Banca Mediolanum SpA

MIL:BMED

Earnings Call Transcript 2023-Q1

[Operator]

Good day, and thank you for standing by. Welcome to Banca Mediolanum First Quarter 2023 Results Conference Call and Webcast. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to Alessandra Lanzone, Head of Investor Relations. Please go ahead, madam.

[Alessandra Lanzone, executive]

Good afternoon, everyone, and thank you for joining in today. Before we get started, I would like to let you know that we will respond to 2 questions per person to give a chance to everyone. But we promise to get back to any more questions you may have at the end. And please remember to ask your questions in the language of the language line you're calling in on. Either way, answers will be in Italian with an English translation.

So I'll hand this over to Massimo Doris, our CEO, who will be hosting the presentation today together with Angelo Lietti, our CFO. Massimo, the floor is yours.

[Massimo Doris, executive]

Thank you, Alessandra. Thanks, everyone, for joining. I'm very pleased to share with you today a nice set of numbers that shows off a business that is stronger than ever. We managed to outstrip Q1 earnings last year by 59%. And we did this in a setting where the tentative size that the global economy would have a soft lending have pulled back. In fact, the chances of hard landing are being widely discussed given stably high inflation and the recent financial market turmoil. We can credit the numerous bank failures for this together with the side effects of the fast rise in policy rates that are becoming apparent since the banking and insurance sector's weak points have emerged.

And in a context filled with uncertainties that drag on and on, there is one thing that is certain, our solid performance regardless. We appreciate that our analysts in the audience have incorporated this strength into their view. In fact, in the first quarter, previews were very positive across the board, noting exceptional flow consistency, both in managed assets and in deposits, a high deposit to managed assets, conversion rate and expected potential upgrades to NII over the year.

But before launching into the details of the quarter, let's get one thing out of the way. In Q1, we implemented the new IFRS 17 accounting principles for insurance contracts for the first time. The most important point I'd like to emphasize here, as you can see on Slide #8, is that the overall impact on earnings and on regulatory capital is pretty much immaterial. And so rest assured, also the impact on dividends. There is a minor impact, however, on a few P&L line items due to the adoption of the new accounting principles and the consequent introduction of the contractual service margin on the balance sheet for a limited number of in-scope insurance contracts, about 27% of them. The total earnings of these contracts over their lifetime remain the same. They are just recognized in a different way and timing, namely through a gradual unwind in the P&L with the net insurance results line item.

A result in a nutshell, management fees as a result will be lower, but acquisition cost and G&A expenses will be lower as well. This allows us to have a smooth transition with no impact on earnings quality and growth trajectory and no change in our business strategy, nor on operation in terms of how we run the business. For all the details and a full restatement of Q1 2022, you can check out Slide #8 and Slides 77 to 79 in the appendix.

So now let's look at the economic performance on Slide #4 compared to last year's restated Q1. The strong jump of 59% in our net profit to EUR 178.3 million was driven exclusively by a recurring business since there was no contribution whatsoever from performance fees this quarter. And you can clearly see this looking at our all-time high operating margin at EUR 228 million, which really took off shoring 64%, once again demonstrating our capacity to build strength across the board. And this is not just thanks to the benefits of our high-quality NII exposure provide significant leverage to interest rates. Certainly, our net interest income up 119% year-on-year to EUR 158 million continued to reflect interest rate progression, capitalizing on the rate hikes impacting our EUR 24 billion banking book at floating rates, although the increase in NII for 2023 will gradually take shape over the year as opposed to be evenly spread out.

In fact, for -- our assumption for the every 3 months Euribor underlying NII in 2023 have changed from 2.65% to 3%. So all things being equal, this would lead us to increase the guidance we gave of the EUR 700 million. So we will have more than EUR 700 million in terms of NII, but we will use part of this increase to acquire -- to spend them to acquire new cash, new customer for new initiatives to increase the business.

Why is the NII growing through the quarters? Because we have a lot -- all of our mortgages are with floaters linked to the Euribor. And so they increase every quarter from the 1st of April. From the 1st of January, the average interest rates that the customers are paying on mortgages went from 2.20% to 3.10%, so an increase of 90 basis points, and this started April 1. So it's not, of course, in the first quarter results. And the Italian floaters government bonds repriced in April and October. So again, this last repricing is not present in the first quarter results. So you cannot just multiply by 4 this EUR 158 million of NII. It will increase quarter-by-quarter.

