Banque Cantonale Vaudoise (BCVN) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the BCV Half Year 2020 Results Conference Call and Live Webcast. I am Alessandro, the Chorus Call operator. [Operator Instructions] And the conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. For the call today, the speakers will refer to the slides, which are available for viewing on the IR section of the BCV website since this morning. At this time, it's my pleasure to hand over to Mr. Pascal Kiener, CEO of BCV. Please go ahead, sir.

Thank you very much. Good afternoon, everybody. Let me jump directly to Page 4 with a couple of key messages. Obviously, we've been impacted as well as the environment by the COVID-19 crisis. We will go in much more details later on to explain exactly what's happened in the last 6 months. So basically, our revenues are down 5%. There is a mix of, let's say, with a revenue, commercial revenue as well as increase in provision in those numbers and some provision increase as well in the provision line of the P&L. Basically, if I sum up, less business activities with customers. Thomas will explain that in more detail and an increase of CHF 20 million of provisioning needs in trade finance as well as SME. So those are the 2, let's say, main element of H1 2020. And the main difference is with last year, which was a record year. But that translates into an operating profit and net profit down to 13% to -- 13%. Now having said that, we believe -- I believe, it's a fact, we still have the highest return on equity among comparable banks, especially consumer banks and a very solid bank with a capital ratio of 17.9%. So if I look back and think that we're talking about the biggest crisis since [ '01 ] or [ '02 ], at least this is what we can read from several economists, and I think those numbers are very solid. Nevertheless, we have some provision to take due to some clients, some SME and [ and trade ] clients, which faced difficulty. But this is a couple of clients, probably less than 10. So basically, the rest of the book -- of the loan book is still very solid and very resilient. So I'm not worried at all about the situation. Key figures, I'm now going on Page 5 to comment that. Business trends, I don't think really here particular to comment. Mortgage loan, slightly increasing. Deposits increasing, but you have to combine the site deposit with the other client deposits since we have a reclassification of the account for payments. And if you combine the 2, you get a 2% increase. I will and also Thomas will go into more details later on. Some highlights, very quickly. Basically, the 2 rating agency confirm their rating, which is a good rating, as you know, and with stable outlook. The dividend was paid. And I don't think I need to comment much more on that, I mean, the split of the share, of course. But I can go directly to retail banking. I'll try to be quick, so we have enough time for your questions later on. For retail banking, basically, nothing tremendous to report. Mortgage loan, increasing slightly. This is our strategy to focus on quality and to -- not to target volume per se. Probably the main -- 2 main elements: first of all, customer deposits are up. This is basically less consumer spending due to the lockdown in Switzerland. And the second point I want to make is basically the revenues are down, which is also linked to COVID-19, basically this is less cash transactions, less card -- trade card transaction, people borrowed less, people traveled less, et cetera. And this has an impact clearly on the revenue of the retail banking division, around CHF 2 million, as you can see. Corporate Banking. Here, this is probably a bit more interesting. Three businesses: SME, large corporate and trade finance. So you see basically, let me start with the provisioning needs maybe because this is across the board. So CHF 20 million, it's a lot. But on the other hand, it's a crisis which was quite -- I mean, which is still quite acute. And -- but the good news, in a way, we're talking about a couple of customers, couple of clients which are in default or close to -- they are in default basically. We don't know exactly how much we will recover. This is why we had the best possible estimation of CHF 20 million. Provisioning is not a perfect science. And the good news, as I said, we are talking about a limited number, which means that the rest of the portfolio, so 95% -- 99%, 99.5% of the portfolio is solid and quite resilient. So SME, you see numbers are up in terms of deposit credit. Basically, this is mostly the bridge loan program from the federal government. So we had, in our plan base, we extended more than 6,000 such loans or roughly CHF 700 million. And those numbers, when you compare between banks, they are quite similar. So it's always a part of the portfolio of the customer who requested those loans. Large corporates, use of cash, you see quite clear, quite expected in this situation. Trade finance. Basically, trade finance is a very interesting business, but as you know, quite volatile, from a revenue point of view as well from, let's say, credit risk point of view. So if you look at trade finance, first of all, the dollar went down, and all those transactions are in dollars. So when you convert to Swiss francs, it's clear that we invest revenues. The commodity price went down. And we have the general activity also went down and the number of transactions because of the economic crises in different countries in the world. And also, we decided as of February to decrease our activity. We started first to decrease activities of transaction towards China because at that time, we didn't know exactly what was going in China, on how things would develop. But overall, we have decreased our activities in some countries or in some kind of transaction to try to minimize credit risk. So on one side, there is less revenue in trade finance due to those factors, which I just mentioned. And on the other side, there is some need for a higher level of provision in trade finance due to some incidents. I think you could read probably also in the papers. I don't think that we are the only bank, which needs to take a provision for this business this year. I think that's all I wanted to comment on corporate banking. Wealth management, nothing really spectacular to comment. An interesting increase of the new assets from institutional, especially in the German parts. Otherwise, Thomas will comment, let's say, the numbers, especially the decrease in AUM later on, so I don't want to spend more time on that. But here, there is nothing really spectacular going on business continuity. On the good side, on the positive side in trading activities, I'm taking about client-driven activities, as you know. But basically, the volatility is increasing, the volatility in the ForEx market in March, April had a good positive impact on our revenues. And you see that here, the revenues are going up. So I think this is nevertheless a good sign of the, let's say, our revenues' mix. Something went down, other went up. Overall, it went down, which is not good, of course. But nevertheless, the fact that we are quite diversified here is a good sign, and we can show that here. Okay. I will hand over to Thomas for the details of the financial results.

