Banca Monte dei Paschi di Siena SpA
MIL:BMPS
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Banca Monte dei Paschi di Siena SpA
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Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the MPS Group First Quarter 2021 Results Presentation. [Operator Instructions]
At this time, I would like to turn the conference over to Mr. Guido Bastianini, Chief Executive Officer and General Manager of MPS. Please go ahead, sir.
Good afternoon, everybody. Thanks for joining MPS' First Quarter 2021 Earnings Call.
Let me start with the key highlights for this quarter on Slide 2. Monte dei Paschi continues to be a pillar of the economy. Make no mistake, we continue to pay constant and careful attention to the asset quality. Loans subject to moratoria decreased over 50% versus June 2020, and observed default rate about 2% lower than what we provisioned for.
Accepted state guaranteed loans amount to about EUR 9 billion, increasing 3x versus June 2020 and allowing to put in safety about 13% of total loan book and about 25% of our corporate loan book.
Strong commercial momentum continued in Q1. For instance, wealth management flows are at the highest quarterly level in over 3 years. Wealth management placement fees are up by over 50% quarter-on-quarter. This is despite of the restriction imposed on the network's activities.
Regarding funding, we have just launched initiatives to reduce expensive funding, mainly from large corporates and institutions. And we are gradually transitioning funds from current accounts and deposits to asset management products.
As I said, we pay continuous attention to the risk profile of our balance sheet. Our gross NPE ratio is 4.4%, one of the lowest in Italy, benefited also by the conclusion of the AMCO transaction in December last year. The stock of NPE is of about EUR 4 billion, substantially stable quarter-on-quarter, and we have potentially increased coverage by around 1.3 percentage points in the quarter. The liquidity position is sound with upside for future profitability.
Finally, our capital position. Transitional CET1 ratio is 12.2% and fully loaded, 10.4%. Both are up quarter-on-quarter despite not including the profit from Q1, which would add another 25 bps. CET1 ratio phasing is about 2 percentage points better than have been forecast in capital plan.
As per press release dated the 28th of January, we were expecting a EUR 0.3 billion capital shortfall on Tier 1 at the end of Q1. On the contrary, we have now a buffer of about EUR 0.7 billion. We will say more on this later, but the EUR 1 billion additional capital is driven by balanced combination of capital management actions, focus on guaranteed loans and postponement of the increase in RWA for model changes.
Looking forward, we now expect Q1 '22 capital shortfall to be contained to a maximum of EUR 1 billion versus EUR 1.5 billion previously expected. Importantly, no shortfall is expected on CET1.
And now please, let's turn to Slide 3, Q1 '21 results. The quarter closed with a pre-provision profit of over EUR 280 million. Net interest income was impacted by last year's massive nonperforming loan derisking, but resilient, otherwise. Fees sustained by our commercial momentum, costs remain under strict control and there is a lot to do in the future.
Cost of risk is 37 bps. This is in line with 2020 net debt of the components related macro scenario and the NPL portfolio transferred to AMCO and allowed for further 1.8 percentage point coverage spending. Of course, we are continually monitoring the performing loan portfolio with special attention to loans significantly impacted by COVID. I will say more on this later.
Importantly, net operating result is positive for EUR 203 million, the highest level in the last 3 years. And we closed the first quarter with a profit EUR 119 million.
Our balance sheet shows a solid asset quality profile with a gross NPE ratio almost stable after the completion of Hydra transaction at 4.4% or if you use EBA definition, 3.5%. This, of course, already includes the new definition of default.
Capital ratios increased versus December 2020, both on transitional and fully loaded basis. Notwithstanding, they do not include the Q1 '21 net result.
And please turn to Slide 4, moratoria sustaining customers with attention to asset quality. First of all, COVID-related moratoria are EUR 7 billion, representing about 10% of our loan book and down over 50% since June 2020. 50% of the remaining amount has been conservatively classified in Stage 2 with an average coverage of 4%. Out of the overall moratoria amount, including the expired component, around EUR 100 million has become nonperforming. This corresponds to an annualized default rate of about 2% versus the coverage of 4% I mentioned above.
In March, we further intensified the portfolio monitoring with the launch of a cash program specifically designed to support the customers with the potential to recover or in the case of irreversible deterioration of customer creditworthiness to promptly classify the exposure a default.
Out of the 35% of the EUR 12 billion portfolio which has already been reviewed and analyzed and were already discussed with clients, only the marginal portion of the portfolio could be migrated to default.
Slide 5, state guaranteed loans represent an important instrument to support clients, but also to further maintain our asset quality. MPS network is focused on that, as you can see from the quarterly evolution. Since December, we have accepted another EUR 1 billion worth of applications for state guaranteed loans.
The total granted loans is now EUR 9.1 billion, about 13% of our total loan book and about 25% of our corporate loan book. We see this is the right thing to do for the economy and the bank. We may forego some interest margin, but return on allocated capital does benefit and prospective cost of risk significantly reduced. The chart at the bottom right aims at showing this.
