Raiffeisen Bk In Unsp/Adr

Your conference is about to begin. Good afternoon, ladies and gentlemen, and welcome to the third quarter 2023 results conference call of Raff Eisen 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 your kind introduction. Good afternoon, ladies and gentlemen. Thank you for joining us today in our last update call of 2023. We are happy to report a very stable set of results driven by further revenue growth, still very few risk costs, and more importantly, further strengthening of our capital position. I'm also happy to report that we have called for an extraordinary shareholder meeting on the 21st of November, at which we will propose the distribution of last year's dividend. You will recall that with the 2022 preliminary results, we announced a dividend of 80 cents per share, and we are now in a position to make the distribution. I believe it is important that our shareholders participate in the excellent results achieved last year. Despite the strategic decisions that we are facing and the further provisions in Poland, RBI is in a very strong position and entirely capable of remunerating its shareholders. On the subject of our strategic decisions, and while there is little I can share with you today, I am confident that we are making good progress. As you know, we are focused on achieving the deconsolidation of the Russian business by selling or by spinning off the business. On both of these options, we have made good progress. In previous calls, we shared with you a potential spin-off date at 31st of December, which today appears very unlikely. This is because we still see a clear, perhaps easier path to deconsolidation through a sale. Please understand that I will not go into any more detail. Unrelated to the Russia strategic consideration, but equally important to you, is our dialogue with the U.S. Treasury and the request for information relating to our sanction compliance program. OFAC has confirmed to us that they have received all the requested information, that they are working their way through it, and that they are satisfied with our cooperation. And while I cannot comment on any potential timeline, I am as confident as ever that we are fully compliant across the board. Let us now move to the third quarter results, which are in line with trends observed in Q1 and Q2. Excluding Russia and Belarus, we can now report the consolidated profit of a little bit more than a billion after nine months, and a return on equity of near to 11%. Now, please bear in mind that this reported 11% RE includes over 600 million of provisions in Poland, which brings our coverage of the portfolio above 70%. The CD1 ratio for the group assuming a worst case in Russia improves to 14.4% or in fact 14.8 if you also assume relief on the Russian-driven operations, RWAs. Moving to my next slide, again confirmation of the trends observed earlier this year. Core revenues continue to develop very nicely. Loan volumes are very muted and costs broadly reflect the inflationary environment. Moving to the next slide, let's take a closer look at our core revenues. First of all, NI, which continues to develop very nicely despite the very little loan growth we have seen year to date. Euro rate hikes continue to feed through in Slovakia and Croatia, of course, where we have seen little pressure on deposit pricing, but also in other CE markets where we have a very sticky euro savings. In the Czech Republic and Romania, the pressure on the liability side appears to have stabilized. Heading into next year, we expect NIA, excluding Russia and Belarus, to be broadly stable. perhaps down a touch.

Key CE markets such as Czech Republic, Romania, and Serbia should be poorly stated, and in Slovakia we could continue to see further improvement. We do expect some pressure in head offices, however, and in Hungary, as well the size of the late cuts are expected.

Net fees and commission income are very stable, slightly positive for the core of the group, excluding Russia and Belarus, and more noticeably, down around 20% in Russia in the quarter, where we continue to shrink our payments business, and of course, this includes further weakness in the ruble observed in the quarter.

Moving to the next slide.

where you see the balance sheets. We focus on loans to customers on the one hand and deposit trends on the other hand. Loans to customer roughly unchanged on the quarter. We see further reduction in Russia with an 11% drop in Euro terms and 4% in Uber terms, and generally small increase in core Central Europe and SE markets in local currency terms. The one billion increase in group capital markets is largely for repos and landing to our corporate customer slope. To a large extent, this is in line with our expectations and the softer macro down across the region. Deposits are also very stable. Retail volumes are very stable, even slightly positive. As I have already mentioned, we believe that the competitive pressure in Czech Republic and Romania is behind us, and Euro deposits are still very sticky and unsensitive. Corporate deposits, which by their nature are more volatile, saw inflows in the quarter. Of course, these deposits are nice to have, but we do not plan our liquidity and funding needs around them. Moving to the next slide, speaking of liquidity, you can see the improvement in our liquidity ratios, both on the group level and at head office. At the local level across our network units, I mentioned the very stable retail base. In head office, clearly the large inflows of corporate deposits have driven the LCR up to almost 200%. Again, these deposits are nice to have, but we do not plan our liquidity and funding needs around them. As you know well by now, we run a very conservative liquidity profile here at head office with very little duration mismatch between assets and liabilities. And furthermore, the securities portfolio is only used for the QLR stock. And even here, securities only account for about half. The rest of our HQLA stock is in cash and other central bank placements. Moving to the next slide, I think this is more for documentation, the development of the C to one ratio from half year to the end of Q3. The big movers have been the retained earnings and to some extent a slightly negative impact by IFEX developments. The next slide is the outlook to 2023 in the C to 1 ratio, where we believe it will be stable till year end. Moving to the next slide, which is to some of you quite of interest, is the development in Russia and the impact of price book multiple zero deconsolidation scenario in Russia. So we have reached a 14.4% landing point if this would have happened at the end of September. The main drivers are CD1 capital of 4 billion and RWAs of 13 billion, which are attributed to Russia. And I have mentioned already that in this number, the operational risk or WAs are not included, which amounts to 40 basis points. Moving to the next slide, capital ratio development and SREP. I think, again, this is for documentation reasons and core information is important. the developments what we expect in the PLR2 requirements and in the OCI buffer. Moving to the next slide, the MREL and funding plan. What you can see is that we have in head office a good buffer. of nearly 600 basis points, which of course benefited from the senior non-preferred issuance in September. And at the network unit level, we are also in a good position. Be aware that this presentation has a reporting date of 30th of September and on 12th of October, we successfully issued 300 million by our Romanian

