Credito Emiliano S.p.A. (CE) Earnings Call Transcript & Summary

Good morning. This is the Chorus Call conference operator. Welcome, and thank you for joining the Credem Full Year 2023 Financial Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to the General Manager, Mr. Angelo Campani, please.

Thank you. Good morning, everyone, ladies and gentlemen, and thank you so much for joining us today. We have our CFO, Giuliano Cassinadri, with us; as well as Alessandro Cucchi in addition to our Investor Relations team. Let me start with the presentation. As you know, our 2023 was full of changes, both from the macroeconomic profile and unfortunate also in geopolitical terms, which were furthered and challenged by recent actions in the Middle East. The performance of the banking industry was indeed characterized by the effects of monetary policies or rates. However, at the same time, we also have to tackle with the inflation effect, especially in the first half. There is still uncertainty on the economic outlook. And our banking industry will definitely play an important role to support families, friends and customers. And that's why I'm happy to comment the outstanding 2023 results, which confirm some of the key aspects of our competitive positioning, which will allow us to effectively also face up to the next business cycles. In particular, allow me to talk about medium- to long-term approach, which is geared to have a sustainable value creation over time, a high level of diversification of our business model, which allows us to have absolute performance in any environment. And then not only do we grow organically, but we keep on conquering market shares. Let me also mention capital soundness, which once again confirmed by the regulator because of the Pillar 2 requirements, which ranks us first, not just in Italy, but also in Europe and then a sustainable investment capacity geared towards utilization so as to have a multichannel service model, so as to improve our customer care more and more. But let me talk about the quality motivation of our staff who can ensure year-after-year an over-performance as well as an excellent execution. And that's why in this occasion to, I would like to thank them all wholeheartedly. Let us go to the next slide. Here, you see the agenda of our call, not only we will focus on full year 2023 results, but let me point out the point to, I'll be focusing on some of the strategic issues. First to try and get an overview about what we have been doing so far and what we are currently doing to support our strategy. And last but not least, let me talk about our competitive positioning to take up future challenges. Let me now come to the financial results. Here, we are on Page 3. As I was tell you, 2023 confirmed the pillars of our banking approach also during rate hikes. We have kept supporting families and corporates by granting loans, thereby having a 3.3% increase in loans to customers, running count, the banking industry where there was a 3.9% decline year-on-year. But in addition to loans, we keep on broadening our customer base because deposits and funding has grown by 2.3% year-on-year in sharp contrast to the industry, down by 1.5% year-on-year. We have all done all of this by preserving our outstanding position in terms of asset quality. Our gross NPL ratio is at 1.9%, which is lower than the EU and the Italian average. And we also consider our coverage, we'll confirm our status of an NPL-zero bank with a net NPL ratio of 0.8%. Next, let me see some more key points on Slide 4. We have a record net profit, namely EUR 562 million with profitability ratio, the highest level in the industry. ROTE and ROE, these usual indicators stand at 19% and 16.3% respectively. Let me also confirm our excellent capacity of organically producing capital because our CET1 ratio is 14.24% with 664 basis points above on the SREP '24 requirement. This data also includes the proposal of a dividend distribution of EUR 0.65 per share, which EUR 0.45 ordinary dividend and additional EUR 0.2, which will be possibly distributed an extraordinary dividend in Q4 2024. Therefore, our payout ratio is at around 40%. As I was saying, all these results confirm our medium to long-term sustainability of our business model. Let me go to Slide 5. And here, we'll start talking about business diversification. Here, we are talking about diversification of income sources. As you can see, we've got an ongoing increase of revenues and operating income, but we also have increase in diversification as a result of our business model that can generate income despite different scenarios. And despite the many certainties in the landscape, we do know the 2023 featured an expansion of the financial margin, which made a 60% contribution in the last quarter. Let me emphasize the contribution of recurring components was over 38% in 2023. If we look to the future, I do believe that our high level of diversification will keep on supporting the path trodden so far because of the larger component of recurring revenue, so the core operating income. And in the P&L, we might even improve as a result of rate stabilization with the attractiveness of AUM products, so it will become even more attractive. Next, let's take a look at the contribution made by the different business branches, including our Federation business. Here you see a breakdown of net profit by type of business. The commercial bank, which is the center pillar of this slide was mainly driven by the expansion of volumes, by the outstanding management of rates and also the low level of the cost of risk. So more therefore EUR 30 million, accounting for 58% of the total. The extended banking services on the left-hand side, Credemfactor, Credemtel, Credem Leasing follows a similar path reaping the benefits of the quality asset and volume expansion, it makes a 12% contribution, EUR 40 million. And then the right-hand side, you see the wealth and private universe, including both factories Credem Euromobiliare Private Banking, almost EUR 567 million, which means a contribution of almost 30%. And let me remind you that this despite the fact that Credem Euromobiliare Private Banking only started contributing in late February. In a nutshell, let me emphasize once again the importance of group business diversification, which encompasses