Banco BPM SpA

MIL:BAMI

Earnings Call Transcript 2020-Q1

[Operator]

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Banco BPM First Quarter 2020 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Roberto Peronaglio, IR Manager of Banco BPM. Please go ahead, sir.

[Roberto Peronaglio, executive]

Thank you very much. Thank you, everybody, to be here with us at this conference. As usual, before leaving the field to Mr. Castagna, our CEO, let me remind that you can find the presentation on our website on Investor Relation page, and that the Q&A section is reserved only for the financial analysts.

Thank you very much. I leave the floor to Mr. Castagna.

[Giuseppe Castagna, executive]

Good evening. Thank you, everybody, for being with us. Let's start this presentation, of course, from the impact of the COVID on the first quarter results that we have to comment today. We have an introduction where I will try to be as quick as I can, but I think it's very interesting also for you to understand how we adapted our organization in a very flexible way in order to cope with the many difficulties that this period, in particular, March and April, were for the banking system.

Let's say that, first of all, we tried to be able to build up the higher safety for our employees and our customer. In the first 2 months, we tried really to reduce to the minimum the presence of our colleagues, even though, of course, we were able to run the operational business and the business continuity as usual. We had a large share of our employees to be at home for a long period. Nowadays, I will show you how we are interacting with the Phase 2 of this COVID emergency. Let's say that, all in all, the acceleration of digital omnichannel banking with the new ways of working, which will be, let's say, the new normal, I feel in the future, has had a big boost from this period.

On Page 6, we have the 2 different step. Step 1 was the emergency period in which we tried to be attentive on the safety and the physical presence of our colleagues. We run basically the bank with more or less 20% of the presence -- physical presence in head office with the majority of the other colleagues working in smart working from home with more than 7,500 smart remote workers. In the branch, we decide to close 520 branch to open every day 840 branch with personnel on a weekly shift and to have 370 branch operating 2 day per week. The focus, of course, was on increasing and enhancing our digital banking activity in order to keep close relation between our client and our colleagues.

We also give you some incremental activity in the omnichannel transaction. As you can see for individuals, we had an increase on the total transaction of the bank passing from 27% of 2019 to 56% of these 2 months with an increase of 36%. On -- for small business and SMEs, the increase was from 63% to 79%, almost 40%. And in digital sales, we had an increase of 59% through the WeBank trading platform.

On Page 7, we -- after the first period of emergency, we tried immediately to build up a Steering Committee in order to concentrate our activity on 3 main aspect: the restart of the commercial activity; the cost cutting and cost saving, which, of course, is one of the main part in our control; and the control of the balance sheet and risk, meaning the -- limiting the impact of the crisis over capital, asset quality, funding and liquidity.

On Page 8, we have some few explanation also with a sort of time frame in which emergency Phase 1 and Phase 2 are now enact. Let's say that also, in terms of people working in our physical network, during this last week, we increased from 40% to almost 70% the presence in the branch thanks also to the Phase 2 adoption from the government starting on the 5th of May.

We think that relaunching the activity of the business both emphasizing and exploiting the government liquidity and guarantee supply for enterprise and small business and to restart with customer engagement after these 2 months very lowly affected by interaction with clients will be basically the main activity in these 2 months in order to wait for a complete restart, hopefully, for the second part of the year.

On Page 9, some number about the measures taken by the government and the action taken by Banco BPM in terms of support to the economy. As you can see, the first line is for moratoria. The first decree -- the Cure Italy Decree of the government, we received something like 70,000 requests of moratoria, meaning EUR 1.8 billion of suspended installment over more or less EUR 11 billion of global lending affecting by moratoria. Switching to the other activity, liquidity -- direct liquidity emergency, Banco BPM itself launched a EUR 5 billion liquidity platform. We received 4,000 requests from our client. And up to now, the amount requested amount to EUR 1.2 billion.

The final step is the liquidity decree issued in April by the government. This is split, as you know, in 2 different main area. One is the EUR 25,000, 100% guaranteed for small business. We received 35 -- more than 35,000 guarantee. The average is around EUR 18,000, EUR 20,000 per request. So the potential amount is EUR 800 million. For the other measures related to midsized and large corporates, we have an estimation in our pipeline of 6,500 potential client involved for a total consideration of around EUR 4 billion. So the entire maneuver could be as big as EUR 8 billion of requests.

Let's give you also some idea on Page 10 about our portfolio of loans. On the left circle side, you see the difference between 55% of nonfinancial corporates, 13% financial corporates, 27% residential mortgages and 5.5% of public administration. On the lower side, you can see the EAD by risk categories, where you see that 88% are concentrated on the medium, low-risk company. We tried also to give you a sensitivity to COVID of the main sector, the potential most impacted sector, which we will file -- find in the note for. And under this approach, we have 53% of our portfolio basically with the low affected -- with a low impact by COVID, 39% with the mid-impact and only 8% with a potential high impact. Amongst this sector, of course, transportation, accommodation, restaurant, travel, textile, automotive and transport vehicle. The mix between the potential -- the high potential impact with the medium high risk is around 1% of our total portfolio.