subsidiary and with that they also meet their requirements.

If we move further, some more details on Russia, what you see is a further reduction of our activities. The main initiative in this year had been the payments area, which followed last year's significant shrinking of the loan book. I have already mentioned the revenue slide by a drop of 20% in the fee income in rushing Q3. And you have seen the balance sheet impact as well. What is also worth highlighting, and here I dip my cap to Hannes, is the net cross-border exposure, which now stands at around 40 million euros. You will recall that this was over 600 million at the start of the war. What is even more impressive is that this reduction was achieved without taking any stage 3 write-offs. RWA in Russia is further down in the quarter, largely from rubble weakness, but also further lending reduction. Besides this, liquidity and capitalization of the Russian business remain very strongly with an enormous buffer to the local requirements and a very good liquidity cushion. in the very low long deposit ratio of 42%. Moving to my next slide, the macro outlook. Yeah, we had seen a slowdown in the first half of the year. Second half, stagnation or a mild recovery. The manufacturing sector, which is key for Central Europe, especially because its main trading partner, East Germany, keeps underperforming. And this, of course, limits the GDP development in Central Europe. Southeast Europe benefits from the very strong tourism season and remittances, which are still flowing in. and as a result they are outperforming the Euro area and Central Europe. Yeah, recovery in Ukraine is making progress, but of course it's limited by the ongoing war. And in Russia we have an L-shaped scenario for the coming quarters. Moving to the next slide, this is the way we look at inflation and key rates for this year and also coming year 2024. Probably this is anyhow in line what you see. And now coming to my final slide, which is the guidance. And here we have core group, which excludes Russia, Belarus, and we have the total group as well. So we have a net interest income of around 4.2, 4.3 billion, net fee and commission income at 1.8 billion, maybe slight positive developments in loans to customers by 2%. We will have OPEX at around 3.1 billion. will bring this cost-income ratio at around 50%. Risk costs will be, before use of overlays, about 30 basis points. Hannes will talk about this. This would bring a consolidated return on equity at around 10% and a CT1 ratio which will be above the 13.5%, but to that I have talked already. And when looking at the full group, net interest income 5.6 to 5.7. Fee and commission income up to 3 billion, slightly reduction in the loans. Cost and income ratio with OPEX of 4 billion will then be around 43 to 45. Risk costs, 40 basis points. Consolidated return on equity around 16. And as I have mentioned before, at year-end, the CETI-1 ratio of 16.5%. Hannes, I hand over to you.

Johan, thank you. Good afternoon, ladies and gentlemen, and thank you for joining us this afternoon. I trust you have seen the figures, and I will be very brief on the Q3 developments. virtually no risk costs in the core of the group, very low non-performing exposure, and of course, a very good coverage ratio. At the same time, we continue to work on our overlays. We have increased our stock in the core of the group while releasing overlays in Russia. RWAs are lower on the quarter, largely driven by FX and supported by additional securitizations. Loan growth continues to be very muted, and we expect this continue into year end. Furthermore, you will recall from our last call that we guided for 2 billion of RWA relief until year end 2023. And I'm happy to confirm that this was already achieved in October and will be reflected in the Q4 numbers. We are working on a few other changes, so there is potentially some more relief to come this year. In Poland, finally, we have now reached a coverage of near 72%, and this could even increase a bit more into year-end. At the same time, we are now broadly rolling out our settlement offer of the successful pilot program. So now let me have a look a little bit broader on the environment, which has deteriorated since we last spoke. First of all, On the macro side, we clearly see some first clouds forming. GDP growth and surveys have weakened. And in our daily business, we are seeing more signs of fragility. Economic stagnation appears to be well entrenched. Core inflation is expected to remain elevated for some time. And energy and food prices also remain an area of risk. In commercial real estate, specifically, We are seeing the first signs of deterioration and expect some risk costs here in Q4. Second, the geopolitical picture has become more unpredictable and we are now facing a multidimensional scenario. As we look ahead, we maintain our guidance around 40 basis points of risk cost for the full group in 2023 and around 30 basis points for the core, excluding Russia and Belarus. I realize that this implies a noticeable increase in Q4, and while I cannot say for sure where this will occur, the environment is sufficiently challenging to warrant caution. I mentioned some deterioration in the commercial real estate book, and of course, one or other unexpected default in the corporate book can quickly add some 5 or 10 basis points in risk costs. Allow me just a word on our commercial real estate exposure, where despite my words of caution, I believe that we're in a solid position. We are talking about 6% of the group's exposure with an average LTV in the range of 50 to 60%. We have conducted two stress tests in the past 18 months. Our exposure are backed by cash flows, which have been stressed. In many cases, we benefit from fixed rate expenses. So while we may see some defaults and NB in closing Q4, this is a natural part of our business and we are ready. Looking ahead to next year, Our risk-cost guidance is a touch more cautious for all the reasons I have just highlighted. From 40 basis points in 2023 for the core of the group, my first estimate for 2024 is around 55 basis points. And as usual, this does not assume any release of overlays. Well, having said all this, thanks for listening, and we would be now eager to take your questions. Thank you.

