BAWAG Group AG (BG) Earnings Call Transcript & Summary

Good afternoon, everyone, and welcome to our inaugural Investor Day presentation. This is the Q&A format, our Q&A session. I'm joined this afternoon by my management board colleagues. To my far left is Guido Jestädt, our Chief Administrative Officer; to my immediate left is Sat Shah, our Deputy CEO and Head of the Retail and SME business. To my right is Enver Sirucic, our other Deputy CEO as well as our Chief Financial Officer; to his right is David O'Leary, our Chief Risk Officer; and to his right is Andy Wise, our Chief Investment Officer and our Head of our Non-Retail Lending business. This afternoon, we're also joined by a handful of analysts and investors. Unfortunately, we had to keep this to a really small in-person event given the COVID-19 protocols and the current situation. We've set up this session in this particular manner to be able to have a live stream Q&A event after having presented our investor presentation earlier this morning. And the reason is to ensure that we have broad-based participation across multiple time zones. So hopefully, people have had a chance to listen in to our presentation this morning and come equipped with Q&A. Before we actually get into the Q&A session, I just wanted to recap the highlights of today's investor presentation. First and foremost, we, as a management team, are committing to midterm return targets of a return on tangible common equity of greater than 17% and a cost income ratio of under 38%. We're also committing to a set of financial and ESG targets, what we call our 2025 road map or 2025 Plan. Our financial targets are such: A pretax profit of greater than EUR 750 million by 2025, which equates to about a 7% compounded annual growth rate. Earnings per share of greater than EUR 7.25, which is about a 10% EPS CAGR. And as well as dividend per share of greater than EUR 4, which is about an 11% CAGR. In addition, for the first time, we're actually communicating ESG targets, which we've embedded into our operating plans. Our ESG targets are such: We're committing to reducing our Scope 1 and 2 CO2 emissions by over 50% from a baseline of around 2,900 tonnes, and we can get into the specifics of how we're actually going to do that. We're committing to a women gender diversity quota of about 33% coming from a baseline of about 17% from the Supervisory Board level and 15% as it relates to our senior leadership team. We had initially -- or we had historically committed to a target by 2027. We're actually going to move that up to 2025, and we have a number of initiatives in place to make sure that we can effectuate on those targets. And last but not least, we're committing to green financing of greater than EUR 1.6 billion. Today, we do about EUR 800 million, so we're going to double the amounts from where we are today, and hopefully, we'll be able to do even more than that. With that, we will open up the room for questions, and then I'll take questions by way of live stream. We have Izabel from Morgan Stanley.

This is Izabel from Morgan Stanley. I have a couple of questions. Two of them are on the net interest income and 2 of them are on the buyback. So starting with the net interest income, could you give us the detail between your loan growth assumptions in mortgages, but also consumer lending over the forecast period and how that compounds into the 2% NII CAGR? And then my second question on the net interest income is regarding the treasury income and corporate center NII, which I saw that your guiding will remain stable at about EUR 25 million. But I suppose within that, there is a duty of our bonus. So my question is, what are you assuming on the bonus? And how do you plan to counteract the bonus dropping off in order to keep that stable? So I'll stop here on the NII.

Enver?

So on the first question, we don't give any specific asset growth targets in terms of the individual product lines. But I would think in the context of what we have seen in terms of growth for housing and consumer loans over the last 2 years is probably a good proxy if you just assume that for the next couple of years. And on the second one, yes, you're right. So the TLTRO bonus is in the Corporate Center & Treasury segment. What is the assumption? It will roll off. So we don't assume that it's going to be rolled in the future. It rolls off next year and will be half of it next year and then it goes to 0 in '23. But we have counter effects as well. Some of them just on the liability side, but also the excess cash position that we have and the negative carry will mitigate the role effect of the TLTRO. That's why I believe it's going to be fairly stable for Corporate Center & Treasury.

I think, Izabel has got another question here.

Thank you. Okay. I have also questions on the buyback. So firstly, from a technical perspective, you said that you're applying for the approval in Q4. Could you give us some -- maybe some color on how long this might take and when you might start executing actually in the market. And again, a technical question. You mentioned that it's an open market buyback. Does that mean that we can rule out a directed buyback? Or is that still on the table? I'll stop here on the buyback questions.

I'll go through. Thanks, Izabel. I'll go through just the -- at a high level, and then Enver can take some of the specifics as to the execution. So let me state, first, a buyback is an iterative process, which is subject to regulatory approval. In this case, the ECB is our regulator. What we've communicated is there is no fixed amount. Our capital distribution policy states, it's clearly -- we will look to distribute excess capital greater than 12.25%, obviously, subject to regulatory approvals and based on a number of factors. The plan is to submit the application to the ECB during the fourth quarter, which we have not submitted yet, but that's the plan. And hopefully, the execution will take place during the course of 2022. We're not giving a fixed number given just the different factors. But if you look at the second quarter, our excess capital was EUR 436 million. And this, by the way, this particular buyback application is no different than the buybacks we've done in the past. We expect this to kind of follow the normal course of business. And this is part of our capital distribution policy, which has been consistent over the past few years. And our aim is to always be good stewards of capital. We'd love to invest in the business organically first and foremost. If there's M&A that's franchise-enhancing and value accretive, we'd love to do that all day long. We've committed to a dividend payout ratio, which, by the way, we've increased from 50% to 55%. That will start in 2022. And then we'll use buybacks on an idiosyncratic basis. So I know it's probably not the exact answer you're looking for, but we'll go through the motions and hopefully get it executed in 2022. You want to talk about some of the...

