Erste Group Bank AG (EBS) Earnings Call Transcript & Summary

Good day, and welcome to the Erste Group Bank AG Results for the First Half of 2021 Conference Call. Today's conference is being recorded. Now I would like to turn the conference over to Mr. Thomas Sommerauer. Please go ahead, sir.

Thank you, Sharon, for this kind introduction. I would also like to welcome everybody on behalf of Erste Group who is listening in today. We are doing this call as usual from Vienna. And your hosts will be Bernhard Spalt, Chief Executive Officer of Erste Group; Stefan Dorfler, Chief Financial Officer of Erste Group; and Alexandra Habeler-Drabek, Chief Risk Officer of Erste Group. And as is customary for these calls, my colleagues will lead you through a brief presentation highlighting the main achievements of the past quarter, after which time, they will be ready to take your questions. As is also usual, I would like to direct you, before handing over to Bernhard Spalt to Page #2, which contains the disclaimer on forward-looking statements. And with this, Bernhard, I hand over to you.

Thanks very much, Thomas. Good morning, ladies and gentlemen. Welcome to our Q2 earnings call. Let me directly take you to Page #4 of the presentation. In terms of key developments, description, what do we see? I do think that what we have hoped for and what we have predicted at the beginning of the year that 2021 will be a year of recovery comes true. The CE macro recovery is in full swing. We see very positive business developments and growth developments all over the region based on a situation where not only the warmer sort of season helps to keep infection rates down, but also vaccination strategies have been employed both publicly as well as privately, and they have been deployed a lot better than I would have thought. If I look at the relatively, how shall I say, amateurish handling of the testing and tracing strategy last year by the public sort of authorities, this year around, the vaccination logistics has been set up very well. We do have ample capacities and the logistics work throughout all our countries. And this prepares the ground for an economic opening and a robust and long-term economic opening. So what you see is that economic growth has returned. And it's also important in the context of our business models that we have seen first rate hikes, and we will see more rate hikes. And here specific attention and importance is certainly the Czech Republic. So I think most of the optimistic hopes and promises turn into something like a reality. I don't think that it's the time to call victory over the virus and over the volatility because we still have some way to go. But what could have been achieved so far has been achieved, and there's a very, very strong recovery taking place. If you look at our specific business performance in the first half of the year, you do know that we have announced in the Capital Markets Day of 2019 that we built very much on our ability to generate fee income in the context of an ultra-low interest rate environment, which will be very sticky. And I would say that what we have done so far and what we continue to see, and I think that's also important to say, on the fee generation side, no matter whether it's asset management, insurance business or transaction fees, card business is very much, very much helping our revenue line. And it's a very strong performance, I would say. Of very high importance is clearly, and Alexandra will talk about that in much more detail, the risk development. We have taken a -- we will not kick the can down the road approach last year, where we took a lot on forward-looking credit risk provisions in the anticipation of rising insolvency rates and rising unemployment rates. What we see is that the government support programs have been very robust, have been very effective to a certain extent. And that moratoria, even exits from moratoria have been digested really well. So we see a very positive and benign credit risk environment, where not only credit risk costs are low, but also our NPL ratios are going back again, and our protection and coverage ratios are going up again. So I think on that, very strong. I would, in terms of outlook, say, we will get to that much later. We will expect NII to go up. We also expect -- and that's important to say, loan growth to be better than we would have thought. So we guided mid-single-digit with upside, a very elegant wording. And we also will return, and do return, to a double-digit return on tangible equity. In terms of dividend, we all know that the ECB has lifted its, not ban but a recommendation not to pay, which is basically the same. So what we'll do is we will to our old dividend policy, which I think was saying that we want to pay progressively on the dividends. So we will propose to an extraordinary general assembly close to the end of this year, a catch-up dividend for the business year of 2020 of EUR 1. We have put aside EUR 0.80 on the first half year for the dividend for the business year 2021, which one then can easily translate into a dividend proposal for the business year 2021 next year of EUR 1.60. So I think this is broadly the summary of what we see. Let me take you to Page #5 of the presentation. I will be very quick here. On the left side, you see the Q-on-Q net profit reconciliation, which is dominated very much by operating income updrift constituting a TLTRO contribution of EUR 90 million plus, which we have announced already last time. Stefan went through that in much more detail last time, so this came through. So this we have posted. And on the operating expense side, we have had in the second quarter lower expenses because of the deposit insurance and the resolution fund contribution. So on this, you see a substantial increase on the net profit quarter-on-quarter. If you look at the year-on-year net profit reconciliation, the major, major driver is clearly risk costs. We will talk about that later. So in the year 2020, when we took this forward-looking approach; in 2021 we see, as I said, a very benign environment. So we see a net profit for the first half year of EUR 918 million, which I think compares even favorably to a precrisis year 2019. Now Page #6, executive summary on the key income statement data. I don't want to repeat what I said, but maybe on the net interest income, clearly, the abundance of liquidity puts pressure on net interest margin. We do not see that subsiding. We don't see that going away. This will be a feature for the future as well. So yes, volume up, the [ KPIs ] and the return of the demand side will also help us generate loans, but the margin side will still be a tough game. On the cost-income ratio, and we will get to that later. Yes, we have again, seen a quarter with positive jaws, and this is something which we promised and which we will continue to deliver over the next quarters to come, to stick to our guidance and our ambition of 55% cost/income ratio 2024. Other than that, yes, return on tangible equity already commented upon, double digit and this must be our aspiration also forward-looking. Now let me take you to Page #7 of the presentation. On the balance sheet development, asset-wise, clearly, yes, there has been loan growth, quite significant loan growth, net loans up by almost 4%, which I think is a strong sign. But of course, also in the context of the TLTRO, in the context of abundant liquidity we see a substantial increase in cash positions. And if you look at the liability part of our balance sheet, the dominating feature still is a very robust deposit inflow. Now while it's really hard to make a firm guidance here. Intuitively, one would say that the second half of the year in the context of an opening economy, in the context where people start to consume again, in the context of corporates resuming their investment behavior, these cash positions and these deposit position should go down, would be my hope, my expectation. Let's see how this will develop. So what you see is we have got now EUR 303 billion balance sheet with a, again, very, very, very strong liquidity position. On the -- taking you to Page #8, clearly, loan-to-deposit ratio is now at 83%, record low. Credit risk-weighted assets are going up in the context also of a growing loan book, but also in the context of one-off effects when it comes to models. So this is something which I would like you to consider as a rather special development for the first half year. Forward-looking, we should look into a growing loan book which is in tune with risk-weighted assets development. NPL -- coverage ratio and NPL ratio, I already commented upon. Capital position, very, very strong with 14.2% common equity Tier 1 and a strong leverage ratio as well. Now taking you to Page #10, and I will reflect on that only very shortly. Whatever you see here in terms of forecasts is showing an upward trend. So yes, recovery is in full swing. Recovery expectations are even going up. And the whole context of the EU next-generation fund and the EU multiannual financial framework will give an additional boost, not only in terms of consumption of and hopefully exploitation of these funds, but also in terms of co-investments, follow-up investments and follow-up demand. So I think this will be having a supercharged effect on the local economies in all of the places. And then it's also, again, very important to mention that the interest rate policy of our central banks in the region will respond to this growth situation and to price pressures. So we will see further rate hikes down the road, which will help us on the net interest income side. So on Page 11, so it's just a couple of more details. We still, and I want to drive your attention to that, we still see very, very strong labor markets, with almost full employment throughout the region. So I think this is also very important to mention. So when it comes to can the whole growth potential be captured in the region? It comes also to the question, will there be enough skilled labor force to work on the orders which are building up now in the order books of the companies. So I think this is a critical question which will also stay around for quite a while. How can we get access to enough skilled and even unskilled labor force to attend to all the growth opportunities. Public finances also, of course, public debt has been built up in this time. But at these interest rate environment is not threatening. And generally, I would say that these -- all these structural fund developments will help to create growth opportunities and help in order to increase the tax base for the government as revenues. Now on Page #12, retail, what is happening on the ground? We slowly return to a pre-crisis mode when it comes to branch traffic. So we're almost there where we have been when it comes to customers visiting our branches. Consumer loan demand still muted, I would say. It's still a matter of confidence. It's still a matter of is it over yet, question mark. But housing loan demand incredibly strong, very, very strong throughout the region. And we will expect that to continue over the next couple of quarters. So on the fee side, the fee income line has been very much a reflection of a high demand for securities products where cash and deposits do not generate any returns. Customers do have a very strong desire to invest on a monthly basis into alternative opportunities, and this has been taken up well and helps us on the fee side. So security savings plans are really, really doing well and this will not go away. And also insurance products are doing well in this context. If I may take you to Page #13, digital. George now has over 7 million customers. With the rollout to Croatia and Hungary our platform, George, is now fully operative in all group countries, except Serbia. We passed this milestone of 7 million customers, and the engagement rates are high and also the daily actives are growing every single day. And digital contributes to sales and earnings more and more. So you see on the lower chart how the development of digital sales develops. And we have quite a couple of features which are in the pipeline, which will help our customer experience down the road. On the outlook side, I think that the expanding of the digital platform user base will sort of help us also very much on the corporate side. We are very strong retail clearly. But also on the corporate side, on the SME side, there is a strong desire to have a digital experience on all-in. So I think we're doing well here. On the corporates and markets, what is happening? Also here, a very strong sign for recovery. Loan demand is coming back, not only when it comes to working capital loans, but also investment loans. M&A activity is clearly going up on the way out of the crisis. And our own capital markets business, when it comes to transactions, when it comes to own issues, when it comes to mandates is clearly showing a much improved market. Our asset management sales are up and our own first issue in a green bond, a benchmark issue of EUR 500 million has been a very strong success, 7 years tenor. And we print it at 35 basis points above mid-swaps and it was very much oversubscribed. So I think this is a territory which really fits well to our business model. And we will talk about that possibly a little later on. With that, I would like to hand over to Stefan on the sort of P&L and balance sheet details.

