Raiffeisen Bk In Unsp/Adr

Good afternoon, ladies and gentlemen, and welcome to the preliminary results 2023 conference call of Raiffeisen Bank International. Today's conference is being recorded. At this time, I'd like to turn the conference over to Johan Strobel, Chief Executive Officer. Please go ahead, sir.

Thank you very much for your kind introduction. Ladies and gentlemen, thank you for taking the time out of your busy day to join us today. We are happy to share with you our preliminary results for a full year 2023 and it has been indeed a very busy year. We have made progress reducing our exposure to Russia and we will discuss this in just a minute. Our balance sheet is as strong as ever. We have further improved our CT1 ratio both as a consolidated group and more importantly in the performer full write-off in Russia. Consequently, our MDA buffer improves to above 500 pips and 475 excluding Russia. Portfolio quality is excellent, and despite some defaults in commercial real estate, I'm satisfied that Hannes has us in a great shape. While we cannot exclude further provisions and higher coverage ratios from there, there may eventually be room for releases when restructuring and workout is complete. Finally, liquidity remains excellent and I will touch on this in a few slides time. Operationally, we have seen good revenue growth and costs in line with our expectations. While this may be very difficult to replicate in the coming year, I am confident that we are starting the year on the right foot. Clearly, the biggest frustration for us this year has been the large amount of provisions for litigation in Poland. Here I can simply share that we are broadening our settlement program and targeting more and more borrowers. Settlements, of course, allow for a less negative outcome versus what we currently are providing for. We have updated our outlook for 2024, which I will discuss in a few minutes. Before we get into the numbers, let's go through some important items. First of all, The board will recommend the dividend of Euro 125 to be voted on at our annual shareholder meeting on 4th of April. As relates to the offer request for information, I simply wish to confirm that we have submitted everything that was requested and we await feedback. We remain absolutely confident that our systems are robust and that we are fully compliant across the board. Finally, I can confirm that the Strabag dividend in kind is on track. Let us move to our next slide and look at this transaction in closer detail. On December 20 of last year, we announced the acquisition of a large stake in Strabag. initially to be purchased using equity at our Russian subsidiary and subsequently to be transferred to Vienna by way of a dividend in kind. Strategically, this allows us to significantly reduce our exposure to Russia and repatriate around 1.5 billion euros. This transaction does not affect the sales process, nor does it change our stated goal of dis-consolidating the Russian subsidiary. Our participation in Strabag will be managed as a long-term investment. Strabag is one of the largest construction companies in our region with a leading market share across most countries in Central Europe and a very solid underlying business. Considering the current limitations on dividends from Russia, I believe this is an excellent alternative. This investment will be consolidated at equity with our share of Strabag profits reflected in RBI's income statement. It is no secret that this stake was previously related to a sanctioned individual and we spent considerable time and effort diligently verifying that the proposed transaction is compliant with all applicable sanctions. We set a very high hurdle on this point and only proceeded to sign and announce the transaction after achieving sufficient comfort. We are now in the process of obtaining the required approvals and I can simply confirm that everything is on track and we have filed all the required applications. We expect to close the transaction in the first quarter and the full impact will be visible at our next quarterly update. Let's move to slide six. And this brings me to my next slide, which is an update on the Russian subsidiary. As I mentioned, the Strabag deal will help us to reduce our exposure to Russia while we continue to work towards the deconsolidation of our Russian unit. Perhaps it is also important to reiterate that the Strabag deal has no impact on the sales process. as i mentioned to you last time we believe that the sale is still more likely than a spin-off both options remain available to us of course but for the time being we are prioritizing the sale there's a little more that i can say today which you anyhow know everything already What I would like to focus on today is the priority risking, which we have executed in 2023 and will continue to do in 2024. On the balance sheet side, you are familiar with the reduction of the overall lending portfolio, specifically in Euro and US dollar loans to customers are now less than 500 million and will be run off completely. Loans to banks At this point, I'm mainly at MOEX and the CBI for Uber and to RBI for US dollar and euro. We are actively steering a reduction in deposits, both in local currency and in euro and US dollar. In Uber, this is mainly achieved by pricing on corporate deposits as well as in retail saving products, as well as restrictions where possible on new accounts. It should be mentioned that there are legal requirements, specifically in retail, which we are diligently abiding by. For Euro and US dollar, we have a bit more flexibility and we have made good progress. We have also been actively steering for a reduction in payments. By number of transactions, we are back to pre-war levels, which is now the cap which we have set for ourselves. By market share, we have now reduced our share by more than 50% from the peak. We have implemented strict country and industry policies, which also apply to our trade finance and export finance business. This brings us to slide seven. and an overview of key figures for 2023. Group Consolidated Profit and ROE reflect another exceptional year in Russia, and our CET1 ratio reflects both the excellent profitability and the RWA management this year. More important, however, is the adjusted view, which we share with you on the lower row. Excluding Russia and Belarus, the group earned just around 1 billion euros for an ROE of 7.6%. Included here are 873 million euros of provisions for litigation in Poland. If we were to also exclude these provisions in Poland and look at the underlying earning power of the bank, or at least what the bank will look like in the future, we would have come to an ROE of around 15 percent. For the group excluding Russia, the CET1 ratio is now 14.6 percent, up from 14 percent a year ago. You might also choose to add 65 basis points for further operational RWA relief, which would follow a deconsolidation of the Russia basis. We will discuss this again on slide 14. And of course, we expect a further 125 basis points or so from the Strabag dividend in cash. Moving to slide eight. I will again focus on the lower half of the slide and the figures excluding Russia and Belarus. Loans to customers are slightly down on the year. Also, this is largely explained by low repo and money market volumes. Co-retail and