Raiffeisen Bk In Unsp/Adr

Good afternoon, ladies and gentlemen, and welcome to the Q3 2022 conference call of Rife Eisenbank International. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Johann Strobel, Chief Executive Officer. Please go ahead, sir.

Thank you very much. Good afternoon, ladies and gentlemen, and welcome to our third quarter results presentation. Thank you for joining us today. We can again report very strong earnings, a strong capital position, and good loan growth, and of course, excellent management of risk in these uncertain times. Starting with the group consolidated results year to date, consolidated profit stands at 2.8 billion and record growth in core revenues. Our CT1 ratio improves to 14.6%, reflecting good RWA management in Russia in the third quarter. Despite all that is happening in Russia and Ukraine, we can report 8% loan growth so far this year, and in particular, loan growth coming from our core CE and SCE markets, while at the same time shrinking loan books in Russia and Belarus. As you well know, the results that we are reporting today include the full consolidation of our Russian subsidiary, which together with a strong Euro-Rubel rate has performed very well this year. As you perhaps also know, it is currently not possible for us to receive dividends from our Russian subsidiary. And this has implications on our capital steering approach, which I will discuss in a few minutes. If we turn to the next page, what we see is that the Russian business has been very strong, but I'm also satisfied with the rest of the group as it's delivering very nicely. If we exclude earnings from Russia, Belarus, but also the one-off gain from the disposal of Bulgaria, we have earned 822 million in the first nine months of 2022. which works out to an ROE of 11%. This has been driven by very good core revenues with nine months NII and NFCI up 38% and 18% respectively. As I just mentioned, we have grown the loan book nicely in our key markets, in particular in local currency terms. We have seen 11% growth in the Czech Republic, 18% in Hungary, 9% in Slovakia, and 22% in Romania. Going forward, however, we do expect loan demand to moderate. I mentioned our CT1 ratio on the previous slide at 14.6% as of Q3. Looking ahead to next year, we will increase our CTV1 target to 13.5% from January and to 14% by the end of the year. At the same time, we are also steering the bank so that the group CTV1 still remain above 13%, even if we have to deconsolidate Russia for zero, meaning we receive nothing for the equity. I won't say much on risk here, as Hannes will cover this extensively as always, but I simply wish to highlight that we have continued to build up our stock of risk overlays, which are now at 776 million euros, equal to 71 basis points of CT1.

If you look at the next slide, what you can see is

but I also already stated a nice increase in net interest income where the bigger part is attributed or was delivered by higher level liability margin in several countries. There is also an FX effect from the ruble and to a smaller extent also from volumes. The NFCI is significantly increased, but there, again, a big portion comes from the Russian business, from FX business, but also from settlement and payments. If we turn to the next slide, then you see more details. You see the split up between the total group NII and those without the the Russian Belarus business. And what you see here is, and I'm now on slide seven, also a very nice improvement if we compare the development with last year. And the same holds true also for the net fee and commission income. And I said before, outstanding, of course, is the FX business, but also clearing and payment was good. Turning to the next page, I have mentioned the year-to-date loan growth, what we see here, that already in the third quarter, overall, the loan growth was slowing down. Of course, this is driven by a reduction also in the loan volume in Russia and Belarus. And also... the deposit inflow is less strong than it was in the second quarter. Moving to the next slide, number nine. What we see here is the development of the C to one ratio from end of June to end of September. I think what I should highlight here is On the waterfall, the 62 basis points are the credit risk. This is the result to a large extent of the optimization of the liquidity management in Russia with changing of the structure that RWAs could be reduced significantly as we see here. We have driven by the risk from the Swiss franc developments in Poland but also from the market risk we have increased we have seen an increased RWA requirements market risk you aware that the hedging opportunities are are not anymore existing, so our structural FX position from the participations, especially in Russia, is increasing, thus requiring more RWAs and capital. We had seen another positive impact from the OCI and one remark to the retained earnings here. Dividend accrual is also considered, which is in the level of 43 basis points.

If we move to the next slide, a few words to our capital steering approach.

I mentioned in my introduction that we are raising our CT1 targets from the beginning of next year to 13.5% and by the end of the year to 14%. These reflect our increased capital requirements, which we expect from next year onwards. To be clear, the new capital targets assume that Russia is part of the group. At the same time, we are also steering the group so that our CT1 ratio remains above 13%, even if we are forced to deconsolidate at zero. This is very similar to the approach we shared with you in Q2. As I mentioned in the introduction, we are currently unable to upstream dividends from Russia to the head office. As a consequence, we will need to calibrate our dividend policy accordingly. This means that any decision on dividends will be based on the capital position of the group excluding Russia. Finally, as we announced on Monday, we have decided not to call our 6 and 1 8% 81 note at the first call date next month. Moving to the next slide, this is a CET1 outlook towards year end.

I finished on the slide before, December 14.6.

We have a couple of indications which we can share with you. We assume a retained earnings of 60 pips in Q4. We assume and we have some buffer for additional RWA requirements depending on the liquidity placements, what we can find in Russia. We have a negative FX impact assumed, as we assume, a euro-ruble rate at 68. And then there are some inorganic and other elements, regulatory model calibrations, which are have to be considered as well. And all this together brings us to the above 14% CET1 ratio on group level by the end of the year. As I have stated, whatever CET1 is generated in Russia will not be invested in RWA somewhere else in the group. And I have already mentioned the 43 basis points. accrual dividend, accrual this remains as the Q4 distribution decision will then be taken finally. As I stressed several times, managing the capital on an assumption of a zero price book multiple deconsolidation scenario for Russia And you have it here. What if we had to do this by end of September? So then the landing point would have been at 13.3. So good above our target. We have a 4.3 billion CET1 capital, which is deconsolidated and in this simple assumption at zero. And on the other hand, we have 21.5 billion of RWAs also be deconsolidated. If you add this up together, then you drop from the 14.6 to the 13.3. As this was fully focused on the CD1, For those who want to see the full potential, full impact, you would then also consider the intragroup subordinated instruments, which are in the amount of 30 pips. Yeah. And with that, I would move to the capital requirements on slide 13. So you see here the actual numbers for CT1 Tier 1 Total Capital. I think what's important for you is also our expectations for 2023. We expect an increased Biller 2 requirements based on some preliminary discussions, what we had with the regulator. This would mean in the usual capital structure, 21 basis points increase on the CET1 ratio. Then we have the OCI buffer to be increased in January by 25 and in December, then again, end of the year by 25 basis points. So in total of 50 basis points. And then we expect further increases in the counter-cyclical buffer from the various network banks, which on group level would mean another increase by 30 basis points to 56. So this adds up to, by the end of next year, of about 100 basis points. Coming to the next slide, the MREL. You see the numbers.