The former -- look, we have not fixed the whole program right now. We just wanted to share as much as possible with you. That's why we also wanted to mention in contrast what we did in 2019, right, on the other buyback, we think it's going to be an open market buyback. Just for disclosure, directed buybacks per se, we can't do anyhow. So it can only be an open market buyback or a tender, but very likely it's going to be an open market buyback.

This is Jim from Barclays. I have several questions on M&A. But I guess I'll limit myself to 2. Number 1 is in your plan presented this morning, I understand you haven't factored in any incremental potential earnings from future M&A given that you do have a lot of excess capital. Can you give us any idea what could be potential incremental earnings there? Second question is, when I look at your past M&A deal, you tend to generate meaningful day 1 benefit. Obviously, the market has evolved. I just want to understand how likely you will be able to capture this type of opportunity into the future? And how competitive is the market given now there's a lot of liquidity floating around?

Thanks for your questions. Let me start just at a high level, first of all. M&A, as far as the deals that we've done in the past as well as going forward. We've done 11 acquisitions since 2015, 9 have closed; 2, hopefully, we'll close. This is DEPFA BANK as well as Hello bank! in the fourth quarter or maybe into the first quarter. We're hopeful that will close this year. As far as our plans, we assume no M&A. So we generate excess capital of, say, north of 200, 225 basis points of CET1 on a per annum basis. So we have sufficient amount of capital to be able to organically fund these type of acquisitions. The reality is we're just always going to be patient and disciplined. If you go back to 2015 through forecast at the end of this year, we'll have done about 1 to 2 deals a year, small bolt-on acquisitions. Obviously, last year was an anomaly. We had a couple of deals where we're looking at that we put a pause on given the pandemic, and it was hard to underwrite the credit risk on a couple of these opportunities. But there's nothing that's in our plans. We've always been disciplined in that regard. And if opportunities come our way, we'll definitely look to capitalize on other opportunities. And we also gave a flavor during the presentation as to what we're targeting, Retail and SME. We like product factories. We like operational turnarounds. We have a core foundation in what we call the DACH/NL region, which is Austria, Germany, Switzerland, and Netherlands. But we're also -- we look at Western Europe. We look at the United States. But I think it's going to be more of the same in terms of the small bolt-on acquisitions, Retail and SME kind of focus or bias and value accretive to the overall franchise. We try to fund the restructuring day 1 by way of the discount. So when we say P&L accretive day 1, that's what we mean. And we're going to be disciplined. It's funny. We've done 11 deals, but we've lost far more deals than the deals that we've closed on. I think sometimes people forget that. But that's okay. That's okay. So I don't know if -- was there another question on?

Just 1 more. So when I look at the slide, you issued -- you transformed a business on the past M&A deal from RoTCE from 3% to 15%. And that's a quite big step up. Just trying to understand what are the key contributor to that? Do you -- at the end of the transformation, do you -- have you seen a very like a large reduction in the balance sheet, that's why you generated high return? Or do you expect -- have you seen more or less the same, you just fundamentally changed the business to improve the efficiency? And you -- last, your big deal, mainly from Germany based on what I have seen. So maybe you can add 1 or 2 comments on that. What have you done there was that kind of...

Thanks for the question. I think the road map is pretty consistent. Obviously, different opportunities have a different flavor, but it's focusing on centralizing activities, focusing on efficiency because a lot of the deals that we actually target have cost-income ratio north of 80%. And you can see our group cost-income ratio is around half of that. Really streamlining and simplifying our middle and back office and that's using just basic workflow, not even the automation, but just process reengineering. We focus a lot around capital management. And that means, okay, allocating capital to products that have a risk-adjusted return that meets our thresholds, and we're very disciplined in terms of the allocation and how we measure those products. It also means deleveraging risk-weighted assets or getting out exiting portfolios or asset classes that don't meet those returns. So there's a whole host of things in toolbox that we look to apply. But a lot of it, I'd say, at the end of the day, is self-help. So what you saw in BAWAG in the early years, we're really just replicating that with a number of these acquisitions. The only difference being you actually have the foundation, which to absorb that, and that's pretty powerful and that gives us a lot of opportunities. And as far as the Germany acquisitions, in particular, Südwestbank, that's another one, where we simplified the legal entity structure. We gave back the banking license. We created a branch out of that. We focused on a handful of core Retail and SME products. We launched Qlick, and Sat can probably talk about the specifics there, which is a consumer loan in the German market off of that platform. We were disciplined in the mortgages that we were underwriting. And quite frankly, we weren't as competitive in the SME and corporate lending. And that's where you saw a bit of the deleveraging of the balance sheet. So we'll be disciplined, and I think this road map has been pretty effective, and we'll look to continue to apply it in the future. Thank you. And Gabor, keep the microphone until you finish all the questions. I think it makes it that way easier.

