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International. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Johann Stobel, Chief Executive Officer. Please go ahead, sir.

Thank you very much. Ladies and gentlemen, welcome to our second quarter results presentation. Thank you for taking the time to join us today. Well, we are, of course, pleased to report record results. I appreciate that there is a lot to digest in our numbers. In the most recent quarter, we have seen an unusual high contribution out of Russia and an unprecedented appreciation of the ruble against the euro. But I will do my best to walk you through the moving parts. Nevertheless, there are some positive underlying developments in the quarter which are worth highlighting. Core revenues continue to improve and I am satisfied that this is not solely driven by Russia. excluding Russia and Belarus, NII and NFCI have grown nicely in the past 12 months. Loans to customers are, of course, distorted by Russia, with, on the one hand, a 22% reduction in local currency of the loan book, but a significantly stronger ruble rate, which then we will digest later on in details. We have again seen good loan growth in many of our core CE markets, including Romania, Slovakia, the Czech Republic, Serbia, even before accounting for the recent acquisition. And most importantly, our CT1 ratio is now at 13.4% after deducting 30 basis points for dividend accruals. If we now move to the next slide, You know that we have been focusing on growing in Central Europe for some time now. And despite all that is going on in our Eastern Europe segment, I'm very pleased to report that our core CE markets have continued to grow nicely. In Czechoslovakia, loans to customers grew by 3.5%, in Romania by 9%, in Serbia by around 5%, and we added another $1 billion through the acquisition of Kretiak Rekors Serbia. Czech Republic grew by around 1.5%, or so this is closer to 3% in local currency terms. We have executed our M&A plans with the successful closing of Kretiak Rekors Serbia acquisition and the disposal of our Bulgarian business. We have made good progress on capital this quarter. The disposal of Bulgaria helps as to the strong retained earnings. We have also accrued 30 basis points for dividends as required by the regulator. It should be clear, however, that we will only decide at the end of the year on any dividends and that our dividend policy and guidance remains suspended. Our CET1 ratio remains strong under all scenarios in Russia. Even if we are forced to deconsolidate with no consideration for our equity, the impact on the CET1 ratio is very limited. As we de-risk the business in Russia, while also generating substantial retained earnings there, we are careful not to reallocate the higher Russian CET1 into RWA growth elsewhere in the group. In effect, this means that we ring-fence the Russian capital for our planning purposes. This also means that the CETV1 of the group excluding Russia will not be materially impacted by whatever happens in Russia. As I just mentioned, we are de-risking in Russia and can report loans to custom and local currencies down 22% in the quarter. At the same time, we are seeing large inflows of deposits which means that the balance sheet is not shrinking. Moving to the next slide, I think here a couple of points which I could highlight, and this is one of the many moments where I have to stress the strong rubble, which, for example, in the second quarter in NII had a positive impact on 82 million only by this FX impact. We have seen higher liability margins in the Austrian business, in Hungary, Romania, and also in the Ukraine. We have seen higher liability volumes, as I mentioned before, in Russia. Asset margin, we have seen some improvements compared to the other numbers, relatively small amount of 9 million, Russia, Slovakia, partly compensated in Czech and in Austria. The asset volume effect in Czechia, Romania, and Slovakia accounts for 7 million. And in the treasury activities, we had a, 21 million net. Here comes the bigger part of the Russian business. Um, and when we look at the NFCI here again, of course, uh, uh, the Russian business with the ethics, uh, in Russia, you know, this environment there, this was of course a strong contributor. And, uh, and also the mandatory conversion obligation. Also, this was somehow loosened in the course of the second quarter, still is part of this strong contribution. Moving to the next slide, and I have touched already the overall development in the NII and then the NFCI. Some of you might be interested what is the result, the impact outside of the eastern part of Europe. So here we can report the continued long growth. I have mentioned the Czechia, Slovakia, Hungary, Romania, the 5 to 7%. And this all leads to an also I think impressive improvement in the year and year comparison if you look at the business without Russia with 30% increase in the net interest income or the 12% increase in the NFCI. I think I have mentioned many other topics already. And you can read it. What I probably want to address already here is that the recent ECB hike will contribute also to our NII mainly in Slovakia, whereas in Austria that's probably rather neutral. So the impact from this last hike is about 20 million per annum. Moving to the next slide, the assets and loan growth development. Once again, we have to stress here that in ruble terms, we have reduced the loan book by 22%, but in euro terms, it's an increase of 3 billion. We have seen a loan growth in the southeast And here you would also then add the inorganic consolidation of the Crudia-Krikol Serbia. And of course, there had been some positive impacts, as I mentioned before, in Czechia, Slovakia, and Hungary. If we move to the next slide, here it's important again to mention two things. mainly russian driven the one is that of course the the strong ruble overall leads to on group wide perspective denominated in euros to a huge increase in deposits from customers but also in russia per se we have seen a strong inflow We had seen some outflows at the beginning of the war. These are to a large extent already compensated, so the deposits are back, and therefore also the liquidity ratios improved substantially all over the countries. Moving to the next slide, which is the CT1 ratio development. Here this needs a couple of maybe additional information to the many points which are mentioned here. What my colleagues in preparing this slide for you tried to achieve is to separate the various impacts. So the FX impact, the M&A impact, and the net loan growth impact, and then also some other factors. Important to mention here is that one strong contribution came from Russia. with the buildup of equity in Euro terms with an amount of almost 1.5 billion and a reduction in RWAs. So this was overall very positive. I mean, what's also important here to mention is that if we're heading or looking at the further regulatory developments, We see some discussions in markets that the counter cyclical buffer might be increased. So we expect that this would lead to a CT1 requirement, which is now already at 1050 to further increase to 1060 in the course of this year. Uncertain what in Austria we should expect, but if the counter cyclical buffer would be increased here, this could add another 7 to 15 basis points in the capital requirement if the counter-cyclical buffer would be at 50 basis points or 100 basis points respectively. And as I mentioned, the 30 basis points in the CET1. And as I said before, this is a regulatory requirement. base for that is that if no policy, then the average of the last three years as a payout ratio has to be assumed, which in our case is 17 basis points, 17% of the consolidated profit, which is 285 million euros. And if we now move to the Next slide, which is an answer to the potential question, what could be the CET1 ratio by the end of the year? Here, of course, there are a couple of drivers like when you look then at our outlook and an ROA of 15%. This could add another 30 basis points CT1 equivalent till year-end. Loan growth, we will explain, could be overall group-wide rather flattish. And then the question is what would be the ruble rate and what can we achieve by using different ways of liquidity management in Russia, which simply means can we reallocate some of the liquidity, which is now with the Russian Central Bank, which has under IFRS requirements 170% risk weight, if we can manage this more capital efficient. We also are regularly approached by one question. What would it mean, so the worst case scenario, if we would have to deconsolidate the Russian activity without any contribution? You are aware that we overall currently have, and when I say all together, then I mean the IFRS equity, which is around 3.9 billion plus 10 billion. subordinated instruments, which, if I round it up, is about 4.3 billion, which might be lost in the worst case. On the other hand, then, of course, with such a big loss, we won't pay the crude dividend, so this 0.3 billion, and we then would have some further corrections, like a reduction of the ERP shortfall, and an increased effectiveness in the IRP transactional arrangement. So if we net this all, we would end up at 3.6 billion euros capital impact. And if we then look at the 27 billion of RWAs, this would have slightly minus impact. five basis points impact on the CT one ratio. So in essence, we are the Russian activities are to a large extent ring fenced. I think the next slide, the regulatory requirements I touched already with also the counter cyclical buffer developments. So I would like to move them to the next page which is the MREL and our issuance plans. What you can easily see from this page number 13 is that the current bottleneck is the MREL and here of course issuances in the second half of this year would help to create a little bit bigger buffer than what we have now and what we would like to achieve. So it could be up to two issues in the course of this year. And then, of course, there will be some activities. You know that we have this multi-point of entry concept, which then also requires emerald issuance in the Czech Republic, Slovakia, Hungary, Croatia, and Romania. And these requirements are split between 22 and 23. And in this table, you see the requirements, what we have, and the split over the time.