Slide 6, strong performance of wealth management product placement with gross placement close higher than they have ever been in the past 3 years. This is in spite of the COVID restrictions, which have continued to be imposed on our branch network. Let me just remind that our customers can see their relationship managers only by appointment.
Wealth management product placement fees increased more than 50% quarter-on-quarter. On the right-hand side of the slide, you can see the evolution of our commercial direct funding. Current account and time deposit slightly decreased in Q1 as a result of some initiatives, mainly on a few large corporates.
We have now much more to do. We are delivering on the sizing out of 10 deposits, on which we still have a 9% market share versus 9.5% a quarter ago and has an extensive heritage of the past.
On large corporates, we are about to launch the repricing in line with our declared intention to focus on our core customer base, households, small businesses and SMEs. With macro normalization our network has done in Q1, we continue to work on more migration from deposit, increased EUR 10 billion year-on-year, into managed assets.
And now Slide 7, Widiba. Also betting on the increase of the wealth management product placement, Widiba has recorded double-digit growth in total funding stock that is now nearing EUR 10 billion, a 22% year-on-year increase, mainly driven by wealth management product placement, up by 43% from March 2020.
Also with regards to digital transactions, all main KPIs, number of wins, number of banking transaction and number of investment transaction increasing by 20% to 30% in Q1 '21 with respect to Q1 '20. We continue to invest on Widiba as a significant enabler for all of our group.
Slide 8. After Hydra, in December 2020, we now have a gross NPE ratio at 4.4%, among the lowest in the Italian landscape. I would highlight, no significant change in the stock quarter-on-quarter. The marginal increase was due to the introduction of the new definition of default, whose impact has been, however, much lower than expected thanks to the careful commercial planning.
Provisioning was reinforced on both the bad loan and the ECB portfolios with an overall increase in coverage of around 150 basis points versus December 2020. As I already said, we are focusing all our efforts and closely monitoring our loan portfolio in order to manage any potential signs of deterioration.
Slide 9. Our liquidity position continues to be sound. Counterbalancing capacity exceeds EUR 30 billion and all liquidity indicators are steadily well above all requirements. Quarterly evolution of loan-to-deposit threshold and the counterbalancing capacity is due to the active management of deposits with the launch of the initiatives previously indicated aimed at reducing the most expensive form of funding. And I think we can do more.
Regarding TLTRO, we took up EUR 2.5 billion TLTRO III at the March auction, bringing our total take-up to EUR 26.5 billion versus an estimated limit of EUR 29 billion.
Our funding strategy is now under review. Considering lower RWAs and higher capital base, MREL funding needs could be lower than indicated in the strategic plan.
Now the capital position on Slide 10. Our Q1 '21 capital ratios are better than December '20, especially on a fully loaded basis and despite not including Q1 profit. There are also 2 percentage points better than expected in our capital plan, thanks to 3 main elements that can explain the difference.
First of all, the effect of capital management actions implemented since November 2020 that has allowed a release of capital for about EUR 500 million. Giuseppe will give you more details on those. Lower credit RWA, thanks to the financial sound use of public support measures. And third, the postponement of some regulatory headwinds, and in particular, the RWAs increased due to the models change previously expected for this quarter. As a consequence, no shortfall in Q1 and a capital buffer of about EUR 700 million.
We now expect the capital shortfall projected for the first quarter of 2022 to be contained to maximum EUR 1 billion versus EUR 1.5 billion as previously expected. Importantly, again, the shortfall is not at CET1 level.
In order to anticipate your questions, let me bring you up to speed on the so-called structural solution and on the potential capital increase. I will tell you everything there is to know upfront so we can leave the Q&A time to other matters.
First, the bank is still working together with MEF on structural solutions. As announced to the market at the beginning of February, the bank has received an unbinding expression of interest from the Apollo fund, which has had access to our virtual data room since March.
As you also know, should a structural solution not be implemented in the short to medium term, the capital plan and business capital strengthening transaction of EUR 2.5 billion. Despite the reduced expected shortfall, we have not, for the time being, revised this figure. Discussion involved in DG Comp continue but have not been finalized yet. Therefore, should the structural solution not materialize a capital strengthening transaction, which we had initially envisaged for third quarter of this year, may be postponed to Q4 or first half '22.
And now Slide 11 related to sustainability. Let me give you an overview of the sustainability policy, which, already from the bank's history, is in our DNA. In September of 2019, we were 1 of 2 Italian banks among the 132 founding signatories of the United Nations Principles for Responsible Banking. We formally committed to align our business practices to international and national sustainable development goals. We take these commitments very seriously.
In this slide, you can find the most important initiatives we have implemented in terms of ESG. I would like to highlight some. We recently launched the MPS Agroalimentare, a line of business specifically designed to partner with our small business customers in the agri-food sector, offering solutions inspired by the Green Deal, the European Commission's program for a circular, efficient and sustainable economy and in line with the farm-to-fork strategy, which invites companies in the agri-food sector to invest in innovation.
