Banco Bpm Societa Ord

Good evening, this is the Chorus Call Conference Operator. Welcome, and thank you for joining the full year 2023 Banco BPM Group Results Conference Call. 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. Arne Riscassi, Investor Relations Manager of Banco BPM. Please go ahead.

Good evening. Thanks for joining the conference. As a reminder, the results documentation is available on our website in the investor relations section. And as you know, the Q&A session is reserved for financial analysts, possibly with a limit of two questions each. Now I'll leave the floor to our CEO, Mr. Giuseppe Castagna. Thank you.

Thank you, Arne. Good evening, everybody. Welcome to the full year 23 presentation of Banco Bpm. Very glad to present our results. This time, I think we are the last bank to present results, so maybe it could be also easier for you to make comparison and look at the result with a full picture of the banking system. Let's say we are satisfied of our performance, which not only Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord with an ROT of 12.4% versus 7% in 2022. Common equity tier 1 ratio is higher 132 basis points at 14.2 versus a guidance of 14% with a very comfortable MDA buffer of 542 basis points. Most of all, it's important to notice that we have built the possibility to give to increase the shareholder remuneration from the guidance of 750 million to 848 million, leaving 67% as our payout ratio with a proposed dividend per share of 56 cents. I remember then in 2022 we were able to distribute 23 cents. so is more than 140% as dividend distribution. On page seven, let's look also having a view not only to the results but also to the roadmap to the business plan. Let's say that we are not only in all the main item above the guidance but also much closer to the target results. core revenues are 4 billion 340 million almost 9 million above guidance and only 110 million below the target 2026 the same for operating costs we are 30 million below guidance and 130 million below target 2026 Pre-provision income, we are 120 million above guidance and even over the strategic plan target of 2,750,000,000. Cost income is down to 48%, previous last year's was 54%, with a guidance of less than 50% as well as the strategic plan target. cost of risk is 53 basis points compared to 62 in 2022 and 45 as a target for 26. Let's say that out of these 53 basis points 9 basis points are related to the front loading of new disposal of MPE targeted by the plan already front loaded so the real cost of risk would be

44 basis points for 2023.

