Raiffeisen Bank International AG (RBI) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to the conference call of Raiffeisen Bank International. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Johann Strobl, Chief Executive Officer. Please go ahead, sir.

Good afternoon, ladies and gentlemen, and thank you for joining the call today. These are extraordinary times. And of course, we respond accordingly. We have taken many steps to ensure the health of our employees and customers to the greatest degree. And at the same time, we are able to run our business smoothly. We are strongly committed, and we are aware of our responsibilities to the health of the population in the countries where we're active in. And we will do our utmost to help to contain the spread of the virus. And of course, it's important that the banking system is functioning. Besides the -- all these worries about health, it's also worries about financial security. And this is why we are here as well. So we will take care that all our customers, that the population in the countries, have uninterrupted continuous access to banking services as well. In these days, we are already, to the largest extent in home office mode, so the majority of our employees are working remotely, and we can call them in every day. For us, it was important to see that our operations are working, and we only have a few people at the premises. And I can tell you that all our systems are up and running very well. So this part works very well. And so I can say that we are well prepared organizational-wise, but also system-wise. But now let's talk about the economic developments, what we see in our countries but also for our bank. Maybe we'll spend less than usual about the past, so the full year results and the quarter and quarter and maybe a little bit more than usual on our macroeconomic outlook. Well, I think it's worth to have a look at the numbers because these are or is the starting point for what is lying ahead of us. And if we look at the numbers, you find us in a very good position. We have used the last couple of years to improve our operations substantially. And I will talk about that in the next couple of minutes. So what you see is we look back at a very good year 2019. And as I said, this is important as we start strong in these difficult days. We had a good loan growth. We had a good net interest income development. Bear in mind that 2019 compared to '18 is still somehow diluted by the sale of the core banking activities in Poland. So if you take that into consideration, you see that our net interest income grew about 8% and the fee income about 7%. I have to say that also costs in these days increased substantially, and I will come to that in a minute. Very important as of today is that we have a very good CET1 ratio of 13.9% on the one hand, and we have a low-risk cost of 26 basis points. And if you look at this EUR 234 million of risk costs, bear in mind, that EUR 74 million had been from the early adoption of the EBA new default definition. If we look at other performance numbers, what we see is a stable net interest margin, what we see is a cost-income ratio, which is above our mid-term target and which we have to say because of some changes in the lines of reporting, looks even better than it was in the past. And then we have this ROE, which is, I would say, at 11% at an acceptable level. If we move to the next slide, which is now -- I'm now on Slide 6. I think I would like to add that also in addition to the very improved CET1 ratio that we also have a very good nonperforming exposure ratio of 2.1%, and this with a very good coverage ratio of 61%. We have had a good improvement of the operating income, as I mentioned before. And so I want to move to Slide #7, which somehow presents our activities of the last year as well. So after improving our sales capacity, after improving the CET1 ratio, we last year turned our focus to cost control across the group. And this happened in several activities. So the one is we did a review of our target operating model in Austria. This work was finished last year, and it will be implemented in the course of this year, those elements, which had not been implemented already last year. But we also see potential in the costs -- in the cost base of our Austrian subsidiaries, and we see a substantial savings in also some of our network banks. And if we add this all together, there might be or we expect by 2021, a reduced cost base of EUR 130 million compared to what you have expected without these measures. And of course, in the future, we will also get more improvements by our digital investments and by substantially centralized approach in the way we organize our IT governance. Now to the outlook, which is on Slide 8. Of course, ladies and gentlemen, this spread of the virus, I think, imposed a big threat to the health of the population and therefore, we fully support as stated in the introduction. We fully support the measures of the government, the Austrian government, but also the governments in the neighboring countries. This shutdown of social life, this shutdown of production, this shutdown of entertainment, of course, will have a negative impact on the GDP development in the third -- in the first quarter already, but even more so in the second quarter. Overall, our expectation is that we will see in the euro area, a drop in the GDP by 4%. And in Austria, slightly more 4.5% and in -- depending on the, well, expected development, but also on the integration to some of the big European countries, the economic integration, this might be in some countries even up to minus 6%. In our forecast, which was just recently updated and where I have to say it, in some areas, probably a little bit easier where the impact is clear already like in hotel, in tourism, in transport, maybe in logistics. In some other areas, I think it's much more difficult to model. So this is our best guess as of now. And what we believe is that this is supply-side shock, which was necessarily introduced by governments. We believe that these measures as they are quite bold will bring a substantial reduction in spreading of the virus so that in a couple of weeks, more and more countries will go back to normal. So it is a sharp decrease in