On Page 11, you can read it is the support we are trying to give to the communities through direct funding from the bank, from the Board, from the management and different fundraising and crowdfunding activity. Let's say on Page 12 some consideration about the strategic plan, which I presented to you on the 3 of March. Of course, after that, everything fall down in terms of emergency. So all the macro have been highly affected by the COVID emergency. And so now we can quite easily say that the underlying assumption are not anymore, of course, good enough to present the same numbers of the plan. Banco BPM, therefore, will review its strategic plan once there will be a better visibility on the evolution of the COVID scenario.

Of course, in the meantime, as I was announcing before, we are approaching with flexibility all the operating costs, all the project that we had in the business plan in order to reduce the impact or postpone the impact to 2021. Through that, we think that we can have sensible savings on the 2020 numbers. Also in term of asset quality, let's say that the physiological impact has been very, very low. We have only 53 basis point of physiological cost of risk. But nonetheless, in light of the current environment, we produced a series of potential sensitivity, for which we decided to put EUR 70-more million in order to increase to more or less 80 basis points of cost of risk the total cost of risk for this quarter.

You can see the main aspect -- the general aspect of this sensitivity on Page 13. Of course, on the left, there are the recommendation of the different regulatory that were all in line with taking a mix approach between the potential immediate effect of the emergency and a long-term view. And of course, this is exactly what we did. We took 3 different scenario for 2020/2021, which we mixed with the long-term scenario. The 2020 has 3 different scenarios, 6 -- minus 6%, minus 8%, minus 10%. The 2021 is plus 3%, plus 4.5%, plus 6%. The medium, of course, is the scenario that we took in order to have the sensitivity and the impact mitigated by the guarantees and by the moratoria results in an impact of EUR 70 million in addition to the regular cost of risk.

On Page 15, we go directly to the number of the first Q. Profitability pretax was EUR 310 million. Net income, EUR 152 million. Very good increase, both in corporate loan -- in core performing loans and in current account and deposit, respective higher 4.2% vis-à-vis last year in loans and 8.2% in deposit. Also, April was confirming this trend with loans increasing month-on-month of 1.1% and deposit 2% in 1 month. The risk profile is bettering and net NPE ratio 5% from 5.2%; gross NPE ratio, 8.8%; Texas ratio, 50%.

On Page 16, very sound liquidity profile, both in LCR and NSFR but mainly backed by total liquidity securities for EUR 30 billion, of which almost EUR 26 billion of unencumbered eligible asset. Capital and buffers, Common Equity Tier 1 of 14.4% phased-in and 12.9% fully loaded with an MDA buffers of almost 500 basis point phased-in and more than 300 basis point fully loaded. This is without taking in consideration the potential temporary relief measure driven by the waiver on the capital conservation buffer waived by ECB and amounting to 250 basis point. The different measures taken by the regulators allow us also to shift average 1 year the material part of the regulatory headwinds that we announced in the strategic plan.

On Page 17, we have the description of the -- line-by-line of the results compared with Q1 2019, Q4 '19. As you can see, we had a stable NII performance at EUR 474 million. A very good, in our view, fee and commission performance because we were able to be better than the first Q 2019 and, of course, lower than the fourth Q '19, but this is also for the main result where basically concentrate in the first 2 months of the activity.

Then we have a very big number coming from NFR. This is mostly coming for EUR 171 million, EUR 115 million posttax from the fair value on our own liabilities from certificates, offset, if you wish, by valuation effect on asset for EUR 31 million. All in all, the net impact on NFR on the own abilities, own asset amount to EUR 98 million on the net result.

Going down, staff cost is already showing some good reduction, 4% year-on-year, 1.6% on the -- sorry, 4% on the quarter, 1.6% year-over-year. And I can say that this will be -- there will be a good impact also looking forward as well as administrative costs and D&A, which were down 7% and 3% year-on-year, very consistently. So operating costs were down 3.2%. With the profit from operation amounting to EUR 525 million vis-à-vis EUR 410 million in Q1 and EUR 536 million (sic) [ 537 million ] in Q4. We already talked about cost of risk, EUR 213 million, of which EUR 143 million coming from the normal activity and EUR 70 million from anticipating the impact of the macroeconomics, bring in the pretax profit to EUR 310 million.