Our business model is very well diversified. You can remember that we stressed in the business plan how much we will change our scheme with the recent product factory maneuver that we had done last year related to the bank assurance and the payment system. Let's say that the result on page 8 of the product factory contribution in revenues is 863 million compared to 800 million of the guidance and with a gap to the target of 380 million because the target plan is 1,180,000,000. if we want to include pro forma the VeraVita results which was only incorporated at the end of December 23 we increase our results for 2023 to 924 million this means that the difference vis-a-vis the target of the business plan has been reducing by 125 million from the target of 2026 we are very confident that with the incorporation of the product factories and the new venture in monetics and in PNC will be reaching the target of the plan easier than we forecast three months ago. On the right side, you see the state of the art for our product factory. As you know, we have already confirmed our shareholding in Anima in which we are the main shareholders in Agos where we have a joint venture with Crédit Agricole and on the bottom part of the slides you see the new bank assurance life that basically started from the 1st of January 24 we will fully owner 100% of course the implementation of the new company will come during 2024 with full steam of the whole new product factory, especially boosting 25 and 26 results. As far as P&C Bank Assurance, the strategic alliance with Credit Agricole started again in January 2014 we are already experiencing some good results and we will keep you abreast of the potentiality of this joint venture during the next quarter's presentation. As far as the payment system, we have signed a deal with FSC and ICREA for the new payment company, which the closing is expected in the first half of 2024, from which we will give you updated information about the new opportunity arising from the new activity. On page 9, let's have a look to the reduction of cost of risk. It was 81 basis points in 2021, 62 and 22. and 53 in 2023 with, as I said before, that almost nine basis points out of 50 comes from the new disposal target already front-loaded in 2023 cost of risk. The net MP ratio is now below 2%, 1.8%, and 0.6 is the net bed loan ratio. Needless to remember that, as you know very well, we have been able to reduce more than 26 billion starting from the merger and the top global de-risking was almost 35 billion during these seven years. The gross NPE is now 3.8 billion. If we consider already the disposal target of 700 million, we are basically already to the target of our strategic plan at lower than 3.5 billion and 3% of MPE ratio. Strong capital base, very good liquidity funding position. As I mentioned before, we are already above the target of the guidance for 2023, 14.2%, even after increasing the payout to 67% versus 50% last year. Last year, let me remember that end of year, the common equity was 12.8%, So a massive increase. The strong contribution comes mainly from organic performance, almost 330 basis points gross coming from the organic performance. 151 basis points is a net of dividend. We started the year with a very important issue in wholesale bonds. Last year we were able to issue 3.8 billion, of which 2 billion green and social. In January we already issued 1.5 billion, half of which is green and social. Let me remember that in November we got full recognition by all the rating agencies of investment grade and we are already taking advantage with the new emission of the new standing with much lower cost of funding. NSFR and LCR are comfortably at almost 130 basis points and 187 basis points. Total liquidity is at almost 42 billion at year end 2023. Let's go on page 12 to the set of results. On the left, you can see the comparison year on year. We have net interest income 42% better than 22. Core revenues 22.5% better. Total revenues 14%. Cost, which stands at an increase of only 1.3%, considering including the cost of labor increase as far as 23 stake was concerned related to the increase of the national contract. The pre-provision income is 29% higher than last year with the reduction of loan loss provision we stand at 58% better than last year in profit before tax. the tax rate is still 30% so we were able to have a net profit from continuing operation 63% better than last year and after the systemic charge and PPA we stand at 1 billion 264 million versus 685 million which means almost 85% better in one year On the right side, you can have the evolution of the last three quarters of 2021, 22 and 23. And you can see the evolution, constant evolution, the pattern that will give us also a good set for having better results and continue this pattern also in the next year. On page 13, let's make some consideration about NII. We stand at 3,289,000,000. The guidance better almost 40,000,000 than the guidance of 23 and 42% better than last year. The quarterly trend is stable quarter on quarter. Of course, it's 20% better in relation to last quarter 22. The commercial spread has been increasing during the year. Now we have a commercial spread which is 441 basis point with the starting point in end of 22 which was 294 basis point. Mainly, of course, driven by the liability spread which increased up to 287 basis points versus an asset spread quite constant at 154 basis points. The overall cost of the deposit in 2023 was 73 basis points the sensitivity for 100 basis point of rates reduction is 250 million considering NII and NFR as you know a part of the contribution to NII is into NFR related to the certificates that we issue and including the certificates the static sensitivity is 250 million. On page 14, we will try to give you some more information in order to consider the figures that we have in mind, we have presented in our strategic plan presentation. We started with a guidance of 3.25 billion for 2023. As we mentioned before, we are 40 million ahead, and we had the target for 26, so 3 billion, 50 million. This was, of course, with an interest rate scenario that at that time we considered feasible. considering reduction year by year of the Euribor. 4% in 2024, 3.5% in 2025, and 3.1% average in 2026. Let's consider now an alternative negative adverse case which will bring down interest rates starting very soon, which is not what we really imagined, but is just a worst-case scenario that we want to illustrate to you in order to make clear that our target is really possible. Even if we consider a new RIBOR ending 3.2% in 2024 and 2.5% in 2025 and 2026, this will bring a potential reduction in gross revenues in terms of NAI of 170 million in 2026. Let's say that of course starting from this situation of quicker and faster reduction of interest rate we can exercise some mitigation action very effective just to mention some of them the bond issuance in which we plan to issue 50 billion at fixed rate and of course we consider in the business plan the historical average of our cost of wholesale funding. In the alternative case we could mix the 75% fixed and 25% floating and of course taking in consideration the new spread that we had with the issuing in January this year. Certificates, the same. We are considering in the plan the historical average as far as our spread is concerned. The new spread is much lower. The time deposit, of course, considering a faster reduction of interest rate, we imagine in the plan to issue in the three years 9 billion of time deposit at a or 50 basis points below EURIBOR, the reduction and the possibility to issue less time deposit also only for one billion less could bring a considerable advantage in terms of reduction of negative effect of the reduction of rates. 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 NFR contribution and the potential cost of risk reduction in an environment more favorable, these allow us to be very consistent and committed in confirming our strategic plan figure and of course the consequent remuneration targets. Let's go to the balance sheet. We have been growing year on year 11 billion in terms of total customer funding. Of course, mostly concentrated into asset under custody driven by the BTP. The real growth in volume was almost 5 billion. The rest is market growth. our deposit base is very much fragmented there is a strong retail base the guaranteed deposit contribute to 57 billion out of 98 billion of deposit 82% of our household deposit are guaranteed let's go on page 16 to the loan We have experienced this year for the first time in 10 years a reduction in loan growth. We are now at 97.3 billion, 2 billion reduction since last quarter. Let's say that we have been very much concentrated considering the difficulties due to the interest rate to increase the loan growth. we were concentrated on reducing the high risk loan and out of this 2 billion, 1 billion comes from mid high risk categories. The year started a bit better with an increase in stock of 700 million even though we cannot yet consider a growth for this year in which we consider the stock will remain more or less at the same level of last year. Let's say that again we are concentrating our new lending which was 19.4 billion in 2023 versus the best rating classes, 95% is versus low-mid categories and three-quarters of the new loans are concentrated in north of Italy. On page 17 there is the trend in fees which is 1.3 lower than last year let's consider that this year we had 45 million in lower fees from current account coming from the removal on fees on current account related to the negative interest rate so like for like we grew 3% and in commercial banking fees we grew 8% like for like meanwhile versus last year we grew 1 million net in the management and advisory fee we have a reduction of 3.2% year on year which was 5% after 9 months 2023 So we are already experiencing an increase in the asset under management activity starting from last quarter and increasing massively in January this year. Let's say that out of the investment product placement, which was 4 billion in Q3 of 23, 3.9 million in Q4 of 23, In January 24, we have already reached 1.9 billion, which is a record target, 47% more compared to January 23. And also in terms of commission, we are experiencing the double of upfront commission in 2024 vis-à-vis January 23. Let's say that fee and commission... have been also paying higher cost of synthetic securitization for 37 million year on year compensated by better fees on lending, payments, fiscal credit and other service like trade finance. Cost control was very effective. 1.3, the increasing cost, considering 50 million of new impact from the new contract of national contract of labor. As you see on the right side, the last quarter, 23, was 60 million higher than the average of the first three quarter. But even considering this, we are only increasing 1.3 below very much below inflation thanks to a strict control both in administrative expenses and in DNA. This allows us to reach a decrease of 600 basis points, 6 full points in terms of cost income, reduced to 48% starting from 54%. We already mentioned some figures about NPE and cost of risk. Let's here remember that out of the 53 basis points, 38 basis points are related to the default rate, which is in line or below the average of the banking system, 0.93%, notwithstanding that the cost of new inflow is still at a very good level of 38 basis points which we consider very prudent and efficient in terms of good coverage of new income in the fourth rate. Nine basis points as I mentioned before are related to the up fronting and the rest is the maintenance of a very low stock which now has been reduced to 3.8 billion starting from 4.8 billion end of 22. We were also able to increase our coverage both in bad loans in UTP and the share of secured MP stands at almost 70%. Stage 2 loans remained below 12% at 12.2 billion. Edoardo, do you want to go ahead on... With pleasure.

