National Bank of Greece S.A. (ETE) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. I'm Costantino, your Chorus Call operator. Welcome, and thank you for joining the National Bank of Greece conference call to present and discuss the full year 2021 financial results. [Operator Instructions] The conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Pavlos Mylonas, CEO of National Bank of Greece. Mr. Mylonas, you may now proceed.

Good afternoon, everyone, and good morning to those of you joining from the U.S. Welcome to our fiscal year '21 financial results call. I'm joined by Christos Christodoulou, Group CFO; and Greg Papagrigoris, Group Head of IR. After my introductory remarks, Christos will go into more detail on our financial performance, and then we will turn to Q&A. I will begin with a brief overview of Greece's economy in view of the high uncertainty in the current global conjuncture and the relevance to the future performance of NBG. Let me begin by saying that Greece's economy performed much better than expected in 2021, especially in the second half of the year, recovering strongly from the COVID impact of 2020 in the first half of 2021. Indeed, the economy has already exceeded pre-COVID levels in Q4 2021, led by exports and fixed investment, and this despite tourism receipts in 2021 at 60% of the record 2019 level. Job creation was strong with unemployment declining to 12.8%, the lowest level since over a decade ago. Private sector firms have strong balance sheets and profitability, reflecting years of crisis hardened restructuring and they're fully committed to improve competitiveness. These developments are reflected in a fiscal outcome that is expected to be about 1.5 to 2 percentage points of GDP better than budgeted and a debt-to-GDP ratio that is estimated to have declined by about 14% of GDP in just 1 year, albeit remaining at high levels. The strong momentum of the economy and its solid fundamentals will prove very useful in the new challenge to absorb the commodity-induced spike inflation, combining COVID-related supply chain disruptions with Russia's invasion of the Ukraine. The main transmission mechanism of the shock to the economy is a reduction in household disposable income and a rise in firm's input costs. As a result of the supply shock, GDP growth in 2022 should be negatively affected but soon recover with cumulative growth over the next 2 years, not expected to deviate significantly from the previous forecast. Indeed, the ECB's new macro forecast suggest only a 0.2 percentage point reduction in annual average GDP growth over the 3-year period, 2022, 2024. Greece's exposure to Russian energy supply is moderate with only 15% of domestic energy consumption Russia sourced. Specifically, only 1/3 of imported natural gas from Russia. The rest is sourced from [ Azerbaijan ] and through LNG contracts, mainly with the U.S.A. and Algeria. Furthermore, only 1/5 of crude oil imports are sourced from Russia. And recall that over 30% of Greece's electricity consumption comes from domestic renewable sources. Including all the above, internally, we also project small deviations in activity increase for the 3-year period, '22, '24 versus the precrisis one. Admittedly, these projections keep bouncing around in view of the high uncertainty of world events. Thus, in view of the economy's expected ability to broadly absorb the energy price shock, the likelihood of a new cycle of NPEs is low, especially in view of the recently announced government support programs for the most vulnerable households and firms estimated to be around 2% to 2.5% of GDP in total for 2022. Turning to NBG's exposure to Russia and Ukraine, let me say that it's immaterial, practically nonexistent. Neither sanctions nor the war should have any meaningful direct impact on our business. And with this, relatively longer than usual that I believe necessary foray into the economic backdrop to our operations, which are almost uniquely grid-based that has turned to banking and NBG. In 2021, NBG achieved decisive results arising from a multiyear transformation effort. Capitalizing on Greece's strong economic recovery, we have delivered, one, strong organic profitability; two, an ambitious NPE cleanup; and three, a growing and well-capitalized balance sheet, underpinned by the rapid change towards a more flexible and efficient operating model. Let us start from the balance sheet and specifically asset quality. In 2021, we reduced NPEs below the psychologically important 10% mark, specifically to 7%, the group; and 6.9% domestically. This was achieved with the conclusion of Frontier -- of the Frontier transaction as well as continuous and solid negative organic formation despite the end of the moratory and the government support programs. In nominal terms, the level of NPEs stand at EUR 2.1 billion and only EUR 0.5 billion net of cash provisions. The Frontier transaction in the held-for-sale portfolio is expected to complete before summer. Today, we are a far cry from the EUR 22 billion NPEs of 2015, EUR 12 billion net of provisions. And this workout was achieved without the necessity to raise equity capital in any way or form. Turning to the other key components of the balance sheet, capital. NBG will soon be looking at a CET1 capital ratio that is above 18% and a total capital ratio near 19%. Specifically, at year-end 2021, the CET1 ratio stood at 16.9% and will be boosted by the closing of the Ethniki Insurance transaction in the next 2 weeks as significant progress has been made on regulatory approvals. The critical DG Comp approval was granted on February 25 and without the need for any remedies. Additionally, the closure of the JV transaction with EVO Payments, expected in Q4 will provide a further 70 