Banco BPM SpA

MIL:BAMI

Earnings Call Analysis

Banco BPM Reports Strong Q1 2024 Performance with 40% Net Income Increase and Robust Capital Generation

Banco BPM began 2024 with impressive results, achieving a net income of EUR 370 million—up 40% year-over-year and 15% quarter-over-quarter, surpassing full-year 2024 guidance. Key performance indicators include an 11% year-over-year increase in core revenues and a 47% cost-income ratio. The bank also recorded a notable reduction in cost of risk to 31 basis points and a common equity Tier 1 ratio increase from 14.2% to 14.7%. The institution expects further improvements in interest income as it leverages a favorable interest rate environment and strategic cost reductions. Future projections remain positive, driven by ongoing product factory integrations and robust asset quality management.

Strong Start to 2024

Banco BPM Group has had an impressive start to 2024 with high profitability and robust capital generation. The net income for the first quarter stood at EUR 370 million, marking a 40% increase year-on-year and 15% quarter-on-quarter. The core revenues rose by 11% year-on-year and 2% quarter-on-quarter. The bank's cost-income ratio improved to 47%, compared to 48% the previous year, thanks to effective cost management and revenue growth.

Capital and Revenue Growth

The bank's common equity Tier 1 (CET1) ratio increased from 14.2% to 14.7%, indicating strong capital reserves. The bank also experienced a significant increase in net fees, up by 12% quarter-on-quarter. Additionally, the pre-provision income rose by 25% year-on-year to EUR 765 million, benefiting from lower loan loss provisions, which were down by 40% year-on-year and 53% quarter-on-quarter.

Profit and Cost of Risk

Banco BPM's profit before tax reached EUR 662 million, a 48% increase from Q4 2023 and a 40% rise from Q1 2023. The cost of risk for the bank was EUR 82 million, significantly lower than EUR 137 million in Q1 2023 and EUR 175 million in Q4 2023. This reduction is attributed to the disposal of more than EUR 1 billion in non-performing exposures (NPEs). The bank plans to dispose of an additional EUR 600 million in NPEs by the end of 2024.

Guidance and Future Plans

The bank is confident in meeting its 2024 targets, which include sustaining the current levels of net interest income and net fees, reducing the cost of risk, and maintaining a high CET1 ratio. Banco BPM expects three ECB rate cuts in the second half of 2024, which should further strengthen its financial position. The bank also aims to distribute EUR 2 billion related to the net income of 2023 and 2024, with EUR 1.4 billion cash distribution by the end of 2024.

New Initiatives and Partnerships

Banco BPM has embarked on several new initiatives, including the acquisition of Life bancassurance and a joint venture with Credit Agricole in P&C insurance, both of which started in January 2024. The bank also signed a deal for a new joint venture in the payment system called Numia, with BCC and FSI. These initiatives are expected to generate revenues and profitability by 2026.

Asset Quality and Risk Management

The bank's asset quality remains strong, with a default rate of 0.83%, well below the target of 1.3% for 2024. The coverage ratio for bad loans is over 60%, and the bank does not foresee any need for additional provisions. The bank has also improved its liquidity position, increasing its securities portfolio by EUR 4 billion and maintaining a safe loan-to-deposit ratio of 81%.

Market Position and Investor Confidence

The market has positively received Banco BPM's new investment-grade status, which has led to a significant reduction in wholesale funding costs. The bank's total customer financial assets grew by more than EUR 5 billion in Q1 2024, driven by increases in current accounts, deposits, assets under custody, and assets under management. These factors collectively contribute to a robust outlook for the year ahead.

Earnings Call Transcript 2024-Q1

[Operator]

Good evening. This is the Chorus Call conference operator. Welcome, and thank you for joining the Banco BPM Group First Quarter 2024 Results Conference Call.[Operator Instructions] At this time, I would like to turn the conference over to Mr. Arne Riscassi, IR Manager of Banco BPM. Please go ahead, sir.

[Arne Riscassi, executive]

Good evening, and thank you for attending the conference call. Let me remind you that the Q&A session is for institutional investors and financial analysts only. We ask possibly to limit the number of questions to a maximum of 3. And I will now turn the floor to our CEO, Mr. Giuseppe Castagna. Thank you.