Thank you, gentlemen. Ladies and gentlemen, we may now start the QA session. If you wish to ask a question today, you'll 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'll 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'll pause for a moment in order to allow our queue to assemble. And we do go to our first question from Mehmet Sevim with JP Morgan. Please go ahead.

Good afternoon. Thanks very much and congratulations on the strong results. I have three questions, please, maybe starting with Russia. It seems now you're pivoting towards a direct sale option, and I do appreciate you can't say much at this point, but maybe you can walk us through the regulatory approvals that are required at this stage. So what specific approvals would you require from which authorities, both in Russia and at home, and is there any clarity at all on the timing from here? And my second question would be on NII. Johan, you mentioned during your remarks that you expected 2024 NII to be flat or maybe a touchdown. Could you please walk us through the underlying assumptions in different countries, and particularly those where we are seeing or at least expecting rate cuts? And finally on dividends, clearly this was a very pleasant development. And if I maybe can ask whether we should take that as a signal that the dividend trajectory from here is more normal, that is you'd now stick to the current financial calendar that you also present in the presentation. Thanks very much.

Yeah, thank you very much.

I think starting with your first question, in Russia what we have is, of course, the requirement of the Russian Central Bank, but you then also have within the administration at least three entities which would give us or would need to give their blessing. And so it's... It's not a straightforward approach, but we can believe that those interested parties have established a very strong relationship already, or maybe strong is a little bit too far going, but have a relationship already. with these institutions. In Europe we would need for sure the approval of the European Central Bank as well as the Austrian F&A because it's a sale of significant participation. I mean here it's too early to say how long this will take, but as I said, we're still in a mood which is rather optimistic. When talking about the rate NII developments, then I think the more important point is that in some countries, we will see in 24, and I think I have mentioned it, It was Hungary. It is Czech Republic. We assume a key rate reduction. And, yeah, the good development what we had in NRI came to some extent by competition and liquidity available in the countries, which was better than I had ever expected. But on the way down, this will have an impact. I think we shared with you that in Austria, as this is a large corporate business, it's a small margin business and little impact from the rate developments what we have. Yeah, Czech Republic will also see a reduction in rates. I think there are some areas which are because of no elasticity we will see them yeah not anymore support and before what i have said this this will will bring what might bring the the nai a little bit down when talking about dividends we're happy that we we can distribute dividends still this year and we will update you with the final results for this year than early next year.

All right. That's very helpful. Thanks very much.

Our next question is by Gabor Kenemi with Autonomous Research. Please go ahead.

Hi. I have a couple of questions, maybe firstly speaking with NII. Yeah, I think this guidance of stable to slightly down implies at least a 200 million drop from the annualized Q3 rate. I guess you commented on the rate cut, but maybe you can also comment on the changes in the reserve requirement remuneration in the ECB and at the Czech Central Bank. So what could be the impact of that? and what is your current liquidity surplus at the ECB. That would be also interesting. And the other question I had was on the ROE guidance for ex-Russia and Belarus, where I was a little surprised you kept it at 10% because I think if I add up the upgrades to your NII guidance and the better provision outlook, that means something like 300, 350 million better PBT. So quite substantial. Is it a kind of caution on Polish FX charges or why the unchanged 10% ROE outlook? Thank you.

Yeah, thank you. Thank you, Gabor. Starting with your question on the impact of the minimum reserve requirements. So our guess is that on head office, the impact in 24 might be about 10 million euros. We have then also in Slovakia and Croatia, which might add up to 8 million euros. Hungary, 16 million, and in the Czech Republic, 25 million. In Serbia, also some increased minimum reserves, so another 6 million. So if I add these up, this is a significant amount for next year. When going to your... Other question, ROE 10%, also we have a very strong result. Yeah, depending on the developments of litigation inflows, maybe there is a little bit more to do in Poland this year. So here we have seen quite an active activity by many of the customers. And then, historically, we had some seasonality always at year end. Hannes indicated that the good risk result might not continue in Q4. And some seasonality in OPEX, we also have to be aware of. ex-Russia and Belarus, as you have said.

And your third question.