Good morning, everyone. Much has been said already about the operating trends. And basically, we have a very much positive information to share with you today. And let me start by going back on Page 16 to the net loan stock and growth. Here, we have been upgrading our guidance to mid-single digit with upside. And this is based on a 3.7% year-to-date growth and a year-on-year growth of 5.1% comparing 2020 to 2021. What is remarkable is that retail and, in particular, within the retail area, mortgage business has been strong throughout the months in the year 2021, and we expect this momentum to keep up. While, of course, the adjustments on the interest rate side in the countries like Czech Republic and Hungary will potentially slow down a little bit the growth in those countries, which means we're already to the distribution across the countries. Czech Republic, Romania and Hungary have been the main, I would say, outstanding drivers of the growth. In Czech Republic, we have to consider that there was a certain element of Czech Corona appreciation in the euro numbers. Still it's fair to say that the growth in mortgage business, in particular, has been unprecedently high in the year 2021. Going to Page 20 -- going to Page 17 and looking at the deposit development. You will remember that we talked about potential kind of a stabilization of the loan-to-deposit ratio in the course of the reopening of the economies in this quarter 2, and exactly that happened. And that's why the loan-to-deposit ratio now stands at 83.4%, slightly up from the level of Q1. One remark here regarding the composition. More than 50% of the year-to-date increase comes from retail, and that also shows in which area we have more, in which area we have less possibilities to manage the deposit inflow. Just referring to the fact that my colleagues on the corporate business side have in the meanwhile introduced, I would say, a market according pricing of corporate deposits, something that is very difficult, not to say impossible, on the retail side. Now looking forward or going forward, we expect a certain stabilization to establish further on the back of the environment that Bernhard Spalt already explained. However, it remains to be seen how in this structural over-liquidity environment longer term, the loan-to-deposit ratios of banks operating in Europe will actually develop. Just one very brief remark regarding the quite significant volatility on the AT, the other Austria segment. This very simply comes from seasonal increases and then further -- then afterwards, decreases in our activities in the group markets and branch business across the currencies. On Page 18, we have a detailed breakdown on our NII and NIM development. Of course, the not -- dominating factor in the second quarter was the catch-up booking of the TLTRO III. The current volume stands at EUR 19.8 billion. We have been adding EUR 1.8 billion in the June take-up. And as already explained by Bernhard, and as indicated by myself already in the Q1 call, we have been delivering now fully on the slightly above EUR 90 million catch-up booking in the second quarter. What is important to remark here is how is this distributed across the geographical segments? And you see in the breakdown of especially on the Q1 '21 versus Q1 '21 -- sorry, Q2 '21 versus Q1 '21 also in a year-on-year comparison, that the countries where this TLTRO III booking took place are Austria EBOe, Austria Savings Banks, Slovakia. And then not to forget other, which is the holding ALM booking since we book the group component, the group element of the TLTRO III in that segment. Important information for you. How would the NIM look like adjusted for the TLTRO III booking in the second quarter? It would have been pretty much stable, ending up around 1.98%. So compared to the first quarter, a stable development still, as already explained, there is -- given the economic development, the liquidity situation and the competitive environment, there is still significant pressure on margins in certain business segments. All in all, and this brings us to Page 19, this results in an excellent operating income development from the NII front in the second quarter. Talking about fees, we fully kept the momentum on fee income. And based on a further strong asset management and with the reopening of the economy, an increasing quarter-on-quarter development on payments and lending-related fees, we are fully back on track for our medium-term growth story around fees that we have been outlining back 2019 at the Capital Markets Day. A few words about trading and fair value result with some quarterly volatility and especially in a year-over-year comparison to the second quarter 2020. Remember, there was a bounce back after the sell-off in March 2020. We are still simply running around the run rate of EUR 50 million to EUR 70 million per quarter. And given current market environment, we would stick to this run rate for the rest of the year. Page 20, on operating expenses, we can keep reasonably short, which I think is always the best to talk about expenses. We have been keeping our expenses basically flat year-on-year, despite some adverse FX effects in the amount of about EUR 10 million just for Czech Corona. And we have the ambition -- as you remember, we are always guiding, keep an orientation against the 2019 cost. We have the ambition to land somewhere around these levels. It's depending a little bit on FX effects, and how spending will further evolve in the second half of the year. But be sure we will be applying significant and very disciplined cost management in the second half of the year as well. And therefore, we believe that costs will simply be a stabilizing and supporting factor for the operating result overall, which we have summarized on Page 21. Here, I would simply draw your attention to the cost/income ratio development. It was already mentioned by Bernhard Spalt that all the signs are confirming our trends that we want to work on going forward to the longer-term goals on cost/income ratio. Let me just remind you that both for the year 2019 and 2020, we have been arriving at the cost/income ratio of pretty exactly 59.0%. And we -- our ambition is to clearly bringing this ratio down for the full year 2020 -- 2021, sorry. In other words, a strong and clear positive jaws result development for this running year. And with that, I hand over to Alexandra for the risk cost development.

