Banco Bpm Societa Ord

Good evening. This is the Coruscall Conference Operator. Welcome and thank you for joining the Banco BPM Group First Quarter 2023 Results Conference Call. At this time, I would like to turn the conference over to Mr. Roberto Peronaglio, IR Manager of Banco BPM. Please go ahead, sir.

Good evening, everybody, in particular for all of you that are linked from London that today is a bank holiday. Before leaving the floor to Mr. Castagna for the presentation, let me remind that you can find the slide on the website on the Investor Relations page. Then following the presentation, we will have a Q&A section reserved to financial analysts, and I ask to you to limit the two questions for analysts to leave the room to each other for the question. Now I leave the floor to Mr. Castagna.

Thank you, Roberto. Good evening, everybody. Thanks for being with us. I'm very proud, together with my management team, to present this first quarter excellent set of results which allow us to lead Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord We can foster many very good results. First of all, profitability. Net income growing 49% year-on-year to 265 million, which of course is a very good point to imagine growing profitability for the full year. But also the capital strengthening is very good news. We have 80 basis points of increase in capital growth in common equity tier 1 which adjusted for Basel is 14.15% and finally we still are developing some very important initiative which we already gave some hint in our previous press release related to the boost in capital generation and profitability coming in 23 and 24 from the bank assurance and the payment and merchant acquiring transaction which are on our target going to the guidance we think we can be in the position to increase very much both 23 and 24 we are prepared to deliver guidance for 1 billion 140 million of net income for 23 which means 75 basis points of IPS which have to be compared with 49 on the original strategy plan and 60 which were given on February this year. As much as we can increase to 90 points of IPS for 2024 also in this case compared with 69 basis points of the original strategic plan and the 75 basis point gave in February this year. This means basically that in 23 and in 24 we will double the net results of 21 and 22 respectively. On page 7 again some numbers, some figures about the increase of profitability driven of course by NII which grew 45% year on year but also together with the fees so the core income grew 23% year on year. Cost of risk is still very prudent approach shown by our bank in the past and we still assume that 51 basis point is a concrete figure to Foregas for this year leading to again acting our 265 million which again is 49% year-on-year increase at 26% on last quarter results. We already said about common equity tier 1 increasing 80 basis points. The same was for MDA buffer, which is still very much important in terms of potential remuneration to our shareholders. Finally, liquidity and funding, very good position. The total liquidity grew to $41 billion. with LCR 199% and SFR above 130%. Let's concentrate about the improvement of NII which of course is leading the growing profitability. As you can see, we took advantage of any increase of Euribor in the recent quarter in one year we grew from minus 54 which was the average EUR in Q1 2022 and now in Q1 2023 was 264 basis point in April is 317 following the ECB decision to increase the ECB depot facility rate to 3.25 The more recent Euribor is 3.28%. In this respect, we were very good in maintaining at a very low level the deposit cost. As you can see, quarter by quarter, we grew only to 46 basis points the overall cost of our deposit. which in turn increased those of 2.5 billion in April with respect to the results of March this year. This allows us to have a revised guidance also on NII which now we assume could lead to NII, total NII higher than 3 billion in 2023 replacing the 2.7 billion guidance of February. The previous guidance was based on Euribor 2.5%. This new assumption is based to the current Euribor, which is 3.3%, and observed the deposit beta, which is reduced from 46% to 33%. Let's also say that the potential further impact for alternative interest rate scenarios allow us to imagine a further growth of 300 million for 100 basis points of interest rate increase. On page 9, as we also announced in February this year, We think that the result we observe in Q1 2023 allow us to say that the previous strategy plan targets are completely surpassed. We are higher than the quarterly representation, not only of 2023, but also of 2024. Strategy plan, as you can see, both in terms of total revenues, we are now at... 1,250,000,000 vis-à-vis the plan which assumed 1,075,000,000 for 23 and 1,150,000,000 for 24. The same is for core revenues well higher than the 24 business plan as much as the pre-provision income which is now 610,000,000 compared with the 520 million of 24 in the original plan also the cost of risk is now at the same level we had a bit lower than the level we had for 2024 in our plan 137 million versus 145 million as well as net income is much higher that the forecast for 23 and 24 at 265 million which if we want to normalize the impact of the systemic charge that as you know are calculated on Q1 and Q3 if we assume that this would be annualized the normalized result for Q1 would be almost $290 million not saying that of course we know that this is the last year in which we should have the systemic charge from EU resolution funds so most probably the only impact of the systemic charge in 2024 will not be there anymore strong capital position and we say that we have as usual the two figures both for December 22 and for March 23 on a stated point of view we grew from 12.83 of common equity tier 1 to 13.57. Meanwhile, if we add the calculation about the application of Danish compromise, we grow this figure from 13.34 to 14.15. The evolution is fostered by the Q1 performance with 50 basis points which, of course, will be reduced by the dividends and 81 coupons of 28 basis points, but with further improvement both in the reserve post-tax of ultra-complex and sales on a positive dynamics of RWA as well as other positive impact mainly driven by the DTA on the HTCS portfolio. Capital ratio will increase as well, TR1 to 16.5, TCR to 19.3 and again a very comfortable capital buffer growing to 544 million adjusted with the Danish compromise with a fully efficient capital structure having filled all the buckets of 81 and TR2. Furthermore, we still have to deploy completely two actions which you have been already informed either directly by us or through a press release we gave on the payment system transaction. Let's give you some more detail. We have still in place these two projects. One is, as usual, bank assurance. We are in the process, after concluding the strategy partnership with the Crédit Agricole, to getting the application for the Danish compromise after having the recognition as financial conglomerate in March by ECB and before the closing of H1-23 we will exercise the call option on the 65% on Vera Vita and Vera Assicurazioni which would lead by year end to the acquisition of our joint venture. This is something that you already know of course. What is fairly new is the project on payment cards and merchant acquiring We have, let's first of all give you some idea of the magnitude of this business. We have 140,000 points on sales, we have 4.4 million of payment cards, which nowadays give us a total transaction volume of more than 20 billion in terms of issuing, 13 billion in terms of acquiring, 21 billion in terms of ATM. but showing an increase year by