or is that something to be reviewed at a later stage in 2023?

Okay. So let me take that question on dividend because it's an important question. And I will start by saying that I am fully aware how important dividends is for our investors. So as a management team, we are very focused on resuming dividends. And as we mentioned today, we expect it will be generated at the highest level of profitability and, of course, implicitly higher capital ratios. IFRS, as Eliza mentioned, adds another 50 basis points to our CET1. This improved profitability and capital provision is helpful on the reduction of dividends. Of course, this is, as we said, subject to regulatory approval, but our improved performance is making us increasingly confident over both for the timing of dividends and also for that such dividend will be for a meaningful amount. So going back to the timing, I just want to remind you that we have a dividend provision for 2022 given to us in discussion. Our previous comment on dividends was for a payment from 2023 onwards because, as we said earlier, 2022 is still a traditional year. But in theory, we mean that from the start of 2023 year or earlier, or could be based on 2023 profit, meaning a payment in the first part of 2021. But I repeat this is all subject to the regulatory approval and it will be decided in 2023. Regarding the question on capital, Daragh, I will highlight how important capital is for us. It is nonnegotiable. The positive ROTE allow us to organically generate capital, which is also very important. And the buffer in capital, it's one of the main reasons for lifting the prohibition on dividend. So once starting the payment of dividend and we, of course, do capital management and the forecast of capital management is always a dynamic process. And because we know how important is return of shareholder value, we do not plan to sit on unnecessary capital. But first, step by step and gradually, we need to leave the regulatory restriction and start paying dividends. And on the provision, cost of risk question, I think our Chief Risk Officer is in a better position to answer this. Demetris? And the proper guide to guide you on this. So, Demetris, if you please can go ahead.

Yes. Thank you, Panicos. Hello there. Well, let me start by saying that the cost of risk target was a medium-term target from the outset. We did indicate in the past that there could be volatility in the short term. And given the underlying uncertainties, we stand today. Now any volatility is expected to be modest. Let me just say as well that we are confident in the quality of our trade portfolio, which has already proven resilient through the pandemic. Our analysis of our client portfolio points out that it can absorb the higher cost Q2 inflation without any significant defaults. We do maintain our record underwriting standards and structure our repayment profiles based on sensitized projected cash flows, which do take into account increased cost and interest rates as well. So in conclusion, we are confident that the macro changes will not disrupt our medium-term cost of risk guidance. And this is supported by the performance and quality of our portfolio. And any volatility, which again, we expect will be modest due to the macro environment will not amend our 40, 50 basis points medium-term cost of risk guidance.

The next question is from the line of Jonas Floriani with Axia Ventures.

I also have questions on the outlook similar to the previous question. Just wondering if you can also quantify a bit the comments on inflation impact on costs and also the measures that you mentioned that are going to be taken. And related to that, your 15% reduction in FTEs should be part of that cost savings, right? But that probably come later in the year? And what about the timing of the change related to the exit scheme? And then secondly, also on the outlook, what about the comments on the decreased volumes and please, if you can quantify that will be helpful. And then my final question is on disbursements. It looks like the Q1 number is probably a bit ahead of the run rate expected. I was just wondering if the level you've seen in shipping international, it's recurring or there was a bit of a one-off in Q1 as well?

Okay. Thank you. We got a lot of questions. So I hope I don't forget anything. So I will start with cost and inflation. And you know that cost has been a key focus for our agenda for the last few years. We even had a dedicated Chief Cost Officer. So regarding the 50% reduction of staff and the 25% reduction of our budget overall. This will be a one-off from the one-off item for 2022 when and to the extent that it happens. So obviously, higher inflation makes the achievement of our absolute cost target harder, but we believe that we will be broadly on track to deliver the targets that have already guided in terms of absolute number, unless inflation remains at very high levels, well into 2024 and 2025, which is not in our current expectations. But of course, most importantly, you know that the most important metric is cost-to-income. So our current plan target the ratio between 50% and 55% by 2025 and the improved revenue outlook means that we are exceedingly confident to achieve that. If I go to the overall displacement and new lending and mainly capturing on the volume, on the volume question, I will say that, yes, new lending, it's a record quarter for the bank, even higher than 2019 figure, any 2019 figure. What is more important is the absolute growth. We have previously guided you that we are diversifying, aiming to EUR 1 billion. It can come from shipping and international. You see now that we mean what we say, because you see that first, roughly EUR 100 million coming in Q1. Okay. I cannot be sure whether the EUR 100 million will be recurring. What I can be sure is the achievement of the EUR 1 billion in the period that we guided. As we said, certainly may slow down this pace in 2022, but the current pipeline, multiple performance than 2021, and I would say, reaching 2019 level, which was more than EUR 2 billion. We have dominant position. You see our markets, they are growing. We have an efficient business model in delivering lending volumes and growth. And then diversification, so I'm confident that then the combination of volume and rates because this is what matters, is volume and rates, it will be higher capital generated of contribution of the higher rate. I don't know there's any other question. I think that -- because I would like to mention that they are all there. They're at least robust throughout the period, not just for 2024 or 2025, starting from 2023 takes everything into account. Takes the increased volatility, cost of risk as Demetris mentioned earlier, takes the lower volume growth, takes the lower piece, takes even modestly higher operating expenses because of the inflation and because of rising prices. And the overall outcome of this, if we combine with the outlook of interest that Eliza described a little bit on Slide 13, reached to the significant uplift of the ROTE.