Thanks a lot, Giuseppe. So on the debt securities portfolio, you see on page 20 that the overall level remains at around 37.5 billion with only limited changes in the composition between a more taxed cost and a more comprehensive income. A more taxed cost continues to cover a percentage share on the total of 70%. Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord is in the fair value of comprehensive income. Worth mentioning is that at the outset of this bank, in the merger period, almost 100% of the portfolio was composed of Italian bonds. ESG corporate bonds cover now a share of 29% of the total, 24% at the end of last year, whilst now on page 21, The evolution of overall reserves has been positive from 626 negative at the beginning of the year to 488 with an improvement linked to the evolution of the overall rates on our bonds. Sensitivity remains very low with an overall BPV 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 Our bond issuance has been very successful not only last year but also at the beginning of this year as already mentioned by our CEO in the initial part of the presentation was mentioned in the two issuance of 750 million each in January, one green senior non-preferred and a covered bond. This liquidity position is reflected in very solid indicators, regulatory indicators. LCR is at 187, NSFR is 129, and this despite the acceleration in the reimbursement of TELTRO. You see that we had 39.2 billion at the peak end of 21, and now we are at 15.7 billion, more than compensated by the depot facility of 17.4 billion. allowing us to stay in a very comfortable position with an outlook of a progressive reduction of the liquidity indicator during 2024 taking into account the overall liquidity and rate environment. On top of these indicators, we also gave Indications on MRL position were the buffer versus the total requirement expressed in terms of RWA is as high as 8.9% considering the 2023 level of requirement or 6.9% if we go for 2024 level of requirement. Page 23 on capital. Capital has been progressing very significantly over the year from 12.8 to 14.2 with 132 basis points of capital generation allowing us to increase significantly the dividend payout up to 67%. The most important components of the moving parts of capital have been P&L Performance, 245 Bps, Dividends and 81 Coupons, negative 476, the evolution of Prevalent Comprehensive Income Death Reserves, Synthetic Securitization allowing us to add additional room of maneuver for our RWA density and absorption, the application of the Danish compromise on bank assurance which accounted for most of these 125 bps of improvement that is reflected in this chart and the regulatory headwinds from the adoption of new probability of default and loss given default models that has been estimated in December using conservative assumptions and will be finalized in March at a level which is already represented in these 141 basis points. Other components account for 11 basis points. You see the bottom part of this slide also that tier 1 and total capital ratios are well above minimum requirements. Now I give the floor again to Giuseppe for the conclusion.