[Giuseppe Castagna, executive]

Thank you very much, everybody. Thanks for being with us. I know it's been a long day for most of you. This is, I think, the third or fourth presentation in the day, so I will try to be quick. And I will be helped by the very strong and solid set of results, maybe not so much -- so many comments on the figure we are trying -- we will give you. We are very happy we have been experiencing a very powerful start of the year, high profitability, strong capital generation, net fees growing 12% quarter-on-quarter. Cost income at lower 47%. The lowest cost of risk at 31 basis points, thanks to a further reduction of more than 1 billion of gross NPEs, a very strong funding capacity. Our clients are increasing by EUR 3 billion in the first quarter they deposit with us. And we have been able not only to have a very good net income but also a strong capital generation [indiscernible] [ common equity Tier 1 ] from 14.2% to 14.7%. The net income amount to EUR 370 million, is 40% higher year-on-year, 15% Q-on-Q. Ahead of full year '24 guidance on a quarterly average. And as you can see on page 6, is ahead also, almost in line with the results that we forecast for the ‘26. On page 7, some key figure. Core revenues are high 11% year-on-year, 2% on quarter. Cost of risk, EUR 82 million vis-a-vis EUR 137 million last year in Q1 and EUR 175 million in Q4. Then we will examinate the reason for why we feel this figure could be consistent with the current default rate? Profit before tax are at the highest level of EUR 662 million, 48% more of Q4 '23, 40% higher than Q1 '23 year-on-year. And all these, considering that we are still in the middle, I would say, of our new key product factories that, as you know, will generate revenues and profitability by 2026 in. But ‘24 still is implementing year. We have, as you know, acquired Life bancassurance starting 1st of January this year. But still, we have IT and operations separately managed through the existing platform, and particularly, Vera Vita is still managed by the Generali platform. As well as we have just started our joint venture in P&C January this year with the Credit Agricole. And so we are still at the beginning of this activity. We think that we will have the most out of these 2 activity coming in second part of '24 with the full integration also of the IT and platform in '25 and full steam of this activity in '26. The same, I would say is for a payment system, new joint venture that has been called as most of you maybe know Numia, the joint venture with BCC and FSI. We have, as you know, signed the deal. We will have the closing by the second part of this year and the completion of migration during '25. So for both this activity, we think still we have to experience the capability and the profitability that will come during the next quarters. On page 9, asset quality, very good. As I mentioned before, the trajectory now is 31 basis point, well below 45 basis points of our target to '26. Let's say that during ‘23, we still were continuing to anticipate provision in order to make more disposal. In one year, we were able to dispose more than EUR 1 billion of NPE. Still, we have to dispose another EUR 600 million in '24 for which we have already provisioned the amount needed. Having said that, we don't have other provision to do for disposal. So this is the reason why being now almost in line with our target of EUR 3.5 billion, which most probably will come down during this quarter in which we think we will have another disposal of EUR 150 million and another EUR 350 million will come in H2. Going below EUR 3.5 billion, we don't see any need for provision more. As you will see when we will talk more in detail about NPEs, also the coverage is at very high level. Going to the capital, we were able to generate almost 120 basis points in 1 year, going from 13.6% to 14.7% of common equity Tier 1 and almost 60 basis points Q-o-Q. As I mentioned below, also direct funding is increasing, is EUR 4.2 billion year-on-year and EUR 3 billion Q-on-Q, considering also, of course, not only current account and deposit, but also our bond activity. As far as the issuing is concerned, as you know, we are exploiting a very positive [ rerating ] momentum due to the recent upgrade end of the year '23 from older rating agency, and we are already experiencing very good reduction in wholesale cost of funding. Loan to deposit rate is 81%. Also, this is very safe, give us the possibility to increase loan activity as soon as the possibility of interest rate going down will boost again the recovery of the new activity in loan granting. Let's go to on page 12 on the P&L. As you can see, we have a very good results also in NII, is 16% higher year-on-year. And basically, including the 1-day effect of Q1 '24, is