Hello, everybody. I'm on Page 13. Well, very briefly, on the income statement, here you find the key numbers. And it's very interesting to understand the developing of our operating profit. You know that due to the specialties of accounting rules, the decrease of total income is already affected by a buildup of provisions. But you also have underlying other provisional loans, an increase of CHF 6 million, which is the other part of seeing buildup of provisions for loans at risk. So I will comment how this really works in terms of income development and cost -- risk costs. Hard to understand, it's minus CHF 30 million. And for this, we prepared a special chart on Chart #14, are really understanding these drivers and leaving a little bit the numbers as they are published. So again, here, operating profit goes from CHF 209 million to CHF 179 million, down minus 14% or down minus CHF 30 million. And as mentioned in the press release, there is minus CHF 11 million due to income development without -- before a buildup of provisions. And then there's this element of minus CHF 20 million of impairment charges, which are as mentioned as well on the top line as well as on other provisions, and Pascal comment on those already. So with regard to the pure income dynamics, there are 2 really different elements because -- to understand this minus CHF 11 million. On one hand side, there is this increase in trading income of plus CHF 13 million. And then there is this minus CHF 24 million, a decrease in income. And basically, it's all more or less linked to COVID in the sense that the negative interest environment even worsened given to this pandemic. And given that our -- there was a slowdown in activity of our private clients, who, as Pascal mentioned, with less payments, less credit card, less ATM, less FX. And then there is this trade finance element, as mentioned, that we decreased exposure by 30% pretty early when we saw the crisis starting in China. But you add to this that there was a decrease in dollar and commodity prices to understand the already voluntary, almost voluntary effect on the income. And last but not least, I mean, definitely, there was a nice element of extraordinary dividend in 2019 coming from a holding. I remind you here that the BCV assets balance sheet is clean. The holding here is basically what I would call [ a seasoned ] finance market infrastructure. And as a matter of fact, in 2020, there was no such extra dividend. And to some extent, this is also linked to the fact that also those kind of companies were holding back equity given the environment. So I think it's really important to see that with COVID, we can link minus CHF 24 million and minus CHF 20 million, minus CHF 44 million on our operating profit. So a more usual accounting terms, you'll find this on Page 15. I think these numbers has been commented. I don't want to develop this slide deck for you. As mentioned, operating expenses are stable. Again, here, some interesting COVID effects given that personnel costs increased slightly to the fact that people didn't take their vacations. On the operating expenses, to one side, we did less marketing events, obviously. On the other hand side, there was a real strategic result of us working our IT running cost. Slight increase in depreciation and amortization, giving a little bit higher investment in the digital banking world these last years. But I mean this is a small number, plus CHF 1 million. Total assets, I mean, here is another interesting element, liquidity, cash and equivalents. So obviously, I mean, again, here, we see a COVID effect given that the Swiss National Bank increased in 2 steps, the exemption threshold for the money for the current account of banks with the Swiss National Bank, which they can hold at 0. And it's a significant step up. Not all this is below the extension of what you see as cash equivalents, but it's almost that number. So this is also the reason why we break the CHF 50 billion limit. But obviously, I mean, we would have preferred to [ recount ] there by our core business, not that way. We should get to loans and advances, I mean, you see that loans and advance to customers, they have a slight risk given to these bridge loans, which have been set up between banks and the government. And on the other hand, as you see, we had the decrease of our trade finance. Ongoing development of mortgages, as Pascal mentioned already. On the liability side, Page 18, nothing special to mention. Deposits continue to inflow. The COVID loans were used as HQLA collateral at the Swiss National Bank. With regard to assets under management, here, the dynamics, key dynamics are several. As mentioned, there is a kind of almost end of the handover of deposit banking activities for Swisscanto and ZKB bought up Swisscanto some years ago. And before that BCV was one of the key deposit banks for Swisscanto. This was expected. And secondly, there is this net new money, net new money of 1 -- of CHF 0.9 billion with a very positive development in institutions and also in [ Vaud SMEs ]. And the usual variations of large corporates over the first quarter, in particular, one very known one, which is typically then when you see the statistics of the first half of the year. So -- but so the large corporate net new money is not really an interesting number, but the business number on personal banking and institutions and SMEs has a good and positive development. Headcount, slight decrease, also kind of linked to COVID because on one hand side, we had normal departures. On the other hand, given the lockdown was more difficult to recruit, so don't take this as a structural change, but we are very small numbers here and you know that. Capital ratio is here something interesting and maybe also already anticipating some of your questions. So we had a step-up in our capital ratio basically for 2 reasons, right? Obviously, trade finance is very risk weight intensive business, slowing down by the order of size I mentioned. And given the magnitude of total exposure, explains basically 2/3 of the decrease of the capital ratio. And then adding to that, we had a kind of nice surprise from our results. Always, we kept talk -- the banks talk about this, about their supervisor. But our supervisor basically decreased slightly as written on Pillar 3, Page 32, our IRB multiplier given our very strict discipline of applying this, I remember the IRB multiplier was set up to kind of a floor, the IRB effect on residential mortgages on the capital ratio. On -- well, EBIT ratio, I don't have to explain to you, longer balance sheet with a slight effect on the leverage ratio. LCR, well pretty stable at a pretty high level, above target level. Well, this is all I want to thank to you so far. Pascal?