Yes, thank you, Eurardo. Final remarks. Let's say that summarizing a very strong 23, which allow us not only to confirm the net income guidance for 24, but moreover, and most important, to improve our shareholder remuneration for 24. The net income growth of 85% and the potentiality to increase of 100 million almost the dividends for this year, which means to reach an ROT of 12.4%, which would be 13.4% with the target common equity tier 1 of 13%, give us the opportunity to confirm the 90 cents for 2024, which will grow to €1.1 more than €1.1 including one-off. You remember the one-off are related to the transaction of the Monetica joint venture, of the payment system joint venture, and reduced by the cost of the agreement that we will have with the Union in order to have an early retirement scheme of another 1,600 people as we announced in our business plan. Let's give us some guidance, I would say, qualitative guidance about these results for 2024. We envisage a slight bit of NII and a good bit in commission year on year. with a cost discipline in the general cost part which will allow us only to partially increase the cost of deadwinds related to the new contract. The provision will be resilient thanks to the upfront of the cost of risk that we have done for the new disposal which will allow us both to reduce the MP ratio at the same time to try to maintain at a very good level the cost of risk also considering a prudent approach in terms of forecast as far as the full trade in which we envisage a slight increase related to the 0.9 of this year. So, all in all, the most important things in adding the 550 million of the interim dividend to which we confirm, we are able to raise to 1.4 billion the dividend distribution in 2024, which, let me remember, is equivalent to almost 19% remuneration over the current market cap and is a good boost in order to reach the 4 billion distribution over the three-year plan. Let's go on page 26 to the comparison amongst the results we reached, the guidance we gave and the target 26. As you can see on the left side, in all Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord which means compared to the previous plan confirm a 67% of payout ratio over the plan horizon and the remuneration to shareholder which will be 5.5 times higher than the previous plan reaching 4 billion out of 6 billion of net profit let's say that if we will be able during this year to show that over €1.1 of EPS will allow us to distribute by the first year of the plan exactly €2 billion out of €4 billion, which is our commitment for 2026. So I think a very promising start. a very solid set of results which comes from our story of not having a surprise or items which are not consistent with our story and what we say in our strategy plan and based on the massive contribution that we expect from the new product factory all the management team is again committed and engaged to deliver the result we promised. Thank you and we leave the floor to your Q&A.