The liquidity you keep with the ECB.

The liquidity surplus at ECB. So it's 16 billion, if I got it right.

Was it stable roughly in Q3 or changed in any way?

Yeah, it fluctuates, but of course this is with, as I said in the presentation, we have quite an active money market and repo business, and so this together then creates volatility in that amount. But as I said, for our steering of the liquidity, these high volatile elements of our deposit base is nice to have, but it's not important for our liquidity steering.

All clear. Thank you, Johan.

We go next to the line of Benoit Petruk with Kepler. Please go ahead.

yes good afternoon it's benoit petrack from kepler so three questions on my side the first one will be on the exit from russia i was wondering or you plan to deal with uh you know capital controls restrictions on uh on foreign currency transactions so you know how will you deal with that that will be the question number one the number two will be on on ni Could you update us on the sensitivity to rate cuts? So if I understand, you've taken that into account in your guidance on NI, but just wondering if you could provide the sensitivity on, say, 100 bps per country. And the final one will be on cost development for 2024. You know, do you see inflation pressure getting a bit less for next year? And I think, though, in your previous comment, you mentioned some potentially one-offs, if I understand, on OPEX excluding Russia and Belarus. I was wondering what you referred to. Thank you very much.

Yeah. Thank you for your questions. I start with the most complex one. I mean, we currently work under the assumption that an approval is a package which also gives a clear understanding how much capital over which period of time can be or will come to the head office and no capital and probably is also not the same. Here I think we are, what we see is that Some international corporates could repatriate money. Recently, it got more complex. So this is one of the uncertainties what we have. When talking about your second question, the 100 basis points, sensitivity, of the NII. The numbers what I have shared with you in the answer before when talking about what are our assumptions of rate cuts in some of the countries. So these cuts were already part of the, let's call it, cautious guidance what we gave on the NII development. I think one can say this is included. When talking about OPEC's expectations for next year, here we, of course, we have an environment which is still inflationary. We have done, in a couple of countries, We had a lack in wage increases, so we had been for a while very reluctant. We had to increase wages, what you can see. I think at least some 4% or 5% of OPEC's increases for next year will occur. I think the uncertainty comes from... some one-time spending around the Russian deconsolidating in this year. Partly these have been compensated by non-recurring costs from the integration of the acquisitions what we had. So this would be a first guess and I mean, of course, we are talking in euros and the question also is in local currencies, probably there is a little bit more than the 4% I have mentioned.

Maybe 8% or something. Thank you. Thank you very much.

Next, we go to the line of Johannes Dorman with HSBC. Please go ahead.

Good afternoon, everybody. Jonas Thormann, HSBC. Three questions that I made. First of all, on your Polish business, 71% coverage ratio sounds nice, but do we need to go to 100%, or what is your current worst-case assumption in terms of provisioning needs, of coverage needs? Secondly, on your risk overlays, you said guidances before usage of risk overlays. And risk overlays cannot be maintained forever. Do you expect that you need to release some of the 800 million next year, or do you think you can keep them until, I think, 2025 or whatever, if we could get some more decels? And last but not least, just at which point in time will you be able to give a midterm target for Oregon? only post the deconsolidation of the Russian business or could you say at some point this is even possible without the news of that? Thank you.

Well, if I may start, Johannes, with the first two questions on the Swiss strength matter regarding Poland. As we indicated, we are currently slightly above 70 and we may aid a little bit more dependent on the inflow to be observed in the quarter four. You asked about what could be one of these worst case scenario and is it 100%? I think, you know, I know that people like talking about worst case scenario, but we will also must take into consideration that there are some clients where the remaining debt outstanding is maybe some 20 to 30,000 years. And usually if you go the legal way, it takes at least three or four years. So we will always have a certain cohort of people who are just saying, well, I recognize the debt. I repay the remaining 20,000 or 30,000 euros, and I would not like to go for a three or four years battle in a legal situation. So that was the reason why we believed then with the 70... plus a percentage of coverage that we will be well covered but of course if the inflow keeps on staying pronounced we would add additional money but you could think about the current portfolio there was once a discussion whether or not also compensation could be uh shall be considered but there's a clear interpretation that with the annulment of the loan, that no further compensation shall be considered. To your second question, when talking about 24 guidance is without overlays, and when would we be forced to release some of these overlays? You know, if we look at the total stock of overlays, I think we could easily divide them by 50-50. So 400, around 400 million euros go with RBI Group corporate markets and then we have a small part in Ukraine still as an overlay and a bigger part still in Russia. So I think as long as this situation stays I think we will find good arguments with our auditors that we can keep this high level of provision in Russia and Ukraine. The other one is what is the main source for our overlays, what we have for the remaining group. And as we call them, it's commercial real estate, it's inflation. And as long as we stay in this elevated level of inflation and high interest rates, I would also feel confident that we could argue why so, because as we realize and recognize that the very strong and pronounced increase of rates never seen beforehand in this comparable dynamic has a certain lagging effect. And the lagging effect is at least 12 to 18 months. And this would be exactly my argument in saying, well, guys, listen, this is what was intended by this strong and pronounced increase of rates. And it's also... officials from the ECB are saying, well, let's now see how also the demand side causing the inflation is slowing down. So this would be my way of thinking. So the first 400 allocated to Russia and Ukraine, as long as the war situation persists, I think we will have all the arguments on our side, unfortunately, to keep these overlays in place. And on the remaining 400... I would say we have a certain lagging effect from the interest rate increase. And if things start materializing for the topics where we have created the overlays, of course, we will also make use of them.

