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

Good afternoon, ladies and gentlemen, and welcome to the Q1 2023 Results Conference Call of Raiffeisen Bank International. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Johann Strobl, Chief Executive Officer. Please go ahead.

Thank you very much. Ladies and gentlemen, welcome to our Q1 2023 update call. Thank you for joining us today. We can report another good quarter with decent operating trends and a very solid balance sheet. Consolidated profit for the first quarter is EUR 657 million, or a return on equity close to 16%. More importantly, the core of the group, excluding Russia and Belarus, earned EUR 330 million and a 10.4% ROE respectively. In the first quarter, we recognized a very large portion of the bank levers and other governmental measures. And we have taken a further EUR 69 million of provision for litigation in Poland. Risk costs outside of Russia were very low, with still very few insolvencies in our markets. Our CET1 ratio stands at 16%. You are by now familiar with our tool steering approach to the group's capital ratio, excluding Russia. Assuming a full loss of the Russian equity, our CET1 ratio is 13.7% and comfortably above current requirements. On the occasion of our Annual General Meeting a few weeks back, we updated our shareholders and the market about our Russian business. We have spent the past year exploring a variety of options. And our focus today is on 2 of these, namely, a sale or a spinoff. In either case, the result would be a full deconsolidation of our Russian subsidiary from the group. As we speak, we are working at full steam on both solutions. I cannot tell you today which one will be favored as both require a complex series of approvals. In the meantime, we continue to reduce our business in Russia. After shrinking the loan book and tightly managing RWAs in Russia last year, we have also taken additional steps to reduce our payments business. As a result, we expect the revenues and earnings contribution from Russia to decrease in 2023. Another point I wish to update you today is the OFAC request for information. In February, we announced that the United States Office of Foreign Asset Control requested information relating to our payments business in light of U.S. sanctions on Russia. You're familiar with the statement we made at the time. But there are, nevertheless, a few points that bear reporting -- repeating. We are operating fully with OFAC and have agreed the scope and time line for the delivery of the requested information. We have agreed to deliver the requested information in 3 stages. We are now finalizing the second delivery package and the third one will be completed in June. Second, the request for information on our sanctioned compliance program and exposures to Russia, this is what the OFAC seeks for. And finally, we are confident that our compliance systems are strong. And we have frequently demonstrated this to our regulators and banking counterparts. We are confident that we will fully satisfy OFAC's request for information. If we turn to the next slide, I can state that we are pleased with the operating results in the first quarter. Considering some of the headwinds we have shared with you during our last call for the core of the group, excluding Russia and Belarus, NII is virtually flat. Fees in the core of the group were down 5%, largely due to seasonal factors, including the typical drop in volumes in Q1 versus Q4. Loan growth in the first quarter was muted in most of our markets. And of course, in Russia and Belarus, we continue to reduce our business. Finally, and despite the strong inflation in our markets, the cost/income ratio for the core of the group remains near 47%. In most markets, we aim to keep our OpEx growth at or below inflation. If we move to the next slide, this offers a closer look to the first quarter. And if we start with the full group view, the decrease is largely attributable to Russia. As you know, 2022 was an unordinary year for our bank there. And we have taken several measures to reduce business. This is already visible. And we expect this trend to continue. More interesting for you I assume are the core revenues, excluding Russia and Belarus. Net interest income is pretty much flat, largely due to repricing of liabilities, which is happening slower than we anticipated. Nevertheless, we are seeing some competition in local currencies in the Czech Republic, Romania and Hungary, while euro deposits continue to benefit from rate tax. We slightly improved our NII guidance for 2023 to around EUR 3.6 billion. Fees were down in the quarter with the biggest drop in Russia due to lower volumes and margins, some of which is seasonal, but to a large extent, some normalization after what was an unordinary last year. As I mentioned, we are introducing some restrictions and the Russian fee line will be lower as a consequence. In the core of the group, the drop is largely the seasonal factors, which I have mentioned. Nevertheless, we have slightly increased our fee guidance for the core of the group, as you will see in the outlook slide. And now we expect this to be roughly flat versus last year. Turning to the next page, Slide 7. I have already mentioned the muted loan growth in the quarter. The main driver in our reported numbers comes from short-term business in head office, such as repo and money markets business. Romania, so decent corporate lending growth also this was largely in the pipeline from Q4 and is not an indicator for the rest of the year. Going forward, we are cautious on new volumes for the rest of the year. On one hand, we continue to see low demand both in retail and in corporate, where investments are slowing down. We are also selective on the underwriting. Our loan growth guidance for the year is now at around 2%. Deposits from customers were roughly flat on the quarter. We saw a reduction in head office where our very good liquidity position allows us to let low liquidity value deposits leave. And we can optimize our deposit base, both for cost, but also for the liquidity value that they provide. In essence, we do not need to compete for a concentrated short credit and very price-sensitive deposits. We will take a closer look at head office liquidity position on the next slide. Slide 8, the liquidity position of the group. As you can see, the LCR was above 200% at the end of the first quarter and even as higher as end of April. Equally important individual network units also maintained very high LCR ratios typically between 200% and 300%. Our network banks are generally funded by a high share of granular retail deposits. NSFR