You are aware that we could issue

some benchmark issues in the third quarter. And we, in addition to that, we have a senior one also in October. So all together, this brought our MREL well above the requirement, which, as we shared with you last time, was for a short period of time a bottleneck. within our group, and please find also on this slide the additional requirements from the resolution groups within our group, so Czech Republic, Slovakia, Hungary, Croatia, and Romania. Turning to the next slide, I have already mentioned our funding activities, so I think here I do not have to talk about history. What we can see here in the numbers is that the liquidity ratios on group level, all what you have, the LCR, NSFR, the loan deposit ratio, all they are very nicely throughout the group. Moving to the next slide, some more details on Russia. I mentioned it at several locations during my presentation already that the Russian bank is developing very well according to our risk policies and to our steering. So compared to Q2, we saw further improvements, a reduction in credit RWAs, but also in the RWA requirements from the liquidity placements. And of course, we allocate some operational and market risk, which increased a little bit. So overall, we have a very strong capital. We have on local standards, CT1 ratio of 13.6, which again is up and which is a very nice buffer. And what you can also see on this slide that we also have a very good long deposit ratio meanwhile in the bank. Moving to slide 17, we have adjusted the macro outlook, probably not to such an extent as others did. We probably at some point during this year, we had been a little bit more pessimistic. We see... the impact of the supply shock in the euro area, and we assume a technical recession in the winter. But overall, we remain positive in most of the countries, of course, in South Europe, better because it's more service-related industries will dominate. And yeah, we see a further increase and ongoing recession in Russia as well, minus 4% in 2023. This year, probably much better than we had assumed a couple of months ago. Ukraine with minus 33, very hard hit by the war. And there are more concerns now with this destruction of the... infrastructure, electricity is challenged. Moving to slide 18. Here it's just for your report. Probably you follow it from other sources. We have seen in the core countries significant anti-inflationary measures by the various governments and You see also the impact on the various price baskets. Unfortunately, we have seen another what is called a windfall tax in Hungary, a cap on mortgage rates, and we'll see if more comes. And there is still an ongoing discussion about the windfall tax in the Czech Republic. From the parameters we have seen so far, this could lead to a reduction by 30 million.

Moving to slide 19, an update on our guidance.

All under the assumption that Russia and Belarus remain. In the existing footprint, under these assumptions, we have a net interest income to be expected around $4.8 billion and a net fee and commission income around $3.7 billion. And if we would exclude Russia and Belarus, the net interest income might be at $3.2 billion and the fee income around $1.7 billion. As far as loan growths are concerned, we expect stable volumes in Q4 with some selective growth still in some of the CE and SCE countries. We expect the OPEX around 3.5 billion. This would then lead to a cost income ratio of around 40%. We expect 100 basis points provisioning ratio. And this altogether would lead to a profitability, so a consolidated return on equity at around 25%. I have already mentioned the CET1 target, above 14% by the end of the year, and adjusted targets for the coming year. And with this, I hand over to Hannes Mössenbacher.

Thank you, Johan. Good afternoon, ladies and gentlemen. Thank you for joining us for Q3 update today. Since our last call, it is fair to say that the operating and macro environment has made us more cautious. We have seen the IMF and the SMB war on growth for 2023. Industry and consumer sentiment surveys have deteriorated. And more general, we have level of uncertainty has risen. Of course, geopolitics continue to play a large role in this increasingly unpredictable backdrop. At the same time, we continue to focus on what we can control and I'm satisfied that RBI is in a very good position. As you know, our rating was confirmed earlier in the year, and we recognized upfront the spillover effects of the war. This included internal rating downgrades, RWA inflation, and a prudent approach to provisioning. Our capital and liquidity positions remain strong. I'm very proud that we have continued to grow in our core markets while at the same time improving our resilience. and dealing with the direct and indirect effect of the war in two of our countries. In the third quarter, we have again increased our stock of overlays to 776 million euros. To put this into perspective, this is about 18 months worth of through-the-cycle risk costs. On my next slide, I will share with you our updated inflation energy vulnerability assessment. And as you know by now, Our Russian operations are ring-fenced, and Johan has explained how we think about steering the group's capital ratio, including and excluding Russia. And of course, our cross-border exposure to Russia is shrinking, now around to 300 million euros. Finally, you will have noticed that in Ukraine, our risk costs are close to our initial guidance in February, and we will make some further adjustment in Q4 where required. Our exposure in the regions most affected by the fighting are well covered. Looking ahead, it is reasonable to expect slower demand for loans in both the retail and the corporate business lines. In retail, the combination of higher interest rates and increased uncertainty are weighting on consumer confidence and will impact loan demand in the quarters ahead. In corporate, we are still seeing good demand for working capital products while investment demand has slowed significantly. The recent ECB senior loan officer survey suggests tightening conditions, and this suits us well, as we have generally been seeking better collateral and underwriting terms throughout this year. At the same time, it is worth highlighting again that many of our corporate customers have used the recovery in 2021 and 2022 to strengthen their balance sheets and are now in very good shape as we face more headwinds. As for risk-cause guidance, I can confirm the previous guidance for 2022, namely up to 100 basis points. As a first estimate for 2023, I can guide for around 90 basis points, excluding any release of overlays that may be justified. This assumes roughly half in Eastern Europe and the other half in the rest of the group. Let me move on to page 22. Here we have tried to build on what we were sharing with you last time when we were talking about the potential gas impact. Many of whom I met in London have asked me, well, but now the topic is much more broader. It's about energy and inflation. So what did we do? We have done a desktop exercise on the potential impact of a pessimistic development with respect to energy and inflation under the assumption for further shortening of supply as well as reduced Russian gas flow to Europe. We assume for this scenario a gas price of about 300 euros per megawatt hour and additional high gas prices in this scenario over 12 months. And of course, having said this, inflation rate will stay high We assumed around about 12% in this scenario, and interest rates will further increase to cope with this higher inflation environment. This was the way how we have set up this scenario. Further on, we, of course, have asked ourselves, which are the industries which will be most impacted and affected by this environment? We were thinking about industry-specific impacts on sales, costs, interest rates, and leverage. Having done all these three things, if I talk about now the red industries, you could think about paper and packaging, metals and mining, constructions, materials, the chemical industries. We assumed that sales are being impacted by minus 20%, that material input costs are going up at least for 62, in Europe almost doubling, causing a D&L impact for those companies in the specific industries of a P&L impact of more than minus 60%. Having said all this, of course, we then ask ourselves, what was the impact on RWS and risk costs? If you deploy this scenario, of course, you would see a downgrading for some of the companies. And you have seen our red flags companies are summing up to 12.6 billion euros. causing currently in RWE 7 billion euros. And using this stress scenario, we could see for the red industry an uplift of 2.1 billion euros. Next to this, we would see on the corporate side an increase in stage one and stage two of around about 158 million euros. Next to this desktop exercise, we also reached out to our top 200 customers. trying to better understand what is the impact of these higher energy prices to their current cost structure. To sum it up, they would give us currently a limited impact at least in Q4 2022. Well, if you think and open up your mind when it comes to energy and inflation, of course, you also have to look at your retail portfolio. Currently, we can share with you that we can see a stable asset quality, and households were capable to build up safety buffers in the preceding years. And we also, of course, benefit and customers are benefiting from the one other governmental support measure. As you would expect is that we also have adjusted our credit policies here and there. On the TTI chart, you can see that over 70% having a DTI of our customers between 0% and 40%. And please bear in mind, this is after the strong increases in local rates, what we already have seen this year. Let me move on to page 23. This is just for documentation that we are continuously working on our current list of sanctioned corporates. This is now summing up to an exposure default of €637 million, which is a reduction of around about 30% since the end of February. Johan already touched the RWE development. Just to repeat the one other highlight, the main decrease in credit risk is from the Russian liquidity placement, and the exposure increase in various countries have been offset by the reduction in Russia. Second one is the op-risk RWEs, which is mainly driven by the Poland, Swiss franc portfolio. And last but not least, market risk RWA is given the higher volatility increased also because of the structural ruble FX position. Let me move on to the next slide, page 25, when talking about IFRS 9 provisions in Q3. Stage 1 and stage 2, we have seen releases of 61 million years. This comes by model updates in Poland and Russia. Macro update given The deterioration of the outlook is causing an uplift of 27 million euros. And we again made heavy use of overlays, allocating another 108 million euros in Q3 only. 29 million euros is allocated to Ukraine and Russia. Spillover energy inflation supply shock. We have increased by 151 million euros. And at the same time, we released one other COVID BMA. in total 65 million euros. State 3 and Q3 is summing up to 86 million euros, and year-to-date risk cost you can see on the bottom of the slide is summing up to 721 million euros. Brings me to my last slide, MPE ratio and MPE coverage ratio. MPE is down to 1.5 with a very solid coverage ratio of 61.5%. At the same time, you can of course see that MPE ratio in Eastern Europe is now on an increasing trend. Having said all this, we're sure you have this one other question which we're happy to take. Moderator?