basis point impetus to capital. That being said, a 51-49 joint venture with EVO is not about raising capital. It is a first step in a strategy to form strategic partnerships with mostly digital and payback players. And thus, to leverage on the concomitant synergies and advance our product and service offerings to match the increasingly exacting demands of our clients. As I believe doubts have been dispelled regarding the completion of NPE cleanup and the adequacy of our capital, attention turns to the ability to accelerate the generation of sustainable organic profitability. In this area as well, NBG achieved significant progress in 2021. In fact, our core operating profit rose to EUR 450 million, up 40% year-on-year, equivalent to circa 8% of tangible equity, delivering 70 basis points of organic capital creation in 2021 after accounting for 50 basis points from the concomitant RWA expansion arising from the growth of our performing loan book. Notable improvements occurred across all 4 P&L clients comprising for profitability. First, NII remained resilient despite competition-induced spread compression and the loss of 30 billion of NPE interest. This was achieved to loan expansion in the performing book of EUR 1.4 billion, once again the highest in domestic market, emanating from the EUR 5 billion loan disbursements. And currently, the corporate market, which has been buoyant for the past several years, is now also joined by a reviving retail market. Fees have had a remarkable strong year, up 10% with cross-selling efforts and digital banking reinforcing fees from increased loan penetration. This P&L line has significant room to continue to grow based on international benchmarks, especially in investment products, bancassurance and investment banking services. The hard work on OpEx continued, led by a double-digit decline in personnel costs. Due to the emphasis we have placed not only on revamping, but also turning our IT and digital systems into a competitive advantage, depreciation charges have picked up. But I firmly believe that these investments will prove [ prescient ] in the years to come. In fact, they have already made NBG the bank with the best digital offer in Greece as acknowledged by independent experts, but more importantly, by our clients. Our numbers speak for themselves. Less than 5% of transactions are currently undertaken in branches. Our market share in mobile banking has climbed to 32%, with more than 2 million monthly active users and the market share in Internet banking is 25%. Moreover, digital usage, as measured by transactions per second, TPS, are 60% above our nearest competitors. Last but not least, the good work on the NPE front is leading to a steady and sustainable reduction in the cost of risk to already below 100 basis points in Q4, 68 basis points to be exact. Looking ahead into 2022 and beyond. As I mentioned earlier, the prospects of the Greek economy are very positive despite the inflation-related headwinds. The fundamentals of the economy is strong, and even with the current global environment, Greece should experience a respectable positive upgrowth in 2022, higher than the area as a whole and much better outcomes in '23 and '24. Thus, NBG's performance targets remain ambitious and achievable. Specifically, we aspire to: one, quickly close the remaining distance to a circa 3% European level NPE ratio by 2024; two, continue to improve the pace of organic capital generation, both through further core income growth as well as additional operating cost efficiencies and cost of risk normalization. The medium-term target is to achieve double-digit ROEs expected to start from 2024. A few words on the key drivers for P&L line. Capitalizing on Greece's growth cycle, loan expansion of EUR 1.5 billion to EUR 2 billion per annum is expected, and this will gradually fully offset NII headwinds from the NPE -- the residual NPE cleanup, TLTRO withdrawal and MREL issuance. Fee income is expected to grow at about 10% per annum, arising from higher economic activity, increased cross-sell and penetration across products and segments, especially investment products, bancassurance and capital markets. Success in this area will be based on leveraging improved data analytics. Cost reduction will continue with a target cost to core income of less than 47% despite continued strong IT spend, including the introduction of a new core banking system with cloud capabilities. This will occur through further operating efficiencies, including the shift to digital. Clearly, the motivation of our people through the continued revamping of our HR management is critical to achieving all our goals. A final cleanup of NPEs will allow the cost of risk to normalize to less than 60 basis points. A combination of the continuing improvement of our recurring profitability and our strong capital buffers, a fully loaded CET1 ratio above 15% in 2024 provides the flexibility to commence and sustain a policy of prudent dividend distribution in the near term, even in 2023 subject to regulatory approval. Meeting these ambitious objectives require significant further effort in the world experiencing rapid technological change and more exacting customer expectations. Our transformation program will continue to provide NBG with a competitive advantage in driving this necessary change. Our investment in technology and people are the critical components to successfully achieving our targets and be the bank of first choice in Greece. The results so far and especially in 2021 affirm our capacity and dedication to deliver these goals. With that, I would like to pass the floor to Group CFO, Christos, who will provide us with additional insights on our financial performance before we turn to Q&A. Christos?