for the group remains very high as well, reflecting a very stable stock of term funding. On the right-hand side, let's briefly discuss the liquidity profile in head office. Despite no sizable retail deposit base here, it is the most conservative liquidity position of any of our units. First, we have taken a number of measures to shore up liquidity since the start of the war last year. As of today, head office LCR stands at around 160% versus 131% 9 months ago. More importantly, we monitor on a daily basis, the excess liquidity under the most extreme scenario. If you assume that all liability leaves the bank at the contractual maturity, we will still have over EUR 1 billion of excess liquidity after 1 year. I cannot think of a more cautious approach to managing liquidity. And our team has done an excellent job building up this position. If you look beyond 1 year, the bank is equally robust. Long-term funding includes the deposits above 1 year and bonds exceeds our loans to customer with a residual maturity above 1 year. If we look at the next slide, you see the development of the CET1 ratio, total group stable. We have earmarked a dividend of EUR 0.80 per share, which would be 27 basis points in CET1. This is deducted from the regulatory capital. And what you also see is the benefit from transitional application of IFRS 9 of around 34 basis points in Q1. If we turn to the next slide, you have an outlook to '23, where you see given the good earnings capacity, the RWA increase, which I have already described before and some other impacts. I think one can say that we expect also the year-end a strong CET1 ratio. Moving now to one of the most often asked question which is what is potentially euro price books here the consolidation scenario in Russia? The lending point at the end of Q1 was 13.7%. So this is above our internal ratio what we have set at 13.5% for this scenario. Numbers are pretty stable here. It's a reduction on the one hand of the CET1 equity by EUR 4.1 billion in case of deconsolidation. And on the other hand, we have a EUR 13.4 billion RWA deconsolidation. Here, I have to add 2 remarks. The one is that if we would also lose the intragroup subordinated instruments, we would have an additional negative impact of 40 basis points. What you should also be made aware here is that the way operational risks or the RWA from operational risks are usually treated is a phase out approach. So if you would have an immediate phasing out of the strong revenue base, this would end another 45, 50 basis points. Moving to the next slide, which is maybe more for documentation and information, is capital ratios and the SREP. And what will happen till end of the year with some additional information on the MDA buffer and available distributable items. I think this is more of a reading. So I move to the next slide, which is, the MREL and the funding plan. I think here again, with all the funding, what we successfully did already last year, but also at the beginning of this year. You see now a very good situation in the MREL numbers of the head office. So the Austrian resolution group I should say, in a more precise way. So this is the one element. The other is that also in the network banks, we have done -- we made good progress. And you also see what we might need in next year 2024 to our own funding plans here. We might come with 2 to 3 additional benchmarks. One could be a covered bond issuance to strengthen our liquidity profile and other could be non-preferred senior, maybe in the second half to maintain our loss-absorbing capacity and to support our credit rating. Slide 14, an update on Russia. You see in all ratios, the Russian bank and the local requirements is very, very strong, be it the liquidity position, be it the CET1 ratio. Also the loan deposit ratio is fantastically good, so very good numbers. You are also aware of the development. So we had another drop in loans around 3% quarter-on-quarter. We have reduced further our net cross-border exposure, which is mainly RBI head office EUR 295 million. You might remember this was EUR 600 million when the war started. And you see the adjustments on the RWA. So this, of course, moving elements. And depending on mainly where the liquidity is placed this might increase or reduce the RWAs from the Russian entity. Coming to Slide 15, the macro outlook. Yes, smaller adjustments, what you see, some countries slightly improved, like our forecast for the Czech Republic, others may be net 0 like Hungary. Of course, the numbers are better in the Southeastern European area. And yes, Russia with minus 2% still in the shrinking environment, but a reasonable number. And given the big drop in Ukraine last year, we see a slight improvement in 2023. And of course, in '24, we assume in all the markets, improved numbers. Of course, inflation and high interest rates have an impact on household demand. And we'll see if the impact is -- might be even bigger. Moving to Slide 16. This is also an update on our perception of inflation development for this year and in addition to that also for next year and then for some bigger markets where we are in some expectations of interest rate developments. In some markets, we already have this year a reduction in the key rate of the central banks. May of course, here, it depends on the development of the inflation if it would come at that pace or if we would find maybe a little bit delay in the -- well, reduction of the key rates. Moving to Slide 17, the guidance. So as I mentioned in the introduction, it's already here in the numbers as well. So core revenues EUR 3.6 billion, the net interest income, fee income at EUR 1.7 billion, probably loan to customers, plus 2%. And on group level, the numbers would be relatively similar. But of course, bigger with EUR 5.3 billion, EUR 5.4 billion of NII and EUR 3.2 billion to EUR 3.4 million in fee and commission income. As we expect further reduction in the loan book in Russia, then, overall, it might be -- loan book might be flat. OpEx, EUR 3 billion, which leads to this year, the cost/income ratio slightly above 50%. We have similar number in the total group at EUR 3.8 billion and cost/income ratio somewhere between 41% and 43%. You're aware of the risk costs overlay what we have built up in the past. So before we use this, the current update is, as I mentioned before, good developments of around 60 basis points, the core group and on the total group at around 90 basis points. Profitability and consolidated return on equity around 10% and on total group level at 17%. And the ratios I have touched already above 13.5% and 16% respectively. And with this, I hand over to Hannes.