Moving to the next slide, some information on Russia.

I shared with you last time, we're focused building up the capital and liquidity buffers and selectively reducing the lending portfolio. And on all the three levels, the bank has performed very well in the quarter. We have seen large and persistent inflows of deposits in ruble and in foreign currency from corporate and retail accounts. which has further improved our liquidity ratios. I mentioned it already, the loans to customers in local currency terms are down 22%. With a smaller loan book, a very good bottom line, the CD1 ratio on the local standards has improved significantly. We are de-risking the bank, ensuring that it is as resilient as it can be. But of course, under IFRS terms and in Euro terms, it looks slightly different. So the strong ruble development in the quarter from 93 to 56 per Euro means that our equity now is almost at 4 billion. The FX impact is also visible in the RWAs. So only the FX development increased in Euro terms, the RWAs, by 7 billion. And the mentioned high volume deposit inflow required another almost 4 billion of RWAs in the second quarter. This is in this chart, the yellow part. Also, we had this substantial reduction in the loan book overall. The RWAs increased from 20 billion euro to 27 billion. An update also on the net Cross-border exposure, which is 330 million down from 600, what we reported in March. And our trade finance guarantees to Raiffeisen Bank Russia are around 140 million. It has to be mentioned as well that we had been very successful with the capital hatching, but now this market is very dry. And there's a significant runoff in our hedge position, which is currently at the level of 300 million. As we announced in March and discussed on our Q1 results call, we are looking at the range of different strategic options for our Russia subsidiary. This may include a sale as well as other possibilities such as, for example, giving up control and deconsolidating Russia from the group while still retaining a financial interest. In the meantime, we continue to focus on de-risking the business. There is no change since my last communication. No news I can give you today and no decision has been yet made. Please understand that I will not go into each option and possibility separately. and that I cannot make any statements today on the timeline. I want to reiterate that there is a lot of internal effort on this project. We are working hard on it. We are committed to finding a timely solution, but at the same time, we need to be extremely diligent. I will not make any statement today on the timeline, but as soon as we have clarity, we will share this information with you. Coming to the outlook on page 15, you have seen a strong first quarter in GDP developments before the war started. I think this has been beneficial till year end in the overall numbers. Of course, the GDP forecast compared to end of last year had been Adjusted downwards, maybe what we see and read from the various indicators, probably there is some risk to the downside. But still, we don't see recession as of today in Central Europe, in Southeastern Europe, in Austria, or in the Euro area in 22, and also reduced numbers also in 23. It's different in Eastern Europe. War and sanctions have a big impact on the countries. With Ukraine down one-third, Russia 8%, Belarus 4%. Of course, with such a big drop this year, we expect that Ukraine somehow will recover next year. Whereas in Russia, there's a high probability that there will be also a recession in 2023. Moving to the next slide, we gave you our view on five core markets for us. All of them, you can see it in the verbal explanation, have slight differences. Industry structure, depending on energy, FX reserves, structure of the economy, imbalances like fiscal deficit, current accounts deficit. This all leads to the loan growth potential in the markets, in corporate and retail, as it outlined in the box below. And with this, I come to my last page before I hand over to Hannes. And this is the guidance. So we don't have an updated outlook for 23 for obvious reason, given that big uncertainties what we face in our footprint and the guidance for 22 is based on the assumption that the footprint is not changed, which means Russia and Belarus are included in these numbers as long as there is no change visible. We expect and net interest income in a range of 4.3 to 4.7 billion and net fee and commission income of at least 2.7 billion. We expect an improvement year on year in NII and NFCI if we exclude Russia and Belarus by around 20% for NII and 10% for NFCI in 2022. We expect a stable loan volume in the second half of the year with selected growth in some of the D and SE markets. We expect an OPEX in the range of 3.3 to 3.5 billion in these numbers. The M&A integration costs are included, and this will lead to a cost-income ratio of around 45%. Hannes will talk about the risk development. Let me here just mention that we assume a provisioning ratio of around 100 basis points. If we take all these numbers together, the consolidated return on equity is expected to be at least 15% in 2022, and the CET1 ratio should remain above 13%. Hannes, please.