By what's even more significant to evaluate is our net commission income up 4% to EUR 261 million, supported by our strong managed asset flows, which were able to offset lower average AUM, down 2% versus Q1 last year. This was mainly thanks to the ongoing asset shift from money market to equity as a result of our advisory model that drives our customers to invest in equity products on a regular basis, and of our automatic services such as the intelligent investment strategy. So our contribution margin keeps getting stronger and stronger, up 29% to almost EUR 409 million.

Now it may be helpful to examine a couple of key ratios. First and foremost, the cost/income ratio keeps improving as the operating leverage strengthens, driving it down to 40.7% from a restated 48.4% of Q1 last year. The payout ratio to the network was 1 percentage point lower at 33.4% due to lower gross inflows into managed assets than a year ago.

Let's go on to business results, whose highlights for Q1 as shown in Slide #5. As you are very aware, we continue to challenge the industry in our capacity to generate strong flows that are unquestionably resilient in any market condition with a steady business performance that sets Banca Mediolanum apart time and again. Our total net inflows registered EUR 3 billion in Q1, with managed assets nearing EUR 1.35 billion, only 19% behind Q1 last year compared to a drastic drop of 90% for the asset gatherer overall.

Additional support was provided in Q1 by the 4% promotion on 6 months' time deposits, which boosted our administered asset inflow significantly. Our unmatched performance inflows helped us recuperate last year's drop in assets due to market shocks and saw total assets ended up at EUR 108.7 billion, surpassing our previous record in 2021.

On the other side, our credit book grew further to over EUR 16.6 billion, thanks to loans granted in the quarter despite the slowdown in real estate market and customer demand. The quality of our loan portfolio remains extremely high with a net NPE ratio of 0.7% and a 12-month rolling cost of risk of only 16 basis points, in line with our historical average. And lastly, we managed to sustain growth in our general insurance premiums as well, which totaled over EUR 43 million.

Now let's talk about the balance sheet ratios in Slide #6. Our CET1 ratio remains unchanged at 20.6%, more than adequate with respect to the requirements and the same can be said for our leverage ratio at 6.1%.

Finally, on Slide #7, as you can see, all -- that all signs continue to point to a strong growth momentum. At the top of the list, our bank customer acquisition is moving forward steadily, thanks to a solid organic growth also as a result of our marketing efforts aimed at acquiring qualified customers. Bank customers totaled 1,724,400, up a further 2% in the first 3 months of the year, a fairly significant increase considering the circumstances during the time frame. And as far as the network is concerned, we continue to see an expansion in the -- in expansion. In fact, the number of family bankers at the group level has reached a total of 6,113 at the end of March, an increase in the head count of 1% since the start of the year.

An important contribution has come from our project NEXT, with the addition of new banker consultants. By the end of March, 96 of them had passed the executive master exam and are already working as licensed FAs alongside their senior private banker or wealth adviser. We expect to reach or to go over better at 200 by year-end. All in all, we feel comfortable confirming our guidance of a total of around 6,500 family bankers by the end of 2023 as we are firmly on track.

Finally, I'd like to spend a minute on our automatic investment services. At the end of March, there were almost EUR 4 billion parked in the money market funds of the Intelligent Investment Strategy service and in the deposit account of double chance, all assets that are ready to be transferred automatically to equity funds on a monthly basis over the next few years, paving the way to future flows and margins.

Right now, I'd like to do a quick review about our business in Spain in Slide 32. The dynamics continue to be impressive with a net income of EUR 15.9 million, double that in Q1 last year and an operating margin increasing a remarkable 129%. Total assets grew 6% versus the beginning of the year at EUR 9.4 billion, thanks to net inflows totaling EUR 307 million. Net inflows into managed assets remains strongly positive as well at EUR 172 million. In addition to that, we made notable progress in other areas since the start of the year. The credit book rose 3% to EUR 1.2 billion. The number of customers surpassed the 215,000, up 3%. And family bankers grew by 1% to 1,630.