corporate lending volumes are broadly flat on the year. OPEX are in line with guidance, while the cost-income ratio remains around 50% driven by the excellent NII growth. Let's look now closer to the core revenues this year on slide 9, with NII up by over 26% on the year. On the one hand, you have a full year's benefit of higher rates across the region and the continued tailwinds from Euro rate tax. Also, in Q4, higher rates continued to feed through. And in Central Europe, we benefited from our treasury and hedging. As we head into 2024 and expect different degrees of rate cuts across our markets, our NII guidance is expected to decline to somewhere between 4 billion and 4.1 billion. The biggest impact will be visible in head office and in Hungary, where we expect to see the most rate cuts. Fee income was strong in Q4, while on a yearly basis it was broadly flat. In the head office, 2022 had benefited from higher volumes and margin on ruble payments and FX, and this trend has largely reversed in 2023. Moving to slide 10. Again, we see the loan development this year, as mentioned, the decrease on the year as well as in Q4 attributable to lower repo and money market volumes. while the core of the business remained broadly flat. As we look ahead to 24, we can already guide to a mid-singer volume growth. Some of this will come from Bushbound 23 projects, and some will come from the combination of a better economic growth and lower rate. With our very good CT1 ratio and excellent portfolio quality, we should grow in line or above the market average, depending on products and countries. On the liability side, deposits have remained broadly stable. Perhaps the only outflow worth mentioning are in head office in our group corporates and market segment. As we discussed on our last call, we do some volatility We do see some volatility in the very short-dated, very price-sensitive deposits. These have no liquidity value for us, and we do not fund our business with these deposits. If anything, our rock-solid funding position means that we do not have to compete on price for these. Which brings me to my next slide and the overview of the liquidity situation across the group. I will be brief there and simply confirm that our liquidity ratios are very stable at high levels. This is true at group level, at each of our previous subsidiaries, and of course in head office. We have monitored these very closely in recent quarters, attentive to the potential effect of higher rates, higher funding costs, as well as spillover effects from the war in Ukraine. In head office, Where we are largely funded by corporate and wholesale products, we continue to maintain a sizable excess liquidity position supported by long-term funding activities. As you might recall from our previous calls, we run a daily liquidity stress test in which we assume 100% customer and wholesale outflows for the next 12 months. Under these scenarios, we still would have around $5 billion of excess liquidity after 12 months. To be clear, this is achieved by having a largely matched maturity profile on the asset side and assumes a similar runoff here. This scenario is, of course, an extreme one, but it serves to confirm the solidity of our funding and liquidity projects. Now let's move to slide 12, the capital slide. Starting with the group CT1 development in fourth quarter, we improved from 16.5 to 17.3. And I think I don't have to run through the details here about inorganic effects on a specific If we move to slide 13, this is the outlook for 24 for the group. We start at 17.3, and we expect to end at 17.8. This comes, of course, largely from the good cattle generation on the one hand, and the long growth, which I have already mentioned. Of course, some minor inorganic impacts will be also Moving to slide 14, a pro-forma CD1 assumption if we fully have to write off the Russian business. These assumptions are well known. We assume zero recovery, no equity in Russia. There is no subordinated debt retained by head office and cross-border exposure is less than 40 million. We also deconsolidate credit RWAs in Russia and market RWAs in Russia and those booked in head office related to our Russian subsidiaries. This is how we come to 14.6% up 60 basis points over the past year. I mentioned before there is further relief from operational RWA. This happens in a second stage following the deconsolidation of the Russian business and would provide a further 65 basis points uplift. And finally, upon the successful closing of the Starbuck transaction, which we would expect to see this performer CT1 ratio increase by an expected 125 basis points at closing. We also share with you the performer capital stack, including Tier 1 and total capital requirements for the crew without Russia. 81 is pretty much fully supplied, and we have 23 basis points surplus on the tier 2 bucket. Finally, the performer MDA buffer is now 475 basis points, including the strap activity in kind and the full operational RWA relief. On the following slide, 15, Please find our current capital requirements. At the start of the year, our SREP increased 40 basis points, of which 12 basis points are from a higher Pillar 2 requirement and 28 basis points from the combined buffer requirement. Besides this, the increase in Pillar 2 requirement also leads to small increases in the Tier 1 and total capital requirement. Let's move to slide 16. This is the funding plans for the year ahead. Our first priority is senior non-preferred in order to support our credit ratings. We will also look to senior preferred, although the absolute amount will depend on how new lending develops. We will also be issuing out of our subsidiaries, in particular the Czech Republic, Slovakia, and Hungary. This, of course, is to satisfy the MREL requirements under the multi-point of entry approach, and we are very satisfied with the market access that our network banks have demonstrated. Moving to slide 17, macro outlook. I think I do not have the rates, but we're happy to see improvements compared to 23, and these improvements will go even further, better in 25. Moving to slide 18, our assumption on inflation and based on that assumption, the development of key rates. Yeah. We have seen, we see some more or less reductions throughout the year in the various countries depending on where they start from and the development of the inflation. Moving to slide 19, the guidance. We assume a net interest decline compared to 2023. As I mentioned before, somewhere between 4 billion and 4.1 billion, driven by lower central bank rates, some ongoing restructuring of client deposits to more expensive ones, reduced positive impact from minimum reserve requirement interest and some higher funding costs by our MRAP issuance requirements. We see some increase in fee and commission income to 1.8 billion, and I mentioned the loan growth by around 6%. This is in the core group, so without Russia and Belarus, but you also see at the group level, OPEX around 3.3 billion. We see some ongoing wage pressure and impact from the inflation. Hannes will talk about risk costs. And based on all these assumptions, we see a consolidated return on equity of around 11 billion. And before the benefit of a straw bag in kind, the flat development in the CET1 ratio at 14.6. And with this, I hand over to Hannes. Thank you, Johan.