economic activities, but the recovery will be also strong and sharp. There is one more point, which I want to mention, which has a somewhat different source and different reasons, albeit quite connected now to the virus as well, which is the oil price development and the impact on the Russian economy as well as the ruble. Our understanding of the Russian economy is that the country built over the couple of last years, quite good buffer in terms of this wealth fund, but also the other stabilizers they built in, in their budget rules. And as of today, our economists believe that Russia can suffer a little bit from this development, but will probably not fall into a deep recession as we see it in the European area. Having this in mind, we, of course, have to adjust our outlook and our targets. So in these days, it's difficult to say where the loan growth might be, but for sure, it will be lower than what we have expected in the last call where we still were -- where we were talking about the mid-single digits. I think it's difficult because it's -- there is another element in addition to this big introduction of measures, and this is the support by the governments to compensate, to a large extent, probably the negative economic impact on individuals and companies. We have seen many countries which announced huge support themes, packages, like guarantees, like liquidity support, but also supporting companies and people with, what we call, short-term work, where the big part of the income is paid by the government and not by the companies so that the companies can reduce their cash outflow substantially, whereas private individuals will have a minor impact on their monthly income. So given this strong support by the governments as well, it's difficult to say where the loan volume will be by the end of the year. For sure, some of our customers will face problems, which will lead to increased risk costs. And this is why we have adjusted our forecast on that, our outlook to -- from 50, between 50 and 75 basis points. Of course, again, this is based on the assumptions I outlined when I discussed the macro outlook. Having this in mind, reduced activity in the economy, this will have an impact on our revenues. And therefore, it will also have an impact on the cost/income ratio. Nevertheless, as we strongly believe that this is V-shaped development, which ends soon and where we already see in 2021, very good economic activities. We will reassess, and we are committed to the mid-term 55% cost/income ratio. Of course, given these uncertainties in the development, it's too early to say what we should expect for 2021. In terms of profitability, having said all these assumptions on the developments over the next couple of quarters, we believe that in the mid-term, we can keep our target of an 11% consolidated return on equity. But for 2020, we will have to evaluate the impact of this current environment. We confirm our CET1 ratio at 13% or around 13%. And if everything works out, as I outlined, then we can also confirm a dividend. And the mid-term, we also keep our assumption that we have a payout ratio between 20% and 50% of the consolidated profit. I think I can be now rather fast on the quarter-on-quarter comparison. We are now on Slide 11. I think the good thing is that net interest income and fee and commission income also quarter-on-quarter had been nice. Of course, there had been in the -- in some other lines, some items, which I think was explained throughout the discussions or announcement, what we did in the last couple of days already. There was especially 1 point which is mentioned also here, which is the very positive impact from the valuation but also partial sale of a part of our SoftwareONE share package. And then there had been also some other positive and negative mixed development, what we have seen then in the fourth quarter, especially. If we move further, I think on Slide 12. We have, what I already mentioned, the improvement in the net interest and fee income in more detail. We had some positive impact from the sale of an equity instrument in Slovakia, which is MasterCard shares. I have already mentioned the SoftwareONE IPO positive impact, and we had some releases of provisions for litigations in Romania and in Russia. We have an increase in the staff expenses. I mean at year-end, there -- as in some countries, there was a quite good development, there had been higher bonuses and some salary adjustments, mainly in Russia. And yes, of course, at the fourth quarter, we always have some seasonalities in advertising, of course, compared to the third quarter, where because of the holiday season, there is traditionally little activity. When we run through the countries, I think we have positive development in all the areas. Of course, Hungary, there has been because of some risk costs and other activities, administrative cost depreciations, we had a slightly negative fourth quarter, but we are fine with the development, especially of the loan growth in the PI portfolio. And Czech Republic and Slovakian activities had been acceptable or very good like in Slovakia, where we also had a positive impact by the sale of the head office building. South Eastern Europe, I think the fourth quarter, as expected, is usually quite mixed. In Romania, we had a positive impact. What I mentioned before in the overview that some litigations provisioning could be released. And of course, Eastern Europe, which is on Slide 15, was doing well throughout the year and also in the fourth quarter. I think I can jump now to Slide 17. I mentioned it before, the CET1 ratio is in a very good shape. Some of you might be interested, what might be the impact if the P2R requirement changes according to CRD V, we mentioned it here that we expect a 98 basis point potential increase of the CET1 ratio. By that I think I can skip Slide 18 also, maybe I should mention here that, of course, the ruble, positive development till year-end also supported the CET1 improvement. The funding on Slide 19. I think we have a solid funding base. We had a couple of issues throughout the last year. So the funding base is strong. The liquidity ratios are good in these difficult days, I think this is important. And with this, I hand over to Hannes Mösenbacher.

