Raiffeisen Bk In Unsp/Adr

Good afternoon, ladies and gentlemen, and welcome to the conference call of Rifeson Bank International. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Johann Strobel, Chief Executive Officer.

Good afternoon, ladies and gentlemen, and thank you for joining the call today. I will start by taking a brief look at the first quarter numbers, and then, of course, we will also update on our outlook. The operating result was up 33% year-on-year, which we like very much, and this is driven by a 7% increase in net interest income and even more so by an 11% rise in the net fee and commission income. The net trading income and the fair value results also increased following the introduction of hedge accounting for certain portfolios and the reduction in consolidation effects. You might remember that last year we suffered from inefficient hedging, but this was improved substantially with two of our subsidiaries. On the other hand, we see already the first negative impact of these extraordinary times. The consolidated profit for the first quarter reflects 165 million negative impact, which is due to the COVID-19. Out of these, 96 million are related to risk costs. and this includes also updated macroeconomic scenarios and post-model adjustments. And Hannes Mösenbacher will talk about it later. We also felt the negative impact of the COVID-19 in some impairments on investments in associates and goodwill, which came in total to 61 million euros. And we had, out of the moratorium, in two countries already calculated the MPV impact from these contract modifications namely in Hungary and in Romania and this amounts to 8 million euros. We saw a very good loan growth in almost all of the markets in local currency and this had been very good numbers throughout the first quarter just in the recent weeks of the month when we saw a substantial depreciation of some local currencies this was reduced in Euro terms to a small growth of just one percent on group level and the second part of the negative impact came from came to the or relates to the C to one ratio where we see somehow 40 basis points impact from this currency movement and a 30 basis points growth in the credit risk weightings, but I'll come to this later on. In the numbers, so in the consolidated, sorry, in the CD1 ratio, there is still the dividend proposal for last year incorporated, so it's not part of the CET1 ratio. We postponed our annual shareholder meeting to October. Currently, it's planned to the 20th of October, so this gives us the opportunity, following the EZP-EBA requirements, that we have a second look on the development process. in our markets and get a deeper understanding of the potential future impact. If we then move to the next slide, which shows some more details on KPIs, The one thing is the very positive that we could keep the net interest margin at 243 basis points, the same level then in the first quarter of 2019. Also, we have to make you aware that this number will increase. decline a little bit. There are a couple of reasons for that. The one is that we have seen in a couple of countries which are important for us substantial central bank rate declines and what we also see in or have seen in April also continuing in early May that given the impact of this goes down that there is a lower demand in unsecured loans from private individuals. In terms of volume, this is more than compensated by corporate loans, but are you aware that corporate loans and mortgages usually have a much smaller margin than what we earn on unsecured loans? The cost-income ratio looks very positive, but again there it's clear for all of us that given the shutdown in the various markets with the negative impact not only on the net interest income, but also in the fee and commission income, we will see a deterioration in the cost-income ratio throughout the quarter. coming quarters. The consolidated profit leads to a return on equity of 5.6% in the first quarter. If we continue with a short update on how we do our business, I can say that we have been very successful in changing from the traditional way of working to the safe one which means home office for most of the people which also means to secure way of dealing with customers in the branch environment we had hardly any infections and if we had to close branches and it was only for a very short period of time. We worked very well and we could address all the customer requirements and could virtually by virtual means meet all our customers. This was working very well. The other report I would give and you for sure follow these numbers very closely is the impact on this pandemic in our core markets. And what we see is that the fatalities calculated as a number per million inhabitants is low in all our countries compared to the big developed ones. There might be many reasons, and the future will show via analysis what really worked, but what we have seen is that most of the countries took really restrictive countermeasures, limiting the movement of the population substantially, and currently this is the assumption that these worked very well. We will see further analysis on that and I think it will be important to understand what works and what does not work. What we also see is given the good progress that in some countries like Austria, Czech Republic and Slovakia, we already see the first ease in restrictions and we think this is very important because For all of us, for our economy, it would be very, very good to come back to more or less normal activity. When talking about the virus, we also have to mention the various support mechanisms which have been established, and we are now on slide seven. There are a couple of them. It is different. It varies from country to country. Some have packages announced which seem very generous in terms of percentage to GDP. It varies also in the structure, being it direct supports from the state budgets or be it indirect supports where guarantees, payment deferrals, and so on. Of course, it will take a couple of more weeks to understand how these instruments really work and how how fast they will contribute to also overcome these difficult days, and we will see how much they will also be supportive to bringing us back to a normal working environment. In addition to that, we see a couple of additional support measures. We have seen in many countries, probably different to historic experience, that countries which were used to increase central bank rates to defend their currency in earlier crisis, they now were able to reduce central bank rates, and you see it in the box at the lower right end. And on the other hand, there had been, in addition to what the ECB announced, within the euro area, we also have seen... announced ECB swap plans for Croatia and Bulgaria, those who soon will join the Euro. And then we have another program for the Western Balkan countries. We have seen the IMF activities, and we see also in some countries quantitative easing measures like bond purchases in Hungary, Romania, Croatia, and the Czech Republic by the central banks. If we move to the next slide, I talk a little bit now about our segments, corporate. What we see in the corporate area is after, let's say, two weeks or so where our customers were reorganizing their own operations, we had intense talks with them about their potential needs. We saw drawings from them and it seems now that after a couple of weeks of intense discussion everyone is clear what they need and what the future could be over the next couple of months. Of course it also led to a repricing following the the capital market, the price developments. And, of course, we have a very specific industry approach, depending on how sensitive the various industries to the COVID close-downs are. The state guarantee schemes look similar from country to country. As I said before, it might take a while until we have figured out how they really work. In some countries, there are still talks about the details because it's the one thing is to set up the guarantee, but the other is to come with all the various details and conditions. What we see in countries that mainly smaller corporate customers start to make use of the moratoria. In many countries it's not that big, but it's one instrument which is also used by our customers. When talking about moratorias, we should also have a look at retail. You are aware that the moratorias look similar in most of the countries, but varying in detail, so we have seen periods ranging from three months to the year end. We have seen opt-in concepts in most of the countries but on the other hand also opt-out concepts like in Hungary, Serbia and it does not come as a surprise that countries which offer an opt-out concept there is the usage substantially higher and in those where there is an opt-in. In total, it's about 12% of the portfolio where customers make use of this concept. Moving to the macro outlook, I have to say that compared to the last time when we talked to you, there had been Further developments, we had assumed at that time a short, severe lockdown, but then coming back rather soon. What we figured out meanwhile, what we had to learn is that in most of the countries, the lockdown is considerable longer, and this also has a negative impact on the macro outlook, so we adjusted that. Starting with Austria, we substantially reduced to minus 7.2. We had also adjustments in most of our markets, and you see the decline is now significantly higher. Probably the biggest change to last time is the one in Russia, where we had zero last time, and which is now at minus 5 around. The reason for that is at that time we only had to consider the low oil price. Now came in addition also a lockdown in Russia given the increasing number of infections. With that, I think I should move, as it's the standard in our procedure, to the outlook based on what I have seen. explained to you throughout my presentation, we are slightly adjusting our outlook. In terms of loan growth, we now expect a modest loan growth in 2020. In terms of risk costs, we expect a provisioning ratio of around 75 basis points. Of course, this will depend also on the length and the severity of this disruption. I already mentioned the actual cost income ratio and the pressure on that because of the current development. We still aim to achieve a cost income ratio around 55% in the medium term. And of course, we have to evaluate the impact of this development on the ratio in 2021. In terms of profitability, we still believe that in the long term, a consolidated return on equity of 11% is a target for us. Today, and based on our best estimates for this year, we expect a consolidated return on equity in the mid-single digit. And we confirmed a C to 1 ratio target of around 13% for the medium term. And finally, we also confirm our payout ratio between 20 and 50% of the consolidated profit. If we now move to more details, the one is the CET1 ratio on slide 13. I have already explained the drop from 13.9 to 30. We have a capital requirement and the CD1 ratio being adjusted because the structure of the pillar 2 requirement was changed and we now can fill this up by CD1 as well as by 81 and tier 2. And this means a reduction in the CT1 requirement by 98 basis points, which have to be filled up by the other two components. We had our additional tier 1 and tier 2 optimized to that level. So currently with this With this change in regulation, it somehow shifted more the bottleneck to the total capital, which will change as soon as we would optimize again our capital structure. Yeah, I think I had explained to a large extent already the development in the CD1 ratio, as I said before. This mainly came from the FX impact from the currencies where we had seen a significant devaluation. Ruble, Krivonam, Belarus Ruble, also Czech Corona and Hungarian Forint. So this was substantial. And this led to this development. Yes, in local currencies there had also been a long growth, which I had been mentioning before. If we move now to slide 15, at the beginning of the crisis, the biggest question always is what is the impact on liquidity? So what we can report, this crisis is understood by all participants as a health crisis, which has a very negative impact on the real economy, which on the other hand means that the trust in the banking system and the financial system is there, and we can see this in very stable conditions. liquidity ratios like the LCR, which on group level is at around 140%. And yeah, I think to spend a few words also on the quarterly results, I mentioned already the good improvement in net interest income in the comparison first quarter last year to this year. If we compare to the fourth quarter, then we have to be aware of some seasonalities, which we see in the fee and commission income on the one hand, but we also see in the operating results also some improvements in On the one hand, on the other hand, we see also quote-on-quote a negative impact, which comes to a large extent from the Software 1 IPO. You know that we had in the fourth quarter the Software 1 IPO, which was very helpful to the result of that quarter. The very good share performance led to more gain than at year-end, and Software 1 had also... felt in the first quarter the pressure like any listed company. So there was a reduced share price to be considered at the end of the first quarter. And then there had been some other positive or negative results like litigation provisions and some more And with that, I would like to move forward maybe to the costs. Similar to the operating income where we have seasonalities, and I should have mentioned the fee and commission income usually at the year end, and you have seen this in the comparison at the year end is always very strong. So this is fourth quarter to the running quarter lower. I have mentioned that. On the other hand, there have been also some sales last year, like the MasterCard shares, which were positive in the fourth quarter. When talking about the general administrative expenses, we also should be aware that, again, there is this seasonality pattern which supports us very much in the first quarter. So mainly in the fourth quarter, we see higher increases. So the starting point for the beginning of this year, I think, is quite good. When talking to the various countries, so our regions in Central Europe, we have given the Depreciations in foreign and in the Czech Koruna, if we consider this, then I think the minus 1% in loan to customers in Euro terms is a good result. Yeah, we could find an improvement in the NIM and also in the cost income ratio, but there I have already talked about also the seasonalities. Also a positive picture in the Southeastern Europe segment with good developments in all the segments. Some countries already suffer from from being at the banked levels or contributions to some of the funds, which is also a traditional pattern. But overall, I think we can be fine with where the starting point is. In Eastern Europe, on slide 20, we are aware that, with the exception of the effects rate, This had been a very positive quarter, and you see it in all the numbers with strong results in Russia, Ukraine, and Belarus. And also the corporates and markets, we had a very good loan growth in the first quarter. So this is in euro terms. This gives you an idea of what the potential of the bank in normal terms circumstances is. And with that, I hand over to Hannes Mösenbacher.