Okay. So going forward, I think it's quite fair to say that really in a very uncertain world. I think you have to do in your job also some forecast. It's quite significant. First of all, we don't know exactly how this COVID-19 problem will develop. For the time being, seems to be under control, but we don't really know. That's the first part. It is difficult. Second part, we don't know exactly what will be direction for authorities or government. Depending on the evolution of the pandemic, then the government might react differently. So those are 2 key drivers of, let's say, of the economic environment, which are not really in our control. So what I'm going to say is that in the current level of our estimation, but obviously, depending on those 2 factors, which I just mentioned, everything could be wrong in a couple of weeks. So basically, for the time being, we estimate that the economy will recover. But -- and we see that already, but it could change in a couple of weeks or months from now. But let's assume that the crisis will not explode, but continue to be under control as of today. Even if there would be more cases, nevertheless, under control, then we believe that the recovery of our environment of the economy should carry on at a moderate pace. We will probably not recover everything in the next 2 halves, but probably part of it in 2021 and the rest '22. That's basically our best guess as of today. Obviously, that will have a positive impact on the -- on our corporate clients, et cetera. For the real estate market, which is very important for us, as you know, despite the pandemic, we have seen an increase in prices. This is mostly due to basically low interest rate environment and the lack of attractive investment opportunities for private investors as well as for institutional. So that should carry on, I think. That's why we're quite careful in this market. We see the vacancy rate going up. And we don't want to change our policy of saying that we focus on quality loans. We don't target value. It could grow faster than we grow, but we don't want to do that. And we are really targeting the areas where there is a low vacancy rate. But in cantonal Vaud, yes, you can see for the time being now that they are quite defensive. The area along the [indiscernible] I think we have a vacancy rate of something like 0.4%, 0.5%. So there is still hope for business here. And if we take some, let's say, more remote areas by country, I would say, if I may say so, we are approaching 2%. So in those areas where the vacancy rate is higher, we want to grow at a slower pace, which is quite, I think, basic common sense. Roughly, our strategy here will not change. For the outlook, I mean, given what I just mentioned, with a high level of uncertainty, we will still be under pressure in terms of revenue. But probably, we should see revenue slightly grow. We will still be very careful in trade finance. But I don't expect growing the revenue of trade finance because we don't want to increase volume right now and I think it's too early. But we might not see the decrease we saw due to less activities of our clients being traveling, being buying stuff in [ their home ] or abroad because now things are going better. On the other hand, we might not have the same volatility in the ForEx market. So probably trading, trading revenue will not be as attractive as in the first half. We'll carry on being very cautious with our operating expense. So basically, we expect a similar trend in 2000 -- in second half of 2020. I mean the main uncertainty, as you have already thought, is the level of provision. We don't know exactly what's going to happen in the economy. We are rather, let's say, positive, but it will really depend on how this pandemic will develop. So a very difficult year to be more precise than that. But I'll -- let's say, our budget, our forecast is to have similar trends in the second half and in the first. Okay. I'm done. We are done. Now we are ready to answer your questions.

