BPER Banca SpA (BPE) Earnings Call Transcript & Summary

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the BPER Third Quarter 2020 Consolidated Results Conference call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Alessandro Vandelli, CEO of BPER. Please go ahead, sir.

Thank you. Good evening, ladies and gentlemen, and thank you all for joining this conference call today. This is Alessandro Vandelli, CEO, and I'm here with Roberto Ferrari, CFO; Alessandro Simonazzi, Head of Planning and Control; and Gilberto Borghi, Investor Relations Manager. First of all, let me say once again that I hope you and your families have been keeping safe and healthy. The second wave of the pandemic is keeping everyone under pressure, but I'm confident that we'll be able to overtake this emergency soon and turn back to our ordinary life. At the beginning of this conference call, I'd like to greet all our staff. You have put your commitment, passion and incredible dedication in supporting our clients in these tough times. This is the best way to face the emergency and invest in the future. Thank you all. The analysis of the 9-month results returned some very positive messages, in line with our strategy focused on enhancing profitability, improving further the asset quality, maintaining a very solid capital position while seeking, when possible, new growth opportunities. In summary, net profit of over EUR 200 million, a gross and net NPE ratio, respectively, down to 8.8% and 4.7%, and the shipment ratio at 13.03% from 12.57% in June are overall a concrete testimony of our strategy, and at the same time, a good starting point for our future plan as growth. Now if you turn to Page 5 of the presentation, which should be already available on our website, we can start with the overview of the 9-month results. I think that 9-month result to deliver 3 main messages: resilient profitability, a remarkable step-up in our already sound capital and liquidity position, a further significant improvement of the asset quality. On the profitability, the net profit is at EUR 200.6 million, showing a very positive increase of profitability, also thanks to the confirmed ability to generate revenues and contain operating costs despite the difficult economic and financial environment. It must be highlighted that the result of the period includes, in addition to the contributions to systemic funds for EUR 64.7 million, some other nonrecurring items already accounted in the first half 2020, such as the accounting of additional loan loss provisions for over EUR 90 million related to the worsening of the macroeconomic context caused by the health emergency and other extraordinary charge for approximately EUR 36 million. The cost of credit annualized is at 101 basis points, including the additional loan loss provisions and also the impact of the sale of the mezzanine and junior tranches of the bad loan securitization, spring, equivalent, respectively, to 35 and 6 basis points. Looking at results of the third quarter, I cannot hide the great satisfaction with results achieved, thanks to the extraordinary commitment of all the staff of the group. The net profit was EUR 98.6 million, which benefits from the growth in core income by 5.8% quarter-on-quarter and the decline of operating costs by 7.4% quarter-on-quarter in the presence of a reduction of the cost of credit. Moreover, this result includes the ordinary contribution to the deposit guarantee fund estimated at EUR 30.5 million. The second message is on capital and liquidity. Also this quarter, we have been able to further improve once again our already solid capital and liquidity position. CET1 ratio fully loaded increased significantly at 13.03% in the third quarter, up by over 100 basis points versus December '19. To complete the positive picture, our liquidity position is very strong as shown by LCR index at 175.8%, and the liquidity buffer reached over EUR 15.5 billion compared to EUR 13.7 billion in June '20. All this, moving on Page 6, introducing the third message about asset quality. We must underline another very positive step forward in improving asset quality. Our strong focus and commitment about it allowed us to get to the lowest NPE ratio and stocks over the last 10 years. Thanks to the further reduction of the NPE stocks, also thanks to the bad loan securitization called spring closed last July, gross and net were down, respectively, 20% and 17% since the end of 2019. The gross and the net NPE ratios dropped to 8.8% and 4.7% from 9.1% and 5% in June and from 11.1% and 5.8% December '19. Nevertheless, the decline of our NPE stocks and ratios is also associated with an improvement in coverage in all administrative status. We'll see some details later. We have been recording improvement on asset quality quarter after quarter over the last 4 years and believe me, we do not intend to stop this trend. The annualized default rate significantly improved by 40 basis points