Thank you, Johan. Also, welcome from my side and thanks for participating. Well, when looking at the first quarter, we have taken 153 million euros of loan loss provisions and the majority you could consider and classify as preemptive and you may also say forward-looking and making use of the methods and the requests by the IFRS 9. Having said this, if you look at this 159 million euros, some 28 million euros needs really to be clearly allocated to stage 3. And then, of course, based on some loan growth, we have a stage 1 booking, but the remaining part can be clearly allocated into this forward-looking manner, is it the macro-adjustment and also the BOST model adjustments. Before I start running you through the slides, let me also again reflect on our starting point, which is a very strong one. We go into this crisis with an MPE ratio of 2% and a coverage ratio, which I would consider best in class among European beers, with 62.4%. And also our portfolio is a very healthy one. having an average BD on the corporate side of some 1.15%, on the retail side slightly above 2%. Having said all this, I would now like to proceed on page 23, where you can see that the total exposure was almost not moving, but please bear in mind that we had this strong devaluation on the FX side as mentioned, so total portfolio was up by 0.8%, keeping FX rates stable, the growth demonstrated in the first two months would have summed up in total to 6 billion euros. On the right-hand side, we have added for transparency reason also the portfolio and industry split to be here complete transparent how our portfolio is being set up because I think what is very important and as we have talked in the second week of, second, third week of March, Besides that, it is a health crisis. Of course, this health crisis makes its toll completely to different industries in a different magnitude. Committed lines, also one of the usual questions we have already taken this question upfront how the drawing behavior of our clients came in. In total, some 1.2 billion euros were drawn in addition And it was funny to realize that some of the corporates with the beginning of this lockdown period made use of their committed lines at the same time placing back the money with the bank. So it was just testing whether or not the line is working. I could say so, but this is not enormous money. And of course, a bank like ours is taking care, can easily manage this drawing on the committed lines. On the next slide, on page 24, going more into this industry perspective, and we have clustered it quite straightforward, just having three main sectors being shown here, the high-risk sector, moderate, and low-risk sector. You might recall when we talked to each other last time, I was using this L-shaped, so I think this would hold true for the high-risk sector, where the impact is a strong one and the recovery may take us even a couple of quarters. Then on the moderate risk sector, you could attach this U-shaped recovery, so a strong drop, a period of finding the new equilibrium, and then a good recovery because basic demand is given. And then last but not least, we also consider that the biggest part, almost 90% of our total portfolio, we consider as a low-risk sector, and here there would be some not suffering at all and some others where you would see a V-shaped recovery. Just to give you one reading example on the high-risk sector, what do we understand as indicated last time? It's tourism, it's leisure, it's airlines and airport services. So we have a total gross exposure of 2.2 billion years, but at the same time we have good collateral giving us a net exposure of 1.5 billion euros. Well, I move on to the next page on page 25 and giving a little bit more insight when talking about RWA's asset. And you're following our bank quite closely for some time. The FX always is working on both sides of the equation. In this case, also on the RWAs. So the RWAs on the non-retail side were up by 165 million euros. Excluding the FX effect, the RWAs would be up by 1.5 billion euros, and retail risk came down by this FX impact by 635 million euros. As usual, in times like this when volatility starts increasing, in this specific case even soaring, we have seen that market risk RWAs have been up by 804 million euros. I move on to my next page on the IFRS 9 provisioning in the Q1 2020. As I stated in my initial statement, total was 153 million euros. State 3, 28 million euros. So very low inflow of really defaulted loans, summing up of risk costs need of 28 million euros. And the remaining big part, you could consider as loan loss provisions, forward-looking as the request by the IFRS 9 method. So we have added another 28 million euros for the macro assumptions, and we already allocated, as of today, 68 million euros when it comes to the COVID-19 post-model adjustment. And as I said beforehand, of course, you know who is heavily impacted. These are the industry on the tourism side, consumer good, but also, of course, segment-wise, we see that for the micros and for the SME, this is a very challenging and demanding environment. For you to have a good transparency and to see what did we do in which segment and region, we have also split up this IFRS 9 provision according to the different segments. So it's in total some 66 basis points And the reason why we have adjusted our forecast to 75 basis points is also to accept the truth that now the macroeconomic forecasts came in more bleak. And when we have talked to each other last time, the forecast on Russia was almost 0% GDP impact. And now also here we see a quite negative outlook when it comes to the GDP development. Having said all this, it brings me to my last slide before opening up for questions. Let me just make some three, four highlights on this page. As you can see, we have an NP ratio of 2%. Being capable to bring down the NP ratio another time down by 10 basis to 2%. we have really a very good and high MP coverage ratio with 62.4%. And the third bullet, what I'm very happy about is that out of our Polish exposure in the due course of the M&A activity, there were some corporate exposures which have been left with our branch, and here we had some good results on the workout environment. It was a difficult and demanding workout situation, but now what you can see is that also the coverage ratio in Poland is jumping up to 69.3%. Well, having said all this, we are now more than happy to take your questions. Please go ahead.