Thank you, Pavlos. So let's go into the financial performance in a bit more detail. Starting with the profitability highlights on Slide 13. Continued strength across all core P&L lines drove 2021 core operating profit, 40% higher year-on-year to EUR 450 million, constituting a decisive step towards achieving our group core operating profit target of circa EUR 490 million for 2022. Our strong performance reflects a 4% year-on-year growth in core income, the reduction in our operating expenses by 6% and sustained cost of risk normalization throughout the year, allowing the full year '21 cost of risk to drop below the 100 basis points mark. Factoring in trading gains arising mostly from our GGBs portfolio, profit after tax from continuing operations amounted to EUR 833 million, up 41% year-on-year. Looking into asset quality and liquidity highlights as depicted on Slide 14. Domestic NPE organic flows remained negative in Q4 '21, bringing the organic reduction for the year to EUR 0.7 billion on the back of strong tools. Sustained organic NPE reduction throughout the year, coupled with the solid progress on Frontier 2 securitization, which was transferred to held for sale in Q4 '21, drove our domestic NPE exposure down to EUR 2.1 billion or just EUR 0.5 billion net of provisions. NPE ratio in Greece dropped to 6.9%, down 7 percentage points year-on-year, bringing us just a notch above the 6% full year '22 NPE target 1 year ahead of the schedule. Notably, our domestic cash coverage is boosted to 78% from 70% in Q3 '21 and 63% in Q4 2020, despite the gradual cost of risk normalization, reflecting favorable organic NPE formation trends. At the same time, domestic performing loan additions in 2021 are maintained at sector high levels of plus EUR 1.4 billion driven by loan disbursements of nearly EUR 5 billion over the same period. Finally, domestic deposit covering remained strong as we experienced inflows of EUR 4.6 billion in 2021, mostly from the private sector despite negative real rates spurred by the strong economic rebound. Our best-in-class capital position keeps improving on the back of strong profitability with our CET1 ratio increasing by 120 basis points in 2021, reaching 16.9%, while total capital stands at 17.5%. The completion of Ethniki Insurance sales and the merchant acquiring JV will further push our capital buffers, rendering CET1 and total capital ratios of circa 18% and 19%, respectively, well above our guidance for year-end 2022 capital levels. Now let's go through the key drivers of our profitability on Slides 15 to 21. Domestic NII increased by 3% year-on-year, supported by the solid net additions to our loan book as well as lower funding costs. Encouragingly, interest income from performing loans remained resilient driven by rising balances, while lending yield normalization is bottoming out. Most importantly, the unprovided noncash NPE interest portion remains very low at only 4% of our total NII increase, highlighting the quality of our lending interest income while predisposing for manageable NII headwinds ahead of realizing the last leg of our NPE cleanup journey. Going into domestic loan evolution in more detail on Slide 17. Corporate disbursements picked up sharply in Q4 '21 to EUR 1.9 billion, driving annual loan disbursements to EUR 5 billion. As a result, our performing loan book expansion accelerated to EUR 1.4 billion year-on-year with corporate performing exposures rising by EUR 1.3 billion or 9% and the performing retail book exhibiting stabilizing trends following more than a decade of sustained leverage. The growth momentum of our performing book