So let's move on to the new quarter and review our business results in April. I'm pleased to announce another healthy month, as shown in Slide #34. Net inflows registered strong volumes for a total of EUR 837 million, which brings the year-to-date total net inflows to over EUR 3.8 billion, up 20% year-on-year. Inflows into managed assets approached EUR 325 million in April, a notable outturn due to the current competition from govies and the volatile equity markets. Actually, despite 2023, beginning again under the sign of great volatility and uncertainty, we were able to post nearly EUR 1.7 billion in managed assets inflows in the first 4 months.

Though lower versus a very strong start in 2022, this is a testament to the scale of ongoing demand for reliable face-to-face advice as well as to the long-term nature and strength of the relationship our advisers have with their customers in all environments. Moreover, inflows into administered assets reached EUR 512 million in April, a month that also benefited from the 4% promo offer on time deposits, which incidentally brought in EUR 1.7 billion in the first 4 months.

Retention of deposits has remained strong, supporting inflows into administered assets nearing EUR 2.2 billion so far this year. But since there is still considerable uncertainty in the market regarding the outlook for deposits with the prospect of further outflows, I think this is important to point out. Our deposit base has remained stable with no signs or customer concern even now.

Banca Mediolanum has always been considered a safe haven and benefits from customers' flight to quality. And the high stickiness of our deposits is well known and explained by the fact that even 65% of our customers now have their salary directly deposited in their current account with us, 2 percentage point higher than a year ago. So they don't just fly to us, but they stick with us. Having said that, as 2023 unfolds, regardless of all the turmoil and even factoring a macro slowdown, we feel confident we will continue to acquire a sizable number of customers at a fast rate.

As far as our total net inflows are concerned, we count on beating what we achieved in 2022. And for managed assets, we expect to see far more solid inflows, especially in the second part of the year when the EUR 1.7 billion of time deposits will expire. Keep in mind that our usual high level of conversion rate is 70% over the following 18 months, 1-8. And we expect this to be even higher this time, thanks to the requirement of the direct deposit of salary as a condition of the 4% promo. Perhaps we won't be able to surpass 2022 levels as we were anticipating at the beginning of this year. But arguably, we could match them.

Always keeping in mind what's happening in the market, of course, but also -- and this is important to highlight what our peers are doing. In fact, even though we tend to always be against the trend in this respect, the challenge is real. It bears repeating that the asset gather registered minus 90%, 9-0, in managed asset inflows in the first quarter as opposed to our minus 27% with the surety criteria.

Now regarding the other components of our diversified business, although total loan rent held on in April, registering EUR 253 million, the environment will present a greater challenge for the lending business, especially in the demand for mortgages where we expect to have lower volumes in 2023, in line with the expectation of the real estate market.

Here is the message I want to leave with you today. Banca Mediolanum is fully equipped to continue to face challenges effectively, harness opportunities quickly and creatively and grow profitability. And this is thanks to our key strength, the high degree of flexibility we have in managing our business.

So now we are ready to open the floor for questions.

[Alessandra Lanzone, executive]

Thank you, Massimo.

[Operator]

[Interpreted] [Operator Instructions] Let's take the first question coming from the line of Domenico Santoro, HSBC.

[Domenico Santoro, analyst]

[Interpreted] Could you provide a little more color on interest margin? You said that the repricing of CCTs in the second quarter didn't give any contribution to any NII in the first quarter. So are you confirming the EUR 700 million guidance because even though interest rates are going up, those -- they will be partly absorbed by an increase in the cost of promotional campaigns. And also, I think that at 3 months, the rate is already 3.3%. So you said slightly more or more than EUR 700 million. But that's pretty vague. So what's the jump forward you expect in the first -- in the second quarter? In the first and second quarter, what's the difference?

And also, can you give us a guidance as to year-end results from this point of view? Looking forward, specifically 2024, assuming nothing changes as far as interest rates are concerned, what evolution could margins display? Because these promotional campaigns will end at a certain point in time. Normally, they last like 6 months. So can you give us some visibility as far as 2024 is concerned? A little more accurate guidance would be helpful for us. And I apologize for the lengthy question.

[Unknown Executive]

[Interpreted] Well, let me confirm you that it will be in excess of EUR 700 million. To give you a more precise indication, I could say EUR 730 million, EUR 740 million net of the amount we'll spend for acquisition campaigns. We could make even more than EUR 730 million or EUR 740 million. But considering the great opportunity, the great interest income we have using a portion of this extra increase because EUR 700 million increase was already half the increase. So if it's even more than that, we will use the excess -- the extra portion to generate even more businesses.