Thank you, Johan. Good afternoon, ladies and gentlemen. Thank you for your interest today. And I do hope, following this call and reporting cycle, that you manage to take some time off and enjoy the summer. The second quarter has been marked by the further materialization of some of the flagged wild cards, which we have previously discussed here, namely inflation, concerns around energy supply and supply chains, and, of course, ongoing geopolitical tensions. First and foremost, the war in Ukraine. Together, this will continue to wait on the outlook, and we cannot exclude a weakening of the credit cycle in the quarters to come. Let me briefly summarize for you the second quarter. We have taken 242 million euros of risk costs, leading to a total risk cost of 561 million euros year-to-date. This includes 204 million euros of overlays and 127 million euros of stage 3 provisions. This now brings our stock of overlays, you can see this in the middle of the page, to 665 million euros. To put this into perspective, this is more than one year through the cycle risk costs, which we have gone through BNL and capital ratios. Half of these overlays are booked outside of Eastern Europe and are available to us under all scenarios. As we discussed last quarter, we have largely digested the RWA increase related to these wildcards. In the second quarter, we have reviewed over 13,000 customer ratings. The heavy inflow of deposits in Russia has added another 4.4 billion euros of risk-weighted assets. From a risk perspective, we are, of course, happy to take ruble liquidity and place it with the central bank or in a reverse repo. At the same time, this is affecting our AFRS ratios significantly. and we are managing this closely. At the end of the second quarter, we also have around 900 million euros of stage one and stage two impairments available, in addition to the overlays that I have just mentioned. In Eastern Europe as well, we have been actively building up our provisions. Let's start with Ukraine. We have now taken around 200 million euros of risk costs for 2022. And for obvious reasons, I cannot tell you today that we are done for the year. But I'm confident, however, that this represents the biggest part and that the coming quarters we can adjust as required. In our last call, I mentioned that our exposure to dispute occupied regions around 300 million euros, and this has not increased in the second quarter. In the Donbas specifically, we had already reduced our exposure down to near zero since 2014. Let me also talk about Russia. We have taken 266 million euros of risk provision so far this year. In March, we guided for risks of up to 450 million euros, which I would claim today seems to be rather unlikely. High commodity prices have probably pushed up some of the expected costs into the next year. And also worth reiterating that our Russian business is ring-fenced. and the earning capacity of the bank is more than sufficient to cover the risk cost and to absorb the RWA increases. As Johan mentioned, our Russian subsidiary has further increased its capital buffers with very good earnings and by reducing its lending activities. Away from Eastern Europe, and despite all that is happening there, we have seen good loan demand and very low risk costs, with the day wills from a very strong 2021 still noticeable in the first half of the year. We are a bit more cautious about the second half, but we expect growth to slow. And at the same time, inflation may affect disposable income and put pressure on some of the corporate margins. High interest rates are also waiting on our customers, but I'm not yet particularly concerned at this moment that this will have a significant impact on the asset quality. In retail, persistent wage inflation and savings from the pandemic are helping to soften the blow. And we have been offering fixed rate terms to our customers for several years now. On the corporate side, many of the customers have locked in fixed rates. And in many cases, they have locked in for longer than usual. Furthermore, the increase in interest expense is manageable compared to the EBITDA margin progression we have seen in the past quarters. Many of our customers have taken advantage of the strength of the pandemic recovery to shore up their balance sheets. Later on, I will also talk about some thoughts when it comes to the gas supply from Russia, and it's increasingly a concern. And I will share with you our scenario analysis on the following slides. We have started building specific provisions for this, as well as the RWA impact is manageable. Here all, despite the more cautious outlook, I believe that RBI is in a very good shape and the same goes for our customers. Despite significant RWA inflation and higher risk costs, our CD1 ratio is back around 13.3%. Our rating has been affirmed by both rating agencies. We have built up substantial risk cost provisions for future defaults and on the existing MBE portfolio, we are, as always, one of the best covered banks in Europe. Furthermore, we have securitized around 10 billion euros of exposure, which also provides some buffers and cushion when it comes to further RWA inflation and risk costs. Therefore, looking ahead, I can confirm our risk-cost guidance for 2022 of up to 100 basis points. In all likelihood, we will see a bit less in Eastern Europe offset by a little bit more of risk-cost need in the rest of the group. Let me move on to the next page. Here I'm happy to share with you our thoughts and how we tried to approach the entire topic of gas supply shock. You will realize that the approach we have chosen is very much comparable to what we have done in the due course of the pandemic. So what are the major assumptions? We do assume a full and abrupt gas stop. And of course, then we were looking at the industries which are being most affected by an immediate stop of gas. At the same time, we also assumed this was the best which was available to us, that the gas available will still be equally distributed. We all know by now which are the countries who are most exposed to the Russian gas imports. And therefore, we were also concluding which are the industries most impacted by these current energy-intensive sectors. So you can see on the left side the countries and their gas dependencies from Russia, then going with the energy-intensive industries, how much this would mean. And then we tried also to simulate the affected ratings. We have done so. and on the underlying portfolio of 16.1 billion euros of RWE. In this very, very, very extreme scenario, this could mean an RWE uplift of up to 2.7 billion euros. Let me move on to the next page, please. And here you can see how we have worked on our exposure list when it comes to asset freeze. What is important for you to know is that the team is always using the actual sanction regime, now being in the seventh sanction package, and calculating back what this would have meant at the inception and at the beginning of the war. So you can see that we have continuously worked on reducing this exposure, now also being capable to run it down by another 15%. Let me move on to the next page, and many things have been said by Johan when it comes to RWA development. The part which is yellow flagged is very much about the credit risk. So we have reduced our exposure on fixed FX rates. We were talking about the updrift and inflation of RWA when it comes to liquidity placement because of the high risk weights. And we were also talking about securitizations. Please bear in mind, that a big part of the impact in the second quarter must be attributed to the cross rates. I'm coming to my last two pages, IFRS 9 provisioning in the second quarter. I shared, at least from my point of view, the most important things already. Let me just reiterate that for the spillover of energy inflation risk, we have also increased the overlays by 196 million years, which is quite a pronounced coverage already for this topic. Last page from my side, when talking about MPE ratio and MPE coverage ratio, 1.6% MPE ratio, 60.7% coverage ratio. And what you also can see is that, of course, MPEs are going up on the rising trend in Eastern Europe. These were a couple of slides from the risk management point of view. Thanks for listening, and we are now eager to listen to your question.

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 the 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 1. If for any reason you need to remove yourself from the queue, you can do so by pressing Start 2. We will now pause for a moment in order to allow a queue to assemble. Our first question comes from Isabel de Riva of Morgan Stanley. Please go ahead.

