Banco BPM SpA

MIL:BAMI

Earnings Call Transcript 2021-Q1

[Operator]

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Banco BPM Q1 2021 Results Conference Call. [Operator Instructions]

At this time, I would like to turn the conference over to Mr. Roberto Peronaglio, Investor Relations Manager of Banco BPM. Please go ahead, sir.

[Roberto Peronaglio, executive]

Thank you, and thank you, everybody, to be here this evening with us for the presentation of our results after a long day of results presented by some other banks.

So before leaving the field to Mr. Castagna, let me remind that you can find the presentation on our website in the page Investor Relation. And then the Q&A section is reserved to financial analysts.

Now I leave the floor to Mr. Castagna. Thank you.

[Giuseppe Castagna, executive]

Thank you, Roberto. Thank you to all of you. I know it's been a long day for most of you being in the third conference call in the day. So I will try to be as quick as possible, even though, frankly speaking, we are very happy to discuss with you or to present to you the excellent performance we have done in Q1 this year. I would say that it was something that we were expecting, of course, considering a situation -- pandemic situation, which is, luckily enough, going down in terms of economic effect. We think the first Q this year shows a clear road map for our future, in line what -- with what we expected also last year in the presentation of the business plan.

Let me go into some detail on Page 5. We have some -- allotted some strong operating performance, both in terms of volumes with 5.6% of growth in -- in net performing loans up to EUR 99.2 billion; current account, up 13% to EUR 101.7 billion; and eventually, also asset under management, an increase of 13%, up to EUR 61.3 billion, with EUR 1 billion almost in net inflow.

Core revenues are up to EUR 968 million, which is plus 6% year-on-year. And this is the best-ever result since 3 years to now, driven, of course, by an excellent performance of the net commission, up 7% year-on-year.

Pretax profit to EUR 259 million, which represents 150% higher year-on-year.

The net income is -- stands at EUR 100 million with an adjusted net income to EUR 151 million. This come from another action we have done under the derisking strategy of the bank. We have increased the NPE disposal strategy from the EUR 900 million expected end of 2020 to EUR 1.65 billion, which we have front-loaded in Q1 this year. This is the consequence of a new structure we are developing in order to deploy in Q2 a disposal of EUR 1.5 billion of bad loans that we will disclose ahead of this new transaction.

After that, the gross NPE ratio will go down to 6.3%, basically 5.3% if we consider the EBA transparency exercise. Also, the Common Equity Tier 1, which we know would have been impacted by headwind coming from the heavy model updating, has been better than we expected, standing at 12.7%, well higher of the -- what we expect in our guidance. Also, MDA buffer fully loaded is 377 basis point.

All these note with strong input coming from the digital evolution of our bank, which allow us not only to close another 300 branch by Q2 this year, which we confirm, which bring the total disposal of branch since the merger to more than 1,000 branch out of 2,500 branch. And we will also give you some insight about our ESG strategy fully integrated in our business model.

Some figure on Page 6. Net interest income, basically, up almost 5% year-on-year; minus 2% Q-on-Q. But let's remember that most of this reduction is due to the 2 days left Q1 '21 versus Q4 '20. Net commission, up 7% year-on-year and almost 10% quarter-on-quarter. Total revenues, 18% up year-on-year, 7% up quarter-on-quarter. Let me say that again, EUR 1.130 billion of the total revenues performance is what we expected when we deployed last year, our business plan for 2023.

Pre-provision income stands at EUR 484 million, up 51% year-on-year and 7% Q-on-Q. Also on loan loss provisioning, due to the new transaction we will deploy next quarter, we have increased our provision up to EUR 217 million, with almost EUR 75 million dedicated to increase the IFRS 9 projection due to the global disposal. And the pretax profit, again, to EUR 259 million, up 150% year-on-year.

Let me remind that also cost/income went down to 57% versus 64% year-on-year and below 60% full year 2020.

Some numbers on Page 7 about the volume. Some of that already I mentioned before, so I wouldn't expand on that. Let me say only about the gross NPE ratio where we have been down in 1 year, 250 basis point, leading to 6.3%, which is the adjusted after the NPL disposal in Q2. Also, we already talked about the Common Equity Tier 1 ratio being basically at the same level 1 year ago, only 60 basis points below Q4, notwithstanding 85 basis point of regulatory headwinds.