Thank you very much, Johann. Good afternoon, ladies and gentlemen and thank you for taking the time to join us this afternoon. Well, in what has been a busy quarter for the banking sector, I'm happy to report that the first quarter has been uneventful for RBI. First of all, credit risk is very muted. Year-to-date, risk costs in the quarter are largely the result of further overlays being booked in Russia and benign risk costs elsewhere in the group. Insolvencies are low. And we have seen very few early indicators of stress in our portfolio. We ended the year with excellent portfolio quality. And I'm satisfied that this remains very much the case to date. Despite the sticky high inflation, both corporate and retail portfolios remained solid. Let me talk about the retail side. On the retail side, our underwriting always included higher rates. And consequently, we have witnessed very little deterioration due to the current rates and inflation environment. We nevertheless simulate further rate hikes and double-digit inflation rates going forward. And we still -- we see limited pressure on debt servicing ability. Furthermore, labor markets and that's, very important, are only expected to lose modestly, which, of course is very much supportive. Let me also talk about the corporate side. On the corporate side, commercial real estate appears to be on everyone's mind nowadays. Our exposure is around EUR 14 billion, less than 6% of the group's total exposure. You will find a simple breakdown in the appendix on Slide 29. Please keep in mind that we have securitized over EUR 1.5 billion of our real estate book. So our actual exposure is, in fact, lower. Nevertheless, a few comments on our real estate exposure. We reviewed our portfolio towards the end of last year already stressing for prolonged higher interest rates. This is fully reflected in our internal ratings. We also assumed a pronounced drop on average of around 25% in prices and booked around EUR 70 million of overlays. Our valuations are conservative and either includes haircuts to the market values or alternative measures. In recent years, we did not revise the collateral values up every quarter as real estate prices appreciate. We will be conducting another stress test in the second quarter, where we will include further drop in property values and decreasing cash flows. Where necessary, we may book additional overlays. And finally, the exposure is very well-diversified across the sector and geographically focused in our region. And before you ask and I may assume that you will ask, no, we do not have any exposure to commercial real estate in U.S. For the total group, we keep and leave our risk cost guidance unchanged at 90 basis points. Let me also move away from credit risk. I'm sure you confirm that our liquidity position is exceptionally strong. And as Johann mentioned, we have excellent liquidity in each of our markets and very stable [indiscernible] retail deposits. In head office, we have built the most resilient liquidity profile possible. And however you stress liquidity outflows for the next 12 months, we would still have a surplus liquidity. Another big topic nowadays everybody is talking about is interest rate risk. Interest rate risk is also very limited with asset and liability duration largely matched. We only recently started to build up fixed rate positions in currencies such as the Czech krona and Romanian lei. And the interest rate gap remains small. Our largest exposure is in euros. And to give you a flavor, while an immediate 200 basis point shock would have an impact of only 25 basis points in CET1 measures. Let me now run you swiftly through the slides. I'm on Page 29, where you can see the overview where we have the 93 basis points, translating into EUR 300 million of risk costs. As said, the most important part and the biggest part is being allocated to overlays Stage 3 bookings summing up to EUR 62 million only. And you can see that we have now over EUR 900 million of stock of risk overlays. The asset quality classifies and demonstrates by itself, having an NPE ratio of 1.5% and a very solid coverage ratio of 58.2%. I was talking about the lower insolvencies. Maybe what is also still important when looking at the right-hand side of the box in Ukraine, we have seen the 1 out of Stage 3 bookings. But at the same time, we have very robust overlays already being built up. And in Russia, we have further increased these overlays by EUR 223 million. Page 20 is showing the split in the different subcomponents. As said, total risk costs are summing up to EUR 301 million and EUR 278 million are being allocated to Russia and Belarus. But if you decompose the EUR 301 million, you can see that the biggest part is coming with EUR 176 million in the pillar of overlays. Let me move on to the next page on 21. While I would not like to steal your time and going very deeper to explain the difference of EUR 0.9 billion of risk of RWAs within the quarter. There's one important information which may have caught your attention. This is this EUR 1.3 billion of inorganic effect. While this must be attributed to the Article 500 in the CRR, where you have the risk-weight public debt issued debt in currency, which is different to the local currency. Let me move on to Page 22, talking about the Poland Swiss franc update. While we still have 27,000 loans outstanding, we have now 10,500 litigation cases. And we have added in the first quarter another EUR 69 million for provisions in litigation. And we also had to digest EUR 17 million when it comes to net losses regarding environment decisions, leading us now to a stock of provisions for litigation of over EUR 853 million. What has changed on this slide? Well, we are also now talking about in public regarding settlements. We are now exploring a pilot program for settlement having this under consideration. And we would be very much willing to follow the terms proposed in the KNF solution and converting the contract currency to zloty. We know from the banking environment in Poland that this approach was tested and is successful. Well, Page 23 is for your documentation that we are still having a prudent approach when it comes to NPE ratio and NPE coverage. We all thank you for your patience and listening to us. We would now be ready to take your questions.

