Banco Bpm Societa Ord

Good afternoon. This is the Chorus Call Conference Operator. Welcome, and thank you for joining the full year 2022 of Banco Bpm Group Results. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. At this time, I would like to turn the conference over to Mr. Roberto Pernalho, Head of Investor Relations. Please go ahead, sir.

Thank you very much. Good evening, everybody, to be here with the presentation of full year results of 2022. As usual, before leaving the floor to Mr. Castagna for the presentation, let me remind that you can find the presentation on our website on Investor Relations page, and the Q&A section is reserved only for financial analysts. Thank you very much. I leave the floor to Mr. Castagna.

Thank you, Roberto. Good evening, everybody. Thank you for being with us for the 2022 full year presentation of Banco Bpm. We are very happy and proud to present this full set of very good results, which are basically our record in our six year history since the merger between the two banks. We have reached a net income over 700 million and adjusted net income of 886 million. a roti of growing from 5.5% to 7.4%, with a cost income down from 56% to 54%, and a FAD reduction in gross MPs down from 6.4 billion to 4.8 billion, reducing the gross MP ratio to 4.2%. also vis-a-vis the guidance we just gave you three months ago in November for the Q3 presentation we are able to present a set of better results starting of course from the better NII growing to put 2.3 billion versus 2.2 which of course leave the total revenues to 4.7 always $100 million better than we expected with the same operating cost and pre-provision income $160 million better than at expectation. With low loss provision slightly below what we expected, we are able to present an APS of $0.46 vis-à-vis the $0.45 that were our guidance in November last year. also very good and strong common equity tier 1 well above our 13% guidance at 13.3% including the effect of the Danish compromise as we announced that the distribution of 50% of our net profit will lead to a DPS of 23 cents which is 21% better than last year. On page 7, I would like to give you a very quick reminder of the last six years since the merger of the banks. We had basically three years of full restructuring of the bank, reducing MPEs from 24% to 9% starting 2017 up to 2019. and also with a very effective cost reduction down 400 million in the first three years. Then starting basically apart from the 2020 which was affected by the pandemic starting from 2021 up to Q3 2022 we presented a very steady improvement of our results both in terms of core revenues and the pre-provision income always bettering but with a very constant pace of results, improving also our efficiency thanks to the bank assurance deal that we performed this year and the effort we have done during this year in digital transformation and with a full ESG-focused approach. In Q4, thanks to NAI, we have a new acceleration in our trajectory. Basically, thanks to these Q4 results, we are able to present core income at a level which is already better than our expected result in 2023 and 2024. of our current business plan at 4.2 billion versus 3.9 expecting in 2023 and 4.1 expecting in 2024. The same is for pre-provision income at 2.2 versus 1.9 and 2.1 with the loan loss provision already reaching the target of 2023 with a further room of battery 10 basis points to reach the target 2024. With this set of results of Q4, we are even more comfortable in repeating our guidance of more than $0.60 for 2023, increasing the $0.49 which were originally targeted in our strategic plan. Just to remember some of the move that we have done in terms of bank assurance, you know that we have already acquired BPM Vita, consolidating line for line since Q3 in our budget. We are in the way to be recognized at the financial conglomerate, which is a precondition to obtain the Danish compromise. We have concluded an agreement with the Crédit Agricole in order to have a new joint venture for the P&C bank assurance business as soon as we will have also exercised the option to buy 65% of Vera Vita and Vera Assicurazioni expected by year end 2023. In terms of digital, we have reached very good results starting from pre-pandemic. We were at only 11% of remote and omnichannel sales. We have already reached 35% with a target of 50% of our strategic plan for 2024. And the same applies also for the transaction concluded by app, growing three times in the last three years. also in term of ESG focused approach we are very proud to announce that this year we have granted green new lending for 11 billion we have done very significant issuance of social and green bond from 2021 to Q1 23 3.3 billion which is the first issuer among Italian banks already above the full target for the strategy plan 21-24. Also in terms of people in community, we have reached a lot of the accomplishments that we had in our business plan. Let me just stress the new hiring of almost 750 people, 90% of which below 30 years. and also very important for us the increasing women in managerial position 15% year on year. As far as the numbers on page 9 let's concentrate on Q4 and the full year results. In Q4 there was an enormous increase in NAI driven by the capability to keep the deposit cost very low in front to the new pace of Euribor. Commissions were slightly below, which is quite normal in our Q4, and we believe that we can recover the previous pace starting from Q1 2023. All in all, net fee and commission and NII stands at 14.3% above last year, meanwhile only NII was 31% above last year. Total revenues are still 10% above last quarter with the pre-provision income after operating cost strictly above, slightly above the Q3 at 650 million with pre-provision income, 18% better than last quarter. After long-lost provision and fair value on tangible asset, we had a profit from continuing operation pre-tax at 333 million, 14.3% better than Q3, and a net profit from continuing operation, 15.8% better than last quarter, with a net income... due to the lower contribution to the systemic charge in Q4 amounting to 93% better than Q3 at 210 million vis-à-vis the 109 million of Q3. As far as the full year, we have 13% increase in NII, 6% increase in NII net fees and commission with a further increase of total revenue, so almost $200 million to $4.7 billion vis-à-vis $4.5 billion in 2021. Operating costs were almost in line, $2,539,000,000, and we have a pre-provision income of 8.6% better of last year. Loan loss provision much better, $200 million lower than last year, which leave our profit before tax to 1.3 billion versus 920 million in 2021, which is 42% better results. After taxes, 900 million is 35% better than last year, and the full result, net income, is 703 million, 23.5% better than 21 results. Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord a strong rate sensitivity to support the growth that we have realized, but even more, the faster growth we think we can be able to realize in the next quarters. As you know, the ECB level facility grew 300 basis points up to 2.5%. We have currently an ORIBOR which is in line with the facility. and our sensitivity went down to 220 million to 160 million mainly because of the increase of deposit beta even though as you can see on the right side of the bottom part of the slide our cost of deposit is still very much below the beta that we consider in our sensitivity we have a beta at 46% our deposit base is still at 37% Bips. All in all, the new guidance for 2023 for NII will be 2.7 billion, higher than 2.7 billion, 200 million better than the previous one. We have still continued on page 11 to support our client. We have increased 3.3% our core customer loans. The pace of the business plan is 3.1%, so we are very well in line with our expectation even though since age 22 we are very cautious in granting our loans to our client preferring of course to be concentrated on the better quality of client and in loan guaranteed or by collateral or by guarantee of the state. Also, the geographic distribution of our loans give you an idea of the quality of our asset book, 75% in concentrated in the north of Italy, 18% in the center, 5% in the south and island, and 1% in the rest of the world. New landing was very high, increasing in 17% from 22.7 billion to 26.5 billion, mainly due to the growth in corporate enterprises, small business segment, which grew 4 billion from 18.5 to 22.8. A small reduction in the households from 4.2 billion to 3.8 billion, mainly due to the lower performance in Q4 for mortgages impacted by the increase of the interest rate. The safe profile of new lending is bettering also our asset quality book increasing the lending reserved for low medium risk to 96% with only 3.4% in mid-high risk and 0.6% to high risk, mainly, of course, collateralized or guaranteed by state guarantee. Gross NP ratio down to 4.2% from 5.6%. In terms of net NP ratio, we are at 2.2%. With the EBA definition, we would be below 2% at 1.9%. Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord a significant amount of single names disposal with no impact on cost of credit because of previous provisioning. As you know we have also upfronted additional disposal for almost 500 million in the plan Horizon which we are confident to be able to do in 2023 mainly bad loans and small tickets overlays grew to 163 million from 125 of September 22 on page 15 and other clear evidence of the impressive the risking and the solidity of our capital position comparing the figure before at the time of the merger and the current one. As you can see, we start at 11.4 of Common Equity Tier 1 and now we are 13.3 as well as the Common Equity Tier 1 buffer versus minimum requirement or MDA. It was 160 points and now it's 464 with an increase of more than 300 basis points. Texas ratio down from 160% to 20% and an impressive dynamics in reduction of NP which started from 30 billion including the inflow in these six years, the risking was 33 billion leading to 4.8 billion which is the current NP situation. Let's go to some main figures of P&L. NII again strong growth supported mainly by the commercial spread. So split the increase to $724 million is due mainly to commercial activity with client and the bond portfolio income which experienced an increase in the yield. Of course, there is a reduction due to the TLTRO net results, which is negative for 66 million, mainly due to the cost of deposit facilities. All in all, we think that 724 million has also been impacted, if you want, from the old regime of TLTRO in place until 22 of November. If we eliminate the advantage of this contribution for the first 50 days, the Q4 pro forma would be 650 million. The commercial spread grew more than 100 basis points, mainly due to the liability spread, which of course increased almost in the same proportion of the increase of Euribor, from 33 to 141 basis point. Net fees and commission on page 16, good results in terms of commercial banking activity driven by fees on lending plus 15% year-on-year, payment service plus 9% year-on-year, credit cards plus 18% year on year and these results were able to more than offsetting also the higher cost of the Carto synthetic securitization which impacted the negative for 21 million. In terms of management and mediation and advisory fee we have a reduction of slightly below 5% impacted also by the Q4 as I mentioned before the product placement activity for the full year 22 was much lower than the record activity in 2021 in which we placed more than 18 billion of product this year we stood at 14.8 billion with a reduction from Q1 to Q4 from 4.5 billion to 3.1 billion as I mentioned before already in January we grew again to 1.3 billion February is started even better so we are confident that we can go again at a very good pace toward the record of 2021 operating cost on page 17 like for likes I mean excluding The cost associated to the insurance, we have almost matched the cost of 2021, notwithstanding the inflation dynamics, thanks to the staff cost. In staff cost, thanks to the early retirement scheme, we were able to reduce of almost 70 million the cost of the staff. meanwhile we grew 40 million in other administrative expenses especially as cost of energy and maintenance inflated cost and we have a one-off cost in DNA especially in Q4 which is not replicable in future quarters and should lead again towards 70 million per quarter the pace of the DNA content If we add to the banking business cost the insurance cost, we grow from 2 billion 524 million of 15 million to 2 billion 539 million. Coming back to cost of risk, the core cost of risk is very similar to last year. It's 52 basis points versus 55 last year, but in absolute terms there is a reduction of 23%, mainly due to the contribution of the disposal that we have done during these last two years. Let's say that out of this cost of risk, only half of this is related to cost of inflows of new MPE. Meanwhile, the rest is the maintenance of the portfolio and the cost of the reduction in the quantity of MPE, in the volume of MPE. The default rate, as you know, for 2022 was very comfortable at 0.94, basically the same of 2021. Danger rate almost the same at 10%, with a very remarkable workout rate, which was almost 30%. But if you exclude some single name transaction operating in December, it's 22.7%. still a very, very good pace of work out considering the reduction in volume that we have EMP. Coverage ratio increased in terms of bed loans in one year of 620 basis points. There is instead a reduction due to the disposal of single names in UTP from 44% to 43%. But this comes together with the reduction of the vintage of OTP of 25% from 4.4 year to 3.3 year. All in all, total MPEs registered an increase of 170 basis points year on year. some indication about some structure and quality of our portfolio after these intensive activity that we had in the quality of our loans we have that now the total of our household and non-financial companies which is 91 billion for 67.7% is either collateralized or state-guaranteed. Precisely, 19.4% is state-guaranteed. If we exclude the households, so only relation with non-financial companies, this rate increases to 28%. 28% of our non-financial companies' loans are guaranteed by the state. also if we even better if we go to let's say that potentially more risky loans to small SMEs in this case we grew from 10% of state guaranteed to 43% with a total collateralization at 72.6% we have also concluded our early engagement campaigns on the company affected by the increase of energy and raw material it was a very good output because out of around 10 billion related to 7400 clients 90% of these are in the better classes of our portfolio not experienced any problem from the increase of these costs. We have classified prudentially 1.8 billion in stage 2, but there were 2.5 billion in September, so we are already experiencing some exit from stage 2 to stage 1, and we have classified only 150 million at NPE. which is a default rate in this category of 1.5% which is of course above the total default rate but is completely under control. Let me give the floor to Edoardo Ginevra for some consideration on funding, bonds for Stafoglio and capital.