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 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 star 2. We will pause for a moment in order to allow a queue to assemble. Thank you. And we take our first question from Andre Varsalone with BNP Exxon. Please go ahead.

Good afternoon. I've got three. The first one is on the management overlays. I was just wondering if any of those are booked in Russia, Belarus, or Ukraine or not. The second question is on net interest margin in Czech Republic and Romania. You have done very well in the quarter. This is contrary to what we are seeing at system level, where we are seeing shrinking spreads, i.e. deposit costs are going up by more than loan yield. Can you tell us what is going on in your group and give us a bit of an outlook for the next few quarters? And finally, on FX fees, excluding Belarus and Russia, so everything else, they've also been very strong over the past few quarters. What is the driver of this and what could cause, what is the risk that they may have? revert to a lower level in future quarters. Thank you.

Well, if I may start with the management overlays, what we have done. When talking about Russia, the amount of overlays what we have booked or the biggest part is locally booked in Russia. We have allocated some of the overlays currently also to our cross-border exposure This is what we have done. The cross-border was mainly added in the Q2, Q3 when it comes to the overlays. But the biggest part when talking about overlays in Russia is being covered locally. Ukraine is half-half. Part of it was already with the 2021 numbers, if you can recall, was allocated on a holding level. And as time passes, it's being allocated and booked locally. And the same holds true for Belarus. We have already allocated early on in 2021 some overlays for Belarus. And now we also see that most of these overlays have been covered locally. Hopefully this helps to understand our policy and our approach when it comes to management overlays.

It does, but do you have a number of how much is booked locally in these three countries?

Well, the quarterly numbers I would have here with me, the year-to-date numbers, my team would just... Well, then give me two more minutes and colleagues will come up with the stock year-to-date. The year-to-date stock for Russia on overlays is 190 million euros. Give me one more second. The overlays for Ukraine is 135 million euros. and the overlay for Belarus is 40 million euros. Hopefully this makes sense for you. So I repeat myself, 190 million euros of overlays for Russia, 135 million euros when it comes to Ukraine, and 40 million euros when it comes to Belarus. Hopefully this is answering your question, sir.

It is.

I take over the net interest margin question in Czech Republic and Romania. You were so kind in referring to Q3. You might remember that in Q2, we were earlier than others increasing deposit rates in the Czech Republic. And so we were front-running collecting deposits, but we were well ahead, so we did not have to adjust throughout Q3. And I think this made the market come closer to us. So that's the simple part of the answer. Maybe in Romania as well, if you compare us to the competition, one element which is painful in Romania is... and maybe this holds true for many more markets, that asset margin in times where interest rates are moving so quickly are under pressure, very much under pressure. Our mortgage business in Romania is smaller than those of the competition. So the structural, one might say, disadvantage or whatever it was, we never had been so much focused in Romania on mortgages, is structurally helping a little bit. When looking forward, I think it's very difficult to give an outlook. What we can say is that, of course, the more time passes and the higher the rates are, the more we see first the shift from current accounts. So we had countries where... In retail, a couple of months ago, a year ago, the largest part of the liabilities were on the current accounts. And we see this now shifting month by month more to the term deposit and to the saving accounts. And of course, the good thing is that the remaining part, the current account, it's still... very low or not at all interest. Uh, but, uh, one can never know if when competition would start here as well, you could see it. It's different in the corporate area. Corporate is very sensitive and, and here we have seen quite a lot of adjustments. So I would say when, especially when talking as you has stressed Romania here, um, What I'm wondering is to what extent the central bank is continuing to take out liquidity from the market. So this, of course, increases and we see this increases the competition on the liability side. And yeah, we increased interest rates more on the loan products than the competition. I mean, here, of course, it's question how long can we stay substantially higher than the others or if they would follow at some point in time. When talking about your question to fees, without Russia and Belarus, I would say it will be difficult to come with a similar number what we have this year. I think this year it was very supportive that we had this high volatility in the currency markets. Currently, I would not assume that this will continue. So less hedging activities from the customers, which takes away some business potential. And then Croatia is working... with all their energy on the introduction of the Euro. So also there we are going to lose fees. So yeah, I would not expect that the fee development can develop as strong as it was in this year.

Thank you for your questions.

Thank you.

Thank you. And we take our next question from Ellen Webber with Societe Generale. Please go ahead.