Hello. Thank you very much for taking my questions. I have three. My first question is on your new guidance. with the group NII up 30-40%, but also even excluding Russia, guided to be up 20%. And this is a very high level, both in absolute but also relative to the prior guidance. So I was hoping you could comment on the developments which have surprised you and essentially unfolded better than your expectations at the start of the year, leading you to this big guidance upgrade. But also equally, do you think this level of NII is sustainable into next year? And then my second question is on the potential exit from Russia. And I fully appreciate that you cannot give us a lot of specifics at this stage. There have been some local news reports that the government may be looking to block the sale of foreign banks' assets. So I was wondering whether you have any comment on this. Is a sale still a possibility in your mind, or does this mean that you're leaning more towards a deconsolidation now? And then finally, I wanted to ask you about your geographical footprint, and are you considering an exit from any additional countries in order to streamline the geographical presence? And how are you going about assessing these candidates? Because, for example, Albania, Bosnia, Kosovo, these are smaller countries, but you're number one or number two. Whereas, on the other hand, in Czech and Hungary, which are the bigger markets, the ranking is lower. So what is more important in your mind? Is it the size of the addressable market or is it the competitive position? Thank you.

Well, if I may start with the first part of your question regarding the NI guidance and the NI dynamic. I think we have seen central banks acting extremely pronounced when you think about the Czech National Bank, the Hungarian Czech National Bank, and we have seen interest rate increases, at least within my career, I have never experienced before. So we have seen central banks acting pronouncedly delivering interest rate increases of over 100 or sometimes even 185 basis points when talking about the Hungarian Central Bank, for instance. And if you recall, you know, we're coming out of a long-lasting period of very super low interest rates where we, of course, very classic, not surprising, but we may have forgotten it. Usually a bank is earning also quite some money on the liability side, also out of the payments. payments they're conducting, asset side, which was very much in the focus in the last couple of years, and hopefully also a little bit out of term structure. So therefore, these two or three countries also, Poland is not so important anymore for us, but also the way how the Polish central bank was acting was quite pronounced. Where do I believe that still something could be seen? Well, maybe finally also ECB is delivering even a little bit more than what we have seen as of today. And I would not be surprised if also in Romania we could see still the one other increase when it comes to interest rate moves. So I think this would be what is my current thinking when it comes to the NI and why we are guiding so strong on NI.

Thank you, Hannes. Moving to the next question, which is about our strategic options in Russia. And let me assure you that I completely understand why you ask. I understand how important the strategic options for Russian subsidiaries are for our investors and for our investment case. And let me be clear. We are committed to finding a solution. We are working hard on the project. No decision has yet been made. And we will brief the market as soon as we are able and in a position to do so. The choices that we are working on are those that we set out at Q1 results. And this includes the sale of the business, but also other possibilities as giving up control and deconsolidating Russia from the group while retaining an interest. It's a not straightforward environment, here I agree with you, and there are constraints. Most important, the regulatory authorities in Russia, regulatory authorities elsewhere, the sanction framework of the EU, and of course, the government position of Russia. And so it takes time to elaborate. And as soon as we are there, we will let you know. I mean, at this point in time, I cannot comment further. And the nature of what I mean, is one which I cannot comment on at this point in time and I can only what I can commit is and reiterate is our commitment to reaching a solution and once again to brief the market as soon as we are there and for me personally it It would be important that you do not interpret anything from my inability to comment. This is a life dynamic situation, and there's little I can say. So please do not draw any conclusions from my lack of comment. Thank you. You had a third question, which is the geographic footprint. I mean, from what we say, I think one can feel also it's not the craftings down principle. But yeah, what you see is the market size and the situation in the markets probably is slightly more important, as you see. also the potential which offers such a larger market than to the smaller countries. But at this point in time, I would not like to comment on any potential transactions on the Western Balkans. Thank you.

Thank you very much.

We can now take our next question from Mate Nemes of UBS. Please go ahead.

Yes, good afternoon, and thank you for taking my questions. I have three of them. Firstly, on loan growth and loan volumes, I think you mentioned that you would expect stable loan volumes in the second half of the year, and still some selective growth coming from Central Europe and then Southeastern Europe. I was wondering if you could perhaps clarify whether this statement explicitly includes developments in Russia, i.e. further decline there, and whether this could be offset by continued good momentum in some of the countries. As I think it has been quite clear, you saw very good development in a number of countries in the first half The second question is on provisioning. The up to 100 basis point cost of risk for this year, could you help us understand to what extent that's been driven or that will be driven by continued provisioning in Ukraine and Eastern Europe generally? versus the rest of the group, i.e. what would be the envisaged cost of risk-run rate in the group X Eastern Rope. And the third question is perhaps a technical one. I noticed that in the Czech Republic, you saw NII declining in the second quarter on a sequential basis. Could you perhaps give us some color of what drove that? That's it. Thank you.

Thank you for your questions.

If I may start with your first question, the long volumes. We have, when talking about de-risking, we have achieved quite a lot already in Russia. I mean, I still can confirm that at this point in time, we're not, given the circumstances, we are not seeking for new business in Russia. So with the runoff, also the short-term runoff to a larger extent has happened, but there will be further runoffs as well. So yeah, there will be weaker loan books, lower loan books in Eastern Europe. And of course, everything is then also depending on the, and we are talking now in local currencies, of course, and the FX development makes it more difficult. But in the other markets, we would be ready to look at it. Two elements one has to consider. Of course, the rate hikes which have happened has brought the interest now at really a level where people are thinking twice to what extent they take additional loans. I think it's fair to say that many customers have front loaded their loan demands with the expectation of higher rates. This we saw in the housing, this we saw also with corporates. I think working capital, of course, customers built up to be less dependent on the supply chain weaknesses. So overall, I think the high inflation and the rate hikes yeah, well, they somehow take off the heat and the speed of loan growth. But right, as you indicated, it's in the Eastern Europe where we expect further drops in the loan portfolio. I can also take your third question, the Q27 million. This is... This is an accounting thing. This is rather attributing to last year and the first quarter. So the $7 million rather would better fit to the Q4. It was booked in Q1. And therefore, if you compare Q1 with Q2, So it's a drop of seven, but if you take out, then it's exactly a stable number of what you had in check in Q1 and in Q2. And I hand over to Hannes.