This is the course 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. We kindly ask you to use handsets when asking questions. Please limit your questions to two per analyst or investor before reentering the queue. The first question comes from Giovanni Razzoli of Deutsche Bank.

Good evening to everybody. Two questions. The first one is a clarification on the regulatory ruins that you are showing in the in the slide which which were 142 basis points during the in the full year 2023 I was wondering how much of these were in the q4 and how much of these were the related to the Eva guidelines because in the business plan you guided us even not mistaken 230 basis points from the guidelines so I was wondering if you can help us reconciling with those two figures and if you have any updates on the timeline of those data guidelines. And the second question is a clarification on the NII for 24. You are guiding for an increase in NII in 2024, if I see your slides. Can you share with us what kind of rate assumptions are behind this target? Thank you.

Let me start with the NII, then I'll have Eduardo giving you an answer on the Edwins. Confirming, of course, the base of our strategic plan, we have a quite consistent increase in NII. If we consider the sensitivity that we show to you today, in our slide related to a faster reduction of interest rate we still feel that we can be more or less in line with 2023 results as I mentioned we have enough counterbalance measure both in terms of NII but of course also in terms of net profit which will allow us to match the results?

Yes, on the headwinds question, they were concentrated in the last quarter of the year. You may have noticed that we already tackled this issue when we presented the strategy plan in December, anticipating headwinds for amount which was estimated time at a higher level and then show now has been optimized to an extent we all of them are related to EPA guidance so the 142 are all even done right 141 but yes okay thank

The next question, sir, is from Andrea Lisi of Equita.

Hi, thank you for taking my questions. The first one is a clarification on the measures you intend to implement in the slide that you have shown in slide 14. In my understanding, these are actions that are aimed to mitigate the impact of lower rates but are not something that you can start and stop immediately so it requires some time of implementation so it is not clear to me if you are already starting with these actions or not so if you can elaborate on this then the second question is given the current environment and expectations of interest rates if you have changed your assumptions as regards certificates and if you can provide us some indication on the impact of certificates on the trading line in the following years and another element is what is your expectation of volume evolution for the next year thank you thank you

Let's say, starting from the mitigating action, of course, the assumption for the mitigating action is the interest rate go down faster than what we expect. And as we expect, we don't think that before the end of Q2 is envisaged a possible reduction of rates. Even say that, of course, some of that are already in place when we talk about historical average spread on bond issuance and certificates. Of course, we are already experiencing a good reduction in the spread. In terms of bond, I think it's almost 70 basis points lower if you compare the new issuance this year to the comparable issue before the increase in the investment rate. and the same is, of course, also for the certificates and the bonds we are issuing starting from January. As far as time deposit, we didn't start yet to issue time deposit, so it's not something, it will depend when we will start. And again, time deposit is a measure that we want to implement if we see that the interest rates are consistently high. If there is no reduction, of course, we will start to implement also a tracking deposit through time deposit. This is not yet the case. And as soon as we should experience some reduction in interest rate, we could decide to reduce the size of the time deposit that we'll be issuing during the next year. The new lending, of course, again, until interest rates don't go down, it's difficult that we can convert rates into fixed because, as you can expect, clients want to stay on floating rates until they don't see a consistent convenience in terms of which the rates. So, in a sense, this is something that is very easy to implement. It doesn't take time to implement, but it should be the right condition to implement this measure. Not talking about, of course, the potentiality to do better in other components of profitability, like commission and so on. So it's something that we have already in our let's say tools but yet we wait for now interest rate is still 3.9 so there is no difference since when we started we presented the business plan but we are ready to face potential even dramatic reduction in the interest rate Yes on certificates thanks for the question as

We already said when we presented the plan, the contribution of certificates is minus 300 million in the final year of the plan with progressive decline that is driven by the reduction in rates. As it is clear from page 14, this includes some margin of conservatism in terms of the spread that is used and of course it reflects an assumption on rate which may be different, may be reduced in this case will smoothen the sensitivity of an AI.