also higher of Q4 '23. If we consider core revenues, again, is almost 11% higher than last year, with a very good financial results driven by activity that we had in auction and [ swap ] on our portfolio and also in managing our activity on the replicating portfolio and then anticipating some [ move ] also in this respect. Total revenues were high, 15% year-on-year and 2.6% on last quarter ‘23. Operating costs under control were 1.1% Q-o-Q and 4% year-on-year, including the new labor costs. We will see in details also this trend. Pre-provision income is 25% higher year-on-year at EUR 765 million with a lower loan loss provision, as we mentioned before, lower 40% year-on-year and 53% quarter-on-quarter. This end up to a result pretax 40% higher than last year. And after tax, also considering that we have doubled the contribution in tax vis-a-vis last quarter '23, we end up with a net profit from continuing operation, which is almost 37% higher than last year. And the net income after systemic charge that are 40% higher than Q1 '23. As you can see on the right side of the slide, there is the trend of the last couple of year evolution. As you can see, the evolution of all the main driver is very good and lead us to a net income, which has been growing more than 100% over the last 2 years. Going into the details, NII as I mentioned before is 16% higher than Q1 '23, is more or less in line with Q4 '23. We are very happy that we can consider our forecast that we gave presenting our strategic plan with the 3 reduction forecast for '24, which should be the right forecast for this year. In doing so, we feel that we can have an NII also for '24 higher than the results of '23. Interest rate sensitivity considered, including both NII and NFR, so including certificates, is still at EUR 250 million, over 100 basis points. The commercial spread is keeping a good level. It's 12 basis points lower than last quarter, 3 basis points, of which due to the reduction of Euribor. And the difference, I will try to explain commenting the right side of page 13, in which we will again give you some support to the target of 2026. As you know, we have a target of EUR 3.5 billion and we are pretty confident of reaching this target, notwithstanding the sensitivity because we are already implementing some measures which gives us a good buffer to recover the potential reduction of the sensitivity. The first action, as I mentioned, is the increase in the size of replicating portfolio from EUR 15 billion to EUR 25 billion over the [ plan horizon ], EUR 1 billion, which has been already done during Q1 and other EUR 3 billion have been already auctioned with structure in which we increased the fixed receivable amount by EUR 3 billion in H2 '24. This maneuver give already a buffer of almost EUR 40 million by '26. On top of that, we are leveraging, as I mentioned before, on the very good reception by the market of our new investment-grade status. We confirm that we have a very strong spread reduction in new bonds and certificates, which give us by ‘26, another EUR 80 million of buffer, compensating further possible Euribor reduction. Then we have some maneuver that we already started with which is giving a bit of a loss in terms of commercial spread but will soon give us a good advantage as soon as the lower interest rate scenario will happen possibly in H2 '24. The first is the increasing share of indexed current account. We started from a 24% by year end '23. We are already now over 28%, which means EUR 4 billion more of indexed current account, which, of course, now constitute an increase in cost of deposit, but will immediately automatically be reducing as soon as, again, the interest rate scenario will go down in H2 '24 and going forward. On top of that, we have already started to improve collection of new -- more fragmented deposit, and I mentioned again, the EUR 3 billion that we increased in Q1 '24, which are due to substitute some most expensive account, mostly institutional that will go out end of June this year. We are going to lose a couple of billion of deposits with an interest rate above Euribor, which was contractualized some years ago and now will expire by June this year. On top of that, again, we have reduced the conversion of current accounts into time deposit. This also was a maneuver announced the business plan in order to keep a high level of deposit feeding the possibility of having BTP as a potential competitor vis-a-vis our current account. But as a matter of fact, in Q1, we only reduced -- we only switched EUR 500 million from current accounts to time deposits out of the EUR 9 billion, which are embedded into the business plan, out of which EUR 4 billion are due in 2024. So still a lot of room, if needed, in order to keep high share of deposits. On page 