Raiffeisen Bk In Unsp/Adr

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

Thank you very much for the kind introduction. Ladies and gentlemen, welcome to our call. It's about the preliminary 2022. Thank you for taking the time out at your busy schedule today. The results, as you have seen, are very good. These include, of course, an unusually high contribution from Russia, with many distortions caused by the war. I believe, however, that the underlying trends and the performance of the rest of the bank is also very good. The overall consolidated profit is around $3.6 billion. for an ROI of nearly 27%. The underlying profit, if you adjust for Russia, Belarus, and the one-time gain on the sale of Bulgaria is around 982 million euros and an ROE of 8.7%. Please keep in mind that this includes €448 million of provisions for litigation in Poland and €253 million of risk costs. This gives you an idea of the very good earning capacity of our core businesses. As we will discuss in a minute, our CT1 ratio improves to 16% consolidated and 14% if we assume a full write-off of our Russian businesses. If we move to the next slide, then you see that our loan book has grown nicely in Central and Southeastern Europe, while we had reduced significantly in local currency terms in Russia and Belarus. Core revenues have improved nicely as well, in particular for the business excluding Russia and Belarus. Our adjusted cost-to-income ratio of 50% is also very satisfactory. Let me move to the next slide. Let's first discuss the dividend. On the one hand, the very good results across the group in 2022 and the strength of our balance sheet mean that we are able to pay a dividend. The proposed 80 cents per share are roughly 26% of our normalized earnings. On the other hand, considering the uncertainty ahead, we need to be prudent and will wait for more visibility. We have made a lot of progress on the CT1 ratio, and as we stabilize around the current levels, we will be in a better position to distribute. Until the decision to distribute is made, we will deduct the 80 cents per share from our capital ratio, as this amount is earmarks for our shareholders. As mentioned, our ability to propose a dividend is also a reflection of our very strong balance sheet. net of the proposed 80 cents per share, we have strengthened the RCT1 ratio to 16%, and more importantly, improved the RCT1 ratio excluding Russia to 14%. At the same time, we have grown the loan book in our key markets, digested the RWA inflation from rating downgrades and other inorganic effects, and provisioned conservatively. We have also improved our MRL buffer over the course of the year. I would like to take a minute to highlight the remarkable job our colleagues in Ukraine have done and the excellent performance of our bank there. First, by ensuring business continuity in the early days of the war and again when the country's energy infrastructure came under attack. There was extensive preparation done before the invasion, including for blackout infrastructure such as generators, diesel power banks. Within weeks, all data and critical systems were successfully moved to the cloud. Most importantly, we experienced no downtime of any consequence. RFS Bank Ukraine is a major contributor to the banking infrastructure in Ukraine and one of the best performers under these extreme circumstances. The feedback from both customers and authorities alike has been anonymous. Second, Raiffeisen Bank Ukraine has strengthened its capital position while also taking a very conservative approach to risk costs. The revenue potential of the bank is also intact with a stable customer base and market shares. In fact, among the privately owned banks in Ukraine, we have seen the smallest loan book reduction and we have the highest share of customer assets relative to the balance sheet. In critical industries, we have maintained our lending exposures or even written some new business. Operating income benefited from the high interest rate environment as well as excellent fee business and trading results. This has allowed us to absorb their significant risk costs without showing a loss for the year. More importantly, Raiffeisen Bank Ukraine demonstrated very strict cost discipline, which largely offset costs. the unexpected OPEX pressure caused by the war, such as cloud migration and relocation costs, financial assistance and donations. All in all, I'm very proud of the job done by our management and colleagues at Raiffeisen Bank Ukraine. Let's move to the next slide. As mentioned already on the second slide, we have seen very good growth in core revenues this year. And you can see this on slide seven. We have seen both NII and fee income growth for eight consecutive quarters. In the most recent quarter, we have again seen excellent growth in the core group, excluding Russia and Belarus. We continue to see benefit of higher rates through resilient liability margins, both in euros and domestic currencies. In the Czech Republic, you will have noticed a 38 million drop quarter on quarter. Now, to a large extent, this is coming from a line shift in revenue recognition on fixed derivatives. If we focus on the underlying business trend, we see a small drop in the quarter, around $8 million, which is coming from the deposit mix. We have seen some of the current account volumes move to saving accounts and term deposits, which of course have a better yield. Fees and commission income is largely driven by Russia this quarter, and elsewhere growth was lower. Looking at the core part of the group, FX business saw lower volumes. And of course, the loan and guarantee line usually tracks the lending volumes, which were also muted in the quarter. Let's move to the next slide. And what you see here is what I have mentioned earlier in the business areas, excluding Russia and Belarus, you saw a nice loan growth by 6% year on year. And I think also the deposit growth is very good within the group. I'll leave you with this slide and move to the next one, which is the Waterfall of the city one ratio development for Q4 and what you see is a significant improvement by more than 130 basis points to 16%. Coming from various areas reduction in the loan book. Some other credit risk reduced and market and operational risk. Also important to have the retained earnings to be considered. Negative, we have seen, of course, the effects rate, which happened rather at the year end. And, of course, I should mention here, as it's stated, the earmark dividend is excluded from the 16%, and you should be also aware that these are numbers from the traditional application of IFRS 9, where the benefit is about 44 basis points. If we now look at the outlook on capital for 2023, so you see our assumptions on organic impacts from retained earnings and the RWA, increase on the other hand, mainly from loan growth, some FX elements and then some other regulatory elements what you have also as part of this development, but it should be above 15%. Moving to slide 11, which is one element to inform you about our double steering approach, dual steering approach and And what you see here is the impact of a deconsolidation scenario in Russia. Of course, redress expectatively on the 31st of December 22. We would have landed at 14% and if we look forward, we will steer the group in a way that for sure we should be above 13.5 if this would happen. The core Numbers are the 4.2 billion of CED1, which would be deconsolidated without compensation in this calculation, and then RWA, deconsolidation of 15.8 billion. Be aware that the subordinated instruments which are held by the group are not deducted in these numbers, so if we wouldn't get any compensation for this as well, this number, 14%, would be lower by 30 basis points. On the next slide, 12, you see an overview for your convenience for the core numbers on group level and the various MDA triggers, MDA buffer, and the available distributable items. I think the numbers speak for themselves. You see the increases in some of the buffers on the right hand side of this slide. Moving to the next, you see a good improvement. So this 13, what you see is a good improvement over the year on our MREL and funding. And you might have also seen that in addition to what we report to year end, we had another MREL eligible issuance at around 1 billion at the beginning, just recently in January. If we then move to the next, you see a few information on liquidity and MREL resolution groups. You know, we have this multiple entry point concept. The LCR very well improved. NSF are very good. So I think we have in all these aspects very good numbers. And for your information, you see also the upcoming funding needs to meet also in the other resolution groups, the respective requirements. Moving to the next slide, this is the second part of the Russia update. What you have seen is a huge decrease in RWAs, 6.3 billion. Half of it was the FX development and the other elements, reductions in the credit RWAs, but also in the liquidity, in the RWAs required for liquidity. And yeah, I think, But one might also mention here, to give the total view, we have net cross-border risk to Russia of slightly more than 200 million. And as we also reported, our trade finance guarantees to Raiffeisen Bank Russia, which are about 80 million. Of course, with these very good results, the Russian entity is more than well capitalized with a CO2-to-1 ratio on local standards by more than 27%, which is an enormous buffer. And also, if you look at the liquidity ratios, the numbers are very strong. Coming to the next slide, which is 16, an updated macro outlook from our own sources, Raiffeisen Research. The basic assumption is that the beginning of the year sees, of course, a slowdown, maybe a slow recession, but then also some recovery in the course of the year so that overall in Central Europe we expect that the year brings a small growth of about 1%. slightly more as the structure is different, the industry structure is different in Southeastern Europe with on average around 2% and Austria 0.5 after this strong 5% growth in 2022. We see a stabilization in Ukraine after the huge drop because of the war by a third in 2022. And we see a further decline in Russia by around 4%. Next slide gives our view on interest rate developments and also some flavor on where we expect inflation will be. It seems, if you look here, that in some markets we already have seen the peak of this rate cycle. And in the second half of the year, we already expect... uh great decreases like in the czech republic and in hungary stable development in romania serbia and the euro of course we see some further increases coming to my last slide before i hand over to hanes i think here it's uh I would abstain from, in the reading exercise, this slide is full of numbers, the best what we can share with you, what we expect within these years. This probably might also answer most of your questions already, what you usually had, but with this, to Hannes. Hannes, please.