Thank you, gentlemen. Ladies and gentlemen, we may now start the Q&A session. If you wish to ask a question today, you will need to press star 1 on your telephone keypad. Please ensure that your mute function on your telephone is turned off or we will not receive your signal. Once again, if you wish to ask a question, you will need to press star one. If for any reason you need to remove yourself from the queue, you can do so by pressing star two. We will pause for a brief moment in order to allow the queue to assemble. Our first question comes from Sam Goodacre with JP Morgan.

Good afternoon and thank you very much for the call. I've got a couple of questions. The first is bigger picture on your capital position given that now you effectively are operating at your mid-term set one target level rather than in excess. I mean, how are you thinking about capital? Does this impact at all the potential dividend decision given that you currently are accruing the 2019 divvy in capital And is there any update on any changes in equity or capital since the quarter end such as mark-to-market impacts that could paint a slightly different picture? So that was the first question. The second one was about the sizeable corporate default that you experienced in Russia. Are you able at this stage to give us any more color on the segment of the corporate or the nature of the default? Was it, for example, related to the current pandemic situation? And does it imply increased risk of similar defaults going forward? Thank you.

Thank you for your questions. If I might start with the capital. As I outlined, the dividend decision for the year 2019 is finally up to the shareholder meeting, which was postponed to 20th of October, as it's currently planned. And this is this one euro per share. So this would mean, in terms of CT1 ratios, some 40, 45 basis points. What we also do is when talking about the current year, we usually allocate around 20%, so the lower end of our payout ratio as a potential dividend. So this is also not part of the CD1 ratio. The biggest driver in unusual circumstances is the development from the currencies. We have seen huge devaluations in the currencies I have mentioned, so ruble, loribana, Belarus ruble, but also Czech koruna and foreign. We strongly believe, all our forecasts say, that probably it was at the bottom of this year. It's either flat for the rest of the year or even improving, as we see it now, with some of the currencies. And with all the improvements and the packages that might come, also, let's say, the improved oil price. So we think we will... So we have... an improved position since the end of the quarter by all elements which had been negative in the first quarter.

Well, when you talk about the defaults in Russia, the complete sum when talking about risk provision in Russia, for me this is not anything to be concerned in the first quarter. The first two months we We have seen almost zero risk costs on retail. With the beginning of the crisis, we have seen some clients asking for postponement and for restructuring. And there was one, this was a little case on the non-retail side, which is not, for me at least, not being attached too much to the current situation. Of course, you know, in a connected society, you may You may be tempted or you might be tempted to relate everything, but it's a big company out of the industry environment and energy environment, and there was a little restructuring done. Not a big issue at all.

Okay, thanks very much. And then just a third and final question from me. It's related to the, I think it was approximately 10 million euro project charge taken to amend contracts to reflect the moratorium in Hungary and Romania? I think you alluded at the beginning that it's NPV related. So could you just remind us how the accounting works around that? But also, what is the risk that this increases in future quarters? Have you, for example, seen more participation since the period end than 42% in Hungary and 8% in Romania? that you outlined on slide nine.

Yeah. The way it works is that in some countries, I mean the idea of the moratorium, let's start with that for private individuals is that that you agree and if you do not agree, you simply add the installments which have not been paid at the end of the contract. So if they do not pay for three or four months, then the tenor is three or four months longer with the installments which have not been paid. Of course, interest has to be paid, but what we miss is the interest on the interest. and this becomes clear in the NPV and we show this in the other result as an NPV adjustment and based on this we have to say it's quite difficult to figure out so we have done this is in two countries, as I said, Hungary and Romania, we have to carefully look at it. So there might come something also from the one or the other countries. As we said, the 12% of what we have seen so far in the moratorium is... I mean the pattern is usually that in the first few days the number is huge and then it flattens. So we are already in the flattening process. So not all of the 12% are already covered in the NPV calculation. We will update this in the second quarter report. As of now, I do not expect that these numbers will increase substantially, so the 12%, as we have already seen a flattening. Still, customers can change their mind, but I think the inflow slowed down substantially.

Okay, that's super useful. Thank you very much. Take care.

Next question is by Anna Marshall with Goldman Sachs.

Good afternoon. Thank you for the presentation. Two questions, please. First, on your cost of risk guidance, could you please confirm what assumptions regarding various support measures are included in this number and 70 basis points? what it would have looked, if their assumptions included, what it would have looked like if there were no support measures. And also, could you please confirm the expected trajectory throughout the coming quarters of your cost risk? So that is my first group of questions and the second one on cost. Please, what additional steps can you take on the cost efficiency side to at least partially compensate the revenue environment? Thank you.