Tax for EUR 94 million. We had also a systemic charge increase of EUR 16 million, non-expected, which should go down starting from next year of something like EUR 10 million. This is the effect of the calculation of the contribution of the bank to the single resolution board given from the merger of the 2 banks. Final result, again, EUR 151 million.

Let's go through very quickly the main items. Net interest income very stable. We feel that this also looking forward will be sustained by the potential increase in volumes from loans, of course, even though with a lower interest rate, given by the set of guarantee supported by the government. As you see, the evolution is quite sensible already in the first quarter, where we have almost EUR 4 million of increase from the commercial banking, even considering 1 day less. So the total consideration like-for-like would have been EUR 9 million. In terms of customer spread, we have, for the first time after many quarter, a small increase, 1.36, mainly driven by a small increase in asset spread.

Volumes. We already talk briefly. There is a consistent increase to EUR 94 billion of core performing customer loans from EUR 91 billion in December and EUR 90 billion last year. The current account and deposit, EUR 90 billion versus EUR 88 billion December, EUR 83 billion last year. And of course, indirect funding affected negatively by the market effect, which reduced by EUR 8 billion the total consideration. As announced before, April is very consistent with this number, registering an increase of 1% in loans, 2% in deposit and also recovered in the market effect for asset under management of 2.2%.

Just a few words about the lending performance. Total new lending were almost in line with Q1 last year. The main recovery was in March because of starting of the effect of the measure, especially the measure taken directly by the bank, and this brought to an increase from EUR 1.2 billion issued in February to EUR 2 billion issued in March.

As you can see, the real lack of new loans is related to households. Basically, we have very, very few level of residential mortgages. Meanwhile, enterprise and corporate will register a big increase also in the next quarter.

Funding. This, as you know, in this period, is a main topic because of the potential lack of liquidity. As I mentioned before, we have a very strong position. Luckily enough, as many of you know, in the first 2 months of the year, we were able to issue basically half of the amount needed for the entire 2020.

So out of EUR 2.4 billion of maturity for this year, we were able to issue a AT1 for EUR 400 million in January and senior nonpreferred for EUR 750 million in February. This brings us to -- with the need to fund only EUR 1.2 billion of maturities for this year, which, of course, as you will see when I will show you the TLTRO opportunity and liquid asset available will be very easy for us. Also, if we cannot have a good market in the second half of the year. All in all, our unencumbered eligible asset, which amounted in March to EUR 22 billion and in April to EUR 26 billion are enough to exceed the total exposure of our outstanding bonds.

Liquidity, again, on Page 22, LCR and NSFR, a very good level. But I would take your attention on the TLTRO reduction reached in the first quarter 2020. We have an exposure of EUR 13.8 billion, down, as you remember, from EUR 21 billion last year. As you know, we try to reduce TLTRO before the crisis in light also of a potential upgrade of our rating. Nowadays, of course, this would not be the immediate attention for our bank also considering that the TLTRO opportunities has grown up to a potential EUR 35.7 billion so with almost EUR 22 billion potential drawing in the next quarter. Of course, we would never need this amount but just to come back to the EUR 1 billion needed for the funding. We have plenty of room also to exploit the premium and the opportunity of TLTRO, particularly favorable in this period, factorizing the very good reduction we had in the last quarters.

Let's pass to commission on Page 23. Again, very good results, plus 1.4% on Q1 '19, minus 4.7% on Q4, mainly driven by commercial activity, mainly concentrated in credit fees. Of course, as you know, the last quarter of each year concentrate many transaction -- structured lending transaction, very interesting fees. And so it's quite normal in having a difference in the commercial activity, which account from more or less EUR 11 million of this EUR 60 million lower. The remaining is the lower activity register in March due to the emergency.

But if you go to the focus on investment product fees on the right side of this slide, you see that we had the contribution basically in only 2 full months, almost even to the record contribution that we registered in Q4 last year. So EUR 186 million vis-à-vis EUR 187 million last Q4 and EUR 172 million in first Q 2019.

The explanation is on Page 24. Basically, we were able to sell EUR 3.5 billion of investment product in the quarter, EUR 3 billion of which in the first 2 months and only EUR 500 million in March. So the normal activity would have brought this number above EUR 4 billion in line with our expected business plan. We're already seeing the effect. Let me anticipate that, after in April, which more or less is in line with the March result, already in the first week of May, having more people in the branch, we are already registering a very encouraging number, which, of course, we still pay vis-à-vis the pre-COVID pace but will give us some room for recovery at least in the second part of the year.

