National Bank of Greece S.A

Ladies and gentlemen, thank you for standing by. I am Geli, your chorus call operator. Welcome and thank you for joining the National Bank of Greece conference call to present and discuss the second quarter 2023 financial results. At this time, I would like to turn the conference over to Mr. Pavlos Milonas, CEO of National Bank of Greece. Mr. Milonas, you may now proceed.

Good afternoon, everyone, and good morning to those of you joining from the U.S., Welcome to our second quarter 2023 financial results call. I'm joined by Christos Christodoulou, Group CFO, and Greg Papagrigoris, Group Head of IR. After my introductory remarks, Christos will go into more detail on our financial performance, and then we will turn to question and answers. I will begin with a brief overview of Greece's economic prospects, a key driver of our performance. before I turn to our financial results in the second quarter. So let's begin. Economic activity in Greece remains resilient despite the slowdown in the Euro area, with leading indicators pointing to an acceleration in growth during the remainder of the year. Overall, full-year GDP growth should exceed 2.5%. The composition of growth is healthy, with the main drivers being both exports of goods and tourism services as well as fixed investment. The export performance reflects strong competitiveness as Greece keeps gaining export market share, while fixed investment reflects strong enterprise profits and buoyant real estate prices. Fixed investment will be buoyed by surging FDI, $6.5 billion in 2022 alone, and support from the RRF. These two funding sources have already created a strong pipeline of large investment projects. Regarding tourism, the recent forest fires, as abhorrent as they are, appear currently to have only a minor impact on tourism overall, and even in the local market of roads, this season has been hurt, hurt badly, but is far from over. The other main component of GDP growth, private consumption, remains solid despite the contractionary fiscal policy arising from the withdrawal of energy and other inflation support measures. This resilience reflects growing real disposable income, In equal parts employment and wages, which should accelerate further as inflation continues to decline at a faster than expected pace. Recall that headline CPI inflation currently stands near 2%. A final point on the macro, both our fiscal and current account balances are overperforming significantly versus expectations. Both important considerations for the imminent upgrading of the sovereign to investment rate The primary balance is heading for a surplus above 1.5% of GDP ahead of budget projections due to buoyant revenues. And the current account is down 2% of GDP in the first five months of the year versus a year earlier. In such a positive economic environment and supported by bank and state policies in place assisting the more vulnerable, our net NPE exposure has remained unchanged throughout the year at 0.3 billion. with a small pickup in mortgage arrears in the second quarter being the only sign of strain. In the event, the results so far are well inside our full year 23 NP formation guidance of $350 million. Once again, confirming the defensive nature of NVG's loan book. The other critical component of our balance sheet is our liquidity position, which remains a defining comparative advantage. It comprises a large and stable demand base, fueling a net cash position, which increased by a further $1 billion in the second quarter to near $7 billion. Regarding loan demand, corporate credit demand at the system level remained soft in the second quarter. Our domestic corporate performing loans were up by 8% year-on-year in the second quarter and nearly flat year-to-date. A positive sign is that repayments of working capital facilities from corporates with excess cash has slowed, has slowed markedly. Moreover, based on our strong pipeline of large corporate projects, we expect significantly stronger disbursement activity in the second half of the year, allowing us to meet our expectations for domestic loan additions of about one to one and a half million. Moving to the profitability performance, the combination of, first, the country's growth performance, second, the renewed political mandate for structural reforms, third, the unique strength of our balance sheet, among other positives, its response to raising rates, so-called positive NII beta, and fourth, our successful transformation program, which has made us more efficient and sales-oriented. These four have resulted in a strong set of second quarter results, outperforming our targets on all fronts. Specifically, our first half-23 core PAC exceeded half a billion, up by more than three and a half times year-on-year, reflecting strong core income growth, contained operating costs, as well as a continued containment of the cost of risk. Altogether, they drove our cost to core income to a low of 32% and our core return on tangible equity to above 16%, well above the target of 11% that we had for the full year of 23. The strong results on the profitability front result in capital generation at a pace of over 80 base points per quarter during the first half of 23, adding 160 base points of core capital since the beginning of the year. This has pushed our set one ratio to be best in class and reached 17.3%. The solid results in the stress test where NBG's performance was in bucket one should lead to lower regulatory capital requirements. In view of the sustainability of the core income improvement, we are proceeding to revise our guidance for 2023. Specifically, We are raising our return on tangible equity target by four percentage points to be to exceed 15%. This target assumes that ECB rates peak near the current 375 base points, leading our name to slightly exceed 300 base points and our cost to core income to remain inside the 35% mark for 2023. More importantly, We expect much of this good financial performance to be sustainable to 2025. The two main factors are, first, the reduction in the ECB DFR rate, deposit rate facility, will be gradual and constitute a reversion to a long-term sustainable equilibrium on our estimates of about 250 base points. Second, loan volume effects. An estimated compounded annual growth rate of 7% should offset a large part of the impact of the base rate decline, while our faster than previously anticipated capital buildup is likely to reduce Emerald costs through lower issuance. As a result, we guide for a core return on tangible equity of over 13% for 2025, also considerably higher than our previous guidance. The capital generated through the three-year period to 2025 is anticipated to exceed 450 base points versus our previous guidance of 350 before shareholder remuneration is factored in. In view of our solid results and their sustainability going forward, I am quite confident regarding our ability to remunerate shareholders going forward. With that, I would like to pass the floor to our group CFO, Christos, who will provide additional insight to our financial performance before we turn to Q&A. Christos.