14, again, the franchise value in terms of both of total customer financial assets, which grew more than EUR 5 billion in Q1, again EUR 1 billion -- almost EUR 1 billion in current account and deposit, EUR 2.5 billion in assets under custody, EUR 1.5 billion in assets under management. And this growth is continuing also in April and is basically fostering almost all the road map we had for 2024 and a big part of the increase [ to forecast ] by 2026. The vast majority of the deposit base comes from retail and SMEs, more than 80% comes from this kind -- this cluster of clients. On the loans volume side, steady situation. We are still around EUR 97 million of loans, a small reduction, EUR 300 million in mortgages compensated by an increase of EUR 300 million of nonfinancial corporates. For this year, we don't envisage a big increase in stock of loans. We have a EUR 98 billion target by year-end. So we are pretty sure that with the potential increase of volumes of the second part on '24, we will be able to reach the target for 24. The composition of portfolio is mostly for nonfinancial corporates, secured 30% with state guarantee and a further 27% collateralized with real estate. If we go down to small business, the share guaranteed by state increased to 44% with almost a 30% of collateralized loan. The 3/4 of the portfolio based in the north of Italy. Let's go on page 15 to the fees, maybe the best results we have ever reached, EUR 50 million more than Q4 '23, EUR 30 million more than Q1 '23, considering that in Q1 '23, we still had a contribution of EUR 15 million that we reduced from the account of our clients starting from Q2 '23 due to the elimination of this fee being -- terminating the negative interest rate period. So the real compensation would be something like EUR 45 million of increase also year-on-year. On the high side of page 15, the strong increase that we register thanks to an excellent performance in investment product placement, we reached a record EUR 5.8 billion in product plus EUR 1.2 billion in BTP, which is something like EUR 2 billion more than both Q4 '23 and Q1 '23. So of course, the upfront fees contribution grew 90% Q-o-Q and 40% year-on-year with a very steady running fees contribution, 4% higher than last year. On the commercial fees, let me mention, apart from the commercial activity, which is growing considering the like-for-like on Q1 '23, the vast majority of the difference is coming from corporate investment banking, structural finance and trade finance fee with a growth, double digit year-on-year. Consistently with what I said relating to the incoming activity in bancassurance and the other product factory, the rest of the product factory contribution is not increasing, it's not giving an increase quarter-on-quarter. Cost/income down to 47%, notwithstanding the growth also in revenues that we have commented a few minutes ago. We are now at 47% compared with 48% for the old year '23. We started 65% in 2017 driven by the staff cost, which, of course, take into account the increase of the new labor contract. But if you look at the pro forma impact on new labor contract, you see that the [ increase ] is very moderate, is 1.8% Q-o-Q and 3.3% year-on-year, but this is without considering yet, the savings that we expect to come from the early retirement plan, which, of course, is not yet started, and we feel that we can have the starting of this new scheme in the second part of '24.Other administrative expense like-for-like, you have to consider the year-on-year because on Q4, we had some one-off. Year-on-year, you can see that we have more or less the same amount of fees on a yearly basis. Cost of risk, some details about why we feel that if we still will have a default rate at the current level, we can have this new target, I would say, as a cost of risk. As you can see, again, the level of stock is very low. It's EUR 3.6 billion. Out of this, we have EUR 500 million to dispose by year-end '24. Of this EUR 3.6 billion, almost EUR 800 million are loans guaranteed by -- with a state guarantee. And all in all, meanwhile, the bad loan coverage is more than 60%. If you exclude the loans with the state guarantee, the coverage on bad loans is higher than 70%, being the state guarantee covered 28%, with uncovered exposure in the region of 15%. So all the opportunity to [ see ] -- to not having further cover both on the state guarantee loans and also, I would say, on the non-guarantee loans considering that part of them are also collateralized. Let me say also that we, of course, continue to have and to increase partially the overlays going from EUR 190 million to EUR 200 million. Meanwhile, we had a reduction of almost EUR 2 billion in stage 2. Let me give the floor to Edoardo Ginevra for some further financial figures.