Johannes, thank you very much. Good afternoon, ladies and gentlemen. I hope you have had a good start to the year, and thank you for joining us for our first update of 2023. Before we discuss the coming year, however, I would like to spend a minute on where we stand after a challenging year. Johan has mentioned the positive development of our balance sheet, and there is but little for me to add. We finished the year with a non-performing exposure ratio of 1.6%, stable on the year, and again, a very good stage three coverage ratio of 59%. In most of our countries, we saw few insurances, which allowed us to build up our overlays and BOST model adjustments. Please bear in mind, we have 729 million euros of overlays available to us for any risk costs beyond what is already budgeted for the next year. There have been a number of RWE headwinds this year, and I believe we have managed them well. We have been proactive all year in reviewing our exposure in our internal ratings, initially with the war in Eastern Europe, followed by inflation spikes and energy crisis. This has been definitely a very busy year for risk manager. I shared with you some of these portfolio analysis performed during the year, and I'm otherwise satisfied that our portfolio is fully reviewed and up to date. Not to forget the bank's liquidity situation, which is excellent, both on the group level and each of our individual countries. While there was some initial volatility in March, this did not last, and we have seen consistent liquidity inflows since then. And of course, you're aware of, since I'm not getting tired in repeating, our rating has been confirmed by Moody's and S&P already in March. Focusing on Eastern Europe, I would also like to highlight the very good performance of the Ukrainian colleagues. The cost of risk, unfortunately, reached our initial guidance to you. And yet, despite this, the capital situation of our bank in Ukraine is sound. In local currency terms, we have maintained our loan book roughly flat. With any luxury attributable to the increase in provisions, we wrote new business during the year. Supporting the agriculture sector, and related industries. In Russia, we have reduced the loan book by 30% in local currency terms. We will continue to selectively replace corporate exposure with retail exposure. Russia is an example of our active RWA management. And you will recall, of course, the rating downgrades and the liquidity inflows, which led to substantial RWA inflation in the first and second quarter. On the provisioning side, we also came to the upper end of our initial guidance. Here, however, this is largely driven by Stage 1 and Stage 2 bookings. Again, the revenues have more than made up for the risk costs, and the capital situation of the Russian bank is well above the regulatory requirements. Now, as we look ahead to 2023, we see some reliefs in otherwise challenging environments. for corporate customers, many of the post-pandemic tailwinds are now over. The very positive momentum that we saw in 2021 and the first half of the year 2022 is behind us. We were talking about the deteriorating consumer confidence, and this usually, of course, comes after certain lagging with economic consequences, which is now anyway the accepted new reality. but we have a complete new rate environment. What is also important for me to say is that on the other hand, the doomsday energy scenario have not materialized. Let me move on to the next page, please. What we understood from all your feedbacks that you would appreciate a little bit more color in splitting up our risk-cost guidance to the different segments. Well, on group, corporates, and markets, CE and SCE, I think the headline would go stagnation or possible slight recession in a combination with higher rates and persistent inflation. As I said, we have now already a stock of overlays of 729 million euros. And so 2023 might more be focused on state three bookings. We believe that we could see up to 440 million euros in the segment mentioned. You may consider this on the upper end, and I would dare to agree. At the same time, please bear in mind the sudden defaults, what I'm also usually flagging, and these you would most probably find in this segment. The other two segments I picked out are more difficult when it comes to risk-cause guidance. For Russia, Belarus, of course, it becomes now evident that the same sanctions are making their impact. ongoing recession, especially if commodity prices drop and global growth de-acceleration. So here we would believe that risk costs could sum up to somewhere around between 250 to 270. And Ukraine goes without saying that this is more than challenging to come up here with any well-founded and sound numbers. So we again came up with this 200, 220 million euros. But please bear in mind, if you look at the risk costs from Ukraine that also here we have an overlay for extraordinary situations of around about 50 million euros. Having said this, let me move on to the next page when talking about IFRS 9 provisions. As said in my summary, total 949 million euros and a big part of it was anyway not in the stage three, so mainly in stage one and stage two. You can see here all the details, the moves between stage one and two, adding a little bit on the macro side, on the other hand side, having the capacity to release the one-hour overlay, and the quarter four has been mainly driven by stage three bookings. Having said all this, I'm sure you also have recognized a strong drop on RWAs. If you look at this drop of 10.8 billion euros, I think you have three main buckets. The one is the credit risk RWAs. And here you have two effects. The one that short-term exposure has been reduced. And on the other hand side, also local liquidity placements in Russia have been reduced. And on the other hand side, we have conducted in the quarter four some new securitizations and guarantees. The second big part, if you try to explain the €10.8 billion drop in RWAs, comes of course from the FX, which is summing up to €4.4 billion. Obrisk and I will talk about this in a page. We have switched back to the standardized approach. And market risk also has been reduced because we have reduced our USD hedging. Let me move on to one of our big blocks, what we also have allocated in our 2022 numbers, and this is about Poland. As you can see, on the right-hand side, we have now increased our stock of provisions for litigation to 803 million euros. And we have added another 262 million euros for new provisions for litigation in quarter four. What is important for me is, as I said beforehand, we hand back our advanced measurement approach on the op-risk and therefore being capable to report reduced volatility when it comes to op-risk RWAs. I anyway was talking about the NPA and the coverage ratio on my introduction. And so I would stop here my presentation and we are eager to take your questions. Thank you.