[Operator Instructions] We'll take our first question comes from Mehmet Sevim with JPMorgan.

I'll have a couple of questions, please. So firstly, on Russia. I appreciate you can't provide additional details on the exit option for now as you mentioned earlier. But is there anything you can say at this point on the potential timing of it, whichever option it may be? And secondly, on your NII guidance, which is EUR 3.6 billion, EUR 3.7 billion, excluding Russia and Belarus, given the first quarter run rate is still very strong, do you attribute the repricing of these deposits and other liabilities, which you mentioned is going slower than you expected to non-sustainable reasons? Or what's your thinking here? So do you expect an acceleration, therefore, going forward and things coming back to their previous momentum therefore? And finally, are you accruing any potential dividends out of 2023 earnings and your capital so far? And if so at what level that will be?

Thank you for your questions. So let me start with the time line. And I appreciate that you do not ask for a preference on the 2 solutions. As I mentioned before, we need many approvals for both. If it works according to our plan and where I believe the options where we have a little bit more in our hands is the spinoff and the current plan. What we're trying to achieve is that a spinoff could be finished maybe by -- at earliest at the end of Q3. So this would mean quite a number of decisions and some approvals, but mainly important than extraordinary shareholder meeting still in August so that we can finalize it and on the other hand, the end of September. And on the other hand, I mean a sale would mean that we would prefer -- we would prefer to have a signing and closing within 1 quarter. But here, one has to say this is a very strong assumption. And again, depending on what you need as approvals. To your second question, the NII guidance and the current run rate, which is as we stated around EUR 1 billion, yes, we see signs of repricing. We see it in 2 ways. The one is that within the product category, we see an ongoing repricing. But we also see a shift from the lower priced liabilities to higher ones, consistent reduction on current account and then shifts to savings accounts and term deposits, which, of course, are higher priced. And the dividend, what we have accrued, there is this 19%. So you have this as a percentage, 19% of the profit as this is the 3-year average what we have and this is EUR 128 million. And yes, as I said, this ratio is the regulatory requirement, which is based on the payout of the last 3 years where so the intended EUR 0.80 are part of these considerations. Thank you for your questions.

That's very helpful. If I may, just one very quick follow-up on the Russia situation. So it sounds like the strategic decision has been reached from your side. But it largely depends on external approvals from here, which option will ultimately be at and also at what time point? Is that fair to assume?