Okay, thank you. So I got some English lessons still. Colleagues were helping me. So the first part of the question, Anna, is pretty straightforward and easy. You know, we tried to approach it from different sides, and this was the reason why we came up with this round seven, the five biases points. The one was looking at the industries, and we have done... I at least would consider a quite thorough and deep analysis on a portfolio level. For the high-risk industries, we have assumed the fallout, the complete fallout of six to nine months of sales with no support measures at all, and then looking what could be the potential risk cost out of this strong deterioration, of course, in the ratings, and then looking at the expected loss. So this was the one big approach what we did. So for the high risk, we were taking six to nine months. For moderate, we were taking three to five months. And for the low risk bucket, we even took for this one, one or two months of fallout of sales revenues without any support measures. So this was the first thing what we did. The second one is we were looking at our historic stress tests And if you would just simply employ the stress test, and this is now very important and sensitive for me to make you aware of, the stress test always assumes that management is just watching and see how the balance sheet is performing over the next three years. So no possibility talking to our clients, no possibility to restructure our clients, no means at all. So you're just being there and you see how your portfolio is deteriorating. And based on the stress test, which is maybe comparable was the EVA stress, but also the internal stress test we have performed last year. And here we have seen in total a risk cost of somewhere around 100 to 120 basis points. So if you look at these two things, you know, where you say, well, the stress test without any management action would sum up to 100 to 120 basis points or Then you do the bottom-up result, and that was the reason why we came in with the 75 basis point. I cannot give a clear number, but it would easily be saying it's the difference between this 1 and 125 basis point in the support measures, but we rather tried to approach it from the different sides of the equation and to see the perception and the output and risk cost needs came in at the comparable level. That's the reason why we felt comfortable at this time with the guidance on 75 basis points, around 75 basis points. And the move from the one to the other stage, what we believe is, Anna, that in the first two quarters, I would not wonder if we see that we still see a lot of post-model adjustments. because, as I said, the real risk-cost need on the Stage 3 was very low in the first quarter. And we also see that for the big companies having good liquidity positions, yes, they may experience the one-hour rating not sure movement, but this is it. And as long as the customers are being shielded by the moratoria, we will not see a bunch of State 3 bookings. Having said all this, of course, it is extremely important for us to see on a monthly basis how on the retail side the 30-plus bucket is behaving, the 90-plus bucket is behaving, And also, the most important and decisive factor is the length of the moratorium. And of course, we do not wait for the moratorium to finish. The work of the risk management and the collection starts much earlier, but this could be then the time when the stage one, stage two turns into a stage three. But that's the reason why we are now working heavily on these preemptive measures and forward-looking measures when talking to the post-mortem adjustments. Sorry for this long answer.

As to your second question, the OPEX, the one thing is that we have started, and obviously it's already well known to the community, a target operating model review, starting in the head office and followed on in the Austrian subsidiary. We started already last year with... implementation, so the implementation was planned for partly 19 already, partly in 20, so that we have the full impact of the cost reduction in 21. The idea was to save around 60 million euros. As I said before, quite a lot of it had been executed. Some more have to come. We delayed the layoff of some of the people in these difficult days, but it will happen over time. The progress in the Austrian subsidiaries in terms of defining, structuring and partly executing is also well underway. and we had asked our network banks for additional cost savings as well, so in total we targeted around $130 million, and this will happen in 2021. What we see in short-term measures are additional potentials, which means with all these frozen activities that we have, no traveling, no events, and a couple of other things, almost no hirings. So we see, one might say, a natural support in cost saving for this year, and this we will execute, of course. And then there is something which are just thinking, but of course the learnings what we have from... from home office, and we have to elaborate on that. There are a couple of ideas at the table, how to work in the future, but this is too early to announce. Currently, it's the execution of the old cost project, if I may say so, with the expected 130, plus a couple of tactical measures as well.

Thank you. Next question is by Gabor Kmeny with Autonomous Research.

Hello. My first question is on the margin outlook, please. You mentioned a couple of margin headwinds from the rate cuts in Russia, Ukraine, and some other countries, and also the regulatory caps on the state guaranteed loans interest. how much margin erosion shall we expect from this over the course of 2020. And then moving to asset quality, can you talk a bit about why the Stage 2 exposures increased so significantly in Q1? I think it doubled about 21% of your total exposures. It would be useful to get some color on which countries, which segments was the likelihood of migration to stage three. And then finally, you called out a rush with the biggest macro adjustment in Q1 as you move to a 5% GDP contraction assumption. Yet, if we look at page 27 in your slide deck, it seems that the macro parameter, that the provision top up related to the macro parameter adjustment was relatively modest. What's the likelihood that we will see further macro-driven provision adjustments here? Thank you.

Hello. So if I may start with the NIM expectations and give you more details. So you already summarized the big drivers of this reduction in the net interest margin. The portfolio in Ukraine, if I start with the country with the biggest rate cut, is relatively small, but given the sensitivity is also not huge. So we shared with you in the past that the 100 basis point shift might cost us $4 million, so this adds up. already to more than 20. The highest sensitivity we also mentioned, always mentioned, comes from the Czech Republic with 50 basis points and 24, 25 million. So, big impact. Russia is traditionally less sensitive. We always said 100 basis point shift might cost... 10 million, something like this. Romania is more sizable, but 50 basis points might cost another 10 million or so. And it goes on, the others are smaller. So there is a considerable part of deterioration what we see in the net interest income simply comes from that impact. So Maybe 40% or so, but just calculating out of my head, might come from the central bank rate cuts. And then the rest probably comes from others. The bigger part is the structural shift in demand from unsecured to either secured or corporates. And to some extent, the state guarantee packages also limit the margin. On the other hand, we have to say, okay, the good point is that with the state guarantee, there comes also less impact on the RWAs. So I would say on a standalone basis, yes. this product could be quite efficient if the states are not too extreme in their request of the contribution of the banks.

Well, Gabor, I take the second part of the question when talking about the Stage 2 and the asset quality. Yes, you're right. We have been quite comprehensive when putting certain exposures and industries into the Stage 2 marketplace. I gave the reason beforehand, this preemptive and this forward-looking measure. So the entire high-risk bucket is being put in stage two. Also, the moderate-risk bucket is being put into the stage two. And then we were also, of course, looking carefully on the one which we currently consider as a low-risk bucket. If some exposures would qualify as stage two, we have done so. The details split up per country, per segment. Investors' relations will follow up on this with you. And the other thing is what is maybe important. When I look at the names where we have added there a sizable Stage 2 contribution, we can talk about exactly what you would expect that we are doing. The one or other huddle in city centers where we have allocated Stage 2 bookings. And the other one is what we also have seen is, and this is maybe important to know, is that the duration, the usual duration of our loan book is a rather short term, maybe two or three years duration, credit duration. That's the reason why the Stage 2 impact is not more pronounced. But as I said, you know, it's the high-risk bucket, it's the moderate-risk bucket, and some other exposures from the low-risk bucket, which we have put into the Stage 2. And also, of course, goes without saying, on the retail side, those clients making use of the moratorium, we also have leveled there as Stage 2. So this is the thing what we have done and why we see such a strong increase. Yes, this would be my input. And your second question is regarding the macro in Russia. Please bear in mind that on the 31st of March, the previous outlook was the reference outlook and not the current outlook. So we have, we would expect in the second quarter maybe another macro overlay as we have indicated in the first quarter. We could also consider a comparable size for the second quarter. Thanks for the question.