We already talked about NFR. Let's concentrate about the lower part of the slide, where you see the negative impact on the left side, on our Common Equity Tier 1 due to the unrealized reserves reduction in held to collect and sales amounting to almost EUR 200 million. Meanwhile, on the amortizing cost, govies, we still have EUR 300 million of positive reserve, even though reducing from EUR 520 million. Another slides on our govies portfolio, securities portfolio. We have registered a slight increase in the first quarter, in particular, in Italian Govies, but this is normal for us in the first quarter each year, if you check also December '18 versus March '19 because, end of the year, our policy is to completely reduce the activity -- the trading activity of govies. In terms of differentiation of our portfolio between held to maturity, we have increased a lot in order to avoid volatility on capital passing from 48% to 55%.

Other specification on the portfolio on Page 27, let me attract your attention mainly on the lower part of the slides where you can see the duration of the total govies held to maturity, which is 3.4 years and 3.9 years for Italian Govies. Meanwhile, the duration of the portfolio held to collect and sell is 3.3 years for the total portfolio but only 2.3 years in the Italian Govies.

Let's pass on Page 28 on operating cost. We have a consistent reduction, 3.2% in operating cost. We already talked about the ambition that we have to overcome also the pace that we have registered in the first quarter. And of course, we can discuss afterwards about our potential forecast for the year.

On Page 29, some numbers about the improvement in our asset quality. NPE still reducing. We are now down to 8.8% of NPE ratio -- gross NPE ratios and 3.1% of gross bad loan ratios and 5% of net NPE ratios and 1.5% of net bad loan ratio. You may easily remember that we're starting from something like 25%.

Also for coverage, considering the low share of bad loans, both gross and net, net is only 29% out of the entire nonperforming loans. Of course, it's not consistent to talk about the single line of coverage, where we have a bad loan to 55%, growing to 62%, including writeoffs, and almost 40% reached on the UTP coverage.

Cost of risk and flows, very consistent, in line with the physiological new cost of risk that I announced before. We have a reduction also on the average of the quarterly net inflow, in NPE, 5% lower than the quarterly average and 17% reduction in the flows between UTP to bad loans vis-à-vis 2019. Cost of risk, again, EUR 143 million is the normal cost, and we added EUR 70 million in generic provision. This brought to 53 basis point physiological cost of risk and almost 80 basis point the global cost of risk.

On Page 31, just some words in order to say that our activity of recovery, cancellation, cure is always, also in this quarter, higher than the net inflow from performing. And this allow us also without massive disposal to reduce time by time the stock and ratios.

Just the last 2 slides, on Page 32, some figure about capital ratios and buffers. I would say, a very consistent position. We were 10.8% stated on March 2019 growing 20 -- 12.8% end of the year. We reinstated due to the decision followed by the ECB recommendation the 20 basis point from suspension of dividend. So the 13 basis point through the different impact from held to maturity, held to collect and sell reserves and the performance of the year were a negative impact of 10 basis point reaching 12.9% of Common Equity 1 fully loaded and 14.4% phased-in.

On MDA buffers, we registered an increase helped also by the measure of regulatory, which allow us, under CRD V rules, to benefit from the consideration of the subordinated bonds issued in our capital. And so we increased from 440 basis point to 490 basis point the MDA buffer phased-in and from 230 basis point to 307 basis point the MDA buffer fully loaded. I remember that we announced the 250, 300 basis point target.

All in all, let me say that we are really grateful to our people for the reaction that they had in facing consistently all this emergency. We had difficult time at the beginning, but we were able to run the bank business as usual, even though reducing, of course, the activity -- the investment activity. Nowadays, we are basically almost in full force. We have the possibility to help the Italian economy and Italian enterprise in order to take full advantage from the measure of the government and try to help together the recovery of the economy.

Talking about our performance. Again, of course, the Q1 was only impacted 1 month, but we started some prudential measure. We feel the Q2 will be the lower one in terms of results because we'll be the one more impacted by the emergency, but we are already experiencing very good signal of recovery. Of course, in these difficult times, every week account for 1 month. So let me take some more time to potentially give you the guidance about the year about the potential next business plan. We have to understand exactly if this Phase 2 is going to be as safe as all of us hope and expect, and I hope that, in 1 month, we can be able to give you some more figure about the future. Thank you very much.

[Operator]

[Operator Instructions] The first question is from Giovanni Razzoli of Equita.

[Giovanni Razzoli, analyst]

Quite a few questions on my side. The first one, in the guidance for the cost of risk on a full year basis, can you remind us, sorry, I missed your comment, what is the estimation of the GDP for 2020 and '21, which determine the EUR 70 million provisions that you have made in the Q1? And shall we assume that this cost is recurring so that we can take the 80 basis points of cost of risk in the Q1 as a guidance also for the full year?

The second question, I've seen that the CET1 benefited from the removal of the prudential filter of a stake in Eracle Fund. I was wondering what was the contribution of this. And I ask you this because, I've seen that the held to collect and sell reserve related to the government bond portfolio had a massive negative impact in the Q1 on the CET1, minus 47 basis points. So without those benefits, the CET1 would have gone down significantly.