I think that's clear. Just a quick follow-up. I was just wondering if you could share any kind of high-level indication of data points in April and May in terms of demand for loans, payment behavior and also demand for real estate assets? So just wondering, what you've seen so far in the last 1.5 months, if it has changed versus Q1 already or not yet?

I believe, during next week, we can have the result. I don't see any material change in the trend. No change. I don't know Eliza if you -- I see no real change that we are hoping on.

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

Quick question on the NII uplift from the potential interest rate hikes that you mentioned, EUR 80 million to EUR 100 million, that you're starting from 2023. Just to clarify, this is based on the assumptions you have on the deposit rate going to 90 bps from minus 50 in 2025 -- 2024, sorry, I assume? And that the EUR 80 million to EUR 100 million, is that in 2024, when you are at 90 bps or and it's gradually increasing to EUR 80 million to EUR 100 million? What should be our assumption? What is the underlying assumption here, please? That is my first question. And my second question is regarding questions made by my previous colleagues. One is on the new lending growth. My understanding is that the EUR 600 million you posted in the first quarter, a very strong number. It can be repeated in the following quarter. So we could see a new disbursements of more than EUR 2 billion, let's say, for the full year unless there is a big slowdown or something like that. Is that something fair? And my third, sorry, I didn't catch if you said it previously, regarding the VRS and the timing on the plan on the charts. And you mentioned it previously, I think it was a question.

I think VRS was, as I said, the plan is -- the current plan is for 2022. The exact timing during 2022 is still not yet decided. On the new lending growth, as mentioned earlier, we expect that based on the current pipeline, we expect a good year. I don't know if you can repeat that EUR 600 million per quarter because it will mean EUR 2.5 billion for the year. And our highest ever was EUR 2 billion in 2019, I think. We do expect a very strong first and second quarter where we have visibility and an extremely good year, better than 2020, much better than 2020. On the NII uplift, I think Eliza that question is your territory.

True. Okay. So Alex, the uplift is an annual uplift versus previous forecast. So it's not an end number where it will be picked up gradually. It's an uplift we expect versus our previous financial plan on an annual basis, starting from 2023. And the result, obviously the curve, and you can see on Page 13 the delta of the curve versus what we had assumed in the plan earlier in the year. And let me just remind you that this EUR 80 million to EUR 100 million is not just the NII benefit. It's net of a pass-through assumption on deposits, a reduction in the liquidity fee and elimination actually of the liquidity fees in line with the rates, higher wholesale funding costs over time. So it's a net impact of all NII and liquidity fee component of the P&L.

So the EUR 80 million to EUR 100 million is also from 2023, I assume?

Yes, yes. A large component of that, let me just remind you, is the liquid assets, the EUR 9.3 billion with ACB at minus 50 basis points. They will reprice immediately upon a rate hike. And the benefit is overnight as opposed to the loan book, which has a time lag on the repricing phase.

Our next question is from the line of Corinne Cunningham with Autonomous Research.

A couple of debt questions and then maybe a quick follow-up on the NII. On the debt side, the MREL requirement, does that phase in a linear fashion? Or is it literally you've got your interim requirement for 2022 and the next big target is for the end stage? The other debt question was on the AT1s, if you've had any thoughts about refinancing, what form that might take? And then the follow-up on TLTRO was just to, I suppose, confirm your likely actions when the cheap rate drops off at the end of June. Would you expect to collapse that portfolio or maintain it now with the, as you mentioned, with the expectation of higher rates?

Okay, Eliza on the MREL side?

Okay. So our MREL target is nonlinear. Actually, let me say it again, our MREL target is only at the end stage in 2025. We only had one binding MREL target at the end of last year of 2021, and you will see on the slide that we more than met that. There are nonlinear interim soft number between now and the end of the period, but all of those are not binding. Therefore -- and obviously, current market conditions are not conducive to issue one for us. So we will monitor the market. If we find opportunity to issue at rates which are acceptable for us, we will. But the number, the amount that we have to issue are manageable. And therefore, we're not in a rush to issue at high rates. We're not under pressure to issue on restricted lines in expensive market for us. On the AT1, again, as you know, Corinne there is a call option at the end of next year, 2023. We are monitoring the market. The same comment applies on our -- we keep all options open. Not a good market for us at the moment. But if we find an opportunity to do something with the AT1, to act upon it, we will. What that action may mean, we will need to see depending on how much the market evolves. Let me just remind you that our Tier 2 refinancing last year was a very successful transaction for us. So we are open to handle our AT1 going forward depending on market conditions and investor appetite. On TLTRO, we haven't made decisions yet as to whether we will repay it or not. It depends on the arbitrage. As you know, TLTRO funding is a carry trade. We borrow from ECB and we place it back with them. The 2 legs do not reprice on the basis of the same rate. So we'll take a view as to whether there is a positive carry. If that's the case, we will keep it. If not, we will repay it. And this is a dynamic decision. It would be considered all the time, and we will be reassessing it, depending on the market rate conditions.

[Operator Instructions] Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to Mr. Nicolaou for any closing comments. Thank you.

Thank you. Thank you for participating in the call. As always, you know that myself, Eliza and Annita or Demetris, all the Bank of Cyprus team, we are more than willing and available for bilateral discussion, explanation of presentations of the Q1 performance, and most importantly of the updated outlook for Bank of Cyprus. Thank you very much.

Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephones. Thank you for calling, and have a nice day.