Ladies and gentlemen, thank you for being with us today. This has been a very busy year, but I'm satisfied that we finished the year 2023 in an equally strong, maybe one even could say stronger, compared to 2022. In line with our guidance, while talking about the guidance of the Q3, call we finished the year with risk costs of 297 million euros for the group excluding Russia and Belarus. The initial guidance of course was much higher and on the same barometers we have increased our overlays by nearly 60 million euros. We have increased our overlays in some areas while simultaneously using some of what we booked for commercial real estate. Going into 2024 we have 423 million euros of overlays available to us outside of Russia and Belarus, which translates itself into one year's worth of normalized risk costs. Leaving the commercial real estate portfolio aside just for a minute, the quality of the portfolio remains very strong and solid, with the average BT unchanged in 2023 despite the challenging backdrop environment. In retail, Delinquencies remain at all-time lows, supported by a very resilient labor market. Overall, our NPE ratio remains below 2%, which I deem to be an excellent, considering the trends in the commercial real estate space, and of course, having a war in two of our countries. In the course of 2023, our external ratings have been affirmed, and we demonstrated very decent results, to be modest here, in the EBOR stress test. We have belonged to the best third among the other market participants. We could show once again the strength of our business model and portfolio quality, the resilient earning power of the bank, and a forward-looking approach to provisioning. Moving to the fourth quarter, of course, commercial real estate was the main driver of risk costs, and I talked about this in the third quarter already. It goes without saying that I will not discuss any individual names, but I will, of course, comment on the overall portfolio. So what have been the main drivers for the intercommercial real estate, and we talked about this already more than one year ago, is the increasing yield environment, it's the cost of build, and for some subsegments, of course, demand was also impacted. Just think about the office market. Well, you know and you're aware of And I shared it with you that we have conducted two internal stress tests on our commercial real estate exposure over the last 18 months. And we are confident that our valuations are up to date. Many of our exposures are being backed by solid cash flows, which have also been confirmed in our internal stress tests. Furthermore, so we are very confident and comfortable with the coverage of our defaulted exposure. And as Johan mentioned in the introduction, we may still see some provisions in the coming quarters, including some additional overlays as we proceed with caution. In Q4, taking away one of your potential questions, we made use of 74 million euros of commercial real estate overlays available to us and still have another further 83 million euros available just when talking about commercial real estate of overlays available. Well, those of you who have followed us for some time will know that we are reluctant to sell non-performing exposures, and we prefer to restructure or work out the projects in-house. Our direct record shows that this achieves a much higher recovery rate, and I expect this time to be no different. Allow me one more last comment on commercial real estate. You have noticed the drop in our group coverage ratio, and this is largely explained by the fact that commercial real estate defaults usually require lower provisioning due to the collateral and guarantee we have. We also benefit from other mitigants, such as securitization. This simply means that the inflow of commercial real estate defaulted exposure reduces the average coverage ratio to the portfolio. Let me add one more remark on this slide. We use, if we talk about coverage ratio, it's just the coverage ratio of the defaulted line, defaulted exposure compared to the individual loan loss provisions. So we are not including in this calculation our collaterals, nor do we include our guarantees, nor do we include our overlays, what we have created. Let me have a look into 2024. yes, of course, here and there, the one or other challenging backdrop may still persist, and we will remain cautious in our underwriting. We will continue the provision on a forward-looking basis and making full use of our overlays, reacting quickly as issues arise, and focusing on our portfolio quality. We will proactively look to engage with our customers when needed, and as mentioned, restructure and work out in-house. Having said all this, These lead us to a risk-cost guidance on the entire group of 60 basis points. And if you would exclude Russia and Belarus, we would come to risk-cost guidance of 50 basis points. Let me move on to the next page. Well, you can recognize some small changes in stage one and stage two with some benefit from model updates in retail portfolio, while at the same time we took a few additional provisions here in the non-retail part. The improved outlook across the region, mainly in C, allows us to release some provisions. As you mentioned, as just mentioned, we made use of some 74 million euros of commercial real estate overlays in the quarter. In essence, releasing them here and booking on equal amount under State 3. At the same time, we also booked additional overlays in Ukraine and to a less extent in Hungary, where despite the improving outlook, we chose to exercise caution. Finally, state three, here largely reflects commercial real estate provisioning. And as mentioned, the Euro 256 million euros show here include also the use of overlays. If we take a look at the full year provisioning composition as expected, state three was the primary driver, but nicely offset by some macro releases. More importantly, our stock of overlays is untouched and still fully available to us in the future. Let me move on to page 23. You can see that our risk-weighted assets have developed from 97.3 billion euros down to 93.7 billion euros. And I would just like to earmark two very important pillars in this beautiful chart. The one is the inorganic relief. So where does this inorganic relief come from? We have benefited from the final approval received when we have introduced an IRB approach to Bausch-Bacasse. We also changed our IRB model from the sovereign model. We switched back to the standard approach. And on the op-risk, you see an uplift of 2.5 billion euros. And this comes just with the point on how op-risk RWAs are being calculated. You take the three years observation period. So we lost one year of observation period. We added another one, meaning 2023, having this very strong GI dynamics. This is causing then higher op risk RWAs. Well, we talked very much about our SwissRank provisions we had to grade on the SwissRank Poland portfolio. So I'm now on page 24. So if you look to the total amount of litigation stocks available, we have now piled up 1.6 billion euros. We have in total 25,800 Swissbrink loan cases outstanding, whereas already 13,600 are being under litigated cases. We always look, of course, also what is the CAD1 equivalent, what is being held against this portfolio, so you go with the one-hand side with the litigation provisions being available to us, and also what still of capital consumption comes from credit risk RWA's. We are in the market with a settlement offer which goes very much in line with the KNF proposal. Well, page 25 is well known to you and is more for documentation issues. Having said all this, we are now 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 assemble the queue. Our first question comes from Gabor Kiminy with Autonomous Research.