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. Our first question comes from Gabor Chemny with Autonomous Research.

Oh, hi. Thank you for the presentation. I have a few questions, firstly on NII, and particularly your guidance, your 2023 guidance excluding Russia and Belarus. And I think this implies a pretty significant drop from the Q4 level, from the Q4 annualized level, around 15, 20%. Would you be able to comment on the outlook here? you are so cautious or downbeat on NII going into 2023. And a related question to that, if you could elaborate on the check NII dynamics, please, because, yeah, it looks like the trend you have been flagging here, increasing share of savings accounts, term deposits, probably sounds more like a trend rather than a one-off. So what are your thoughts about the Czech NII into 2023? And my final question is going to be on Russia and the impact of the sanctions. Not so much against Russia, but I'm asking this on the back of the sanctions, the recent sanctions which directly impacted Raiffeisen. So it would be useful to hear your thoughts about Raiffeisen's ability to keep the Russian business in light of the likelihood of potential further sanctions. Thank you.

Thank you, Gabor, for your questions. I think in a nutshell, as I tried to explain, in some countries we already assumed that the peak of the rate cycle is now, and in the second half of the year we see a declining rate. So this will have some impact on the NII. The second is that we tried to explain that in some countries, The adjustments, so the reallocation of funds on current accounts to term deposits and savings accounts is still ongoing. So this together explains why we are not so enthusiastic anymore of a further increase in NIAID. To your question on the check development and on this reallocation to the trading result, yeah, in the FX derivatives business, I understand there is no one practice in the market. It can be allocated to the NII, so the interest component can be allocated to NII or to the trading risk trading trading line we have chosen the second one so there was a reallocation to that and as i said in in the speech so it's the net impact is around 8 million which comes from this shift to other deposit from current account to the deposits. And so the basic assumption to support you is that at least for now, an NII income of around 50 million per month in the Czech Republic. So I hope this covers that. And to your final, to your third question, the Russian sanctions on that, I Let's look at it from two perspectives. So the one is the financial impact. I think here it's very, very simple. We have a leasing business in Russia which is outstanding at year-end, 360 million around. A bigger part of that is vehicle leasing. But nevertheless, we assume that our customers are not... using these vehicles in the territory of Ukraine. And therefore, I think the direct risk of repossessing or confiscation of these assets, I would assume, is very small. And amid the long-term additional consequences, these... these sanctions mean because of course for the first time an RBI entity is sanctioned and one has to observe and analyze what it could mean. Currently, I can only say we watch out, we will monitor, we will analyze. As of now, I could not add anything or give you any indication what this would mean. I don't expect that this would cause sanctions by Western governments into this whatsoever.