at 1.3% from 1.7% in June. And at the same time, the tax loss ratio dropped to 68%, showing a significant reduction by 11 percentage points in December 2019. Finally, talking about business, we experienced a growth in performing loans, both versus June '20 and December '19, also supported by the activity related to the measures promoted by the government for the emergency. Total funding reached EUR 177.3 billion, up by 1% versus December, showing a direct funding increased by 3% since December '19. And indirect funding is now in line with the end of 2019 level after the strong contraction in the first part of the year, supported by a strong performance in Q3. Very positive numbers came from the Bancassurance segment, which continued to show a strong performance, reaching EUR 7.2 billion with an increase by 2.9% versus June at 6.2% versus December. So overall, we can be very satisfied by this very good set of results, which are a positive base to address economic and financial uncertainties of the rest of the year, in particular related to the second wave of the health emergency. Now we can move on page -- onto Page 7. Also the second part of the year, we have been committed to work on several fronts. First of all, our attention was focused on strengthening and promoting further initiatives in support of families and businesses in this moment of economic and social difficulty caused by the protracted health emergency. Also thanks to the support of our branches and central services, which are fully operational in complying with current regulations. To date, we have accepted over 100,000 applications for moratorium and disbursed funds for state guaranteed loans for over EUR 2.7 billion while promoting numerous charitable initiatives and fundraising at the service of the territories and communities served. In October, the capital increase of EUR 802 million was successfully completed. As you all know, this is related to the acquisition of a going concern from the Intesa Sanpaolo Group, a very important strategic deal, which will allow the BPER Group to achieve a significantly national growth, both in terms of market shares and number of customers. It is a great satisfaction to have recorded the support of our shareholders and the market in such a difficult context marked by high uncertainty. This is coupled with the very positive results achieved in the first 9 months of the year, for the solid commitment of all the staff of the group, which my thanks go. Now we can go quickly through the -- through our 9 months 2020 results. Please move on to page #9. We start with an overview of the funding. Total funding in September reached EUR 177.3 billion, including contribution of assets under management from Arca Holding of EUR 16.7 billion. Direct funding in September is close to EUR 60 billion, up by 3% compared to December and substantially stable versus June '20 as a confirmation of a strong preference for liquidity of our customers. Indirect deposit recorded a very strong performance in September versus June, plus 3.5% and now in line with the same level of the beginning of the year. Asset under management performed well in the quarter, up by 2.2% versus June and almost fully recovered the same precrisis level. Bancassurance continues to show a very positive trend, reaching the stock of EUR 7.2 billion, which means plus 2.9% versus June and plus 6.2% since the end of 2019. Net inflows in asset under management and life insurance products in the 9 months are at EUR 818 million [ critically ] taking into account the current difficult financial environment. Moving on to Page 10. Net customer loans recorded a positive growth by 0.6% since June '20 and by 1.7% since December '19. This result is also supported by the measures of the government to support the economy. And this is even more positive if we take into consideration the bad loan securitization spring which helped to lower significantly the gross of the NPE stock as we are going to see in a while in the next slide. The good quality of the performing loans book is still confirmed with a particularly low bucket of high-risk exposure only 3.1% of the performing book. Let's turn to Page 11. This is one of the pillars of these set of results. Once again, we record a further improvement of the asset quality. Gross NPE stock at the end of September declined below EUR 5 billion, with a ratio of 8.8%, down from 9.1% in June and 11.1% in December '19. Also a result, over EUR 5 billion of bad loans disposal in the past 2 years. The net NPE stock is below EUR 2.5 billion with improvement of the ratio at 4.7% from 5% in June and 5.8% in December '19. Another good news is that the decrease of the NPE stocks coming on with an increase of the NPE coverage to 49.3% from 47.4% in June. Most of the coverage of bad loans and [indiscernible] improved versus June, respectively, to 63.9% and 36.8%. So we continue our job quarter after quarter to improve asset quality, delivering