year which is double figure especially in terms of acquiring 23% or issuing almost 16%. These volume generate NPL contribution in 22 and again we are experiencing also in Q1 23 double digit increase gross revenues, let's say a revenues pool over 300 million which after paid scheme, intercharge and processing piece leave us with a pre-tax contribution of 140 million which is 14% more than the previous year. What we are trying to conclude is a transaction which will give a value potential of 2 billion of next present value to this business through a long-term exclusive distribution agreement with a partner which would be aimed to preserve completely the running fee levels without conceding further margin to our partner with a consistent cash-in of an upfront component creating additional room for shareholder remuneration with a mechanism enabling us to extract further value from future expected growth so not again like for the other product factory in which Banco Bpm is always sit together with the partner on the driving seat likewise in asset management consumer finance bank assurance we would like to have the same structure of stakeholders in participation also in the payment business and this would be a further strengthening of our profitability and opportunity to deliver more rewards to our shareholders. We are in the final step of this transaction. We expect to have a term sheet signed by the end of June this year. Let's go to some figures about our first quarter. I wouldn't go through all the numbers. You already said an NII is 45% more than last year. Very good also fees and commission are at the same level of Q1 2022 and 7% above Q4 results. Another important figure is income from insurance business. which with the new IFRS 17 accounting standard has a signing contribution of 10 million in this quarter vis-à-vis a contribution of 40 million in Q4 22 which took count of the revaluation of the Govis portfolio of our insurance company. Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord operating costs are basically in line 1.7 below Q4 22 and slightly above Q1 22, 2.5% showing of course the capability of the bank to take care of the inflation growing during 2022 and this first quarter of the year. Pre-provision income again 9% year-on-year growing. Loan loss provision 9% year-on-year minus 25% on last quarter 22. Leading to a profit from pre-tax of 474 million which is 20% year-on-year growth and 42% quarter-on-quarter, leading again to a final result of net income of $265 million compared to $210 million Q4, which again took advantage of the income from insurance calculated with the old standard model, and $178 million in Q1 2022. which is an increase of almost 50% year-on-year and 26% quarter-on-quarter. Let's have a look to the component of NAI. As I show you on Q1, year-on-year, of course, the growth is massive, 45%. If we go comparing Q4-22 to Q1-21, Q1-23, it appears to have only a 2.6% of increase. But if we eliminate the benefit of the contribution of TLTRO from Q4-22, which was 80 million, you can see on the right side that also excluding the effect of the one lower day, two lower days, sorry, effect of Q123 on Q422, the NII increase quarter on quarter is almost 18%. Driven of course by commercial activities only slightly impacted by the increase of cost of wholesale funding. As you can see on the bottom side of the slide, we were able basically to maintain a very good discipline on asset spread, which remained at 1.53%. Meanwhile, we took a very big advantage from the liability spread, growing 63 basis points quarter on quarter up to above two full points at 2.04%. Volume were supported by a very good customer base, a very qualitative franchise. We, as you know, since June 22, we are not pushing for customer loans. We are trying to, of course, keep our pace, giving priority to the quality of our loans and to the guarantee and collateral which can come together with our granting loans. And so you can see that out of the 5.2 billion of new lending, 1.3 billion were assisted by state guarantees. 96% of these new lending was concentrated in the best rating classes and 71% of the new lending was granted in the north of the country. also very important to stress that out of our 91 billion of loans granted to household and non-financial companies 68% are either collateralized or state guaranteed and this percentage only for the state guarantee grow from 19% to 28% if we consider only the loan granted to non-financial companies, so excluding households. Another important figure is on the right bottom side. If we consider only the small lending to small SMEs, which amount to $19 billion, more than 43% is under state-guaranteed support, and only 3% of SME Portafoglio is in the high-risk rating class, of which 76% secures. Net Peace and Commission, again, very good results in line with Q1-22, in which the first two months in last year were very good, not impacted by the war. So we are very happy to go again to that level of results. As you can see, Q4 2022 was much lower, 7% growth in Q1 2023, and the growth that we are experiencing vis-à-vis the Q4 is both on management and advisory fees, in which we grow 13%, and in commercial banking fees, in which we grow 2.4%, with a growth year-on-year on 5.3%. It's very important to remark that a good part of this contribution comes out of the product factor in which we are investing a lot. Likewise, insurance products and payment services. Cost dynamics well under control, plus 2% year on year, notwithstanding inflation rise. Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord which were not considered in 22 and for which we have provisioned in 23. Cost income ratio down to 51%. We took advantage for a normalized pace of depreciation and amortization which were inflated in Q4 22. The insurance business cost of course are included in these costs and amount only to 2.7 million in Q1 2023 for this year. Let's go at page 18 to the cost of risk. We wanted to show you how our reduction in cost of risk goes together with the reduction of the MPE ratio. we are now down to 4.2% which is 3.7% with the EBA definition and almost around 2% in terms of net MP ratio our 51 basis points are basically 30 basis points coming from inflows also with a very good default rate basically in line with our main competitors, 0.85%, and the remaining 20 basis points coming from the maintenance of the stock. This means that we continue to provision at least between 35% and 40% every inflow in non-performing loans. Let's say that we have already increased to 0.75 billion over the planned horizon, so 2023-2024, the additional disposal for which we have already cost of risk front-loaded. So we will split between 2023 and 2024 further reduction in MP through these disposals. Meanwhile, our overlays is stable at around 160 million. The cost of risk is declining, but we are increasing MPE coverage, notwithstanding a low default rate. As you can see, the total MPE go down to 4.7 billion, almost evenly split between OTP and bad loans, with a net MPE of 2.3 billion. The migration rates are maybe the best ever for our bank, default rate 0.88 vis-à-vis 0.94 last year, with a Q rate which is almost double the Q rate of 22, which lead to a net default rate of 0.72%. On the bottom part of the slide, you see the increase in MP coverage, which globally is growing from 50.4% of March 22 to 50.6% of December 22 to 51.4% of March 23, which is split between UTP coverage at almost 41% and bed loans 65% or 72% if you consider write-offs. Stage 2 loans maintained almost at the same level of the previous year. Let me give the floor to Edoardo Ginebra for some slides about Depth Securities Portafoglio and Liquidity Funding position.