Some detail about this new disposal. We have, again, front-loaded basically in Q1 the additional provision for almost EUR 75 million in order to accelerate the execution in Q2 of a new project, which we call Project Rockets, of EUR 1.5 billion of bad loans, which will include 3,500 position for which we have already completed the due diligence. We are going to finalize in the next days the capital structure with the consequent sale of the portfolio to an SPV the issuance of senior, mezzanine and junior notes and, of course, the disposal of mezzanine and junior to third-parties to be completed again by Q2 this year.

Of course, we are working with the understanding that the GACS would be extended. But of course, this transaction will go ahead even though there would not be an extension of the GACS, which we think, in any case, will come very soon. After this transaction, the stock of bad loans will go down to EUR 2.1 billion gross and the gross bad loan ratio down to 1.8%, best ever, of course, for our bank, I would say, even better that BPM alone before the merger of the 2 banks.

Some details about digital banking on Page 9 because we can confirm that we heavily -- basically, we are going to entail in our business model all the digital banking opportunities, which allow us again to sharpen and to make more efficient our branch network without suffering in terms of revenues, as you have seen with the figure we show to you. We have done this through new digital customer experience with the new app and new Internet banking, both for individuals and corporate customers. With the completion of digital identity will be completed by H2 this year, which will allow us to be completely paperless, pushing on remote advisory offering, thanks also to the COVID experience, which allow us to have -- to be more confident also vis-a-vis our clients in being more able to selling products and to propose products -- investment products to our client and, of course, utilizing even more advanced analytics in order to implement new digital and omnichannel sales solution.

The results for this year was the increase of the share of active digital users from 44% to 49%. Our target will be to reach 65%, which is even better of the European average. The same for the share of remote transaction, which increased from 80% to 85%, which we aim to reach 90%. And the share of active mobile users, which grew 10% from 53% to 63% and which will lead us to more than 75%, in line with average EU.

Some detail on Page 10 about our ESG strategic approach. We are developing a full integrated sustainability in our business model. We have a full deployed action plan with more than 32 projects with 15 unit of the bank involved. There are more than 50 people working full day on that. We are working on different aspects, of course, on governance where we are strengthening the Internal Control and Risk Committee, which will be -- which has been renamed the ISR and Sustainability Committee with a Board Member as ESG referenced, with the incentive scheme strengthened with ESG KPIs and, of course, also pushing on integrating climate-related and environmental topics within the risk and the lending processes.

We are also offering to our clients, both in the lending side and investment side, more and more ESG-compliant products. I will give you some example immediately. And of course, we are committed to further reduce the environmental impact. Starting from this, we are already 100% energy users from renewable sources, and we aim to be carbon-neutral by 2023.

Let me also share with you some other main initiatives we are developing: EUR 5 billion of platform for our corporate clients for ESG investment. For our retail clients, products for energy efficiencies like Superbonus, completely digital. Green mortgages started during this period, which allow private individuals to get better rates, if they can prove to have an energy efficiency mortgage label.

Some -- let's go to some figure. On Page 12, you will see the key P&L highlights. Net interest income, again, basically in line with Q4 2020. Let me remember that still, we don't have the effect of the drawing of last EUR 10 billion of TLTRO, which we did the final week of March, and so that will come to effect -- to be effective by Q2. Net fees and commission, strong increase, but I have to say, sustainable. Also, April has been on average of the results of first Q, and also, the first week of May is doing very well.

NFR, very good, in line to what we expected, already reached half year -- half of the result of the full year expectation. And very good revenues also coming from our shareholdings -- stakeholders in Agos, bancassurance and Anima investments. All in all, again, total revenues, up to EUR 1.128 billion, very much higher both of Q4 '20 and Q1 '20.

Operating cost, slightly higher than Q1 '20, which is really the only reference we can have. You know that Q4 was very much impacted by different measure we had due to the COVID. We will go further to give you some other details. Leading to pre-provision income of almost EUR 485 million, which is 51% more year-on-year.

We already discussed about loan loss -- prudent approach to loan loss provision, uploading some consistent upfront, leading to a pretax profit of EUR 259 million, which is 150% more than Q1 '20. Meanwhile, we had a loss in Q4 '20.