positive results. The expected macro scenario is uncertain but we think we are well equipped to face it, and we reiterate our strong commitment to focus on the further asset quality improvement going forward. Also the transaction with Intesa Sanpaolo addresses, as you all know, also this angle, among others. Moving on to Page 12. We show a strong improvement of the default rate at 1.3% in September, much lower than 1.7% in June '20. This is likely helped by the measures taken by the government to help the economy after the crisis related to the health emergency. But it's not only this, in my opinion. I think that this positive outcome comes also as a result of our long-term approach based on effective credit policies able to foster a better quality of the loan portfolio. Moreover, the average recovery rate on bad loans remained high at 6.4% from 6.3% in 2019. It was 3.7% in 2016, showing a very positive long-term trend, demonstrating that our servicing platform, BPER credit management is a very efficient machine and it is doing an excellent job and playing an important role within our overall NPE strategy. On Page 13, the securities portfolio reported an increase of close to EUR 1 billion versus June and by EUR 4.3 billion since December '19, mainly led by our large buffer of liquidity to be invested and the positive market expectations, in particular in the fixed income on market. Following our conservative strategy in the financial investments, we further diversified our portfolio. Italian government bonds, stock is substantially stable at EUR 7.5 billion, weighing 32.4% of the financial asset portfolio and 11% of the total assets. Now we can move on to the profit and loss figures on Page 15. As usual, note that the comparison between 9-month '20 and 9-month '19 is not possible because of the change in perimeter of the group. The third quarter of 2020 instead is comparable to the third quarter of 2019. Having said this, we are very proud of the net profit reported in the 9 months of EUR 200.6 million, thanks in particular to a positive ability to generate revenues and effective control of management costs realized in a not easy macroeconomic environment. It's worth highlighting that this result includes the impact deriving from the accounting of additional credit adjustment for over EUR 90 million relating to the worsening of the macroeconomic count and other extraordinary expenses for EUR 36.1 million already accounted in the first half of the year. Moreover, the result includes also the contributions to systemic funds for EUR 64.7 million. You can see details in the call-outs of the slide. We can move on very quickly to Page 16. The net profit for the third quarter is at EUR 95.9 million, mainly thanks to the growth in core income by 5.8% quarter-on-quarter, the reduction of operating costs by 7.4% quarter-on-quarter, the decline of the cost of credit to 20 basis points and a low tax rate, about 6%. Moreover, in this quarter, we have accounted the contribution to DGS amounted to EUR 30.5 million. So overall, also here, I have to say that this represents a very positive set of results. We can move on to Page 17 for some details of the profit and loss. We can show a very positive NII growth at EUR 325.5 million, up by 4.9% quarter-on-quarter and by 3% year-on-year. If we look at the ordinary NII, that is net of IFRS 9 and IFRS 16 effects, the performance is even better, with an increase by 5.9% quarter-on-quarter and by 5.3% year-on-year. The positive performance of the NII versus the second quarter is mainly related to the TLTRO take-up of June, EUR 14 billion. At the end of September, we took up other EUR 2.7 billion of TLTRO-III. The TLTRO-III additional contribution in the quarter was about EUR 35 million, with an excess from the second quarter of about EUR 24 million. On the other hand, we recorded a reduction of the yield of the loan portfolio, along with a reduction of the yield of mortgages and credit facilities. Due to the new issuance, the lower yield related to measure approved by the government to support the economy. Let's turn to Page 18. Net commission amounted to EUR 262.1 million in the Q3 '20, up by 6.9% quarter-on-quarter, reflecting a significant recovery after the decline in Q2 due to the effects of the health emergency and the prolonged period of the lockdown. We detailed the performance of the asset under management was particularly positive, up by 11.5% quarter-on-quarter. Commissions of credit cards, collections and payments rebounded by 13.2% quarter-on-quarter while the component referring to loans and guarantees also increased by 2.6% quarter-on-quarter. So we have had a confirmation of what we expected, looking at the positive trend of commissions in the last part of the second quarter. We turn to the precrisis level in line with the first half of the year after negative trend in April and May in conjunction with the lockdown period. On Page 19, in the third