the whole value change from production to distribution. And that's a hallmark. There are entities are trying to emulate. Let me go now to Slide 7, where we see an amplification of the income statement. As you can see, we've got a good increase of the net interest income growing by 65% as well as the commissions and fees despite the volatility of the markets. The trend of cost is in line with the group growth. It's essential to invest digitalization to keep on creating value over time and also to improve our competitive positioning. As for the last quarter, as you know, we also had the component about the national bargaining and then EUR 14 million with the contribution, which were recognized in Q4 2023. As a result of revenue development, much higher than costs we have over EUR 972 million of operating income with a 66% growth year-over-year. The cost of risk closes at 15 bps and the Q4 '23 performance was really due to a number of factors that led to a further increase of the NPL coverage ratio and also then strengthen the quality of assets going forward. The final row of the P&L is quite good. I was talking about the fact that net profit reached EUR 562 million, the best result ever accomplished by our group. Let me now drill down into this data on the following slide. Here, we're talking about the net interest income. Q4 '23 was extremely good. We managed to do better even the previous quarter, thanks to the customer spread. Also because of the volume expansion, net interest income is EUR 1.091 billion, growing by almost 65%. As you can see on the right-hand side, we are over-performing the average peers as a result of our ability to generate a new volume and also the positioning on the rate risk which is favored development. Let me emphasize once again how our run rate late last year allowed us to have a good start to 2024, but we'll keep an eye on the repricing for the customer funding, especially result of any monetary policy decisions that might impact the interest income in the following quarters. We also continue our organic growth strategies, which following the growth of loans and funding, we will be able to keep on supporting the net interest income. Let me go now to the next slide. We'll talk about the rate spread. As you know, we had a very good performance of customer spreads. And we've got even 5 extra basis points. Talking about then the average loss rates, we went up by 24 bps in Q4 '23, in line with the industry, which grows more or less by 25 bps, whilst then the -- our funding repricing has been growing. As I was telling you, in 2023, we decided to support our customers' request with a number of new term funding products and this has impacted our cost of funding. On the other hand, we managed to draw new customer segments. And that, over time, will allow us to take advantage of our business model as to go back to the AUM segment. Let me now turn to Page 10, where we talk about our portfolio -- securities portfolio. As I told you, in the second half, we partially reconstructed our portfolio as a result of the sales in that part of the year, so as to ensure better margin in 2024. In terms of breakdown, govies account for 36%, which confirms the high level of diversification of our overall portfolio. Italian govies are all HTC, 98%. But overall, I'd say that the whole portfolio has a significant 58% component of HTC. By the way, potential capital losses of HTC category is quite low, only EUR 24 million net of taxes. Next, we're on Page 11. Here, we see a detail about the commissions and fees. As you know, throughout 2023, markets were quite volatile. And let me emphasize how the management fees, especially recurring fees were quite good in Q4, EUR 110 million. And they have slightly increased vis-a-vis the year before. As for banking fees, the performance of Q4 '23 -- vis-a-vis Q4 2023 is impacted by the fact that the commissions of bank accounts were removed as a result of negative interest rates. But we're catching up and we do expect the positive trend in 2024 as a result. So business volumes we acquired in 2023 and we're planning to do this year too. For this quarter, I would like to point the assurance activity, EUR 40 million [indiscernible] of performance commissions. The performance of the quarter is also affected by the application of the new IFRS 17 accounting standard. As for financial activities, they were affected by some sales, which we decided to implement to rebuild our portfolio with higher yield levels to support 2024 net interest income. So the core NIM is EUR 194 million in the quarter, up by almost 9% vis-a-vis the previous quarter, whilst vis-a-vis the previous year, in 2022, it was impacted by the lower issuers contribution, which I told you already about. Slide 12, let us talk about operating costs. As I've been telling you repeatedly, we keep pursuing our investment strategy to support the group growth. We do confirm our guidance, our goals to support digital innovation in our service model. We keep on improving the efficiency processes, especially IT platform. So we keep on investing in marketing tools so as to keep acquiring new market shares. And also in the final quarter, the cost of payroll were impacted because of the new collective agreement accounted for EUR 14 million and the impact of the new collective agreement, excluding this item, the value of operating cost in Q4 2023 would have been quite consistent with the significant performance we achieved. Let me come to Slide 13, where we talk about loans. As for loans to customers, once again, we have over-performed the market, up 3.6%, whilst the industry went down at 3.9%, and that is because of the synergies of our business model. And also, thanks to the outstanding work carried out by our salespeople, and I'd like to thank them once again. As you can see, we've been growing on all the loans lines. So as you can see, residential mortgage, consumer finance and short-term loans all growing then the performance of the other loans depends on the state rates that go to 3.1 to 2.1 at the end of '23. Excluding this effect, we would have been growing here, too. Thinking of 2024, the scenario will still be a complex one, especially if rates keep quite high, thereby reducing demand. This notwithstanding we want to continue supporting families and