Thanks a lot Giuseppe and good evening everyone. so on funding and liquidity page 20 on the top left shows the intense activity that we had as issuer and especially in the green bond category where we have been the top issuer in Italy during 2022 the total of our issuances has reached 2.75 billion of which more than to be 2.05 billion with green features this has also continued during the first month of this year with a new assurance of senior preferred, again with green features for 750 million. Rating agencies have provided a positive recognition of our progress during 2022 with DBRS upgrading all main ratings by one notch in October. Fitch giving us the first rating in the first part of this year and Moody's also in May 2022 upgrading all the main ratings throughout the various categories. So in total our funding position is characterized by almost $104 billion of current account and deposits of a position with ECB which is TELTRO of $26.7 billion Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Liquidity position is made up of almost $38 billion of cash and encumbered liquid assets, of which $21 billion is eligible. Liquidity and funding ratios are well above the comfort zone, with LCR above 190% in progress versus September 2022, and NSFR above the minimum requirement of 100%. Page 21, position in terms of debt securities portfolio. This has increased in December at $35.9 billion, but this has been concentrated in the amortized cost component, which rose from $21 to $25.5 billion. Composition of this increase is focus especially in core Europe, with Italy covering a smaller part. So the Amortized Cost Component, which is fully hedged, fully covered, protected from any capital impact, is now at 73% of the total. On the right part of this slide, you also see that the share of Italian GOV remains below 40% 36.7% while the rest is 63.3% is non-Italian GOVIs bearing in mind that the beginning of our journey in end of 2016 more than 99% of the portfolio was made of Italian GOVIs page 22 some color about the capital and P&L impact of the bond portfolio so stability overall the level of the markets at the end of December was very similar to the end of September so this explains the fact that reserves stayed more or less at the same level 626 negative but the progress in progress in January the net level for example at the end of January was 550 net financial result was slightly negative for 9 million this because in the stability with the stable level of December we didn't have any longer the impact that we had in the previous quarters of hedging contracts that created positive income as opposed to the negative trend of reserves and also with an influence of such items as NEXI, which, as you know, is kept at fair value and contributes to net financial results. In the contribution of the various geographical areas to the level of reserves is shown in the pie chart on the left in the bottom, with Italy contributing for only 15%, 52% made of Coriugobis, U.S. 2,112, meaning that most of the level of the reserves, 85% basically, is attributable to pure rate effect and not to credit effect. Capital sensitivity has been significantly reduced in the end of the year, declining from 2.6 to 1.2 million per basis point with negligible contribution of Italian Govis as well also shown here. Capital position now page 23 so we had given a guidance by in the end of in the previous quarter to end the year at 13% after Danish compromise, performance for Danish compromise, and this has been more than respected as shown by the capital work in the top part of the page. We closed the quarter at 13.3%, actually, starting from 12.4%. These are data adjusted for Danish compromise. Basically, first, the performance contributed for P&L performance contributed for 36 basis points. Dividends, negative contribution for 20 BPs. Balance sheet management, mostly synthetic liquidization, positive contribution for 22. Other, a mixture of elements, 7 BPs. So the total before Danish, 12.5. After Danish, compromise is 13%. The impact of the Danish compromise, you may remember, it was conservatively estimated in 34 bps three months ago. Now, after the conclusion of the PPA process on Banco BPM Vita is quantified in 51 bps. On top of these elements, there are additional 33 BPs from the removal of the calendar provisioning deduction, which went from the market in December after the SHPEP, the conclusion of the SHPEP exercise from ECB in 2022. The total now is 13.3 or 12.8 stated before the compromise. Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord well above minimum requirements respectively at 15.6 and 18.6 the buffer both with respect to the minimum capital requirement CT1 requirement and with respect to the total capital requirement is 464 BPs in this case again adjusted for the Danish compromise with all the buckets of tier 2 and additional tier 1 filled Now I give the floor again to Mr Castagna for the conclusions.