Thank you, Stefan, and good morning to everyone. Risk costs in the second quarter amount to EUR 47 million, which is only slightly up compared to Q1 with 11 basis points. And again, is also in the first quarter were positively influenced by repayments and upgrades. On the other hand, we saw some increase in defaults compared to Q1, but with these defaults still on a very, very low level. Year-to-date risk costs are EUR 83 million, 10 basis points. If there's still a lot volatility and uncertainty outside regarding the corona situation, we remain cautious and have not yet updated the FLI. The review and the update of the FLI and the [ HTMA ] calculation are planned for the second half of the year. In the upcoming months, we are expecting a portfolio deterioration connected to effects of COVID and also the final phasing out of most of the government measures. However, we have reviewed our NPL inflow expectations for '21, and we revised them significantly downwards. So we expect the NPL ratio to stay below 3% also as of year-end. Given these reviewed NPL inflow assumptions, we also have reviewed and adjusted our risk/cost guidance, and we now expect a faster return to a normalized level of risk costs and therefore, guide for maximum 30 basis points for the full year. When you switch now to Page 23. NPL ratio has been mentioned. Bernhard Spalt has already mentioned the increased NPL coverage, now also above 90% again. And the short word on post moratoria experiences, what we have seen so far has also continued in the second quarter of this year. So no significant increase in hard defaults has been observed yet on the post moratory or exited moratoria volume, which was huge. So when you remember at the peak, it was EUR 15 billion in the moratorium which is exited, and we still stand at a very, very low default ratio. Before I hand back to Stefan Dorfler, let me add one short comment on what has been mentioned by Bernhard Spalt regarding the model or regulatory one-off impacts on credit risk RWA. This is a twofold effect. The one is the implementation of the CRR2. And the second is the implementation of the LGD model. Very important to say the model-driven increase is due to a methodological change as we were an early adopter of the updated regulation on PD and LGD, and this is not a sign of a worsening of the recoveries impacting the LGD. And with this, back to Stefan.

Thank you very much, Alexandra. Since there is exactly nothing to say about other operating results at that point in time, let me jump directly to Page 25, which sums up the net results. We have been talking about risk costs. We have been talking about operating income. TLTRO has been prominently mentioned. All of that results, on the basis of a tax rate which we currently calculate at 20%, into Q2 net profit of EUR 563 million, respectively, EUR 918 million for the first half year, resulting into a guidance for the full year of a double-digit return on tangible equity. On Page 27, to follow up with wholesale funding and capital chapter. I just would like to mention that, but for obvious reasons, the interbank deposits have been driven throughout the last 12 months by the TLTRO III take-ups. You see those booked here on the right-hand side of that page, and there is nothing particular to mention. On the left-hand side, I just want to mention the yellow box which is showing the increased MREL-related issuance. And with this, the stock of senior unsecured bonds, this is expected to be prolonged in the upcoming quarters in execution of our MREL issuance plan. On Page 28, we show an update on our wholesale funding and capital long-term funding. There is not too much activity to mention, apart from the already mentioned sustainability bond which we are very happy about. There was a EUR 500 million 7-year preferred senior note, and we are very keen on extending our footprint in that field. Be prepared to see more on that area in our long-term funding activities going forward. Page 29 is an update on MREL. And let me spend a few seconds on this one since we are very happy to announce that in execution of our MREL issuance plan, we have been progressing very well in recent months in our countries, executing our NPE strategy. And here, namely to mention is our issuances of Banca Comerciala Româna in Romania, a 1 billion Romanian RON transaction. In Croatia, we just recently were successfully printing a EUR 400 million transaction in euro. Don't forget, for such a market, this is a very remarkable transaction. And we are very happy that we could execute at very favorable levels for this still, to be fair, underdeveloped capital market. And last but not least, we were issuing a preferred senior green bond in the amount of EUR 100 million in Slovakia. So I think what one should keep as a summary in mind, fully on track in our MREL execution, actually at more favorable levels than originally anticipated. On Page 30, you find our usual CET1 waterfall representation. And what is, of course, the most important information here is what Bernhard Spalt already in the headline presentation mentioned, is the detailed explanation of what we are planning to distribute in the upcoming quarters on the dividend side. To sum it up once more, EUR 1 per share additional payment following the ECB lifting of the restriction subject to the approval, of course, of the extraordinary general meeting. This is supposed to happen in the fourth quarter of 2021. And then based on our accrual of EUR 0.80 per share so far in the first half of the year, we are targeting EUR 1.60 dividend per share for the full business year 2021. All of that, combined with the RWA development that Alexandra already mentioned, ends up into a 14 -- a nearly 14.2% CET1 ratio Basel III fully loaded. Just to mention, for the order of completeness, the phased-in number would be 14.4% as of end of June 2021. And on Page 31, I just want to mention that we have been receiving the ECB approval to call our AT1 instrument as planned. The final formal management decision will still take place in August. However, we have already been deducting this AT1 volume from our ratio, and that's why it's mentioned explicitly here on Page 31. And with that, I pass back to Bernhard Spalt for the outlook.

Thanks very much, Stefan. Let me take you to Page #33, just to wrap it up. I think the first half year has been a quite strong year in terms of operating environment, returning to a growth mode. Business performance strong, especially on the fee side. A benign credit risk environment, and capital strong, liquidity strong. And I think, overall, a positive picture. I still would want say that we still remain cautious. It's not the time to sort of early celebrate the victory over corona. There are still many things ahead of us. But what could have been achieved has been achieved, I think, in the first half of the year. So the outlook is to that extent positive that we have upgraded, and everybody is upgrading, the GDP outlook for the region. We expect positive jaws, as we've promised last time, to continue featuring our performance. We have talked about the dividend policy in abundance. And profitability, yes, we expect double-digit return on tangible equity for 2021. So with that, I would like to conclude our presentation, and we're very much looking forward to take your questions.

[Operator Instructions] We will now take our first question from Izabel Dobreva from Morgan Stanley.

I wanted to ask you 2 questions on net interest income and 1 question on provisions. So firstly would be on NII. I had a question on the Czech print because it was flat sequentially despite the loans being up over 2% over the quarter. And if we look back 1 quarter ago, the NIM had stabilized in Czech. So could you share with us the moving parts behind why the net interest margin is up this quarter? And also, your outlook for the Czech NII by year end. So in other words, what are you [ planning ] for in terms of rate hikes when you give the full year NII guidance for the group? Then my second question on net interest income is regarding Hungary. And I saw that the NII declined by about EUR 11 million sequentially. And in the slides you mentioned there was an intercompany loan. So could you quantify for us the impact of this item? And also, is that a one-off that we should be cleaning up? And then finally, I have a question for Alexandra on the provisions. I just wanted to clarify the 30 basis points cost of risk guidance. Am I correct that this does not assume any macro releases because those would be in the second half? And if so, is it possible we will see write-backs in the second half because the Stage 2 ratio is still quite high.

Izabel, it's Thomas speaking here. Some of the questions we understood and some we didn't. I think Alexandra is clear with the question on provisions. And Stefan, not completely clear.