Oh, hi. Thanks for the presentation. My first question is on long growth, please. You expect long growth to accelerate, I guess, to 6%, excluding Russia, Ukraine. Can you talk a bit about the trend you see here, the dynamics in new originations across your markets? Then my second question is on the ROE guide, excluding Russia and Ukraine, 11%. I mean, this suggests that consensus is rather on the conservative side right now, whereas if I look at the individual P&L line and what you guide there, the only meaningful difference I see is on NII, where you are actually guiding 200 million less. than what consensus has. So perhaps can you help us understand the discrepancy here? And the last topic would be the Strabag deal. I mean, what likelihood do you see of finding further such transactions which could potentially drive a meaningful reduction in your Russia exposures? And on the back of that, I guess, a broader question you might be able to touch on the point of how driven are you to actually proceed with a sale or spin-off if such alternatives are available. Thank you.

Thank you, Gabor. I think, yeah, this... 5%, 6% growth, of long growth, what we have indicated. It comes across the various markets. I think assuming that we see some improvement in the macro environment, on the one hand, and decreasing central bank rates, on the other hand, I think this is an achievable number, what we should... Of course, we have, if we differentiate a little bit between the various markets, then some markets which have shown a strong growth rate over the past years will probably continue also in the coming year. But the point is, in the bigger markets, we would like to grow with the markets or slightly above, so maybe 5% in the Czech Republic. In Hungary, definitely lower than what we have had so far, but 5%. So I think it's not a big differentiation, I would say, in the core markets. And I can add little flavor to what you anyhow would see from the overall forecast. When talking about your second question, do the 11% RWA, I think some elements are relatively clear. Some, yeah. trading income with some volatility, but also some income from associates. And yeah, we have figured in some income also from the Strabag. You know, Strabag has its own forecast of profits and with around a 25% stake, part of it will come as a dividend. In the last years, they always had around 2%, which might be around then slightly more than 50 million. But then as we have an equity participation, we also would consider our profit share. So what is important to add is that we have changed our model to an infection model to get an idea of potential litigation provisions. And we have now reached a high level. Rather than based on a model, rather on a gut feeling, we believe it's not over in Poland. And to be cautious, in this 11%, there are another 340 million of litigation provisions included as well. To your third question, No similar transaction is currently shown to us. So here I would be happy if we can close that one. And given all that, I stick to what I shared several times, that we work on options, on ways, try to find ways to deconsolidate the Russian activities. More likely via resale of, let's say, a big enough portion so that we can deconsolidate. Still not totally off the card, but with significantly less probability at this point in time by a spinoff. Thank you for your questions.

OK. Thank you, Johan.