Gabor from Autonomous Research. First question is on your cost income target, which is below 38% for 2025. If you put together your P&L targets, costs and revenues, I believe we can get to a 33%, 34% cost-income. So if you could elaborate a bit on this below 38% guidance in light of that and especially what specific measures do you see possible from today's perspective to reduce your costs in absolute terms when wages are going up? The other question would be on the buybacks. So it seems that -- yes, if we put together the P&L targets you presented and your DPS target, I think it roughly implies about an 8 million or so reduction in your share count by 2025, which at today's share price would be around EUR 400 million. So how do you think about -- I guess this is something which, from today's perspective, you see as possible over the next year or so. So if you could comment on how you see the potential buybacks for over a longer time frame? And then I have 1 final question after this.

Let's keep the mic with you. So I'll do the cost-income ratio and then Enver, maybe you take the buyback and we'll get the third question. On the cost-income ratio, look, I think over the years, we've been pretty disciplined with regards to our targets. So you've analyzed it to a very specific number. I think we're comfortable in saying that we'll be under 38%. And if you look at the net cost out from EUR 485 million, which we believe is where we're going to land this year forecasted, I think Enver went through it this morning, we'll be under EUR 455 million. So you have EUR 30 million in net cost out. What you need to factor in there is you're absolutely right, there's wage inflation, there's G&A inflation in terms of rents. There's -- we're seeing inflation, quite frankly, I don't think it's transitory, but that's probably a discussion point we can have. And then the second piece is the cost-out measures that we take, there is no silver bullet, and we talked about it today. It's a lot of different initiatives. If you look at our -- just our headquarters and facilities outside of the branches, we reduced our square meter usage by over 2/3, from 90,000 square meters to under 30,000 this year. We reduced our branches from approximately 500 branches, albeit that was in partnership with the Austrian Post. So that was kind of a binary chance to be able to reduce your branches to under 90, and that will continue to be optimized. We've done a ton in terms of middle and back office process streamlining. We haven't even reached the levels of automation, really thinking about kind of the workflow tools. So it's going to be just like the past decade, the next couple of years is going to be a lot of initiatives, a couple of hundred small initiatives that will further allow us to optimize our cost base. But we're never doing it that's putting the franchise at risk. We're -- one of the things we are today in the presentation was also the amount we've spent or invested EUR 0.5 billion in technology, but it wasn't 1 big silver bullet technology investment with a third-party. It was the basics, kind of blocking and tackling. We virtualized 100% of our applications both kind of on the private and public cloud. We do something through containerization and our CTO can talk to you guys about that as well. But that's really having kind of these many core banking systems that allow you the flexibility. We've optimized the overall application landscape. A lot of the technology spend is about simplifying our architecture, enhancing our workplace, especially in a world where you're seeing kind of this permanent hybrid work office model. That quite frankly, we had quite a bit of that institutionalized pre-COVID, and we're looking to continue to capture that tailwind. So those are just a number of the initiatives, Gabor. But I think it's going to be a lot of the same. It's just obviously from a lower baseline. So it becomes -- the deltas are significant, but it's not from the starting point that we had from before. And it's just a continuous improvement mindset right, as opposed to growing complacent on the cost base. And I'll pass it over to Enver on the buyback.

So Gabor, I think on the buyback or in general, I think you're asking about the share count, right? What do we expect over time where the share count will be going? We obviously can't give precise information on that just given the nature of buybacks in general, what Anas explained. But I think there's probably still twofolds or 2 parts of your question. We see what the distribution policy is on dividend, on buyback '22. And then we still have an excess capital part, right, where we say up to EUR 800 million, we still have as part of the excess capital that we want to deploy in organic growth, M&A or share buybacks. And that's a bit the unknown. So if we find good opportunities to grow, definitely, we'll do that. It'll not have an impact on share count, it'll have an impact on earnings, which should improve still the EPS, if you are consistent with what we want to do on the RoTCE targets. So to answer differently, we are quite agnostic what the share count is. We would love to find organic or inorganic opportunities to grow. And only, if not, we will then also do buybacks in the future. But information, you have -- you asked the right one is we gave net profit targets for '25, and we gave EPS targets for '25. So probably you can tie it back with our assumptions at least for the share count by then.

That's all very useful. And just staying with the M&A topic. I think you are flagged in the presentation that you would potentially enter other developed markets as well. What ways do you see to do that? Shall we expect acquisitions or more like broker-led type expansion what you did in the Netherlands, for example?

Yes, Gabor, as far as other markets, the DACH/NL region accounts for 75% today, 25% is Western Europe and the United States. I think you'll see that in the future, that same split 3 quarters, 1 quarter. And the type of M&A could be a small bolt-on acquisition of a bank. It could be a platform, a control investment, it could be a minority investment. But it's around asset originations, expanding your customer reach and always obviously having your credit and that discipline. And you had mentioned the Dutch example, that's one from a partnership standpoint, less from an investment standpoint. But those are the types of things. We look at kind of macro, what's the market look like? Does it meet kind of the criteria. And we gave a little more color earlier today in terms of the type of market, single-A sovereign, low levels of consumer indebtedness, stable fiscal position, low volatility in terms of geopolitical risk. And we look to the Western European as well as the U.S. market as well in terms of our scope, but we'll be very disciplined.