[Edoardo Ginevra, executive]

Thanks a lot, Giuseppe. Page 18 gives the picture of the evolution of our securities portfolio that has been increased by EUR 4 billion, mostly concentrated in the amortized cost component during the first quarter of this year. So from EUR 36.5 billion, now we are at EUR 40.5 billion. Share of amortized cost is at 72% with the aim to preserve the bank from volatility generated in capital [indiscernible] potential volatility, of course. In terms of composition, corporate bonds are now at EUR 7.7 billion, increase of EUR 1.6 billion and govies -- government bonds are 32.7 billion with an increase of EUR 2.3 billion. Italian govies at a level of 37.9% to be compared with the threshold that we put in our strategic plan of remaining below 50%. The share of Italian govies in fair value comprehensive Income is as limited as 19.1% and meaning that remaining 80%, 80.9% of Italian government bonds is concentrated in amortized cost part of the portfolio. Page 19 explodes the contribution of this portfolio and in general, the financial activity, financial-related activity in terms of comprehensive income. As far as capital is concerned, the level of reserves on debt securities at fair value comprehensive income is now -- has been reduced to EUR 470 million end of March with the sensitivity that remains limited below EUR 1 million, close to zero for the component of Italian government bonds. For the trading results, the financial results, this has been positive at EUR 8.8 million, owing to a number of trading and hedging strategies that were able to more than compensate the negative contribution, which we remind to our investors is a sort of -- it can be compared, it can be assimilated to cost of funding coming from certificates. So certificates in particular, have contributed EUR 25 million per month for a total of EUR 75 million, whilst the rest of the various other components coming from either related to commercial activities or to hedging or trading strategies have been bringing a positive contribution of almost EUR 84 million. On liquidity and funding, page 20 presents the overall bank's position with total -- in total, our cash position, liquidity position is now almost EUR 48 billion made for EUR 9 billion of deposit facilities, [indiscernible] EUR 33 billion of ECB eligible assets, of which EUR 20.8 billion is securities and 12.6 billion is credit claims, EUR 5 billion of other marketable securities, an increase of EUR 6 billion in total versus the previous position at the reference date of December. LCR went to 155% because following the reimbursement of EUR 10 billion TLTRO III that the bank executed in March, now the position with ECB in terms of III is EUR 5.7 billion with a net position that is only -- that is positive for EUR 3.3 billion. NSFR remained almost constant at 126%. Issuance activity has been successful in the first quarter with EUR 500 million of subordinate Tier 2 issued in March on top of the EUR 750 million issued both in green senior non-preferred and in [ government ] bond during January. This has been also -- this issuance activity in the wholesale market has been also coupled with interest inflows from the retail market with the EUR 700 million of structured issues during Q1 through our network. Finally, the combination of this asset and liability structure led to an MREL buffer of 9.2 percentage points above the requirement expressed in terms of total RWA. Capital on page 21, we reported an increase of 58 basis points in this quarter, represented by 65 bps of additional over quarter 1 performance. So the P&L performance that has been -- that led to forecast payment of 46 bps in terms of payments on top of AT1 coupons. Then on the other components, we have a 3 basis points of contribution on what I illustrated before from fair value comprehensive income debt reserves, 12 basis points dividends from participations. This is typical of the first quarter of the year, 24 basis points of improvement in credit risk, which has benefited from the adoption in our systems of the new model parameters. I remind you that in December, we used preliminary estimates adopting a conservative stance. The rest is in other only 1 basis point. And the buffer is at 567 basis points, Tier 1 17%, total 20.5% -- total capital ratio, 2.5%. Finally, RWA are now at EUR 62.7 billion...

[Giuseppe Castagna, executive]

Okay. Thank you, Edoardo. Let's conclude with some wrap-up of the results on page 23. We confirm that we are highly confident in delivering our targets '24 based on the main drivers to show to you. And I would recall the interest rate scenario that we confirm, we would have 3 ECB rate cuts in H2 '24. The stronger boost coming from investment product placement experiencing [indiscernible] and still continuing in April. The [indiscernible] control in operating costs, the lowering of our default rate [indiscernible] plan, which was for '24, 1.3%, and now we are experiencing a 0.83% and a very strong capital position with RWA dynamics reducing and under control. This will lead to an increase vis-a-vis '23 of net interest income, net fees and commission and reducing cost of risk, even cost-income ratio and an increase in common equity Tier 1. Considering that we are up to now, the only bank where already improved by 8%, the guidance '24 vis-a-vis '23, we leave for this quarter at 90 cents, the EPS guidance without one-offs. As you know, with one-off, this will increase to EUR 1.10, but stressing that we have a positive outlook on the figure, and we will be able to give update after H1 results about a potential change in guidance vis-a-vis on page 24, the business explain, let's say, that we are also confident due to the figure that we're experiencing to pursue the strategic plan targets. And we are basically ahead on every main feature both vis-a-vis '23 and '26 strategic plan figure. This comes for total revenues for pre-provision income, the reduction of cost of risk, the gross NPEs already to the target and increasing common equity Tier 1. So we don't see really any risk in confirming the EUR 2 billion distribution related to net income '23 and '24, which, as you know, EUR 1.4 billion of cash will be distributed by end of '24. And of course, we are very well on track to a net income of EUR 6 billion over the plan horizon with the distribution of EUR 4 billion to our shareholders. Thank you very much and leave the floor to your questions.

[Operator]

This is the Chorus Call conference operator. We will now begin the question-and-answer session. [Operator Instructions] The first question is from Azzurra Guelfi with Citi.