Our next question is by Simon Nellis with Citi.

Oh, hi. Thanks for the opportunity. I guess a slightly similar question to what Gabor asked. Just on the 11% ROE outlook ex-Russia, I mean, how much confidence do you have on that? I mean, at the end of the third quarter, you had reiterated your 10% ROE guidance for the group ex-Russia. You delivered well below that, 7.6%. But I just... wondering, you know, maybe what drove the big change in ROE in the fourth quarter, other than Polish provisions, and what are the risks that you miss on this guidance again? Thank you.

For me, it's... It's a fair guidance, what we have. We had, if we compare Q4 with Q3, we had some volatility in the overall valuation areas that this has some volatility on a quarterly pace also in the future. And of course, if something very negative would happen in Poland, which is beyond what we see now, then maybe even the gut feeling of the 340 might not be enough this year. I do not want to discuss and I see your concerns. But this is the best what we can do. We have assumptions on the tax and windfall taxes on the various countries which are well known and these are figured in this 11%. Again, I would not dispute that. You always have in these years the risk of additional tax burdens, but all what we know is part of this 11%.

Okay. Maybe just one more on the large increase in the NTE ratio of the group corporate and markets division. I don't know if you can elaborate a bit more. I think it is largely commercial real estate related. Is that the case? And I'd just be interested in knowing whether you think you'll be able to rebuild some of the provision coverage lost with the cost guidance that you have, or are you happy to keep the provision coverage at a lower level that we've seen in the fourth quarter in that division?

Simon, yes, indeed. I think I got your question. Yes, indeed. So we had, and here we tried to flag it already in our Q3 call, that we would now see this increased MPEs at the same time, you know, our provision. I think, as usual, we have been very mindful and As I also tried to reflect in my introductory statement, we will do, of course, a decent workout strategy and not fire selling any of these exposures. So part of the provisions which were necessary today, we could potentially see then also as a write-back. This would be my assumption as of today. But, you know, of course... As I said, usually I prefer not being behind the curve whenever it comes to provisioning rather than reporting to the market that we were capable to release the one or other provision here and there. And you're right. Yes, the biggest part comes from this commercial real estate. Hopefully this helps. Thank you.

Our next question comes from Lee Street with Citi.

Hello, good afternoon and thank you for taking my question. A couple for me, please. Firstly, the guidance for 50 basis points of cost of risk, excluding Russia and Belarus for 2024, is that something we should see as a more normalized run rate as we look ahead from going forward beyond 2024? And then secondly, obviously, it was a low year for cost of risk this year, and it's higher next year. How do we reconcile the higher cost of risk guidance next year with the much better macro outlook? Should we just read into that? You're expecting more single name credit issues, shall we say? And then on a separate pocket, as it relates to the additional tier one, it looks like the economic to call the outstanding 8.65, 9% one now. Is that something you're looking at doing and replacing it with a new deal? How are you currently thinking about that? That'd be my three questions. Thank you very much.

Well, if I may start with the first two of them, Lee, thanks for raising them. And as I said also in one of my introduction sentences, last year we guided for around about 800 million euros for the entire group and we finished the year with around about 400 million euros for the entire API group. At the same time, we are having two markets in war, Ukraine, Russia, and therefore, I was so mindful when flagging last year, and I also thought that commercial real estate will kick in already a little bit earlier. That was the thought for 2023. The thought for 2024, yes, you're right, these 50 basis points, and this is important for me, this is a cross number, so it does not conclude any use of overlays, just to be also precise when talking to you and communicating. So how are these 50 basis points being derived? You could say about one-third would be the usual run rate in the retail portfolio, and the other two-thirds would come from the corporate part. Why then still using this normalized level, which is roundabout through the cycle risk costs, is because we still believe that we could see some lagging defaults from the very pronounced interest rate increases. Usually what we can see out of our models is that default is not immediately picking up when interest rates are increasing. You have here a lagging effect between 12 to 18 months. And this was the main reason. At the same time, as I said, the portfolio performed extremely stable also in 2023. So this was our thought that we could see a certain delaying factor. Is it in the commercial real estate or is it in some other sub-industries? And also, if you look, the macro numbers coming out of a recessionary environment But if you look at the forward-looking indicators like the BMIs, some of them still look very much challenged. And yes, indeed, maybe we also have been very much impacted by the geopolitical dynamics around. Thanks for the question.

And to your third question, of course, we are monitoring the 81 market and take note that it has become much more attractive lately. We are grateful to our investors in the 8.659% note and appreciate your patience. There's a little more I can say today.

Thank you. That's very helpful. Thank you both.

Our next question comes from Ricardo Revere with Mediobanco.

Thank you. Thank you for taking my questions. I have a couple of questions on slide 18. And sorry, I had to miss the start of the call. In your guidance, I imagine on NII, especially NII, actually, for RBI core, I imagine the guidance is based on the rates that you show on slide 18, which for euro, goes for a 50 basis point cut in 2024. Right or wrong, forward curves today embed much more than that, than only 50 basis points. The number I have in the back of my mind is actually 150 and then another 50 in 2025. So the question is whether the guidance is based, first of all, on this rate, and second, if forward curves and not this slide were correct, would you be in the position to give us an idea of what would be the sensitivity of an AI in case rates fell more than this slide indicates?