It's very useful. Thank you. And finally, can you give us a rough sense how much of your consumer unsecured loans is under debt moratoriums across the market?

Well, we will look it up swiftly. Give me one second. I come back in the due course of the conference call. I just need to find it out in my material.

Brilliant. Thank you.

Next question is from Nate Neams with UBS.

Yes, good afternoon. Thank you for the presentation. I have two questions, please, and perhaps a small follow-up. Firstly, on fees and commissions, can you talk a little bit about your experience in April and the first few weeks of May What have you seen in terms of activity levels from clients, payments, how do these perform, and what would you expect in terms of fully income on fees? And secondly, a bit on volumes in GCM. Obviously, you flagged some increase there from committed credit lines. but it seems like you also have some unrelated lending growth in GCM. Can you talk a little bit about the outlook there? What do you have in the pipeline? How shall we think of GCM volumes going forward? And a small follow-up or clarification in terms of cost. You mentioned that you have asked the network banks for cost savings to the tune of $130 million. You said this will happen in 2021. Can you clarify here? Should we expect this $130 million to start coming through in 2021, or this is a multi-year exercise? Anything in terms of timing would be helpful there.

Thank you. If I start in the order of your questions... I mean, of course, if you look at the absolute number in Euro terms, one has to consider that, of course, we also have the currency devaluation. So in those countries which are high contributor, like Russia, like also to some extent China, a while in Ukraine, but also the Czech Republic, you have on the one hand the currency impact, what you already see in April, and then you see less activities in all fees which are transaction-based, and we see a substantial reduction. If I go line by line, of course you see very little Credit card payments, you see no traveling, so reduced FX. You see low loan demand in unsecured loans. Usually this goes hand-in-hand with cross-selling products like insurance. So we feel it everywhere. And so the drop is... 30, 40, 50% in some areas in these markets. Of course, we assume that in the course of the year, we will see a recovery. But still, it's less. It's more, let's say, more reactive than the net interest income. Potentially, the impact in that area, in combination, of course, with the currency devaluation, is more than the pure GDP drop, because the GDP drop is currency by currency. In terms of your second question, the loan growth, yeah, we have seen... 7% loan growth in this area, so our international customers of the business was good. Yeah, part of it is always also short-term. What we have seen is increased activities throughout all our regions, but especially in that, Tanis mentioned that already in the In the end of March and April, these activities are less. So, yeah, many of the customers might need additional liquidity throughout the year. but no one panics, so the loan demand is not huge. But this, I think, does not come as a surprise as the customer base is very good, so they have ample of reserves. There are some who are filling up their wallets for, let's say, later on in the year for consolidation opportunities. But overall, it ends, as I said, in growth in the loan portfolio, but lower than under normal circumstances, of course. Yeah, sorry, the last question, cost savings in 20 to 21. Yeah, I think half-half would have been a good assumption.

um how it should come okay thank you that is helpful next question is by johanna sorman with hsbc good afternoon everybody three questions from my side please first of all on your nice uh display of your industries and exposure by sector on page 23 i was puzzled that real estate which is quite chunky doesn't land up at least in the moderate risk sector, what led you to the assumption that or what kind of exposure do you have in real estate that it's rather to the lower end side? And secondly, on your MPE ratio on page 28, which regions or countries would you expect the biggest move? Now we've seen MPE ratio dropping around 2%. And then where could it jump up the most in your view? And last but not least, you said on page 25 and you elaborated in your speech that you want to manage your CET ratio and the strong commitment to the 13%. But effectively, we've been slightly below it now, excluding the profit. How far can you think it would drop in a bad case scenario? Would you touch your buffer of 10.6 or will you be far away from this? Thank you.

Well, there are a couple of questions going into the risk bucket. Yes, it's a question of flavor, you know, where you want to allocate certain sub-industries. The reason why we have chosen for real estate to be considered for us currently on the low-risk bucket is what typical sort of real estate you could imagine. The one is office building, the other one is warehouses, and the third one is residential real estate. So we do not have big infrastructure buildings included in our real estate. So that's the first thing. The second thing is maybe to give a little insight on the way how we perform our underwriting. Whenever we do the underwriting, we carefully look at the discounted cash flow. We are not a pure LTV underwriting organization. Yes, it's a consequence, but we are not purely underwriting on LTV. And we also assume when discounting the cash flow, a minimum level of the discount rate. Having said this, I think we are taking a quite prudent approach when it comes to the real estate in total. And for many of our real estate exposures, we also have a cashier and a reserve account attached in the structuring where some three to six months of reserve money is included to cover a complete fallout of the rents. So this was for us the motivation at this point in time, talking about a medium or a lower risk assessment The other thing is, and this is very little in our portfolio, for me, if you have a lot of to-be-finished projects in the developing phase, in the final phase of the developing, where you're still suffering based on your historically high cost of build, is it the land plot, is it the cost of building? I think this is the part which is more challenged. But as I outlined also talking on the high-risk bucket when talking about some of the huddles Usually, we are not doing Tier 2 or Tier 3 locations. We rather also attempt it to go with good locations. But as I said, the classification, we have shared with you our classification, and I also was sharing with you our underwriting standards, why we believe that this is the appropriate classification. The second question is a very tricky one, I have to admit, and to tell you at this point in time. And I could now be quite talkative, but I think it's too early to give a clear insight. Maybe a little bit going back to the question from the previous question from Gabor. Well, it depends on the portfolio development. It depends on the support mechanism and on the portfolio split end-to-end. So you would have ample criteria where the MP ratio is being collected. But what we believe on the total sum is that we might go somewhere slightly below the 3%. So is it 2.6? Is it 2.8? But I think we are now really trying to be over-precise by the middle of May. knowing that we have to do another seven months, seven and a half months for the whole year. But this would be currently my best guess on the total portfolio. So MP ratio might come in at 2.6% to 2.89%. This would be my guidance when talking about MP. I would not yet feel in the position giving you clear insight in which country, which portfolio we would see the soaring part. This is the second part of your question question. Yes, I think this is the most important thing, sir, to be answered, Johann.

Yeah, thank you. If I may answer your question, do the CD1 and the potential further drop? So let me sum our thinking. The big movement in the CD1 came from the currency, and probably this could be one source of further deterioration. in the CET1 ratio. What could it be? Another 40 basis points? I don't know. But this would then be a further big devaluation, which we currently do not assume. Secondly, when coming to the positive contributions, first, we have a risk cost assumed, which I think was fairly explained. and implicitly given the reason why as of now we do not expect that substantially more would come. Thirdly, we explained that we see a substantial drop in revenues. I think this is again, I don't see substantially more. we would have to argue under totally different scenarios if we consider that. So based on this, we see some positive contribution to the CETI-1 ratio from the profit, what we expect for this year with a considerable buffer in the risk. Then secondly, as we said before, We don't see substantial growth in the loan portfolio for all the reasons we have given. It will take some time. The loan demand picks up again in the retail sector, and in the corporate it has to be seen if a bigger demand is visible. But what we see is, given the situation, The negative GDP development, we cannot be so optimistic to see a substantial demand in corporate loans. So no big impact from organic growth, or so I would say, unfortunately. And then we have inorganic elements. So there is rating migration, which was answered by Hannes Mösenbacher already. Then there are some other impacts negatively like additional capital requirements from the operational risk. This comes mainly from the legal risks of our Swiss franc consumer loans and mortgage loans in Poland and Croatia. This is considered in these expectations. And we also have seen additional requirements from the market risk. Yeah, this model is sensitive to increased volatility, but since the beginning of April, May, we see a substantial drop in this already as the volatility has come down. Some positions also had been reduced. So from all what I have said, I will not now mention a number, but I think from all what I have said, it should not be a big drop from the 13. If it comes much negative, then we foresee and far away from the target you have mentioned before.