Thank you, Pablo. Let me begin with the highlights of our profitability on slide 16.

The continued strong momentum in our NII, double-digit growth in fees on a like-for-like basis, and sustained discipline in containing our cost base drove our core profit after tax to $508 million in the first half of 2023, translating into a core return on tangible equity which exceeded 16%. The strong and sustained outperformance on all fronts is that triggering an upward revision of our core return on tangible equity guidance to over 15% for 2023 relative to our previous guidance of 11%. The key profitability driver is our NII, expected to increase by over 50% at the full year level against our previous guidance for a growth in the high teams on the back of higher than anticipated benchmark rates, as well as lower deposit betas and a much smaller deposit substitution effect. Searching NII is coupled with thick growth at the high single-digit pace and contained costs, reaffirming our guidance for the year, thus sustaining our cost-to-core income ratio below 35%, relative to our previous guidance of circa 42%. Additionally, better formation trends relative to expectations are set to keep cost of risk within our guidance of 80 basis points. On slide 17, we report the highlights of our balance sheet and the trends in asset quality. Disbursements picked up in 2023 to $1.4 billion, up 22% quarter-on-quarter, driven by COPPA. Domestic performing loans amounted to $27.4 billion in Q2-23, up by $0.8 billion year-on-year, and marginally lower year-to-date due to high repayments of working capital facilities from cash-rich corporates in H-123, a trend that we saw slowing down in June and July. Encouragingly, the corporate pipeline in the second half of the year is very strong and will drive performing exposures back into healthy expansion territory in H-223. Domestic deposits rebounded by nearly a billion quarter-on-quarter in Q2-23, driven by mass market and premium customers, fully reversing Q1 corporate drawdowns. Thus, on a year-to-date basis, deposits were up by 1% or $0.4 billion, while our TLTRO balance was reduced further by $3.1 billion quarter-on-quarter to just $1.9 billion in June 2023. On asset quality, Net NPs have remained near flat year-to-date at just 0.3 billion net of provisions well inside guidance, while our domestic NP ratios stood at 5.3%, with our cash coverage at 82% and cost of risk at 68 basis points. Turning to capital on slide 18, our strong co-profitability momentum allowed us to sustain organic generation at circa 80 basis points in Q2 23. Adding up 160 basis points of organic capital generation here today, driving our Z1 and total capital ratios to 17.3% and 18.4% respectively. On slide 20, our high-quality balance sheet underlines our unique comparative advantage in a period of tightening monetary and fiscal conditions, but also strong economic growth, supporting our rising profitability. On the asset side, nearly 90% of our loans remain floaters. with our securities portfolio hedge. On the liability side, we are mostly funded by deposits, which comprise circa 98% of our net funding, of which 80% are core and highly priced in elastic, comprised mostly of savings deposits that run on an average balance of less than €4,000 per customer. Hence, the substitution of core deposits by time remains insignificant and the change in the deposit mix quarter on quarter is immaterial. A superior liquidity profile is also manifested by our net cash position, which after factory means full TLTRO repayment increased further to nearly $7 billion in Q2-23, up by more than $1 billion quarter-on-quarter, highlighting the liquidity advantage of the bank, reflected also in our leading by European standards liquidity coverage ratio of over 250%. The high quality and robustness of our balance sheet is confirmed by the exceptional results NBG achieved in the EPA 2020-23 EU-wide stress test exercise. As disclosed on slide 8 of our presentation, NBG ranks top amongst Greek banks and within the top in Europe, with the capital depletion under the adverse scenario in the three-year period at just 136 basis points, a result that positions our bank in the top five across all European banks participating in the exercise. Now let