After tax, systemic charge and fair value liabilities, which for Q1 '21 is negative. Meanwhile, Q1 '20, you can remember was positive due to the worst bank cost for consideration for fair value. We have a final result of EUR 100 million, again, with adjusted lead to EUR 551 million.

Page 13, we gave some figure in order to see how strong is the impact of this quarter also vis-a-vis the pre-COVID results of the bank, basically in line as far as the net interest income is concerned. But we know that more will come, thanks to the TLTRO in the next Q.

Meanwhile, there is a strong increase in net fees and commission. You see EUR 471 million vis-a-vis EUR 448 million before COVID. This comes from a strong performance of our network in investment product placement, which you can remember was the base of our strong increase of our business plan, which, in fact, led us to more than EUR 5.4 billion of product placement, EUR 2 billion more than pre-COVID experience.

Some detail on Page 14 about NII. We already said that there is a slight reduction vis-a-vis Q4. Meanwhile, there is a 5% increase vis-a-vis Q1. You have the detail of the day effect, which is negative. Meanwhile, the commercial banking performance is better. It is in line, but is better EUR 1 million. And of course, there is a small contribution for the last days in which we utilized the EUR 10 million more of TLTRO.

Another good news is the capability to keep to 180 basis point, the commercial spread is basically in line with Q4 and Q3 last year, even better than Q2. This is thanks to a very good effort in having a good margin, also on the loans granted having guarantee from the state. Of course, the small reduction is offset. The increase is offset by the negative impact of the liability spread that's due to the Euribor going down is minus 63 in Q1 '21, 22 basis points lower than Q2 '20.

On Page 15, there is the new lending activity in line with Q1 '20. Basically, it's exactly the same results of -- for corporate and enterprises. Meanwhile, we have almost 70% to 80% of increase in terms of residential mortgages, which grew to EUR 1 billion versus EUR 600 million in Q1 '20.

The total results is shared basically half and half between COVID-19 measures and ordinary business. But let me stress that the opportunity of the COVID measures allow us to devote the ordinary business to the best-class client. 93% are -- of this business has been granted to the best-rated client.

In terms of spread, again, on the right-hand side of the slide, you see how both in second half of 2020 and also in Q1 '21, we have an increase between the inflow spread of new loans and the outflow of the reversed one. And the same attitude is going to continue also in Q2.

On the left-bottom side, you see the evolution of the state-guarantee lending. In December, we stand at EUR 10 billion. We had almost EUR 3 billion, up to EUR 13 billion in Q1. We still have almost EUR 3 billion to be granted for which we have already requested the employees, and for most of them already approved by our credit department.

Let also me add that as far as the TLTRO net lending targets, we have already overcome by EUR 7 billion. The first period of the situation, which ended exactly March '21, up EUR 7 billion of what was expected. And we have -- for the second observation period, which will end in December, we have EUR 2 billion more than what is expected.

On Page 16, some figure about the moratoria. We started with EUR 16 billion. In March, we went down to EUR 11 billion of outstanding, so down 30%. Out of this reduction, which amounts to EUR 4.2 billion, only 0.9 is the default rate. And during April, we had another EUR 1 billion expired. So the total moratoria now is down to EUR 10.3 billion.

Let me say that out of the moratoria, 82% of debt are for low- and medium-risk client, 11% for mid- to high risk and only 7% for high-risk client. We are continuing our campaigning to understand the situation of our client with a strong early warning -- with a strong early engagement campaign detecting not only the mid-risk and the high-risk client but also the sector more impacted and also the early warning indicator for all the performing portfolio. After -- at this stage, of course, it's not yet fully completed, but we can confirm that 90 -- 84% of our moratoria client do not envisage any problem to restart payment. Only 6% -- 16% asked us some support in terms of new moratoria or new state-guarantee loan. And only 0.5% we deem will suffer difficulties to restart payment. So very much in line with the experience we have had up to now.

On Page 17, net fees and commission, we already gave you the total number. You can see that the increase is both year-on-year on the management and advisory side and also on the commercial banking fees, split in EUR 239 million for investment management and EUR 232 million for the commercial banking.