provides sustainable and long-term support to our NII, gradually offsetting the impact from the balance sheet risk. Moving on fee income on Slide 20. Domestic fees increased by 10% year-on-year, reflecting a sharp pickup in loan origination and economic activity, manifested in cards, intermediation and digital fees. The latter reflects our successful digital transformation strategy, facilitating the bank's transition into a more flexible and cost-efficient operating model. Indeed, customers are increasingly shifting to digital functionalities with e-banking transactions surging by nearly 30% year-on-year, replacing branch transactions that have declined by 56% year-on-year as shown in the lower left-hand side chart. Let me now turn to operating costs on Slide 21. Personnel expense optimization continues with staff costs down by 12% year-on-year absorbing the increased depreciation charges driven by our far-reaching IT strategy. As a result, operating expenses decreased by a further 6% in 2021 with our cost-to-core income ratio improving by nearly 6 percentage points year-on-year to 52%. Remaining cost rationalization effort is anticipated to offset inflation headwinds and increased depreciation, allowing us to maintain a negative sign in operating expenses evolution going forward. Moving on to asset quality on Slide 22 to 26. Negative organic flows of EUR 0.7 billion in 2021 combined with inorganic actions, reduced domestic NPEs by half, down to EUR 2.1 billion. Nearly 40% of this residual stock are FNPEs below 30 days past due with a good probability to queue up in the next quarters. Domestic NPE ratio came 5 percentage points lower quarter-on-quarter at 6.9%, while coverage increased further to almost 80%. Notably, organic reduction in 2021 was better than expected, reflecting both the contained inflow of new defaults as well as strong tools. Moreover, despite the gradual conclusion of supporting fiscal measures and programs, the payment performance of ex moratoria clients remains far better than expected with less than 4% of the moratoria perimeter being in default as of February 2022, as shown on Slide 26. In addition, with regards to our clients on Gefyra programs, the majority of which have exited the programs as of December 2021, payment performance be reassuring with just 2% of them in delayed payment stats. This is a clear indication of much lower than initially anticipated COVID-19 impact in the credit quality of our loan portfolios. Turning to liquidity on Slides 27 to 29, domestic deposits increased by 10% or EUR 4.6 billion year-on-year, accompanied by a sustained time to core deposit substitution effect on the back of strong inflows into savings accounts. Time deposit yields have each lowered by 15 basis points year-on-year to just 8 basis points. Eurosystem funding through TLTRO stands at EUR 11.6 billion, while the bank fulfilled its interim funding target of 18% without additional conditions. Summing up, 2021 has been another year of key achievements and strong financial results for NBG. On the profitability front, we have managed to grow our core operating profit reaching EUR 450 million, just a notch away from our 2022 profitability target. With regards to asset quality, our remaining stock of NPEs, translating into a ratio of 6.9%, bodes well for outperforming our year-end 2022 NPE ratio target of 6%. Last but not least, we have kept enhancing our superior capital buffers through our strong recurring profitability and capital accretive transactions, creating additional value for our shareholders. And on this note, I would like to open the floor to questions.