Thank you, Eduardo. So very briefly, the page 24 is related to the recap of the very good results of this year. Net income at regular level, both adjusted and stated. A very good trajectory in NII, which will lead to an increase in in our forecast reflecting also an increase in pre-provision income and in net results. Cost income down as well as cost of risk with a core cost of risk at 52 basis point. We continue with the risking, reducing at the level we already anticipated the stock of MP and we are very comfortable around 4% and 2% in the net MPI ratio. Also capital was better than expected as Berardo mentioned at 13.3%. These allow us to reach an APS of 46 cents which is slightly better of the November guidance and 23 cents of DPS. Let's go on page 25 to remark the guidance and the outlook for 2023 We think that with some potential further increase due to the interest rate, we can have some better performance in net interest income. Meanwhile, we think that net commission will be broadly in line with 2022. We have also adopted current assumption to NFR results because of the lack of of the contribution of the disposal of govis that we had with the positive reserves in 2022 meanwhile now the situation is the opposite we are recovering of course we are having better results impacting the common equity tier 1 from the govis but we do not expect a contribution a consistent contribution in profit and loss as far as the contribution from bank assurance Of course, 2023 will be important, but due to the different extraordinary transactions which will lead us to buy the 100% of Vera and then start the new joint venture with Crédit Agricole, we feel that the most important part of the contribution will come, as we expected in our strategy plan in 2024. Operating costs, we will do our best considering the inflation and the new labor contract which will be in place in 2023 to contain the inflation at least at half the level of the inflation expected. We think that we can be able to contain the cost increase of below 3%. We had also some prudent approach vis-à-vis to the cost of risk due to the potential increase in the default rate due to the microeconomic assumption. Again, we see some upside from a better macro environment which could be possible if the forecast for the GDP increase and the default rate will be better than we expected a few weeks ago as it looks so we feel confident in giving again our guidance of 60 cents for 2023 but we also feel that these elements can allow us to give you some long-term sustainable P&L piece of growth on page 26 on the left we see the roadmap we have done this year and last year. The forecast for 2023 increasing the APS from 49 to 60 cents. We also think that due the key drivers that now looks like able to support a better macro scenario with a strong NII, a cost of risk normalization and as far as we are concerned that full bank assurance deployment we could be able to increase also the strategic plan guidance for 2024 from 69 cents to 75 cents and this pace of increase could be extended also to 2025. The management team is very confident as we were when we announced the the guidance for 22 and 23 and now of course we will we have also the renewal of the board in April in the second part of the year is possible that we will review officially the business plan we have out until 24 possibly extending to 2025 but again the long-term outlook for now for the time being allow us to give some better guidance already in advance. I have done with the presentation. If there is some question, I leave the floor to you.

Excuse me, this is the chorus call conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. To remove your question from the question queue, please press star and two. Please pick up the receiver when asking questions. The first question comes from Antonio Reale of Bank of America.