corporates and pursuing our growth strategy. It's not going to be an easy task, but will definitely make an effort. Let me come now to Slide 14. So customers funding, net inflows, EUR 3.8 billion of new net inflows. That was a year when then AUC had over EUR 4 billion of net funding because of the performance in the market, which are very attractive for customers. As a result, AUM has suffered from this. That's why [indiscernible] are over EUR 1 billion running after the market, our direct funding is positive, over EUR 100 million and this is because of the quality effect and also as a result of some of the campaigns that we have been carrying out. So going forward, we'd like to drive these volumes towards AUM. Let's go to the next slide to see about deposits. So we have been growing on all aggregate items, then direct deposits have been growing and the same applies to AUM. So AUM in issuers have been grown because of the market effect, which was very favorable in Q4. And this has offset the outflows we saw in the previous slide. Let me now come to Slide 16 where we talk about asset quality. In 2023, we had no significant signs of deterioration of our loan portfolio. Our total NPLs are quite low in absolute terms, just over EUR 700 million further down as a result of some disposals. So the default rate is quite low 0.44%, while the cost of risk is actually at historical lows, historical troughs. As I was saying, the growth in Q4 2023 was almost totally due to a number of actions that led us to increase our NPL coverage ratio so as to become even more resilient. Slide 17, here we are talking about NPL coverage. As you can see, in late 2023, went up to 59.6%. If we consider that the capital shortfall as well as the addendum [ calendar ] effects, the total coverage stands at a very high industry level, over 63%. And we have only 0.16% for the incidence of net bad loans or net loans compared to 1.05% of the industry. Let me turn to Slide 18. Here we're drawing some comparisons we are benchmarking, because I think that what we've been telling you about loan portfolio are indeed a substantial competitive edge, especially if the quality of assets in the bank history were to grow worse. Hopefully not. In case of a negative business cycle at least, the quality of our assets would be excellent. So the NPL ratio will be lower than the European average. And then the Stage 2 loans on total gross loans stands at 6.5%, which is about half of the Italian average and down 3 points of the European average. And then the overall coverage, the group's position is among the best in the industry, not just in Italy, but also in Europe. Now turn to Page 19, please. Here you see the main dynamics in terms of assets and liabilities of Q4. You see that the security portfolio, the portfolio has grown even more than as for wholesale funding with [indiscernible] position to LTRO, which will be paid back in March 2024. And then later the year, we also bought some more then repos, we use the ECB tenders and then as a result of the group performance over the last few months, we have had for growth in issuers in sales. Page 20, we'll be talking about whole funding. Talking about bonds in Q4 2023, no transactions were made. You may have noticed that at the beginning of the year, we issued a EUR 500 million covered bond, which was quite positively received by the market. We use that to cover the funding requirement for the whole of 2024. And then in early 2024, we also started issuing some commercial papers because the idea is that we want to diversify our funding sources. This year, following the regulators' approval in the final quarter, we might recall about EUR 330-residual million of senior nonperforming loans, which was used the last year for banking. And then as you can see, we have a high MREL buffer. So any new deals will be assessed depending on any opportunities emerging on the market. Slide 21, where we talk about our liquidity position. Here, you see our position, which is very good, EUR 16 billion, over 43% of direct customers' deposits. We still have a high fragmentation with private small business deposits less than EUR 22,000, which accounts for 80% of total funding, while the remaining 20% comes from corporates. These levels further support the management of our liquidity ratio, which we see next on Page 22. As you can see, we are much higher than requirements, both in terms of NSFR and also LCR. As for LCR, I would like to remind you that we already refunded 90% of our regional TLTRO and that's one of the reasons why we posted a reduction vis-a-vis a late 2022 data. Let me now come to capital ratios, Page 23. We still have an excellent organic capital generation despite the [indiscernible] low, so which then led us to further strengthen our CET1 ratio. Let me emphasize that these values already considered the proposed dividend distribution, it's EUR 0.65 per share, which EUR 0.45 ordinary dividend and an additional EUR 0.20, that will be distributed an extraordinary dividend in the second half of 2024. And that allows us to have a buffer 660 basis points. So here, I will conclude my comment on the full year 2023 results. So let us now turn to the second bullet point, growth investments and positioning. Namely, we are on Page 25. And here, I would like to mention 3 points. First, our execution ability to bring value over time in terms of growth and profitability. Here, I would like to talk about any proposed future investment so as to leverage our federation of business. And then I would like to wrap up our competitive position for the -- an idea of positioning for the next business cycles. Slide 26. Over the last 10 years, which you see charted bottom right for 2013 to 2023, over the 10-year period, we achieved great results in terms of total business and also then direct-indirect funding plus loans. So in 10 years EUR 68 billion to EUR 132 billion, almost then 93% -- almost EUR 70 billion growth. So it's comparable to a medium-sized bank. But we're lucky because we did not have to bear the cost of acquisition integration. We basically doubled our market share in 10 years in terms of loans and funding, the result of the acquisition of over 500,000 new net customers in the last 10 years. In order to accomplish such results, we need to have quality people, capable employees