Okay, thank you very much. Very helpful.

Next question is by Alan Weborn with Associate General.

Oh, hi. Thanks for the call. Just a couple of follow-ups, in a way. When you sort of did your macro assumptions for Q1, Were you sort of surprised that the impact was only sort of 28 million? I mean, I appreciate that you say that Russia wasn't in that macro assumption that there will be more on Russia in Q2, but still I wondered whether you were slightly surprised that they were so low, and would you expect to see sort of further model adjustments as we go through the second quarter because clearly the situation that you had even back in March, presumably those assumptions were done in sort of February, were clearly different right across the region I think compared to what they are now. So I'd just be interested in your view on that. And I suppose as a second part, Rafiqin traditionally you have quite a big weight of provisioning towards the end of the year. I mean, do you think that's going to be different this year? Do you think you can sort of keep doing those adjustments? And is your aim to get yourself as ready as possible for when you start to see more moves into stage three? And I'd be interested to know when you think that is likely to happen. So that was the question on risk. Secondly, overall, I think what you're saying is you're expecting overall a modest increase in revenues. Where in your major geographies, and I guess what you were talking here is more corporate than retail, are you expecting to see a reasonable growth? Clearly, you've had this rather exceptional growth in the first quarter in the GCM and we do see that with you occasionally. I wondered where do you think the better opportunities in corporate geographically are going to be in the next year looking at the book you have at the moment and that would be also interesting. And finally, just a small point of detail, I think you've said that you're going to pay the one-off Hungarian tax in stages over the next couple of quarters. How much is that going to be? And on the basis that you'll get it back in subsequent years, if I understand it, do you not just net that off or you just have to put that through the P&L? That was it. Thank you.

Well, Alan, thanks for the questions and understanding us so well. Yes, you're right, the 28 million euros being based on the 31st of March, and you could assume a comparable figure in the second quarter because across Europe we are seeing now a more sluggish GDP forecast and also adding Russia. So this would be my minimum assumption as of today. This is the first one. The second one is maybe I was too loose on giving you guidance. I think what we also did besides having some state three bookings or some model adjustments in the quarter four is that we are well known for those try to make use of the IFRS model environment to make use of this preemptive and forward-looking environment and method allowed by the IFRS. So I would be very much tempted to have another stage two coverage increase in the second quarter could be comparable in the total sum what we have seen the first quarter. And stage three will come in as I said depending on the maturity and term how long the moratoria will last. This, I think, will become the moment of truth and, of course, goes without saying that we are already trying to mitigate part of the potential inflow on Stage 3 well before the moratorium finished. So this is my guidance on Q2, but also when I assume that State 3 bookings will soar up. So State 3, my assumption is we will see in Q3, Q4. Q2, we are very much tempted to make further use of this post-model adjustment because I think it's right, it's consistent with what IFRS is expecting from us, and if we do it in an appropriate manner, then hopefully Q4 will not be again one of the quarters where we have to perform a big adjustment up. Yes, so I think I've answered most of my questions. Yeah, yeah, super.

Okay, if I continue, increase of revenues, please apologize. I never wanted to mention that in these days we would get an increase in revenues. When I was talking about increase, I was talking about a modest growth in the loan portfolio. And these were talks in Euro terms. As I stated before, in all the countries, I think with the exception I would have to look it up with the exception of Ukraine, but even there, they're slightly probably. We have seen a considerable long growth. The currency depreciation is, of course, big in Russia, so net there will be a decline in Russia. even in corporate but if I go, if I split it between retail and corporate then of course in corporate we can outgrow the currency, negative currency impact and we will add to this and in retail we might be slightly below year-end numbers because as I said before that the lower demand in unsecured loans and in addition the currency impact so yeah increase in local currencies in a couple of countries but in those with the big devaluations it cannot be fully compensated And maybe to reiterate what I wanted to say is we will see a negative impact in both in the net interest income because of the reasons I gave before and unfortunately also in the fee income. To your other question, booking of bank tax in Hungary, As of now, we assume there is little what we net have to book. It's probably an NPV impact which has to be worked out. But from today's perspective, the wording seems strong enough that we only have to consider the NPV impact from that bank levy.

Sorry to interrupt. There was one question left by Gabor asking the question on how much of the moratorium have been requested from those having a personal loan and from those having a mortgage loan. With all the speed of calculating next of performing a conference call What I can share with you at this point in time is total restructured loans are summing up. This is a number coming from the starting of May to some 4.2 billion euros. But please bear in mind that you have two countries where we have an opt-out model. This is Hungary and Serbia. This is very important because, of course, people by law have been within the moratoria. And it was a hell of a work to make sure that some people also realize, hey, there is no need for me to make use of the moratorium. Having said this, we have this about 4.2 billion euros in total sum. If you look at the one page, page 23, we have in total 24 billion euros in mortgages and the total sum of clients asking out of this product for a moratorium is some 2.4 billion euros. And on the consumer finance, it sums up of about 1.7 billion euros, making it a reference of 17 billion euros in total, as shown on page 23. This would sum up to another 10%. So in both segments, it's about 10% and 10%. But let me add you one more thing. What is maybe interesting for you to know is Also on the mortgage side, we have a lot of clients, and I may use Slovakia as a reference, that we have 50% of our clients having an LTV low well below 50%. Well below 50%. Another 20% of our clients even having a plus on their current account, so meaning saving deposits or side deposits. So this is the answer to Gabor on the questions regarding the split on the product level between unsecured and secured.

Next question is by Andrea Vercelone with Exane.

Good afternoon. Three questions. The first one, it's on... It's a qualitative, it's a methodology question. On your tier two, stage two provisioning overlay that you've done, and you'll do more in Q2, you said, and maybe more later. Methodologically, how long can you keep this portfolio-based approach for? Do you have to, at some point, decide whether this position is individually stage two, if not release it, or if in the meantime it's become NPL, you have to provide accordingly? So how long can you keep sort of guessing top-down for? Second question is if you can give us an update of the carrying amount for the Swiss farm mortgages in Poland and the associated cumulative provision on that portfolio. And third question is on costs, personnel costs. Are there countries where you have already locked in, in your Q1 costs, the salary drift for the year, or there are potential still to come later on throughout the year? Thank you.