[Operator Instructions] The first question comes from Andreas Venditti from Vontobel.

Yes. I have a couple of those mainly on trade finance. Maybe it would really help us if you could maybe quantify slightly what the negative impact on revenues was for this period. Then the second question is in terms of activity. And I think, I guess, I understood you right that you would not basically reallocate more resources in this business even though as we have -- we're able to read recently some large players are exiting or reducing their activity, so this might result in opportunities. But if I got you right, you're not willing at the moment to take these opportunities. And then if I look at the Pillar 3 report, is it correct, my reading, that a big part actually of the provisions taken were actually from trade finance and probably a smaller one from the SME business? And maybe on this multiplier on the risk-weighted assets, is this temporary? Or is this permanent?

Okay. I will take the second one, and Thomas will take the first one and the third and fourth questions. So you're right. We're not going to, for the moment, to increase our volume, our activities or different more resources in this business. I mean this business has always been, in a way, under constraint at BCV. For us, the sky is the limit, that we are a very small player. And we could have a business which is twice as big or 3x as big. But that would not fit really in our portfolio, in our strategic intent. Now it's unclear what's going exactly to happen to those players. I mean I read as you have -- as you did probably the different papers and reports that some players are withdrawing, but we don't know exactly what it means. Are they talking about specific countries? Are they talking about specific, let's say, location where they don't want to do some business? For me, it's unclear for the time being. But it could be that if big players -- we need to understand that better because the communication are not that clear. Probably that will be good for the business because if there is less competition, there might be a way to increase margins. I would rather try to increase prices and to have better condition on term than just increasing volume. But let's say, for the next 6 months, I don't think that we will change anything in our strategy because this business is limited within BCV for strategic reason anyway. And now we are in a way a bit far from this limit since we are reduced by roughly 30%. But I mean given the current uncertainty environment in the world, it would be probably not wise to increase volumes. On the other hand, you see it's always easier to be clever after the fact. I mean probably if we had -- if we didn't have -- if it didn't decrease or hadn't decreased our volume, probably we might have had the same provision level, and we might have maybe CHF 5 million to CHF 6 million more revenues. So it's quite difficult. I mean the point strategically is that this business has been profitable for the last 15 years at BCV -- for the last 17 years at BCV. This year despite the provisioning, it is still profitable. And I'm always surprised by some large player saying that we will draw then when the economy is recovering, transactions are here, then we come back. So we don't plan to play this game of in and out. I'm not sure this is the right way to do this business. But to go to the point to make long story short, you're right, we are not going to deploy or to increase our resources and our commitment to this business for the next 6 months, certainly.