quarter, trading income was very positive even if a bit lower than in the second one, equal to EUR 43.1 million, mainly supported by fixed income bond trading and a favorable equity market performance. The quarter 3 has also a dividend for EUR 4.6 million. Moving forward on Page 20, operating costs amounted to EUR 379.8 million, down by 7.4% quarter-on-quarter and by 2.5% year-on-year, showing a very positive performance. Staff costs declined by 13% quarter-on-quarter, benefiting from the positive effects of the redundancy plan, including in the business plan 2019-2021 and the usual seasonality of the third quarter of the year. Other administrative expenses amounted to EUR 120.1 million, showing an increase of 2.8% quarter-on-quarter, mainly due to higher costs related to the extraordinary project we have been working on. We recorded also a decrease in G&A by 2.4% quarter-on-quarter. On Page 21, provision and other items, we accounted loan loss provision for EUR 106.5 million in the third quarter, down by 30% from the second quarter. Just as a reminder, we accounted additional provision of approximately over EUR 90 million in the first half of the year for the expected worsening of the macroeconomic context. Moreover, the cost of credit of the second quarter included EUR 16.4 million referring to the sale of the mezzanine and junior tranches of the securitization of spring. That loan portfolio closed in July. The cost of credit annualized is at 101 basis points. Net provision for risk and charge amounted to EUR 15.1 million. This quarter includes the ordinary contribution to DGF estimated at EUR 30.5 million. Now we can move on to Page 23 on liquidity. We consider our liquidity position as very sound. Our total eligible assets increased at EUR 27.5 billion, along with a bucket of unencumbered eligible asset of EUR 9.9 billion and extra liquidity of EUR 5.8 billion made by deposits with the ECB. ECB exposure of EUR 15.7 billion in September '20 entirely composed by TLTRO-III. The EUR 9.7 billion of TLTRO-II were entirely reimbursed in June. LCR index is at 175.8%, so we're above the 100% threshold as well as the NSFR ratio stands, we're above the regulatory floor. Page 24, on capital, another important slide. This year, the third pillar of our management action after the other 2 represented by the resilient profitability and the strong asset quality improvement. Just a technical clarification. When reading this slide, the capital ratio are on a pro forma basis because, as reported in the footnotes, the inclusion of the results of the period into CET1 is subject to ECB approval, which will be carried out with reference to the regulatory reporting date of December 2020. Our capital position recorded a significant increase of the common equity Tier 1 fully loaded at 13.3%, up by 46 bps versus June and over 100 bps versus December 2019. The CET1 ratio phase in stands at 14.61%, with a very large buffer, 650 basis points over and over EUR 2 billion versus the minimum capital requirements set by ECB at 8.125%. The main effects on the CET1 ratio fully loaded in the quarter have been retained earnings of the third quarter plus 28 bps, lower deduction on the [ PA ] and intangibles worth 9 basis points and the decrease of RWA for a positive impact on CET1 fully loaded of 7 basis points. We have also some extra buffer deployed by the end of the year, as you all know, in particular the UBI model extension to ex Unipol Banca credit portfolio. So now we are at the end of the presentation. So in conclusion, Page 26. The main takeaways from this set of results of the first 9 months of the year are: we continue to record a very resilient profitability despite of the very difficult macroeconomic scenario. We are confirming the ability in revenue generation and the first benefits from the redundancy plan included in our 2019-2021 Business Plan. Moreover, the cost of credit at 101 basis points shows that our approach to asset quality is still conservative, justified by the expected worsening of the macroeconomic context caused by the pandemic crisis. Deposit profitability results came along with a very solid capital ratios and a large liquidity buffer. Our commitment is to preserve and even improve this comfortable situation in the future. Again, a step forward in improving asset quality and obviously, this will continue to be a focus for our group. Last but not least, as you all know, we completed successfully the right issue of EUR 802 million in October to support the acquisition of a going concern from the Intesa Sanpaolo Group. We confirm once more the high strategic and industrial value of the deal. We are cautious that it was only the first step of the whole process, and even though very important but we are also confident to be well equipped to successfully finalize this deal. So thank you all for your time and attention. Now we are ready to start the Q&A session and to take your questions. So thank you very much.