Hi, good afternoon, everyone. It's Antonio from Bank of America. I have three questions, please. One on NII, the second one on your EPS guidance for the full year, and lastly on capital returns. The first one on deposit betas, please. You're market leader in parts of northern Italy. and you've decided to sort of take a conservative stance with respect to deposit beta using a 46% level. Can you tell us what you're seeing from competition and what you're seeing from your client base when it comes to deposit pricing? Where deposit betas are today in your portfolio and give us a sense of the upside to your NII estimates. I see slide 15, you provide the liability beta, which I don't think is a good proxy for deposit beta. So if you can share your evidence so far, that would be very useful. And then just checking, doing back of the envelope numbers using your slide 10, on a Euribor of 3% and deposit beta that is close to 40%, you'd be close to an NII number of about 2.9 billion. And I'm just wanting to check if it's something that resonates with your figures. That's my first question. The second one on your EPS guidance for 2023 and 2024. You got it to above $0.60 in 2023 and you flagged that you have an ambition to be at $0.75 in 2024. So if I take your NII guidance for this year with your comments on us equality, can you just help us with that bridge in 2023? Because again, based on what you said, Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord UMP ratio is below 4.5 which is a remarkable achievement I wonder what prevents you from increasing shareholders remuneration here you've not shied away from being more ambitious on this point in the recent past so I wonder what we need to see what you need to see to increase dividend payout or introduce her by X thank you thank you mr. real

starting from an AI I hope to have understood your question. We say that we have reduced the static NAI sensitivity from 120 to 160 because of the deposit beta assumption which of course meanwhile the interest, the URIBOR go up of course are a bit more aggressive than before. So now we think that the beta, the new beta could be 46% vis-a-vis 40% that was in the previous forecast. The current level of cost of deposit is very much below because we are around 35-37 basis point. As far as the competition, of course there is some few requests for increased deposit but remuneration on deposit but please keep in mind that we have almost three quarters 75 billion to 80 billion which are very much spread out in our retail customer base with no major volume at stake of course we are following very closely the corporate and institutional but up to now looks like all the banks are keeping the same attitude to leverage on a deposit cost which is up to now to a very low level and we expect to remain at this level for the next months of course we will if the interest rate will go even higher there would be some impact but in any case lower than the advantage of Euribor in Christ. In terms of guidance, we already gave some update in September on 2023 because as you know we have out a strategic plan targeting 2023 and 2024 of course now we had a bit more confident because over an AI and also the global shenanigans you will remember that few months ago there was a much gloomy attitude towards the macroeconomics in 2023 now we are being in the second month of the year we still don't see major inflow in any P We still see a good attitude in our client to invest, to borrow money. So we feel that at least for the first part of the year, this shouldn't change. And we are a bit more confident that, of course, having a prudent approach, of course, in terms of cost of risk. So this, on the other side, could be interpreted as a buffer for potentially increased results. This could be a good, of course, advantage. a solid part of our Foregas for APS. This time we are also, I wouldn't say updating the plan because this will be done formally when we will review the plan, but given the situation as of today, we feel that we can increase the expectation for the same pace of growth also for 2024 and going ahead. but again, it's still not a review of the business plan that we will most probably do by the end of the year. Capital return, again, this is a step-by-step approach. In the business plan, we had 40% of return for shareholders. Now we increased to 50%. maybe 2023 could be a good year to change our policy. Let's check and see if we can reach these results and we will take a decision during the year.

Thank you.

The next question is from Giovanni Rozzoli of Deutsche Bank.

Good afternoon to everybody. A couple of questions clarifications on the on the capital walk the removal of calendar provision deduction should come automatically so shall we take them as a grant that you have already applied for them or shall we still wait for some you know regulatory steps and another question again on the capital and on the regulatory it means that most of the banks adopting IRB models are recording in these days. What do you expect in 2023? We remember that you still have some adjustments in the last few years, so I was wondering whether there are any planned projections on something for changing the input parameters of the IRB flows as a result of some regulatory pressure. And then another question, and the last one, on the 2020-2023 guidance, I will try to rephrase what the colleague is saying. You basically, and I put it more simple, you're basically guiding a net income from more than 2.5 billion to more than 2.7 billion, which gives us something like 150 million euros of higher, you know, pre-tax profits given up to date. So the EPS guidance remains above 0.6 cents as an headline number, but in my view should become more than 0.7 of EPS, so let's be equal. Is my understanding correct or is there something that we have to add and so not everything is equal?

Thank you.

hello good evening Mr. Arsoli it's not automatic as you know we were the only bank to basically I feel the only bank to deduct the calendar provisioning from the common equity tier 1 meanwhile other banks choose to have a slight increase in the P2R we are in the Q2 we are doing in Q4 we are doing a Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord no autorisation is needed for these kind of things but we think we will stay the same way the first time we didn't know what the other bank would have done and now we are at the same level of the others I didn't get exactly what you mean for a much higher tax rate of course there is an increase in Euribor we are considering in the guidance only 50% of increase in Euribor which already applied basically because it's 250 basis points of course as I mentioned before if there would be some more increase we have to consider this increase but it's only a guidance then you know the inflection is going some way the GDP will go some other way so for the time being we think that we have a solid based to say that we can reach the 60 bps but of course as I mentioned before we have from one side some room in NII and in cost of risk on the other side we have to be very good at replicating commission at an higher level and to keep the cost at the same pace of 2022

Thank you.