Talking about the risk cost of up to 100 basis points, and if we would exclude entirely Eastern Europe, I would still confirm the 30, 40 basis points with the one other overlay. What is maybe important, and I tried to cover this in my introductory talk, words is that we may not need necessarily the uh flagged 450 480 million euros when it comes to russia but please have in mind that also in russia we have already allocated over 200 million years of stage 2 bookings thanks for the question thank you very much

And our next question now comes from Gabor Kebany of Autonomous Research. Please go ahead.

Hi, a few questions for me. First one, can you comment on the ROE outlook for the business excluding Russia and Belarus? These two are a significant part of your profits. You earlier had, I think, an 11% ROE target for the group, but... But on the other hand, we now have higher interest rates while Russia and Ukraine is under strategic review. So any comments on that would be useful. And a more specific question on the business excluding, again, Russia and Belarus. Actually, the 20% NII growth guidance here, I think, assumed flattish or perhaps slightly declining NII dynamics in the second half of the year. Could you comment on what trends you see there? My final question is on the gas shock scenario. Thank you for these detailed disclosures on the exposures. Would you be able to comment on the provisioning impact of a potential gas cutoff scenario, please? Thank you.

Thank you, Gabor, for your questions. Let me start with the first one. I mean, you have seen throughout our reporting that separating the Russian-Belarus business on single information, single reporting lines is complex enough on assuming what is the impact of a deconsolidation and then running it without even more so. Please accept that at this point in time, we would not go deeper into a potential ROE analysis. But yeah, if we have a change in the geographic footprint, we of course will update you. I mean, your assumption to the NRI growth is correct. So here we... we assume that in the second half probably it will be slightly lower than in the first half so i don't know three four percent less than what we had in the first half i somehow have uh have in a former in a earlier answer already addressed this uh i think at least i i did with maybe some What we see is in some business areas a pressure on the margin, on the assets, reduced demand in some areas, maybe a shift in the deposit structure. Central banks now are taking out some liquidity of some of the markets, which I would also expect leads to... more competition on the liability side with increasing pricing and lower margins. So this is in a nutshell the reasons why we are slightly lower in our forecast in the second half. Hannes, please.

Gabor, the way I understood is that you would be curious about the risk-cost impact when it comes to this gas offer scenario. You know, from the starting point, what we must not forget is that we have very strong corporate balance sheets from 2021, but also Q1 and Q2 in 2022 have been really, if you listen to the corporate announcement, for these energy-intensive industries being very strong. So what we have done, and just to reiterate this one, is that this is a pure desktop approach at inception. So, I mean, you simulate what would happen if you see this this gas drop and still they get some gas allocated within the available stock. This would lead for some of the companies to an EBITDA impact of some 20 to up to 40 percent and of course this is causing a multiple of downgrades. This was the desktop part and we assumed that the missing turnover would be compensated and would be financed. And then we were talking to the clients on a bottom-up level within those industries and asking what are their mitigation plans, what they could do. And we must not forget that some of these clients are either producing in regions which are not so dependent of the gas delivered from Russia or even delivering or producing five broad, is it Canada or is it U.S.? ? This helped us also to better understand and to get the feeling on the total impact. What is also important before then, finally, in increasing the tension and the excitement, what is also important, the number I mentioned to you, is that it does not include any sudden defaults because this is difficult to digest. So pure desktop simulation of ratings, this would be some 50 to 70 million euros, and then you can make your choice. You could add another 50. You should say, well, but the model was not complete and therefore there was a sudden default or a surprise candidate. This would be the best what we can do at this moment. But as I said, you know, this means that still certain stock and capacities didn't been made available also for the industry. Hope this helps.

That's very comprehensive. Thank you. So you're saying 100 to 120 million euros potentially?

No, 50 pure desktop, and if you add another 50 for a certain default, which we were not capable to catch with the desktop approach, I think this would be, as of today, a fair assumption.

Okay, understood. Thank you.

You're welcome.

And our next question now comes from Mehmet Sevin of JP Morgan. Please go ahead. Our next question comes from Mehmet Sevim of JP Morgan. Your line may be muted. We're unable to hear you.

Good afternoon. Sorry about that. Just two questions from me remaining, please. So, first of all, on the NII in Hungary, it seems that it's evolving a bit faster on the back of the rate increases so far than the original guidance you provided in the third quarter of last year. Is that a correct assumption? And if so, have there been any structural changes in the balance sheet and can you provide update on your current sensitivity please and secondly there have been quite a lot of talk about a potential introduction of Czech bank tax so do you have any views on that has there been any communication to you and what do you see the probability of that being introduced and lastly on the 85 basis points of negative impact potential negative impact on set one by the year-end which you say is inorganic and other impacts. Can you please provide any color on what that is? And also, can I confirm that all the numbers assume a stable ruble from here onwards? Thanks very much.

Well, if I may start with the first part on the NIA improving faster than previously Q3 guidance. We must not forget, and I'm now looking at the interest rates we have seen in 2021 when talking about Hungary. This is 2.4%. And we must not forget when we talk about guidance and sensitivity, this is for small changes. But now we are talking an interest rate environment where the key rate is on 10.75%. So therefore, you could have seen a dynamic which is a little bit more pronounced because as I said, what we usually share with you is some 50, maybe 100 basis point changes. But of course, you know, if you see changes of 8% plus, 8 percentage points plus, this is extremely pronounced. So the balance sheet structure by itself did not yet change. But this is the main reason why Q3 guidance could have been a little bit more cautious than what we can see in the experience now.

You know, when talking about rumors on bank tax, I think in Czechia, I do not want to add additional rumors. So we hope that the constructive environment, what we have seen in the Czech Republic over the many years, will continue. I think there is some chance that this government is focusing on the strength of the historic developments in the markets. If they would look at this, I hope that then they avoid a bank tax, but in these days, If you ask me, can you exclude it at 100%, probably not, but I still hope that it will not come at all.

When talking about the 85... When you're talking about the 85 basis points on the others, since many parts are coming from my area of responsibility, let me start with this one. So, you know, we have still... certain dynamics assumed on the op risk development, which must be considered out of the Polish Sloty litigations. That's the first one. Then we have still some methodological leftovers when it comes to the IRB repair, which would sum up to 1.4 billion euros and the one or other rating spillover. We're also introducing an updating FI rating model, which would be another 0.6 billion years of RWAs. And finally, not to forget, since current derivative markets would not give us the capacity to establish a roble hedging, this would also contribute to the eating up of the CET1 capacity. Thanks for the question.