Mehmet from JPMorgan. Just a quick question on M&A, if I may. How open would you be to the idea of a much larger acquisition or merger in your home market? So say, for example, if an international banking group was to exit Austria, would you be open to the idea? And do you think you would be ready for such an operational challenge and a much bigger balance sheet?

So Mehmet, we get asked that question a lot. We're absolutely open to larger transactions. The challenge, quite frankly, is they're just not available. We looked at things in the past. They never came -- or they never materialized or came to fruition, but we're absolutely open to it. I think the only -- the flip side to that is we're going to be very disciplined in terms of the restructuring, the day 1 kind of the discount that funds that restructuring. We would be very sure in terms of the operational requirements to be able to absorb something large because that's going to be a fairly long-term investment as far as our operating capacity. But absolutely, yes. And if there's something that comes across and it's something of real value, we're going to come back to our shareholders and have a discussion around that.

Okay. Great. And secondly, just by way of clarification to Gabor's question. So cost income in 2025 comes to 35% based on your numbers. But you're saying that you want to achieve 38% in the midterm. So what's the difference in here? Is it just based on -- midterm means sustainable in the long term, and there is -- it can -- let's say, cost can increase over term -- over time? Or is there any specific difference there?

I'd say, Mehmet, historically, we've been pretty conservative in terms of the return profile that we've communicated. This is more of the same, being disciplined and conservative and never hitting a target for the sake of hitting a target, but making sure that it makes sense within the context of the franchise and the operational plans that we have. But everybody can run the math. We feel that we can do the things that we control and take out the cost, but doing it in a disciplined way, but we'll never do it at the sacrifice of the stability of the operations or our credit.

Great. And 1 last question, if I may. I mean, what you've delivered is a remarkable achievement in the last 10 years with the turnaround. And looking at the numbers today, it looks like you just want to -- let's say, you want to extend your operational success into the next few years rather than changing the strategy overall, which almost looks a bit too simplistic, too simple, which is a complement. So can I please ask what could go wrong here? And what are the biggest risks according to you in your strategy?

A, Mehmet, it is not simple, #1; b, I would say the biggest risk is execution and growing complacent. Part of the update of the targets too is just to demonstrate that we aren't growing complacent. We're not satisfied with the status quo. We'll continue to get better. But of course, we'll do it in a disciplined way. And the strategy has worked and we fundamentally, the team here on the stage, plus the broader senior leadership team and the whole team across the bank believes in it. We're always hesitant to be honest to give a lot of the strategy because if it's worked, why would you be sharing it with everybody. But yes, we feel pretty good. We have to execute. So that is the single biggest risk. So we plan to.

Marina Marchand from BAE System. A very general question, if I may. What's your view on digital currency, risk or opportunities? What's your strategy around?

So Marina, obviously, it's something we talk about quite a bit. We're not immune to all of the chatter and all the development around digital currencies or cryptocurrency. It's something that we are actively researching, but quite frankly, in the context of our business model, a lot of our business is going by way of digital. Now the digital currency is that issued by the ECB, what role does that play? I think that's -- we're going to react to, obviously, how things develop in the future. But it's something that we monitor closely. But in terms of the new technologies, whether it's blockchain, we think about how can that be part of our middle back office from a settlement standpoint as an example. Crypto is not as much intertwined to our business, but it's something we're following.

[ Tibo ] from Wellington. Just a quick question on maybe the change in maybe customer behavior in the Austrian market. You're obviously a big player in credit cards and consumer lending. There's a whole new craze, especially in the U.S. and Australia around buy now, pay later. I was wondering where you think that will hit the shore, I mean, so to say, of Austria and Germany as well? Or if you think that customers may take longer to adopt to a new product like that?

Thanks, [ Tibo ]. Sat, do you want to take this question?

Sure. So thanks, [ Tibo ]. So Austria and Germany tends to be a little bit behind in some of these crazes, which helps us to an extent. What we are seeing is just the customer base shifting towards digital overall, whether it's consumer loans, whether certain players might start offering buy now, pay later. There are some players in the German market that are offering that product. But I don't think, from our standpoint, the disruption isn't there right now. And I don't think it's going to become significantly larger to a point where it will disrupt our positioning in those markets. So I think we're pretty well positioned there.

I'd just add to that. The point of sale financing. We have that capability. The question is where do you sit in the value chain, and that's something again that we're looking at. But we're also not just going to overreact to the latest development. We're going to make sure it makes sense for our business, and then we'll work with our partners if that is a product that ultimately our customers want. Just be careful on the buy now,, pay later because of the credit box component, who is actually underwriting that particular customer, and that's something we'll never sacrifice. So it's a good question.

Thanks for the presentation. Sorry, I came in late, by the way. Hopefully, nobody else asked this question. Actually, this one is for Enver. I guess the EUR 460 million kind of profit guidance for this year, when I compare that with the PBT, it looks like you're looking for like a 20% tax rate. Is that the case? I think it's been a bit higher than that. What's driving that? Quite specific question. And then more strategically, I'd be interested in -- maybe you can run through some of your ESG targets, particularly the change in management that will be coming. I guess the same people won't be here when we are back in this room in about 4 years' time, I don't know. If you can touch on that? And then also, I'd be interested, I think you introduced some kind of lending criteria as well for ESG. Because I think that's the one thing that we really find it difficult to drill into is what ESG risk are you taking in the loan book. We can kind of figure out how much emissions you're giving off and et cetera. So if you could elaborate on that, that would be helpful as well.