Yeah, of course, we use the forecast, what we have shown here. So whatever we plan to decide, our own research is the core source. Of course, we read other forecasts as well, but whatever we state today is based on what we have. Overall, the reduction comes from a couple of countries, of course. Hungary is the biggest one to mention. Our forecast would imply that we at least reduce by 100 to 120 million the NRI coming from Hungary. When talking about Euro, I think in the head office, one has to be aware that this is to a large extent a crisis. Based on or close to capital markets as deposits are coming from your large corporates, some money is on current accounts where we would lose a little bit from the reduction in rates. you have to consider that we also keep minimum reserves where the changed policy of remuneration has an impact on group level and finally we had issued quite a lot of bonds in recent years at higher costs which what came last year fits in also so sensitivity is is less important on head office, one can say. And yeah, mainly in Slovakia, here one would consider that it has an impact, which in Euro terms, because Slovakia is of course Euro and Croatia, these are also significant areas where adding all together, might require another 60 million for these two countries. Check here, another 10, 15. So if you add up the various countries, this gives an indication why we believe it's somewhere between 4 and 4.1 billion as the loan growth will only come in the course of the year and not contributing too much. That's the current assumption. Thank you.

Thanks. Thanks a lot.

We'll take our next question from Alan Weborn with Society General.

Oh, hi. Thanks for taking my questions. Have you had any direct contact with the Russians over, the Russian authorities over this scheme? I mean, you say that you've put all the papers in that you're waiting for approval. I mean, the... the not removing dividends for companies that wanted to get out of the country was designed to keep the capital in the country. And this is a very clever way of getting around it. But have they worked that out? And I just wonder how confident you are that it's just the law is different, but the effect is the same. So I just wondered how you feel about that. And I'm not denying it's a a clever thing to do, but I'm interested because it has the same result as something that was frowned upon. That was the first question. The second one was, if you do achieve this and you get the 125 bits of extra capital, Do you think of it as excess capital? And if it is excess capital, what do you intend to do with it? Or is it not excess capital and you feel it needs to be kept within the group to reflect higher regulatory needs, et cetera, et cetera? So where are you on that? I guess the final question would be, surely, you don't want to be a shareholder of Strabag for any particular length of time. I mean, certainly banking shareholders wouldn't want you to be. I mean, I understand that you need to have it on the books for some time because otherwise it would just look as a way of getting cash out again. But seriously, is it not just a short arc before you actually float that stake? Maybe you can't... You can't tell us anything about that at the moment, but it just doesn't seem logical that that's the way that Rafiessen would be going. Thank you.

Thank you. So, starting with your first question, of course, it's not a personal contact by me with the various Russian authorities. We have big teams working on this topic and And we learned over the time how to read the messages what we received from the authorities and based on the messages what we have received, we are very confident that... So as of today, I'm very confident that the approvals from the Russian authorities are there or will be there. Usually it takes between the decision and the minutes some while, but here we are fairly confident. The idea was introduced to us to do such a transaction as a dividend in kind. And, yeah, the assumption of this precursor, however I should call it, seems to prove right that this gives an opportunity for an approval. I have to say that other companies, banks as well, have got approval for dividends. We did not go along that route until now. But overall, I strongly believe that we get the approvals in Russia and it will work. I have to say that we also need a couple of approvals in the European area, and here it will take some time until we get it. Still, I'm confident that by still in Q1, I hope and I'm confident that we get the approvals. Otherwise, we wouldn't have gone in this direction. But I probably for... for Russia this kind of transaction which for people might less be a dividend than something like a share swap or equity asset swap or whatsoever. So there might be different views to look at these transactions. Let's put it that way. When talking about hopefully if it closes the 125 basis point excess capital, this is what we have at the beginning. Of course, over time, the RWA requirements on that topic will increase and it will then be less favorable than it is now. So over time, yeah, the very attractive costs, I think on its own, if you look at the income potential and the RWA weight, then I think it's a very, could be or will be a very attractive investment for a while. So there is no pressure to run out. And of course, divesting from such a big stake also needs another good idea, which I'm sure somewhere in the future we will find it, but we have no hurry to divest. So probably it will remain a while with us. But we are not in the case ourselves. So we have no restrictions in selling.

Okay, good. In a way, we've focused on Russia for far too long, and yet prior to this issue, your strategy was to expand in core markets, and you'd made a good start on that. And I just wondered whether if you get this transaction sorted out, you feel that you will be able to go back to a strategy of growing your bank as opposed to fighting fires, which unfortunately you've had to do for the last couple of years. Do you feel that that could be your next move?