Czech NII, the quality was very bad. What exactly -- if it's just a general comment on Czech NII, no problem. But you were, I think, asking something specifically, Izabel on Czech. And maybe while Alexandra is addressing the question which we understood well, maybe I -- think about it. Can you repeat it then once more? Because I think it was a precise question on something, yes?

Then I would start with your question on the risk cost guidance. So the 30 basis points for the full year do include assumptions on partial releases from FLI. So as I said, whether you're correct, this is result? No, this is including some releases. So we have a current assessment that we would carry on some parts of this FLI reserves or general provisions on to '22, but some we expect to be released for the full year. And it also includes a parameter update. So we already had one parameter update in Romania. And you can also see it in the -- quite good in the risk cost figures on Page 22 for Romania for Q2. So there, we will -- this we are also performing, and of course, we are expecting here some counterbalancing effects to the FLI partial relief.

Thank you very much. I think we got the Hungarian question. You were asking about what one-offs were taking place during the second quarter. Those were breakage costs on an intra-group Tier 2 repayments. So that's the -- that's what happened in Hungary in the second quarter. And generally speaking, on the Czech NII, I think any impact of the rate increases naturally will only be visible in the second half of the year, since the rate increases just took place in June. And we expect -- it's a point of discussion whether there will be 1 or 2 further hikes still this year. So the annualized impact, of course, will be less than hopefully then for 2022. However, yes, we are very positive on NII development in Czech Republic on the back of the rate increases. And if there was a more specific question then may I kindly ask you to repeat it because we didn't understand it.

Yes, sorry, my line was bad. The only other remaining question on the Czech Republic was if you could explain why the net interest margin dropped sequentially, because the NII was flat even though the loans were growing. And we saw the net interest margin inflect in Czech last quarter. So what led to the drop?

That's unfortunately very easy to explain. The one part is not a problem and is explained on Page 18 that we have, of course, an FX effect, which then in translation into euro shows a little bit adverse picture. But the second reason is very simple, enormous competition and pressure on margins in the very well growing mortgage business in the Czech market. Those are the reasons behind.

Maybe just double check whether -- because we couldn't hear you properly. You also raised the question on the Stage 2 development or was this a misunderstanding?

Yes. I was asking whether we could do buybacks there.

Yes. So Stage 2, we see as a peak and unchanged to the previous assessment, we expect that it will go down until year-end to around 15%.

We will now take our next question from Máté Nemes from UBS.

Máté Nemes from UBS. I have 3 questions, please. Firstly, on housing loans. You mentioned that you're seeing very strong demand across the entire region for housing loans. And I'm just wondering, how do you see this demand evolving in the next couple of quarters or perhaps next year in light of the monetary policy tightening cycle in some of the countries? I guess, most notably and most importantly, Czech Republic, but also perhaps in Hungary? Do you expect some sort of fading of that momentum over the next couple of quarters? Secondly, on capital management. I'm just wondering, with the CET1 ratio now very firmly above 14% after the dividend accruals and Erste getting back to double-digit ROTEs, could you update us on your plans regarding surplus capital? Are you willing to tolerate some slack on capital ratios, perhaps so you can have some optionality should opportunities arise. And in this context, if you could update us maybe on M&A, what do you see in the region? And lastly, a question perhaps for Alexandra. Are we expecting any further methodology changes or regulatory-driven changes on RWAs?

Thanks very much for the question. Let me start with the housing loans and the expectations. I think if you look at the overall supply-demand balance, I would expect that there will be still for the next couple of quarters a very strong demand, even a demand overhang. So there will be still a lot of requests coming in. And even the tightening policy of the central banks, I think, will not be the decisive factor here. I don't think that this will lead to a fading away of this momentum. What I think is a more problematic issue is the overall development of house prices and real estate prices as such. So affordability might be a more limiting factor when it comes to house price development through the region. So I still see a sustainable demand overhang. And I see also real estate prices growing more than wages are growing. So I think that might be somewhat of a limiting factor over the next couple of quarters, but still, I think demand will be strong. On the capital side, let me elaborate on the M&A part of it and then hand it to Stefan when it comes to our views on how we want to deal with excess capital. On the M&A side, our story is unchanged. We see all over the region, all of our countries where we are present, opportunities potentially and in reality, coming up. And to the extent that these potential targets fit to our strategy, to the extent that their capital and earnings accretive, we will take a look from a position of strength. At that stage, there is nothing sort of specific which I can report other than that we're watching out.

Yes. Just adding to that, it's for us of enormous importance to be able to finance organic and, if popping up, inorganic growth to the extent possible out of our own capital strength. That's one element and one driver of having a good cushion on our capital position. However, you're, of course, spot on. We have been -- and I think to the surprise of, I would say, many in the market, we have been seeing a very swift and strong recovery which is stabilizing, and even if we are performing well in the second half of the year, bringing further up our capital position. And it's our clear commitment and I think we have shown this also throughout the crisis, to distribute in a proper and balanced manner to our investors. So in other words, the progressive dividend policy confirmation is the one part. The other part is that we have all the toolbox around -- should there be less of opportunities than we currently think around us in order to acquire some really interesting targets, then we will certainly think and have to think of distributing capital further and beyond the dividend track anyway.

And now to your question on the outlook on the credit risk modeling world. So we are very advanced in our model overhaul. TRIM exercise is digested. Basel IV also very important to note, still with no noticeable adverse impact expected. So going forward, we are focusing on remediation measures regarding various add-ons and then so-called limitations. So this should contribute to an optimizing of our RWA consumption. This does not mean there will be no more changes in the model. But as I said, majority is done and now focus is on optimization.

We will now take the next question from Johannes Thormann from HSBC.

Two follow-up questions and one other, please. First of all, on the dividend policy in terms of progressiveness. Is it rather an absolute or relative levels in terms of the payout ratio in the next years, if you could help with that? And secondly, on the cost of risk, as you decrease the guidance [ 2 mps ] and 30 bps. What are the remaining areas of concerns? How is Austrian tourism doing? Is there any other area where you're currently massively concerned? Also to understand the outlook for the next years? And maybe you can also help us with the absolute risk cost levels for those years? And last one and least, a simple question on could you update your tax rate guidance?

Johannes, I will take and very quickly and briefly, the 2 questions around dividend policy and tax rate. So dividend policy is dividend per share, the progressiveness. And on the tax rate, 20% is our current guesstimate. You know that we had an elevated level in the year 2020 for explained reasons. Overall, this is the area where we guide for -- what we guide for in the upcoming years. Let's see, depending on the overall results in the second half of the year, it could even tend slightly lower, but it remains to be seen. So that's currently our best guesstimate on the tax rate.

Then I will continue -- sorry, if -- yes, then I would continue with your question on more flavor on the cost of risk guidance. So as mentioned previously, the 30 bps, of course, strongly reduced guidance still. It contains some element of caution, which means, so that I have understood, understood correctly as you have asked what needs to happen or whether I'm worried. I'm not worried, but we are cautious. And as you have mentioned Austrian tourism, the next winter season is extremely important. But even if the situation would not develop perfectly and would continue as it is, we are confident that we have this maximum 30 basis points as we are currently assessing that we only will release part of the FLI stock, and will carry on part of the FLI to '22. So we would expect, even if in a not 100% super perfect environment, also for the years going forward to stay on this already normalized level of risk costs.