Let me just start with the -- I think you said about -- in 4 years' time, it might not be the same people. We hope it's the same people. We're all contracted until the first quarter of 2026. You might be mixing up, Simon, the...

New people in addition to all of you.

Yes, that's right. We're obviously diversifying the Supervisory Board as well as the senior leadership team, and hopefully, you'll have a chance to meet the new people. But there's nobody that's looking to exit. So that's what I wanted to address. You want to do the corporate and then maybe even David talks then.

That's why we didn't put 2050 ESG targets but '25. That was 1 of the reasons. Just coming back to that, quite simple. We used to have kind of 24% the last couple of years quite stable. We assume if you look at the other year's 25%, which is just the corporate income tax rate in Austria, this year, a bit specific because of the bad will that we absorbed from DEPFA that's tax free. That's why it dilutes the tax rate down to around 20%. That's the only reason. But the baseline is 25%.

I guess the EUR 460 million includes the negative goodwill.

Correct.

Got it.

And I think there was a question on the loan book. Maybe David, do you want to just the low ESG starting point?

Sure. So I think there's 2 pieces, I think, to that answer. One is, when we look at the corporate side and restricted industries and sort of ESG, higher risk industries, that part is a little bit easier for us to have a clearer answer on. We have a very low starting point of around 2% of our book, that's in that sort of higher risk area. And that's just been fundamental to our view on credit is that transition risk and those are part of how we look at the ability of company to repay the loan. On the emission side, we are really still waiting for how that is going to come together in terms of what the emissions measurements are going to be. Across our portfolio with real estate and other things, it's hard. We believe that, that approach that we took on the corporate side plays itself out on -- across the rest of the book. But we're still waiting to see how everyone will really benchmark themselves on the emissions of that -- of the book, and we don't really have an ability to kind of give you a pinpoint answer to that today.

Sat, do have something on green financing, if want to talk about?

Yes. Simon, we do -- today, we do do green financing, especially on the mortgage side. So in Austria, as an example, about 20% or so is originated that is green financing effectively based on certain criteria. So that's one piece. We've started doing some stuff on our auto leasing side. So it's almost under 10%. Today is electric cars that are being financed. And so I think as we go through it over the next few years, we'll start seeing a bigger proportion of that coming through as well. So...

I have a question on your commission line actually. So I see you're targeting above EUR 300 million, you're going to do EUR 280 million this year. I think Hello bank! is roughly EUR 20 million. Does it mean that you're targeting a flat commission CAGR from that pro forma? Or...

Enver, please?

I think also when I come back to the question of cost-income ratio, quite conservative, to be honest with you. We think we'll be growing, especially on the advisory line it will be helpful, Hello bank! We haven't disclosed yet the NCI number, something hopeful we can disclose in Q4. But overall, I think specifically in the NCI line, it's quite a conservative approach.

Just to ask -- can you hear me? Yes, on the Austrian payment system you're providing to the state, how -- I mean, it seems like a very steady stream of cash flow for you guys on the corporate side. How disruptable that is? How steady is the contract with the Western government? I don't know much about this revenue pull. I'd love to know a little bit more about it.

I mean, actually, we don't give any details about the specific contract, but just in the overall context, it's a very small part of the total NCI. It's something that we have been doing for quite a long time. I don't even remember what the duration of contract is. It's very tailor-made. It's very specific. So nothing that can be replaced very easily. So -- and I think customer is very happy with that. We are happy with the relationship. I don't see any risk to it right now.

We have a couple of questions we're going to take that have come in through the live stream Q&A portal. I'm going to start with Máté Nemes from UBS. There's going to be a couple of questions here, so I'm going to try to direct it. First question, new strategic partnerships for Retail and SME. Can you mention any concrete opportunities you see an example of similar origination partnership like you have with Hypotrust in the Netherlands, are you implying new countries are in scope for the mortgage business? Sat, do you want to take that?

Yes. So I think -- Máté, I think we answered pieces of it. Our strategy is obviously to grow on the Retail and SME side. And the way we do that is through strategic partnerships, the partnerships that we have exclusivity with, or through various platforms in different areas. So the short answer is we are in discussions with various opportunities. We're not going to talk about anything that's concrete that's out there. But I think that will -- there will be some things that come through in the coming years. And it's a mix of all those types of partnerships. And specifically on the countries, we're looking at our core markets. So it's Austria, Germany, Western Europe, Netherlands and beyond. So we're in various locations. We have teams out there that are having conversations in general. So...

Thanks, Sat. Second question from Máté. What are the risks to your expectation of regulatory charges declining to EUR 15 million after 2024 from a baseline of EUR 65 million in 2021? This is a very significant step down in 2025. Enver?

Yes. Good question, Máté. So I think it's fairly simple, maybe just to go back to the EUR 65 million, it's really 3 parts. You have directional EUR 35 million for the deposit guarantee scheme. You have EUR 15 million for the single resolution fund, and you have EUR 15 million, call it, running cost. EUR 35 million of the deposit guarantee scheme, if nothing happens, no further cases in Austria, will just expire by '24 legally unless there's significant deposit growth. The single resolution fund same, but '23, so it expires in '23. So pretty much EUR 50 million of the EUR 65 million will just go away by '23 and '24. Coming back to your question, Máté, we are quite confident that this will just happen. And we have not factored in any relevant recoveries from the previous cases that took place.