Thank you, Johannes. When talking about midterm ROEs, I think we have We have two elements which in the past or till now have created some uncertainty, which Hannes was talking about the first one, which was the developments in Poland, the rulings, the behavior of customers on the Swiss franc mortgages. Yeah, I hope we soon come to an end of this negative development for us and at least in the P&L impact. And the other topic is, of course, Russia, where some additional uncertainty is also we have this dual steering approach is still with us. So I would not commit today that... with the preliminary results, we are already there to give midterm guidance for the business without pressure.

Okay, thank you.

We go next to the line of Matei Nemes with UBS. Please go ahead.

Yes, good afternoon, and thank you for the presentation. Well done on the results today. I have three questions, please. The first one is on still NII. Could you perhaps share your assumptions underpinning the NII guidance in terms of volume growth? Well, what sort of volume growth do you bake in to your NII when you say stable to slightly down next year? That's the first one. The second question would be on RWAs. And as you mentioned, the $2 billion RWA relief achieved in October reflecting Q4 numbers. I'm just wondering, could you give us some visibility on any other organic and inorganic RWA moving parts when it comes to 2024? And lastly, clearly your CET1 ratio in a PB0, the consolidation of Russia, is now 14.4%, significantly stronger than a couple of quarters ago. And you were reportedly looking into perhaps some inorganic growth in some C countries. Could you give us your views on capital allocation from here onwards? Do you see opportunities via M&A? Do you see opportunities perhaps to increase organic growth in certain areas? And if not, how should we think about perhaps excess capital going forward? Thank you.

Thank you for your questions. When talking about the volume part of the NI assumptions and here mainly about loan growth, then I think one, given the GDP outlook, what we shared with you, one can expect 4-5% loan growth in 2024. And this leads, Dan, also to your question of RWA, or I should rather say capital allocation outside of Russia. I think here in terms of... Organic growth, the countries, as a general assumption, but depending then also on the opportunities within the countries, are still Czechia, Romania, Slovakia, let's see, Serbia. One has to say that throughout this year, and we will see how good the margins are improving in the mortgage business, we have seen very, very low demand, but also very, very challenging margins. So the new volume was rather significantly down in some markets by 50% or more. So this explains why we still do not see significant increase, but that the core markets, as I repeated for you, are Romania, Slovakia, Czechia, Serbia. Of course, the Austrian corporate business always gives room for something. And in retail, Kosovo has some opportunities. Hungary is an area where if the parameters are fine, then retail would be good to grow a little bit. When talking about an organic, of course, we will look at opportunities in the markets, which I have mentioned to you. But one has to be aware that other beers are also looking at that. So at the end, it might also be organic. competitive approach, and if it fits to the bank, to the markets, then to some extent we are interested in it. And the RWA 2 billion relief in October, this was an answer for a question to Hannes.

Well, Martin, the question, the way I understood it is that you were curious about also about 2024. So the October 2 billion years are summing up that we have introduced an IRB approach for our mortgage business with the Building Society here in Austria, where we have usually over the cycle very low risk costs and therefore we have benefited from this very good risk performance, also with lower risk weights when switching to the IRB. And secondly, as I mentioned, also the revert of the sovereign model to a standardised approach was another billion. Looking ahead, sneaking into the 2024, what non-organic effects you could expect is around about 1.5, 1.6 billion euros of relief. What would be the main arguments? The one is, you know, this, again, change of this Article 500A, where we have seen in the beginning of the year the updrift We are switching also to an IRB model in our Croatian unit and we will have to have an update on our corporate rating model. So this would be the reason how to argue a relief on the non-organic side of around about 1.5, 1.6 billion euros. Thank you. Thank you.

Thank you. There are also questions in the in the chat and the one was any news on the OFAC probe. Here I can confirm what I used in my introduction. The feedback from OFAC is that you delivered all the requested information. You were very cooperative and it will take some time to analyze this. these informations what we received so the positive cooperation and the completeness was confirmed the rest I can only add from our perspective which I tried to express as well of course experts external experts not only our experts were looking at the at the number, at the data, the transactions, what we had to deliver, and they had been fine with that. The problem is, of course, that in such a process, one cannot give a timeline for them, in best case, to close it. And then there was a second question. If the extra... Ordinary shareholder meeting on the 21st of November will be also used to vote on the spin-off of Russia if the sale does not materialize. So this is not on the agenda, this topic, and we will not ask for a shareholder decision at this point in time.

We go next to with Barclays. Please go ahead.