who could take up outside challenges and turn them into opportunity. As you can see, we have increased our head count plus 1,000 people. We're talking about 100 new hires a year, which considering the business cycle we're talking about is definitely not usual because in that period, there were so many headwinds and this has yielded greater efficiency productivity. There, you see at the bottom right, total business number of employees, ratio, which has grown going from EUR 12 million to almost EUR 20 million. Slide 27. Exactly in the same 10-year period, let's take a look at the ROE, the return on equity. Profitability you see in 2023, if we compare our position to the Italian and the European situation. So these are 2 quite challenging scopes for our group. However, you see that throughout the 10-year period, we posted a high profitability, higher than both Italian and European banks. The idea here is that it's not just a 2023 year was a boon year for us because we have proven to be excellent throughout ups and downs in the last 10 years. And I'd like to draw your attention on the significant point, you see that we have some positive and negative GDP periods. We had rates going up and down. There have been geopolitical tensions, even a pandemic. Our ability to then strongly manage uncertainty will be a strength now and in the future, we have shown we're capable of seizing any opportunities presented by any outside or externality. Here in this chart, you see how we have over-performed in the 10 years. ROE levels have been outstanding also in terms of organic capital generation. The reason is that our business model is highly diversified. We had an optimal management risks, not to mention our business culture and the quality of our staff. And then I'll talk about these factors once again once we near the end. Let's turn to Page 28, where we see some strategic directions. We'd like to have a complete competitive and highly differentiated business model. And we keep on pursuing this approach. We have over 50 project initiatives, we're about 7% of annual revenues are invested and they apply to all the group's then lines of business. Commercial banking, private banking, extended banking and wealth management and then we've got some cost-cutting initiatives. First of all, digital transformation, big data, AI and ESG criteria. As for the first strategic direction, digital transformation, it is geared to further improving our service model. And we have a very clear stance because we are highly convinced that the model will be increasingly digital. So on the one hand, the benefits coming from technology, but the other -- at the same time, it's also important to engage with the physical customers, providing them investment consultancy, protection and investment. I think this will be paramount to support the further growth of our customer base to make them more and more satisfied and increase cross-selling. As for big data and AI, this will allow us to improve the quality of our information capital so as to become even more effective in sales and to make a more effective decision. As for ESG criteria, I will be mentioning our active contribution to mitigate the effects of climate change. So let us start from the ongoing digital evolution on [ Slide 21 ]. We think that we're prepared to seize digital opportunities because we've got an omnichannel relationship with our customers. The digitization of our customers become quite mature by now. The internet banking and apps are quite widespread. And I must say that we are talking about 95% of penetration. We have also then improved the digital offering, our main products and services. We have also improved customer data -- behavior data database and that applies both to households and corporates. As you can see in the 2 central boxes, we'll be focusing on execution, namely to roll out and implement these capabilities. If I think of the current cross-selling capital, first of all, will increase our ability to customize and understand their needs and also to increase customer margins. In terms of prospects, that would be in terms of new customer acquisition. And in the second half of 2023, there was a major development. Let me reiterate once again that we believe in a mixed model, combining technology innovation to the main strength, skills relationship capacity of our staff. And this will just go beyond the physical points of sale. And I'd like to remind you that in addition to physical points of sale, we also have some remote branches because there are clients who would rather act or talk remotely with their consultant as well as the home center, there has groups especially consultants for end-to-end remote management of the most important products such as mortgage files. To wrap up this part, I'm quite convinced digital contribution will be even more significant over the next few years. Starting from this year and that will further support our vision to grow both in terms of customer base and market share. Slide 30. Here, I would like to talk about data and AI. We have been investing a lot in these drivers. We want to establish the right conditions for our group to be able to capture ideas, nontraditional approaches that can be turned into value. Starting already in 2021, we have been developing our corporate venture capital initiative, which reports to Credemtel to invest in start-ups with the idea of accelerating the open finance model. In late '23, we had stakes in 31 startups and 1/5 of the startups provides AI services. These partnerships have the sole goal for us to increase service offering with innovative solution such as IoT, Internet of Things, which would like to offer our corporate clients. So that's why we've got a business approach so as to make our offering even more comprehensive. Let me give an example, PTP is a new startup. We have conducted the first trial. We have been convinced, restart of Avera, who is our company dealing with the consumer credit. As for the in-house situation, we have established a group company that is devoted to data and AI because we want to become more and more of a data company. And we adopted a very pervasive business model, including, involving about 200 people within our group. It's based on the hub-and-spoke model with the hub, which is the central computer