me provide some further insight to the key drivers of our profitability. Domestic NII kept on a strong momentum, increasing by 12% quarter-on-quarter as shown on slide 21. This was mainly a function of base rate repricing, driving net interest income from performing balances up by 12% quarter-on-quarter, while loan yield increased by circa 70 basis points quarter-on-quarter to 5.7%, implying a 70% rate pass-through. An additional driver was the increase in the interest income from our securities portfolio, driven mostly by higher average volumes. Time deposit costs have kept picking up to 134 basis points in Q2-23, from 90 basis points the previous quarter, implying a beta of circa 40% well inside our guidance. Total deposit beta remains below 10%. As a result, Our name was up by 40 basis points quarter-on-quarter to 297 basis points in Q2. Turning to slide 26, domestic fees increased by 16% year-on-year on a like-for-like basis, underpinned by double-digit growth in both the retail and corporate lines of business, further supporting our sustainable core revenue stream. More notable growth areas were our cards, deposit bundles, investment products, as well as trade finance related fees. At the same time, transaction volumes picked up by 10% year-on-year in Q2-23, spearheaded by e-banking transactions, up by 18% year-on-year, testament to the soundness of our digital strategy, which keeps delivering impressive results. On the next slide, we show our costs, which have remained tightly contained. Despite sectoral wage increases in late 2022 and abating inflationary pressures during Q2-23, The increase in personnel and G&A costs were managed at just 1% year-on-year inside our guidance, while the 12% year-on-year increase in depreciation charges reflects our ambitious IT strategy centering around our ongoing replacement of our core banking system. All in all, operating expenses were up by 3% year-on-year, driving our cost-to-core income ratio down to 32% in H-123 from 50% a year. Turning to asset quality, on slides 28 to 30, net NPE movement settled just above zero levels in Q2 2023, with marginally positive formation in the quarter. As already mentioned, the small pickup in mortgage areas in Q2 remains well inside our full year 2023 formation guidance, making us feel very confident for the second half of the year. Going forward, market support schemes to protect vulnerable performing borrowers, especially regarding the interest rate cap in variable rate mortgages applicable since May, will shield asset quality. Finally, sector-leading coverage levels across all stages were maintained, as shown on slide 30. On slides 32 and 33, we provide a snapshot of key ESG priorities. We are enhancing further our ESG capabilities and infrastructure, capturing emerging opportunities from the green transition of the Greek economy and leading the market in sustainable finance. For all our achievements, we recently received the Diamond ESG and Social Responsibility Award by the Corporate Responsibility Institute. Before closing my remarks, as shown on slide seven, I would like to highlight that the strong H123 financial performance resulting in a new core return on tangible equity target of over 15% for 2023 is broadly sustainable, with our core return on tangible equity target for 2025 set at over 13%, despite maintaining a highly capital-generated move. This mainly reflects the normalization in our NII from the 2023 peak, driven by an anticipated moderate decline of ECB's benchmark rates from peak 2023 levels, with the performing loans expansion in the two-year period to 2025 absorbing part of it, along with incremental embryo issuance costs. Furthermore, higher fees and cost containment will also be supportive, allowing us to keep our cost-to-core income ratio below 40% in 2025, while cost of risk is seen decreasing to set at 60 basis points or lower over the same period. NBG delivered a solid financial performance in the first half of 2023, underpinned by a high-quality balance sheet as well as are superior levels of capital and equity. Co-profitability is on a strong and sustainable growth path, which further enhances our capital position, fortifying our commitment for enhanced rewards to our shareholders going forward.