We will now take the next question from Gabor Kemeny from Autonomous Research.

A couple of clarifications from me and another question. First one on your NII guidance. So when you guys put a rise in net interest income in 2021, is this a function on the TLTRO gain? So would you expect your NII to increase on the back of the rate hikes, et cetera, excluding the TLTRO? And the second 1 on the capital distribution comment. So just how should we understand your planning here? So let's say, the capital ratio, the CET1 ratio stays above your 13.5% target, potentially above 14%. Would you think about share buybacks in the next few quarters? And just another question on the IT spending that you are flagging for the second half. Would you be able to quantify that? And maybe elaborate a bit on what are you actually standing on?

Okay. NII, Gabor, very clearly, this is -- the guidance is including the TLTRO catch-up of the second quarter. And we would not, still including Czech rate hikes and some, we would not be that confident for 2021 without the TLTRO catch-up booking. Going forward into 2022, and I'm sure we'll discuss that after Q3 earnings call and latest then, beginning of next year, we will assess the impact of the rate increases and to what extent this enables us to give a positive guidance on NII for 2022. Then, where we have the full annual impact, but that's too early to discuss today. So the answer, clearly, including the TLTRO III catch-up booking. On capital distribution, I want -- Bernhard will for sure also want to say something about it. And since it is very connected also on potential M&A elements. But to clarify the technicalities, it's completely unchanged. We've always been saying, should we sail significantly and constantly sustainably above 14%, we have to discuss very thoroughly the capital distribution in addition because that's significantly above our management target. So in other words, 13.7% or whatsoever would not trigger such a discussion. But a consecutive 14.2%, 14.3%, 14.1%, 14.4% series, certainly, would bring us in a situation where we very concretely could -- would have to think of a further measures on that side. Bernhard, anything to add on that?

No, it's precisely, I think the line, 13.5% target unchanged. So nothing to add on what Stefan has said.

And I didn't fully understand the IT spending reference, Gabor. Can you help us, what you meant there? I think I'm sure you have been referring to some statement on whatever slide, but I'm not fully aware of what you meant there?

Yes, you are showing some slight increase in the cost for the full year. And I think in the outlook statement, you also mentioned some spending on digital and IT. And I wondered if you could elaborate on what the spending is? And if you could help us quantify the additional spending relative to H1 in 2020?

I think 2 remarks, a general one and a specific one. The general one is that we expect -- and if you look at the concrete numbers of half year 1 and compare them to our, let me say, rough estimate and guidance for the year, you'll see that that includes a certain uplift in the second half of the year. Not yet any kind of impact of wage inflation, which might be kicking in a little bit later on and impacting '22. But definitely some more spending on the back of strong economic momentum and so on. So that's confirming what we have always been saying. And if we are consequently following the interpretation that the economy is strong, that, of course, also has a certain impact on spending, so that's generally speaking. Specifically on IT, it has always been strongly confirmed, of course, especially by the CEO, the COO and our Chief Platform Officer, that digital investments, investments into our digital future are absolutely key investment areas. And so obviously, in a mix of overall spending, this is going to be more prominent. However, if you look at the IT spend in total, we are saving a lot of money, and we are making very good progress in modernizing our overall IT side. So I would say in an overall balance, the share of the IT spending is not going to increase. However, the investments into our digital footprint is.

A small follow-up on your capital distribution question, please. Do you have any preferences between like doing share buybacks or potentially paying a special divided or rider -- already in the dividend payout?

Let me take this one. I think we're broadly agnostic as to the tools of capital returns to our shareholders. We also get mixed feedback, if I may say so, from our investors what would be a preferred instrument. But we ourselves are open to both instruments.

We will now take the next question from Mehmet Sevim from JPMorgan.

I have 3 questions, please. The first one on your NPL ratio and coverage guidance. Now with coverage at 91%, you were previously guiding that over time you'd return to normal levels in our coverage ratios and as NPLs would build up. And you were expecting a 3% to 4% NPL ratio before. Now that you're guiding for lower than 3% NPLs, how do you see coverage ratios in relation to that? And shall we expect visible provision releases if all goes according to the plan? And my second question is on fees. The performance is really eye-catching. I was wondering if you're able to give us an indication of how much of this is a catch-up from last year? And how much is related to the structural changes that you're pushing for? And looking forward, is your 4% annual growth guidance by 2024 still a good level to think at least maybe, let's say, for 2022? And finally, on dividends, do you have a more specific time line in mind in terms of the EGM and the potential date of payout for the catch-up dividend from 2020?

Mehmet, if you allow, I would take the last 2 questions first because they are especially the timing of the EGM. It's easy to answer. It will be in November. We have a forecasted date. It's not yet officially fixed. Therefore, I hope you will understand I cannot give you the exact date, but it's planned for the second half of November. On fees, I would say that's very, very straightforward to be answered in the way that obviously, especially in the payments area and partially in the lending area, it's -- there is an element of catch-up in there simply because of the lockdowns and so on, all the measures around COVID. However, in the other fields, we see really a very, very constant growth because we are not building our asset management and security strategy on any kind actionistic short-term shots, but this is built very much on ongoing investments on our broad retail investor space. So the answer to your question around the 4% annual growth rate is, yes. This is exactly what you should build your expectations on the years forward, and we will work very, very hard on delivering on those.

Maybe just to follow up on what Stefan has said on the fee side. We have put up this 4% compound annual growth at a time when corona was not there. And it's not only that we were not -- don't have loss the last year, but we are now performing better than we would have thought. So I think there is every reason to believe that this is a sustainable strategy working. And there is no reason certainly to reduce the targets here.

Now to the -- on to the questions on NPL and NPL coverage. So for the year-end, we would expect the coverage ratio to go down a little bit compared to the extremely strong above 90%, but still stay comfortably above 80. Why reducing? Because, as you know, new NPL inflows usually have a lower risk cost coverage. And especially in this case, we are assuming also some loans being state guaranteed and therefore needing a lower coverage. Going forward, this 3% for this year might go up slightly next year but not considerably. And also for the upcoming years, we expect a coverage to -- the coverage to remain comfortably above 80%. When it comes to Stage 3, when you look at Page 23, you see the 54% coverage on Stage 3, and this is a level which we plan also to take forward.

We will now take the next question from Jernej Omahen from Goldman Sachs.

I have 2 questions. The first one is on Page 6. Just looking at your cost of risk here of 8 and 11 basis points. And I want to ask the question this way. What would need to happen for the cost of risk in the second half of the year to be in line with the cost of risk for the first half of the year. i.e., essentially 10 basis points? What is -- what -- would anything need to change for the better? Or would things just need pretty much to stay as they are? So that's question one. Question 2 is on Page 17. Page 17 where you discuss the inflows into your deposits -- into your deposit base. I was wondering 2 things here. Number one, what is the -- particularly for your euro-denominated liquidity. What is the reinvestment profile of the surplus deposits, i.e., what yields are attainable for the net inflows that you're getting in euros? And what form do this reinvestments take? And the second thing I wanted to ask here is I think that you commented at some point that you're hoping for the inflows to slow down because pricing for corporate and retail deposits. So I'm assuming you were alluding to negative rates for the euro accounts is "almost impossible." And I was wondering why is that? I mean one thing is to go negative rates on retail or corporate accounts, but another thing is just to change the fee pricing structure around these things. And I was wondering why is that so problematic?