So based on numbers, we could do even more than EUR 730 million or EUR 740 million, but that additional amount will be spent on campaigns to acquire new clients, to have more cash, to increase net inflows and managed assets. We will be very much focused on assets under management and related products. I think -- we haven't decided at all from here until the end of the year. So maybe a portion of these campaigns cost may be actually deferred to 2024, though in relative terms. So in 2024, what we expect is nonetheless an increase in NII of about 10% compared to the 2023 NII.

Then, of course, it all depends on rates -- on how rates will be faring in 2024. We reprice on a quarterly basis for mortgages and every 6 months for CCTs. Should rates -- should interest rates decline vertically and plunge all of a sudden, things may change, but I don't really expect rates to plunge between the end of 2023 and the start of 2024. So I expect a very strong NII in 2024 as well.

[Operator]

[Interpreted] The next question comes from the line of Filippo Prini with Kepler.

[Filippo Prini, analyst]

[Interpreted] First question is on the commission margin. With the introduction of IFRS 17, what we are feeling is the disclosure you gave on the gross margin in excess of 2%, as you did over the last few quarters. Last year, it was a gross commission margin in excess of 2.1%. So how -- what can we expect now? What can we do to have a reference, a benchmark when it comes to commission margins? During the last call, you mentioned a small increase versus 2022 because of the transfer from money market to the equity universe.

But -- and then the second question is about what one of your competitors said yesterday, a possible agreement with the tax agency settlement they made a few years ago. I don't know whether you have any information as to the settlement you made in 2019.

[Unknown Executive]

[Interpreted] Commission margin. You remember, we used to show you the basis point that we somehow produced. But some of our products, of course, now have to be by IFRS 17 accounting principles. So that line item is now no longer meaningful because for those products, we compute the net margin and not just what is distributed to the network, but we also include G&As that are tied in with that line, with that product. If we were to look at general expenses, G&As for Q1 in 2022, you would find that they are not consistent with these because they have been -- these -- the last ones have been restated.

So what can you do? Yes, you're asking. Of course, we can keep on providing a slide with average basis points related to our assets. But it is clear that if you take those basis points and you just apply them to the assets as they are, figures and computations will never be right because for a part of those assets, what we do is actually calculate a margin in compliance with IFRS 17. So they are recognized in a different line item. So commission margins and commissions fees will never turn out right if you just apply the old rules, but we can still give you the slides to see how they perform, how they move over time. That we can do happily. But please don't just multiply inflows times or asset times, margin time fees or commission income -- net commission income because you would not get the right result. But for Q1, just like for Q1 2023, it's 211 basis points. So it's growing versus the full year figure we recorded last year.

And as to the settlement with the tax agency, it -- everything is settled. There's no change to be recorded. We just wait the internal revenue agency to make it official for both the years that are still outstanding and the APA activity we did to somehow lock the future years as well. According to the best estimates, we should get everything by this quarter or next quarter at the latest, but we do not expect any impact from these activities.

When you talk about outstanding years, the years where we had settlement were closed. We have both the Italian and Irish inland revenue service so that they look -- could also look at the years that came after the dispute. And the new rebate percentage that we had agreed with the Italian inland revenue agency was okay for the future years as well for the following years as well. And so we made sure also the Irish agency was okay with that. And now what we're trying to do is to ensure that this is okay for the future as well and that both inland revenues agencies are in agreement with it. So we still have to wait for the official decisions made by the IFRS in Italy and in Ireland. But as a matter of fact, as more revenues are going to Italy than Ireland, so there should be no changes ahead of us. And there should be no impact on the P&L for what was done so far or for what will happen going forward in the future because at least we had an agreement -- not yet in writing, but we had an agreement with the IFRS agencies for what we've done so far. So no impact. Thank you.

[Operator]

[Interpreted] [Operator Instructions] So the next question comes from Marco Nicolai's of Jefferies.

[Marco Nicolai, analyst]

[Interpreted] Let's get back to NII, please. Could you please tell me how much incremental NII you expect compared to the previous guidance? You said EUR 730 million, EUR 740 million. Fine. But I'd like to understand how much you are setting aside for these acquisition campaigns you were talking about. And also what kind of campaign are you thinking about? Will you roll over and continue on with the 4% promo? Or you have something else in mind? And also, these -- are new deposits or new clients coming in as a result of these campaigns? Are they coming from traditional banks or maybe from your direct competitors?