Oh, hi. Thanks for the call today. A couple of questions, if I may. Could you just sort of detail what you've been doing in the group corporate area in terms of risk costs, which clearly sort of had a bit of a spike up in the third quarter today? presuming that sort of prudent, but could you talk about what you've been doing there? Secondly, there seem to be some reasonably substantial right backs in the Czech Republic. I'd like to know what they were for. So there was two questions there. Third question on the sort of the Polish Swiss franc mortgage situation. Where is your coverage now? I mean, clearly, you know, there have been sort of developments in terms of negative runs of court cases in the Polish market across the third quarter. And how do you see that now? Are you expecting that you'll need to up the level of coverage in future quarters? And I think the last question was, have you changed at all your lending policies in terms of fossil fuels, coal, etc., because in your region, clearly, there is a need for energy security. And I just wondered how you were approaching that particular situation across the winter in terms of what your corporate customers needed. Thank you.

Alan, thanks for all your questions you have raised, and I may start with answering part of them. Group corporate markets risk-cut spike in Q3. It's a mixed bag, and please do not forget, in total, we're talking about a provisioning ratio of 33 basis points only. But what have been the two main drivers, as I indicated beforehand, we also allocated some BOST model adjustment when it comes to our cross-border business. I think this is well argued and prudent. And the second thing is what we had to experience in the third quarter was one mid-sized corporate default. This is the main reasons for the risk-cost dynamics in the corporate and market segment. First question. Second question is the write-back in Czech Republic. What we have seen here, uh is uh one huge customer and please let me stay very abstract because you know there's still banking secrecy uh which was uh or is acting in the in the car supplying industry um and we were capable to to experience a positive workout company was sold the third one when it comes to swiss strength mortgages the current uh coverage We have currently a provision stock as of the Q3 2022 of 554 million euros and we have added another 47 million euros of net allocations in the Q3. This is what we have currently done and the total disputed value is summing up to some around 600 million euros. Lending policies on fossil fuels and coal in light of energy security need of our region. What we have tried to do is we anyway have a lending policy, a clear lending policy when it comes to coal financing. And here we are still very restrictive and, of course, complying with our coal policy. But if there would be fossil fuel needed in terms of alternative to current gas policy, gas consumption for the one or other industry, we would be willing to cover this in terms of a working capital facility. My CFO just was shouting at me in the virtual room that the coverage ratio when it comes to the Swiss franc slotty topic is currently summing up 34.6%. Alan, thanks for your questions.

Thanks.

Thank you. We take our next question from Gabor Kemeny with Autonomous Research. Please go ahead.

Hi. A few questions on Russia and capital, please. So firstly, you are indicating this 13.3% pro forma CET1 ratio excluding Russia, the worst case Russia walk away. Thanks for providing this number. When you say the MDA buffer is 270 basis points, does that take into account the expected increase in your capital requirements? Or shall we just deduct another 100 basis points for the expected increase there? And the other question is a broader one. If you could give us an update on how you think about the restructuring options for the Russian business. And how do you see the pros and cons of potentially exiting from Russia? And my final question is just a follow-up on the Czech NII, where you had a smart strategy of moving with the deposit pricing before the competition. What's the outlook here? Do you see room to further grow your NII, or do you think NII could roll over under your base case rate expectations.

Thank you. Thank you for your question.

So the first, I hope I got your question right. So the 13.3%, if we lose Russia with zero compensation for the equity, this is in the current regime. So the... 10.5% capital requirement, what we currently have, CT1 requirement, what we have as of September 2022. Do the restructuring options, as you called it, so the options what we have in Russia, I can only tell you that our team is working very, very hard. We do not exclude one of the many options which we are considering. So this more than implicitly means that the solution space has not narrowed given the complexity what we have around this topic. I cannot indicate any timeline when we will come up with something, you know, that there is any option available would need quite a number of approvals by several authorities as well. So this makes it very difficult to give an indication of the timeline. When talking about the Czech business, of course, I think here we are more or less at the end of the rate cycle. First, second, I think what I tried to describe when answering a question earlier is that the gradual movement from current accounts to saving deposits and time deposits is continuing. So here, I don't think that we are already at the end. So I... I think it's a challenge to strongly grow the NII in the Czech Republic. That's my view. Also because of the high inflation rate. And I think that loan demand, another area for growth, is also limited. So here, Czechia, I think we had a good time so far. We have to adjust now to the behavior of the customers.

Thank you. Understood. Thank you.

Thank you. The next question comes from Olga Veselova with Bank of America. Please go ahead.

Thank you. Good afternoon and thank you for this presentation. I have a technical or theoretical question. What is your sensitivity to of NII to potentially falling buber? And the same question is, what would be your sensitivity to lower priber? Thank you.

I did not... Buber.

So Buber in Hungary and Privor in Czech Republic.

Now I got it. Sorry, now I got it. You said Buber and I sensitivity to Buber. So here I think if we compare it to Czech, if you allow me some simplification, then I think we are in these adjustments in Hungary, there is a time delay. So... This means that I think pressure on the net interest margin should come over time as more and more customers are moving to term deposits and also saving accounts. So here, I think we have seen much less change in the structure than what we have seen so far in the Czech Republic. I don't know how the competition will develop in the country. So it's so volatile. And I think here that the banks would also look at the overall pain, what they have to accept. So I think with all these caps on the various floating products, I think it's... it's much more difficult to adjust as you do it in other countries. In terms of Russia, I think here we are in a good range so that the central bank rate is, I would say, almost back to the normal level and And so the adjustments have been done, of course, in foreign currency.

There is still some movement back. I think the – let's put it that way –

I think that our pricing, which was very favorable in Russia to our sensitivity, and you see it from the number, this was driven by the huge RWA requirement. And therefore, let's say from the customer perspective, the rates were not attractive at all. So I think we're back to the level where we should be from, I mean, the level of deposits, liabilities, where we could be, where we should be. So here again, I would say you would assume a substantial lower rate lower NII than the extraordinary, the outstanding ones, what we had because of the reason I gave. So we are back to a more and more normal situation and prohibitive pricing, which of course supported the NII, ends or has ended.

Yes, thank you. On Russia, it's a useful color. Thank you for answering about Buber and Hungary. I also asked about Priber in the Czech Republic. So when and if it will go down, do you have a sensitivity to falling benchmark in the Czech Republic? Or again, it will all depend so much on the structure of balance sheet and behavior of competitors by that time.

Yeah, in terms of sensitivity, I mean, if I look back to historic levels, then I would say there is still 20-30%, but this is a guessing as we never had this huge change in rates in such a short period of time, but there is still room for adjustment. Also, I mean, we had a already 25% of within the last year, 25% of the retail deposits, the deposits on the current accounts of retail had already been shifted to the term deposits and savings. So here the question is, given the high inflation, what is the liquidity preference of customers, what they want to keep on there? But I think there is some some more room to go there. And in the corporate part of the liabilities, I think a large part happened already.