Okay, thanks very much.

We can now take our next question from Riccardo Revere of Mediobanca. Please go ahead.

Good afternoon to everybody. Three, four questions, if I may. The first one is, I think, Annes. Annes, when you give us, or actually reiterate the guidance of roughly 100 basis points risk cost with Russia, or 30 to 40 basis points without Russia, those are the same numbers that you provided, you gave us immediately at the time of Q1, when the gas shortage was not a topic as hot as it is today. So I was wondering whether those two numbers do include somehow, at least in a scenario, probability weighted, whatever, you know, the possibility of gas being halted, the flow of gas being halted from Russia. The second question I have is for, again, I think it's for Hannes again. NIR in Czech Republic is down a bit, a few millions of euros, but it's down. I was wondering... what is driving that, and if the run rate that we see today can be considered the one that we're going to see over the next few quarters, or maybe we're going to see more pressure on deposits, and so maybe NII will continue going down in Czech Republic rather than up. And then I have a couple of questions for Johan. Your capital is gone has gone to roughly 13.2 13.3 fully loaded before previously you mentioned that you are accruing a dividend but the final decisions will be taken only a year end and so on at what kind of level of capital given the risk the uncertainty we are living at what level of capital would you be confident to say that the dividend could be something for granted. And then I have another question, which is on Russia again. In the previous call, you mentioned at the moment the only possible option you have is to progressively wind down the operations over there. If I understand it correctly, the book in ruble in the local currency is down kind of 20% on a quarterly basis. And this is the one writer that you mentioned at some point, but I was thinking that was on an annual basis. So can you really reduce the book by roughly 20% in a quarter or in six months, meaning that the operations over there could be, zero into three years. If you are not provided, you're not able to sell it. Thanks.

Well, Riccardo, thanks for participating and thanks for your detailed questions giving me the opportunity to go a little bit deeper and share our way of thinking. And of course, you know, given the situation, we all know that it was a I would claim a very educated guess, but not the, you know, of course you have to adjust. And this is what I tried to share with you at the beginning. So if we again start with the different contributors to the different risk provisions. So the first guidance on Russia was based on this expected loss of 120 million euros. I was saying, well, times four is 480 million euros. And some of you picked it up, which I appreciated very much, but I always had in mind that these 480s would come over a two-year period. Sanctions do need a certain period of time that they really completely materialize and unfolding their intended things, what they should deliver. So the 480 are now... We already have booked in the first half year 266 million euros. And I rather would say, given the high commodity prices, that the 480 will not be seen by all what we know as of today for the full year. And I rather would believe that we could finish year-end for Russia with some 300 euros. 50 million euros. First thing. Second thing, I was talking about Ukraine, where we had an expected loss of some 25 to 30 million euros. This is even more difficult. We were assuming a multiple between eight times, maybe even more. But this is the best what we were capable to assume at this period of time. And in cash equivalent, we were talking about 200 million euros. These 200 million euros, you can already see that we have digested this in our financial in the first half year. And usually, you know, if we have so difficult topics, I always try it from different angles to approach those topics. And I was also sharing with you that local colleagues have use the sort of a traffic light approach with red and green and amber approach. And in total, we have some 350, 400 million euros within the red zone. So we believe that the 300, 350 million euros within this red zone could also say, yes, this 200 million euros makes a lot of sense. And please bear in mind that in the lately most affected region on the very eastern part of Ukraine, Donetsk, Lugansk, our credit exposure was already more or less at zero before the heavy war was, or that this region was exposed to these heavy attacks from Russia. So this is what we claimed at this time for Ukraine, and this is what is already being digested in our books. And of course, with a sufficient high uncertainty to be still taken into consideration. I was talking when we last time had the opportunity to exchange our views, I was talking for another about 200 million euros for the remaining part of the portfolio. And this would give us, I would claim, more than sufficient space to also be well prepared within the given guidance of the 100 basis points to cover the one or other more euro more needed when it comes to the gas supply shock. I was sharing with you this pure stylist approach when it comes to the gas shock, but of course, you know, we did not because if you would go with this 50 million euros of the impacted customers, you would at the same time believe that macroeconomic assumption must be adjusted and end-to-end. But my current thinking is that the remaining cash amounts to the 100 basis points could cover quite a strong inflow also out of this gas supply job. So this is the thinking, and hopefully it helps for making up your own mind. Ricardo, thank you. Thank you, Ricardo.

I will take over your other questions, which are easier, I guess. Czech Republic and I have mentioned already that we have this one off in Q1, which was something which was left over positively from last year. So this is a flat development. When looking at the further development, My way of thinking in the Czech Republic is that we might expect an increased competition on liabilities. And I would assume this comes in a segmented approach, meaning that some of the deposits might be the target of competition and others less so. And I mean, we can only can only watch the competition, what's going on here probably. What that means probably, we are not the leader in this development, but of course, like in any other market, if it would happen, we might need to react and then the margin pressure would come from deposits and I would expect less so from the current account. Of course, there are some some business models with banks which are built on accounts and deposits. And for them, of course, probably this is the first period in their life to really make money. And we will see how they try to capture these opportunities. So this is our thinking on the NIA in the Czech Republic. Third question, CD1. Here I would confirm the 13% as a midterm target. I tried to mention that in these days we want to structure the group in a way that even if a deconsolidation of Russia would happen, then this should go without saying. any significant harm on the CET1 ratio. So if you look at the overall ratio, you have to consider that as well. But 13% is the target where we consider dividend. To be very clear, if we would build up CET1 in Russia, this would then not be used as part of the of the dividend potential. Anyhow, there is a dividend ban in Russia. When talking about de-risking, I think the 22% quarter and quarter was a tremendous positive result. All the other, I can say, or I did say that maybe some, to a smaller extent, some additional de-risking might go on until the end of the year. But I, as I said, we will explore all the options what we have. And I do not want to pick up one of the potential options and be more explicit at this point in time. Thank you for your understanding.

That's very clear. Thank you.

And our next question comes from Alan Weborn of the Society General. Please go ahead.