The next question is from Christian Carese of Intermonte.

Yes, good evening. Thank you for taking my questions. The first one on net interest income, I was wondering if you can elaborate a little bit on what kind of loans growth you have in your projection. and if we have to take the net interest in the fourth quarter, net of TLCR effect, so around 650 million euro as a starting point for 2023. And the deposit beta, maybe I missed the data, if you can tell us what is today the deposit beta. The second question is on Cost of risk, I saw that the color generation OTP went down this year. So if you can give us an idea of the cost of risk, because I didn't get if you are planning a cost of risk flattish compared to last year, maybe the core cost of risk around 50 business point, or if you can give us an idea, a figure on that. and if you want to keep some buffer to maybe to rebuild some coverage on OTPs. The third question is on fees. We read on this paper there is a proposal on a potential ban on inducement. We have done some homework to see what could be the impact and if you can change the model maybe to become more advisory fee to offset any potential impact from that. And finally, some rumors on internal models update by ECB. We saw some benefits and reliefs this quarter. You have done some securitization to boost capital. What are the regulatory ideas that you have in mind for 2023? Thank you. Lots of questions.

Good evening, Mr. Carrese. Yes, the first answer is yes, you have to, for having a proper quarter, you have to reduce by 80 million the contribution of Q4, of course, at the level of Euribor that was during the Q4, which was consistently below the current Euribor. the deposit beta it does not change basically every day as you can imagine so we just in the possibility to have further increase when we had when we were doing the presentation we had 50 basis points of increase then there is a forecast of other 50 basis points so we thought it would have been prudent to increase the deposit beta to 46 percent cost-to-risk as I mentioned before where really be on loans brought to what you expected I yes yeah you're right sorry long road no we do not expect a massive long road even though you know we are very well based in order to increase our loan book basically even though as in 2022 we have not pushed the especially in the second part of the year to grow we have been able to grow more than 3% which is basically in line with the business plan we will be much more attentive to the quality of our assets so again for very good clients we will continue for sure to have all the opportunity given by the guaranteed loan but we are not pushing either in terms of being aggressive or even more in terms of asset spread. We'll be very attentive first to the quality of the portfolio, secondly to the contribution of the portfolio. So I would say that it's impossible for us not to grow but we wouldn't push to grow at an higher pace as of today. cost of risk we have assumed in the macro environment a deteriorating of the potential inflow of MPE we think as of today that is a prudent approach but nevertheless we think it is prudent to consider that the default rate could be higher and this again will be a potential upside if the situation continues the way it is right now. So 50 is a normal cost of risk, but I wouldn't say that in our consideration we have considered 50 basis points.

I don't have an answer for the impact of the fees if they change. Maybe on the asset quality, do you want to increase the coverage ratio on the unlikely to pay or do you think that is a adequate level, the current one?

UTP, we wanted to be more or less at 40%. We grew at 44% beginning of the end of last year because we had the Argo transaction to perform in Q1 2022. So it was something that immediately went down to 40% again and we are now considering these coverage to be good also because we don't have that much UTP to dispose we have just to work out again we have some potential disposal to do that we imagine more on the bed loan side and on the small ticket so I wouldn't expect a major increase in UTP can I go ahead? yeah thank you for the fees the new potential new rules on the fee frankly speaking we don't have any simulate any sensitivity because is still under discussion something that we don't know if really will be applied we have to consider of course in that case how it works in the different business of life insurance or asset under management. We have I think nowadays all the means to be able to switch to better situation whatever regulation could happen. But frankly speaking we don't have yet any forecast on that and sensitivity we have done on the future year is of course with the current rules. What else? Model update by ECB. We have done, of course, you know, some securitization this year. We will do our other securitization also next year. Also because, as you know, the effect of securitization lasts for a couple of years. So as soon as you start in two years, you have also some basis point coming back. so for sure in 2023 we will continue to do securitization also because as you were mentioning there is this flavor or possible headwind on the model we are on the way we are confident that we have been approved our model well very recently after the merger But, of course, we are well aware that ECB is again doing another step of level playing field. We will see what happens. I think we have enough room to be safe on this aspect.

Thank you very much. Congratulations on the result.

Thank you.

The next question is from Noemi Peruc of Mediobanca.

Good evening and thank you for taking my questions. My first question is on NII and again on deposit beta and I just wanted to check whether the 46 deposit beta was also applied to your 23 guidance or just the sensitivity and on the deposit and decrease in deposit beta. Did you change it based on historical data or your future strategy on deposit pricing? and then I have a question on fees if you could give us an estimation for the potential impact of the removal of the deposit fees linked to negative rates for 2023 and also I wanted to ask on insurance was there a one-off in Q4 or can we consider the Q4 as a run rate for 2023 of course before the buyback

of Catholic. Thank you.