[Unknown Executive]

[Interpreted] Well, let me take your last question first. Mainly those customers are flowing in those -- customer deposits are flowing in from traditional banks, from digital banks as well and our peers. But the bulk of the deposits are being snatched away from traditional banks. Also, we have funds that are flowing in from our existing customers that had multiple banking accounts, one of which would be with us and others with other banks. And thanks to the promo, they shifted their cash to the Mediolanum account. If we didn't engage in any promo -- promotional campaign, our NII should approach more or less EUR 755 million to EUR 760 million. So I'm going to use -- I'm going to spend EUR 15 million to EUR 20 million to acquire new clients and new cash. What kind of initiatives, you are asking.

Well, there might be multiple initiatives, various initiatives. At the beginning of the year, we didn't simply rolled out the 4% for new clients or 4% applied to existing banking accounts if new cash, if new liquidity was contributed to the Mediolanum bank account. Please, let's not forget that 40% of Banca Mediolanum clients just have an account with us, they just bank with us. So these customers would not have enjoyed the 4% promotional campaign because they didn't have bank account with other banks.

So we offer them another option. We said to them. If you have cash sitting on your account, you can switch some of this money to the managed assets. So if you have EUR 50,000 in your account, you invest EUR 20,000 in managed assets, you could have placed EUR 20,000. The equivalent of the amount you have shifted to asset -- to managed assets to a time deposit with 4% interest earned for a period of 6 months. So this is what we are doing. We are really pushing on the accelerator of managed assets as well. So the objective is using a portion of this extra unexpected NII chunk to fuel new businesses, so attract more clients, generate more money that will, in turn, generate more interest income in the future. When percentage-wise, NII is bound to go down because, hopefully, interest rates in the future will decline again because we have won the battle against inflation, and things are faring better in general. So there are really multiple opportunities, multiple ways we may incentivize our clients.

[Operator]

[Interpreted] The next question comes from the line of Mediobanca, [indiscernible].

[Unknown Analyst]

[Interpreted] Could you elaborate on IFRS 17 and the relevant effects, and the duration of your life portfolio, around 10 years or as most other Italian players? Or in case of discount rate, is it calculated through OCI or through P&L? And then risk adjusted, how will it be treated?

And then another question, you have a convention -- your Italian convention next week. And actually, you'll present on Monday, you'll present your products but -- new products. But could you somehow give us a flavor of what kind of products are you going to introduce to launch? And if you, as many others are also looking at target -- at fixed income target maturities to somehow -- to see how the -- well, the bond market can be strong, somehow, there can be a strong demand in the bond market.

And then how about the absolute watermark? What kind of guidance are you going to give with reference to watermark -- the absolute performance fee?

[Massimo Doris, executive]

[Interpreted] First question, I will -- I'll leave it up to Mr. Lietti and then I'll answer the question on products. As we have a convention with about 5,000 people [indiscernible] 4,600 family bankers, I cannot, of course, unveil right now what we are going to launch because, otherwise, I would be -- I would spoil the convention. So I'm sorry, but I, unfortunately, cannot reveal anything right now.

However, when it comes to performance fees, how much do we still need to actually get, including the hurdle rate? It's minus 16%, 1-6 percent. So we would be recouping 16 percentage points and that would mean we would start earning performance fees.

IFRS 17, I leave the floor to Angelo Lietti, our CFO.

[Angelo Lietti, executive]

[Interpreted] So the rolling on CSM, the unwinding on the CSM is about 12 years. It should be the OCI impact -- or in the chain -- it depends on the type of products. On unit linked, for instance, it's not fair value through OCI. Whilst on the non-life and P&C, it will be posted through OCI and the value of risk adjustment on the 1st of January '22 was EUR 123 million with a group CSM of EUR 1.2 billion. Thank you very much.

[Operator]

[Interpreted] [Operator Instructions] Currently, we have no further questions. So we hand it over to the English line for further questions. Please go ahead.

Now we're going to take a question from Hubert Lam from Bank of America.

[Hubert Lam, analyst]

I've got 3 since I'll probably be the last one. Firstly, on NII guidance, what assumption do you have on the cost of funding? I think previously, you had 50 basis points. I'm just wondering if you see any pressure to pay more for deposits from -- for the existing customer base rather than just promotions? It's first question.