You see that there's also an increase in trend on the right side of the page. Our monthly trend is EUR 151 million in January, EUR 147 million in February, EUR 172 million up in March.

On the bottom, on the right bottom of the page, you see also the quarterly pace of our investment placement product, up to EUR 5.4 billion vis-a-vis the previous quarter in the region -- all in the region of EUR 3-point-something billion, apart from Q2, which was very much impacted by the COVID at EUR 2.4 billion.

I have to say that also April, as I was mentioning before, performed basically in line with the previous months. If we consider 2 days less due to the April calendar and also the extraordinary effort for the placement of EUR 300 million, which are going to be added to the EUR 1.5 billion for the BTP [ future order ], which -- for which also Banca Akros was a global coordinator.

Operating cost. The main aspect, I already mentioned in terms of personnel. Basically, we are in line with the Q1 '20. The difference is due to the collective labor agreement increase this year versus last year. Of course, you cannot compare to Q4 because of the main reduction we experienced in -- during all 2020. We already gave you some guidance that the total cost, of course, will go up vis-a-vis 2020.

But of course, this number does not take into account the impact that we will start to experience from the second part of this year, which is the consequence of the early retirement scheme that we have already announced for 1,500 people in Q4. And we are -- we can now say that this amount of people has been increased to 1,600 people, not needing, of course, any further provision, so taking place in what we have already provisioned in Q4. But that will give us some more savings in the years to come. Basically, the retirement will affect 1,100 people by June '21, another 200 people by December '21, and other 300 people basically half and half between June and December '22, so 1 year before the potentiality of the plan, which is extended to 2023.

Just to give you some detail about the economic impact of this retirement scheme. We will benefit from the cost of personnel in Q1 -- in 2021 for EUR 42 million; in 2022 for EUR 109 million; and in 2023 for EUR 135 million due, of course, to the different phasing of the exit of the personnel.

On Page 19, we have some figure about liquidity and funding. Of course, as you can imagine, we had never such strong situation in liquidity and funding. LCR, more than 200%; NSFR, well above 100%; unencumbered eligible securities for EUR 16 billion, now again to almost EUR 19 billion, after utilizing EUR 10 billion more of TLTRO, up to EUR 37.5 billion. As I mentioned, the effect of this EUR 10 billion will be seen in the next 3 quarter as far as 2021 is related and will amount to almost EUR 75 million.

Bond outstanding stand at EUR 18 billion in Q1. We only had the EUR 81 million, EUR 400 million issue. We don't see, of course, any need to cash in other issuing. Basically, everything will be done in the second part of the year but only with, taking in mind, regulatory, let's say, rating agency expectation for our bank.

Some word about the securities portfolio, which performed very well. We take some EUR 65 million of revenues out of the trading on our govies portfolio. Of course, we have also experienced some reduction in the reserve amounting to almost EUR 90 million in HTCS and almost EUR 140 million as far as L2 maturity.

On Page 20, some further details on that. Basically, we have increased after the drawing of TLTRO some HTCS investment, both EUR 2 billion in Italian govies, EUR 2 billion in non-Italian govies, increasing only of the 2 -- 2.5-year the banking book duration from 2-year Q4 2020.

On Page 21, the evolution of both stock of NPE and the coverage. As far as the stock is concerned, we are down to -- after the Rockets Project, we are down to EUR 7.2 billion, basically EUR 2 billion of bad loans and almost EUR 5 billion of UTP, down 27% year-on-year and 16% in Q1. I.e., let me remember that we started the merger with more than EUR 30 billion of NPE stock.

Migration rates, quite good rates in default rates, 1.3%, down to 1% if we exclude the one-off first-time application of the DoD. Danger rate, also very much below what was our forecast, 8.2%. Of course, also the cure rate is experiencing some performance lower than the previous year due to the difficulties in having agreement under the moratoria period.

About coverage, we are at the highest level ever, 62% of bad loans, which is 68% if we consider write-off, 43% UTP and almost 51% total NPE. Of course, this figure include IFRS 9, which, again, will be utilized for the disposal. So if you consider IFRS 9, the percentage I mentioned will go down to 57% for bad loans and 48% for total NPE.