Okay, understood.

Thank you. Next question is by Mehmet Seven with JP Morgan.

Thanks very much for the presentation. Maybe if I may follow up on Gabor's question on the sanctions risk, not necessarily this one sanction that we saw yesterday, the day before. It feels like it's becoming sort of a, there's a momentum that we're seeing several risks and headlines coming related to your operations in Russia and some of the liabilities that you have there and that you have to follow the rules in Russia, et cetera. Can I ask, is this becoming sort of a liability now? And given the options are quite limited seemingly, is the urgency of finding a solution increasing in your eyes as we enter 2023? So I know it may be a difficult question to answer, but I would appreciate any color that you can give us here. And maybe my second question is on the dividends. When I look at, you know, the capital ratios, now you're at 14% excluding Russia, 16% including it. You recently increased your management target. Seems like you're above all these requirements. So what kind of developments would you expect to see from here to make that decision? Or at least, you know, propose it to EGM at some point later? Or is it simply just, you know, to wait and see how the Russia situation pans out later. And maybe finally on the Polish provisions, you've reached quite a good coverage level now with the top-up that you've done in the fourth quarter. How should we think about provisioning from here in Poland in 2023? Thank you.

Thank you for the questions. I can only give a color based on what we observe and expect. So indeed, what we see is some changes. I think the Ukrainians and also the authorities said at the beginning of the war being very vocal that Western banks should leave Russia and what we saw recently is that it seems that some of these, they pick up again for whatever reason. I think it's political warrants. As I said before, it's not the financial impact as of now, and I think, yeah, the concerns earlier had always been what, if you just talk about the Ukrainian part of this overall development, then of course the question is, will there be at some point in time also an impact on the Ukrainian entities, so Raiffeisen Ukraine? Yeah, we have to see. I think it's well understood and we tried to share with you that the bank is also we know that there is a huge sector of state owned bank in Ukraine. I still believe that foreign banks are important for the development of the country. And of course, we hope that this is considered and I shared with you that the positive contributions that the bank delivered to the country. And I hope this is considered when talking about whatever sanctions they might have in mind. But of course, it's a change in the sense that now an entity was sanctioned and not only threatened to be sanctioned. I think in the other part, I think there are spillovers. So there is... Also here, up and downs, but we carefully monitor the, let's say, the social media exchanges of views on our activities in Russia. And, of course, some events make it, bring it to a broader attention. We have had this when the moratorias for conscripted soldiers had been discussed in the public. I mean, it's a very small amount in the portfolio. So also in absolute terms, it's very little. But of course, we understand that within Ukraine, this is also a big emotional topic. From the Western parts, I think here the governments have a clear view that they want define in which scope and in which frequency they add sanctions so I think this is a clear political instrument and here we we have we have I think a very good compliance framework and we adhere to. And as Hannes said, also we are proactively trying to understand what consequences could be. And you see from the numbers that we, to a large extent, avoided that. So we have this, of course, this emotional political part and what Western governments need. i can only assure you that we are working on the assessment of the of the options what we have and leaving russia is one of the options my i'm sure you have carefully monitored the recent publications of what we call the protocol which states the um the requirements uh for a sale of a bank and also what for potential buyers might be of interest is also potential dividends. The good thing is it's very clear now. The not so good thing is that of course the range is is still wide so the minimum discount what you have is 50 but it can be substantially higher as well so it's uh and still you need uh this is just a frame for a decision but you also need an improvement so but i can assure you we are working with quite a lot of manpower and also external advice on that but we permanently have to adjust When it comes to the dividend and you also made the link to Russia. Yeah, I think it's important to see the developments and as Hannes and I shared with you, we want to keep this high level of C to one ratio and the good other ratios. I think there might be an option of leaving Russia, which would require for a short period of time more capital. So what I mean is between the period of IFRS deconsolidation when we would occur a loss and the final regulatory deconsolidation of the RWA. So there might be a period where the the impact might be even bigger than deconsolidation with zero rates. So that at that point in the zero amounts. So at that point, one might be below this 14%. And so this would slightly help as well. And to the dividends, then this simply means that there is a high probability or that we you shouldn't expect that we we have the annual shareholder meeting end of march you should not expect that we that we would propose it uh for that um depending on some some developments but rather that we would have an uh extraordinary shareholder meeting in the course of the year nevertheless We wanted to state with that that we want at the right point in time to distribute the dividends to the shareholders.

Yes, I can take the question on the Swiss franc. You raised the 2023 guidance. We would think about that most probably we would need maybe another up to 200 million euros for the year to come. And I may anyway assume that you're closely following all the different legal steps. Is it when there is an ECG rolling to be expected in the end? But this is what we have currently considered in our numbers, that 200 million euros are being added to the litigation provisions. Thanks for the question.

All very clear. Thanks so much.

Next question is by Mitt Nimes with UBS.