I would start with your question on cost of risk, which was put. So what needs to happen that they stay as low as they are. As you all have read is that we -- our guidance is 30 basis points max, which is also indicating that we would not exclude a lower number. But now concretely, what needs to happen to stay low. So if all uncertainty around the COVID infection rates having potential and impact in autumn and also going forward to '22 would vanish. And the macro would develop so much more positive that the new FLI update would even indicate a larger release than we are currently assessing. Then this could happen. Also on top, a continuous non-de facto non-defaulting scenarios and non-NPL inflows. But when we, for example, look at the Czech Republic, there the moratorium has ended quite early in October. And in the first quarter and second quarter now, we see the NPL inflows especially on the retail side. Not huge and also counterbalanced by NPL outflows, but it still shows it takes some time after the end of the moratoria until the issues pop up. And as I have said, default ratios are low. Yes, this is true. Also the amount of clients needing restructuring is low. But still, this is roughly 10% restructuring needs of the x -- of the post moratorium clients. In time, we'll see whether these additional support measures are sufficient to prevent them from defaulting. But to be very precise, we would not rule out being better in case a situation develops better, which is indicated by the word maximum.

Maybe, Jernej, I'll take the part of on the loan-to-deposit ratio. And why would I hope that the cash positions will reduce over time. This is not so much a reflection on sort of can we pass on negative interest rates to the customers. I will get to that in a minute, why this is difficult. But it's more a reflection of what is happening economically. So far, in a situation where there was a lot of reduced visibility, where there was a lot of reduced certainty on how this crisis will play out, people increased savings patterns and put money even if it yielded nothing on their accounts. We have a savings rate in Austria, just for example, of 14%, which has been never seen in history. And I don't think that this will change. Now that people come back to the streets, now that people can travel again, now that people can consume again and can spend again, they will use -- before they take up consumer loans, they will use parts of the cash which they have piled up. So that's one element. And also on the corporate side, I would say that, now investment behavior is returning. Projects are coming up. M&A opportunities are coming up. Cash positions will come in handy when it comes to financing these opportunities. So I would expect even if I might be too early with that, that over time, this will change liquidity positions going forward. And it will help to normalize our loan-to-deposit ratio. Point number one. Point number two, why is it so difficult to pass on negative interest rates? This is relatively simple. On the corporate side, we are passing on negative interest rates to our customers. So here it's not difficult. And as it's not difficult, and as it's not legally forbidden, we're doing that. It is impossible to pass on negative interest rates to the retail population because there is still a valid high court ruling. In Austria, the Central and Eastern European countries are seeing that broadly. Similarly, that you're not allowed to charge negative interest rate on a savings product. Now you're very correct question, why can I not just charge fees to our customers so as to mitigate this effect? You do know in the European context, we have a very strong and strict consumer protection framework where the arbitrary passing on or establishing of fees has significant borders. So I think, yes, we're trying to sort of come up with services which justifies fees. But just sort of raising fees without any kind of additional services does not work on the European consumer protection frame. So overall, I think we will see that pressure that high liquidity pressure subsiding, I hope, because of different spending and investment patterns. And I think that will be broadly the picture.

Thank you very much, Bernhard. I think nothing to add on this side. Just a few words on your kind of reinvestment question here, Jernej, that I think you were asking. I mean, beyond the general answer that we, of course, easily want to deploy it for clients business on the asset side, on the loan business, as well as leading our clients into profitable asset management business. We are, of course, using all means on the multiple -- on our multiple central bank axis to optimize on treasury management through Hungarian, Czech, U.S. and so on, swap placements and so on and so forth, to optimize the P&L there. However, it's, of course, our core goal to really make use of it for our clients in principle. Just one remark on the CEE FX swap business. We can, of course, better than others generate some returns there on the ECB -- on the top of the ECB deposit rate. However, given the over amounting, overall liquidity, that's limited to a certain share of the size, if this helps. And maybe because we discussed that in a different dialogue once, what is very positive for the year 2021. I'm sure you all followed the volatility on the long end of the bond curve in pretty much all currencies. We were, I think, pretty successful, and this is, of course, seen in the numbers and using the upticks in the bond yields for our reinvestments. And that is, of course, very well adding to our NII impact from the investment book.

We will now take the next question from Alan Webborn from Societe Generale.

A couple of questions. Firstly, is the Corporates & Markets division now a new driver of earnings growth for Erste? You talk about -- quite a lot of activity there at the moment. Do you think this is an area where you will be investing more in? Do you see higher ongoing returns? Is what's happening in the region accelerating? What's your view about the potential of this business, which often seems to be something that we talk less about? That would be the first question. The second point of detail, would you be able to now or afterwards just detail exactly where the share of the TLTRO NII came through in Q2 between the corporate center and the other bits? That would be helpful. Thirdly, where are you along the development of the corporate George? Is it actually active? When do you think it will be active? That would be interesting. Fourthly, on wage growth, not just from you, but all CE banks are flagging rising employment costs. I mean is this something that's surprising you more than you thought? Do you have measures in place to offset it? Because clearly, you're making quite a strong comment on positive cost jaws and I just wondered what your view is of how that's been progressing? And last question on ESG. I think you have a lot of quite granular targets, some of which have already been achieved in the regions, a number of which are, I think, finishing in 2021. And I think you did talk about updating and renewing some of these targets. I wondered what progress you've made? And when can we expect more in terms of measurable targets on ESG from us to group?

Alan, let me take the question on Corporate. And let me take the question on ESG. On Corporate, I think a couple of things to mention. One is, I think Corporate will continue to be a very important driver of our profitability. You need to look at Corporate in a way that it has a very strong connection to the retail line in terms of: our asset management targets, our fee strategy, not only depends on the demand side on the retail population but depends also substantially on our ability to generate products and to come up with attractive investment propositions. And to that extent, these 2 businesses go hand in hand and don't need to be necessarily seen separately. They work on the same target from different ends and here, will continue to be a very strong strategic focus. Secondly, on the investment side we continue, and we will up our investments in the Corporate infrastructure. What we have done over the last years on George Retail, we will now need to do also on Corporate -- on the Corporate end. In terms of the front end and the customer experience part, we're very heavily sort of working on offering solutions which are modern and convenient and up to date. So I think this will be an investment focus. And lastly, I think Corporate will really benefit from all of these opportunities on -- the climate change, digital transformation and structural reform is driven by so many public funds, which need to be cofinanced by that instrument. So I think we see a lot of opportunities when it comes to sustainable growth on the investment loan and project finance side as well. And maybe as an element which is again, important, this post-crisis environment will show a lot of M&A activity. And I think our investment banking and our advisory services there will also benefit from that. If you look at it from a market share point of view, Corporate is still significantly lower in terms of market share than Retail in our core businesses. So we think that when we look to what we have to offer and what kind of sort of strategies we pursue, there's a catch-up potential when it comes to market share over the region. So I think this is a big pillar of our core business, I would say. On ESG, you've correctly said that we have already come up and delivered on our targets which we so far established. I would say that on our next earnings call and also on our year-end earnings call, we will see next steps in terms of what we put out. You have seen probably that we will put an end to coal financing in 2030, and that we have a transition period from today until 2023 when corporates can present their transition plans. But from 2030, we will not finance anything which is carbon -- which is coal related. And there are many more things to come. You've seen our bond issue with the EUR 500 million benchmark issue. We're doing a lot of sort of products on the asset management side, and we will come up with the next steps in our next earnings call.