Thanks, Enver. The next question for Máté. Given the steady decline in corporate lending in the last 2 years and comments on the call from Head of Corporate, Andy Wise, mentioning the market passed us by, and we were not competitive in this environment. What gives you the confidence that you can keep assets stable in corporate lending? Even more importantly, how much of a pickup do you expect you need in real estate lending to keep overall revenues growing in corporate real estate and public sector unit, assuming pressure on yields continue. Andy?

So I don't think this is really a new view on our part, and this is kind of the same message we've given for at least the past 2 or 3 years. We haven't been so positive on the corporate market. But I think the words I used were we were treading water. So we've been pretty flat other than maybe some legacy Austria stuff that we always thought would go away. And so I think we're predicting it's going to be flat in the future. So we're not bullish on it, but that doesn't mean there still aren't opportunities that we can find. We find these little niches here and there that we talked about, and we continue to do that. And I think we will continue to be able to find that. And so we're not requiring the growth in real estate to offset it.

Thanks, Andy. Next question from Máté. With regards to the geographical scope in a way are the U.S. and Western Europe in scope for expansion. Are you referring to opportunities in corporate lending or asset-backed lending, which is real estate lending? How should we think about the regional mix in 2025 is the U.S. and scope for M&A as well? So Máté, during the presentation earlier today, we talked about our 7 core markets: Austria, Germany, Switzerland, and Netherlands, the Western European region as kind of a -- it's not a particular country, but we've been in the U.K. We've done things in Ireland, in the United States. Those are the core markets we like. The stability, I mentioned just before, the sovereign rating, I think we're all comfortable having worked in a number of these markets. The overall mix is going to be 75-25 between kind of the DACH/NL versus Western Europe and the States. But as far as the growth, it's not just in the corporate real estate space, it could be in the Retail and SME space. And we're looking at a lot of things organically as well as M&A in terms of expanding our footprint. Okay. The next question from Máté. Can you walk us through your assumptions around the 200 basis point overall NIM over time. Enver?

So I think, Máté, the technical answer to that would be if you kind of bifurcate between asset growth, asset mix and just the stability of margins, I would say margins have been quite stable across the products that we see. So we don't really see a compression in terms of front book, back book margins. That's not the case. It's just the asset mix over time that gets us there. We are doing a lot more mortgages than consumer lending. And then if you just played forward with the growth rates that we have assumed from the past into the future, we would just see a dilution of our net interest margin. So really a vast majority of the NIM development comes just from the different asset mix that we are assuming or the continuous asset mix that we have been seeing.

Excellent. Thanks, Enver. The next question from Máté again. Could you elaborate on the profile of your office and mixed-use assets in your real estate-backed portfolio, country exposures, type of office, commercial real estate, maturity profile, et cetera? Andy, and then David as well?

So our office exposure is, we always talk about we're very focused on cash flow and our office exposure is similar. We have -- we're focused on multi-tenants. We don't like the WeWork type of tenants where you're acquiring other people to sublease all the time. We may have some small exposures, but none of our buildings have big exposures to those types of tenants. So you like office because you have those long leases and there's hopefully high-quality tenants they keep paying. That's basically what's happened to our portfolio through COVID. And even with that for most of our exposures, we've even seen some re-leasing activity, and it's been a lot better than we would have expected given the disruption in the market. So I think we feel pretty good about it to date. As far as some of the details that were asked, I don't think we disclose office by country in that level of detail.

Yes. I mean, I'd say we focus on the cash flow of the underlying asset. These aren't a trophy cap rate type assets. But we do provide a breakout of the overall real estate portfolio. And I think from this standpoint, the weighted average LTV is about 60%. So that pretty much applies across the board.

Okay. The next question from Máté. Could you elaborate on how you intend to optimize your physical footprint going forward? Can you quantify the targeted optimization, example, target number of branches or real estate footprint of headquarters in central offices? So Máté, we historically do not put targets or communicate targets as far as the branches or our headquarters footprint. I would just guide you to the past decade where we reduced our headquarters and facilities footprint by over 2/3. And we reduced the branches in sales offices by over 80%. Obviously, we're starting at a lower baseline. But we're going to continue to optimize our footprint based on 2 key factors. One is changing customer behavior as we evolve from transactional banking to more high quality, high advisory, and that's a different setup in a different footprint in terms of your network, number one. And then as far as the headquarters, the overall office space, I would tell you, we were doing a lot of the hybrid home office model pre-COVID. I think it's only given us more confidence over the past 18 months, but we can further optimize our footprint from an HQ standpoint. We found it's amazing with our employees. I think we've been a bit different from other companies, giving that flexibility. You need to be able to measure and have the KPIs in place to be able to afford people that opportunity. We're also admittedly in more of a mature industry. But we think it's a way to differentiate, provide work-life balance. It's great for the environment in terms of our CO2 emissions. A lot of that was actually reducing our physical footprint. So we'll continue to do that, but we don't give any specific hard targets. The next -- the last question from Máté. Can you clarify to what extent Hello bank! Austria is factored into your revenue and cost forecasts? So maybe Sat, and then, Enver, if you want to add to?