Right. So just to give you order of size with regard to revenues' impact, right, Pascal already mentioned the order of size, right? So it's probably on revenue, something between CHF 5 million to CHF 8 million minus for this first half. You can see from the numbers also Pillar 3 that the exposure on absolute volumes has decreased by something like 25% with regard in volumes. Now and still, I insist on the point that over the first half of the year, the trade finance business was profitable in, I would say, in revenues after cost for provisions. Now obviously, you heard a very good lecture of our Pillar 3 report in particular in Page 22. It's good news and fighting at the same time because it's obviously very strong transparency. So no, as a matter of fact, now you have to always be aware that the net increase which you see on end of 2019 to 2020, the gross provision moves larger in terms of trading and then in terms of recovering. But still, as a matter of fact, in terms of the net increase, it is definitely, as you can easily read, a strong majority from trade finance. But refer to the gross numbers, there is also in enterprises. At the same time, there is always recovery given our prudent approach. Now with your last question with regard to the multiplier. It is structural. And if there was a step-up over, I don't know how many years of this multiplier, 10 years? It was actually from 0 to 2 in a base of 3.2 increase by year, if I'm not mistaken. And also as written in the Pillar 3 report on Page 32, it has now been reduced specifically for BCV by 0.1 with a positive effect on the CET1 ratio. So basically, it is permanent. Yes, it's structured.

We answered your questions?

Yes. Sorry, I was on mute.

The next question comes from Stefan Stalmann from Autonomous Research.

I have three, please, all on the topic of, I guess, credit quality. The first one, pretty broadly, we have had a change in accounting for credit risk under Swiss banking GAAP. And I was wondering if you could talk a little bit about whether this has influenced your provisioning in the first half at all or anything has changed or whether you would expect any changes from this accounting methodology to come in the second half of the year? The second question, a bit more specifically to the provisions in the first half. We already talked about the Pillar 3 disclosures. It looks like you had a provision cover on impaired trade finance loans of 100% at the end of 2019. And on the incremental impaired trade finance exposures in the first half, you only provisioned a bit less than 30%. And you also hinted that some of the cases behind these impairments could be -- could have been in the public domain. And the ones that I'm aware of have often involved fraud where the loss given default seems to be quite a bit higher than 30%. So I was wondering how confident you really are in the additional provisions that you have taken on these impaired trade finance exposures in the first half? And the third question on payment deferrals. You mentioned that you actually deferred about CHF 40 million of payments during the first half of the year on corporate loans. Could you disclose what the total notional amount is of loans that benefited from these kind of payment deferrals?

Okay. Stefan, it's Thomas. I will start with your accounting question. As a matter of fact, the [ ISAs ] changed in domestic standard with regard to provisioning of expected loss on the loan book in Switzerland. As a matter of fact, we have not yet applied it. And it's a strong intention, and everything is prepared to do it by the end of the year. Without betraying anything, I can just explain already that be aware that our CET1 ratio as we publish it today has already -- takes only into account equity after deduction of the Basel Committee calculation of expected losses, which already takes into account the expected loss and healthy credits. I'm saying our CET ratio, as a matter of fact, already is equity after corrected by -- reduced by provisions for healthy credits. So this, I think, is a key element to understand where you should expect us. Pascal?