[Operator Instructions] The first question is from Domenico Santoro with HSBC.

The first question is on capital. I mean, you are doing better but could you detail please all the moving parts, negative and positive, we should expect over the next quarters? In particular, the IRB on Unipol, the timing as well and your view on the calendar provisioning as well that kicks in Q4? And any other moving parts, positive or negative, you can think about. The second is on capital gain. I mean, I don't see the targets, including the purchase of the Intesa UBI branches. I'm just wondering whether the 13% that you had as a target before, shall we consider that floor, given that the evolution of the capital in the quarter, which was better. The other question is on the dividend, whether you're going to pay a dividend and which kind of payout ratio we should consider? And then just some anecdotal evidence on October in terms of commercial trends.

So thank you. Thank you very much for your question. First of all, about CET1 ratio. Yes, we expect to have the station of a [ IB ] model to Unipol Banca portfolio. There is probably another positive effect coming from the decision about software. And so the combination of these 2 elements, we estimate something but roughly around to 45, 50 basis points. And we expect to have good news from the ECB by the end of the year about the Unipol perimeter alignment to the internal model. Let me say something about the approach to the acquisition of going concern and the effect on our capital position. So the starting point, September, 13%, let me say, probably better than expected. So we are extremely satisfied for the results of the period. And our expectation is to complete the acquisition of a perimeter with a common equity 1 at 13.4%. So we expect now the combination, taking into consideration also the payment of the price of the going concern, the combination to have a positive effect on our capital position, taking into consideration also the presence of a significant bad deal that we estimate around EUR 1.2 billion. And so together, all these elements together with also the right issue completed in October, we think, is absolutely a very positive base for our capital position. On dividend, let's say the positive result of the first 9 months of BPER Group and also, let's say, the outlook for the end of 2020, we think that leave enough room to think about a possible distribution of the dividend. Also after the right issue in this period, we have a strong commitment to pay a dividend to our shareholders that supported our right issue. So we think the capital position, the elements of the going concern, the profitability of the year are all elements that we think allow to think about a dividend at the end of 2020. Obviously, we can't say. We have to wait to know what will be the decision by the ECB. I don't know if I -- if there is something else or about the provisioning on the Pillar 1, that the effect will be only on 2023. So nothing due in this period, the first effect in this period. Speaking about the other ones, so the expectation by ECB on [indiscernible] provisioning. Nothing significant in this year and also in 2021. At the end, probably the most significant impact will be on 2022. But let's say, we are so deeply changing the perimeter of our debt loss portfolio unlikely to pay that I do want to give you some figures about this point because I repeat, when we have the first estimate, the size of the bad loans portfolio and the like portfolio was completely different. And so we have to estimate again that the Pillar 2, in any case, you know that this will be, at the end, the outcome of some discussion with ECB on this element. But in a way, on Pillar 1, only 2023 would be a period in which we can see the first impact.

Sorry, can I follow up, just again on the capital? The question was more with all the moving parts that you just mentioned and given that the evolution of capital in Q4 was a bit better, as you said, the 13% that I don't see any more mention in the press release and the presentation at the purchase of branches and capital, shall we consider that the floor can be better considering all the moving parts? And whether that kind of target is still confirmed, of course. And second, also, if you have any comment on TRIM, if we should expect any impact from this?

Well, I'll start with your last question, no significant impact coming from TRIM. So this is what we expect to see. About the capital position, we had in mind 13% [ caveat ] also after the combination with the perimeter of Intesa Sanpaolo. What we said now is probably to have something better. So for this reason, we take into consideration also to -- so we think that we have a great opportunity in Q1 with a significant value. So at the end, when all will be on the table, the RWA, the capital position of BPER standalone at the end of the year, everything, we can take the opportunity to use partially the bad will to complete our strong action on asset quality. You know that we have already expressed the intention to use EUR 200 million of the bad will for asset coverage on the UBI perimeter of bad wills and are likely to pay. But if there would be a role and we expect to have, we can use partially the bad will also for an intervention on the perimeter. Our strong action on the asset quality is not completed. We are proud for the result of this last year, if you consider that in June 16, we had 23.5% of NPE [loss] ratio. Now we are at 8.8%, but our [ ability ] to go below 8%, grows to 7%. We think that we have a great opportunity in Q1. Also, the combination with going concern perimeter, we expect that in effect, in mixed effect, thanks to better quality in the going concern and also using the bad will we can have the opportunity to have another strong improvement in asset quality.