Some detail again about the NPE ratio. We already mentioned, which is going down to 6.3%, 5.3% with EBA definition. We have also some detail on the cost of risk drivers. We have split basically half and half, 40 basis points each, the core drivers, so the normal cost of risk we would have experienced it. And increased provision we have done for basically 2 reason: one was already explained for the Rocket Project of EUR 1.5 billion disposal; and the other one is the change in methodology for Stage 2. So we decided to increase the Stage 2 bucket, which grew from EUR 7.2 billion to EUR 9.7 billion, including in Stage 2, basically, the major under moratoria, mid- to high risk and high risk; as well as for tourism and restaurants, also the mid-risk in moratoria. So basically, we are very cautious and prudent in extending the Stage 2, which amounted for some provision in the region of EUR 45 million.

Last page of numbers, capital adequacy, 13 -- 12.9% Q1 '20, 13.3% last year to which we have to deduct 85 basis points with an impact, both in RWA and NPE shortfall due to the regulatory headwinds. We will come immediately back to that. On the other side, we have a benefit of 28 basis point coming from the performance, including also some benefit from the shortfall in the performance. We have then the reserves of govies down 19 basis point, offset by the ordinary RWA gaining for the same 19 basis point, mostly coming from the guarantee scheme. All in all, so we ended up with 12.7% and 13.7% phased-in.

Let me spend just some word about the 85 basis point. This was a figure which was very uncertain. And frankly speaking, we would have expected something better due to the massive derisking we have done during these 3 years. Unfortunately, we had add-on related both to the PD and to the LGD, which, of course, we deem could be revised as soon as we can have a final approval of the remedial action. But up to now, unfortunately, giving us some backward on the Common Equity Tier 1. In any case, very well offset by the good news we have brought to you.

On Page 25, just to conclude, very solid strong operating performance, which we deem is consistent with the next quarter, in particular, within the next quarter we'll benefit of the back of NII. We hope that we can be able to perform a consistent commission -- fee and commission in line with our expectation. And of course, this will bring to a very good profitability.

In terms, of course, of asset quality, we don't envisage any other massive disposal by this year. We will, of course, work on single asset, especially UTP single asset.

The capital position is well above our guidance. And again, we will continue to strengthen the capability of the bank to develop digital banking fully compliant with the ESG guidance.

Thank you. I have terminated. I will leave the floor to your questions.

[Operator]

[Operator Instructions] The first question comes from Christian Carrese of Intermonte.

[Christian Carrese, analyst]

I have few question on -- first of all, on the top line, in particular, on net interest income. And I was wondering, looking at the growth in -- of the deposit, up EUR 18 billion year-on-year, I was wondering if you are taking into account the possibility to do some charges to offset the negative carry from that growth of deposits.

And in terms of loans growth, if you can give us guidance. We saw the core loans to customer grew by 5.6% year-on-year. What do you expect for the full year? In particular, the second half of the year, do you expect an acceleration?

And in terms of overall net interest income, looking also to the financial portfolio. You did some disposal in the quarter. I see that the commercial banking is giving a positive contribution to net interest income. So I was wondering if you feel that you are planning additional disposal of a part of the financial portfolio in the coming quarters as you did in the first one.

And finally, still on net interest income, just a clarification on the sensitivity you presented in the presentation. I think Slide 14, the increase from EUR 100 million to EUR 180 million for each 40 basis points interest rate increase. Why is this increase quarter-on-quarter sensitivity?

The second question is on fees. A very good quarter, a EUR 5.4 billion placement of new products. Could you give us an idea of your -- what you've got in your budget in mind for the full year, I mean, on a quarterly basis?

Define -- last 2 question, one on Common Equity Tier 1, 85 basis points of headwind. If I'm not mistaken, you talked in the past of a potential 100 basis points headwind on capital. So just to understand the impact -- the first quarter impact is the entire impact for the full year or not.

And finally, on M&A. Now the COO of BPER and UniCredit are in place, so I was wondering if you can give us an update. And how do you judge the move by the government to improve the rule on DTA in terms of amount and also in terms of postponement to June 2022?

[Giuseppe Castagna, executive]

Thank you. Congratulations for saying that the second question was the fees, because on NII, there were many questions, but I will be happy to give you some answer.