Thanks a lot Giuseppe and good evening everyone. So on Depth Securities Portafoglio the total stands at 36.2 billion as of the end of March with 72% represented by amortized cost components for a total of 26 billion. 9.8 is the remaining part of the banking book at fair value and comprehensive income very limited the amount of bonds for trading purposes 400 million in terms of the composition of this 36 billion 5 billion is a bit more 5.4 is corporate 30.8 is government bonds Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord The following page gives an idea of the usual relationships between the capital and the P&L trends attributable to the bond portfolio. So as far as the reserves, the very comprehensive income reserves are concerned, we have seen an improvement of the net level from 626 as of the end of last year to now 538. This has been partially offset by the impact of hedging strategies which led to a negative level of the net financial result 34 million having in mind that during the quarter we went through an update of our hedging strategy so that we have we present at the end of the quarter a situation where the total sensitivity in terms of basis point value of the for variable comprehensive income portfolio is as limited as 0.25 million, of which only basically zero is the component attributable to Italian government bonds. Liquidity and funding profile is even more solid than it was the case three months ago. LCR now up as 199%. Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord 23 billion almost as cash, 33 billion of unencumbered ECB eligible securities, almost 5 billion of other marketable securities that are unencumbered. The comparison with the ECB position leads to highlight that the total encumbered eligible asset is 43.6 billion, either pledged in ECB or pledged for other activities such as ripples. The nominal exposure to Telco 3 is after the anticipated reimbursement in December is now at 26.7 billion but the net ECB funding position went down to only 4.7 billion with an FCR level that from the current amount of almost 200% may go down to a little bit above 140% after we complete the territorial reimbursement plan thanks to a limited recourse to refinancing operations for ECB. This very solid liquid position is also the result of the deposit base of the group, more than $101 billion as of end of March, which 80% represented by retail and SME, so fragmented deposit base. The guaranteed level is $58 billion and the average size of such deposits is as limited as $22,000. Worth noticing that the overall amount of our direct customer funding went through constant increases throughout the quarter from 199 to 202 and managerial data as of April goes up as 205 with an increase of indirect funding from 91 to 96.6 flows of almost 2.5 billion in the first quarter with instead the level of core direct current account and deposit more or less stable between the end of December and the end of April using management data. For the conclusion, let me hand over again to Giuseppe Castagna.