Alan, on your 2 questions, TLTRO III and wage growth. So TLTRO III breakup, it's around about 15% in Slovakia. A total of about 20% of the catch-up booking was in savings banks. However, please be careful. A part of that is shown in the Austrian EBOe part. This is the owned direct savings banks. So total on EBOe side is, however, you look at it, 20% to 30% and the rest is around about 55% is booked on holding group, what I mentioned in the course of the presentation. Wage growth, it's -- is it a surprise? No, it's not a surprise at all for us. You remember before -- so pre-pandemic, we have been very often mentioning and have been making topical everything around the tight labor markets in our core countries, in particular, in countries like Hungary and Czech Republic. And Bernhard also today mentioned that this might be a limiting factor, not only for some of our customers, but even in the financial industry to execute some of the growth areas, the tight labor markets. In economic terms, I think it's basically net positive for us, as long as it's under some control because, obviously, the wage growth goes very much to our customers. And therefore, it naturally contributes to an uptick also in the ability for them to spend, to invest and so on. And of course, it also drives in the non-euro countries, I would say, the more hawkish approach that some of the central banks have already been starting to execute. Nonetheless, I think the environment in general around inflation, wage inflation and so on is definitely one of the top topics for everyone to watch very closely in the quarters to come. And it remains to be seen how it actually then really ends up going into '22 and quarters following.

But can I just ask from that point of view, your slight cost growth that you're forecasting for 2020, you don't think there's any risk to that?

No, thanks very much for reminding me on that one. I want to point out that we have never been setting, especially medium to long term, any absolute cost targets which I personally also -- and I think the whole management shares that. I would not regard as a very, I would say, sensible approach. We always talk about cost/income ratio and, of course, short term and explicitly for 2021, I'm absolutely confident that our cost indication for 2021 is not in danger. However, longer term, we always talk about parameters which are including the income and the cost side and not separately just on one of the items because those are naturally very closely connected. So that's -- I think thanks very much for reminding me to answer that one.

We will now take the next question from Riccardo Rovere from Mediobanca.

I have 4, if I may. The first one relates to Wealth Management. Would you be able to give us an indication, what is the stock of Wealth Management at the end of June? And if that was packed would loan deposit ratio keep -- which keeps falling, well, it has stabilized in this quarter or likely slightly up. Now where is it realistically, where can the loan-to-deposit ratio can realistically go in the medium term? What part of the deposits that you currently have on your balance sheet, you think it could be moved off balance sheet into Wealth Management? This is first question. Second question I have is on the FLIs on -- for Alexandra. Now without entering too much into details, you clearly stated that the 30 basis point guidance assumes some kind of news of the FLIs an occasional release. Is that -- is this number above 50%, below 50%, if you want to share some color with us on this topic. And just to be sure the amount that you booked last year is, if I remember where it was, it was EUR [ 680 ] million, if that is correct? Last thing, and maybe still for -- maybe still for Alexandra, you clearly stated that you had some RWA done here and there that you plan to kind of optimize over time. And you stated that you have digested III and Basel IV, not too much of an issue. Is it fair to assume that in the medium term, credit risk-weighted assets should go up, should grow less than the loan book aside from such a mix effect due to the maybe housing loans and so on? Is that fair to say?

All right, Riccardo. Let me start with the asset management/wealth management information. So there's a constant and very solid healthy growth. The latest number on a consolidated basis is about EUR 73 billion under management. However, I want to point out this is our own asset management franchise. And of course, we are also especially for high net worth and so on, also using other products and to -- in the advisory business. And there, I think it was explained by Bernhard throughout the presentation. I want to draw also your attention to Page 12, and we will constantly report about our developments there, about the security savings plans. This is very much a focus, something which is broad, constant and long term. So in other words, it's developing on a broad base, EUR 73 billion is the number of assets under management, consolidated by the end of June 2021. On the loan-to-deposit ratio and our ability to transfer this one and to what level, to what extent we can translate it into asset management investments as well as loan business. I mean, this is always a question which you only should be answering over longer term. And my -- I don't give you any percentages there that would not be professional series. Given the experiences of the last few quarters and developments in the course of the economic uptick, I would say that sailing north of 80% should be possible in the upcoming quarters. So in other words, no further reduction in the loan-to-deposit ratio is something which we would regard as healthy as hopefully, also realistic. I would not forecast anything like going back to 90%, 95% in the short term. That would be my take on that. And with that, I would pass on to Alexandra.

So on your question on FLI. So the number that you mentioned and remember is correct, this is the [ 650 ], but this is not FLI. This is what we have created on performing provisions, yes? So including the management overlays. And from this amount, we would expect, to be as precise as possible, roughly 50% -- up to 50% release is current assessment for this year and the remainder being carried forward. To your question, RWA optimization of future development on the medium term. So we would expect the RWA density to remain stable with a slight positive development. And as I said, so there is still a couple of add-ons and limitations that we are working on in order to optimize the profile. But the profile and the development of the credit risk RWA will also be strongly dependent on the mix of business. So currently, as you also see in the material, business is strongly growing in Corporates and -- the SL segment and SL RWA are considerably higher than, for example, for the housing loans. But overall, stable with a slight positive trend.

Thanks, Riccardo. Thomas speaking here again, just a short housekeeping announcement. We have another 17 minutes in this call. We will finish the call at 10:45. So I would ask the remaining guys in the line to keep the questions short and I would also ask my colleagues to keep the answers short as well. With that, over to you, Sharon.

We will now take the next question from Krishnendra Dubey from Barclays.

I have a couple of questions. First is regarding the fee and second is regarding the ROTE. In terms of fee, the 1H '21 run rate suggesting 11% higher Y-o-Y growth in the fees. Whereas you have guided to high single-digit number. Is that too conservative? And is it too conservative or there is something that we should consider by looking at the fees growth in the second half? And secondly, in terms of ROTE, you suggest a double-digit ROTE. So will it be somewhere like a 10% to 11% that you've historically talked about? Because our calculations suggested somewhere around 11%. So what should we think about the ROTE?

I'll take the first -- the second question on the ROTE. Your understanding is exactly correct. So this is what we're thinking about if we're talking about double-digit ROTE.

And I can also be brief here following Mr. Sommerauer's request to be brief, please. I think it's exactly on track. I think you can expect that we walk on that path and the second half, of course, subject to some turbulences in the capital markets should be delivering on that track. So no specialties in there in the Q2 which you should be adjusting for.

We will now take the next question from Robert Brzoza from PKO BP Securities.

Quick question on Romania. First, should we treat the provisioning 90 bps annualized as a sort of run rate going forward? Second, there is other cost of EUR 16 million. What is it? What has caused it? And finally, NII flattish over the quarter despite a growing loan book. And on top of this, we had relatively strong growth in OpEx. Is it something to be sustained? This trend is not so favorable going forward?