Yes, on the deposit, we are -- we have already launched. Of course, you know that we have done some increase in the current account fees starting from January 2021, which is going to give us a boost of almost EUR 40 million for the full year, which is already -- the share of which is already in the Q1. Meanwhile, all the measures we have already launched in -- for -- to be deployed in the second part of the year will be related to corporate clients.

Let me say 2 things. First of all, we are going to charge fees, growing fees related to the deposit increase to our enterprise and corporates in order at least to offset the negative impact on NII. Secondly, let -- and so I also give you some answer about the loans guidance. I think that in the second part of the year, with the possible deployment of the new measure for the government, there will be -- and of course, also of the next-gen plan, there will be some reduction in deposit. Let me say that out of the increase of current account, almost 60% is out of corporate clients. So there is a lot of possibility to see a strong decrease in the second part of the year. If we don't see this decrease, there is already a maneuver, which will charge corporates in the second half.

Loans, again, just some more evidence. We think that the pace we have done in the Q1 will be basically the pace for the full year with some change, of course, more state-guarantee loans and ordinary business. In Q2, we still have some reserves, I mentioned almost EUR 3 billion, to come in state-guarantee loans. So we think that we can repeat the performance of Q2, even though the ordinary business is going slow. Meanwhile, I think that in Q3 and Q4, we could experience an increase in the investment of our client and so in utilizing more credit line.

Financial portfolio. We will be very opportunistic. We think we have done good results. Up to now, it's possible to have further disposal in the second and third -- in the third Q with some more capital gain, of course, but not at the level what we have in the Q1. And then we will see the situation how will evolve.

NII sensitivity. Basically, I think a lot of the increase from 100 to 180 comes from the TLTRO. Of course, we have a fixed income from the TLTRO. And then, of course, the loans can be at a variable rate. So this will make an impact of such a difference.

Fees is very much above our expectation. As I mentioned in the slide related to the fees, we had an average of EUR 3-point-something billion in 2020, but the same basically was also in 2019. Meanwhile, we are expecting almost EUR 4 billion for each quarter this year. So we are overperforming also our expectation. And of course, we all -- again, April and May are doing very well. And hopefully, we can do better than our expectation.

85 basis point, yes, there is some more tenths of basis point possibly coming from the update of the historical figures by the year-end as well as the look-through application, which could bring, all in all, 20 to 25 basis point.

Last but not least, government measure. Of course, we are happy of the extension of the moratoria. We think that is good for our clients. We think we can start talking -- continuing to talk with them in order to understand their needs. And with 6 months more, we can be able to adjust the majority of the client, which yet have to start their activity. We know that there are a lot of activity like tourism, like transportation, like restaurant, retail, which have been going up and down, but we basically never started continuously to reopen. Having 6 more months up to the end of 2021, I think, give them the possibility to recover and to be able to repay the loans.

So in terms of the 6 months more also for the DTA, we are happy also for that, of course, because give us some more room to continue our opportunity to find a good deal, a good merger for our bank. Meanwhile, frankly speaking, we still have to understand exactly what means the increase from 2% to 3% and also the 3 years' time lag to complete the potential merger. This is something that we hope -- we will see the final version, we will understand better how that can impact on us. Basically, I don't see any impact direct on some potential transaction but maybe will have some impact on other transactions. So let's wait and see.

[Operator]

The next question is from Giovanni Razzoli of Deutsche Bank.

[Giovanni Razzoli, analyst]

Two questions. The first one, can you share with us if there is any accrual of the dividend in your CET1 ratio?

And the second one is on the full year 2021. Are there -- I mean, you were quite clear in saying that the NII should progress quite well in the next few quarters. Fees remain strong also in April and May. In the past quarters, you told us that the cost of risk guidance would have been 70 basis points net of the cost of derisking. You said today that the cost of the risk is already included in the Q1. So you are more or less giving us the same guidance of the other banks for the operating performance, but you are not giving us an indication of the net income. We have almost all the moving parts. Can you share with us what is the estimate you have for the bottom line at year-end?

[Giuseppe Castagna, executive]

So no surprise. You don't want surprise. You just want to know everything upfront. It's quite difficult for us, of course, to be so precise. But I basically gave you all the items as far as revenues are concerned. Or as far as your first question, yes, we have already accounted 6 basis point from the -- for the dividends and the AT1 coupon.