Thank you, Edoardo. So just one page facing the guidance for 2023-2024. They say that the current profitability, the deposit base and cost The capital position, the cost of risk allow us to really be not even more prudent about our ambition. The management team feels very comfortable in assuming this new guidance, which basically will double year by year, 23 and 24, the performance of 21 and 22. Basically, we think we can increase the ROTE of 21, which was 5.5% to 11%, as well as the 7.4% of 22 up to 13% in 24. If we will assume the same common equity tier 1 of 22, which was around 13%, the ROTE for 24 will be around 14%. and these will go together with of course doubling the remuneration for our shareholders which was a bit more than 600 million in the previous two years 21 and 22 and we will grow doubling up to 1.25 billion in 23 and 24 with an increase of more than 600 million and representing a cumulative market cap of 22%. This new guidance will lead to a PE of only 4.8 times 23 and only 4 times the 24 results with an yield which will be well above 10% in 2023 and the region of 13% all in 24. Let's say that these new guidance leave the room together with the capital management action that we presented to generate room for even additional shareholder remuneration for which of course we will be even more precise during the course of the year both with the quarter presentation but also with the presentation of the new business plan, the new strategy plan 2325. Thank you and of course Edoardo and myself will be available for a Q&A session.

This is the Coruscall conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touchtone telephone. To remove yourself from the question queue, please press star and two. We kindly ask you to use the handset when asking questions. Anyone who has a question may press star and one at this time. The first question is from Antonio Reale from Bank of America. Please go ahead.

Hi, good afternoon. It's Antonio from Bank of America. I have two questions, please. One on the use of capital strategy and secondly on deposit beat as net interest incomplete. The first one on capital, you have good visibility on the outlook for earnings. Your CT1 ratio is about 14% if we include the Danish compromise. You come from a long journey of cleaning up the bank and implementing cost initiatives. I think you're increasingly shifting the business towards capital-like activities like payments and insurance. And the organic capital generation that you referred to in the upgraded guidance means you have a lot of flexibility when it comes to using some of this capital going forward. So I wonder how you're thinking about this capital use between, you know, both on M&A, investing in product factories, increasing shareholder remuneration, more restructuring. Just I'd like to hear your thoughts and where your priority stands. And also, could you remind us any visibility you may have on regulatory headwinds to come? My second question is on net interest income. If I understand correctly, you're assuming a deposit beta in your NII guidance for 33% for this year. Now you have a relatively large share of your funding coming from retail, which has proven to be quite resilient in terms of deposit betas. So can you talk about what your deposit beta is today for the group and how you get to 33% that you assume? And particularly the trajectory between now and your end is particularly important. So what have you assumed as your end of year deposit beta? So Q4, because if 33% is an average, I'm not sure it is, but if it is, it implies quite a big increase.