Second question is on the flows, especially on the managed assets. I know you're now saying that you expect probably the best case to manage assets to be in line with what it was a year ago. Is there evidence that you're seeing [ outflows ] moving to more secondary deposits or moving to BTPs, maybe that's one of the reasons why managed assets haven't grown as much as you have thought at the start of the year? Or is it just mainly due to market volatility that's caused that?

And last question is on the potential banking tax. I'm just wondering what your thoughts are on that.

[Unknown Executive]

[Interpreted] Let me start with your first question, cost of funding. When we gave the EUR 700 million guidance for NII, we also said that the retail cost of funding was expected to be 50, 5-0, basis points. And also, I added that if NII had gone up, we could have increased the cost of funding in less than proportional way. And this is exactly what we intend to do. I expect that cost of funding that grows slightly more than 50 basis points because profits from investments will grow in a more than proportional way. So we don't simply think we are going to pay higher interest on banking accounts, but we most likely will use time deposits more frequently.

The banking account earns interest from the very first euro you deposit in your banking account. When you use the time deposit instead, it's the customer that has to decide how much they are going to lock up for a certain period of time. So in absolute terms, time deposits would cost less because they would be concentrated on a portion only of the amount of cash deposited with our banking accounts. So I don't think there will be significant changes in the cost of funding. We talked about 15 basis points. But this quarter, we engaged in the 4% promo. So we went up 243 basis points this quarter.

Then you also asked a question about net inflows into managed assets, which is slightly lower than last year, for 2 reasons. First one is the uncertainty that has been troubling the market for over a year. The longer it lasts, the more difficult it will be to increase our managed asset portion. Think of the pandemic. When COVID -- actually the COVID crisis broke out, markets collapsed in March, but they rebounded in April. So we had negative inflows into managed assets in March, but then we went back into positive territory -- significantly positive territory in April and May. But that was short. It was a deep, but short jitter, so to speak. It was really a short crisis. But the longer the uncertainty lasts, the more doubtful clients will be.

And then we have the competition coming from BTPs. BTPs are paying an interesting -- an attractive interest at present. It's kind of canceled out by the inflation rate at present, but it's at 0 risk because Italian savers consider BTPs as risk-free rate instruments. So they think they can cash in attractive interest at 0 risk. So we are actually feeling the competition from BTPs, from government bonds.

But I just like to look at the positive side of Italian government bonds' positive yields. When they generate a 2% to 3% or even more interest rate, it means that it's the entire fixed income market that is doing well. So I can talk to my customer and say, "Dear customer, I've always suggested -- I've always advised you to diversify your assets." So number one, because that way you would diversify risk and government bonds are risk-free rates, and I believe they are. But diversification means also grabbing, catching very many opportunities, not just one. So investing in BTPs is okay, is the right thing to do.

But I don't think that, that would exhaust the options as far as fixed income investing is concerned. I don't think that is a smart solution. I would invest something in BTPs and I would also invest in different fixed income funds with a different duration for the underlying assets that I believe would generate even more attractive returns for customers. So I would talk to a customer and say, good -- "Dear customer, you have better invested a portion of your assets in BTPs, but also in the other sleeves of the fixed income market. And then we have equities. I believe that as far as equity markets are concerned, for instance, they feel a lot less, the competition coming from BTPs.

Also, we would like to say that we do see inflows into BTPs, but it is not assets that have been switched from managed assets to BTPs. So BTPs are not cannibalizing managed assets. It's just cash coming from banking accounts. And I don't expect any cannibalization. And in fact, I continue to expect net inflows coming into our managed assets.

Then you also asked a question about the extra profit taxation for banks and insurance, the so-called windfall tax. And I'm not sure it's going to happen. And if it happens, I have no idea how it's going to be conceived and designed. I'm really sorry. I do not know how to answer to that question simply because I don't have a special information. I just know what I read in the newspapers.

[Operator]

Ladies and gentlemen, there are no further questions on the English line. I will now hand back to the Italian call.

[Interpreted] Question comes from the line of Adele Palama with UBS.