Yes, good afternoon, and thank you for your presentation. I have a couple of questions, please. The first one is still on NII. I'm just wondering if you could confirm that you're indeed using a 4% ECB rate forecast for your group NII outlook for 2023. And I think that's what you show on your macro forecast slide. That's the first one. Second question is a Hungarian NII. I think in Q4, you recorded a very strong 22% growth. I saw that there has been healthy growth also on the loan side or the asset side, about 7%. I'm just wondering, well, what's been driving this step change in NII? Is there any one-off here? And the last question is on your cost of risk forecast. I think, Hannes, you mentioned 50 basis point cost of risk outlook for GCNN, Central Europe, and Southeastern Europe. Do I understand correctly that that guidance is driven mainly by Stage 3 and does not assume any further overlays to be added on Stage 1 and Stage 2? Thank you.

Well, let me start with the cost of risk question. Yes, you understood me right. I think we really have now heavily increased our overlay bookings. Just to reference it, this is more than a full year of expected loss, the 700 million euros. I think this concept served us well in 2020 and also in 2022. Well, of course, you know, if some special situations are coming up, we still might be tempted to have another million euro here or there allocated to the overlay booking. So the 440, if they would materialize, and I'm really cautious here on this 440, We would believe it's either out of migration, but mainly out of the of the stage three. And do not forget the loan book. What I'm talking about is a quite substantial one. So we're talking about a loan portfolio of around about 90 billion euros. And out of this 90 billion euros, we're saying, well, we could see up to 440 million euros in those. like you know me well, that I'm usually also including one or two certain defaults when I do the risk-cause guidance anyway. So this is, yes, you're right, it's state three. And please bear in mind on this 440, which I have shared, that one or two certain defaults are also included. Johan?

Yeah, thank you, Hannes, as far as to your NII. So if I start with the Hungarian one, which is very precise, as you were asking for Q4, I think the special phenomenon in Hungary is what you see is that the central bank rates are high, but the allocation, from the current account to other deposits is low. So it's not that huge what you might expect. And as the margin is always much better on this current account, this was supported very much. And of course, if you keep then this liquidity in the central bank at the deposit rate there, then this supports your margin very well. I think what maybe if you can compare to other banks, what might also strike you is when talking about the NII, that Yeah, there is a cap on some loan rates, which probably in other banks is because of the structure what they offered compared to what we offered. So fixed versus variable rates. loans, index loans, this is also different. And so in a nutshell, this was also supportive as the, let's say, the negative part of these government measures was relatively less painful for us than for other banks because of the structure of the loan book. When talking about your question to the euro, to the ECB rate, where we, yes, at this point in time, we assume that it will move in the course of this year to 4%. And this still comes in steps if you look where we are. So it takes some time to feed through. You shouldn't expect too much positive impact on the, What we have in the head office, this is to a large extent here. So within RBI, it's mainly large corporate customers where you always are around the market rate. So the margin is razor sharp and you gain very little from it. But we have in some network banks, a share of Euro deposits, and here we could get something. So maybe a guess could be that it might have a positive impact of 40 to 60 million in the course of 23.

Very helpful. Thank you very much.

Next question comes from Alan Weborn with Society General.

Oh, hi. Thanks for the call and your answers so far. Just a couple of questions, if I may. Firstly, Hannes talked about potentially sort of 200 million plus more provisions on Poland. Now, they're taking in other income, aren't they? So are they in your forecast for provisions, or are they outside of that? Because you did seem to say that they were taken into account. Could you clarify what you mean by further legal provisions for Poland in relation to what you said about provisioning? That was the first one. Secondly, on Russia, there was a pretty 30% odd depreciation in Q4, and yet when we see that in what happened to the loan book and what happened to obviously risk-weighted assets as well, and yet the reduction in NII was relatively limited, and your fee income again was record. Could you just give us a little bit more detail as to what was going on, what were the levers, if you like, in the Russian business in Q4? And presumably that is not something that's sustainable. I mean, I understand that we've had a number of quarters of very strong numbers, that you're forecasting a recession in Russia, and apparently there's not that much hedging. So could you put a little bit of color on what's actually been going on there? So that was another question. On Ukraine, in terms of provisioning, you're talking about sort of, again, a few hundred million more provisions put into the pot for 2023, and yet you took almost no provisions in Q4 against Ukraine. quite a high operating income. And I wonder, again, what's going on there? Why, if you need to take so many more provisions for Ukraine next year, didn't you use Q4 as an opportunity to bump them up a little bit? That would also be interesting. Then does the... the dividend that you're proposing needs to be agreed with the regulator. Has it been agreed in principle, or does that happen after you properly propose it? That would be also interesting. And finally, do you think that the net interest margin of the group, excluding Russia and Belarus, will actually be up in 2023? Thank you.

Yeah, I... I'm not the IFRS guy, but the provisions for Poland is in the other, not in the risk provision of Hannes, but in the other. So when talking about the ruble depreciation and you compare it to the NII of 22, so if I remember correctly, we had this steep drop in the FX rate only in December. So in the income, you have the... The reporting on the, I'm looking to my colleagues on the average of the month and the compensation for this you have then in the OCI. So the impact on the OCI was huge and partly, of course, this is the income. So looking forward, of course, we start from a different level and therefore NII and also fee income cannot compare to what we had so far. When talking about the Not so much the FX impact, but the development on its own, the fee income. So you see some seasonality, some also driven by the various developments. around the war and the impact on russian population and here this is one driver of fee income as well but of course it will have an impact also by the um from the the effects and and one should not be as uh you should not consider the the very good development of Russia that this will continue from any perspective. So neither from the volume, from the amounts what we have, nor from the very positive effects impact. So this is a different year what we have ahead of us. I mean, still the underlying business as of today looks good still, but at a different rate level.