and I'd like to understand that better as it's key to understand what the sustainable part of NII in 2024 thank you thank you Antonio let's say that capital of course we have a forecast which is very much encouraging let's say that we still have to foster the capital management action, the potential growth coming from Danish Compromise for Vera Vita. At the same time, we said also in the last session that we expect some headwinds in terms of the new model. So, all in all, we feel very comfortable. And again, end of this process in 2024, we think we will end up higher than 14%. This of course is not our target in terms of leaving at this level the capital, but give us together with a very comfortable MDA the possibility to really consider eventually an increase in remuneration of our shareholders. If you remember we always say that at the level of remuneration realized in 21 and 22 was not that useful to talk about increasing the remuneration for our shareholders. Nowadays we feel that is the moment to go further and to again with the business plan we will present to give also a different possibility in the capital remuneration. Of course everything will be possible We know that there is a difference between saying that we will increase the payout or maybe consider a buyback. Let's give us the time we need in order to fix all these numbers. But for sure, what we've shown with profitability and capital growth is a very good buffer of capital to be distributed. On the other side, we don't think there is any M&A which again can give us the same remuneration we think that we have these situation again in bank assurance and payment system but both will bring us capital so are not negative for capital and on top we think also will grow our profitability so all in all very confident to increase the remuneration policy Beta, we are a bit tired of exercising ourselves on imagine forecast on the beta. We were not that good in the previous two occasions. A very prudent approach, so we prefer to say that observed beta is 33%. We think that is something feasible for us, but we don't know what the market reaction will be in the next months, depending also to the Euribor movement. Bpm Societa Ord Bpm Societa Ord

The next question is from Giovanni Razzoli from Deutsche Bank. Please go ahead.

Good afternoon to everybody. Two questions. One clarification about the possible, you know, improvement in the shareholder remuneration policy. You've been pretty clear in saying that part of the proceeds from the payment system will be returned back to shareholders. As the term sheet is expected to be signed by June this year, can we assume that the part of this capital will be returned to shareholder already early next year with the with the 2023 dividend payment it is you know a reasonable time frame on top of what you have already said about the you know 1.25 billion of cumulative dividends for 23 and 24 based on the 50 payout and the revised targets the second question is on your you know funding structure in the medium term I would like to know your thoughts about what is in the medium term the funding mix of a bank like Banco Bpm so do you think that sooner or later and if so in what time frame the bank should start again if it should start again to issue time deposits repo or term deposits so that the cost of funding increases because of a change in the mix do you think do you see this scenario in the medium term. Thank you.

Thank you, Giovanni. As I mentioned before, we are confident to have a term sheet signed by end of June. Of course, not the final contract, which most probably will take more time. Let's hope end of 2023 or maybe beginning in 24. In any case, of course, whatever we come from this transaction in terms of capital boost, will be of course in 2024 in terms of potential higher remuneration. For the funding structure I would like Eduardo to take the call.

Yes, so of course the key point to be monitored is 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 Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord of depositors, and as Giuseppe had just clarified in the previous questions, an observed beta, which was much below the level estimated by statistical models.

Thank you.

The next question is from Noemi Peruc from Mediobanca. Please go ahead.

Good evening, and thank you for taking my question. So the first one is on guidance. So the increase in net profit guidance for 2023 is very clear, the contribution from an AI. But I was wondering whether you also reviewed the guidance on other core lines, such as fees, cost, and cost of risk. Or shall we still assume flat fees cost up 3% and cost of risk about 50 bps? And then I have another question on deposits. So could you give us some color on the competitive landscape on deposits that you're seeing and that you are expecting for the future? And also the dynamics you see in the market when it comes to deposit outflows to GOVIs, asset management, bank bonds, or repayment of loans. Thank you very much.

Okay, for the first one I will try to answer. Basically, the only main line I think would be the fees and commission. We think that 1.9 is a potential forecast which we think we can reach. Let's have in mind that starting from Q2 we'll have some less remuneration on two important aspects. One is the commission applied until March due to the negative interest rate, which is starting from April. We will reorganize again back to our client and a slight increase in the securitization due to the reduction of FWA. so these are the two negative of course all the others both commercial and also I would say in bank assurance and management are growing so more or less 1.9 could be a figure that you can refer to deposit I'm not sure if I got to your question but Let's say that we are growing in deposit base, both in direct and indirect deposit. We are in a very comfortable position to make our client happy because if they want to stay in current account, we are happy to accommodate them with the current deposit cost. But we are also very happy to switch into asset under management as well as we had the big increase also in asset under custody with the BTP issue and for instance the ENI issue that we placed with our client on top there are certificates and so on so basically the aim is to make what our client wants and this is bringing to a total increase of our deposit base adding direct and indirect deposits

Thank you. The next question is from Christian Carrase from Intermonte. Please go ahead.

Thank you for the presentation. Congratulations not only on net interest income but also fees. I think that you made one of the best results among peers. Just a few clarifications. One on capita, if you can elaborate on the 35 basis points coming from risk-weighted assets optimization and others. And if you can guide us on the bridge coming from the agreement with Crite Agricole and also the other moving parts, Vera Assicurazione, I suppose you have now the number of the own funds of Vera, so you should know the negative impact on capital coming from the exercise of the call, if you can elaborate on that. And the second on costs, 250 additional layoffs in 2023. Can you give a guidance for the full year? Thank you.