As far as the volume are concerned in terms of the stock on the long stock we think we will stay stable as I mentioned before in 2014 but we envisage an increase in loan granted during the year in order to face a higher maturity of loans during this year. So basically, in terms of granting, there will be a growth of 5-6% this year compared to the 19 billion of last year.

Thank you.

In terms of total deposit, they will be stable basically during the year. It's growing in terms of asset under custody because of the opportunity to still subscribe other GOVIs.

The next question is from Fabrizio Bernardi of Intermonte.

Hi, everybody. I have a simple question regarding the capital gain you are going to book on the digital payment business. As far as I remember, this is 500 million euros and there are 300 million euros going to the community. So given that you are in a comfortable situation regarding your capital position, I was wondering if this gain in terms of common APT will be used to upset headwinds from a regulatory point of view or maybe we can assume that the top up in the dividend payment that you made in this quarter can be replicated even in 2024. Well,

If I may, thanks a lot for the question Fabrizio our total amount of 6 billion net profit that has been declared as a target in the plan include the 500 million the distribution of course is two thirds of this so whatever is the source this will be included in the distribution We don't, conversely, on the other hand, we didn't factor into this calculation the sort of headwind in capital. So the 500 is fully available for the distribution without carving out the 200 million that is not included in CET1.

Let me add that as far as capital guidance for this year, we imagine a quite consistent growth in terms of common every tier one towards 15%.

So much higher than the 40% that you are projecting in the business plan.

As you can imagine, we started from 14.2 and the guidance was 14. So we still think that the increase for the business plan remains the same. So at least for 2024, we don't have any headwind to include and the capital generation is still at a very high level.

Okay, thank you.

The next question comes from Hugo Cruz of KBW.

Hi, thank you for the time. Just a clarification, you gave an NAI sensitivity now of 250 million. which includes the impact of the certificates in the plan. I think you're talking about 300 million moving towards 200 million. So I just wanted to know if this is on a comparable basis or the plan didn't include the certificates. And also, on a comparable basis, are we seeing a decline in the sensitivity? versus 3Q already or not? And, you know, what have you, what are you doing to decrease that sensitivity? And my second question was, you know, you know, you've had the plan, you've done your marketing around the plan, you know, are there any, you know, can part of the dividend be in the form of buybacks, you know, in the future, in the next few years, if you could clarify your thoughts on that. Thank you.

so sensitivity Mr. Cruz it's comparable to the previous one we prefer to include also the NFR component and make it explicit to avoid any misinterpretation so 100 basis points of reduction in rates from a point in time perspective static calculation provide reduction in Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord you may probably remember that we announced that during the plan we will undertake a number of ALM measures the most important of which is an increase in the hedging of deposits or if you prefer the replicating portfolio which is currently at 15 billion and is expected to go to 25 billion during the current year this action is confirmed and has not been explicitly mentioned in the mitigating actions manual list of page 14 because these actions are on top of the plan should a different scenario materialize. But we confirm that the actions included in the plan to mitigate sensitivity with specific reference to the replicating portfolio are still part of the manual.

Thank you, Eduardo. As far as buyback, we confirm what we said in the plan. We assume the first release related to 23 and the interim dividend to be paid as a dividend. So the former 1.3 now raised to 1.4 will be in the form of dividends. And then we have all the opportunity to share the remuneration bought by dividends and share by bank.

Thank you.

The next question is from Noemi Peruk of Mediobanca.

Good evening. Thank you for taking my questions. I have a clarification on your NII guidance up here and here. Which rates are you assuming and which deposit beta, please? And in terms of cost, we have seen a sizable reduction in the G&A cost in Q4. And I was wondering if we could consider this the new round rate for 2024. And then I have a final question on deposits. We have seen the deposit base going down further in Q4. And I was wondering if you could give us some color about the competition you're seeing in deposits. And what is, in your view, the trade-off between keeping deposit beta low and deposit outflows? Thank you very much.