Yeah, right. I think what we will see for sure will do and also share with you if we can, as soon as we can close the deal and hopefully later when we talk about the Q1 results and if it then has closed and we have this 125 pips, how to reallocate that. Yeah, I think we're We are overall observing, monitoring what the new benchmark for capital should be with other banks. Of course, we have seen that other banks have been successful in some share buybacks, but also we have some ideas in the core countries where we are in. Organically, but also inorganically, new opportunities might come, and you are well aware of our countries, which I repeat now, Czechia, to some extent Slovakia, Romania for sure, Serbia maybe, Hungary we would like, but difficult.

Okay, that's very helpful. Thank you very much.

Our next question comes from Hugo Cruz with KBW.

Hi, thank you very much. Three questions, please. First of all, on the NAI sensitivity to rate cuts, I just wanted to clarify, I think you mentioned 60 million heat on Slovakia and Croatia and 15 million on Czechia. Should I understand that that's for a 100 basis points rate cut, or it's what's already reflected in your guidance?

Yes, that is a sensitivity for a 100 basis points rate cut, indeed.

Okay, thank you. And then my other two questions were about the Polish FX issue and dividend policy. So on Poland, I mean, I understand you're assuming another $340 million in 2024. But, you know, without talking about numbers, but timing, you know, when do you think we're going to have clarity on this, you know, from either the government or the Polish court, you know, do you think we could have that clarity around what the banks need to do anytime soon or is it a continuation of what's been going on over the last few years? And then on dividends, you know, you now have, if you, you know, you're going to do the one year 25, so, you know, it's been, What's the dividend policy now, assuming that nothing else happens in Russia? Can you continue to pay a dividend every year? Can you kind of firm up a dividend policy in that scenario? Or are we still dependent on always kind of one-off approvals from the regulator? And if there's a dividend policy, what are you aiming for right now? Thank you.

yeah concerning to your question about poland of course we would love that either the government or the parliament or the the judges the supreme court will make a decision on the topics and i think all the three would have it in their hand and of course i'm here a little bit biased but if i just look at the thousands of litigations just in our portfolio and then the many more so the The courts are overburdened and I think it's really a waste of energy for a country and creating uncertainty. So it's also not good for the development. So I'm hoping for, if you ask me with this recent change in government, if I have seen more activities, unfortunately not. So here we still hope that in the course of the first half year, that something might happen, but it didn't seem that's the top priority for the government, or so I think it would be very good. Yeah, it would also be good if, because we have seen some very, from my point, very well understandable decisions by the Supreme Court, but only in the small chamber with three judges, which addressed all the questions which somehow also have been addressed earlier by the president when there was the idea of half the full chamber of decisions. But again, if you ask me on the timeline, I cannot add clarity, but just my research. When talking about your third question, which is the dividend, yeah, what we understand, of course, our shareholder base loves dividends. So this is what we have to to clearly state and we will do our best to continue and to have a steady dividend policy. Yeah, I think that the lower the exposure to Russia is, the less exposed we are to supervisory thoughts. On the other hand, we are looking forward, I understand that that the dividend policy is anyhow a topic on the European Central Bank, I should rather say by the supervisors. And so we will learn, I would say still in the first quarter of this year, in which direction they are heading. But with all what we have achieved, I think we are less dependent on regulatory expectations and moving back to a steady dividend policy.

Thank you very much.

Our next question comes from Marlene Evensteiner with Deutsche Bank.

Hi, good afternoon, and thanks for taking the question. Maybe firstly, touching on deposits, could you please touch a bit on the trends you're seeing also in terms of path through rates, competitive dynamics, but also deposit beaters, and also if you have expectations of mixed changes going forward? And secondly, maybe touching again on your commercial real estate exposure, Would it be possible to get an update also across the sub-segments maybe in terms of LTV developments and expected provisioning needs? Thanks.

Yeah, when talking about your dividend, sorry, deposit expectations, I think what we can say is that the In some countries where the race hikes have been quite a while started to go and came to an end for a while, I think what we can say here is that this structural change from on accounts only to having it also on the term deposits and saving deposits, this has, to a large extent, come to an end in many countries. In those who started, who are later in the cycle, it's still going on. I think the competition from within various markets is, I would say, increasing, so we see reactions. We only see the one or the other bank who is consistently aggressive and outbeating the others, but it's not broad, but we definitely, the less liquidity is available in the market, so it depends on the markets, the more this will come. Yeah, I think in most of... Let's say in Central Europe, I would say for the time being, we have reached a level where deposit rates will follow the mix of capital market rates and money markets, so central bank rates. In some countries like Hungary or in Southeast Europe, There was less transfer to deposits and saving accounts and more money left on the accounts which have little to no interest. So here we will see when rates are coming down, we will also see a decrease in the net interest income. Hannes, maybe.