With that, let's now open the floor to questions.

The first question is from the line of Alevisakos Alevisos with Axia Ventures. Please go ahead.

Hi, thank you very much for the presentation. Very well done on this set of results. I've got a question with three legs, if I may. You already touched upon it on your remarks when talking about the remuneration of the shareholders. So I wanted to know, do you believe that the EBA stress test pass with flying colors immediately gives you now additional ammunition to up the payout for this year's dividend? That's the first part. The second part, in the interim, what are the other plans to deploy some capital organically or even through some small bolt-ons? It seems like the investment securities book keeps growing, but I wanted to know whether you have some pipeline, some alternative in the pipeline. And then finally, how do you feel about your ability to acquire performing loans that currently sit with the servicers and are due to return it to the system? Do you believe that this is now turning into an opportunity for this year or early next year? Thank you.

Okay, thank you for those questions. On the stress test, clearly the good results, we hope, should lead to a lower regulatory capital requirement. So I think that basically frees up capital. And it leads to your second question. question. Well, let me finish your first question. We weren't allowed as Greek banks to issue dividends this year. Next year, we think we will. But again, it will be a number somewhere of the order of 20-30%. I don't think asking for much higher in the first year is quite the right thing to do. So our goal is to have a decent size remuneration. Now, on the employment of capital, which is growing and growing rapidly, we have to look at loan growth to support the domestic economy. We are looking at asset acquisitions, including loans, acquisitions, domestic acquisitions, which include your last point, the re-performing loans and the financing of portfolios of re-performing loans. We will be optimistic in terms of joint ventures, partnerships, etc. as we continue what we're doing to find players who are experts in things that we are not and should not be and partner up with them, including a way to improve our customer base. Clearly, there is shareholder remuneration in the broader sense, which, again, is not going to be the immediate request to the regulator. So, yes, good result is going to free up capital the employment capital I described and the re-performing loans is a very large opportunity there's several tens of billions of assets which will come back in the next five six years to the banking sector and either they come back as portfolios or they come back as single assets I think there's a great opportunity and NBG I think is the among the first banks in Greece to try to offer auction financing and other such services. So, yes, I do think it's a great opportunity, and the fact that we did not spin off our bad bank and kept the people, I think, gives us a strong competitive advantage.

Thank you. That was very clear. Well done again for the results.

The next question is from the line of Sevim Mehmet with JP Morgan. Please go ahead.

Good afternoon. Thank you for taking my question. Looking at the run rate of NII, which continues to be very strong, and if we take into account all the data that you have now what do you expect it to peak and here I'd like to understand how you also see it evolve from that point in the subsequent quarters so do you expect it to plateau or start coming down already from that peak And secondly, and maybe related to that, looking at the guidance for 2025, it seems now you've upgraded the NIM guidance to 250 basis points from 210 basis points, but you still use the same DFR assumption of 2.5%. So can I please ask what differences you now see here in the underlying assumptions? Is it mixed shift? Is it deposit betas? And maybe any other color you have. Thank you.