Not exactly, not exactly. And the reason for that is that it's also about the economic considerations what we have. And in both areas there, we might end up in a situation where the cost could be very high and then we would have to use a fallback solution. So even in the spinoff, there might be extra costs, which I do not assume, but which can pop up at the last moment. So in that case, we could not even -- or we would reconsider also the spinoff. And then of course, in the sale option, at a little more -- a couple of more approvals are needed. And as we stated before, we could not sell at any price. So here, we -- there is a range which is probably acceptable, but not at any price. Thank you.

Next question is by Gabor Kemeny with Autonomous Research.

Yes. I would like to pick up on the last point you made on the valuation. Can you just walk us through the potential, sale potential range for the fair valuation given the government regulations in place for foreign asset sales? That would be the first question. And then to follow up on the NII, could you be a little more specific on what deposit betas are you observing now? And what your guidance assumes? What your NII guidance assumes for the core businesses? And my last question would be, I think you talked about some outflows of the short-term deposit short-term volatile price-sensitive deposits on the head office. So what's the outlook for deposit volumes from here? Are you expecting more outflows in the second quarter?

Yes, I would only -- so as you usually one of the best informed persons, maybe I don't -- I cannot add anything new to the valuation mechanics. But so let me rather share my way of thinking. So well, there are always rumors in the market that the mechanics will be changed. I still work on the base of what they said earlier calls, reported. So the 50% discount from the value plus 10%. And on the sales price for the exit tax rumors are there that this could be changed. The tricky part is that the valuation will come from the buyer. So there the buyer is like always the one who select, the value-add are out of the fleet and whatever. So we usually work from a very simple approach, which is book capital maybe with a few adjustments. This is the way we are more or less thinking. When talking about EBITDA, it's not a number which I like. We rather talk internally about the pass-through on deposits. And here, one has to say that especially when we talk about euro, then, in Austria, this is and this is linked also to your third question. It's -- yes, deposits come from institutional clients and from large corporates. So these are money market deposits. So what remains is -- and which means that they follow the central bank, I should rather say, the money market. And only what is, on the accounts, so the lower amount and lower volumes, which per customer, which are on the accounts on a daily basis, they give us some room. So here, one might assume that 70% might be pass-through in the Slovakia and in other units where we have euros here, I guess, it's significantly lower, maybe around 30%. So these are our assumptions with which we work. And of course, there is always the uncertainty about the competition. This exactly leads to your third question, short-term corporate outflows, bigger volumes with overnight or very, very short maturities. So it's good to have them. It's good to know where the money is. But there is no need to have them all the time. So this is money which is quickly moving and our people have a good understanding where the sensitivity is. So this is what one can manage. And yes, in head office, it also depends on the timing of funding activities in capital markets and some others. But it's not -- it's not about expectation. It's rather than the market situation. And in terms of -- I should repeat the quality in terms of modeling, so for, be it in our internal systems, the NFSR or that, of course, not and also in the LCR, it's not really of high value. So it's rather the short-term activities. Thank you for your questions, Gabor.

Okay. Johann, just a quick follow-up on the Russia sale. Do we have clarity that the basis for the fair value ratio would be the current or latest reported equity? I'm asking this in the context of your Russian equity more than doubling through the start of the war.

Yes, my assumption is that we take the -- here again, I'm relying on the potential buyer. But my starting point is it's in ruble terms. It's the latest available equity what we have there. And yes, when talking about in euro terms, there is, some adjustments. And then Gabor, as you know, it depends on the signing if you use the Q1 or Q2 or so. So here, we have some questions which still needs to be discussed. And yes, in some others, what Hannes has mentioned, you might point to overlays and whatsoever. So this creates an area which, of course, would need to be discussed also with the buyer. So it's -- I want to say there are some additional elements which comes on top of the book equity, which will be addressed when talking to the buyer. Thank you.

[Operator Instructions] Next question is by Johannes Thormann with HSBC.

Johannes Thormann, HSBC. Two questions from my side, please. First of all, on your commercial real estate exposure, as you said, you have nothing in the U.S. If you look at your existing country of risk and the different asset classes, which feel you most comfortable and which are still the largest concern for you in this respect. And if you look at your key income, just a simple question, which are the most surprising dynamics for you? And what has been like the biggest disappointment this quarter?