The first question is from the line of Floriani, Jonas with Axia Ventures.

Thanks for the presentation, and well done on the progress achieved in 2021. I have a few questions on capital. So now that your capital position is -- it's looking very strong, even if you look at the pro forma numbers, it strengthened even more. I'm just wondering if you have any guidance similar to peers in terms of possible payout ratios going forward? And also linked to that, the figure that you give for fully loaded capital level of 15% plus in 2024, does that account for the distribution, that number? And then the other question is on your assumption for the normalized equity level in 2024 as well. And then finally is a question on disbursements. I see a very strong figure in the fourth quarter of 2021. Just wondering what kind of disbursements those were, if they were more like short-term working capital or you saw some demand for long-term investment kind of loans.

Okay. Let me take a stab at them, and Christos will add. Payouts, the dividend depends, first of all, on regulatory approval. So far, we have a ban, and it's been a ban that's been around for 10 years. So we need to walk before we run. So we'll start with a request for a relatively small payout on the order [ of 20 ], and then we'll go from there. So let's be careful and not ask the regulator and be too ambitious. On the 15%, yes, it does include the dividend payout in 2024. The end 2021 disbursements for corporate and included project financed long-term, I don't think it had significant short-term working capital SLAs. Did I miss...

Yes, the assumption for normalized act in 2024, do you have that to share?

The equity that we assume to the approximation of the CET1 capital is in the area between EUR 6.5 billion and EUR 7 billion, Jonas.

The next question is from the line of Sevim, Mehmet with JPMorgan.

Just one follow-up on capital return, please. I appreciate you aim ordinary dividend payments from 2022 onwards, but this will obviously come from the ordinary earnings generation. And given that you're clearly operating on visible excess, and I do appreciate you will speak with the regulators, et cetera, but where would you see your optimal capital levels given also you're quite conservative in your approach? And how are you thinking about excess capital distribution, if at all, let's say, come 2022? In form of a buyback? Or would you like to deploy your capital somewhere else? If you had any color on that, that will be helpful.

Again, we have been a high NPE bank, and therefore, the regulator has been quite strict with capital. I presume, but I cannot speak for the regulator, that the capital requirements on the share will come down. But I cannot tell what the -- foretell what the regulator will do. So again, just similar to the dividend, let us walk before we run. Let's get out some dividends before we start thinking of far too ambitious things and get ahead of ourselves.

Okay. And if you don't assume any change, let's say, in your capital requirements today, then would the 15%, 16% fully loaded CET1 your comfortable level? Or do you think there is room for that to come down a bit?

Based on our high A&Ps of 2 years ago and our capital charges have not been changed by the regulator and you add a buffer of 100 basis points, then yes, they are comfortable. That's where -- we don't have that much excess capital. Now that should come down.

Yes. Okay. I understand. And then maybe for this year's guidance, I mean thanks very much for providing 2024 figures, but is it fair to assume that you may achieve some of these targets prior to 2024, given the run rate and momentum is quite strong? And maybe looking at 2022, how are you thinking about your EUR 490 million core operating target for this year given, again, 2021 was very strong but also there are some ongoing uncertainties? So any color near term would be very helpful.

We all appreciate near term, the uncertainty is quite high. We've had some good news today. Let's see if it sticks. So there is uncertainty about 2022 GDP, so I think we're safe to say we should stick with our '22 guidance. Looking forward, I think that there are certain factors that could bring upside risks, and the main one being is the path of interest rates. What has happened in the past months, first with the supply chain impact on inflation and then with the Russian invasion, we've had higher inflation, and it looks like we'll have tighter monetary bonds. So that yet to be played out again, but a tighter monetary policy than is expected would help all banks, including NBG with its large share of core deposits and bring some -- get us off that 0 bottom constraint that we've been on for the past half decade, at least.

The next question is from the line of Memisoglu, Osman with Ambrosia Capital.