Good afternoon also from my side. I would also be rather short on my reflection when it comes to 2019, maybe just again talking about the highlights. We were capable to demonstrate good quality loan growth. Risk cost finished at EUR 234 million or 26 basis points, including nonnew default definition of EUR 74 million. So we have completely consumed and reflected the new default definition impact already in the 2019 numbers. NPE ratio is at 2.1%, coverage ratio at 61%, and just to reemphasize that we have a very strong CET1 capital ratio. So I would proceed with Page 21, where you can see the different dynamics to the portfolios. Of course, eye-catching is our growth in Russia and Ukraine. But please bear in mind that the FX impact was 19% when talking about hryvnia and on the ruble side, over appreciated by 14% year-on-year, but those 2 numbers are highly inflated by the appreciation of the respective currencies. On the market risk side, maybe nicely, you can recall that in the due course of the transaction, in Poland, we had to hedge quite a substantial amount, which was consuming market risk RWA. This is now fading out in 2019. And therefore, there we get also a relief on this one. So I move on to the next page. On the provisioning and on the impairment side. Well, what is the most important thing, talking about Q4. We have finished the reflection of the new default definition, and we have already seen in some of the countries, what I also flagged when talking to you last time that we see some of the car suppliers, given this late-cycle momentum, which already could start suffering. In turn, there was one transportation company within our region, which also showed signs of suffering in the due course of the deacceleration of the economic development. So these are the most important reasons for the higher risk costs in the Q4. Just to remind ourselves, when talking about the new default definition, there was now a new clear definition when it was about the unlikely to pay the days-past-due accounting and whatever is the material threshold for past due applications. And finally, also that if a client is defaulting on a product, which is consuming 20% of the total amount outstanding with this respective client, we would see a sort of a cross-default. Last but not least, if you look at Page 23, we are now on an all-time low when it comes to the NPE ratio at 2.1%. We have a very good coverage ratio. I would even dare to say it's top in class. If you look at the EBA transparency exercise, RBI Group belongs to the best cohort when talking about coverage ratios. So I think it's also a very good starting point that our defaulted portfolio is very well covered with individual loan loss provisions. So this is a very swift run through the couple of slides. And now we would open for your questions. Please go ahead.

[Operator Instructions] And our first question will come from Máté Nemes with UBS.

Yes, and thank you for the presentation. Just starting perhaps with your macro outlook and the cost of risk guidance, can you share a bit more on the cost of risk guidance for 2020? Is this a result of your updated macro expectations, essentially fed through the IFRS 9 models? Or have you made more bottom-up assumptions for certain sectors and geographies? And also related to that, what is your view on corporate portfolio, default rate? What is baked into your guidance on cost of risk? And then finally, related to this, does the guidance incorporate certain assumptions on stage 1 to stage 2 migrations? Any color you could share on that would be helpful. And the second question is on NII. We've seen some rate cuts already, for example, in the Czech Republic, perhaps some markets or some central banks will follow as well. Can you share your NII sensitivities to these rate cuts in the main markets? And then perhaps any color on current NIM expectations for 2020? That would be helpful. I appreciate it. It's very early days, and the situation is fluid, but any views would be appreciated.

Thanks for your question and happy to share what we have done so far. Well, the one is when talking about the risk cost and the risk cost guidance, anything -- any way think that RBI Group was well understood by the market when we have guided already last year that we think that we are now late cycle and that we cannot demonstrate a reoccurring lower risk cost that we have shown over the last 3 years. So how did we take the end issue, which is now on our table. As our CEO outlined, on the one hand side, already with the beginning of January, we have seen that they are to supply chain shock, followed then by a demand shock, people did not consume, did not fly, did not make use of leisure and hotels. And now we have the very strong measures taken by the government. So what did we do is that we have done on the one hand side is sort of a top-down sensitivity analysis, and I will go into this into more details in a couple of seconds. The other one is, of course, we had good contacts with all our clients. Talking to them and report them up, to learn what is their impact from the supply chain shock and how they look at the current situation. So this would be the most 2 important approaches that was what we have done, and also now we see how swiftly the officials are also adjusting their GDP forecast. So going to the top-down stress -- the sensitivity analysis, I think it's fair to say that you have some regions across the world in some industries, which are more impacted there. Is it Asia? Is it parts of Europe, which are heavily impacted? And I think it's also fair to say that whenever you talk about leisure, whenever you talk about traveling, tourism, that this subpart of the industry is also impacted. So what did we do is we differentiated between sectors and industries where we think they may see like an L-shaped recovery. And the first 2 one, I mentioned now, this is the 2 of them we had considered. How did we tackle the whole story? We were asking ourselves, what happens to this industry if the sales revenues goes -- that we skip out of a yearly sales revenues either 3 months or 6 months. So this was what we have done with this very heavily impacted part of the portfolio of the industry. Then on the second one, we had others like automotive, oil, IT and others where we think we can talk about a U-shaped recovery. Here, we have simulated what would mean a fallout of sales revenue for 2 or 3 months. And then finally, as also indicated by our CEO, we for sure, will also have some V-shaped part. And this we think is the biggest part of our portfolio. Well, after this, strong deacceleration of the social life in the industry, there will be recovery and people will go out and consume and compensate for the lost consummation over the last couple of weeks and months. So having said all this, this leads me to a stage 2 adjustment, and we would also like to cover a big part of this already in the Q1. You know that we can do this because there is something like the stage 2 collective provisions, and we have already done so with the 2018 numbers. And if you look at the risk cost forecast between 50 and 75, so if you would take somewhere the average, let's say, 60. So in the first quarter, we should see almost 1/4, maybe below 1/4 of this in their risk cost forecast being consumed. Having said this, I think also happy to share with you that the first 2 months of the year 2020 have shown a very good performance. So the real slowdown, the heavy slowdown, is now to be expected in Q1 and Q2. But as said, we would also really try to cover part of the potential impact in the Q1.