And this reminds me to the other question. So I was wondering whether, in the context of the new business plan, you may consider a new debt provision of your exposure to the BTP that is just increasing the volatility of your CET1 in conditions like this. I understand there is a strong contribution to profit, but we see that the profits probably are significantly more volatile.

The very last few questions. Can you tell us, out of the EUR 4 billion of state guaranteed loans that you expect to issue as a part of Decreto Liquidità and Decreto Cura Italia, what is an estimate of the rates that you expect to apply to these loans? I ask you this to understand what kind of negative impact in terms of lower revenues you may get as a bank from this activity.

And the last question. You've mentioned that you plan to do a new business plan, basically. I was wondering whether this is going to be the same plan with the same strategic action under new economic assumptions, or is it going to be a brand-new business plan? I ask you this because we had more or less the same period as you did the plan UniCredit, Mediobanca and BPER, and they still stick to their business plan and strategic actions. So I wonder whether you may reconsider in-depth what you've done with the new Board, with the beginning of March business plan, or whether it's going to be just a rolling of the new economic estimates on the same action.

[Giuseppe Castagna, executive]

This is not a private session for you, Mr. Razzoli, but I will try to do my best. Also because I don't know if I was able to take care of all of your questions. But starting from guidance, of course, we were very attentive in trying to have the best of our capability and understanding the situation right now, given the amount of -- also taking into account, of course, the impact from guarantee and moratoria, which is something very consistent in the light of a very bad GDP provision for this year. So the average, as I mentioned, to use sensitivity, was minus 8% for this year, plus 4%, 4.5% for 2021. To this, we applied different sensitivity related to the effect of the moratoria and of the guarantee, of course, in different scenario, which I simplified when I mentioned the potential amount nowadays possible. We don't know the evolution. And the final number was EUR 70 million, which increased the cost of risk to 80 basis point. I am not giving you already a guidance, of course. As I mentioned before, it's very difficult to have a guidance right now. But if our assumption, more than on GDP on the effect of the guarantee would be -- would have the effect that we expect, in terms of LGD mitigation and PD enhancement, the first through the guarantee, the second through the moratoria, I feel that 80 to 90 basis point could be a good assumption. With this, I think I took the first 2 question.

Eracle contribution was minimal. So I don't think that has contributed a lot to offset the big impact of the edge to collect and sales negative effect. I think Eracle was worth 7 basics or 7 basis points. So not a big amount. I think was bigger if you allow me, the dividend distributed by Agos, which, as you know, lowered the threshold of our participation above 10%, which had an impact of 12 basis point.

BTP. We have not changed a lot our approach in BTP. As I mentioned to you, the only difference is related to the trading activity. We will have an average maturity of few months, and we are very able to offset this quarter-by-quarter. Meanwhile, in terms of held to maturity portfolio increased of around EUR 1 billion. And in terms of held to collect and sales is almost the same amount but reducing the duration to 2.3 years. So I would consider that also the loss are already applied to our capital as a very short span in order to potentially recover.

The average rates. I can be very open on the EUR 25,000 because we announced that we are taking the overall spread of 1.2%, but this impact only, again, most -- at the most EUR 800 million so very negligible in terms of our portfolio. Meanwhile, the transaction for mid- and large corporates, either under MCC or under such a guarantee, as you know, have the only limit to reduce the commission to the real cost of the bank. But of course, there is not an overall interest rate given by the government. And of course, most of this transaction will be due in a normal and phased competition environment. And so we'll apply possibly, and I imagine, lower rates than the current one because of the effect of the guarantee, but all in all, would be an enhancement of the return on capital of this transaction.

Business plan. If I can simplify, I would say that we stick to the revenue side strategy for -- of the old business plan as of today, because, of course, as I mentioned, if we were able to do a new business plan today, we would do that. So if the situation will not change too much, and the results of the first quarter confirm the idea that we had about the most -- the fast-growing line of our revenues. Meanwhile, we are, of course, learning some lesson from the emergency that we faced. And so of course, the increase and the acceleration in digital, the potential closure of more branch, all the cost control that we had to provide for these first months maybe can make some reconsideration about the final number in next business plan.

[Operator]

The next question is from Christian Carrese from Intermonte.

[Christian Carrese, analyst]

Yes. I have a couple of questions. The first one is on net interest income. I saw an increase in the spread -- in the -- just the spread in the first quarter. I was wondering what do you expect due to, as you said, the guarantee. So if there will be an impact in terms of asset spread and the combined effect also on TLTRO? You reduced the TLTRO. Assuming you're going back to 2019 level, EUR 21 billion, what could be the impact -- the positive income -- impact on net interest income? So -- and overall an outlook on net interest income for 2020, taking into account also the disposal of NPE that you have already done.