Well, Johannes, if I may start with the commercial real estate, just to remind ourselves and I was addressing you in my introductory words to Page 29. Actually, it's 28 and where you can see a split of the different subsectors when talking about real estate. And let me start with the segment and then maybe talking also about the countries, so not to bypass your question. Well, if you look at the different sub-segments, I think it's fair to say, I don't know how you experience if you're in business traveler. More or less, the hotel market is back. There we see 2 things. The one is the level of occupancies, but also what we like to look at, we call it, RevPAR. This means also the revenues per room and they are way above for 2019, if we take 2019 as a reference point. The other one is, I noted that there is nowadays a lot of talk regarding office. But at the same time, I also strongly believe that the office market, if you're being compliant with ESG and building state-of-the-art office, you still would have a good demand. Well, I think part of the market was it was the warehouse. We have seen, I think, also motivated by the supply chain that there was -- it is heavy, it's very, very heavy reliance on these warehouses. And we have seen yields which have been exceptionally low when talking about warehouses. We have seen warehouses priced with yields of 4%, 5%, which is, at least for me, head scratching. So this is the point we're talking about different industries. So office ESG, I think, will still be solid. There will be a good demand. Hotels have nicely recovered. Industry, well, depends on the slowdown in the industry. Residential, well, also here, guys, listen, we have seen a very pronounced valuation over the last 2, 3 years. So why not having also a little bit of a slowdown and taking steam out of the entire heat when talking about this portfolio. So what I would flag at this point in time is maybe the warehouses, where I believe that they have seen a very strong valuation. And this is the thing where I would think, well, let's see how things do develop. Also, of course, warehousing is very much dependent on the economic momentum. We're talking about the countries. The biggest part of our real estate portfolios, I think it's easy to talk about the biggest part is here in Austria. And the next biggest one is Czech Republic and Slovakia and a little bit Romania and all the other countries much less are exposed. What I have underlined in my introductory notes that when we have conducted the underwriting, we have not conducted the underwriting based on a pure LTV perception. I know that there have been some market participants just say, well, it has an LTV of 60%, 70%, 80%, so you can go ahead. We have been very much looked on the cash flows. And on the repayment capability and some of the interest hikes, it have been so well flagged that, of course, we have considered them in the repayment schedule. What you also must not forget is that some of these companies also have interest rates in place if they either have done a fixed rate loan or if they would have been on a floating basis, some of them also do have interest hedges in place. So in Czech Republic, we have seen the strong increase. We have seen this very strong increase in rates. And I can share with you that we usually do an underwriting on 5 to 7-year fixed rate loan. So whatever happens to them, they will be further capable to repay their loan. Yes, if I have structured in a project finance structure, I may be required to adjust my rating and this is what I also outlined that we have done so. Well, then talking about Austria, which is the second, or the biggest part of the portfolio with some EUR 3.4 billion, here, we go usually with high-quality exposure in Austria, also the same underwriting, so not a pure LTV-based, but also cash flow-based. This would be the way of looking at it, Johannes. Thanks for your questions.

Shall I -- maybe I'll take your second. So if you look at the group level, then the drop is compared to the last quarter, EUR 230 million. The biggest part comes from Russia. So here, it's neither a surprise nor a disappointment. We announced that we are going to reduce our business in Russia, not only in the loan business, but also in the services. And yes, if you then look at some of the details, then, only EUR 23 million out of this EUR 230 million is then a reduction in the rest of the group. And there, it comes mainly from the payment services business, where we, as I tried to indicate where we usually have in Q4, quite a seasonality in the way the fees are paid and calculated, but also in the Christmas business and whatever you have. So -- and it's fairly spread. So Czech Republic down by EUR 6 million, and in Romania, for example, also down EUR 5 million because of lower activities, again, seasonality. I mean, Ukraine, down EUR 4 million here. I think it's not a surprise that there as well some activities are less. So overall, I think it's a very, very expected development outside of Russia and with Russia as well. Yes, I mean what you see is that the loan and guarantee business usually generates also fees here coordinates with the reduced loan volume to what extent this will slightly decrease everything else, I think, pretty fine. So the big changes came in Russia from the payment services, from the securities. Brokerage businesses there is little and of course, from the foreign exchange business. Thank you for your question.

If I may add a follow-up, just on the Russian payments. Did we see the full effect of the termination of the corresponding banks in the fee income and in other income sources? Or should we expect more to come?

Yes. We had these adjustments not overnight at the beginning of the quarter. So there had been every week reducing business. So if you take the full quarter, then you should expect also a further drop in the coming quarters.

Next question is by Hai Thanh Le Phuong with Concorde.

I just had some topics for discussion. The first one would be on your provisioning guidance. So just I have the read across correctly. So if I'm adding up the numbers, and you expect like up to 90 bps for risk costs and 60 bps is for the core. Then I would say that you don't expect material provisioning in Russia moving forward to the year. Is that correct? And also, it would be nice to have your assumptions like if there is any particular segment or segments at the core if you assume a substantial asset quality deterioration because do you expect a clear rise on the risk cost at the core for the rest of the year? And my second topic would be, it's quite specific on -- it's on Hungary, because the national bank has changed the interest paid on the reserve requirements. And I was wondering if you could share with us the net interest income impact from that step?