Well, Alan, you gave us a lot of questions and also about Ukraine. What is our way of thinking when looking at the Q4? Just in Q4, we had in total 73 million euros of state free. But if you look the full year, how we have dealt with the war situation in the country, we took the impairment losses early on. As usual, this is our approach, but this is just to reconfirm that we took the impairment pain and losses early on. And as I said, when talking about the risk-cause guide in Ukraine, and when talking about these 200 million euros, which I flagged, I clearly say, well, this is the most challenging part on the assessment. Bear in mind that we have 50 million euros of stage two overlay provisions also allocated for a potential blackout scenario. So you see the things what we're discussing here, blackout, non-blackout, I don't know, but the 50 million euros for the blackout would already be here. And looking at the total portfolio of still 1.6 billion euros, as I said, you know, we were supporting also the planting season in the agribusiness. We still have 1.6 billion euros of performing loan portfolio available. And therefore we thought it's, prudent and conservative to have another guidance of 200 million euros on risk costs. And believe me, every euro we have to spend less in risk costs is a good year for me as well. Johan.

Thank you, Hannes, to your question of the dividend. Of course, when we talk about the dividend, we go there, but as you see, we left it open when it will happen, and therefore it then, when we come to a decision, it would need again a discussion also or an information of the regulator.

Okay, that's great. Just one or two, a small follow-up. The overlays in Russia presumably are staying in Russia, so they're not available to do anything else with. That was one. And also on the I noticed in Russia that you appear to be sort of growing the business. There seem to be about 5% more staff there in Q4 against Q3. I mean, I guess it's being run independently, but I just wondered why you'd be doing that in the current environment. Thank you.

Well, I'll take the first question when it comes to the Russian overlays. Yes, these overlays are being created, booked, and built in Russia. and they will and shall stay in Russia if they are needed. But at the same time, I think we have been extremely transparent also showing how much of overlays have been booked on the remaining RBI group. And please bear in mind that besides the overlays, we also have heavily increased our stage two bookings when it comes to the macroeconomic adjustments. This was a main driver in the fourth quarter. And of course, these microeconomic bookings are available for the entire API group. But yes, you're right. The overlays of the above 300 has been booked and created in Russia and therefore will be available for Russia in the case of need. Johan.

To your question of if the increase... This is not an increase in business growth. It's related to IT. So what you see is that in addition to the sanctions, there are many IT companies are finishing their services to Russian banks and our bank has to redevelop or develop new systems quite quickly. And so this is why we add additional IT people to be fast enough and to be resilient and independent from Western suppliers.

Super, thank you.

We'll take our next question from Juliana Golub with Goldman Sachs.

One question on issuance please. Just regarding your plans for a benchmark tier 2, is that purely based on the anticipated RWA inflation that you see in 2023, just given that you did a benchmark deal in the fourth quarter, so I was just wondering. Thank you.

So we had a pre-funding in October for one which is running out now. I think this should serve us well. I hope I got your question right, but this would answer to the question I understood. Thank you.

The pre-funding in the fourth quarter, sorry in October, but then you indicate another deal for this year, if I understood correctly from the presentation.

So it may be that in the late of the year, we will consider one, but not quickly.

Understood. Thank you very much.

We'll take our next. We'll go next to Andrea Verceloni with BNP Exane.

Good afternoon. Two questions and one clarification. The first question is on the 7% return on tangible equity target for guidance for 2023. I understood that that includes 200 million of extra provisions for Swiss fund mortgages in Poland. If it is or not, can you confirm? And also the denominator. Okay. At the denominator, what have you used in terms of equity? The current equity of the bank, or you have taken out Russia and Belarus, given the scenario is without Russia and Belarus? Then, can you give us some color on volume growth, the 3% to 5% in 2023? which countries would do better or which geographies would do better. And the clarification is just on the Czech Republic NII, the 30 million. Does that refer to the whole of 2022 or just the quarter? Is that the new base or the new base is higher because you have taken down 22 million, which was for prior quarters. Thank you.

Yeah, sorry I interrupted you. The 7% ROE target, the 200 million, as Hannes explained, are included in that. So the denominator is without Russia and Belarus. Of course, it's always the average of the capital, what you have.

And then the volume... Being the average, you have taken it out at both ends, right?

yes on both ends okay at both ends okay yes yeah and in czechia i understand that this is um creates a confusion this this relocation so that's why we say our base assumption is we start We start from January with monthly NII in the Czech Republic by 50 million per month. So I hope this clarifies. And the loan development, probably some further shrinking in Eastern Europe, of course, not at the speed what we had So far, of course, now we are coming more to the longer maturities. And then we have in the bigger segment, Central Europe, maybe 3% long growth, something like this, 3%, 4%. And in the Southeast Europe, slightly more, so higher single-digit.

Thank you.

Next question is by Ricardo Revere with Netio Banca.