Coming to your second question, it is indeed difficult to see where the net interest margin will go. What I expect is that in this situation, the price competition, which put in many markets, quite a lot of pressure on the margin will disappear. So at least here, we'll get some improvement from that side. I think then there, we have a couple of countries where the rates are -- the central bank rates are still high and even a substantial reduction will only have a minor impact on the net interest margin, and therefore, on the net interest income. But in countries like the Czech Republic, for example, where there is a substantial amount of money on current accounts, where we do not pay interest. This goes directly then to the P&L. So it's different from country to country. But yes, in the Czech Republic, what you mentioned before, we see pressure on the net interest income.

And we'll move on to our next question from Andrea Vercellone with Exane.

Three questions. The first one is on Russia, the outlook. You mentioned that Russia should suffer less than some of the other countries in terms of GDP, GDP development. I was just wondering if that scenario is as of now or have you run a scenario where Russia also goes on lockdown for a period of time because by now, it hasn't happened yet because they don't need it. Where they're going to do it, have you got any sensitivity as to what you may do? The second is on cost of risk. If the world was to be a -- the way you have modeled in terms of macro evolution, do you foresee 2021 being at similar levels in terms of cost of risk or should cost of risk trend down again? And also for the 2020, can you give us an idea of how much of the -- what's the amount in the 50 to 75 basis points which is model-driven? So IFRS 9 or other type of model adjustments, so noncash losses. And finally, on FX, not the Polish one, not today. Currencies, I mean. Can you remind us what percentage of your equity in Russia, Ukraine, Belarus is currently hedged? And if there's anything in place in the -- anything material in place in the other countries?

If I may start with the macro in Russia. Indeed, the assumption is that there is a less severe downlock than what we have seen in Europe, in the Western countries of Europe, and in the neighborhood of Austria. I mean I don't have as this -- just this -- 1-day old this outlook, I don't have other scenarios which would address also a total lockdown in Russia. Maybe the next time when we have a call or in between, we will give you an update on that.

Well, on the cost of risk, what we have done, what I have outlined before and the way we have tackled the potential impact that our portfolio as I have shown to you, this L-shaped, U-shaped and V-shaped recovery for the certain sub-industry. Here, we had in mind this would sum up to some 15, 20 basis points on the IFRS impact. And then please do not also forget that we have this macro overlay out of the retail side. But what we have seen over the last couple of the years, so that's the reason why I'm a little bit more talkative and explaining is that part of this stage 2 also, of course, gets used. So some 15 basis points IFRS adjustments out of the corporate part, out of the SME part. And on the retail side, I think you can fairly assume another 10 to 15 basis points. So this would be the current assumption. Not yet considered to which extent the corporate -- the government guarantee make their way and how fast they are into the real economy. So this would be my way of talking about right now when talking about the IFRS 9 guidance.

As to the hedging policy. We -- you should be aware that we do not hedge the total capital of the banks in the countries. We rather hedge the CET1 sensitivity, which are in terms of European regulation in Russia is substantial. So there, we have currently hedge of around EUR 500 million. And this is something like 50%, what you might call, hedge effectiveness. The other smaller countries we have, like in Belarus and in Ukraine, we do not have hedges at this point in time. There, it's rather difficult to hedge because of the countries and the currency regime, and then in some others, we have smaller amounts of hedges, but not substantial and not -- I would say, given the sensitivity, not so much important.

Next we'll move to Gabor Kemeny with Autonomous Research.