Well, I'll take the first question regarding the risk cost guidance and you're completely right. I don't see any further need in Russia for the rest of the year. We have built up a big bunch of PMAs already last year. We added one in the first quarter. I indicated when giving the outlook, how much I do believe. And that's the reason why we immediately covered it on the first quarter, not to stay with any risk costs ups and downs when it comes to Russia. So this goes to your first question. Any segments portfolios where you expect more in the next 3 quarters. I assume that you have this question for all the portfolio. As I also indicated in my introductory statement, while I believe that nevertheless, we have a solid portfolio that commercial real estate might be good for the one other surprise. And that's also the reason why we might be tempted to book to one other overlay still in the second quarter when it comes to commercial real estate. So this would be my guidance when it comes to risk costs. Johann, on NII?

Yes, this was a very specific question, which I can answer with one number. We currently expect EUR 17 million impact from this minimum reserve issue and this is included in the guidance what we gave. Thank you.

Next question is by Riccardo Rovere with Mediobanca.

Couple, if I may. The first one is again on risk guidance, the risk cost guide for the core operations. The number, the 60 basis points that you are alluding to for the whole '23. It seems to me that is exactly the same number before, the kind of 75 basis points, just with the difference that one quarter is gone and it charged 0 or very close to 0. So it would mean more or less 20 basis per quarter as it was before. So the question is, what if a thought that in just 3 months, something should go from 0 to say a couple of hundred millions in the core operations. Considering that in your market forecast, you have one of the slides, GDPs assumed to remain positive one way or the other. The second question I have is it's not clear to me -- I'm sorry if you have already explained that, I missed the very start of the beginning of the call. It's not clear to me, why on NII the guidance has been raised for core operations in such a way. Considering the rate scenario, okay, it's a bit different maybe in Hungary, in Romania, but it's not shockingly different than it was 3 months ago. So I just wanted to have a better understanding of sort of these questions that we have been asked.

Riccardo, if I may start, of course, you are right. At the same time, we are still early in the year. And in the 60 basis point, please allow me to make 2 remarks what must be considered. The one is within the 60 basis point, we also, of course, have Ukraine being considered and on the other one is the indicated overlays for real estate. So that's the reason why we have the 60 basis points at this point in time where we say, well, you are right, of course, why do we have another 20, 20, 20 basis points per quarter, but these have been the consideration. So that within the 60 basis points, we have to cover Raiffeisen Bank Ukrainian portfolio performance, which currently looks extremely solid and at the same time also this potential overlays for the real estate. This is the point and what is the background, of course, unfortunately, we believe that the geopolitical situation stays tense the economic outlook is slowing down. Johann was sharing the GDP outlook. So this has been the consideration why we kept the 60 basis points up at this period in time. Thanks for the question.

Yes. I mean, to your cautious question EUR 1 billion, we had and I take now Russia, not so much into consideration as here the development of the volumes and a couple of other questions are relevant. And I think you anyhow asked for the core group, so this almost EUR 1 billion what we had in Q4. Indeed, this is a drop in, if we say, 3.6%, 3.7%. On the other hand, yes, funding costs, which you need for the mid-MREL requirement and whatever are not to be underestimated, so I think this is one element which over the year has to be considered. And the second, of course, is that, as I tried to explain that the structural repricing. So the change in the structure is an element so that we see a continued development that from the accounts customers moved to post to the term deposits and saving accounts. It's -- yes, we will see if with which speed this trend is ongoing and also what we see from the competition. So this is the way of our reasoning why we -- from your point of view, we are cautious or if I would say it in my terms, we lowered the run rate.

Just a quick follow-up on the risk cost, if I may. Hannes, when you referred to the possible provisions related to real estate, you already have, Raiffeisen already has post-model adjustments. Can those be used? How should we think -- how should we be thinking about those, the ones that already existing? Should they -- can they be used for that for the purpose? And are you assuming in the 60 basis points the use of the post model adjustments and already a big charge over the past couple of years or so for COVID and war whatever?