Okay, thanks for your questions, Mr. Carrese. It's Eduardo Ginevra. So on the capital work, I think it's helpful to add that most of what you see in the improvement on RWA Dynamics is the evolution of the credit component, the credit risk component, where we're able to optimize capital absorption from some of our items. Also, there has been a small reduction in market risk, in RWA from market risk. For there, the good news is that the level of the home funds is low, at a low level, and it's been crystallized as of the end of 2022. We need to take into account for the overall impact of the exercise of the call a number of items which are not yet final. First of all, some adjustments due to the recent adoption of IFRS 17. and secondly, what will be the impact of the net profit that will be recognized as a component of the price for the stakes in Veravita and Verassicurazioni. Putting together all these elements, we believe that the impact will be quite manageable and, at the end of the day, positive, taking into account the application of the Danish compromise.

speaking on your second question cost both the combined effect of the last part of the previous early retirement scheme and the new one will lead to a further reduction 20 to 25 million of cost of labor for 23 and 15 to 20 further in 24 these of course without considering the increase of costs related to the national contract which of course we are not prepared to comment on due to the negotiation in place. So we are making room in order of course not to have a big effect from the component of the national contract. And I would say that the figure that you have with the saving I mentioned to you and the application of the contract should give you a final figure which is not that different from 2.6 billion. Thank you.

The next question is from Marco Nicolai from Jefferies. Please go ahead.

Hi, everyone. Thanks for the presentation. The market is pointing to a rate cut in the future, maybe even at the end of 2023. So can you give us some color on where you see NII in 2024 compared to 2023? and maybe also a little bit of color on the delta in terms of EPS in your guidance for 2024 compared to 2023. And also your numbers point to a return on tangible equity extremely attractive for 2024. So do you think this type of profitability is something sustainable also for future years?

and if you see you know ECB cutting rates in the future how can you offset such a negative NII impact thank you NII take account also of some aspects we are considering about the contabilization of certificates of course we think they would be part of a higher cost of deposit for this component, so it's possible that we will switch this negative effect from RNF to NII. All in all, we feel that 24 could be a bit better than 23, but slightly better. Yes, not taking in consideration for 423, of course, what I said before in terms of certificates. If, of course, we would contabilize the effect of the certificates in NII, this will lead again to the number that we gave as a guidance. In terms of EPS, I would say the main aspect will be from bank assurance, as you know, cost of risk, commission and of course the higher contribution from the product factory. So both asset management activity included the bank assurance 100% and also the payment system. let's also have in mind that as I mentioned before the systemic charge in 2024 will not be there at least for the part related to the EU fund ROT very attractive as I mentioned before you have to wait of course in order to get 25 the business plan. We are not really now in the position to give you how much would be last time we gave a guidance in which we say that a further increase of more or less 10 basis points of APs would have been possible but I guess that you have to wait for the presentation of the business plan to have the 25. I am happy that we are asking for something in three years' time. I think we are very consistent in giving 23 and 24 precise guidance.

Thank you.

The next question is from Andrea Lisi from Equita. Please go ahead.

Hi, thank you for taking my question. The first one is on capital. In particular, if given the current environment, the fact that you have further improved your asset quality position and so on, you have changed in some way the Z1 threshold at which you are happy to work with. if you can disclose it in case and if we have to expect some regulatory headwinds going on during the year and the second one is just a clarification of systemic charges that in the first quarter this year were lower than previous year and if you can anticipate which amount of systemic charges do you expect during this year and just as a comment if the talks you have also with regulators and so on Is there the chance that at one point the level of systemic charges could be increased again in the next years? I don't know, maybe for improving the level of insured deposits and so on. Just a comment, qualitative view on that. Thank you.

Thank you.

Yes, we feel we are a pure commercial banking, very rooted on the territory, very basic commercial activity. So we feel that we are very consistent in our results. We have shown year by year that even in the worst situation, we didn't need any capital increase from the market. We were able to manage our action in terms of capital management to give the right value to our product factory so we feel very much comfortable not including that of course on the future years we will have also the positive effect of the DTA which of course will increase even more the capital so we feel that again, yet to realize, but we feel that this kind of common equity tier 1 is very much comfortable for us. We always say that an MDA above 300 basis points is comfortable for our business. Systemic charts is just because this year to the Italian banks, I think to all the Italian banks, the request was lower from you so in relation to our state that we got to be the reduction in terms of the quest to and again now we think that the next year having reached the top level we wouldn't have any more impact from these kind of systemic charge the next question is from a Hugo Cruz from

KBW. Please go ahead.