Cost of risk. Things are -- are moving. Of course, it's difficult to make some forecast when things are moving in terms of measures. We just spoke about the new government measures. Of course, the extension of the moratoria will give us some relief as far as the default rate because, of course, we think that the default rate will be very low likewise last year. So of course, in terms of ordinary cost of risk, we can be quite hefty. Of course, everything will depend if we will go out definitely from the pandemic period. And so we will be able basically to decide how much to upfront for the potential expiring of the moratoria in 2022.

But of course, it's a good news for our balance, for our profit and loss. We gave 2 guidance: 70 basis point ordinary and up to 40 basis point of extraordinary. We have already split in a different way in the Q1 these 2 items. Let's hope that it will try to be in this range. And of course, with the lower level, if things go ahead in a good way, in a good manner like we think are going right now. The fact that also other banks are experiencing a cost of risk and the default rate so low, of course, is encouraging also our projection. And we could end up with very good results also in terms of profitability if the level of the provision will be on the low side.

[Giovanni Razzoli, analyst]

For the time being, shall I take that 70 basis points is confirmed, excluding the disposal that you have already made, right?

[Giuseppe Castagna, executive]

Yes. Again, I say that core is now 40. I think that with the moratoria, will be -- will go more in line with 40 rather than 70. If things go ahead in this way, we hope to stay on the lower side. But again, that will depend on how much we would like to upfront if we see that the moratoria -- I mentioned all the talks we are having with our clients. Up to now, the results are very encouraging with the default rate, which is very good, both for the expired moratoria, both for the moratoria to come. Let's check if in the second part of the year will be -- we'll have the same result.

[Operator]

The next question is from Jean Neuez of Goldman Sachs.

[Jean-Francois Neuez, analyst]

I have 2 questions. The first one is on asset quality. And I noticed in your slide that you said that you had the Stage 2 increase that they went from EUR 7.2 billion to EUR 9.7 billion Q-on-Q. And for the banks, which have provided this data, they seem to have gone down. Now yours looks to be more of a reclassification in nature. I just wanted to understand the following: do you believe that your classification is now on par with other banks? It is hard for us to judge. And essentially, my point is trying to understand whether there is more reclass to come. And associated with this, in general, also some provisions that could come and could be classified also extraordinary but is essentially still under the budget.

And my second question is, on net interest income, it seems to me that compared to many other banks in Italy but also in Europe, your spread is behaving a bit better, not only the loan growth but the spread itself. And I just wanted to understand whether there is any change in your mix or any segment that you're prioritizing, which explains this. Or why do you -- what do you attribute this difference in spread behavior of your bank versus peers, if you know that?

[Giuseppe Castagna, executive]

Thank you, Mr. Neuez. Stage 2. No, basically, we were quite confident also, and we spoke, I remember, about being on the low part of the banking system as far as Stage 2 was concerned. And frankly speaking, I think also our default rate was confirming our forecast. But as you know, there is a sort of a level playing field for which we are called every time to be more in line with the average. And so we decide also, due to the COVID situation, the potential deterioration of some asset to -- not to detect more Stage 2 asset, because this is not the case, but to enlarge the category of loans going automatically into Stage 2.

So we have made this effort. We had the opportunity to do that also for the good provisioning or the good cost of risk we have experienced. And now I think we are exactly in line with average of the banking system. Let's consider that we are very, very peculiar vis-a-vis other banks because we are north of Italy banks, which default rate and Stage 2, which, of course, are influenced by the geographic footprint of our bank.

For the second consideration, thank you, first of all, for saying that we are doing better. Let's -- let me say that in this difficult time, I think, pay a lot 2 things. First of all, to be very close to all our clients, in particular, to SME. Of course, SME are the one who are more worried about the situation. We are an aggregation of regional local banks with very deep insight into our client and with very good relation. We were very able to give them a quick response. Of course, the size counts. I think if you compare to big banks, maybe they are more exposed to large clients. And so both the SME segment and the quickness that we had in giving answer and providing loans and providing -- granting loans to our client allowed us to emphasize on some better spread.

[Jean-Francois Neuez, analyst]

Okay. So just to be clear, no more reclassification from here. You're fully classified, no more books to review later in the year.