Yes. And thanks very much, Robert, for spotting that because, not getting too long, I didn't want to talk about every single country on the net profit. While in Romania, we had an excellent, and we still have an excellent operating momentum. The second quarter was a little bit overshadowed by 2 special effects, which on country level were relevant, what I'd say, material. The one, and I ask Alexandra to comment briefly on that, there was a risk parameter update on PDs. And that is -- was causing a EUR 22 million risk. So I'm sure that she can more precisely explain how that will behave going forward. And then there was a tax booking in the second quarter, which was in other operating. Therefore, you saw a very strong operating result, however, a little bit of a downbeat net result in Romania. So both of them, to my knowledge, but Alexandra, please comment on the risks that are not repeating.

Yes. Yes, it's also outlined on Page 22. So -- and I've also briefly mentioned in Romania, the bookings is due to the increased portfolio provisions mainly due to method effects. This was the parameter update, which I also mentioned we will do in all countries and which will also have a counterbalancing effect. So adding to the risk provisions, counterbalancing the releases from the FLI and Stage 2 management overlays. So on your question very concretely, is this roughly 80 or 90 that you have mentioned the future run rate? No, it's not. There the expected run rate in Romania is considerably lower than the Q2 bookings.

We will now take the next question from Olga Veselova from Bank of America.

I have 2 small remaining questions. One is about the TLTRO impact on NII. Shall we perceive this as a one-off or this can be actually repeated? Maybe not this year, maybe next years? And if yes, then when exactly do you accrue this -- gains? What triggers the booking of such gains? And my second question is about the cost of risk through the cycle. Alexandra mentioned that the reviewed cost of this guidance signals a return to normality. Shall we assume that the 30 bps cost of risk is a normalized level for the group?

Thank you, Olga, for the additional question on TLTRO because that's very important. So the straightforward answer is, should the conditions around TLTRO not be changed going forward and should there not be further takeouts or further runs by ECB that would add here, that you should not and we should not expect any comparable catch-ups going forward because we simply accrue for the run rate. However, I think it's worth to mention that there are, of course, discussions in the market whether the ECB might be repeating prolonging, adjusting the rules. And that of course, we will keep you in the loop of whether this has additional impact and further catch-up bookings going forward. And how did it come? It's very simple. At the point in time when the bank and of course, this is discussed with auditors, is -- firmly enough proving that the volumes and the volume growth, which is necessary to be eligible for the full amount of beneficial funding, then you can book those profits. And this is exactly what happened in the second quarter. And as of today, and given current conditions, this will not repeat. But of course, if ECB changes course on those programs, then things might change.

To the through-the-cycle risk costs, our full cycle normalized risk costs are in the range of 30 to 50 bps. And then you recall in the last investors call, for Q1 this year, I was indicated -- indicating that I'm more positive. And I would expect normalized risk costs on the lower end of this range, around 30. So I can confirm your question, or answer your question, yes, I would consider 30 basis points a very reasonable assumption for normalized risk cost.

We will now take the next question from Andrea Vercellone from Exane.

Three questions. Again, on the TLTRO, the EUR 92 million one-off, can you confirm it relates to H2 2020 and Q1 2021? And linked to this, going forward, will you accrue for Q3, Q4, Q1, Q2 next year at 1% negative? Or will you do something else? Then on Hungary, can you give us a sensitivity to rate prices, whether it's 25, 50, 100 bps, whatever you want to give us? And is the loan book -- can you give us the split of the loan book between fixed and variable? And finally, Czech Republic, do you see any meaningful risk of bank levies linked to the upcoming elections?

Andrea, maybe I'll start -- let me start with your last question, do we see a risk of, how shall I say, populistic moves in the context of upcoming elections? Yes, there's always a risk. I think it's equally important to say that over the last many, many years, the Czech Republic always has steered clear from introducing banking taxes. And so I think -- which is not necessarily a guarantee that this will never come. But I think that so far, this debate has been held in a very rational way and sort of let's wait and see what comes. But I think you can never rule out this risk, but we don't have any signs that this is now reappearing on the stage.

Andrea, let me start with the fixed variable split. This is -- and of course, there are significant differences across the countries. Across the group, the loan book is around about just below 60% variable and just above 40% fixed with a different mix…

Sorry, I just meant -- I just meant Hungary.

Variable fixed in Hungary? Okay. There, you have around about 3/4 of the book, 74% precisely, but you only have figures from March, April there, is floating and around 1/4 is fixed, that's Hungary. And we don't give a ratio like in Czech Republic. Simply, there are so many elements of the fair value part on the baby loan, as you know, then the way the key rate translates into market rates is a completely different one in other markets. So obviously, it's net positive for us, the rate increase to nowadays 120, but we cannot translate it to any concrete euro figure on a consolidated level. And on TLTRO III, there is the booking that we have explained in the past -- have been explaining in the past, which is running with this [ 0.66 ], so 2/3 of a percentage. And only the catch-up was booked to minus 1%. So we are exactly reflecting the approach that we have always been using from the very beginning and which is fully in line with the IFRS 9 accounting rule book. So in other words, on P&L terms, and that's maybe the most important, you will not see any element of catch-up, but of course, also no element of reducing P&L on the back of the TLTRO booking.

Yes. But going forward, so Q3, for example, will you book the TLTRO at minus 1% or at minus 0.66, and then do a catch-up if you meet the benchmark...

No, no. Look, the thing is, I mean, this is -- the thing is it's booked a minus 0.66. For the very simple reason if you look at the rules of the TLTRO III conditions. And if you match the maturity, it's always -- it's always a period which is defined with minus 1% a period, which is defined as minus [ 50 ] And according to the IFRS rules, this is to be booked with an average interest rate, and this is exactly resulting in a minus 0.66. So it's not something that we book -- we don't book the run rate properly. It's the opposite. We are reflecting exactly the conditions that are part of the programs and are building them into our accounting. The only point which is, of course, creating a jump are the respective achievements of the volume. That's in the nature of the full program. And you see it also, if you look at the reportings of other banks then some have been failing to achieve the volumes. In our case, we were fully achieving the volumes in all the legal entities where we were taking up TLTRO.

Okay. So going forward, you will book it at minus 0.66. And then if, for example, next year, you were to repay it, you will book a catch-up then? The rate is minus 1 for the next 12 months. It's not minus…

Well, well, this is a different story. That's a different story. If you have an early repayment based on the catch-up booking we did this year. And depending -- in this case, Andrea, we would need to go into the separate tranches. Because as you know, the full TLTRO III program as it stands today is a mix of take-ups, which have been starting back in '20. So that's a good question, whether early repayment before the maturity of the program, which we don't have in the moment would… [Technical Difficulty]

Please go ahead. Please continue with the Q&A.

Yes. And I think the last question from…

Yes, Andrea, do you hear me again?

Yes, I can.

Yes. So early repayment is a separate story. Of course, this is something which is depending on decision-making then only somewhere in June 2022. That could -- it could trigger a certain catch-up, but by far not in the dimension as we saw it now in the second quarter. And again, I think what will be most important is to see whether the ECB might consider an extension of the more favorable conditions later on in the course of the program. Yes, but for the year 2021 whatsoever, no further changes to the -- from the TLTRO.

Okay. With this, I hand back. It's Thomas speaking here again to Bernhard Spalt for his concluding remarks.

Yes. Thanks very much, Thomas. Thanks very much, ladies and gentlemen, for taking the time to tune into this call. We will meet again in this format on the 2nd of November 2021 to discuss the results for the first 3 quarters of 2021. Very much looking forward to talking to you there. Have a good and safe summer, and thank you very much. Bye-bye.

That concludes today's conference. Thank you, everyone, for your participation.