The second question is on cost. I mean, you said that you could do better than the plan. The cost we saw in the first quarter could be seen as a run rate, you think, or maybe they are a little bit too low and you expect some increase in the coming quarters?

And finally, on cost of risk, EUR 70 million generic provision in the quarter. In general terms, do you expect a higher cost of risk in 2020 or in 2021? Because I would expect NPE picking up in 2021 rather than in 2020. And finally, I would like to congratulate for the presentation and the details on the loans portfolio that can help to understand what could be the impact of COVID-19 crisis.

[Giuseppe Castagna, executive]

Thank you, Mr. Carrese. NII, so, frankly speaking, it's difficult to talk about race. We just started to -- apart from the ones -- the small transaction, I already give you the guidance. But for the big one, would be really a question of competition amongst the market. Basically, there will be a very strong part of companies applying, maybe are not of the first high level, but there are many companies which are very good and that are very strongly negotiating with our competitors. So it's too early, frankly speaking, to give you some guidance. What give comforts to me is that, for sure, we will have all in all an increase in NII because even though there will be a slower reduction in marginal rates, there will be a big increase possibly in volumes. So -- and of course, a very good return in terms of return on capital. So this, frankly speaking, is, let's say, an ideal situation. Let's try not to make wrong move, both in terms of granting new loans and in terming of condition and interest. We will try to keep our attention very high as we were trying to do also in the Q1. As we have seen, it was the first time we had an increase in asset spread. So basically, all in all, a big increase.

Cost. I would say -- and this is the final word about guidance because we are not giving you already guidance. But I can say that the pace of the first quarter would be the minimum level we expect in term of cost reduction, of course, hinting that we can be better.

Last but not least, very, very interesting question about 2020 and 2021. I explained before that we are trying to do what the regulator suggested, so to have a long-term view about sensitivity on cost of risk. So the fact that we are increasing and possibly until we don't understand the real effect of the crisis, we'll be still putting some more revenues phasing our assets will be just because we think that, in the next year, basically, we could have some real deteriorating effect. I never experienced also without the support and intervention of the guarantee from the state a very short lag time between macro deterioration and the cost of risk increase in the bank. So already, normally, it takes a couple of quarter to be evident. In this situation, which we'll have the moratoria to stop the status deteriorating from performing to nonperforming and, of course, the impact of the guarantee sustaining the probability of default, of course, I think that we are very happy to be cautious this year for something that mostly will appear next year.

[Christian Carrese, analyst]

Just see if I may a question on dividend. We know ECB recommendation for this year for 2019 dividend. For 2020, taking into account your current positive capital position and maybe could we also improve, thanks to the CRR anticipation -- rules anticipation, maybe if you can -- I know that it's quite early, but are you confident to be able to pay a dividend in 2020 or not? Or it's too early?

[Giuseppe Castagna, executive]

Seriously speaking, I think it's too early to make any comment. But of course, our willingness is the same that we had when we announced the final year results. And if -- until the last day that we had in order to communicate the suspension of the dividend, we were very confident that dividend distribution would have been possible. However, let's consider the situation. We are facing all the difficulties with a good pace, especially in terms of capital, asset quality, liquidity. So let's say that the guidance is supportive, but it's too early to mention.

[Operator]

The next question is from Jean Neuez of Goldman Sachs.

[Jean-Francois Neuez, analyst]

I just wanted to ask 2 questions. The first one, obviously, you were all clear in an answer to a previous question, the guidance of something like 80, 90 basis points of cost of risk. And I just wanted to know, I mean, restoring it out there. But for example, UniCredit is going around with a guidance of around 200 basis points. I guess they don't operate necessarily very differently from you guys. And I just wanted to understand how confident are you in yours? What could be the bottom? Is there any sensitivity around that? And whether there is any color that you can share with regards to what you assume when you say some -- when you just give the guidance?

And the second thing I wanted to ask was on capital and whether you expect -- so you've lifted the positive impact that could happen with the delay in supervisory review headwinds, et cetera. I just wanted to know whether there was anything negative that might happen and that could lower the capital ratio this year, excluding, obviously, losses or just volume growth, but just in terms of rating migration, review of models or any of these things that, if NPL start rising, might increase the density for the same amount of assets given that other banks have talked about that also in other countries.

[Roberto Peronaglio, executive]

Sorry, Jean-Francois. Roberto Peronaglio speaking. We had a problem on the line. Could you repeat the second question, please?