Yes. Good evening, Noemi.

This is Eduardo Ginevra. So on deposit beta, we applied a prudent approach for 2023, so basically using a model where beta is consistent with the figure we disclosed in this presentation. which is quite more conservative, much more conservative than the recent historical experience. So nothing comparable to what we have observed in our cost of the deposit base throughout the most recent quarters. For insurance, what happened was that we needed to restate the insurance contribution because we were forced to apply the IFRS 9 rules for the calculation following the fact that we haven't been granted the financial conglomerate yet. The financial conglomerate is a sort of rationale for getting an exception that allows you not to apply the IFRS 9. Applying the IFRS 9 led us to restate the accounts. but in general I think that what we achieved throughout the two quarters so the total of the second half of this year is a good guidance to understand what can happen in the near future and Noemi I take again the floor for the fee the estimates of the maneuver we have done to

give back to our client the impact of negative rates. It's around 50 million. On top of that, we have other fees for the new securitization we have done, which will be another 20 million every commission. So when I say that in our guidance, fee will stay flat, that means that we have to recover at least this 70 million.

Thank you. The next question is from Manuela Meroni of Intesa San Paolo.

Yes, hello. Thank you for taking my question. The first one is again on your guidance on 2023. You confirm your over 60 cent guidance while the NII is increasing by 200 million euros in terms of guidance. I just want to understand if there are some elements of the P&L that you expect to be weaker than originally planned or if we have to read these over 60 cent guidance as a well above 60 cent guidance. And the second question is on IFS 17. I'm wondering if you expect any impact on your insurance business from that.

Thank you.

Yes, of course, the guidance of NII is higher than the previous one. We didn't have at that time all the different contributions, for instance, for NFR. which is very much reduced because of the negative reserves so it's very difficult to consider a contribution of 200 million for 2023 and that's why we have a prudent approach on that as well as I mentioned before a very prudent approach on cost of risk so basically we have possibly some room in an AI we will see if this will bring to something better than our guidance but again the guidance was one months ago two months ago I think that is and is already an increase of 11 cents these are the the business plan we think is very comfortable guidance for our investor with some room if the macro situation remains as it is, as well as it will be in 2024 and in 2025.

Sorry, for the second question, I didn't get it.

Maybe Edoardo.

On the second question, for insurance, So what happened this year reflects the fact that we have acquired 100% of Banco BPM Vita in July. So until that date, for the first half, we only included 19% of net profit in our accounts. Next year, 100% of Banco BPM Vita will be included, and this is fully factored into our guidance for 2023. Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord of the Veras for the remaining part of the year, for example, let's say second half, this will be a positive support, additional support for our guidance. Did I answer to the question? Thank you.

The next question is from Andrea Lisi of Equita.

Yeah, hi, thank you for taking my question. The first one is on the indication you give for 2024. If the assumptions on market rates are the same than in 2023, so in REBOR at 2.5, and the second one is just to understand, I saw that the stage 2 loans decreased from 13 billion to 10.9,

if you can provide some color and that to why these movement and if it had a positive impact on loss provision in the quarter thank you for 2024 I would say the environment is the one that we are experiencing right now so with the potential increase of further 50 basis points and of course a macro scenario which will be let's say close to zero in 2023 with an increase in 2024 the positive impact on this quarter for NLPs on Q4 basically is almost on the average of the other quarter I didn't see a particular

Just observing that, the stage 2 loans decreased. So just to understand the reason why of that, if that generated some release of loan loss provision in the quarter.

No, no, there is no recovering of any provision. I would say in Q1 and Q2 we had 150 million per quarter, then 194 and 185, so quite consistent, I would say. Okay, thank you.

The next question is from Hugo Cruz of KBW.

Hi, thank you for the time. I have three questions. First, on trading income, it's been very volatile. Can you give guidance for the recurrent level that you can generate to trading income if we ignore the impact of NEXE stake? Second, on the bank insurance revenue, Perhaps I had some problems in my connection, but I didn't actually get your guidance for 2023. I did hear that that guidance does not include the benefit of exercising the call options later in the year. So it would be great if you could give me, you know, what's the target revenues that you have in your guidance for 2023, but also if you have, you know, the full run rate of the bank assurance business, assuming an exercise of the calls. And then my third question is on operating costs. You said you expect to keep the costs, cost growth below 2% year on year in 2023. You know, that's below inflation. You know, there's an uncertainty around what would be agreed within unions later in the year. So why are you confident that you can keep costs growing below 2%? And what levers you expect to use to get there? Is it further redundancies? Are there any investments that happen in 2022 that are not going to be there anymore in 2023? And Nicola, he'll be very helpful. Thank you.