Just to follow up on capital, firstly. Can you give us an estimate what was the -- what has been the capital impact of the foreign currency movements we have seen year-to-date? And so what's the CET1 ratio impact? And then on Russia, would you be able to quantify how do you think about the credit loss this year in 2020? And in particular, how do you see the oil and gas exposures performing in Russia? And also staying with Russia, how would you expect your business to be impacted by an emergency rate hike by the central bank? So how -- what will be the business impact of 4, 5 percentage point potential emergency rate hike on Raiffeisen Russia?

So the substantial movement in the ruble and in the other currencies had net -- an impact in the CET1 ratio, which is below 20 basis points. As to your question of the impact of emergency rate hike, which I would not expect so far. I think we always could explain that the sensitivity of the net interest income in Russia is relatively unexpectedly small. So I wouldn't be worried too much about such a rate hike.

Well, if I may answer. I think since part of our strong business franchise also is showing quite some current accounts I think from -- we would even partly benefit from a rate hike when it comes to Russia. When talking about credit risk losses in oil and gas exposure, please let me share a couple of thoughts with this one. I think this industry, the oil industry, is used to having huge volatility seen over the last couple of the years. And we clearly have to differentiate between the different parts of the business. The one is, who is an oil trader, who is integrated oil producer, having some production facilities, been producing gasoline and all the other stuff, what we need in our daily life. And maybe also distributing across their gasoline stations. And then we have the blue -- the pure explorer. When focusing on the Russian oil exposure, talking within RBI Group, I think we must note that there are some of these companies, they would not even need our cash because they have a net debt cash position and not a net debt-to-EBITDA or whatever. So they have a net cash position, that's the one thing. And secondly, what we also have to consider that some of them have a very, very low and super competitive cost of production. So there are some who could produce between $3 to $5 per barrel. So they are very competitive when it comes to this point of the view. And there is one exposure, which is a little bit longer lasting. But here we have supergood securities available from some acres and from some huge European producer. So that's the way how I look at the oil and gas exposure. Gabor, the question on credit risk losses 2020, I tried to explain. So here, you would have to be more specific.

And next, we'll move to Benjamin Goy with Deutsche Bank.

Just one question left on capital. Just wondering whether you had any discussions so far with the Austrian or Eastern European regulators on the countercyclical buffers in place in some countries? And your domestic buffer in Austria, given we have seen in other countries move to reduce or, yes, abolish them at least temporarily.

Yes. We have this whenever we meet these regulators, they are aware that -- and they openly mention it and say, buffers are there for such situations. I haven't seen so far a written guidance or whatever, but we have had many verbal communications so that we don't see any restrictions now by the buffer regime. We haven't seen -- you might also think about the Austrian regime where we have 2 buffer regimes, which are till now, we had the higher off, and now it's going to be the sum of both. So there is ongoing discussion in the experts. So in the authority teams, the experts are discussing, but there was no outcome so far. The indication was that we do not have, and this is talking now about normal times, not the specific situation that we should not expect -- do not have to expect a substantial increase to what we have now.

And we'll move on to Alan Webborn with Societe Generale.

In terms of the sort of measures that central banks and so on are putting in place with sort of RWA savings and so on. How do you view that from your own perspective in terms of your 13% CET1 ratio? Is this something that you feel -- whatever you're being told to do, that's where you would be aiming, or do you think if, short term, things get worse and you'd be willing to see it go below that in the short term, for example, to keep supporting economies and so on. I'd just be interested in your view of how you think that is. Secondly, I think you were quoted this morning talking about a need to loosen forbearance rules. And perhaps you could have a -- you could make a comment on that as well and presumably in your -- sort of your guidance, you haven't taken that into account. But I'd be interested to hear what you wanted to say about that. And I guess, thirdly, I think the -- for example, the Czech regulator has been quite clear in its view that banks should not pay dividends at the moment. And does that have potentially any impact on your own ability to pay a dividend if, for example, 1 or 2 other regulators across Europe were to decide the same? And I guess last question would be. Are you now seeing a very, very sharp change in day-to-day activity? I mean can you just give us a little bit more color as to -- you told us that January, February were okay, but you were making adjustments and talking to customers and so on. Is it really a sort of short term, very, very sharp reduction that we're now seeing? If you could give us any indications as how you see activity in what you're seeing on a day-to-day basis, that would also be helpful.