Thanks for your time today. Just a quick question on the dynamics in the group corporates and markets division in the second quarter. Could you talk a little bit about the drivers there in terms of activity and in the context of I think what you're suggesting is that the activity in the second half of the year in some areas is going to be weaker and how do you see that business progressing as we go through the second half. So what have the drivers been and how do you think they will change as we go through the remainder of the year? I also note that there was a 30-bit provision charge in the second quarter, whereas you had writebacks in the first quarter. Could you just tell me a little bit about that? I think you also suggested that in terms of the ECB rate rise, you wouldn't see any impact in the group corporates and markets area. Was that correct? And would that change if we actually start to see higher and more positive rates further down the line from the ECB? Thank you.

Well, I would start there.

So what we do see in the group corporate and markets is that there are there is still a good flow of credit demand when it comes to working capital financing. And I think this is for obvious reasons because, of course, on the one hand side, all the input materials have increased in pricing, and this was also one of the reasons why we have seen more demand when it comes to working capital financing. The second one is And I'm sure, Alan, you're closely following, is that also some of the corporates rather not turn again back to bank financing than for looking whether or not they can adapt the capital markets. So this is what we have seen on the group corporates and markets activities. And of course, we made also still use of the higher credit spreads and deploying our repo portfolio. When thinking about H2, of course, I think this is very much dependent on the current dynamics, but still, and if you also look to the different surveys, what you can see, credit standards might be a little bit more strict, but if the transaction is well-structured and we leave the period of covenant or no covenant structures, we still are more than eager to look at it. So this is the thing what I would see. The other thing is what you also, and you have it implicitly anyway included in your question, that some of the corporates, of course, the ECB hike was more than flagged. You could even say it was pre-announced. But of course, it was just flagged and not pre-announced. So therefore, some of the corporates still were making use of of a little bit longer-term financing and refinancing their current loans outstanding. Well, Johan will maybe talk about the second point in addition, but on the third one, group corporate market, 30 basis points of risk cost versus release in Q1. Well, here you have seen two things. The one is that we made use of our overlays And secondly, we had in the second quarter one default, and we were adding a little bit of additional overlays in the group corporate markets. But it mainly was one bigger counterpart where we have seen a default and we allocated individual loan loss provisions. Johan?

Thank you, Hannes. So on your other question, ECB rate hikes, what would be the impact? I think we shared with you that in the past, when we had negative rates, we charged fees on larger deposits. So, okay, now this period of charging fees is gone. So this is the reason also why one would not see a positive impact or a substantial positive impact on the, on the, in the corporates and markets area on the deposits. Yeah. In the, in the short term, I wouldn't see any significant improvements here because of the sensitivity of the deposits. What, what you have there since rate sensitivity of the deposits is, Maybe if we are at the peak or when we are closer to the peak, it could come, but this is for sure not this year.

That's very kind. Thank you.

We can take our next question from Hugo Cruz of KBW. Please go ahead.

Hi, thank you for the time. I have first a clarification on your comments around the impact of the gas stress scenario on the cost of risk, and then a few questions on NII. But so your comments on the gas scenario, I understood, and please correct me if I'm wrong, that it could imply 50 million of cost of risk based on the desktop analysis, and another 50 million for any certain defaults. If I understood correctly, that strikes me as quite a low number. especially when I compare to the numbers given by Erste yesterday, where they talked about a cost of risk of 90 basis points. I understand the footprint is quite different, but yeah, if you could comment on that, it would be interesting. And then on the NII, can you just use to give sensitivity to rate changes? So if we have further ECB rate hikes, what could be the impact, you know, another 50 basis points, what would be the impact on NII? But also for some of the CE countries, if we have rates going down in Czechia, Hungary, Romania, what could be the impact on NII for the group? That's it, thank you.

If I may start, yes, you understood right, the 50 million euros from the desktop analysis and 50 million euros for another unforeseen default. But please bear in mind that this is, as said, a desktop analysis based on very strong assumption. And the strong assumption is that these energy-intensive industries would still at least producter being served with gas. Secondly, this 50 plus 50 does not incorporate any second and third round effect because most likely you would see it with a very strong deterioration on the macroeconomic side. And you would then, of course, increase your macro provisions in the case of need. So the 50 plus 50, what I was sharing with you is... is isolated on this desk of analysis, but please bear in mind, while others are still forecasting and thinking, we already have booked 243 million euros when it comes to inflation and energy. So the 50 plus 50 in my statement, I would claim that they are already nicely or at least partly covered on this 243 million euros. But you understood, right? But this is just again to share with you our basic and very vital and important assumption on which you base your desktop analysis. At the same time, 243 million euros of overlays already have been booked in the second quarter. Thanks for the question.

In talking about the NIA sensitivity from ECB rate hikes, we had... shared with you that uh also in the presentation that that mainly in in slovakia this this is a 20 million and the next rate hike maybe it's a little bit more as we are moving away from the from the negative rates and and customers might share with us something let's see, as I outlined before, what the competition would react. I think when talking about the other direction now, that obviously you think that not only that the Czech National Bank is done, but would... soon start in a decreasing cycle. So here, 50 basis points in terms of sensitivity, depending also on repricing to what extent could mean minus 10, maybe a little bit more. And of course, the reason why this is a relatively difficult question is that you are aware that we have model books for deposits and current accounts. And of course, this is the time where receiver positions might be built up and maturities might be a little bit longer. So I think here we might need to update you call by call so that you get a good insight in the development. Thank you.

Thank you.

And our next question comes from Alexey Lubasov of Bank of America. Please go ahead.

Thank you very much for the call and for very candid disclosure. I wanted to ask about your Ukrainian subsidiary. Do you see a risk that maybe you will need to recapitalize it out of the headquarters? Presently, you have two billion of loans and you already created 200 million of provisions in the first half. And given the capital is in the region of 400 million euros, then the loan book can deteriorate further, possibly creating a capital need. And also, outside of the loan book, do you see risk for the assets? For example, government bonds of Ukraine presently trade at €20 billion. since the euro do own government bonds there. And also, is there a risk of some government-encouraged or mandated loan moratorium in Ukraine? We can see already that one territory is controlled by Russia. Local new administrations announced debt forgiveness. So do you see a risk there? The government control territory of Ukraine will do something symmetrical to help businesses to get through the tough times. And as a result, maybe your loan book deteriorates further and create capital needs.