[Jean-Francois Neuez, analyst]

The second question is about procyclicality of risk weight. So we've had a number of banks, of course, Europe, saying that, from here to the end of the year, maybe the rating then, et cetera, might require more risk-weighted assets for the same amount of assets. I see you've listed the positive impact, and that's great. I just wanted to know whether there is anything also negative to offset those positive impacts in terms of regulatory relief that you listed in your slide.

[Giuseppe Castagna, executive]

I will try to do my best to answer. Effectively, we had the time to think about all the bank announcement about forecasting cost of risk. I would say that we are more or less on the same level, apart from UniCredit. Of course, I don't want to comment on other bank forecast. Frankly speaking, I was not able, of course, to answer to UniCredit the assumption that led to this enormous cost of risk forecast. I don't know if they consider as we did the moratoria and the guarantee as a mitigation -- strong mitigation effect on the deterioration of the GDP. So basically, this depends on the famous V shape. They are very tough on the first year but have a better recovery in the second year. I don't know the assumption underlying on the longer run because, as you know, we had to do an exercise mixed also with the long run expectation. So I can only comment on my forecast. On RWA, we are -- it's a long time that we are trying to work on the efficiency of our RWA. Of course, we'll still do this exercise during this year. Let me say that the capital absorption of the potential increase of our loan book would be minimal due to the guarantee. So I really feel that we wouldn't have any material effect also on RWA.

[Operator]

The next question is from Andrea Vercellone of Exane.

[Andrea Vercellone, analyst]

Just one question left, and it's on the TLTRO. As you said in the plan, you had plan to reduce your reliance on the TLTRO. I never agreed at the time. I see it as pre-money, so I don't see why you shouldn't take it, even more so now that the terms of the conditions for the TLTRO III had changed significantly for the better. So the question is, what do you see as the counterargument to not take the full amount? You can repay in 1 year if you don't need it. It's free money. So why wouldn't you just take the whole lot? In worst-case scenario, you park it back at the ECB and pocket the difference. That's my question.

[Giuseppe Castagna, executive]

Thank you, Mr. Vercellone. I have to say that we took all we could in the previous quarter, up to EUR 21 billion, which was the far maximum amount during the merger period, frankly speaking, after we overcome all the problems that avoided us to go to the market when it was impossible. We prefer to give a try to the potential bettering of our rating. As you know, it's something that we are very unhappy with is some that we consider unfair, especially vis-à-vis our -- some of our competitors. And the main reason why we were told before the COVID that would have been difficult to better our rating was the full drawing of the TLTRO and, on the other side, the low recourse to the market. So since, I would say, second quarter last year, we started in view of reimbursing a part of the TLTRO with the TLTRO III that came out only in the last part of last year. We had that forecast that TLTRO would then come again middle of last year.

So we decided to have a funding plan feasible also without TLTRO. Of course, TLTRO has been confirmed also in better condition, also with a very good premium, and because there is no more room to hope that, in this environment, we can have a bettering of our rating. Of course, we'll do all the best in order to exploit the TLTRO advantage also because the only condition were to increase loans. Of course, we are already above the threshold. Let give us some time in order to understand what is better. Also because in this time, of course, I should need to invest in govies because I'm growing with deposit. I have a lot of opportunity also on bilateral side. So the loans are not yet growing in measure we expect. And soon, this will happen. For sure, we will have more recourse to TLTRO.

[Operator]

The next question is from Fabrizio Bernardi of Fidentiis.

[Fabrizio Bernardi, analyst]

Is there anything you want to share with us about Anima, about Agos Ducato and what can happen to this company? And if you have changed any -- your view about M&A considering the situation that is clearly evident about Intesa and UBI Banca and the badwill arising from the deal, which is massive? So my question is, if the current situation may actually force other banks, including Banco BPM, to maybe consider deals in order to exploit the situation.

[Giuseppe Castagna, executive]

Thank you, Mr. Bernardi. Our strategy, again, does not change very much, but our main strategic stake-holdings, we are very happy of Anima and of Anima performance. I think that also Anima is very happy of the contribution that Banco BPM gives to the company. We have now also a new CEO, which have the responsibility to present a new business plan as soon as will -- the market will allow him to make some more consideration. I read some lines today, but of course, we didn't have time to talk about their strategy. So let's give him the time to work about strategic issue, and we will be happy and ready to give support.

The same, frankly speaking, for Agos, of course, is never a very different situation because personal loans in this very moment, of course, have not the same appeal of pre-COVID condition. But happily enough, this is a very safe and prudent company. They are still provisioning a lot in anticipation in order to be -- to have a prudent approach. We will -- as soon as this emergency give us some idea about potential future of the company, for sure, we will have talks with our co-shareholders, Crédit Agricole, and decide what to do. As you know, we have more than 18 months' time in order to decide what to do on the stake.