Hi. Thanks for taking my question. This is from Barclays. I have three questions. I guess you've been very helpful on the NIA guide and the cost guide. It would be really helpful if you could talk about the moving parts for the fee income for fourth quarter as well as for the next year. Second question is on the RWA increase. I guess on slide 10, you highlight a 95 basis point impact from the RWA increase. So it has three components, I guess, loan growth market and the operational RWA. So if you could talk about what part of this is operational RWA and what is causing this increase. And the last question is on Poland, I guess. You build up a decent provision, I guess. You sold off a business to BNP. and the non-compete has probably ended last year, I believe. So is there a chance of you entering the Polish market again and doing the core banking operations in the country? And aligned with that, I believe there was a pilot project for settlement. So how is that progressing, and can you update us with the details on that? Thank you.

Thank you for your questions when talking about the fee business. What I tried to express is that we have one part of the fee income, of course, is related to the loan business. And here I explained what one can expect till year end and also for next year. So here we see a limited positive impact. Then, of course, with the reduction of the Russian business, so in parts of it, the head office had also been supportive to international customers and having some FX transactions, which will also reduce. Yeah, there might be some support on fee volumes by the inflation. One should not expect too much on additional pricing because of the inflation, because here we see, of course, a significant price sensitivity, meanwhile, in all the markets. And, of course, if you have a long... historic time horizon, then you would reconsider also that in Croatia we have the Euro adoption, which of course costs 20 million of Euros if you compare historic numbers this year and also the future. When talking about Poland, I think on the settlements, Hannes gave to an earlier question answers which, if I may shortly summarize and repeat, were that We believe as of today what we see based on our model, so the inflow what we have seen so far and the modeled inflow over the next couple of quarters, we believe we are well provisioned. As in this provisioning model, the annulment part is a very, very strong component. Of course, as Hannes said, you have in this model also a period to come to an end of three to four years, which then for provisioning requires also a discounting, which then is one of the reasons why the current 70% over time will be different. So this provisioning is fine unless we see in the coming quarters another wave of litigation inflows, which would need to then do a further provisioning. Let's have a look at that. To your question, reentering the Polish market, one can say we – We cautiously and to a very small extent have re-entered the Polish market. We have built from scratch a digital bank which operates under the Austrian license so it can act throughout Europe. We have decided to start in Poland because we believe in our region this is the most advanced digital bank most competitive one. We started with unsecured lending. We are in the process to adding daily banking, so an account and some other features. But this is more a European exercise than a Poland one. I don't see a full re-entering in Poland. And Hannes will take some other questions from you.

Thank you, Johan. Another one, you know, update on settlements in Poland. As I was talking about, we have the one other, we have over 300 test cases demonstrating that our procedures are well working. And now we would do the whole story at scale in the Q4. And then we will see how well also on a broader scale our settlement offers will be perceived. And then talking about the split up on these 95 basis points of RWA growth, you could assume some 55 basis points are motivated by organic credit risk RWA growth. And the remaining 40 basis points is a sum of op risk and market risk. Why so? Because in op risk, we have a standardized approach and you have a three years average. And of course, you know that in the last two years, we have earned very well and therefore a year with a little bit less gross income is leaving the time series, and a new one with higher income is added. Thank you.

Thanks a lot. Thank you. Next, we go to the line of Ricardo Rivera with Mediobank. Please go ahead.

Thanks for taking my questions, a couple if I may. The first one, I'm looking at, sorry, slide 52, where you show the size of the Russian business in Euro. And I noticed that the loan book goes, you know, here from 13 to 6 billion, deposits go from 25 to 15 billions. Certainly, there is the ruble effect here, but still in Euro terms. The size of the operations is going down fast, really fast. So I don't know. Let's assume for a second that the spin-off and all that part takes time. It's already taking maybe more time than you were expecting some time ago. At what level in Euroterms the Russian business will be small enough that at that point the spin-off and all that would become kind of irrelevant or redundant. You just let it go. Just hand over everything to the Russians if that is possible. This is the first question. And the second question I have is on the digital euro. DEC threats, risks, opportunities, conduct, or do you plan any particular investment on that given that the ECB has decided to move ahead with this project? Thanks.

Yeah, thank you, Riccardo.

I think it's indeed we have seen a significant reduction on the Russian loan book. One can say that also with the changes in the international transaction payments business, I think we have achieved quite a lot. Nevertheless, in the Western perspective, we have to be aware the size of the bank is still significantly larger than the two or three other international banks in Russia. I think the issue what we face and one can see those in the structure of the balance sheet comes from the still high deposit space. We have not decided on a level where one could use your wording and say now Russia is irrelevant within RBI group and we can keep the bank. Of course, as you see from our activities, we, in addition to a sale and a spin-off, we are working on the reduction of the business so that the overall impact on on rbi is is not so important anymore but but numbers no numbers so far decided and as i said focus and john if i if i may interrupt you just one second excluding the evaluation of the rubble are you happy with the

downsizing of the business, the speed, sorry, of the downsizing of the business. So were you expecting it to go faster? Any comment on that would be nice.