Good afternoon, everybody. A couple of, two, three questions, if I may. The first one is on slide 10, where you mentioned 80 basis points of regulatory and inorganic effects on capital. I suppose this is in 23. Would you mind elaborating a little bit of what this refers to? The other question I have is with regard to the overlays, your guidance is before the use of overlays in 23, how should we think about the use of overlays? Is it possible to use it? in 23 or is something, given the outlook, is something that is eventually postponed for sure to 24. Just to have an idea when you talk to your auditors, what kind of discussions you have on this topic. The other question I have is on fee income. Looking at what you reported in Q4, it's a bit difficult to reconcile uh think i might around 2.5 billion next year do you expect all the business related to a fact to basically evaporate and why and if that is the case why should it be given that this that you know that stream of revenues has been there now for three quarters in a row and the situation is not exactly changing unfortunately um And the other question I have is on, in general, on the leverage and the risk-weighted asset production. Is that something that we can consider as somehow completed, or how should we think about reducing the business here and there, especially in Russia?

Yeah, to your question with the two slide number, page number 10 with the other impact. So a couple of elements which we have to mention. So one is an impact from the transitional benefits what we had so far. So this is phasing out. Others are that... There is a phase-out of the temporary very positive treatment of sovereigns, so they had a risk weight of zero. This is increased to 20%, so this was public debt issues in currency of other member states, and here we took out the maximum, what one can assume. Then there is this... eber repair program where if you have more need for detail question which which then has an impact on romania and and and slovakia um hanes might might have additional questions um And yes, in the financial institutions rating model, there are also some adjustments. So a couple of topics which come from that.

Well, Ricardo, talking about the overlays and the use of overlays, I know that you're anywhere of how add-ons can be released, but just for the big audience, On the one hand side we could of course immediately release them if the underlying risk which is currently not being captured in the different models would not longer exist and therefore we anyway would be obliged to release. The other one is if the risk factor which we have flagged is being captured within the model and or if the client has migrated into a state three. Maybe one more thought to be added what we also tried the way how we have created some of the post-mortem adjustments and overlays that they are self-consuming. And I give you an example. I was always talking about our cross-border exposure. And in the due course, whenever we are able to further reduce, we would also release a certain amount. of post model adjustment because we have allocated a certain bulk booking to this cross border exposure. And whenever we are capable to reduce, we are also able to reduce part of this post model adjustment. Ricardo, thanks for the question.

And to the fee income question, Ricardo. I mean, if you look on total group level, we explained several times that this specific currency management by the central bank, of course, will not repeat. So this was a strong contributor to the FX income. But even if you take aside this component, then you do remember that there was also in the western part of the world for a period of time substantial ethics business related to ruble i think we also had a share in these activities and this is will not come back again and then you you should also expect on total fee income some assumptions like in the eastern part we will see further devaluation in the currency and if you compare it to 22 then this also has in euro amounts a negative impact. And of course what I should also not forget is that Croatia now is in the euro area and here of course the effects business which is still needed for tourism and other activities is substantially smaller. So this on its own might cost us 20 million or so. Thank you. Did I miss something or Ricardo?

Maybe you're on the leverage and how should we think about

the balance the size of the balance sheet of the rush especially the russian operations um i'm not sure if i if i got your your question right you you see the balance sheet size in russia how this this might uh change i mean here this is mainly a question of uh of the deposit inflow and the currency developments, I would say so. This is not driven by the loan book, but it comes from these other elements. Difficult to say. Some large corporates, they can place their deposits here and there, and then maybe also when it's about foreign currency deposits, then it might be also a pricing issue. So these are price-sensitive deposits as well, which are the driver for the balance sheet. Thank you.

Okay, thanks. Thank you.

Next question comes from Hugo Cruz with KBW.

Hi, thank you for the time. Hugo Cruz from KBW here. I have a few questions. In your particular audit, first of all, you are accruing a dividend or you will accrue a dividend for 2023. What will be the accrual mechanism that you're assuming? Is there a payout? Is it just ex-Russian Belarus or on the whole thing? Second, know a question on the polish uh you know i i thought you know before these results you didn't have to increase coverage anymore because you had so much capital allocated against the polish swiss franc issue so what made you change your mind about it you know to decide to increase provisions again and you know, you gave the guidance of 200 million. Does that mean, you know, that's on the provisions, but should we expect any change to the RWAs allocated against Poland? Will that change in 2023? And then final question, you know, we have the EBA stress test coming up. I don't know if you have any comments about the assumptions uh that the eba is using or you know what kind of impact you expect that for for rifizing that's it thank you yeah indeed there is also a dividend accrued for 23 and uh it's uh

around maybe a little bit more than what we have this year, for this year, so for 2022. That's the maximum I can say. as of today, and I think from this figure it easily can be assumed that one does not expect an input, if I may say so, a contribution from Russia or Belarus at this point in time.