Well, I'm always looking forward to this sort of question. Hopefully, the other ones participating in the call do not get bored. On this portfolio-based approach, what we believe what we are doing is, or what we are doing, and we don't believe we have a clear strategy on how we would like to execute on this one, Andrea. The way we have done it was this industry approach. And I think it's fair to assume that in some of the industries, the impact of the COVID could last for at least one or two years. Is it the one which we leveled as a high risk? Having said this, what we did in two of our countries, we came in with this top-down approach. And we already have now done a single-line assessment whether or not this or that exposure really can be confirmed this stage two. And you won't believe it, at least on the portfolio level for the respective country, in this case Czechia and Austria, the money allocated via the top-down approach was more or less met immediately. So, first answer, I think I can easily argue for the next three to four quarters that this top-down is being COVID-related. The second one is, yes, you're right, we have done this bottom-up assessment on individual loans already in two countries, Austria and Czechia, and the amount of money has been confirmed on this post-model adjustment. But given also the current dynamic situation, I think it's a very good tool and this is what I also tried to indicate and I was well understood that we will keep on doing this. What we are thinking about is the entire micro and SME part of the business and also to further explore different industries. The carrying amount on the Swiss franc mortgage is in the associated provisions. Currently, we have, I just need to look it up. Give me a second. There's 2.3 billion euros in, so it's 2.265 billion euros in exposure in Poland. Our NP ratio is 2.45%. and the coverage ratio is summing up, the pure credit risk coverage ratio is summing up to 7.78%. And of course, you know that we are being forced that we also add legal provisions and legal provisions are being now at 57 million euros depending on the utilization of the and coming in legal claims. This would be a very comprehensive picture when talking about Poland.

Okay.

And costs?

Could you please repeat the cost question? So we were talking about the Swiss...

Yeah, my cost question was about personnel costs. If there's any of the countries where the expected salary drift has already been locked in, in the personnel costs we see in Q1, or if there will be some, or some are expected, they'll come where they come.

Let's put it that way. There had been some negotiations in the first quarter, like in Austria, where we saw a 2% increase in these agreements with the trade unions. And similar on that level, we might see it also in other countries. So this is not visible now in the numbers. But on the other hand, I think this should be compensated to some extent also by other activities, like you have less hiring, you probably have less working overtime, and so more have to come in the second half of the year. I mean, the first half, I have to say, these crisis activities – produced quite a lot of additional working hours, but I think it should normalize throughout the year.

Okay, thank you.

Next question is by Ricardo Rivera with MediaBanca.

Yeah, good afternoon to everybody. A couple of questions, if I may. The first one is that it's in the moratorium. If I get back on corporate, if I get back to slide number eight, if I understand well the slide, you're saying that, I don't know, less than 40% in some countries, it's still meaningful. And between 40 and 60% of the clients have asked for a kind of moratorium among your clients. But then you say that you expect the use of the moratorium to be in the region of 5 billion, which is a fairly small amount in respect of your corporate book. So I don't understand really how to read those two numbers together. So the feeling I have is that all your small, small, small clients must have asked for a moratoria. And if that is the case, that might eventually signal, how can I say, a widespread deterioration in the local economies. But again, I'm not sure I understand the slide correctly. And the second question I have is on your risk guidance. The previous one was a range between 50 and 75, if I remember correctly. Now you've abandoned the range and you set a single number. I'm not interested in the number itself, but I'm more interested in understanding why you decided to abandon the range. Do you think the visibility is two months later, two months after the release of the number, full year number is much better, to abandon the range some other banks and many other banks in Europe when providing the guidance they have provided the range what makes you confident to provide a single kind of single and firm number for 2020?

Yes, you're of course right.

But at the same time, there are many others who are refraining from giving any guidance. And I think I rather prefer adjusting the guidance whenever we feel that there is the need of adjusting the guidance. And this is to the best of our knowledge. I think this is for all of us a complete new situation. And I gave the arguments how we came to this 75 basis points. The big difference between the first forecast when we talked to each other a couple of weeks back was that at this time we still believe that Russia will be less impacted. What we have seen in these eight weeks and this was also the reason and motivation for us to adjust accordingly is we have seen the strong deterioration on oil prices and we have seen now the updated, consequently seeing the update on the GDP forecast when talking about Russia. And we felt that it would be inconsistent leaving the old forecast in place with 50 to 75 basis points. I know that there have been many institutions following our approach. Is it some banks, some other banks from Austria? Is it some Italian banks? So seemingly this was well perceived by the market. But this was the reason for us to adjust accordingly and that the 50 basis points now became rather unlikely. And that was the reason for going for around 75 basis points because this is the best what we can provide at this point in time. And I also gave you a little bit of the way of thinking how we came to the adjustment of the risk-cost forecast.

When talking about the moratoria on corporates, you're right, it's more the smaller ones who ask for it. This does not necessarily mean that the quality per se is bad. I think if you look at the situation in all the countries, all the discussion which is going on in the public is a strong signal and push for for the smaller ones to just go for the moratoria and then to figure out how they qualify for the state support packages. I think the smaller ones are, for good reasons, to be assumed more at risk than the large ones. It's clear. So this is another indicator. But what we see as of now is not that we are surprised by the numbers. So micro and small, medium-sized corporates are making use of that. And, of course, some of them are also in segments where they face problems. But I wouldn't say that this is, as of today, a worrying signal. I mean, we will see over the next couple of months or quarters how they develop, and for sure it also depends on how these restrictions are lifted. I think there has been other... Yeah, go ahead.

Just to better understand your wording, is it like saying that these micros... are kind of making a tactical use of the moratoria. So regardless what is your state of health, it's always better to pay tomorrow instead of today, if you are allowed to do that. I don't know if I'm explaining myself. Even if you don't need it, there is always time to pay. Is that the kind of thinking?

I think for a bigger number of customers this is at this point in time the case. Of course, I mean, what else? They are confronted with a situation that the economy is not fully opening up and also those which somehow have opened, they are worried about what is the use of their capacity in the coming months. I fully understand that many of them take this cautious approach and say let's keep the liquidity what we have in our hands and see what the outcome is. This is why the moratorium is there to What we will do is, of course, we will analyze then over the next couple of months as we have started and Hannes gave some first results from the reviews we did, for example, in one of the countries on what is the quality and the potential motivation of, in this case, it had been private individuals. so giving their mortgage loans, the LTV and whatever, what will be their motivation to pay. And, of course, their willingness is one element, will they be able, depends also on the employment. The thing is that surprisingly and different to other crises, And some of the neighboring countries, I'm not talking now about the East, but let's say Central Europe, the unemployment rate is not that high. So this Kurzarbeit concept seemingly also works in some of these countries as well. So it takes time to explore a little bit more. So I agree that a moratorium... reduces the transparency for a period of time. But from all the signals we have, it's not a reason to worry. Otherwise, we would have adjusted our outlook and the comments we gave on the risk-cost development.

Okay. Moratoria will more or less come to expire in autumn, late summer, autumn, no?