Yes. So your question, a good question, Stefan. You're right, we haven't taken 100% of the exposure to the provision. I think maybe one point is important. In trade finance, you have 2 ways -- I mean in a way, 2 ways of doing this business. Either you can finance the balance sheet of a trader. So you -- exactly like if you would, let's say, finance in corporates, or you finance transaction, specific transactions. And we do, let's say, 90% of our business, maybe even a bit more probably, transaction financing. So that means there is always good. There is always, in a way, a kind of a pledge, which is not the case if you finance the balance sheet of a trader. So then depending on the kind of, let's say, of transactions that you are financing, depending on the countries, so basically, we did an assessment of the different situation, and we came to the conclusion that for the time being, with scenarios, we believe we have the right number. But I can't exclude that this number will go up. The number could also go down. I mean so this is not a precise science. But maybe comparing maybe to other banks, if you do that, think about, let's say, the different ways of financing those trader. And still, if you finance the balance sheet, there is a huge road, then you are not as good -- maybe not as good in a position, which -- as good as if you finance a specific translation -- transaction where there is good behind. Now it doesn't mean that this is always 100% safe when you finance a transaction because you have also fraud in financing a transaction. But overall, probably it's a bit less risky, if I may say so, and less prone to fraud, if you have specific transaction. So this is why we believe we will recover some of our exposure. And there is a part, we will probably not recover. And for the time being, this is what we have provisioned. But I cannot exclude that those provisions will go slightly up. And if you read also very carefully our statement of going forward, we believe that second half will be similar to the first half so that means that provision might increase in the same kind of proportion. But for the time being, let's be clear, we don't know exactly what's going on. So okay, that was the second question. There was another question.

I SMEs.

SMES, okay. The numbers, we don't have the number, I don't have here, but we can provide you the number if you want afterwards.

And order of sites?

Okay. So we'll give the order of sites.

Yes. I mean we're basically talking here of a base of CHF 8 billion with regard to the petition mortgages to the SME sector, which has a scheduled amortization and which we're basically then -- the bank decides, creates a liquidity injection for these companies by an order of CHF 40 million. So it's not a tremendous number, but it's a nice thing to do.

Does that mean, Thomas, that you've basically not accepted any payments during the first half from SMEs?

We decided on a maturity, maturity at March and June, so not -- to not take the principal amortization, but to suspend principal amortization.

Just to come back maybe to the numbers in provisions. I mean you can read, you can get -- if you return to Pillar 3, you see the expected loss at BCV. So now we are in a huge crisis. So in a way, expected losses for the cycle. So I would not be surprised that in a huge crisis that we would [ show a bit more than effect ]. And that might not be the case. Thomas, what is the expected loss?

We expect, at least on depreciation, amortization...

I know, I'm going back to the [indiscernible].

From the models. From the models, the expected loss is CHF 30 million to CHF 35 million.

CHF 30 million to CHF 35 million, so we are at CHF 20 million. So we see, this is still okay. I think this is something maybe what people tend to forget because in the last 10 years, I mean, the economic cycle was always good, and we have always less than the expected loss in terms of more or less always. So if at the end of the day, let's imagine that at the end of this year, we go to, I don't know, CHF 30 million, CHF 35 million, that will be a perfect number in terms of matching the expected loss and the real losses. So I don't know. But you see, I mean, I think we have to be clear, this is a crisis which is quite acute. And I would not be surprised if we should, let's say, above the expected loss. It seems to be the case for the time being. But we don't know really what's going to happen in the next 6 months, whether that will increase or will decrease. I think here, we have to be quite humble. It's very difficult to be precise, I mean.