Yeah, I think we have achieved quite a lot, if you say where we started from. I think that if you look into more details, then of course you have, when looking at the loan book, you have quite a lot of volatility from the effects developments. I think we did quite a lot in the short-term corporate book and on the retail books. As well, the mortgage business, of course, in an area where you have a volatile interest rate environment, one cannot expect that refinancing happens by other banks or whatsoever. So here, I think customers are cautious and this is why you have this development. Yeah. I mean, everything is different from a Western perspective than usually, so usually you would enjoy this nice deposit base. Here it's a challenge to reach a size where, well, let's say the international pressure also is going to be reduced, and as we still feel that, we act as I described. When talking about the digital euro, I could now talk an hour or so and echo what other European banks are saying. We don't see a use case and anything more, but of course, as soon as it comes, we then will act. But we're not not on the forefront of developing that. I think we're capable enough when it comes that we will be ready in time to offer what's required to our customers. But when we talk about where do we now invest, then it's not the days for the digital euro. But in the area of digital offerings, we have quite a lot. as I have said, everything what you would need and the rest has to be specified by the Europeans and then we will invest. Thank you.

Thank you. Thanks, Leon. Thank you very much.

We go next to the line of Juliana with Goldman Sachs. Please go ahead.

Good afternoon. Thank you for the presentation and congratulations on my side as well. Three questions, if I may, please. The first one would be on the Russian RWAs. So in the second quarter, you were guiding for 14.5 billion of net RWAs to be deconsolidated compared to 14.3 of accounting RWAs. And now the RWAs to be deconsolidated stand at 13 billion versus, I think, 13.7 accounting. So I'm just trying to reconcile how a 4% reduction in accounting RWAs translates into a 10% reduction in effective RWA's if you can help me please. The second question is on asset quality. I think you saw some credit exposure downgrades from grade three to grade four during this quarter and I think mostly in Germany and Hungary. I appreciate that you have already commented on credit risk but could you please elaborate a bit on trends you are seeing in those geographies in Austria and especially on the CRE front please. And the third question is on Ukraine. Your GDP growth assumption looks quite promising there for the next years. Do you see any opportunities perhaps for long growth on the back of the reconstruction in the western and central part of the country that is to come? Thank you.

Thank you. I try to answer your question.

I think we have, and you allow that I just talk about the end of September and the RWA impact in Russia. So we have a credit risk RWA of about 9 billion in Russia, and we have a market risk of 4 billion in Russia. because of Russia, which is, of course, our own participation in the Russian entity. And, of course, these four billion of our WAs are mostly in head office, as this is where the participation in the Russian entity is booked. And so this is probably... It's... It's the reason why it's difficult to run through a few information and then come to a reconciliation of the numbers. So here I tried my best at this point in time, but I mean, more technically also the team would be happy. I mean, we have on slide 11, maybe this is helpful, where we have the idea how the RWAs are reported in Russia. I think, let me, I would need to open this up on my side as well. But this is the, the 13 billion in total and what you might use then. Maybe this is good enough for an answer at this point in time. When talking about the Ukraine GDP outlook, indeed we are positive. I think the country has well adjusted to the developments, the war impact. This is of course the basic assumption of all our forecasts. The war impact to a biggest extent is limited to the areas of war, of fighting. and the damage in other parts of the country is very limited. This is a basic assumption. And the second part of it comes, of course, from the good support from the international western part, so from Europe and the U.S., so both of these are helpful. I think when we talk about reconstruction, I... I think it's fair to say that reconstruction comes in different phases. And what you currently have is that Ukrainian companies are suffering also to exporting goods without international guarantees and to importing here and there. goods which they would mean to replenish the production environment what they have. So here one can say it's still a challenge. I think then the second part would be infrastructure is very important. So this is a European exercise mainly. When talking to the international institutions, EBRD, eip and others there is there is an increasing will to support this reconstruction and and so one can be positive for that um yeah we're not planning in in the plans of course we we have not that that big expectations built in but of course For the well-being of the country, we hope that this comes in the phases as I have described, and the more the better. And Hannes, we'll talk about your other question.