center, whereas the spokes are found in each business supply chain, because the idea is to have bespoke or custom-made solutions. So just to give an example about the relevance of AI and machine learning, especially for customer services. As a result of predictive analysis to support our CRM system, we can use machine learning to be more effective and fast in meeting our customers' demands. Another example is the customer care. So now we have a chatbot working with AI. And in 2023, we had over 300,000 digital assisted interactions. Slide 31. Let's have some deep dives about ESG criteria. Our priority industries were oil and gas and power for our carbon neutrality initiatives, both loan and finance portfolios, generally speaking, our approach is comprehensive in terms of climate change mitigation because we want to reduce our emissions, we also target sustainable finance. And then with the mandatory monitoring of environment and climate risks. That's why just recently, we joined the Net Zero Banking Alliance, NZBA so as to make our portfolio more aligned with the 2050 Net Zero Banking Alliance in principle of responsible banking goals. You know how important it is for a bank to include ESG factors in the credit process. ESG scores and indicators already available for the entire corporate portfolio and they are always analyzed when deciding whether to grant a loan with data provided by external providers. However, at the same time, we have also been working on questionnaires that we can administer to our customer base so as to have more accurate and direct data. And then on top of that, throughout 2024, an assessment by the credit department will be implemented because we want to be even closer to corporates with a poor environment score. So we'd like to help them out to make this transition. Let me now go to the right-hand side where we're talking about people. And I'm proud to tell you that we are the only bank in Italy with 2 gender certifications, both for payroll and compensation. And these are important awards or certifications because on the one hand, they confirm that our actions were the right ones and they also they goad us to get better and better going forward. Let me then dive into some ESG criteria, especially when talking about our further offering, especially for financing or for loans because we want to be the right interlocutor for our customers who want to become carbon-neutral. Here on the left-hand side, you see the list of financing products for private customers as well as for corporates as a result of the opportunities provided by the Italian National Recovery Plan. In 2024, we'll be designing a new product, such as the sustainability-linked loan and the green or residential market loan as well as other retail green loans. At the same time, we'll be evolving towards a taxonomy aligned product range with the newer DNF published in April, we then will disclose all new ESG targets by 2027. We also define some short-term goals. You will find -- you can find them on the right-hand side. So commercial banking and consumer credit, they have a goal of over EUR 600 million of new green loans for both retail and corporate. And our funding is expected to grow as high as 60% in terms of the total outstanding ESG issues versus total outstanding bonds. And you've seen that in our general mission. Let me come to Page 33, which lies very close to my heart even though it's not about financial data because if I were to wrap up our competitive positioning, I'd like to emphasize that all the results or the performance that were achieved come because of our people and our business culture, which act as a real gloom. Think of an action for a moment. I mean the financial results are the part above the water. So what people can see for the outside, but below the water level, you will find our people, our team and it's based on this awareness in 2023, we decided to exchange feedback with our people so as to better define our purpose and number of values, which will be our northern star going further. As you can see there, our purpose of value and will be sustainable over time for all stakeholders and then our values, trust, simplicity and entrepreneurship. Purpose and values have also led to reviewing our personnel policy with the application of a new widespread leadership model because the goal is in our organization, anyone can become a leader, can express leadership and also then to adjust and align behavior so as to become even better acting as a team. Talking about team, you know how important it is for such federated groups such as ours to be able to combine opportunities of single businesses, cutting across so as to benefit the whole group. And even the application of more horizontal business models such as the teal agile organization, aim exactly the same goal, so to engage people so as to drive them to be more courageous and entrepreneurial or enterprise because we are quite convinced the execution capacity in our business does make a difference. We now come to the final slide, Slide 34. And here, you see the positioning of our group, which, in our opinion, makes us ready to face any future challenges. Let me start from the left-hand side. I'd like to recall some of our strengths. The first word you find this capital soundness, our ability to manage risks and organically generate capital to support the growth strategy, which requires an adequate capital requirement. And here we are quite proud that we are the bank with the lowest P2R in Europe. The second term is an excellent asset quality. If the next -- if in the next business cycle, there were to be a deterioration in the quality of assets, at least will be equipped with the best asset quality ever. The third term on the right-hand side is business model, differentiated business model. Over the years, we have shown that our business model is compatible ecosystem with various scenarios. If in the future, then interest rates were more balanced than once again AUM and insurance income would be favored, thereby supporting revenues in the medium term. And also in 2023, when the main protagonist was the NII, we have shown that our revenues are around 64% of the total of NIM, which is much higher than our peer group. That would be for me. Thank you so much for listening to me. And now it's up to you.