Hi, thank you for the time. Really, I want to get a clarification on capital and the timing of the new business plan. So when do you plan to announce a new business plan? And did I understand correctly that any decision around an increase in the dividend payout or any potential buybacks will only be made in 2024? Is that correct? And then Finally, just again another clarification of the Danish compromise. Do I understand correctly that the Danish compromise and the Vera deals, the Vera deals will be a positive impact on top of the current performance situation ratio that already includes the impact of Danish compromise? Is that correct? Yeah, so that's it for me. Thank you.

We will share our answer with Eduardo. If I got exactly what you were asking, the timing of the business plan will be second part of the year, most probably the last quarter of next year, in order to get precisely the pace of the Euribor and what will happen in terms of ECB decision. um we again in terms of capital contribution from the transaction we are dealing with we think this could materialize in between here and the beginning of next year if we talk about payment system and so that would be also the right timing for announcing whatever increase in terms of maneuver for further remuneration to our shareholders. Danish compromise.

If I understood correctly the question, the Danish compromise, we will have, of course, two separate steps, at least this is our understanding of the process in our conversations with ECB. One step is the Banco BPM Vita, which is exactly the impact we highlighted in our presentation, and the second step will be after the acquisition of Vera Vita, so the exercise of the co-option with Cattolica. As far as Vera Vita is concerned, we expect this impact, so acquisition plus application of the niche compromise, to be positive in the sense that this will tend to increase slightly at least the capital position of the group.

In the second step, after you do the very deals, there was a press release before you talked about 13 basis points capital break. That's on top of the Danish compromise, right?

Hugo, I'm sorry, but we don't understand the question. Sorry, it's very difficult to hear your voice. Sorry, okay.

I just don't understand the second step after getting the Danish compromise. The second step, you're still expecting a positive impact, correct? Correct.

Yes, yes. At the end, the impact of the second step is positive once the Danish compromise is taken into account. Okay, thank you very much.

The next question is from Manuela Meroni from Intesa San Paolo. Please go ahead.

Yes, thank you for taking my question. The first one is on the NII. Can you share with us the assumption that you have made in terms of interest rates in 2024 that are on the basis of your net income guidance? And when do you expect the NII to reach its peak? The second question is on the risk-weighted assets. I'm wondering if we can expect a further reduction of the risk-weighted assets going forward and what is the guidance for risk-weighted assets at the end of the year? And lastly, a clarification. The guidance for 2023 and 2024 embeds a 50 basis point cost of risk in both years. I know that it has already been asked, but I didn't get the answer.

Thank you. Yes, Manuela, thanks a lot for your questions. So concerning the level of interest rates, as we said in the presentation, the expectation for the overall average level of arrival this year is in the area of 3.3%. With a growing path, meaning that we assume this will be in the area, I would say, 350-360 end of the year and I'm talking about this year. For the next year we expect a moderately downward trend leading to an average level slightly below 350 basis points which leads to the guidance which Giuseppe was describing earlier. RWA pass we expect to experience some inflation in our overall level of RWA due to the outcome of the discussions we are having to ECB with ECB in the current period but we confirm that this will be fully manageable with our organic capital generation so no no significant negative impacts expected from regulatory headwinds.

For the cost of risk guidance, I leave the floor to Giuseppe. Cost of risk, I would say, we are a bit surprised by the big reduction in cost of risk that we are experiencing on the market. Basically, we are getting the same inflows in terms of default rate of the other bank, which is quite comprehensible, taking into account our geography and routing network. And this, by definition, brings to, let's say, 25 to 30 basis points of additional cost, which means to cover new OTP from 35 to 40%. Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord maintenance, I would say, of the MPE, which means on the positive side to go back to positive, to non-default, and on the negative side to switch from UTP to bad loans, which in turn would mean another 30 basis points, 30, 25, depending collateralized or not, in terms of cost of risk. So all in all, As we said two years ago, 45 to 50 would be the normal cost or risk. We feel that our portfolio is enormously bettering. If, as for the beta, we will experience a better situation in the next quarter, at least we have covered that our expectations are not that far lower than what we are doing right now.

Thank you. The next question is from Andrea Vircellone from BNP Exxon. Please go ahead.