[Azzurra Guelfi, analyst]

Three questions from me, one on NII, one on cost of risk and one on capital. When I look at your NII, what I noticed the biggest difference versus the last quarter is the change in the funding cost, so your liability spread has decreased. If I understand well, that is mostly because of some specific increase of the funding and the institutional funding that will matured in the first half. So is it fair to assume a reversal of this trend? So liability spread improving in the second part, of course, based on your rate assumption? And how much are you looking for deposit? Is it linked because you are getting better offer out to the customer? The second one is on the cost of risk. I'm a bit puzzled on the overlay because stage 2 are coming down. The NPLs are coming down. The default rate is better than what you are expecting. But still, the overlays are marginally up. And so I wanted to check if there is anything that you want to comment about stage 2 development? And the other one is how do we think about these overlays, when can you think about releasing them? What could be that you think the trigger for that and the timing? And the last one is on capital. So pro forma the -- closing all the transactions depending on the integration charges, you would -- given the progress of this quarter, you would be comfortably above 15%. I hear you about your plan for distribution and you may be clear when you presented the plan. But I'm thinking about organic growth versus external growth. And we have seen in Spain a consolidation starting in the banking sector. What do you think would be a trigger for starting consolidation in Italy as well?

[Giuseppe Castagna, executive]

Thank you, Azzurra. So starting from NII, yes, liability spread. As I mentioned before, we have done -- we have started some maneuver in order to have some advantage as soon as the interest rate will start to go down. So -- and knowing that there is some flow of deposits, very expensive that we had since a couple of years for contractualized with some institutions, we already fostering the deposit at a lower interest rate and low cost of deposit in order to replace what will go down. So no reversal in 2 -- in second half, only a lower cost of funding because of the reduction of this expensive deposit, a reduction due to the increasing percentage of indexed deposits, which will go down automatically. And if you consider these are base, the only one who make the total cost of deposit 100 basis points. As far as the non-index deposit, the cost is still 20, 24 basis points. So the part that counts out is the indexed deposit, which will go down with Euribor reduction. Overlays, basically, we always say that we don't consider over last, let's say, a buffer to increase or decrease depending on how the situation is going. And we think that this is some sort of risk management activity with deterioration of the scenario, this will go up, with the better scenario this go down automatically. And in terms of a prudent activity, we prefer also in this situation, which notwithstanding, experiencing a very good default rate, we still have a default rate for the full year '24, which is higher. We don't think it's an opportunity for us to reduce overlay [ anyway ] already a very low cost of risk of 31 basis points, which, again, is very consistent with this new default rate scenario because we basically don't have any other up down on our stock due to the composition that I explained before about the stocks. So, out of EUR 2 billion of NPE bad loans, EUR 800 million comes from the guarantee scheme, only EUR 1.2 billion are not guaranteed by the state and have covered more than 70%, almost 77% if you consider the write-off. Capital, basically, we mentioned is not -- I wouldn't say that is a target 15%, we mentioned many times that capital in our business plan was the consequence of the profitability that we were experiencing and 14% in '26 end of the plan would not be our target as well as not is our target to be 15% in 2024. Of course, as you know, 2024, we will be higher because the day after, we will have to incorporate [ Basel IV ]. So of course, this will go down for sure, beginning of '25. And then with this organic growth, we can think about distributing the excess of capital towards end of '25, '26 in terms of shareholder remuneration.

[Operator]

The next question is from Giovanni Razzoli with Deutsche Bank.

[Giovanni Razzoli, analyst]

Good afternoon to everybody. I have a couple of clarifications. The first one is on the reclassification of the fee income. You recorded some changes in the classification from other income to fees in the Q1. Can you clarify with us what was the impact of this change so that we can have an idea of the underlying level of the growth of the fee on a quarter-on-quarter basis? Second question relates to the NII and the contribution of the replicating portfolio. Edoardo, you mentioned that during the slide that there was a positive impact on the net financial results in the Q1 following this increase. If you can share with us what is the contribution to NII? And the last question is on the CET1, strong improvement in Q1. There were some less unfavorable or more favorable adoption of input parameters that you've mentioned, if you can please clarify what portfolio do they cover? And I wonder if you can also apply these same favorable reading on the 100 basis points of negative impact, if I'm not mistaken, that you have incorporated in your business plan in terms of negative effect from business dynamics on your capital ratios. Do you have any update on those effects?

[Edoardo Ginevra, executive]

Okay. Giovanni, for the fee income classification, overall, the amount of revenues that have been reclassified to fee income, [indiscernible] is around EUR 60 million per year, stable throughout the various quarters. And this is due to the fact that these revenues are attributable to the payments business and so have been also included in the design of the going concern to be attributed to the new JV with Numia.Turning to the contribution of the replicating portfolio, just a few ones on this, we are starting, as we said, to increase the size so that the bank will be progressively more protected from the reduction in interest rate. The current -- to give you an idea of the contribution at the current level of the rate -- the receiver rate on average that we have on such portfolio is in the area of 180 basis points. So this is to be compared time over time with the level of Euribor. Needless to say, this number, the receiver rate is increasing in the current context of rate. So new transactions, new strategies of increasing the replicating portfolio will imply an increase in the weighted average return. The other question -- sorry, not sure I understood the point.