Well, Alexei, you raised so many questions. I tried to cover the part when it comes to the government bond and on risks and assets. What we see is that unfortunately, many of the schemes which you would need in such a situation already have been tested in 2014, but also in 2020. So the moratoria was also one of the things on a broader scale which we tried to offer. But you, of course, are talking about a full moratorium on government debt. And I think here we have to be very careful if we're talking about debt being issued abroad and local currency. So, so far, we have... we have seen that local bonds are being honored without any big thing. And if we see a restructuring and an adjustment of terms, this would rather go with the foreign currency bonds. The other one is on the other risks on the loan book. Maybe give me also the opportunity to share with you that I think we are very proud and also pleased that we were capable also to provide some agri-financing, and we were also financing the planting season, which now can be harvested. Is it a different kind of weeds? Second point. Third point is on recapitalization. Please bear in mind, you know, what you can see is the dividend from last year, we were not allowed that this is being distributed to the head office. The second one is the credit quality, given the country rating, anyway, had a very, very low credit rating, meaning it is a very high risk rate and a capital consumption. And earning capacity is still available to Ukraine. But I'm not pretending... that in this environment to perform banking services is by all means an easy job. In these days, we provide agri-financing, we provide daily liquidity management to our corporates and to our retail customers. And at the same time, we see a very high ambition of the retail clients, but also of the corporate clients to honor their obligation.

Thank you, Hannes. Go ahead, Alexei. Go ahead. I just wanted to reiterate.

I think Hannes confirmed that under these circumstances, so far, I think first, the bank is well capitalized, having in mind what risk costs already have been booked. Second, I can only reiterate, I think a moratoria on government bonds would be a real issue on the local ones, on the domestic ones for all banks. So here then this would totally change the picture. But I'm really confident that the responsible ones in the national bank, they have a very deep understanding, as Hannes said, how how the local banking market works and what banks can afford and what should not be put on their shoulders. And so I think they would, as Hannes said, they have an understanding that banks are needed as we were participating in the agrofinance. I think all the employees of banks are doing a fantastic job in difficult times. And so I would not expect that additional problems are imposed to them. So there is probably a balanced way to how to deal with this situation. I think for many, the discussion of foreign bonds did not come as a surprise as at least people tell me one should not expect that from outside the country money is flowing in from some institution and then just to be used to repay other debts so that this is probably that the situation if you like it or not but I I assume they want to keep their local banking system running as it does quite well now in these days.

I see. And just a quick follow-up, €201 million equivalent of provisions were taken just for the loan book or also for some other assets where you saw deterioration?

For the loan books only, Alexei.

For loan books, book only. Okay, thank you very much and good luck.

Thank you very much. Next question. My colleagues told me, sorry to continue, that there might be also questions in the chat. And one is thoughts about buybacks. You know that we have the authorization by the shareholders to potentially buy back up to 10%. We have not started the process which one needs for such an activity. Sorry, moderator, that I interrupted you. Please continue with the moderation. Thank you.

Thank you. We'll take our next question now from Luis Garrido of Bank of America. Please go ahead.

Yes, thank you very much for taking my questions. I have three, please. Number one, you state in page 94 of the report that there was a temporary shortfall of the combined capital buffer requirement at consolidated level as of the end of May. Can you tell us what the capital ratio was at that point and what drove that breach? And secondly, can you give us an update on the gross exposure cross-border to each of Russia, Belarus, and Ukraine. And apologies if I've missed it. And the final question, can you give us a bit of detail or reassurance on how the dividend upstreaming from Russia might work? Do you assume the profits generated by the Russian business can be upstreamed to the Austrian parent?

And what are the consequences if this is not possible? Thank you.

Yeah, so it was a very temporary issue because the requirements of the regular are rather strict. So you have to consider all the negative developments. So if you book loan provisions whatsoever, but you cannot... you cannot use the profit. And this was the reason why there was in this one month and a shortfall, of course, with the many activities what you have seen. This is now something of historical evidence. When talking about the cross-border exposure, to Russia, I think we have in this slide, in the slide deck for Russia, we have it. So this is down to 300 something. Let me look it up, 330. And in addition to that, we have 140 or so counter guarantee for our subsidiary. And I would say the other Ukraine... Maybe Hannes would go for that.

He has it already in his... I have it already in my chat, colleagues are working heavily. So on the other one is the Belarus, the net exposure is 30 million euros. And when talking about Ukraine... the net exposure is some 70 million euros.

And to your question of the potential upstreaming of dividends from Russia, it's in these days not possible. And yeah, the consequences of this is that the capital position, the capital ratio of Russia is improving rapidly. potentially every day, so a very resilient bank. The good thing is that this increase, as we've shown on consolidated level, also supports the RWA growth, which came from Russia, so now they are contributing positively again, so one can stay very good a resilient bank on a standalone and not a burden at all to the parent. Currently, we have no indication that the dividend ban is lifted at all. And then probably one has to consider that we as an owner are located in an unfriendly country. So it's unclear even if the dividend ban ban would be lifted if then the amount would be packed on an S account or if it really could be delivered to us. We do not plan with a dividend in the near future.

Sorry, can I just follow up on two of these points? And maybe, sorry, it's a very innocent question. Are the profits then in Russia available to service your debt holders at the consolidated group at all as a result of this ban or not? And then just on the cross-border exposures, you gave the net numbers. Can you give us an indication of the gross figures as well? Thank you.

I don't know if I fully understood your question. your question, but maybe I try to a potential complex question, a simple answer. So the Russians, so the Raiffeisen Russia has till now approvals to honor all their liability requirements with RBI and this so far included also the AT1 and the Tier 2 what we have. So the coupons so far had been serviced. I hope this was the right understanding of your question and the answer and Hannes is looking up the gross amounts as well.

John should follow up with you. Okay, thank you.

Thank you all for your questions. If you have any more, please remember to press star 1 on your telephone keypad to place your question. The mute function on your telephone needs to be turned off so we can get your signal. As there are no further questions at this time, we will now conclude today's conference call. Thank you for your participation.

Yeah, thank you very much, moderator. It was a pleasure to work with you. Thank you to all participants. As Hannes said at the beginning of his speech, we hope that we are relatively at the end of this earnings season so that you now can start your holidays soon. I hope you can enjoy it. But thank you that you spent the afternoon with us. We wish you all the best. Thank you and goodbye.