Yes. Could I maybe follow-up on what you, Thomas, said earlier on the accounting point, where you basically reminded me that there's, I think, about CHF 58 million of expected losses already deducted from your CET1 capital. Is it therefore possible that if the new accounting comes onboard that we see, let's call it, half of that going through the P&L, but then it's going to be offset by less deductions? So your CET1 is protected, but your P&L would suffer. And if that is the case, and it is all very hypothetical, would that have any impact on your dividend? If that may...

I cannot explain it to you. But I can tell you that CET1 ratio will be unchanged. And well, as we have worked it out, we don't expect impact on P&L.

And neither on dividend. That change will not affect the dividend at all.

No. I think it's really -- the thing I was thinking on is that basically, the cost of this approach, we already paid the day we introduced IRB.

Yes. It's just that if I look at other banks that are using IFRS, the typical outcome has been that some of this...

It's nothing to with...

Expected [ amounts ] have gone through the P&L.

Yes, yes, yes. It's a very -- yes, I understand. It's technical. It's not IFRS. It's not IFRS, okay? It's domestic standard. And our ambition is that we want to make -- to take this opportunity to make our IRB, Basel III, CET1 ratio and the accounting numbers more consistent. They will be more consistent by the end of this year.

All right.

Is it clear for you?

Yes.

The next question comes from Andreas Brun from Credit Suisse.

Can you actually split the trade finance revenue loss to fee and income -- fee and commission income as well as to interest income? Or more generally, is it like evenly split between these 2 revenue lines?

Yes. Exactly, we -- no, okay. Sorry, yes, you can go ahead with 50%, 50-50.

Okay. On G&A expenses, which came down nicely in the first half year, is this actually a step down to a new normal? Or in a normalized environment, will it go up again due to higher marketing expenses, et cetera?

It's a mix. It will go hard. It will go up again. But we also have IT decrease. But I don't have here specific figures. But it's clear that also in second half, I mean, most of marketing events, if you know that we have -- BCV has a birthday this year, 175 years, and we have put something aside for that. And we had to cancel most of the events. So there will be also in the second half, certainly, some reductions due to those events being canceled. But don't expect this is the new baseline for 2021. That would not be correct. On the other hand, it should take us on cost. It's clear that we -- people could not take their vacations. And we could not fault the people because this is not our philosophy. So there is an increase in personnel cost due to vacation not taken by our employees. It's clear that we will -- if there is not a new lockdown or stuff like that during the course of 2021, we will ask the people to take their vacation. So we might see, during 2021, a slight decrease in personnel cost only due to that effect.

Okay. That's very clear. Lastly, on gross interest income, which was down 10% year-on-year. Do you think that this net interest margin compression will continue going forward?

Well, first of all, so gross interest income was down 4%. There was the first moment in error in the AWP communication, which we corrected later. And then the net interest income is down 10% given -- taking into account the risk cost. Now going ahead, here's something with regard to dynamics of gross income, which is very much linked to the negative interest environment, there's some elements which we should take into account here. Obviously, there will be the ongoing effect still of mortgages repricing on the asset side at lower interest rates. And on the other hand side, on the liability, nothing especially going on as you know. Secondly, there will be positive effect from the increasing -- increased and increasing exemption at Swiss National Bank to put liquidity there at 0. Thirdly, it's actually difficult to read the real economic development of interest income in the P&L because it is partly in the line, which we are just talking about. And given that its Treasury is working on this to explore it completely, it's partly captured in over derivatives, over swaps in trading income. So the number you see in terms of development of interest income is not fully reflecting the dynamic. Now all of that together, taking together by coming and taking it to the bottom line, interest income from an economic perspective will be under pressure. But if it takes a strong hypothesis that the current interest rates stay as they are, we are rather on a flattish development.

Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to BCV for any closing remarks.

Okay. I mean I will be very quick. Thank you very much to all of you, and we talk to each other either in road shows or discussion next year for the 2020 results. Bye-bye.

Bye-bye.

Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.