Hello. Thanks for your question. Let's start on the first one with regards to NII. So currently, based on what we've seen from ECB, our expectations given the latest rate increase is that NII would peak in Q3. There onwards, given other dynamics as well, and that has to do with deposit betas, that has to do also with continuing spread compression. as well as other elements of the deposit mix. We expect a plateau in NII that would inevitably go down towards the latter years of our business plan. But yes, the peak should be expected to be around Q3. Now, with regards to your second part of the question, effectively, you've answered it as well. The reason for the improvement has indeed to do with the better than expected details that we've seen in the deposits. as well as the much better than expected change in mix. Let me remind everybody that we expected that the transition, let's say, from core to time would end up in the area of 65% in terms of core and 35% for time by the end of the year. We are nowhere near that, and that's why you've seen this upgrade in the analysis. I hope that answers your questions.

That's very clear. Thank you, Christos. Can I ask if you're able to quantify the deposit betas and mix assumptions that you bake in in the long term?

Yes, well at least the latest that we have in mind is that by the end of the year we would expect the deposit mix to more or less settle down at around 75% core and 25% time. Let me remind everybody that now we are at 20% core to time. are the pass-throughs on the time deposits, which are now around 40%. We expect it to just be tied up at 50%. While on the core deposits, where we see that the beta is just at 3%, we wouldn't expect it to be much higher than 5% or 6%. So that's more or less the dynamics that we would expect you know, the deposit is going forward. Overall, deposit beta around 13% to 15%, I would say, somewhere there.

Great. That's very helpful. Thank you.

The next question is from the line of Budkov Mikhail with Goldman Sachs. Please go ahead.

Good day. Thank you very much for the presentation. I have a couple of questions. First is on asset quality so that in line with industry trends we can see that your NPR ratio has increased marginally in the second quarter due to Evanov corporate case. however contrary to industry trends your level of cost of risk has reduced on a quarterly basis as opposed to peers and we can also see that your NPE coverage has reduced marginally given that you have the highest one in the industry so the question is what level of flexibility do you have in balancing between the absolute level of cost of risk and the NP coverage that's the first question and the second one we can also see different results on the landing growth across Greek banks and in the Bank of Greece data in the second quarter of this year so how can you maybe describe the competitive landscape currently on that front and finally a small follow up on capital allocation strategy is there anywhere on the list that you can also make the share buybacks from your largest shareholder in any size or it's not the part of the capital allocation opportunities which you consider currently thank you very much

Okay, thank you for the questions. I'll take the first one on asset quality, and Pavlos will take the other two. So indeed, we've seen a marginal increase in formation, as we said, in Q2. The change in our NP ratio was just 13 basis points, so not significant. And we had this one corporate account, which is a system-wide account, I guess. But if we don't have, maybe our formation will have been in the negative. With regards to cost of risk, given the levels of coverage we have, yes, indeed, we do have flexibility, but given that we are still not outside of the whole situation with the volatility and the economic uncertainty, we'll continue to be cautious. But though we do have a lot of upside risk, and we'll see how we manage these buffers that we have built so far with regards to our levels of coverage going forward. Pavlos, to you.

okay on the loan environment it's been flattish for the first half of the year and again I think both myself and Jesus mentioned it is in part due to the use of cash cash management by corporates to reduce the interest costs the dynamic part of the market is the corporate side while the retail is still relatively weak. And in the corporates, it's the large corporates mostly, a bit the SMEs, but most of the corporates. And there are a lot of projects, some linked to the RRF and other European funds, and they're bulky and choppy. So for us, I can tell you that we have about 2.5 billion of... loans corporate loans that have been approved but not yet dispersed okay so those will be coming it's a question of time to money rather than time to yes and then we have about another I'd say billion of projects which are coming to the credit committee so reaching the time to yes and again mostly no surprises infrastructure tourism renewables again some SMEs and some shipping so so it's the first half was disappointing but it's a bit of the choppiness explains it as well as the cash management then the third question buyback from the shareholder it's a question you need it is allowed by the law so that's On the other hand, we need to ask the shareholder. This is not something that we can have a view on independently. We could be looking at that, but it's something that we'd have to do in combination with the shareholder. So, unfortunately, that's as much as I can say on that one, I think.