Just on the asset quality, you're keeping your 6% NPE ratio or EUR 0.3 billion or so decline. Given your recent trends, is this cautious? Or is the geopolitics making this maybe less cautious? I.e. you've done a phenomenal job, so I'm wondering if there is downside just to your NPE ratio. That's the first one. And then on loan growth, you do mention EUR 1.5 billion to EUR 2 billion. Is it safe to assume, given the volatility in the world, EUR 1.5 billion, or maybe below? Any color how after another very impressive quarter, how is your loan growth trending so far? Any color there? And then final one, if you could give us any info on your issuance plans, particularly for one MREL angle.

Okay. Let me start in the interest order. MREL, it will be one or 2 issues depending on market conditions. We had originally planned for 2, but it looks like we only have 0.5 year or less to issue. So probably one. But again, it depends on market conditions. Loan growth, I think, could go the other way. Higher inflation, higher normal GDP, higher demand for working capital to cover higher input costs. You're going to see much less bond issuance by the corporates that crowded out the bank lending in 2021. So a lot of bank lending in '21. So I think there are factors there that could go in either direction. NPE ambition, again, due to the uncertainty, we'll stick with the target for now, and we'll be glad to outperform it if possible.

And any color on cost of risk for this year? You have a very high -- or coverage outlook or both?

So Jonas (sic) [ Osman ], as per our previous guidance, we ended up the year where we expected to, around 96 basis points on a full year basis, and the expectation is to go down starting from Q1 for 2022. So we see ourselves with the cost of risk in the area of 60 to 70 basis points. And moving on to year '23 and onwards, we'd expect that to normalize even more. In terms of coverage, provision coverage also is affected by the actual level of NPEs. So we don't see it going down in the immediate term.

Got it. And one final thing on the merchant acquiring carve-out timing. I'm not sure if I heard this correctly. Is it Q4 '22, the expected completion time?

That's correct, and that's due to the regulatory approvals.

The next question is from the line of Cordara, Alberto with Bank of America.

Congratulations for the good results. My question is about sensitivity to rates. You do have a lot of funding, a lot of deposits. So normally, your flexibility should be pretty high, but we heard from other banks that there could be some initial softening of sensitivity due to the floor on loans for the first 50 bps. So I don't know if you can elaborate how much more NII would you get for the initial rise of 50 bps in rates and any subsequent rise.

Well, more or less the same story applies to us. I think we are in a good position because of the high level of our core deposits. A majority of our loan portfolio are floaters as well. So the figures we have, assuming a pass-through rate of just over 20% on core deposits, is a sensitivity of additional EUR 70 million of profits for the first 50 basis points. And if we assume that there is an increase in the rates in the area of 200 basis points, that figure will go up even higher than EUR 350 million. So that's more or less our sensitivity based on today's funds.

I think we're similar to the other banks for the first 50 basis points, as you pointed out, due to the large share of relatively insensitive core deposits. After that, we will be having more of an upside.

The next question is from the line of David, Daniel with Autonomous Research.

I just had a follow-up on issuance. And noting your comments on the number of chip trips to market, should we take that, that you wouldn't look to capital markets if you're focused on MREL? So I guess I'm asking, could you put MREL in capital instrument this year? And then secondly, just on your government bond portfolio. Just wondering if you can provide some details on the amount of GGBs held, the amount that's held at amortized cost. And then any guidance you can give for what you're seeing in terms of the impact early this year would be good.

So David, our view on MREL, as Pavlos said, is that we are looking to one or 2 transactions this year, subject to market conditions. So we'll wait and see. As you know, we've made our MREL targets for 2021. There's nothing binding for the end of 2022, so we'll see how things evolve. In terms of our debt securities portfolio, the vast majority of our securities are classified as here to collect, amortized cost. So we don't have any volatility in our equity on that front. With regards to -- they have to collect and sell. Actually up to today, we don't see much volatility. The level of holding is just about EUR 1 billion. Most of them [ being ] built, so we feel very confident with regards to the volatility that we would face. And to add to that, we're highly hedged in terms of the positions that we have and we have to collect and sell portfolio. The level of GDP in our held to collect portfolio is in the area of EUR 7 billion.