[Adele Palama, analyst]

[Interpreted] I would like to go back to NII. I'd like to understand within Q1 2023 and a comparison with Q1 2022 -- and Q4 2022, sorry, were there any positive one-offs in Q4 2022? Because based on the NII you gave before, I calculated that there's a 9% that I don't understand. So you talk about a 2% increase. But is this driven by IFRS 17? And then guidance, the guidance you gave is, I understood that there's an increase of 50 basis points when it comes to cost of funding. But as to deposits data, what kind of assumptions are you making for 2023 and 2024, meaning going forward?

[Unknown Executive]

[Interpreted] So the first one was the EUR 7 million coupon produced by BTP Italia. So it's not a consistent comparison. If you deduct the EUR 7 million from that BTP issue, that in Q1 2023 is still higher than Q4 2022. And also the repricing mentioned by the CEO at the beginning of today's conference call, of course, that has an impact on the different quarters. And the second question, could you ask the question again because it didn't come through quite clearly?

Okay. As to cost of funding for 2023, retail cost of funding, we had made an assumption of 50, 5-0, basis points. It's going to be probably higher because of the initiatives we will undertake. However, the cost of deposits and/or better said, the cost of current accounts, we're talking about banking accounts. The increasing costs will come from time deposits and for accounts that are tied to double chance, that is to say to managed assets. And the -- what we call the double chance, double value, if a client makes an investment, a new investment of EUR 50,000 in managed assets, that client could have -- at the time when the promotion was still on, could have 4% interest over 6 months and up to a maximum of EUR 50,000 could be invested. And after 6 months, the money is, again, free available, again for the client.

Should there be -- or if there will be any increase in the cost of banking accounts, we only expect them to be for the higher brackets in our customer base. And it's not -- well, they won't necessarily be applied. It's very likely instead that we will keep on using instruments, such as the one I've just described, with appealing interest rates to attract customers to managed products. I can pay your liquidity very well if you invest something, if you move part of your money to managed assets.

[Operator]

[Interpreted] Next question from Luigi De Bellis, Equita SIM.

[Luigi De Bellis, analyst]

[Interpreted] Two quick considerations. You mentioned the acceleration of managed -- of inflows into managed assets when time deposits expire. Why do you expect a higher conversion rate compared to the past?

Question #2 has already been partly covered. That's to say we -- you have already said you don't expect a major competition from BTPs, but this new type of retail issues by the government, do you think that this is impacting the industry of -- I mean, your industry? And how do you expect to react?

[Unknown Executive]

[Interpreted] Well, yes, in the second half of the year, these time deposits will expire and has -- and as has always happened, part of this money will be channeled to managed assets. And that is also due to the fact that banking -- the family bankers don't make any money. They don't earn anything on time deposits. And so they are highly incentivized to channel customers money to managed assets, which is, of course, worthy for -- it's worth doing for customers as well.

Also, there is a -- also, we calculate the amount on the 18 months following the expiration. So in the 18 months following the expiration of the time deposit, we will have EUR 70,000 that will flow into managed assets. But customers may have contributed more money in the meantime. So we may end up with EUR 110,000 or EUR 120,000.

Then you asked the question about the issues, the government bond issues that are actually having an impact on our business, on our industry. Customers read about these issues. They find the interest being paid attractive, and so that's fair. I mean they buy those bonds. In a way without those bond issues, I may attract more money to channel towards managed assets. But at the same time, the government is paying out an interest that we would have never had only a couple of years ago. So true, this year, I would have EUR 500 million less in managed assets because of BTPs. But how much more am I going to make because of higher interest being paid to us?

So if you look at the picture in its entirety, you see that these new issues are not worrisome really because these are not really hurting us in terms of P&L. And in the past as well, we have repeatedly proven that we -- even when government bonds were paying high yields, we had always proven we were capable of driving our customers' assets towards managed assets. So undeniably, we'll have lower assets -- lower managed assets, but it is nonetheless positive for us. So you cannot really have your cake and need it as well. You have to accept also the flip side of things.

Thank you, Luigi. Are there any other questions?

[Operator]

[Interpreted] No, for the time being, we have no more questions in the queue. I hand it over to Alessandra for the closing of today's call.

[Alessandra Lanzone, executive]

[Interpreted] Thank you very much for attending today's conference call. And we'll meet again August 1, 2023, for the results of the first half of 2023. Thank you very much for attending.

[Operator]

[Interpreted] Well, the conference call has come to an end. You may disconnect your phones. Thank you very much.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]