Thank you.

Thank you. And we take our next question from Mehmet Seven with JP Morgan. Please go ahead.

Good afternoon. Thanks very much. I have a few remaining questions coupled on the set fund ratio and the requirements. Firstly, are you able to provide any color on the increasing strep requirement and what's causing this in particular, given you mentioned the draft number that is coming for next year? And on the increase of the set fund target to 14% by year end next year, given this is higher than the upcoming increase in the regulatory requirement, Is it simply to create more buffer, given the experience that you saw this year, or is there any other reason behind it, and is that particularly related to Russia? And two more. One, on the decrease of RWAs in Russia, given the deposit optimization you mentioned, is this now complete, or should we expect any further decrease there? And finally... On long growth in Russia, you obviously delivered that very strong, very significant 25% decline year to date. But in the presentation, you mentioned that the portfolio from here should remain broadly stable going forward. So does this mean that you restart lending in Russia at this stage? Thanks very much. That's all.

You're coming back to your first question.

Why a higher SREP requirement? I pause here for a moment not to get cynical. I also ask myself why at all. Nevertheless, what I sense from the ECB is it's the overall increased uncertainties what banks and what we face It's difficult to say what of these increase would then be or have to be allocated from the Russian exposure. Difficult to say. We can only find out in a later point in time. Maybe there is some element in it as well. So it's a combination probably from our Russia exposure and some other concerns about inflation, energy, and all the topics Hannes has addressed before. When talking about the increased guidance, I think I tried to explain that by end of 23, if you add up all the various elements together, this is around 100 basis points. So, you know, the 21 from this rep, then the 50, plus then the 50 from the OCI and then the, the, from the various countries, the 26 from the counter cyclical buffer. So if you end this up, all this is a hundred basis point. So to bring the management buffer back to the level, what we had before this changes is, is the main issue, nothing else. Um, um, so it's, um, If we talk about CT1 requirement, currently we have 10.5 after some small countercyclic buffers increases, and this will go to 11.5 by the end of next year. So this basically is the adjustment. So no change in the management buffer what we have. Yeah, is it the right point in time for... central banks to increase the capital requirements when the broader part of the world is talking about the recession. This I'll leave up to your judgment. Yeah, I think in Russia, you mentioned the RWA decrease, the Bossitz optimization. So I think, yeah, we are, I think that people would say that the fast money, this is now and I think we are there. Does it mean that the RWA will not fluctuate even with deposit volume as we have now? No, I cannot exclude it. You know that the risk weights of the Russian Central Bank, the Russian sovereigns are very high. So it depends on other areas as well where we can place this money in. There might be even a situation that one could consider having here and there some loan increases, even in the Russian books, might be more favorable than short-term depositing somewhere else. So we're not back to a strong lending, rather stable. Also, the short-term loans have been repaid. So also the paying back is less and less. And of course, some loans have to be rolled over also. But no restart of lending. Thank you.

Great. Thanks very much.

Thank you. And we take our next question from Simon Nellis with Citibank. Please go ahead.

Oh, thanks. Thanks very much for the opportunity. Yeah, just back on the... the new capital targets. Actually, I think you mentioned that you'd still be looking to hold at least 13% core tier one, excluding Russia, before you'd pay out any dividends. Did I understand that correctly? And I guess when you look at that 13%, is that including losses on subordinated instruments, or is that the 13.3% that you reported this quarter, kind of the targeted ratio on that level?

The target ratio without Russia is this 13%.

I mean, this is a steering target with some fluctuations. So if we would lose sub-debt without compensation, then for a quarter or maybe two, it might be that we are below the 13%. But what you see now is it there is a good chance that we would remain even in such negative circumstances above the 13. And yeah, the 13 is a guiding idea for dividends as well. But as you said, we then have to consider also the subdebt.

Yeah. I guess also with that, Because that 13.3% actually assumes that you don't pay out the accrued dividends, right? So including the accrued dividend, it's actually below 13%. I'm just wondering if you had that 13.3% ratio at the end of the year, including the accrued dividend, would you still feel comfortable paying the dividend or not?

Yeah, yeah, you're right that this 13.3 assumes that in such a case, we do not pay the crude dividend as we would be substantially loss-making, yes.

Okay, and I guess the message is you want to kind of show a 13% quarter 1x Russia.

Yeah, it would give us some room also for dividend, you're right, but it's too early to talk now about the dividend, yeah, at this point in time.

Okay.

But you fully got it, yeah?

And just one last thing on the subordinated instruments. I think you said it was 30 basis points. That would suggest that there's around 300 million. Is that right? I thought it was supposed to be close to 700 million.

That's right. 300, we're looking around. 340 something. Yeah, 340.

Thanks very much. Very helpful.

Welcome.

Thank you. And we take our next question from Johannes Tormann with HSBC. Please go ahead.

Good afternoon, everybody. Johannes Tormann, HSBC. Three questions from me left, please. First of all, thanks for the indication of your check, windfall tax payment of $30 million, which is probably less than 2% of what the government wants to collect. Do you expect that the overall check banking system will be still... meeting the government obligations of 33 billion CZK in 2023? Or will there be any shortfall or is there risk that your payment increases? Secondly, on your risk guidance, this year's 100 BIP do surely include some management overlays, whereas next year's guidance of 90 bps is excluding overlays. Could you share a bit of the underlying assumptions which drives the difference? And last but not least, as we've talked a lot about Russia but not about your other countries, what is in your view your best performing country this quarter and probably which one has been a bit weaker than you would have expected? Thank you.

Your

I mean, tax questions are probably the most difficult one. And the way you framed it, it's painful. I have to tell you, it's very painful. It's like someone in the government independent of what banks are doing. It's a number. And then we think twice or three times. So what I hope is so that let me start with the 30 million. this is the best guess what we do. So what we can do given our maybe cautious budgeted profit for the next couple of years, especially the next year, and the pace and the adjustments to the pace the way we have understood. We still think or we hope that the government is once again listening to the banking system. And, uh, well, at least there is some hope for me that, uh, if they consider all our arguments, then, then they would understand it's better to, um, not to tax the banks, but use them as, uh, as the growth factor, uh, after for the country. And, uh, I think, uh, I don't know if politicians care in these days so much, but, uh, I think over the last many, many years, the capital markets, the market condition, which were provided by the Czech government, supported very well the development of the country. Let's see. So it's a guess. It's not still there. And I, for sure, I do not hope that the 30... more will be requested. I hope less. And yeah, this is based on the latest draft, what we have seen. So it's a best guess calculus and therefore I would not expect more.