[Operator Instructions] The first question comes from Giovanni Razzoli of Deutsche Bank.

I have 3 questions. The first, I need some clarification. I think in the conference call you hinted that the interest margin should grow in 2024. Am I correct? Then I have another question about the AUM funding, which I've not mistaken, was negative, minus EUR 1.3 billion in 2023. And all 4 quarters had negative flows. I suppose that like for everyone else said, there was a very high competition coming from PTP. I thought that in Q4, there would have been a slightly better performance. I'd like to know about the start of 2024 and what we should expect for that? And then a final question about the clarification on your distribution policy. There is a EUR 0.45 for the ordinary dividend plus a extraordinary dividend, how should we interpret or read this extraordinary dividend? I thought that EUR 0.45 just a foundation to be used to grow over the next few years. So how should we interpret it? Because if I take a look at your payout, we are talking about 40%. I mean all the other Italian banks who are totally different for you, we know in terms of profitability, sustainability business model, they've got no product factories, they do not have specialized networks that never had such a good quality of assets. They cannot have the same structure of profitability as yours, but they are well above 60% and they issue some interim dividends. I was wondering how come the Board of Directors does not challenge this payout level, which is much lower than other companies?

Thank you. I think you basically just summarized the questions many other analysts would have wanted to ask. And by the way, I'd like to thank you for the kind words about our business model and our results. Let me start with the net interest income. I mean, in 2023, we had a performance that was much better than average peers, at least based on the press releases we have been able to grab until the asset. So we're up 15 bps in 2023 vis-a-vis our peer group and this is top line result. But if I were to broaden the horizon if I try and interpret your words and perhaps I tend to give you a guidance for 2024, then I need to touch on a number of aspects, because it's not an easy task. The first thing which is not depend on us, depends on any BCE policies. As you know, there is a lively discussion on these topics, not just in terms of timing, but also in terms of intensity. But let me first focus on timing. I think it's going to be in the second half of '24, say, July as opposed to September, but this is quite crucial. On the other hand, we need to consider something else too, namely wholesale funding or institutional funding, which is quite cumbersome both in terms of issues in 2023 and also for that we just had in early 2024. And then we need to consider then the effect of mandatory reserve preservation, which took place in September. So there will be a 2 impacts in 2024. As for our strategy, I mean, I've attempted to tell you above that in our strategy, we are planning to grow our customer base. So we are planning to keep on replicating customer attraction initiatives with the net term deposits, but at least this driver depends on us, so we can manage it as we want. Talking about the internal issues, we expect a slight increase in deposits. We are at about 25% and it should go up between 25% and 30%. This just to tell you about some of the factors that they might impact the margin, the NII. On the other hand, we started off 2024 better in terms of customer spread and then you need to consider the volumes were achieved in 2023. And pro rata, what will be acquiring in 2024 will further boost that in NII. Another contribution, you have seen that we have increased our security portfolio. So another contribution will cover that. So we have a bit of this and a bit of that in terms of contribution. What can I tell you now is that our expectation rather our ambition would be to have a flat NII 2024 projection, and then if we had to have a new headwinds such in terms of the ECB and its monetary policies, then we might have a decline up to 5% tops. So that's what we expect in terms of the NII. In terms of assets under management, that's quite clear, isn't it? Our business model position allows us, I mean, especially when the market mood is not focusing so much on rates, but rather on a medium and long-term vision. In that case, we were able to capture. We've got the wealth management product factories. We've got our commercial banking, we've got specialized private banking and financial consulting channel. So we just need to take our customers by the hand throughout 2023, people were quite focused on rates. And even in the early month of 2024, this attraction may continue at least at first. But what I do expect and what my ambition is that around March, April, then AUM will start increasing once again. And that's why for this component, we have an ambition of growing by about EUR 1 billion in 2024. As for the dividend question, let me first make a preliminary consideration. You are familiar with our heritage. As you said, we tend to be quite cautious there, but because we're always combine it with the medium- and long-term vision. So we want to combine the well-justified satisfaction for shareholders with certain need to achieve a sustainable development of our loans. And that's why you have seen our loans boosted in 2023, it wasn't by chance. And we also had a 25 bps increase of CET1 ratio between the end of 2022 and the end of '23. And that's because we have invested in our growth. And I mean, over and beyond quite insignificant increase. We decided to use that for payout. So that's basically our mood, mood of our management for the medium and long term. So we're split the dividend distribution to 2 tranches just to be on the cautious side, as you said. But I'm sure that you have seen, well, of course, it will be up to the Board of Directors, but you may have seen that our Board has been focusing more and more on these aspects. So that's what I felt, I would tell you. You're probably right. I mean probably we have a more medium or long-term outlook as opposed to other people.