So the way that we did the Hello bank! Austria underwriting, we took a conservative approach overall. So I don't think -- we don't disclose any of the numbers of the revenues and costs numbers. But what I would say is, based on what we're seeing so far based on some of the integration work that's starting off, we haven't closed the deal, but we're starting to do some day 1 readiness stuff. I think we feel pretty confident that at least the EUR 10 million or so of PBT will come through at a near-term basis. So from what's factored into the plan, I'll let Enver talk about it, but I'm guessing this.

I think that's pretty much it. We said EUR 10 million PBT. We'll disclose more once we close like on any other deal. That's all. We factored it in the end side, but we've also factored in the cost when you talk about net cost out in the plan.

Okay. The next question is from Pierre-Marie from Eleva Capital. Good afternoon, could you elaborate a bit more about your willingness to invest in the United States? What kind of exposure are you ready to take there? What could be the synergies with the current business? How will you monitor the risk for this specific geography with regards to your -- I'll take this and then Andy and David, if you guys want to also add. Pierre, it's -- this is -- we've been lending into the United States for over the past decade, more so on the corporates and real estate front. We look at also on the Retail and SME. It's a core market for us. But any footprint expansion into the U.S. or Western Europe always kind of follow that overall mix that we have today of 75% in the DACH/NL region and then the other 25% Western Europe and the States. And whatever we do, we're going to do in a very methodical and disciplined way. So I don't know if -- Andy, if you want to add?

Yes, I think you hit it. I mean, this isn't really that new. We've been doing corporate loans for over a decade, the real estate loans for almost a decade. This would just allow us to source some of those opportunities a little bit more effectively.

David?

On the risk side, it's -- I think as I talked about the corporate side, we've sort of done over the years. But on the Retail side, the importance of retail risk management is that you have sort of an industrialized approach to the markets and that you understand the credits that you're getting into based on certain level that you're comfortable with. And we set that at the top level of the bank, and we make sure that, that gets rolled out by platform, by acquisition and by expansion. So we just really work to maintain that, and keep the same levels and standards and mechanics around our underwriting.

Okay. The next question is from Jovan from RBI. Where do you see the major pressure on NIM based on anticipated 200 basis points over time from 225 basis points currently? Have you had any pre-talks with the FMA on the share buyback already? And can you share the regulators' views? Have you considered approximately 10% share buyback in your RoTCE target for 2025 estimate? Are you getting all this because there's a lot of questions? Do you also incorporate any impact on the book value from the City of Linz case in your RoTCE target? Where do you see the major downside risk to your estimates? Do you plan to generate any additional nonbanking revenues, i.e., from offering digital nonbanking services to your clients? Go for it.

I can't touch very briefly. I think we have addressed some of them. So on the NIM, I won't even call it -- it's just more evolution, not compression because there is no traditional compression of the margin. It's just the asset mix. That's the absolute main driver behind it. Pre-talks with FMA, obviously, we would not talk about it. But -- I mean, rest assured, we are in constant dialogue with the regulators. And also, obviously, we will share the information with them. But I think, be a bit patient, wait a few months, hopefully, and then we'll give an update on that. If we have considered share buyback in our RoTCE target for '25? Yes, we made assumptions around the share buyback, that's why I laid it out for '22 already. And then I think Gabor had a very similar question. So down the road, we made assumptions on what we will do with the excess capital, which is partly baked into the plan as well. On the City of Linz, in the target, what we said, we addressed it completely from a capital perspective. So City of Linz, any outcome is fully addressed. We'll have no impact. That's why also we kept it of the RoTCE targets. The good or the bad, we don't think would make any sense to have it included. Major downside to estimates, I think what Anas said is really the execution part. I think we -- it's a conservative ambitious plan. We know the strategy behind it. We think it's totally doable, but it's really the execution of the hard work behind it that there are some risk. I think the last one, the additional nonbanking revenues, we'll look into different things, but not I think what Javon is referring to, not like nonfinancial services, more in the financial area, we would look at different things like servicing models that we also said is not captured in the plan, something that we will assess or have been assessing now. I think that's pretty much it.

Thanks, Enver. Okay, the next set of questions are from Tobias from Kepler. Please find 2 sets of questions. The first question, TLTRO III impact. Does the plan include a prolongation of TLTRO III? If not, can we assume a reduction of NII of approximately EUR 32 million in 2023 versus 2022 from TLTRO III? The second question, fee business growth, growth prospects. Well, let me just pause then. Maybe you want to take it and then -- it's a long...

So the kind of -- the first one, TLTRO, maybe just to explain. So in the TLTRO III, we booked last year, they're actually EUR 16 million of NII. This year, both halves of the year accounted, so we have EUR 32 million. And for the next year, EUR 16 million. So EUR 16 million, EUR 32 million, EUR 16 million, following year 0. So it -- coming back to the question. So the roll-off from '22 to '23 is EUR 60 million, but that's all factored into the numbers that you have seen for the segments, but also for the overall bank. I think on the rest of the questions, it's very similar to what I think [ Tibo ] asked on the Hello bank!, NCI growth, CAGR 3%. Is it actually the -- is it too low? Yes, it's just conservative assumptions. And then the cost income ratio of below 38% versus below 35%, again, I think we have addressed the question earlier.