Well, Alan, since we are just very few people here in our conference call room, Johann was now pointing to me that I should give it a trial on the forbearance rule and I also volunteered, I have to admit beforehand. Let us remind ourselves what is this forbearance rule about. If a client would be in financial difficulties, and if you do a sort of modification, which has an impact of beyond 1%, you would have to forbear this client and then the client needs to have a period of 2 years in this forbearance bracket and that he could leave this forbearance bracket. Whenever there is another interruption in the payment schedule, he goes more or less directly to the NPL. So that's just the current rule setting. Now you could say for a client of ours with whom we are dealing since a couple of years, let's assume one of these mortgage clients, and he has demonstrated his willingness and capability to honor the monthly installments. Let's say, he was doing so for 10 years, and now he needs a payment holiday of 3 months. Come on, this is not an issue. But here comes the point, if you talk about this NPV impact of 1%. If you just use the normal interest rate while the NPE rate, if you add this 3 installments to the final of the cash flow and of the amortization, this should not be a forbearance. But this is exactly where we would be happy to get more clarity on this one. For other core client of ours, to our relationship client, where we have very, very long-lasting relationship with them and where all the obligations always have been honored, if they're asking me for a 3-months or 6-months payment holiday, I would also economically not have any single thought about providing this. But at the same time, we have sometimes very strict rules and regulation. The one is the forbearance when it comes to this NPV impact, and this is what we tried to convey saying, well, let's just make sure because of this governmental shutdown as an argument that it's not the financial difficulty of the client. So if we get clear on this one, then I think we also can demonstrate and support very much, and we anyway will, but this is the whole story what we were talking about. So nothing artificial or specific. It's just this NPV impact of 1%. And since it was governmental cost that this shouldn't be an issue. That's the story on the forbearance. On the central bank measure, Alan, thanks for this question, too. I think this -- since the situation is so dynamic, this is a little bit early. So we have assumed in our CET1 guidance, a certain part of the RWA increase, not yet including in this short period of time that there might be some counter effects on RWA relief as soon as we would see the specific guarantees issued by the government. So this would be my 2 question when it comes to forbearance and the second one when it comes to the central bank measures.

Now talking about what's happening on the ground. So we have mixed activities. And of course, please be aware that these government measurements are like a wave moving now from the west to the east and maybe from north to south somehow. So the basic idea is that the branches are open. That people have access to cash and that people can if they won't get advice. Of course, the acquisition. So going for a new customer is reduced and also outbound calls from the call center are reduced. To cover in these days, the inbound calls, which are addressing a couple of questions also to collection or whatever you have. So this is one change in a pattern of activities which we face with private individuals. We have corporates, our relationship managers are in a permanent very close contact to understand the needs of the customers, their situation, how they are dealing with this situation, closing production facilities whatsoever, understanding if there is and there probably is in many, many cases, breach or a potential. It has to be expected a breach in covenants. If this is already to be expected, then one can really talk with them, how to deal with it. And so I think being on spot now with these issues, this should create quite a lot of time for reaction. And they are very positive. Of course, it might be that some of our customers face liquidity issues, we will come with this as it comes. Of course, customers have the project in mind where we approved financing already. They might not need it as of now. So there is a reduced request for liquidity, others might ask for postponement, as Hannes has explained it. So we are figuring out this. So this is the normal way. Of course, we see because of the shutdown, also a reduction in trade finance business as well. There, it might be that they're then mid-term, there is also a change from some of the products to other areas. There might even be that customers, who did not use this instrument to protect them. They might want to come back at a later point in time and even ask for more. So even there, it -- as of today, it's difficult to understand what the demand in 2 to 3 months might be, but this is the situation now. And of course, in some areas, the fee-related business will be reduced because of the, let's call it, shutdown of the economy.

And next, I'll move to Riccardo Rovere with Mediobanca.

Hello? Hello? Can you hear me? Can you hear me?

Yes. We can hear you.

Okay, okay. Sorry. Sorry. Sorry for that. And sorry for the question, my line broke down for a few minutes, some minutes ago. So apologize if I ask a question that has already been answered. I have a couple of questions, if I may. The first one is on risk cost. And the second one is on -- is again on the facility available to provide liquidity to real economy. On risk costs, just want to be sure. The guidance you're providing, does this take into account the fact that at least Austria seems to go along the same line of Italy and then France and then Spain in terms of lockdown? I mean the measures have been announced by Sebastian Kurz literally few days ago, and I was wondering whether that when you calculated the 50 to 75 basis point guidance, whether -- say, the measures announced by your counselor was -- were somehow taken into account because that could make a little bit of a difference or in any other country where you operate, you're assuming a lockdown, a shutdown of the economy for and eventually in case for how long? This is the first question. The second question I have is, have you seen any of your client for the moment starting to draw committed lines that were not being used before? And what do you think in general of the facilities put in place, the set up by the various authorities in the various countries. Do you think you will use them to provide liquidity to the real economy in case, the real economy needs that?