And maybe if I could just follow up just on capital issuance. Just given the conversations on restarting dividends, isn't AT1 in your capital stack part of the long-term planning with regard to kind of where you see CET1 and capital more generally to allow dividend payments?

Well, it's something that we do consider. It's not something that we make decisions, obviously. In the overall MREL issuance plan that we have up until the end of 2025, it forms part of our planning. But until that time comes, we'll see what's the optimum strategy on what kind of issuances we will be making.

The next question is from the line of Butkov, Mikhail with Goldman Sachs.

I have a couple of questions. First, on the NPE coverage ratios. Indeed, there is a strong buildup on this figure. I would like to ask, what maybe management target do you have there? And at which point you may consider to start releasing maybe some of the reserves and provisions for NPEs? Another question is maybe you could disclose some sensitivity of your GGBs portfolio to the recent buildup of bond yields. And also the question on operating expenses. I think you had some guidance for the cost reduction shared previously. Are there any changes to these targets in the light of somewhat accelerating inflation?

Okay. On NPE coverage, you need to separate out S3 coverage from total provisions. Now with such a low [ several NPEs ], most provisions are S1, S2. So if you add all provisions, the coverage looks high. But if you look at S3 provisions, Stage 3 provisions, it is a more logical number. Okay. I will go that way. So that's, I think, often a confusion on total provisions over NPEs and Stage 3 provisions over NPEs. I think that the bond yields was answered and held to collect and sell, we have 0 impact on capital to date. And then operating cost targets, no, the guidance remains the same.

The next question is from the line of [ Lewis, Garrado ] with Bank of America.

I have 2 questions, please. The first on quality. Can you give us some indication of which industries you see may be more affected by the geopolitical stress or the second order impacts like inflation? What are you seeing on the ground? Are you worried about an increase in defaults in some Greek industries from your conversations with your clients? Just a framework for us to understand where the tensions might be. And then secondly, on MREL. What do you think the direction of travel is for the Greek banking sector as a whole? Do you think we're heading in the next few years to a more constraining regime where you have subordinated MREL requirements? Or do you think recent developments might lead the regulator to relax these, in fact, and maybe push back the final MREL deadline?

Okay. On the impact of the energy and agricultural commodity price inflation, I think as I tried to say in my introduction, there is going to be an impact on disposable income of households and on input costs of especially agricultural and certain energy-consuming industries. Now the government is announcing a relatively generous plan to cover the more vulnerable households, about 2% of GDP in '22. GDP in general is still expected to be north of 3%. So despite the shock, lower than original projections, but still not a GDP growth rate that creates NPEs. Now certain energy-producing firms, they will be passing on some of their costs, which will be covered by the government. So all in all, I'm starting to feel more and more comfortable that we will not see any significant increase in NPEs in 2022 coming out of this. And then, on the MREL?

On the MREL, look, we have a plan up until 2025. We meet with our -- with SRP on an annual basis to the extent that is required [ with branching ] the plan. So we cannot preempt at this point in time if anything would change and how would SRP approach the situation. So we stick to the course of the plan.

Our next question is from the line of Boulougouris, Alexandros with Wood & Co.

A quick question on the NII. If you could walk us through a bit on 2022, what should we expect regarding the NII from NPEs? It was 194, I think, in 2021. So this figure, I assume, will go down drastically in 2022 with Frontier. And the impact from TLTRO, how much was the positive impact in 2021? And what should we expect in 2022? These are the negative factors. Of course, there are some positive factors as well. But I guess we should assume my high single-digit decline. Is that something reasonable? That's my first question. And my second, sorry, because I did not get what you said earlier from a question from my colleague regarding the NII sensitivity on interest rate. You said EUR 70 million on the first 50 bps and EUR 150 million on the 100 bps. Sorry, if you could repeat, please.