all right I thank you very much for the answers the next question is from the line up maybe so it was mine with a rosy a capital please go ahead hello many thanks for the presentation first just a hopefully a technical one your core profit this quarter Yes, your co-PAT is actually higher than the attributable PAT, which is unlike previous quarters. I was wondering what's driving that. That's my first question. Then, coming back to my colleague's question on deposit costs, I was wondering if you could share the time deposit share you incorporate for 25 figures, and thanks for providing guidance on those. and one final thing on operating expenses. You had an impressive performance down 1% in this inflationary environment. Just want to get if you would share any color on how you see OPEX evolving from here. Thank you.

Okay. Let's start on the last one.

So you know that for this year we expect, despite the inflationary pressures, to have a a low single-digit increase in OPEX. Obviously, this has to do a lot with the fact that we are investing a lot in technology, and we referred many times in our efforts to update our core banking system. Now, inflation is coming down, but it's still going to be in our lives for a bit longer. Although we envisage that we'll be able to contain costs going forward, we don't expect a big uptick in the numbers. and in the plan we have a plan to remain in the low single pitted with regards to cost going forward which we are optimistic that we can deliver. Now with regards to your first question, whatever we have that is not considered core has to do with our trading and other income and that's more or less the reconciliation between our core for redacted tax as well as the attributable tax. There is nothing specific there. It has to do with the dynamics in the line and the difference between each quarter. And if I may ask you to repeat question two because I didn't get that please.

Sure. Your time deposit share assumption for 25, and if you could maybe share it for 24 as well. How do you see this evolving? What's incorporated in that rotate figure for 25?

So we believe that the biggest pressure with regards to the change the deposit makes will come, I would say, by the end of this year, mid-next year, i.e. a time which the rates will more or less normalize at the peak levels, and then the expectation will be that they are coming down. So I would say that in our plan, the terminal, let's say, ratio between core and time is assumed somewhere between 70% to 30%, a bit lower, even a bit lower, 68% to 70% core, and the remaining peak time.

Thank you very much.

The next question is from the line of David Daniel with Autonomous Research. Please go ahead.

Thanks for taking my question. I've just got a quick one just with regard to MRL and capital. Could you maybe just elaborate on your plans in debt markets or your ambitions for the rest of the year?

Okay. Now, MRL. Currently, as you could see from the presentation, our capital level is at 22.5%. Our target for the end of the year, for January 24, is at 22.7%. So effectively, we are nearly there. There's more capital expected to be generated organically through the profitability of the bank. So we sit quite comfortably, and that gives us optionality. Nevertheless, being proactive, given that the The binding target at the end of 2025 is at 27%. Subject to market conditions, we could explore the opportunity of tapping the market in the second half of the year. So that's where we are.

Quite comfortable with regards to emerald, but we need to be proactive.

Well, it depends. Again, as I said, market conditions will dictate whether we go for a Senior or a Tier 2. We do have flexibility, and you know that we have an offer for a Tier 2 as well already, so we'll see that when the time comes.

Mr. David, are you finished with your questions? We will now proceed with the next questioner. Please, thank you.

The next question is from the line of Gladys Panagiotis with Alpha Finance Investment Services. Please go ahead.

Thank you very much. Good afternoon to everyone. Coming back to your excess capital deployment, I remember a few months ago you established an international desk for participating in syndicated loan projects abroad. So I was wondering what are the expectations out of this initiative? Should we expect something for this year or maybe next year? Thank you.