I think your questions also fit perfectly to one question by Simon Nellis, which was not answered by us till now. The question was couple of countries are now requiring banks to offer that moratoriums and what is our view on that? If I may start with this before I come to your questions. So I think it's quite natural that these days, governments are asking for that moratoriums. And frankly speaking, this is first, not unexpected. And second, the way we understand the EBA guidelines on the default definition, there is even a paragraph and article, which deals with that and which requires that EBA gives a second look at it and adjust the default definition. So I think it's -- one thing is to comfort the population; second, also to invite banks to do so. And third, it's also a message to the EBA. Now also to do some other or in extending to that. Of course, the -- and we have seen this also in the financial crisis. And I would expect that these days, the guarantee scheme will be different. So less -- more pragmatic, less bureaucratic because we started this situation in a sound economic environment. And therefore, these historic questions what we had at that time, which are companies which anyhow might have had to give up because they were weak already. This is less a question of today. So we are open to this moratorium questions. Expecting that this comes as a package with guarantees on the one hand, with also redefinition of the default definition. So this would be our 2 requirements. I believe that this is doable within a very short period of time, and this should be, on the one hand, very supportive for the companies and people. And on the other hand, it would take away quite a lot of pain for banks when -- well, dealing with requests from customers. This now leads to your question on committed lines. Yes, we have seen this, but very, very low amount. I would say this was rather a technical test if it works, but it's not something where I get already the impression that corporates are piling up liquidity. I think there is no need, given what we have, as I said before, on the one hand, central banks offering enormous amounts of liquidity and then the guarantees of the state. So I think there shouldn't be a big negative impact. And this also comes then to the RWA and CET1 question back. So I think there, again, it's this combination which supports. To your question, what is figured in, of course, the shutdown of Austria was already figured in, in this forecast. Of course, to the extent it was known and visible till yesterday. I mean we will see, if more comes like, of course, we see that construction companies were closing down today as well and maybe more will follow. On the other hand, this might be even the best decision what we can get in these days. If we see European-wide fast closedown then probably in a couple of weeks, we could open again because then this -- if everyone is in quarantine for 2 to 3 weeks, then we know what the problem is. No, we cannot spread it anymore. So based on this basic assumption. So to a large extent, this is figured in. And yes, the assumption in the forecast is that we have, I think, 4 weeks or so of sort of lockdown. And then a couple of weeks till we are back again. You can see this in the -- we haven't talked about this. We see a big drop in the second quarter by 7% or so. For example, in Austria, we see a small recovery in the third quarter. Quarter-on-quarter there maybe 1% in the third quarter. So you see it will slowly come back. And then on the fourth quarter, it's going back to normal. So that on average, we will end up with this 4.5 minus in Austria, what our forecast is. Yes, and of course, we have a very, very close eye to the liquidity. And we have quite a lot of assets, which would be available to bring it to a status, which would then can be turned into liquidity. It covered bond, which could be brought to the central banks or whatever.

Just a very, very final clarification, if I may. When you stated before that in the 50 to 75 basis points risk costs guidance, around 15 basis points in corporate and around 10 basis points in retail are included in the 50 to 75. And those 15 plus 10 basis points are related to IFRS 9 modeling. Did I get it correct?

That's perfect. Yes, that's the way how I tried to convey the message.

Okay. And I want to thank you publicly for having provided us with a guidance in such a difficult and challenging times. Most of the banks refrain from doing that even in normal times. And I think what you have done is really, really outstanding. I don't know whether you're going to be right or wrong, but thanks for that. And I want to do it publicly.

And we'll move on to Tobias Lukesch with Kepler Capital.

One question left on my side. The announcements by the government with regard to potential cash on hand, could you maybe elaborate from the knowledge as of today how this could work, how the immediate liquidity injection for one person businesses and so on might help both the people, the economy and finally also the banks to some extent?

Right. This is difficult for me because I have to say that in Austria, this is not a real business where we are in as Raiffeisen Bank International. So the last 1 or 2 days, I didn't get an update. My best knowledge, but this is outdated already, was that they, means the government, the responsible ones, have to figure out or are in discussion, how much it would be. So their intention is to compensate all those micro businesses to support them to generate some income for them. But I think their discussion, what is it, is it a percentage of the last -- an average of the last couple of months or is it rather a sort of minimum amount so that they can survive. But I'm not fully updated on that. So maybe if this is of interest for you, in the next couple of days, Investors Relations will give you an answer to that.

And we'll move on to Hai Thanh Le Phuong with Concorde.

Just one question from my side. So as you mentioned, there are more and more countries who offer or suggested payment holder should be granted for clients both retail and corporates. And I was wondering, like, what would it mean for your net interest income. Would it decline with these amounts? Or does IFRS allow you to book net interest income even if you have payment holidays?