So, thank you for the questions, Noemi. So, when we drafted the plan, we assumed two rate cuts during 2024, starting from second half of the year, so from the beginning of the fourth quarter. Now we are switching to three rate cuts during the year of 25 BPs each, starting from Again, more or less mid of the year, a little bit earlier than it was assumed when we drafted the plan. Deposit beta, so it tends to be distinguished. As far as current accounts are concerned, we have the usual split that we already gave transparency, on which we gave transparency already to the market. represented by indexed components of deposits, some 22 to 23 billion on average during the year, which has a very high beta, around 80%. Then we have the part that is non-indexed, that is the remaining something like 75 billion that has a low beta, similar to what we experienced during this year but of course in a rate reduction environment this in this case means sticky interest rate cost on our PNF and this very low beta is in the area of 10%. On top we expect during the year to increase time deposits as Giuseppe Castagna mentioned earlier This type of action did start yet. We didn't have commercial constraints to raise deposits due to competitive pressure. In the guidance, we have factored that this instrument will be issued. This will have a contribution on deposit costs as well to which end of the year should be around 4 to 4.5 billion.

Thank you. For the other two questions, yes, I think I mentioned that if I don't, I will give you the answer now. On DNA, we had, that is also written on page 18, a one-off benefit of 17 million, not replicable in the future, also considering the that we are increasing, as we mentioned in the business plan, our investment base. So we have increased by 100 million investment over the next three years. So I would assume more the previous quarter rates rather than the Q4 rate. As far as DPOs are concerned, of course, what you see on the final day of the quarter is could be very different. I, frankly speaking, don't agree that we see an outflow in deposit. We are having a different deposit base, asset under custody, asset under management, and deposit, which is something that we try to manage all together in order to maximize the willingness of the client to invest in some different asset. And our opportunity to still invest increased the total deposit base. If we take, as of today, for instance, the $98.8 billion in deposit is already above $100 billion. So we are not every day modeling our deposit. We see the trend here. and in case of a potential outflow that we are not experiencing we will deploy the time deposit as Eduardo was mentioning in order to retain an higher deposit base as of today starting from January 24 we are experiencing again a growth in direct deposit base and so the cost of deposit is still basically the same of last year, last quarter.

Thank you. I have just a quick follow-up. I can see the 18 million of positive one-off for DNA, but I was wondering also on the other administrative expenses that have improved a lot in the quarter, and I was wondering if this is the new run rate or not. Thank you very much.

Let's say that 10 millions are real savings. We have a reduction in the energy cost in last quarter, 2023, and hopefully we'll try to get the most also in 2024. Meanwhile, 6 million were of lower amount of invoices received, which is something that happened in the last quarter of the year. So it's not replicable every quarter.

Thank you very clear.

The next question is a follow-up from Mr. Hugo Cruz of KBW.

Hello again. Thank you. Going back to the slide with the mitigating action, slide 14, can you talk about the timing? So if the rates are lower, do you have the impact faster? and then the mitigants take, you know, until the end of the plan to work. So, you know, do we have an impact, an immediate impact, say, you know, if we talk about, you know, 2025, because it's easier, right? You had a plan with three and a half, and now if you assume two and a half, that's 100 basis points different, right? So do we have the impact immediately and then the mitigants take three years to work out, or actually the mitigants can be, can take a lot, have an impact much faster. How does that work?

It depends on the type of mitigating action. Some of them may have an impact starting from now in any interest rate scenario. Here I'm talking about the spreads on bond issuances and the spreads on certificates. Similarly, time deposits, as long as we reduce the pace of conversion from Bpm Societa Ord We already split 50-50 instead of going fixed rate. I'm talking about the new issuance in January.

Okay, thank you.

The next question is from Carlo Tomaselli of Societe Generale.

Yes, good evening. Thanks for the presentation and taking my questions. I have two please. The first one is on the MP coverage which strengthened in the fourth quarter. You are front loading provisions in view of 2024. And despite the potential increase in default rate, I was wondering if Bpm Societa Ord if we could expect additional adjustment on real estate into 2024. And the last question, if I may, about the mitigation actions again. Can you give us a sense of the size of each single contribution to this 100 million euros of breakdown, please?