Well, let me talk also about the risk-cost during risk-cost guidance when it comes to the 100 basis points risk-cost guidance, including the one or other overlay bookings. Well, when talking about 2022, of course, if you look at our overlays, we have heavily allocated towards these overlays because of the war in the Ukraine. Also the effect to Russia because of the sanctioned environment. And I think this is just pretty straightforward why we have done this. So this was for 2022, and I was sharing the details, what is stage three and what is coming from the overlays and what was our rationale. Also, of course, including the energy prices and inflations. Well, then looking ahead in 2023, what is our motivations to guide up to 90 basis points at this point in time? We must not forget this heavy inflation, this energy situation. Nowadays, economics are talking about a stagflation or at least a recession. And I think we have been favored with a very benign credit cycle up to now. And we also jointly have experienced one other surprise candidate suddenly being on the on the screens popping up or reporting the one or other problem. So the 90 basis points would go mainly for experienced state three. And what is very important just to re-emphasize, these 90 basis points would be before any release of overlays. And of course, if these 90 basis points are materializing, We also, of course, could then make use of the one or other overlays what we have allocated up to this moment. Hopefully, Johannes, this helps you in reading our 90 basis points. Thanks for the question.

Yes, thank you.

Now, coming to your third question, the way I understood the first part is like asking a parent's which of your kids do you love most? And here I can say, I love all of them. So they did a great job. I think when, and of course, looking in the future, I think, okay, the, I mean, Ukraine is at war, so difficult. The adjustments in Russia difficult, although from a strong capital base, And within the other areas, I think the introduction of the euro will bring some changes to Croatia. But if I take this away, then I think all the countries did very well this year. Hannes explained that he's very happy with the quality of the loan portfolio. So I think the starting point of all the countries is good. You have seen that in the rate cycle, some had been favored more than the others, but overall, they are in a very good condition and looking forward to master also the one or the other difficulties. Also, when you talk to them, they all say, we are aware something is coming, but when we look at our customers in our books, we still don't see it. So it's okay at the starting point. Thank you for your question.

Thank you for your answer.

Thank you. And we take our next question from Hugo Cruz with KBW. Please go ahead.

Hi, thank you very much for the time. Two questions about capital and then cost of risk and MREL. On capital, I noticed you're guiding for Q4 for some headwinds for model updates. I was just wondering if... I suspect that's not really pro-cyclicality, so genuine model update. So are your models now fully compliant with the EBA guidelines? Then on the increase in the capital requirements, is it fair to assume that if you solve the Russian issue, whether sell it or deconsolidate it, could we see a decline in those capital requirements that are coming? And then third question on capital, Your guidance for Q4 has some FX headwinds due to the rubble at 68. I think the rubble is currently stronger. So what would that mean for your capital ratio if the FX stays at this level? Then the question on the cost of risk guidance for next year. Can you split that? How much is the cost of risk guidance X Russia, Ukraine, and Belarus? And I understand you assume a technical recession in Central Europe, but you still have positive GDP growth year on year. So could you give some sensitivity if the GDP growth actually goes negative, for example, to minus 1%? And then finally, you gave guidance on MREL issuance in slide 14. Should we expect a negative impact on your NII? So the increase in funding costs from MREL Should that have, can you give some guidance there on how much will be the impact on NII? That's it. Thank you.

You gave us quite a big list of questions. And initially, I thought that the first question will go to our CEO when you started, that you have a question on guidelines. But then you change gears and talking about model updates. I think, let me tell you two things. The one, a very short answer. Some adjustments still have to be done in 2023 when it comes to the regulatory approval, the final regulatory approvals. And then the other thing is that you anyway have continuous model updates. But to a very, very large extent, one could say that here we already have done. Of course, you know, as you also know, you constantly have to review and rebuild your model models, e.g. our FI rating model will be be subject to such a review for the next year. And as we indicated also here on page 24, when it comes to FIA corporate rating models, this update of remodeling, we would assess at the time being with an RWA impact of somewhere around 600 million years. So this is towards your first questions. Some remaining model updates need still to be done in 2023. And I was also flagging what the update looks beyond the AVA guidelines in our model landscape, will cause as an uplift in RWAs for 2023 to be expected. Let me also take, since I'm now talking, the number four of your questions when it comes to the cost of risk in 2023, excluding Russia and Ukraine, what happens if GDP is more negative? Well, as I said, these around 90% basis points what we have guided would split up half more or less Russia, Ukraine and the remaining RBI group. And of course, if GDP gets more negative, we have two or three things to be considered. And sensitivity, let me just look if we can see this here in my chat, not yet. But otherwise, John would follow up. But what happens in the more negative outlook when it comes to GDP is two things. The one is that, of course, in our macro models, you would see another uplift. Ralph would like to state that we believe that we already in our macro models have seen quite some uplift dynamic. I think this is the one thing what we must consider. And the other thing is, of course, that you could see the one atom more state-free impact, but the exact sensitivity, if we see another one percentage points of macro titration, what this may mean in macro overlays, John could also then provide in the aftermath of the cold. Johan, having said all this, there are also some questions remaining.

Hannes, thank you for leaving some questions for me as well. I start with the one, what might be the capital requirement without Russia? This is difficult as it was never so clear attached to our Russian activities. But some of my colleagues here, they always do a back of the envelope calculation and peer group analysis and whatsoever. And they say maybe at least 30 basis points less should be expected. But yeah, that's poor guessing and one never knows. But I think there would be good reasons to reduce that. To your third question, guidance of 14 CO2 ratio at year end at the 68 euro ruble rate. Of course, if the ruble would be stronger, that's what I understood from your question, then the 14... would be higher, maybe 25 basis points, something like that. So 14.3, I would guess. And yeah, I was also less optimistic or less outspoken on the NRI development of next year. And you spotted one point very well. I think you have seen that the funding costs, what we have experienced with the last three benchmarks, were significantly higher than what we have seen over the past many years. And this probably is going to continue. We would need, we did, I think from the Emerald perspective, one might say, from the funding perspective, there was some some pre-funding but we at least would would need another two to three benchmarks in various formats next year and um yeah depending on the on the overall market market supply and demand but i think emerald is is an ongoing topic for a while unfortunately thank you for your questions

Thank you. And we take our next question from Riccardo Rovere with Mediobanca. Please go ahead.