Yeah, so this is another thing which is unclear. We will learn probably in June. There had been a couple of countries where the moratorium was rather short for a short period of time compared to others. I would not be surprised if some of them would consider a prolongation for, I don't know, maybe another three months. I'm not sure if we will see the full picture already starting in early summer. And as far as the update on the Swiss franc mortgage situation in Poland is concerned, a couple of informations. I think there First, there had been a certain development last year, especially since the decision of the European Court of Justice. Let me start with decisions. We had, in the last five quarters, 120 decisions The picture, since the European Court of Justice decision is more negative for us than it had been before, so before it was rather balanced, I would say in the fourth quarter and in the first quarter we mainly lost. We only had in a single-digit number decisions in our favor, and the bigger number were against us, and they said in the last five quarters we had some 120 decisions. In the second instance, it's more balanced, but there we only had 14 decisions and a little bit more than one-third in our favor and two-thirds against us. So this is the one how it develops. Yeah, we have seen an increased number of inflows. I don't know if this comes with the stronger Swiss franc maybe as well, but also with the noise which we had in the last two quarters in Poland. There had been some decisions by the Supreme Court which... somehow confirmed, at least in some aspects, our view on how we should read the European Court of Justice verdict. And in addition to that, one might say that there had been another couple of, how do you call it, questions addressed to the European Court of Justice, where the decision is also meant to clarify and where we also hope for a rather positive development. So I would say that the recent decision did not clear anything, but let's say the worst case scenarios should be clearly off the table. And as regards to a question on our issue and plans for AT1 and Tier 2, I wanted to indicate, yeah, in these days there, of course, with this change in the CET1 requirements, this I would perceive as an additional incentive to consider an issuance of, I don't know, maybe one might start with a Tier 2 issue. We'll see. But, yeah, we are carefully monitoring the market development.

Next question is by Thomas Unger with Earth Day.

Yes, hello. Good afternoon. Just two more questions from me. A quick follow-up and clarification on the effects of COVID-19 on unused CAT1 capital and the RWAs. What is the RWA increase that you assume for 2020 out of that? This is the first question. The second would be, on the sharp slowdown in retail lending that you mentioned in the presentation. Could you tell us about the development of new volumes in April and May? Thank you.

Thanks for the question. On terms of RWAs, it goes beyond the COVID. It's just also looking at the economic impact. Is it FX? Is it GDP development? We have assumed an impact, but this is being included in our CD1 guidance of some 2 billion euros when talking about credit risk RWAs.

In terms of new volumes, I can say that, and I wanted to address it, but I try to be even more specific. So in unsecured loans, what we see is a drop down to 30% of what we usually see in unsecured loans. There is some fluctuation here. What we expect is this number will improve in the course of the time when we see somehow a release of these restrictions. This will come, but it takes some time. It's a little bit more difficult country by country to understand what is the impact on the secured part, so mortgages, difficult to to differentiate if there is a backlog from the days before the close down or is it that activities there are significantly higher than in the unsecured land but still down from normal times. In corporate, as I said, there is and was increased activities in March and June, so much more than and what we have seen in January and February, but here we assume it comes down to normal or maybe even a little bit below normal in the next coming months.

Okay, thank you.

Next question is by Tobias Luce with Kepler Chevro. Paul, your line is open. You may be on mute.

Very sorry for that. Two questions from my side as well. First, on SMEs and the regional splits, respectively, the default rates you experienced in 08-09, would you think that you see different mechanics this time? If so, why? you look at smaller SMEs, you talked about the pressure on micros, some self-employed maybe that label as SME. If you consider them, let's say, having extended, for example, lease contracts in the past which are required to run assets, assets they may need for production or be it IT equipment and so on, is there a What kind of payment behavior do you see from these clients? Do they tend to pay banks first to avoid to come on blacklists? Or has there been a shift in behavior that they prefer to serve the lease payment and rather than talk with their bank about forbearance or any restructuring? This would be helpful. Thank you.

Well, the second question you gave us is a little bit demanding, but of course a very valid question. On the SME, the difference to 2008, I think it's multiple. It's really multiple. And let me start with some of them. When talking about 2008 and going into the situation, The way we have underwritten SME, this was based more or less, you could say, on an expert model. Today, we are completely considering the balance sheet, the payment behavior, and many other ingredients. So we see the drawings of the lines. This is being part of the rating method. we have an industry split on the ratings and to which company or to which industry within the SME sector we are willing to give money and to lend. So this is a big difference. So no FX, different underwriting criterias, also different infrastructure. And what we also see on the SME clients, And it's interesting to perceive also when looking at Austria, there are many SME clients where they have a good financial standing and they don't make use of the current moratorium. But we see, of course, and this I think was the intention by the competent governments and competent regulators to introduce this moratoria that Each participant in the society can reflect on the current situation and as outlined in today's very detailed press conference and now talking to you, is to assessing the situation and managing the liquidity. And so this is why we believe that this time is different when talking about the SME. And of course, this is a part of the segment in industry which will be heavily challenged. And this was also the reason for me already indicating if I would consider any post-model adjustment in terms of IFRS, what would be the most obvious segment? Yes, you're right. It's the micro and the SME client. The pressure on the micro and the payment behavior, I think it really depends on the different industry and sub-industries. We had and you have seen it that in all our countries we have the moratorium being in place. It was a hell of a work and coding and of course we are much more happier if people are proactive and if we can support them in terms of restructuring because many of these clients we combine since a couple of years. So if there is no payment holiday of three months or six months, where is the big issue? We all know that this situation is special and we had a real big queue of calling from our retail clients, from our micro clients that we settled on this current situation. This is the best what I can share with you at this moment.

And the comparison leasing, banking, is there any data, any empirical data you have on that issue?

It's very much similar what we see currently. But, you know, you're posting very fair questions, interesting questions. And we must not forget in some of the countries the moratoria have been introduced with the first or second week of April only. So the insight on the detailed patterns is now, we can see it. This is what we can now realize. But also to be extremely frank to you, our first priority was to get all the restructuring and moratorium requests being handled in the best manner and not so much focusing, you know, how much are calling us and how much are calling the others. So it was to serve our clients in the best manner, in a speedy manner. And then later on in the next quarter, I will, of course, give more details, what are the characteristics of the different clients and also comparing ourselves to the industry.

Thank you.

Maybe I can add one insight, which also reflects the moratorium. So our retail guys made a survey, so they asked customers, mainly in the retail, so private individuals to a large extent, in countries where we have the opt-out, because you see there the much higher take-up in the moratorium. And surprisingly, the outcome was that the question was asked, how strong are your impact by the COVID? And the number was not significantly different in Serbia or in Hungary than in all the other countries. So this is one of the reasons. why we are not so much concerned as this point in time now on the higher use of the moratoria in Serbia and in Hungary. Okay, this is based on a survey which is done by an independent research firm, but to some extent I think there is some value in this information as well.

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

Let me join this thank you and thank you for showing this interest, asking these questions. And following us closely, we highly appreciate your deep understanding of these banks, your contributions via your questions and your comments. And we wish you all the best for the next couple of weeks. Stay healthy and goodbye.

Goodbye. All the best.

Bye.