[Giovanni Razzoli, analyst]

I was asking -- sorry, I can rephrase my question. The first one is on the positive impact that you had from the less unfavorable calculation of the parameters for credit risk? So if you can elaborate this? And then secondly, in the business plan, if you're not mistaken, you incorporated some negative impact from the CET1 from the business evolution, I wondered whether you have been quite concerned --

[Edoardo Ginevra, executive]

Okay. So the first one, so we have updated the [ models ] following a number of interactions with the ECB, basically, this was in the area of EBA guidelines. How we proceeded in that? In December, a reference date of December, we proceeded with estimates based on simulations without having the parameters already embedded in the legacy systems. To preserve some headroom and avoid negative evolutions over time, we preferred as we also communicated to the market in that period, to maintain to adopt a conservative stance. So we included above by increasing the level of WA using [ article 3 ] of LCR which was, so to speak, estimated preserving some marginal conservatism against the more analytical estimates. So once these estimates have been translated from parallel environment to the real legacy systems, we discovered a number that was lower, a number in terms of increased RWA that was lower than the initial conservative estimate. And this generated this improvement in credit risk that we illustrated in the capital work. For the final question on business dynamic in business plan, of course, we are only 2 quarters along the line from the start of the business plan. We have had a moderate drift in credit risk since -- for example, in this quarter, I think it's units of basis points, probably 5 basis points, something like that, but really nothing that is creating any concern in this respect.

[Operator]

The next question is from Andrea Lisi with Equita.

[Andrea Lisi, analyst]

Just one quick question is about the income from insurance business, which was quite weak, a bit weak in the quarter. So what do you expect going on? And what does it need to accelerate from current level? And if you can explain the reason why it was a bit weak in this quarter?

[Giuseppe Castagna, executive]

Just, of course, it's quite new also for us. So it's -- we are experiencing the accountancy of bancassurance into the banking account, basically because of Vera Vita and some legacy that we had with some separate and segregate and management account, we were not able to [indiscernible] into this account in the first quarter. And basically, most probably, we won't be able to [indiscernible] also in Q2. Only in this respect of the separate accounts. Meanwhile, we are over the budget in terms of placement of bancassurance product all in all. But because they are still 3 different entities, BPM Vita, Vera Vita and Vera Financial, which is our Irish life company, we have to segregate the different accounts and I think you may know that the accountability of bancassurance is quite different. So when there is a negative component, you have to account for all the amount. And this brought to some EUR 10 million of negative into the line of revenues from bancassurance, which was the [indiscernible] brought us to have only a EUR 5 million contribution being EUR 50 million contribution, one coming from BPM Vita with a negative EUR 10 million from Vera Vita. So going further, as soon as we will be able, and we think this will start in Q3 to have the possibility to have new products from Generali for our Vera Vita production, we will be able to compensate the loss and end up with a consistent result in life bancassurance in the region of what we were expecting basically for whole year '24, which is around EUR 65 million to EUR 70 million of revenues.

[Operator]

The next question is from Hugo Cruz with KBW.

[Hugo Moniz Marques Da Cruz, analyst]

I just want to clarify some of the comments you made on the excess capital. And a bit related to that, also try to understand your guidance on Basel IV. So in Q4, your guidance on regulatory headwinds, we know now it was conservative, right? And so I was wondering if the guidance you gave on Basel IV has also been conservative and if you have any new guidance there? And then so related to this, I think you said on the call earlier that you would start either giving guidance or clarifying the usage of excess capital in 2025, '26. So if you could kind of repeat those comments? Is it that we'll know in 2025, '26, what you will do with excess capital? Or you will start to distribute the excess capital? It will be very helpful if you could clarify it?