Thank you. Good afternoon, everybody. A couple of follow-up, if I may. Again, on the loan book in Russia, if I remember correctly, in previous calls, you stated that... the duration of the book is not that much. So the book should naturally wind down over time. Now after minus 25 in local currency, naturally it should keep going down if you are not doing any new lending. So I wonder how, it's not clear to me how the book can stay as it is. So if you could just clarify a little bit this. The second question I have is, sorry to get back, it's not clear to me what kind of, for example, GDP assumptions you are plugging into the 90 basis point guidance. And it's not 100% clear to me also what kind of use of the overlays you have. is plugged into the 90 basis point for 2023. And the third question I asked, sorry, maybe this is a stupid question, but please. When it comes to the capital that is generated in Russia, you cannot pay, let's say, if you generate 100 million in profit and 40 come out of Russia, you cannot pay dividends out of the 40. But the residual, but when it comes to the capital of the bank, of the group, of RBI group, you can still count on that, right, against the consolidated capital requirement. And if that is the case, will you please tell us, have a rough idea, what is the core tier one or the tier one capital in Russia, please?

Yeah, Ricardo, to your question.

I think one has to be aware that the loan book always has a composition, and you're right. Only if you do not roll over anything, then, of course, some repayments will always happen and will be due, and then you do not... the loan book will further shrink. Will this be significantly? I think we have, yeah. Look, in six months, reducing a book by 25%, this is a big achievement. So I'm not so optimistic that this can go on further. What I wanted to stress is, Partly it's also about RWA optimization, and it can be that the one or the other loan is more favorable than having it in a highly-rated or in a high-risk-weighted loan. liquidity parking with someone. So here this is, to some extent, it's also about RWA optimization. I think the second question, the third question before I hand over to Hannes is that capital generated in Russia and not having the opportunity to distribute dividends from Russia to the head office. So, yeah, if the loan book is stable and there is no inflow and they're just printing money, then, yeah, the CT1 in Russia will increase. I don't know if I fully got your question and don't group level also the cd1 ratio will increase here i agree and that this will go maybe even even above 15 maybe maybe we will see of course uh the cd1 in in in you know that that the russian capital cannot be optimized so um Yeah, there is no, it's mainly CD1. But yeah, Russia will be overcapitalized for as long as we cannot assume that the high geopolitical risk is reduced. This is a cautious way not to bring us into a difficult situation and that capital would drop below zero. 13 or so. This is the group perspective and the Russian perspective is similar. The local requirements, the CT1 ratio will increase and decrease and increase. That's at the end of the day it's a more than well capitalized entity. But maybe I missed the point of your question.

My question was mostly the profits generated in Russia that you cannot touch, whatever the capital, and you will continue to accumulate capital in Russia, and it will continue to go up, I understand, but you still cannot touch it. But that capital will be part of the capital of the group. So if your common equity tier one ratio target is 13, 13 and a half, 14, whatever, that number will be measured against the common equity tier one capital in millions of euros that includes the profits generated from Russia. Do I get it right? Profits are not taken out just because you cannot touch it.

That's right. That's right. That's right. And the 14 indeed is the total group, but this is a target. But if Russia contributes substantially more because of a good profit development, because a strong ruble, whatever, then the reported ratio will be substantially higher than the 14 on group level, including Russia. But it does not change. Whatever it is, it will not change our dual steering approach. which means that the rest of the group, at least without Russia, have to achieve the 13th.

Okay, yeah, okay, okay, thanks.

And on the risk-cost guidance... Let me also try to answer your GDP, the risk-cost question you have, Fletcher. So what we use for our 90 basis points guidance for 2023, you could find on page 68 of our Q3 report, where we transparently show what GDP assumptions and unemployment assumptions we take. Those two are the most important ingredients. Next to the interest rate levels we use, you will see that we also have a base case, an upside case, and a downside case. So we really plug these numbers in our machines and then adjust maybe here and there the outcome when it comes to risk costs. a little bit, but this is the main ingredient, so this is what we have done when coming up with these 90 basis points. What we understood from our talks with you, with the community, that for you it's easier if we give a cross number, meaning that these 90 basis points is a cross number, because if we have to use overlays, we will in any way transparently report and show how much of the overlays have been used for And if you allow me, there was another question beforehand when it comes to the sensitivity. As said, we always have this base case, upside case, and downside case. And if the more pessimistic GDP scenario would materialize what we have shown on page 72 of our Q3 report, then this would mean that risk costs might go up in stage one, stage two by another 200 million euros. Hopefully this helps, colleagues.

Right. So just for me to understand, the 90 basis does not assume the use of the other lays.

Indeed. Indeed, Ricardo. Indeed. Okay.

Okay. Okay. Okay. Now it's clear. Thanks. Thanks a lot.

Thank you. We take our next question from Krishnendra Dubey with Barclays. Please go ahead.

Hi. Thanks for taking my question, and thanks for the slide number 18 where you provide the inflation and the energy details, price details. So, related to that, I had a question. So, what are your inflation assumptions for 2023, and what does that lead to the cost guidance for like 2023? What is that you're making in? The second question I have is regarding the profitability of business X, Russia and Belarus. In nine months, you have generated 882 million of net profit and generating 18% ROE. So what's your outlook for that business for 2023? Given that we have like currently we do see inverted rate curves where we could have rate cuts in some geographies in 2023. Those are the questions.

Well, thank you that you recognized our sensitivity scenario, what we have shared with you, and that you appreciate it. Well, what we have assumed for this scenario, we assumed an inflation of 12%, and we were assuming a staff expense increase for the affected industries by roundabout But of course, you have besides the inflation and wage increases, you also have to consider what is the uplift when it comes to material costs. And as I said, for those companies acting in Europe and CE, we were assuming an inflation for material costs of around 100% price increase. So again, to sum up, Inflation was 12%. The staff costs we assumed to increase by 10% in our sensitivity scenarios. And at the same time, we tried to simulate what the cost inflation for the material costs would mean. In the case, they would double. This was the scenario we deployed.

I was asking more for 2023 as well. I think what is the thing that you're assuming? Because on the slide, you give us the CPI forecast for 2021. few years which is based on research as well as your belief that could happen. So I was just thinking more in terms of 2023 because how I was looking at it because I was looking at the consensus number and it is pretty much flat. The cost is pretty much flat to 2022. So I was looking for a little bit more forward guidance as well actually.