Well, thank you for your question, Hugo, on the Polish Zloty. By the change of the approach from the AMA to the standardized approach, I think this is pretty straightforward, and we have shared with you how dynamic and how strong the dynamic of the op-risk RWAs have been because of each and every legal provision bookings, we had to add more and more op-risk-related RWAs, and the AMA was not capable to serve this and to cover this topic appropriately. The second one, the way I understood your question on the increase of provisions, but at the same time having a lower capital AA coverage, please bear in mind a couple of thoughts on this one. Whenever we add more of the legal provisions, this of course is also increasing our coverage when it comes to the legal claim of our counterpart. And the locally deployed risk weight of this 150% when it comes to Swiss Ring financing, of course, keeps on existing. OPRISC RWA is what we have seen out of the AMA have been many most of the time or mainly being motivated by this very, very strong dynamic we have seen out of these legal provisions. And because now we have moved back to the standardized approach, the allocation of OPRISC RWA is towards the specific segment goes across along the gross income allocation. So this is the main reason why you now would see a lower RWA coverage when talking about Poland. The second or the third question you raised is the stress test and comments on the assumptions what we do have on this one. Yes, we had next to all the many discussions we had in the last couple of days, we deeply looked at the scenarios provided. I think within our guidance and way of thinking and talking to you, I dare to claim that on the FX scenarios and on the energy prices, we would say that they are milder converged at what we have considered when talking about our integrated stress test and when sharing our way of thinking with you. But at the same time, when looking at the GDP unemployment rate, this looks a little bit more pronounced than what we had on top of our mind. And as you're well aware of that last time, what is the motivation or the narrative, how it's being argued is Well, let's assume the virus would be back and then we would see two years of slump in GDP and only the third year would maybe then see a certain recovery. But having said this, this is important, Hugo, at the same time, you know, we have the 729 million euros of risk overlays, first thing. And not yet having conducted yet the calculation, but I would at least assume that the impact is comparable or higher than with our last stress test exercise. This would be out of my first talk with my colleagues when looking at the macroeconomic assumptions. For me it was interesting to see how certain countries have been considered when it comes to valuation drops in terms of real estate. So this is interesting how the country's spread is looking like. So this would be my first assessment, and not to spoil the conference call, I would stop here. Thank you, Hugo, for your questions.

Thank you.

We'll go next to Robert Zosche with PKO BP Securities.

Hello, can you hear me? Hello? Yes. Good, great. Thank you for taking up my question. I know we're getting quite late, so quickly. Looking at the changes of the equity and regulatory capital quarter to quarter, has there been anything else except for the FX impact behind? And second, there has been already a couple of questions on the fee line development going forward like lesser demand for hedging etc but looking at Russia specifically are you aware perhaps of any coming legislation that could affect profitability of the sector in general I'm referring here to the for example budgetary situation funding for war in Ukraine which might require some spatial sort of war economy with negative impacts spilling over, for example, onto the banking sector. To your knowledge, have any such potential plans or drafts been already taken or thought about on the ground there? Thank you.

Let's start with the second one, where there is a short answer, which is no, I'm not aware of any developments till now. I'm not a real insider in Russia, but given the history what they have, I would not expect that they go for such things. And the first question was the FX impact on the in Q4. I think here we have, I think the answer should be on page Page nine, I guess, it's 78 basis points, which was negative. So the last of these elements in the waterfall, page nine, 78 basis points.

Thank you. Thank you very much.

Next question is by Tobias Lukas with Kepler Chavarro.

Yes, thanks for taking my questions as well. I would like to touch back on the NAI. With regards to the deposit beta, could you maybe share with us what you're currently seeing in the individual countries and also what your forecast is, your expectation for a deposit beta? We know it's often kind of 20 to 30% with many European banks. And secondly, again touching on the first question actually from Gabor with regards to the 15% to 20% decline of NAI, if we kind of extrapolate the Q4 result, could you maybe give an indication, I mean you explained well with the Czech Republic and so on, but how much of that potential 600 to 800 million decline which could be transferred actually to the trading line. Is it 100 million or 200 million? You see basically on the other line. And yeah, I think that's it. Thank you.

Beta is a difficult one. I spent... I spent some time with my people, and at the end of the day, they told me, please tell me what is the beta, and I was somehow struggling. So we rather, the intention is to give you, and we tried here and there, to give you some sensitivity on the, driven by the key rate developments. And, yeah, as I said before, there may be Czechia flats of... flat development, maybe slightly negative with the minus 8 million. What you have seen in Q4 is some indicator of what might go on when you have this structural shift in the liabilities. And if the check is irritating you, that's why we try to simply take the $50 million as a starting point. the 38 million this was only a check issue and the third million built up in the first three quarters and we we changed it in the fourth quarter so it's not the quarterly jump or whatsoever so it's a reallocation of that and um yeah uh I would need to figure out a little bit more on your annualized Q4. There are some factors in, so maybe the team could come back after the call and give you a breakup on what we have, if this is okay for you to pierce.

This would be great. Thank you very much.

Next question is by Ellie Dan with Morgan Stanley.

Hi there, thanks for taking my question. And sorry if I've missed this already, but I haven't heard any plans for 81 issuance in your presentation. I realize your 81 bucket is filled, but do you have plans to call the 81 in June? And would the regulator let you call without pre-financing?

Yeah, indeed, Ellie. We might come... I'm sorry, I was a little bit distracted by your question, if it was already answered. The question before was the Tier 2, where I said we will come in... in um late of the year but you were talking about the 81 so sorry for creating this this confusion i think what what we shall say here is you know that that the rate has been adjusted in in the the coupon has been adjusted so um what we can say is uh We cannot comment on upcoming coal decisions at this point in time, but you should be aware that we are committed to replacing the non-coal bond with a new bond subject to these economics and spreads of the refinancing. And here, this was my, where I said, yeah, we have seen some coupon adjustments, which are anyhow aware. Thank you for your question.

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.

Thank you for participating. Wish you a good afternoon. Bye-bye.

Goodbye, colleagues.