The next question comes from Luigi De Bellis of Equita SIM.

I have 2 questions. The first is a follow-up question on the capital allocation strategy. I mean, you've got some positioning a very high coverage on NPL. So what's your base strategy? What's your appetite for M&A is not just for traditional banking business, but also safer private banking? And then question number 2, what types of trends are you expecting for banking fees and costs for 2024? Could you possibly give us a guidance for 2024?

Thank you, Luigi. 2 very interesting questions, which allow me to further talk about M&A. As for the capital position, we are quite sound. We expect it to strengthen even further, but I showed you a range, more or less the same range as 2023. Let me relate it to M&As, but not so much when talking about capital allocation required, but rather to say that the market is quite stagnating in terms of M&A deals. Many other competitors of ours have been performing quite well despite their size, so we are having tailwinds in our favor. But apart from a potential merger with the commercial bank, there might also be some potential vertical opportunities. But aside from that, there haven't been many opportunities around. We are keeping a careful watch on the market, but I can tell you, as of to-date, we have no plans in the pipeline because there are no opportunities in the market. You know that our pillars are to have value creation transactions without creating an excess risk. So we don't want to have any distress there. And then you had a question about banking commissions, right. Let me give you some more guidance about that. Well, as you know, in 2023, banking commissions were impacted by the removal of the negative rates. So we sterilize that. However, considering the values of 2023 managed to recoup at least a part of that. And we think we'll continue performing also because of our growth ambitions. Just to give you a bearing, we think that banking commissions will grow by 5%. Okay. There was also a question about operating costs, sorry, I had not heard you. I thought I was quite transparent in disclosing our strategies. We do believe that in a longer-term horizon, our growth strategies and also the competitive position of our various subsidiaries is critical so as to then make our stakeholders and shareholders happy. We'll be investing in digital technologies, in IT platforms, in marketing initiatives that will allow us to acquire more and more customers. Just to give you an idea, we do expect a 4% growth which will also include the pro rata component, which was not visible in 2023 for the new collective agreement. So as for the cost of risk, as of to-date, we see no signs of deterioration of risks. You know that unlike us, some observers say that in the second half, deterioration should emerge by -- you are familiar with our track record and the quality of our portfolio. So to be cautious, I'd say, between 15 and 20 basis points, but I'm quite confident that will be closer to 15 bps. Have I answered all of your questions?