Well, the way I understood some of the moratorium proposals by the local governments is that they would explicitly allow to have interest rate paid.

Okay. So it's just the principle that, that should be eliminated for this year?

Exactly. So it would be just the principle where you would receive the payment holiday, but the interest rate -- the interest expense must be honored.

[Operator Instructions] And we'll hear from Alastair Ryan with Bank of America.

Just briefly then on the dividend, it's a very wide range you have for the future payouts. And clearly, it's -- likely 2020 will be down year-over-year in per-share earnings. Would you give any consideration to giving us a slightly narrower range to be able to scale the dividend for shareholders are ultimately invested in the bank for. And it was a nice sort of a dividend increase last year. How do we think about your dividend approach?

This is now a really difficult one in these days, I have to say. I think I could only reconfirm what we have said before. So first, for the '19 dividend we've discussed this the day before yesterday. We still believe -- also we have seen in a couple of countries, requirements by the bank supervisors, not to pay dividends. We believe we can pay dividends, and we want to pay dividends for this year. And given our outlook, also the -- say, okay, maybe the ROE, you have seen it in the outlook, might not be this 11%, what we achieve mid-term, but on the other hand. So I think you have the 2 ones. So the one is the 13% CET1. I think this is the one important and the other is probably in '20, yes, now you have to pay. It's -- sorry, it's too early. It's too early.

[Operator Instructions] And next, we'll hear from Anna Marshall with Goldman Sachs.

Couple of questions, please. First is a follow up on dividends. So you've mentioned that there are ongoing discussions between regulators, governments, banks with regards to payment holidays, guarantees and so on, do dividends and discussion of dividends also feature in this conversation? So that was my first question. And the second question on funding. Have you seen any spikes in deposit withdrawals anywhere in any of the countries?

To the dividend discussion. If the central banks or the bank supervisors in some of the countries prohibit dividends, then they cannot pay. So this is -- this was it in the past and this will it be in the future. Given the current forecast, the strength of our banks, I think all of them or most of them could easily pay dividends. But we have seen a couple of central banks, also in the Czech Republic and in others, where dividend payments will be restricted. Within RBIG, we have reserves. So even if there is a year where we do not receive the dividends, what we have planned, we still would have the capacity. That is, of course, all these, what I have said, my expectation to the development that we still could pay dividend. In terms of funding, I can only say that the customer behavior is very stable. So the only thing what we see is that people, to some extent, want to have more cash. But this is a very small issue that in some countries, there's a request for euro notes or U.S. dollar notes, which only in these days, having almost no air traffic is not that the notes are -- wouldn't be available, but it's rather a transport issue.

[Operator Instructions] And we'll move to Al Breach with Gemsstock.

Congratulations on the great numbers and your super stewardship of the bank, particularly or including now these difficult times. I would like to ask, how do you -- how do you see -- what is your reaction to a scenario where capital really is coming down below 13% because it is so dire? Do you have -- have you thought through what you do there in terms of both on the operational side as in loan growth -- further loan growth because you're -- very happy to see you taking that sensible approach in the guidance, but also on capital side, do you have a minimum before you come back to the market to ask for capital? Obviously, dividends couldn't get way, blah, blah, blah. Just any kind of color or thoughts on that grim scenario, please?

In the current -- we do not believe that this is an economic structural crisis. So we believe that this is an economic crisis driven by measurements for health reason. This is why we believe it should end soon. So we need to cover probably 2 quarters where our customers feel the stress. This is the basic assumption. I mean, of course, you can create scenarios where you say, we are now -- this is only the first wave and the wave goes on to the U.S. and also the Chinese has recovered because the U.S. are shut down, then it goes back and forth and back and forth. So almost endlessly. We do not believe in this because, as I said before, we now see that the reactions of most of the countries are coming fast. And where -- if there is a country delayed by 2 or 3 weeks, I think this does not have to change our potential estimate. If -- and this is the other thing, if for whatever reason, the government guarantees and these are guarantees for -- purely for our corporate customers, and I think all the countries will come because these are national governments, of course. We believe that all the countries will come with similar instruments and there will be no discussion on European level on what is the impact on budget deficit, the other problems. So all this is not for discussion up. So I think the increase of WAs and also risk cost, which would be far beyond what Hannes Mösenbacher indicated. Okay. Then it's the point that also the bank supervises it but guys, therefore, we have the buffers. So even if it comes to that bad situation, which I do not expect, then this would eat into the buffers and the buffers are there. So I think we then would get -- depending on how deep these buffers are used, we would get a considerable time to refill this buffers again. And as I said, I do not believe that we would go substantially below the 13%.

As there are no further questions at this time, we will now conclude today's conference call. Thank you for your participation.