Good evening. The first one is just a clarification, I guess non-numerical, on personnel costs. I just want to know if you have made any accrual for the banking contract in Q1 or there's none? the purpose of the question is to see if your book nothing of course everything will be booked later on the second is again a qualitative question on the transaction you are exploring in the payment business can you get give us some color as to how do you square the comment that you plan to on the one hand maintain the current level of fees linked to this business and and on the other hand also book an upfront component linked to this transaction because usually what we've seen in the past from competitors they book a capital gain and then they lose fees but you seem to be suggesting that you will go ahead with both components which would be rather positive but it's a little bit puzzling thank you thank you Andrea

no personal cost of course we did not accrue any anything for banking contract as I mentioned we have some room to accommodate the banking contract with the reduction in cost of personnel that we are fostering through the early return scheme but of course we have also some cautious approach in our budget for payment business thank you for your question this is exactly why we consider these transactions very very good for our bank and can allow us to extract a lot of value because the way we are dealing with our counterpart is based not on the let's say giving back further EBITDA which will be a reduction for us and an upfront in terms of capital gain we are trying to make a real joint venture in which we can still participate with the relevant stakeholders to the new product factory in which of course we can put all the business we are now already dealing with our partner and this would bring to a considerable upfront coming from a potential partner. On top of course we will continue to increase Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord

but we are trying to do that thank you the next question is from Dauphine Lee from JP Morgan please go ahead yes good evening thanks for taking my questions I just want to come back to net interest income just trying to understand your your guidance for 2024 which is going to be slightly better than 2023 but on On the other hand, you seem to be losing 100 basis points in rates. So I'm just trying to understand where the improvement is coming from and also what is the deposit beta assumption you have for 2024 compared to the average 33% you have in 2023. The other question is in terms of sensitivity is if you could give us a sensitivity to 1% with a point increase in the positive beta. How much that is in NII million? Thank you very much.

I'll try to elaborate. So we didn't say we are losing 100 basis points in rate. What I said answering to the previous question was that we expect a slight, a very moderate reduction in the overall level of rates next year compared to the end state as of December, meaning that on average, let me be very clear, the expected level of Euribor and average for 2024 is slightly higher than the expected level of Euribor average for 2023. Beta, I think, was a question raised earlier. End of the year level of beta is around 40%, a little bit above 40%, compared to the current average level of 33 we used to project the overall guidance for the year. But at the end of the day, given that we expect a slightly higher an overall stable level of interest rate, beta does not have the same relevance it has to explain the numbers for this year because it's a derivative of something that is quite stable. Hoping this helps clarifying. In the sensitivity, if I got correctly the question, the sensitivity is in the current calculated starting from the current level of rates as of end of March this year what happens in case of an increase of 100 basis points using a beta which is consistent with our current observed 33 percent level so gives you an idea of what can happen differentially from the guidance we provided if the level of rates goes into an unexpected direction.

Great. So basically the rates are slightly higher in 2024. The deposit beta is higher. So how do you manage to grow your NII, just to understand this?

is that volume is that or your assets are improving or anything on your investment portfolio so the beta is not a driver of the increase in the delta in NII in 2024 because more or less the level of rates is stable so the overall impact is driven by repricing of the back book of loans by the refresh in the level of bonds of outstanding bonds that progressively mature and are replaced by new ones and the moderate increase in overall the volumes but nothing that has to be expected as enough to hire compared to the previous trend that's more or less the overall story thank you very much

The next question is from Adele Calama from UBS. Please go ahead.

Yes, hi, good evening. Thank you for taking my question. One clarification on the Single Resolution Fund. What do you assume for 2024? so if you can give us like the benefit that you will have I mean I understood that you are assuming that that level will decline in 2024 I just want to understand the benefit versus 2023 that's it yeah thank you again we say that we have reached the top of the request from

EU the demonstration is that this year was already lower than we expected and without any extraordinary components happening in the market we assume that for 2024 the EU SRF is zero. Of course we still assume that we will have the contribution to the Italian mechanism for the guarantee on deposit.

That assumption is included in 2024 guidance, the target?

Yes, it's included.

Sorry, can I add another question? In the 2024 target, which is the run rate for the insurance results that you are assuming?

The insurance, we started from the previous assumptions that we included in the plan, which was of a total contribution to net profit 125, 400% of stakes in insurance. We readjust, bearing in mind that we are going for the sale of the stakes in the non-life in the PNC in execution of agreement with the CREA Agricola Assurance overall the contribution is in the area of the adjusted contribution is in the area of 100 million and that includes Veravita as well that includes? Veravita of course Veravita yes the full contribution for the year of Veravita ok perfect thanks

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