The next question comes from Noemi Peruch, Mediobanca.

I'd like to ask about your rate assumptions underlying the NII guidance range, so flat year-on-year to then down 5%. I also have another question. I'd like to hear more about your rate sensitivity, an update? Then I have a question on shareholder remuneration. I'd like to understand how you actually assess it, how you quantify it, what might lead to the payment of another extra dividend going forward? What I'm basically trying to do is to get an idea about parameters you use to make these decisions. And then I have one final question about the one-off for Q4, both for issuance and also I think you said banking, but I'm not sure.

Perhaps Alessandro Cucchi will take over to answer some of your questions. I'll talk about dividend. Just to give you an idea, the parameter, the Board has defined -- decided on is 40% payout. You mentioned the extra dividend. I mean, the same extra dividend will be more than possible even in 2025, just to provide you some more guidance. Without any major disruptions, we have been constantly growing our dividend to keeping it flat in headwind times. So we decided to split into 2, I'm talking about the dividend, because we thought we'd ensure sustainable shareholders' remuneration. So I wouldn't be surprised if there were room for an extra dividend next year too. And then Alessandro Cucchi will take your other questions.

Let me start from the rate assumptions. As Campani was saying, we expect a decline in interest rates starting from the second half of the year. We do assume an average annual rate, similar to 2023, 3.4%. You were asking for beta date. So the beta of deposits is 25% and is possibly -- we're absolutely growing in the year, but definitely less than 30% and this is because of the term deposits. As for loans, beta is 60% and we think it's resilient even especially if rates were to decline steadily over time. You were asking also about sensitivity, weren't you? Well, sensitivity does not mirror hiking or declining rates. If the curve were hiked by 100 basis points, sensitivity will be EUR 100 million of the NII, well, in case -- in the other case, it would be halved. So it depends on the rate risk position, we just took. And then you had a question about the end of year one-off, so more significant data is EUR 13.5 million, which is EUR 2.21 million for insurance. More specifically, talking about the insurance business, you may have noticed that over time, in the various quarters, its average contribution was EUR 22 million, EUR 23 million. It went down in Q4 because of the update to IFRS 17 models, which are used to compute CSM. We have updated them increasing then possibility of redemption. This has had about a EUR 10 million one-off effect in Q4. And then there are a number of minor effects, which depend on the performance of securities. But that would be the main reasons explaining difference between Q4 contribution in previous quarter. But as I said, it's a one-off effect. That's why for next year guidance, we do expect then a stable contribution of the issuance business. I think I have taken all of your questions.

I have a follow-up question on NII. Your guidance was flat, it was either flat, or decline 5% in the worst case scenario, if I'm not mistaken. In that case, can you point to the variable leading to a decline in 5%?

You may remember that I was telling you about a number of factors that might affect the NII. I'll start from the external factor, namely market rates. If market rates were to decline earlier than expected, they might have an impact, but the same is true for the other drivers such as higher investment to have a higher funding and also then the speed should really start to decline. These are all the impacting factors. It is not a single one. It depends on multiple ingredients or factors they may impact both loans and funding.

The next question comes from Marco Nicolai, Jefferies.

I thought there is a difference between a prudential and Credem perimeter in terms of CET1 ratio. So could this change in the future? I mean, what sort of evolution are we expecting?

Thank you for your question. It's indeed a very interesting topic we are closely monitoring. There is a whole legislative process going on in Europe and let me keep my fingers crossed. And hopefully, this distortion should be redressed because we have a perimeter in Credem Holding as opposed to Credem Bank. So this draft bill will hopefully be passed before the next European Parliament elections come up, hopefully, but unfortunately that's outside of our control. I hope that the new law will be passed. So that's our expectation. And I think it may be enforced starting from 2023 after the regulator has given all the necessary authorizations. We are keeping a close watch on it, of course, because that's quite important, especially for a group such as ours who wants to continue growing with all the proper gears in place. Next?

At the moment, there seem to be no other questions registered.

Well, in that case, thank you so much for being with us despite it being a Friday. Have a nice day and have a nice weekend. Thank you so much for joining us.

The conference is now over. You may disconnect your telephones. Thank you.