[Giuseppe Castagna, executive]

So on Basel IV guidance, we prefer not to go for new guidance. Of course, we think we have been conservative in assessing potential regulatory headwinds when we published the plan. I remind you that in -- on the location, we said that we were expecting regulatory headwinds between '23 -- end of '23, sorry, and of ‘26, so '24 and '26 of a total, 130 basis points, mostly represented by Basel IV. I have also to remind you that this number includes a significant headwind on bancassurance because risk weight of -- in the regime of the [indiscernible] compromise from the current level of 100% after Basel IV will go to a new level of 250%. We are convinced that we may explore some levers to mitigate the impact of Basel IV, but before going with new guidance and estimates, we prefer to keep the current one. On the usage of excess capital, well, as you said, already clarified, we prefer not to label the levels expected in end of this year or end of the plan, respectively, 15% and 14% as targets. We are convinced that this level creates excess capital. So you are correct, and we will assess at the end of the plan, what could be the most effective in the interest of our shareholders use of such [indiscernible] capital, including distribution and including buybacks to be considered later on after confirming the distribution plan for the current calendar year.

[Operator]

[Operator Instructions] The next question is from Adele Palama with UBS.

[Adele Palama, analyst]

I have one question. Maybe you mentioned already, on fees. So there has been quite an increase in upfront fees. Is it like something that is -- that we should expect as recurring or there is any one-off component there? In general, on the guidance for the full year '24, I mean, I understand that you are confirming the guidance, but sort of changing the outlook, flagging the upside risk on your guidance, but which are the area that you want to have sort of a confirmation that are going better than expected before like changing the guidance, upgrading the guidance, given the fact that you reported the stronger trends on fees and cost of risk this quarter?

[Edoardo Ginevra, executive]

Now for the fees, of course, we were experiencing unexpected amount of performance in investment product placement. As I mentioned before, we grew from an average of EUR 4 billion per quarter to almost EUR 6 billion. So frankly speaking, I would wait another quarter to say that this is the new normal. I wouldn't expect that. But for sure, this will come higher than the EUR 4 billion we were used to. So let's say that we feel that between 5 billion and 5.5 billion could be results for Q2. But that's the reason why we want to [ expect ] at least H1 to change the guidance for the year. It's a potential because, frankly speaking, we were not use it, we're not expecting this level, the interest rates are still high. So the trigger for which we expect the investment product to be sold is yet to come. So possibly, we could do a very good job also at this level, considering also that for bancassurance, as I was explaining before, we still don't have for all the companies the right level in order to be placed to our client. So some surprise is possible. I would say that the -- we showed an up in the guidance vis-a-vis the results of last year, we still feel that we can have a good performance, but I can't confirm the current level yet. As far as the guidance, again, the current number shows us that it's possible to change the guidance. But because we only 3 months ago, gave this guidance. And again, we are the only bank at the moment. We gave already a guidance for '24, 8% higher than '23. We don't expect after 3 months to be needed to change the guidance. The outlook is very positive. Let's wait if these numbers can be confirmed in the second Q and end of second Q for us is much more serious to our potential change of guidance by that date.

[Operator]

The next question is from Noemi Peruch with Mediobanca.

[Noemi Peruch, analyst]

I have just a few on NII. So if you could please walk us through the quarterly NII contribution, since it is up, excluding the day effect, while the commercial spread is down Q-o-Q? And then I would like more color on the contribution to NII from [indiscernible] tax credit in Q1 and whether it has changed vis-a-vis Q4? And if you could give us the total tax credit outstanding in your balance sheet as of Q1.

[Giuseppe Castagna, executive]

Okay. Contribution from tax credit is around EUR 10 million per month. NII tax credit in the balance sheet is around EUR 3 billion on top of additional commitments below the line that lead to a total of EUR 4.5 billion, maybe more EUR 5 billion. On the first question was, can you repeat, please? Was it on the quarterly development of NII?

[Noemi Peruch, analyst]

Exactly -- on the moving parts, Q-o-Q since we are seeing commercial a spread now.

[Giuseppe Castagna, executive]

So we showed already the commercial spreads, and we answered to one of the first questions on the liability spread. For the remaining part of this year, we expect a total NII, which is above the level of last year, thanks to the fact that, on average, we expect Euribor in the area of 360, 365 basis points. In terms of the various moving parts, the commercial part is expected to be stable in -- throughout the various quarters with a limited reduction towards the end of the year and in line with the increase of -- with the reduction, sorry, of interest rates to have an increased contribution from hedging strategies, especially those related to replicating portfolio.

[Operator]

Gentlemen, there are no more questions registered at this time.

[Giuseppe Castagna, executive]

Thank you very much, everybody. Thanks for the heavy day today, and we look forward to meet you in person during the next week.