You can always ask. It's difficult to give a precise answer. But let's start from the first question. If I understood well what we were mentioning, I think we were talking about utilizing overlays in terms of increasing further coverage or maybe to keep the cost of risk very low. Normally, we don't use this kind of of the maneuver we think over as we mentioned many times our understanding over overlays is that if you want to utilize them when the time are difficult you are in the wrong side because of course the overlay increase due to the model when there is a worst scenario ahead of you so we think that is a prudent approach to keep overlays as they are don't utilize overlays for coverage of MP. So basically, we don't think especially in a scenario in which prudently, we can imagine an increase in default rate slight increase that we imagine out of 0.923 and increase up to 1.2 in 24, which of course is the banking industry approach, I feel, so what we see on the forecast of next year, of this year. So we think that on the opposite, we can leverage on the upfronting that we have done this year in order to maintain, even in case of default rate increase, a total cost of risk which is not higher than what we realized this year. In terms of real estate, basically, again, we have a very comfortable balance sheet this year. As you know, we mentioned in our business plan that we want to dispose over the plan horizon up to 700 million of real estate assets. So basically, we are, let's say, having the way to be able during the next quarter to start with these assets. disposal which of course some of them come from the old merger between the banks even before the last merger in 2017. We have now 2.4 billion of real estate and we want to reduce massively this amount and having better results than expected we are trying to adjust the evaluation in order to be ready to have disposal. And, of course, we were very, very prudent also in the valuation approach. The mitigation action, of course, we have some figures, but Alivio Eduardo maybe can give you more detail.

Yeah, it's like giving the Coca-Cola formula, but it's easy in this case. It's... More or less, the part that we define is linked to the spreads accounts for around 50% of the total of the mitigating actions. For the remaining 50%, we gave ideas of actions that can be readjusted in terms of the total impact. For example, we can readjust the mix fixed and floating. We can Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord to create additional mitigations, we have the options to consider to switch to more fixed on the liability side or more floating or more fixed on the asset side or more floating on the liability side for the three levers of bond issuance, new lending and time deposits.

Okay, very clear. Thanks.

Let me say, I understand that for you it's not that easy to mobilise, I think, this manoeuvre that we were able to have in order to mitigate potential downside, but it's the day-by-day work that we do, basically, and the capability of a bank to forecast potential difficulties in the environment and to anticipate... through flexibility and capability and through a very strong customer base, I think is what makes a difference between a bank and another. And the consistency of the result that we anticipate every year, almost by seven years, to you, I think, gives proof of the capability of the bank to manage all these items time for time.

Brilliant, thanks again.

As a reminder, if you wish to register for a question, please press star and one on your touch tone telephone. The next question comes from Adele Palama of UBS.

Yes, hi, good evening. I have one question on the regulatory headwind that are still pending. So during the business plan you said you have Basel IV plus the new definition of the Danish compromises, so it's an entity basis point plus around 100 basis points related to the RWA dynamic. and I just wondering if these Edwin are still in place or if they are lower now and then a clarification on the NII for 2024 so you said you expect the NII to go up year on year I just sorry if I repeat this question again but So, your cost of funding is expected, not cost of funding, but the cost of deposit is expected basically to remain stable versus the fourth quarter 23 in 2024. This is what you are saying?

Okay, no. Yeah. Headwinds, we have already provided, I think, enough clarity on our plan. So... Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Anticipated in the plan and on which We are already 20 bps ahead Despite increasing the dividend Of 100 million So on cost of funding I think you gave me an opportunity To clarify better The overall Impact of the various beta Assumptions that Earlier Noemi Peru cast So the point is that at the end of the day, the combination of the various maneuvers leads us to have a cost for our retail funding increased of another magnitude of 30 Bps versus what we experienced in 2023.

Okay, very clear, thanks.

You're welcome.

For any further questions, please press star and one on your telephone. Mr. Castagna, there are no more questions registered at this time, sir.

So let me thank you. Let me thank you, all the participants and the colleagues who gave an answer for our presentation. Again, let me say that it's a good occasion to confirm our commitment for delivering all the results that we anticipate to you. and I think next quarter will be even more understandable starting to deliver more commission for any potential downside in terms of NAI, which basically we still don't consider. Thank you very much.