M&A. I'm very happy to show that my idea that in these times, 1 week accounts for more than 1 month, because 1 week's ago, nobody was thinking about M&A. And now basically, the situation maybe give us the hope that a new season can materialize. We are, frankly speaking, trying to do our best to run the bank over a proper road map, of course, on a stand-alone basis. If I can, the effort that we had 2 months ago multiplied during these weeks. Led to give us time to retake the -- a proper forecast about our stand-alone situation. I don't see, frankly speaking, other potential M&A in our view. We are basically not interested also nowadays in potential M&A. So it's not something that we have concentrated in.

[Operator]

The next question is from Hugo Cruz of KBW.

[Hugo Cruz, analyst]

I wanted to ask about capital. There's a few moving parts coming up in the next quarters, SME supporting factor, new treatment for software intangibles. And you also mentioned that some regulatory headwinds has moved from 2020 to 2021. So if you could quantify all of these different moving parts would be very helpful.

[Giuseppe Castagna, executive]

Thank you, Mr. Cruz. Let me give you some idea that we can materialize today in order to see the headwind. We generally gave the statement that we think a good part of 2020 headwind can be shifted to 2021 as well as a good part of 2022 would be shifted to 2023 thanks to the regulatory statement. Basically, we will anticipate SME supporting factoring, which, for us, accounts for 20 -- more or less 20 basis point positive. We have a sort of shift of potential negative headwind coming from the Basel IV. And as far as the internal different inspection that we were having in order to understand the magnitude of a potential impact on AIRB, of course, also this is, let's say, on hold, and most probably, we will have some idea about that in last part of the year.

[Operator]

The next question is from Noemi Peruch of Mediobanca.

[Noemi Peruch, analyst]

I have 2 questions from my side. The first one is, if you could please break down the EUR 6.6 million impact of PPA line by line, please? And then the second one is, if you could update us on your NII sensitivity to Euribor.

[Roberto Peronaglio, executive]

Roberto Peronaglio sorry. You can find all the detail on the PPA line-by-line in the explanation notes of our press release, or if you need, I can give you the detail after, but it's a public number on the press release. Thank you. And the second one, sorry, Noemi, could you repeat the second one because we had some problem to understanding it on the line?

[Noemi Peruch, analyst]

Sure. If you could update us on your NII sensitivity to Euribor, please.

[Giuseppe Castagna, executive]

On NII -- and 40 basis points? Okay. Okay. So 100 basis points -- 100 basis point is 16% on NII.

[Operator]

The next question is from Adele Palama of UBS.

[Adele Palama, analyst]

Can I know -- can you add some color on the change in the valuation reserves, the impact of the differences between -- on the capital? And then if you can give us an update of the sensitivity on the capital from the widening of the BTP/Bund spread. Then on asset quality, on NPE ratio, where do you see the NPE -- the gross NPE ratio going in 12 months, especially considering that the moratorium -- I mean, at the end of the -- especially considering at the end of the moratorium, basically, you will have -- if I'm not mistaken, you will have volatile [ 60% ] of the payments covered by the currency for the moratorium?

[Giuseppe Castagna, executive]

Sorry, I'm trying to collect some exact -- the time about sensitivity. For each held to collect and sales, govies is EUR 1.3 million per basis point, the impact of capital. If I understood well, you wanted to know the asset quality expectation in terms of gross NPE ratio in 2021. Again, I think that 2021 will be the year in which we understand if the recovery is gone, if the measure from the government will be -- will have helped the economy to -- and the company to restore. Otherwise, of course, we'll have no other possibility rather than which to nonperforming, even though we will be covered for the majority of -- from state government guarantee. So it's very difficult right now, frankly speaking, to give you an assumption. It will depend from when the lockdown will terminate the effects, how the different sector -- industry sector will reopen and will recover, is, frankly speaking, too difficult. We have sensitivity, of course, also industry by industry, but generally speaking, not linked exactly to the effect of the single measure of the government applies. So sorry, but I cannot help because I don't have a right range of data to give you.

[Adele Palama, analyst]

Can I ask you -- sorry, on the bancassurance, what's the contribution from the bancassurance business to the fees in the quarter? How do you see the evolution for the 2020?

[Giuseppe Castagna, executive]

I'm the recovering data. In terms of commission, you mean?

[Adele Palama, analyst]

Yes.

[Giuseppe Castagna, executive]

Yes. Just a second. Protection is EUR 11 million of commission.

[Operator]

Mr. Castagna, there are no more questions registered at this time.

[Giuseppe Castagna, executive]

So thank you, everybody, for your time. I hope that when we will meet next time, we will have better time. And first of all, we will be safer. Thank you very much. Bye.

[Operator]

Ladies and gentlemen, the conference is now over, you may disconnect your telephones. Thank you.