Well, Riccardo, when referring to Page 19, you can see the detail split and the EUR 547 million are really allocated to Russia and Belarus. And there is it's very much about event-driven. I don't know which company will be next on the sanction list. And that was the reason why we have created this high level of PMAs. What we also usually do, Riccardo, is that we try to build these overlays in a way that they are self-consuming. What do I mean by this? For instance, on the cross-border exposure, we also have allocated at a certain stage of time PMAs. And as soon as they are being rebate, I can release these PMAs. So I think the 2 blocks when talking about Russia and Belarus, but also when talking about Ukraine, they are very much allocated to event to single events and then we would have the capacity to make use of these PMAs. The other one, the EUR 319 million taking care about inflation, I think energy, we currently all feel, yes, that the energy storage across Europe is on a very prudent and a high level. But I have no clue, I have no clue, how things would develop in the fourth quarter when we are again talking about fall in winter time. So that's the reason why we kept also the EUR 319 million. This is the way of thinking. But usually, we try to structure them and allocate them in a way that they are self-consuming. So means as soon as the potential portfolio where display might be needed is reduced and we can also release these PMAs. But as I said, out of the EUR 917 million, EUR 547 million plus EUR 52 million are allocated to this event-driven topics is allocated to Ukraine, but also to Russia and sanction risk. Hopefully, this helps in the interpretation.

Yes, sorry to continue this. The EUR 319 million, is this assumed to be used when you provide the guidance of roughly 60 basis points? Meaning, the 60 basis points on a gross level would actually be more than that? Because the other...

The EUR 319 million would be another would be, as we said, the 60 basis points are always communicated in a level of not using overlays. Of course, you're right. If it goes beyond the 60 basis points, I could also make use of the EUR 319 million stated here. That's the way how we have built up all this.

Next question is by Iuliana Golub with Goldman Sachs.

I appreciate that you provided details with respect to the RWA dynamics. I'm just interested in what happened to Hungary as there is a quite sizable increase quarter-on-quarter, whereas the loan book saw quite modest quarter-on-quarter growth. So I was just wondering, is this related to the inorganic effects, you mentioned on wings of public debt in the foreign currency? Or is there anything related to the actual credit risk in that country that's changed? And the second question would be around the investment portfolios you mentioned that you started recently building in the Czech Republic and Romania. Would you be able to specify, please, if this is an available for sale portfolio? And are they just government bonds or anything else? And the third question, I'm sorry to go back to CRE. But would you be able to please provide the average LTVs for your portfolios in Austria and Czech Republic?

Iuliana, you're fast in formulating your question. So Johann is not even capable to write down your question. So it's a little bit basal. I thought that he can write the question, slowed down a little bit process. So the way I understood your first question, it's about the very strong and pronounced RWA grace in Hungary. Yes, indeed, you spotted this perfectly right. But this goes back to this Article 500 what I have mentioned. As soon as you have public debt issued in occurrence other, which is different to the local currency. So that's the regulation that if you have an issuance related to public debt, which is not in the local currency, you have the risk-weighted. That's the main reason and you could find the one or other Eurobond issued in Hungary and therefore, you have the risk with them. So that's the first point. When talking about model books in Czech, in Romania, we have built up this receiver position mainly in bonds. But if this is not available, we would also be willing to use our swaps, which is maybe depending on the depth of the capital market here and there a little bit more challenging. And the other thing is team is working great. Johann, even not have laid down the questions regarding the LTV distribution. Well, can you repeat, Iuliana, the questions regarding the LTV distribution, I'm happy to answer them, but give me a flavor on the exact question on the LTV not to steal your time?

Yes, absolutely. Apologies for having been so fast. I'm just cautious of time. Yes, the last one was regarding the LTVs for your portfolios in Austria and Czech Republic, where you have the biggest CRE exposure, if I understood correctly.

So the LTVs for Austria and the other group is that around about 70%, 80% on an LTV basis, which is below 70%, which is below 70%. And if we would go above 70%, the rental or the loan structure must be a very special one. But in Austria, if you sum up, it would be 70% in the range of below 60% LTV, so that is we're talking about Austria and everything which is above you need to have very special reasons why we would or has been willing to go above. And when talking about Czech Republic, it's even easier, only 6% would have an LTV above 70%. Hopefully this answer in your assessment and please bear in mind, when you convert this number, so you see that revaluation has already done -- been done in Czech here for all the real estate. And in Austria, we always have also been very prudent when considering the value of the project. Hopefully, it answers your questions. The last question you gave me is regarding how our investment book is being build up and we have -- it's either whole to collect and not so much I believe for sale. Thank you.

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

Thank you very much for your participation. I wish you a very good weekend. Many thanks for your interest, for all your detailed questions. See you again soon, thank you and bye-bye.