Thank you, Johann, for giving me the time to get this... Far-reaching questions being prepared. You have some details, Marlene, on our presentation when it comes to the distribution of the different subsegments on page 31. But let me now also walk through in these metrics, and I will be very – I try to be at least focused and decent here. on what is our LTV. So if you look to all our different sub-segments, is it now office, is it residential, is it retail, is it hotels and so forth, we have over 93.3% of all our special lending credit commercial real estate exposure is an LTV below 80%. Below 80% with actual value means collateral evaluation. 93, having an LTV below 80%. But what is also very important is, you know, what is the debt yield, meaning what is your repayment capacity? And here we have for only 5% of this portfolio does have a debt yield below 5%. So I think that's very important to consider. because you have to look at both angles. So what is the cash flow capacity of the respective project and what is the valuation? So I repeat, 93.3% having an LTV of below 80% and only 5% of our specialized lending exposure in the commercial real estate area do have a debt yield below 5%. The other thing is, of course, what is your occupancy ratio? Here on the office part, we have an occupancy ratio close to 90%. And for retail and for warehouse, we have an occupancy of above 90%. And of course, you have seen that the investment volumes in the different subsegments, look at Germany, for instance, really have suffered very much in 2023. Hopefully, this helps for your guidance.

Yes, thanks a lot.

You're welcome.

We'll go next to Mehmet Seven with JP Morgan.

Good afternoon. Just one clarification on the cost of risk guidance, please. You mentioned in your open remarks that you can't exclude further provisions for the defaulted CRE portfolio. So, can I just confirm whether this 50 basis point cost of risk guidance already accounts for this, or would that be an additional risk? And maybe can you also tell us what level of coverage you now have on this portfolio? I do appreciate your optimistic views, but you know, there's been a visible decline in your overall coverage now. So it would be good to understand if this is the new normal or how we should see it in the coming quarters. And maybe just one more clarification, that would be the check tax expense this quarter, which jumped quite visibly. Is that anything related to the inflow tax or anything like that? Thanks very much.

If I may start with the question, I think it goes very nice in line with the previous question, what is our loan-to-value and what is our debt yield? And as I said, for a big part of the portfolio, we have a loan-to-value of below 80%. And in our risk-cost guidance of the 50 basis points, of course, we have included whatever we may need also in addition for commercial real estate. If you ask me as of today, maybe some 10, 15 basis points we may still need when talking about commercial real estate. And What is important to consider is, you know, it's not just only the default. We could also see here and there the one or other migration to stage two, but you could also see here and there the one or other adjustment when it comes to the collateral received. So that was the reason why we are at 50 basis points and why I was flagging it for the guidance, but the commercial real estate, the risk-cost guidance does include this potential further need what we have in the commercial real estate part. I think that's the most important one. Please let me not talk about individual coverages on certain sub-portfolios on commercial real estate. In total, we have, just to repeat, we have about 400 million euros of provisions, risk provisions available, stage one, stage two for the commercial real estate. And please bear also in mind that we have securitized 1.8 billion euros of the commercial real estate portfolio going back to the years of 2020, 21, 2022. So this is also important when talking about our risk provisions. For the commercial real estate, we have still overlays available of 82.6 million euros. Hopefully this helps.

To your other question, the impact on windfall taxes in Raiffeisen Czechia is 26 million in 2023. And there was in the chat the question, which it's difficult that I comment, the core shareholder Raiffeisen Niederösterreich Wien is in the process of increasing its participation to 25 plus one shares. And it was mentioned that this is an important threshold under corporate law in Austria. This I fully can confirm. For me, it simply means that they want to express their strong relation with RBI and there are ongoing interest, but I will, because the question goes on, does this have any impact on the decision for Russia and here? I haven't seen any impact from that decision to our strategy or anything else.

Thank you. We'll go next to the board. All right. Thanks. Back to you. Gabor Kemeny with Autonomous Research.

Oh, hi again. A small follow-up from me, please, on Polish FX. You mentioned that 340 million assumed provisions for 2024. And now starting from the 92% total coverage, I guess this would get you to around 110% on the loans outstanding. So shall we read this as those who repaid their loans coming to see you? And if that's the case, how did you pick the 110 number? Any color on that would be useful. Thanks.

Gabor, you're right in your assumption. So because usually when we looked at the coverage on litigation, provisions built, we were always looking at the current amount outstanding, but you could, of course, also have the one other who may feel inspired by this current ruling practice who already repaid.

Okay, so any comment on the magnitude of those who repaid coming to see you?

Well, I think this is included in the guidance received on the 300, 300 plus million euros. This was exactly when Johan said This is difficult. We don't see it yet in the model and up picking. This was when we overruled the model with our guts and saying, well, hey, if also this part of the portfolio would come in addition, we might be forced to add another provision. And as it was also stated before, and I think it was Simon saying, guys, listen, for Q3, you gave us an outlook, this 10%, and we have seen in the last two years that on the three strength portfolio, we had to allocate substantial amount of litigation provisions. So that's the way of thinking and that's the gut feeling within the model.

I see. Thanks.

But if I may add, I think at this point in time, one can assume that or it would be rational that not so many rush into that. So because you start You start with a payout to do your lawyer and nothing to compensate at the beginning. But we will learn about it in the course of this year.

Yeah, we'll have to see. Thanks.

Thank you for all 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. Thank you for all your questions, your comments, for your time. I wish you a good afternoon. Thank you. Bye-bye.