Thank you, Julianne. When talking about commercial real estate, I think we have to be fair in talking about the four main contributors to commercial real estate. This is warehouse, this is hotels, this is office, and this is shopping malls, basically. On warehouses, I think... Of course, with a slight reduction on the economic momentum, we may see a little bit less use of the warehouse, but nevertheless, they are usually built close to highways on critical turning points. So therefore, I would not believe that we would see too many of defaults and provision needs when it comes to warehouse. The hotel sector also nicely recovered out of the pandemic year. We see that in many of our countries, is it Croatia, is it Albania, but also here in Austria, we could see that the tourist season was outstanding. So on the hotels part, I think, of course, always depending on how the financing is being done. But nevertheless, we would also believe that not too many problems would materialize. Remaining two parts, this is office and shopping malls. Office here we have a structural shift. I think also on the demand side, those who are working in the city know that the occupancy rate on the office is still low and not fully utilizing the capacity available. And the other one is shopping malls looking at leading indicators when talking about consumer confidence. We also may assume that people are less eager to use their savings for extra shoppings. This is the four markets. The other one is, you know, what are the driving factors? And we still believe that given that inflation is a little bit higher for longer, we would also believe that interest rates are staying higher for longer. And, of course, then you get two effects. The one is evaluation effects and the other one is a cost of refinancing. Many of the projects are anyway financed on a fixed rate basis. And other... factors which could impact, and I would not go specifically to Austria because what I'm mentioning holds also true for Germany, for Czech Republic and for others, but staying always to your ones, your financed exposures. We also must not forget political measures. So as soon as you introduce a certain cap on the rental income or call it a break on the rental income, This is a little bit artificial because on the one hand side you have the inflation, you have higher interest rate costs also to bear, and on the incoming side you put politically a cap on. Weaker consumer demand might be a challenge, and let's see if the inflation stays as high as it is, and also maybe this cloud side was indicating on the geopolitical part what this does to the consumer demand. What did we do? We have adjusted our underwriting criterias. Now we would rather underwrite on a debt yield of some 7%, 8%. And as I said, of course, given this new interest rate environment, also valuation curves will be adjusted, and we will see that many of the companies who have benefited from an eight-year long of non-existing interest rates in Europe We'll also see in 2023 some valuation adjustments. This is what I would expect for sure. And yes, could there be the one or other liquidity issue? I also would assume so. That is the reason why I reflected, and that's also the reason why we have created in total post-model adjustments for the commercial real estate of 150 million euros. I hope this was a very comprehensive answer, Julia. Otherwise, if you would need further details, John and colleagues are more than competent to follow up. Thanks.

It's very helpful. Thank you for the detailed answers.

We go next to the line of Simon Nellis with Citibank. Please go ahead.

Hi. Thanks very much for the opportunity. Just three quick ones from me. Firstly, on Ukraine, I see that you're back to growing the loan book and the assets. Is that the intention to continue doing that, or is there something else behind that, maybe currency? And on the risk cost, I see you've released provisions in Ukraine. If you could talk about the outlook for risk cost in Ukraine a little bit, that would be helpful. The second question is on the dividend. Do you think you can maintain the 80 cent euro, 80 cent dividend going forward? Might be too early to talk about that, though. And then last, just on OPEX, I think your €4 billion OPEX guidance would suggest a very large increase in the fourth quarter. So are you just being conservative, or is there going to be exceptional seasonality this year? Thank you.

Simon, if I may take the first question, and thanks for participating. On Ukrainian, thanks for noticing that we were capable to grow our loan book in Ukraine. We also have done this last year. We have provided last year over 400 million euros of new financing made available for agriculture and, of course, for the very strong companies in Ukraine. We have pre-approved the limits in place and they are being utilized and we are happy to provide the necessary and needed financing. Risk cost outlook in Ukraine, as you have seen, we already have booked some roundabout. Let me just look up the exact number. My memory serves me right. About 80 million euros of risk costs in 74 million euros in the first three quarters. We also have some overlays. Yes, maybe we would need another 20, 25 million euros for a year. But please bear in mind, Simon, that this, of course, is exactly the reason why we are so broad in our guidance because dynamic could change and then my current thinking could be proven wrong already tomorrow. So that's it. In our base assumption, we would add another 20 to 30 million euros per year into any company risk cost in Ukraine. Johann?

Thank you. As you rightfully said, it's too early to make any statement on the future dividends, but as I promised, we will come with something when we have the preliminary results, which anyhow is early February. To your other question, OPEX and Q4, I think it's a good question for a reason. If you look back in history, I think you would find years where we have a 100 million euro difference between Q3 and Q4. This was not not so much the case last year where we had higher costs because of the many reasons I have stated around Russia, so when we talk at overall group. So I think... I think if we then look at Russia, the bigger part of the cost increase from the many areas to deconsolidate ID and whatever was consumed, and one could see this already in Q3. On the other hand, Q3 is always a smaller one. because people consume their holidays and so then build up new things. There is some seasonality always if you take out the extraordinary, the special, the one-offs, and we have also, if you compare, Q2 with Q3 then I have to remind you that in Q2 we booked quite a lot of extra costs here in head office for Russia as well. So this volatility will continue in various areas for a while and I hope that hopefully already next year we would be back to normal. Be aware when you compare quarters that you have the special impacts which are specific to the Russian development when talking about Q4 last year, Q2 this year in Russia and head office.

Thank you.

We'll now turn the conference back over to Johann Strobel for any additional or closing remarks.

Yeah, thank you very much, Mrs. Operator, for your kind moderating of this call. Thank you to all participants who showed interest on Friday afternoon. Thank you for your questions and your nice comments. Looking forward to hear you again. maybe at the preliminary results or whenever it's due. Hannes. Thank you. Goodbye.

Goodbye.

Thank you. This concludes today's teleconference. We thank you for your participation. You may now disconnect your lines.