You remember well, and it is being set up, but at the moment we don't have formal targets for it. I think in the 24 budget they will get targets. So we're just still learning how to play this game. So we do not have targets. We do consider it an important part of the capital deployment strategy, but no specific numbers for the moment.

Okay, thank you very much.

The next question is from the line of Nelly Simon with Citibank. Please go ahead.

Thanks very much for the opportunity. Just one quick one from me, which is on retail loan growth. I'd just be interested in your thoughts on when you think retail loan growth might revive and what conditions we need to see before it does.

That's a tough question.

We've been forecasting stronger retail growth growth for the past couple of years because the economy is doing well and it hasn't materialized. I think this time it didn't come around because of the higher rates which are being absorbed now. I do see some light in mortgages where the applications are higher and people are seeing the real estate market be quite buoyant so they're trying to get on that train the S.B. more hesitant and consumer there is some life so but mortgages if you look at retail overall it is 80% mortgages 80% mortgages I'd say so So that's what's going to decide how boy that market's going to be. So I think with real estate prices going up, even with interest rates high, with banks offering decent fixed-rate products, it'll pick up. Don't forget as well that the mortgages that are on NBGs books especially but I think the other banks as well are the ones that have survived the crisis and therefore they have large capital payments so I mean we have I think 600 million repayments a year in mortgages so we need to do 600 million of disbursements just for that book to remain flat and though disbursements have increased they're still not still not meeting that large capital repayment so So not a fantastic crystal ball there, but we're going to be more optimistic as GDP growth improves, as employment grows, and as wage growth also helps disposable income. So all those factors together should provide a boost to GDP. to the retail sector in contrast to 2022 and 23 when disposable income declined quite significantly. So that's it.

That's helpful. Thank you.

The next question is from the line of Negro Alberto with Mediabank. Please go ahead.

Yes. Thanks for taking my question. The first one, may I ask you your expectation regarding the evolution of the contribution to the Single Resolution Fund and the Deposit Guarantee Fund for 2024. The second one, if you can tell us, which is your ECB minimum reserve and the impact to the NIA in 2024. And sorry, the last one, if you can repeat your expectation regarding the increase of term deposits this year. I just didn't get it. Thanks.

Okay, let's start from the last one. What we said that from the point that we are now, which is a mix between current time in the range of 80% to 20%, we would expect that to settle at around 75% to 25% by the end of the year. On your second question with regards to our recipe mandatory reserves, that's about, let's say, half a billion. So the burden that we have on RNII based on the policy change is about, I would say, 18 million on an annual basis. So that leaves about 5 million for the rest of the year as a burden given the fact that I believe it's effective from September onwards. Now with regards to the evolution of the contributions, We expect that to go down from next year onwards, given the fact that we've reached the percentage that is prescribed by the legislation, so that will be something positive for us.

Thank you so much.

There is one more question from Mr. Geckensdorn-Maximilian with Jefferies. Please go ahead.

Hi, yes, good afternoon and thank you for taking my my question. I'm just one on your seat on the capital target and perhaps you could just Give us a little update on where you think or what you think will be an adequate level to in terms of ct1 ratio to run the bank at so We could get a bit of an idea what we should be thinking of as excess capital.

Thank you I Think a number of 15 is what you should pencil down. Okay, 15%.

Okay, would that view change if you were to issue an 81, perhaps?

I hadn't thought about it. I'd have to think about that. I'm not thinking very much of an 81, though.

Okay, thank you. For the moment, at least.

Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to Mr. Milonas for any closing comments. Thank you.

Thank you all for joining us for the second quarter results call. I appreciate you joining. It's August 1st, and I'm sure all of you want to go on vacation, so we will stick around for any of you who do want to answer questions. but otherwise I wish everyone to have a good and well deserved rest for the next couple of weeks thank you all