The next question is from Christian Carrese with Intermonte.

The first one is on net interest income. I see that in terms of liability costs, you have reached almost 0 cost, 0.03. I was -- in the back of the asset spread was down by 15 basis points. I was wondering what you expect in the coming quarters in terms of particular asset spread. And what was the impact for this in the third quarter coming from the TLTRO-III capital?The second question is on cost of risk. As you said, you are going to recognize the bad will in the first quarter 2021. So maybe there, you will make some additional provision to increase the cost duration maybe higher than EUR 20 million that you initially projected. I was wondering, for the fourth quarter 2020, you are still confirming the guidance for the current level 100 basis points or take into account that we should end up the full year with Common Equity Tier 1 higher than expected from the area of 13.4, 13.5 maybe? Could you decide to increase numbers provision in the fourth quarter or ready to increase the current generation to facilitate NPE disposals in 2021? And finally, 2 questions actually. Trading income, good in the quarter. If you can give us an update on the unrealized capital gain on bond portfolio. And finally, on the UBI branches integration, if you can give us some indication of how it's going with the IT migration and so on. So give us an update on that.

So thank you, Christian. Thank you for your question. First of all, I will take your question about the cost of risk and also about the integration of UBI branches and I go over to Roberto Ferrari for NII and trading. So cost of risk, we confirm the target of 2020 around 110 basis points. This is the guideline for the year. I think our strategy is to a Q1 for extraordinary prevention is, in my view, an incredible wind of opportunity, and we want to use calibrating correctly the action on coverage. And as I said before, our ambition is to reach a very significant and positive level of asset quality and we think to have room to complete a significant action in Q1, thanks to, as I said before, some better-than-expected result in terms of capital position, the expectation to have other room in Q4 and in particular in Q1 with the acquisition of the going concern. About the integration, there are a lot of activities during this period. There is a very strong commitment by our staff, in particular for the analysis for the migration. So we expect to complete everything by the end of February. It's a closer point because we want to have the effect on our profit and loss during the last part of 2021. Let's say, we are in the schedule perfectly in line with our schedule at this stage, and we are completing some activities. But I repeat, I'm confident that -- also thanks a good calibration between BPER and Intesa Sanpaolo Group to be able to finalize positively the integration of branches and also the migration from UBI to persistent. Roberto?

We'll start from the TLTRO-III, and actually, we took EUR 2.7 billion at the end of September. We completed our total amount and the benefit should be EUR 1.1 million per month in the last quarter of the year. In terms of asset spread, we -- clearly asset spread will go down at the end of the year due to the impact of government guaranteed loans that has clearly a lower spread, lower yield and also to the fact that we are increasing the financial portfolio at a lower yield. In the financial portfolio, securities have a very, very low yield at the moment. But we reckon that the volume effect will compensate the spread effect as it was done in the third quarter, not in the same magnitude clearly, but there will be a compensation between volume and spread effect. On the last question and also actually, there is a positive impact on the TLTRO-III on the last option. And also, we have a positive impact from the redemption of retail bonds that we are not renewing. On the last question on unrealized capital reserve, as of today, we are north of EUR 500 million. If you sum up the reserve in fair value OCI and amortized cost, clearly, the big stake is in amortized cost and the EUR 500 million is the gross of tax as well.

The next question is from Jean Neuez with Goldman Sachs.

I just wanted to ask 2 things really on -- first, on the integration of UBI Banca. Today, Intesa's result, there seem to be -- I think they recognize BPA in the region of EUR 3.2 billion, EUR 3.3 billion, then I think initially, it was planned to be EUR 2.8 billion. And I just wondered whether there was -- you mentioned EUR 1.2 billion bad will. But I just wanted to understand whether you need to update this number later or whether there can be any moving parts of this is the number which you believe is final, final. And so that's my question on the accounting itself. But also on the deal. So you didn't expect to be any synergy necessarily because you, at the time of presenting the deal, because it is complementary as opposed to overlapping. And I just wondered whether you've refined any potential for any synergies either on cost or on revenue since last time we spoke. And then my second question would be on -- just on LLP. So you see, for example, now you've got a guidance for 100 to 110 bps for the year and it's good. But then you say, for example, we have bad will, we can top up and at the end of the day, these one-offs happen on a regular basis and impact the growth of your book value, and they're not insignificant either. So I just wondered whether instead of cost of risk, you could maybe guide in terms of what you expect to have in terms of NPL ratio and coverage? And that's ideally at least in terms of coverage, and then maybe that's easier to try to chart the path of your book value.