[Giuseppe Castagna, executive]

It's a one-off situation, again, driven by the global pandemic situation from the -- our willingness to be more in the average of the system.

[Operator]

The next question is from Noemi Peruch of Mediobanca.

[Noemi Peruch, analyst]

I have just 3. So the first, on NII. Can you share with us the NII attached to the EUR 1.6 billion disposal on a yearly basis? And what's the liquidity currency part at ECB? And the next one is on capital. Can you give us some color on the 20 to 25 bps headwind related to look-through approach, if I understood correctly? And does this increase the headwind to 120 bps for the year vis-a-vis the 100 bps previously announced? And my last one is, again, on capital. Can you update on the synthetic securitization you plan to do in the year and the disposal of noncore assets you envisage in your business plan?

[Giuseppe Castagna, executive]

Sorry, I am asking because I didn't understand very well the first one, but let's try to give you a correct answer. The liquidity in ECB is about EUR 16 billion. Was this the question?

[Noemi Peruch, analyst]

Yes. The liquidity as part of the ECB, yes.

[Giuseppe Castagna, executive]

Okay. I didn't mention, I think, 120 basis points. I don't remember I mentioned 120. If we -- if you stay at what I said about headwind, I say, 85 already in, and 2025 still to come by the year-end due, again, to the update of historical figures and the look-through approach. Of course, as you know, it's difficult to make precise forecast about the right basis point. Let me say that having a few tenths basis point for this year and, again, very few basis point also for next year, we are very confident to be able to build up all the capital need that we should have. But in any case, we are well above our threshold.

Finally, securitization. Yes, core asset disposal, we are -- we have done, of course, almost EUR 150 million of real estate disposal last year. We still have our plan to reach EUR 1 billion in 3 years' time. So we will continue to dispose real estate asset. Of course, we also have some program also with the European bank in order to continue our securitization program and to reduce our RWA to this respect. Meanwhile, as far as our stakes in strategic stakes, we are not considering disposal.

[Noemi Peruch, analyst]

And If I may, just a follow up. What's the NII attached to the EUR 1.6 billion in NPE disposal? And just to clarify, so the overall expected headwinds, capital headwinds for the year, was around 105, 110 bps?

[Giuseppe Castagna, executive]

Exactly. Sorry for the first one was -- no, they are bad loans, what we dispose. So there is no impact on NII. Yes, very limited time value. But of course, no material -- we had some effect from the previous disposal, the Django deal because they were UTP, so they were contributing NII. But this is not the case for bad loans.

[Operator]

The next question is from Luigi Pedone of Equita.

[Luigi Pedone, analyst]

Two question from my side. The first one is on capital, a clarification. So if you could remind us the regulatory headwinds and tailwinds for the next year, so 2022. And the second one is on NII. And my question is on the -- what could be the action that the banks could do in the next year when there will be an increase in -- a decline in the state-guarantee loans and there will be a reduction of the benefit of the TLTRO?

[Giuseppe Castagna, executive]

Thank you, Mr. Pedone. I think I said before, both for 2021 and for 2022, we expect very limited headwinds, in the region of 20, 25 basis point. For 2022, basically 20 basis point is our expectation.

NII. Basically, we have already -- always had some opportunity from ECB, if the situation is going to be at the level we are right now. If we assume that the situation is going to do better, we also hope that there will be some recovery together with the enormous effort of the recovery plan and the private capital that we deployed in order to support the public money that will give us a lot of opportunity to grow. And again, also in the interest rate, if with the sensitivity I mentioned before, you can expect and you can imagine how much relief we could have from a normalization of the Euribor.

So basically, if -- because the 2 things are EBITDA linked together, so TLTRO is in place until the situation will be normalized. We think that we can basically easily substitute with a normal ordinary growth in loans and in NII, not talking about the lower effect of the current account burden on our NII that will replace completely the TLTRO effect.

[Operator]

[Operator Instructions] Gentlemen, at this time, there are no questions registered.

[Giuseppe Castagna, executive]

Okay. So thank you, everybody. Thank you for staying with us, and we will, for sure, see each other in the next few days to have some further comment on Q1 results. Thank you.

[Operator]

Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.