Okay, so concerning trading income, of course, very difficult to provide an estimate. It depends a lot on the market environment. What happened during 2022 is a Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord defining the target for trading income during this year for a level that has been included in the guidance that is extremely conservative, very lower than the average you will have observed during the previous years of the history of the bank or the recent history for the bank. for bank assurance probably the best thing to say is to provide guidance on the contribution on the overall contribution to PNL in terms of net profit which is I would say because for revenues and costs it will depend on the exercise of the call for the veras. The order of magnitude of the contribution to net profit is between 30 and 40 million.

Sorry, and that 30 to 40 million, is that assuming the exercise of the call options or not?

is not presuming the exercise of the call option and also including the full result of the non-life. So the actual result will depend on the timing of the exercise of the call and on the timing of the closing of the agreement with the call.

All right, thank you.

I think your last question was on the operating cost. I say, frankly speaking, I say below 3%. and not 2% but again is a very is an effort not so negligible considering the current situation but we have before of course the renewal of the national contract we still have some buffer in the normal cost of staff and as you know we have had some increase in cost of energy which already affected 2022 and we hope that will be lower in 2023 so all in all with the strict cost control which we were very able to do during this year we think we can limit to half the inflation rate the full cost of our general cost okay thank you

The next question is from Adele Palama of UBS.

Yes, hi. Good evening. One clarification on the contribution from Bank Assurance. So 30-40 million is net and is just including Bpm Vita. and 35% of VeraVita. So do you have that figure if you exercise that option on VeraVita? And then if I remember correctly, but please let me know if I'm wrong, during the business plan you had given sort of a contribution around 125 million. That was in 2024 for the whole bank assurance changes so how we need to look at the guidance I mean if you can maybe split between revenues and costs if you will exercise the option on there then can you give us Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord

Okay, so let me try to reply.

So, very difficult to say what will be the full impact of Veravita, of the exercise of the call of Veravita, for sure will be positive, you know, expectation on the guidance we provided. I believe that the order of magnitude of such impact, assuming an exercise date early July, sorry, an exercise closing date, early July is around 15 million, something over this order of magnitude.

But this will happen in 2023 or in 2024?

No, I said if we exercise the goal and the closing happens in July, this will be for 2023 additional order of magnitude of 15 million in terms of net profit.

Okay, and in 2024, which is the rate that we should expect? if it is exercised.

In 2024, let me come back to the 125 guidance that we provided in the plan that is confirmed. These 125 guidance that we provided in the plan is split, as we said, in the previous quarter in 85, I think, for life and around 40 for non-life. So if we retain the full amount of life, 85 plus... Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord

The next question is from... No, sorry, sorry.

I think there were a couple of additional questions.

Overlays is easy because, Ms. Parama, you see the amount written on page 12, $163 million. And on Regulatory Edwin, as Mr. Castagna said... It's part of regular interaction with ECB and of course we are confident that given the Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord

Okay. And sorry, if I can do a follow up on the cost of risk. You said 50 basis point is sort of a rate guidance, like a long term guidance for cost of risk. But what are you assuming in your guidance for 2023 and 2024 of cost of risk?

We provided 48 in the plan more than one year ago, which was the long term. And this was consistent with the target of MP ratio, which was 4.8, which has already been improved in the closing date of this year. So we expect to stay below the guidance of the plan in the long run, of course, in 2024, like for like. For next year, the guidance is much more prudent because we are still willing to observe what will be the impact of the recent turbulences and energy cost increase and so on and so forth on the default rate. So we keep a prudent stance. And as we say, this could be an area of potential upside should a more mitigated and favorable environment materialize.

Okay, thanks.

The next question is from Marco Nicolai of Jefferies.

Hi, most of my questions have been answered, but maybe a quick follow-up. On the Danish compromise, I might have missed this, but when do you expect to get it? Is it by end of this year? And secondly, if I'm not wrong, there was still a dividend to be paid by the recently consolidated insurance company that could actually, if paid, have a positive impact on capital. and any update on this? So for this compromise we are targeting currently end of this year but of course this will depend on timing from ECB. We are much confident that the first step which is the financial conglomerate recognition is about to come very soon. Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord the whole assessment for the authorization. On the other hand, given that this is an area where integration has proceeded and we have integrated all risk management, internal controls, planning, and so on, we are confident that at some point it will come. So, as I said, the target, the current date we are targeting and respecting is by the end of the year. Special dividend from BPM Vita, this is partly related also with the niche compromise discussion. We decided, given the market turbulence, not to proceed to the distribution of the dividend in third quarter, and we are keeping that capital in BPM Vita, which still, in any case, is highly capitalized. I think they are at 260, if I'm not mistaken. but the dividend may provide capital increase before the Danish compromise. After the Danish compromise, it's much more limited because most of the benefit will be obtained in general by the more favorable RWA treatment as opposed to the deduction of the participation.

Okay, thank you.

gentlemen at this time there are no more questions registered okay so thank you very much to all of you for being with us and I look forward to meet with you in person in the next few weeks thank you