But I think this was what we have done in the scenario analysis. You take some macro parameters e.g. like the inflation which we have increased to 12%. I know that the Europe guidance roundabout is around 10%, but we thought, well, let's take the 12% inflation we also used for these scenarios, and this is very important. This is not a guidance. This is just telling and sharing with you what is our thinking or what is our sensitivity if these macro parameters, if I have shared with you, would materialize. So if inflation would go to 12% if staff expenses would increase by 10%. If the input material costs would more or less than double to all the different industries, then the impact is a drop in P&L of 63%. And what you also have to consider is this was in this scenario analysis that it materialized over the next two years. So I think this is very important that this is just taking some external macro parameters and then try to deploy those external macro parameters consistently and ask yourself who would be impacted with wind magnitude. And this is what we have shared with you because P&L would drop for the rate industries in this scenario around about 60%. and then calculating what would the updated EBITDA and leverage end-to-end look for, and therefore you get the simulated rating, and this is what we have done. So for me, this is very important that the understanding is, hey, this is a scenario, what we have shared with you, with the community, but this is not our base case. Just to build on what we have discussed in London, when we when we talked about our gas shock scenario. And I was asked, well, but is it still isolated to a gas shock? Or shouldn't we consider more about docking and energy vulnerability? And this is the main purpose. And for me, if you want to have my reading, I think it has two very, very important conclusions. The one is, yes, we would see maybe the one RWA increase. goes without saying, but since we start with a very strong portfolio, the RAA increase is more pronounced than the risk costs inflation. And the other thing what we have shared with you is how our retail portfolio would be impacted. And again, you know, if you look at this slide, you can see that in many of our countries, we already have seen the strong interest rate increase. And nevertheless, we have a substantial part of our portfolio in the very low DTI bucket. You know, hopefully I was capable now to answer, otherwise John would follow up and give more details on our thinking. Johan?

And to your other question, profitability x Russia, and what I understood, your question is also referring more to 2023 than to the current year. The detailed guidance we will give you in our next call. So at this point in time, just a few remarks. So from my further guessing about the future, I think one can assume relatively stable core revenues with the one or the other, maybe not repeated general revenues a very good development in one or the other elements of the fee income. We will see. On the other hand, we had a strong Q3 already, and this is the base, of course, in NII for the next coming quarters. You rightfully touched the inflation rate topic, and we talked about wage pressure already this year. And when we look then on the inflation rate for next year, then a couple of countries where inflation is still above 10%, probably like the Czech, like Hungary, like Slovakia, and in the mid-digit, like the smaller countries where we are in Bosnia, Albania, Kosovo, Croatia, Romania. above 10% probably, so this is also one of our bigger countries. So how does this impact the overall OPEX? Yeah, there will be pressure. On the other hand, some relief should come from the integration costs, so the integration of the Equibank in Czechia and the Krediagrikol subsidiary in Serbia. to a large extent, should be consumed already this year. And if you then expect also starting synergies next year, so then at least some relief should come if you compare 22 to 23. More, as I said, in our next call. Thank you.

Sorry, can I squeeze just one more question? Actually, I just had the on a nice sensitivity. I think it would be a very brief answer the NS can give in. What's your euro rate sensitivity? Can you guide us to how much benefit the NI would have from the higher euro rates? Thank you.

This is just the euro rates you said.

Here you have to be aware that from the euro we will mainly benefit in Slovakia. As there we have a retail portfolio and to a much lower extent in some countries in Southeastern Europe where there are some deposits as well. And, well, 50 to something, I would assume as a first guess. Let's see how competition develops. Maybe a little bit more, hopefully.

Thanks a lot. Thank you.

Thank you for all your questions, ladies and gentlemen. 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. We do have a follow-up question from Ellen Webborn with Societe Generale. Please go ahead.

Oh, hi. Thanks for taking my call again. The cap on mortgage rates that you refer to in Hungary and the 15 million cost, is that going to come in 2023 or in Q4 of 2022? In addition to which, I think they've also put a rate cap on SME lending. Is that going to cost you a similar amount next year? If you have anything you can tell us on that, that would be helpful. So secondly, I think we may have touched on this before, but how do you feel about the main mortgage markets in your region? I mean, a mortgage is something that you're still trying to push at the moment. Do you think you can keep outstanding stable, or do you think where rates are high, you're likely to see a contraction in lending volumes over the next year until rates start to come down? That was the second question. And just finally, in terms of the changes to TLTRO, would you expect to see any impact from that next year? Thank you.

Thank you for your questions.

My understanding is that as we know the impact, we will have to book the mortgage rate cap and the SME still in Q4 based on the assumption so that it's it reaches still so the cap for the mortgages reaches still mid 2023. So this is this 8 million impact from that what was the first guess maybe it's 10 we will see. This will be booked in Q4. and also the SME cap will be booked in Q4. If this will be everything, we will learn, but from the current measures, that's it. So everything in Q4, not in next year, in 2023.

And so the 15 million that you referred to on slide 18, does that include both the mortgage cap and the SME cap?

That was the... I'm now struggling.

Just on slide 18, you suggest that there's a 15 million.

Yeah, so the mortgage is to be precise on the mortgages. So the number I delivered was the total number. Four had been booked already and eight will come in Q4. So this is the part on the mortgages, no? And then the SME is, as I guessed, this 10 to 12, also to come in Q4 in Hungary. Brilliant. Mortgages at this rate level, look, the minimum we have to do to stay in the mortgage business So we cannot fully stop. This is what we some years ago learned the hard way. If you totally stop in some markets, then you are out for long. That's more important in those markets where you have a strong brokerage community and it's less important in others. But the demand will slow down anyhow. And as you have seen, there is the question with floating rates for mortgages, which then are kept. So the mortgage is not an attractive product at the moment. And so we will be careful what we offer. We cannot fully use it the way we want usually in the normal times, offer it to our customers. So... As far as the TLTRO is concerned, of course, we would look at it from an opportunity cost perspective for the NII, and that would then be 30 million in our case. And then, of course, is the question, will we use the repayment window, we're undecided on that, but we're discussing it.

Thank you. Okay. Thanks.

Thank you. And we take another follow-up question from Andre Versaloon with BNP Exxon. Please go ahead.

Just a quick one on Croatia. Will you have any release of RWAs with Croatia joining the Euro next year or it's negligible, if any?

No, I don't expect any release in RWAs from the Euro. I'm looking at Hannes, he's somehow confirming my guessing. but he will be more precise than I am.

The main argumentation, Andrea, would be that Croatia anyway already followed very much the ECB regulations up to now and was a recognized country when it comes to the Euro. And that is the reason why, because of the pure introduction of the Euro, we would not see any AW released. But with the one other subportfolio, we may switch into an IRB, and here we could see some smaller releases. Thanks for the question.

Thank you. Thank you. And we have our next question from Mate Nemes with UBS. Please go ahead.

Hi. Good afternoon, and thanks for the presentation. Just a quick one on group corporates and markets, and apologies if this has been discussed. I missed a small part. The NII growth quarter-on-quarter was 15%, quite steep, and the total asset growth, I think, was only 5%. Can you just give us some color on what has happened there? Has there been some mix shift in the business, or is that genuinely the rate impact kicking in? Thank you.

Let me start with indeed there had been some adjustments in the structure, but the liability margin was of course to a small extent supportive as well.

But as I said, not too much.

I'm looking to my notes if I can figure out the margin was rather negative. So give me a few moments, and I will come back.

No, that's perfect. We could also take a final question. Thank you.

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