Well, about the first question, looking at the very preliminary view, looking at the results of the 9 months of UBI, we saw not significant change in the size of loans, so a little increase. So we expect not to have an important change in our estimates on RWA and so also on the consideration and, at the end, on the bad will. So we confirm our estimate of EUR 1.2 billion. And as we said since the beginning, EUR 200 million will be used for extra coverage on the perimeter of UBI. And having said this, we are positive for this integration. And yes, I confirm that we didn't express any synergies, but looking at our business model and also taking into consideration that BPER has a full set of product companies, we think that there will be some opportunities, in particular in using our product companies. At the same time, we think that we have a very positive ability in managing asset availabilities and the return in terms of NII are extremely positive. We think that there is room also to have a positive effect on the perimeter of UBI. I think that there are these 2 areas in which we can have some positive elements. The last point obviously is on the cost income ratio. This deal is also a deal that -- in which we can have some advantages on cost-to-income because the structure of the deal is without any overlap on infrastructure, and this is a huge opportunity to reduce our cost income if you have a better profitability, thanks to this acquisition. I didn't catch your question about the coverage and the NPE ratio. Anyway, now we are at 8.8% on gross and 4.7%. We think that the perimeter coming from UBI, we have an NPE ratio at 6.5%. This is the expectation. And so the mix effect will have a positive impact on our NPE gross ratio. So we expect, only thanks to this combination, to go in at 8% area and probably below the 8%. Then there are these actions of asset coverage and this will enable BPER to complete other disposal and also to have probably other write-off on our perimeter. So for this reason, I repeat, we have room to complete other improvement in asset quality. I hope to have catched your question on the NPE.

Yes.

The next question is from Giovanni Razzoli with Equita.

I had 2 clarifications. The first 1 is on the NII. Can you please clarify the incremental contribution of the TLTRO-III this quarter vis-a-vis the second one? If I'm not mistaken, you've mentioned that you had EUR 24 million of positive impact, referring to Slide #17. And if that's the case, is it correct to extrapolate that excluding the TLTRO-III, you would be reporting NII in the region of EUR 300 million? So what's the underlying trend on a quarter-on-quarter basis in light also of the compression that you have mentioned on the asset side and the possible compare balancing impact on the volumes going forward? The second question related to the asset quality evolution. You have reported on the full trade in the Q3 that was 1.3%, which implies, if I'm not mistaken, a material improvement vis-a-vis the run rate of the first half that was 1.7%. So that implies that the full trade in the Q3 was significantly low or improving. I was wondering whether this was related to seasonality, to some one-off, underlying trends or whatever.

Okay, thank you. Thank you. Thank you for your question, Giovanni. About the default rate, I think that there are some -- the sum of different elements. The first one, I think that the action -- the moratorium on one side and also the loans with the state guarantee altogether were significant to lower the default rate. This is obviously one element. The other one is that BPER, in the last years, has adopted an important change in credit policies, and year after year, we have some significant positive effect on the asset quality. Also this year, looking at the performing portfolio, the high-risk portion is very, very low. And this year, something that the effect are present quarter after quarter in the quality. Having said this, the drop from 1.7% to 1.3% in a quarter, I think there is also the impact coming from more [indiscernible]. For the other question, Roberto Ferrari.

Giovanni, On TLTRO-III, actually speaking about the third quarter, the benefit was between EUR 6 million and EUR 7 million per month in the third quarter. Earlier on, I was speaking about the fourth quarter because we got to EUR 2.7 billion at the end of September towards our residual part in the TLTRO-III. And this 1 should have an incremental benefit of EUR 1.1 billion per month in the last quarter of the year.