Okay. So let's start from the second one. Indeed, what we said on the first 50 basis points was a EUR 70 million upside. And then if we have 200 basis points of increase, then that translates into EUR 350 million of increase in income. With regards to the guidance on the NII for 2022, I think you picked up the 2 biggest headwinds that we would face. First of all, in terms of NPE interest, indeed, the NPE interest for 2021 was in the area of EUR 190 million. If we assume that Frontier accounts were about EUR 100 million of that and will not have it in 2022, plus some other actions that you have, you should assume that NII interest from NPEs would be going down in the area of EUR 80 million to EUR 90 million. But having said that, you should be aware that the normalization of cost of risk on the other side will not have the same effect on bottom line profitability. On TLTRO, the annual upside that we have this year because of the program was in the area of EUR 90 million, and we expect to keep half of it for 2022. Other upside that we have in 2022 is an increased interest from our performing exposure loan book and some additional, but not that significant repricing in our time deposits. So all in all, the number that you quoted is quite right. You should expect a high single-digit reduction in our NII for the year.

I'm sorry, and one follow-up regarding fees. You mentioned in your plan a growth of around 10% per annum. Wouldn't 2022 be affected by the sale of the merchant acquiring business? So would you have a similar growth in 2022?

Yes. The figures that we've shared accounts for that, so you should expect this 10% or slightly higher to be incorporating the foregone fee income from this JV. But it is a JV, so we retain the fair share of this income.

Great. And on this merchant acquiring business, the gain that we should expect is something similar we have seen with your peers, I would imagine.

We have announced it. So it's just north of EUR 300 million for the 100%, so we are disposing of 51%. So half of it is the gain that we have recognized because of the sale.

[Operator Instructions] The next question is from Nigro, Alberto with Mediobanca.

Yes. The first one is on asset quality. If I remember well, the Frontier 2 projects should have a neutral impact to capital. But can you give us an idea of the impact to provisions for 2022? The second one is on capital, if you can go through the quarter-on-quarter increase in the fully loaded CET1 ratio. And the last one is on cost, if you expect any restructuring costs to be booked to reach the 2024 target.

Okay. So on Frontier, the transaction was actually capital accretive, over 100 basis points. Actually, if we combine the provision reversals and the risk-weighted asset recognition, we were in the area of 150 basis points. With regards to the toll that this would have on cost of risk in 2022, as we said, we see our cost of risk normalizing down from 100 basis points in 2021 to around 60 to 70 basis points in 2022. I didn't catch the other questions that you made. Can you repeat them please?

Yes, sorry. Also on the first one, I was referring to the NPEs that you put at available for sale this quarter, if the additional EUR 1 billion securitization you are planning to do will have an impact to provisions? And the second one was on capital, if you can go through the quarter-on-quarter increase. It's, I think, 90 basis points from risk-weighted asset relief, if you can complete that. And the third one is on cost, if you expect any restructuring costs to reach percentage forecast.

Okay. So the question on the increase of the capital ratio, the fully loaded or the transition is the same from Q3 to Q4. It's down to the recognition of the risk-weighted assets from Frontier 1. The other question you had was...

The cost of Frontier 2.

The cost of Frontier 2, as we said also from the previous call, there is not going to have any toll, any loss bucket or any material effect on capital. We think that we fair-valued it correctly. And going forward on restructuring costs, well, we have a strategy of optimizing further our cost basis. But cost down the road would not be as material as the ones that we have recognized so far. And to the extent that we need it, we'll see how it goes depending on the actual plans.

Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to Mr. Mylonas for any closing comments. Thank you.

Thank you all for joining us for the full year results call. We'll be available to answer questions. We hope to be able to see you in person soon, and we hope that we have soon peace in the region. So thank you very much.

Ladies and gentlemen, the conference has now concluded and you may disconnect your telephone. Thank you for calling, and have a pleasant evening.