Okay. And then we have another set of questions from Tobias. Interest-earning assets growth, approximately 10% for Retail and SME and 2% for corporates and public. Is that reasonable? Or should Retail see further growth given the acquisitions completed? And then there's a question on the shareholder composition. Can management communicate on Golden Tree strategic positioning? Any intention to use share buybacks for divestment? And then lastly, underlying assumption of housing market development for the DACH/NL region until 2025, what must go wrong not to reach housing loan growth for the targets? So why don't -- Enver, you want to take the first one on the -- just the growth rates for the businesses, I think it was pretty much...

Yes. Yes. We don't really give specific growth rates for segment in terms of asset growth. But what I said earlier today is it's probably fair to assume that the same momentum and same trends will continue. So we'll see more on the mortgage side. And on the consumer, we still think there is -- I mean, there was a bit of pause in 2020. Now we would -- we expect a bit growth on the consumer side. And the corporates and public, it's kind of stable to growing. We don't give specific targets on that segment.

And then question on Golden Tree's strategic positioning. I think it's best you have to put that question to Golden Tree, but they've been a fantastic shareholder for the past decade, very supportive of management. We'd love to see them in the stock for years to come, but they're also a financial investor. No different than Cerberus was a financial investor and many other asset managers. Any intention to use share buyback? Our share buyback, hopefully, once everything is said and done, is most likely going to be an open market share buyback. And then the underlying assumption of housing market development, do you want to take that, Sat?

Yes. So what we've assumed is in overall housing market development, pretty standard growth. The margins are pretty stable. So I think going into the next question is, what would -- what must go wrong not to reach housing loan growth targets? I think if we see a dislocation in the overall housing market, if we start seeing margins compress overall, that could -- we could see some downturn on that. So -- but we're going to maintain our disciplined piece. And I think you saw during the presentation, we have a page that talks about the size of our share in the markets. And so we're still a small piece of the overall share. And so that's just going to be -- so there is a lot of upside to if the markets turn in a positive way, too.

The reality -- and just to add to Sat. The reality is we're a disciplined lender in an incredibly large market, but we never overextend ourselves. So to the extent that -- there's more firm pricing, rational pricing, good risk-adjusted returns, we're going to be able to grow much more than anticipated. But we're not assuming that because that hasn't been the case for the past decade. And we'll continue to be disciplined and pick our spots. And when things become more rational, hopefully, we'll be able to capitalize. Thanks, Tobias. The next question is from Will James from Premier Miton, if I'm reading that right. On green financing, there's a view that it is lower return but lower risk. What is your view experience? Do you want to take that, Sat?

Lower return, but lower risk. So today, on the lower return, what I would say is today, we don't have different pricing for green financing at the current state. So we don't take a lower return on that piece. On the lower risk, we do it mostly on mortgages and auto leasing, like I'd mentioned before. On mortgages, we have near under 5 bps of losses. So we really don't see a major difference between the 2 yet. I think it's a little bit early on that. And then the same thing on the autos. I'd say the only thing on the autos is what are the residual values in 4, 5, 6 years from now. And I think that's the one piece that probably is out there that people have to consider. But right now, it's such a small piece of our portfolio, but something we'll have to think about.

David, do you want to add?

We haven't seen anything in the data yet to separate the risk from green to not green. The majority is in Austria, where the losses are de minimis on the mortgage book. So -- of course, we watch it carefully and make sure that we're analyzing where the differences are in the market, but none to say today.

And the last question that I see on the screen is from Magdalena from Morgan Stanley. Good afternoon, 5-year view. How do you see consumer-related opportunity for you across your Retail portfolio? Is it payments? Is it lending? Is it cards, investment savings products? Are you happy with your NII-fees mix in this business? Sat?

Yes. So I think it's a mix of all. One of the biggest opportunities, I think we have within our book right now is the -- on the investment side. So one of the things we are seeing is considerably more advisory talks, a lot more advisory services around first-time investors. And I think that trend will continue over the next few years, especially when we think about some of the inflation commentary that's out there. On the lending side, you continue to see a lot of demand on the consumer lending side. As we enter new markets, I think we'll see that demand as well. But I think the mix of the NII versus fees will pretty much be where it is today, maybe a little bit more on the NII side.

I would just add, Magdalena, that the structural changes that we're seeing is probably a continuation of the transactional banking being more and more commoditized so you have less -- and you can call that payments or current accounts or that form of fee income, that you're seeing more pressure. But offsetting that is your ability to grow your balance sheet, and we have so many stakeholders or footholds in terms of asset originations from mortgages, to consumer loans, to factoring, to leasing. So that will continue. Plus, I think we're doing a much better job on the advisory than we were a few years ago, and Sat and the team have done an awesome job to really focus on a high-quality sales force that is able to address our customers' needs because we have obviously a different customer profile than other banks. And we'll probably see that 75-25 split of NII to NCI continue in the years ahead. Okay. It has no any other questions. Well, thank you, everyone, for attending our live stream Q&A session this afternoon. Thank you for the very thoughtful questions that were put forth by the members of the audience here in person as well as online. And we look forward to talking to everyone on October 28, when we'll present our third quarter earnings. Thank you, and have a good afternoon.