Regarding social, our diversity and inclusion program is quite advanced. We have several initiatives on the table, both for Monte dei Paschi employees and for customers. You can see our statistics. We know we can do much better, but progress over the last few years has been continuous.
Standard Ethics rating agency assigned to Monte dei Paschi sustainability rating of EE minus, the first level of investment-grade ratings with a positive outlook and estimated possibility of reaching EE plus very strong in 3-5 years.
Now I leave the floor to Giuseppe Sica, the group CFO, who know -- you well know for more details on quarter results.
Thank you, Guido, and thanks, everybody, for joining.
I'm on Slide 13, some highlights on our P&L. Decrease in net interest income is largely driven by the sale of nonperforming exposure. Fees and commissions are resilient after a record fourth quarter, with the best quarter in years for wealth management activity.
Core revenue performance is, therefore, good once adjusting for the impact of the NPE disposals. Importantly, core revenues are now better quality and very much skewed on commissions.
Total revenues were strong, thanks to further derisking on the BTP portfolio and the quality of our insurance JVs, in which, I would like to stress, we own 50% minus 1 share.
Cost of risk is at 37 basis points. Let me stress that this in line with 2020, once excluded the components related to Hydra and the COVID macro scenario. Therefore, the cost of risk reflects the work done by the bank in the improvement of its asset quality profile over the last few years. We have taken a conservative approach to provisioning, and I will comment on this in a moment.
Nonoperating items includes negative EUR 30 million for the change in valuation criteria for our real estate portfolio, in which I will say more later. Importantly, we have a release of provisions for risk and charges previously included, also on legal risks.
Net operating result of EUR 203 million is the highest quarterly result of the last 3 years. We returned to a positive net quarterly results of EUR 119 million, which, as Guido already pointed out, was prudentially not included in the calculation of capital ratios.
We have not reassessed our DTA pending DG Comp approval of our provisional strategic plan. When and if this happens, there will be a positive effect on both P&L and common equity Tier 1.
Now on to Slide 14. The chart on the right shows our quarterly evolution of net interest income. Apart from this count, decreased mainly related to the lower contribution from the NPE portfolio. Excluding the NPE component, net interest income is down less than 5% quarter-on-quarter.
Cost of excess liquidity has also increased. This leads me to some thoughts on deposits. Average commercial funding rate is 7 basis points lower than 1 year ago, and we continue working on it. Our CEO has already commented on initiatives and opportunities to optimize deposits, both on the corporate and on the retail side.
One word on lending spreads. Looking at the banking system data, our spread has decreased less than market average year-on-year. The overall spread is lower due to higher funding costs and lack of consumer finance activities compared to peers. As you know, these are 2 areas of clear and comparative upside for Monte dei Paschi.
Slide 15, on fee and commission income. As mentioned, wealth management placement fees increased by more than 50% quarter-on-quarter and driving a 16% increase in total wealth management fees. Traditional banking fees are impacted by the pandemic-related economic and social restrictions, with fee income mostly reduced on consumer credit and credit facilities. We start to see signs of recovery.
Overall, fees would be stable once taking into account the cost of synthetic securitizations and guarantees we put in place at the very end of December.
As I know you're focused on this, MPS has one of the highest weight of fees on core revenues in Italy and would be much higher if we owned 2 more shares of our insurance JV with AXA.
Slide 16 on financial revenue very quickly. In Q1, dividends and profits on investments included EUR 21 million from our JVs with AXA. The JVs are performing very well, and the slide shows their net income in the year of COVID. EUR 161 million from activity in financial assets also had an important effect on government bond disposals, on which I will comment in a moment.
And then operating costs on Slide 17. We do confirm our focus on cost containment. First, a word on administrative expenses. They continue to be down sequentially and year-on-year by close to 4%. We see this as a very good result at constant perimeter.
Personnel costs are slightly up or probably constant despite the increase linked to the renewal of the National Labor Agreement. Reduction of number of employees we completed in 4Q offset this increase. As you know, there may be more as described in our plan under discussion with DG Comp.
Slide 18 on cost of risk and coverage. The cost of risk of 37 basis points is in line with the normalized 2020 level once the provisions related to Hydra transaction and the macroeconomic scenario are stripped out. This is one of the key reasons why we decided to have an impact of over EUR 1 billion on our equity from the Hydra transaction.
The approach remains conservative. This level of provisions includes an increase of 1.3 percentage points on nonperforming portfolio and 2.5 percentage points on bad loans. There is a managerial override on loans classification. For instance, there is no improvement in Stage 2 loans rating allowance and no improvement in the probability of default allowed.
Quickly on our asset quality migration matrix on Slide 19. NPE ratio remained stable. It's too early to say what will happen in the future. But let me assure you that the bank is extremely focused on its asset quality, and I believe we are comparatively well placed. Default flows are decreasing with a default rate of 0.8% despite the transition to the new definition of default with more than half moratoria decrease since June 2020, and therefore, no strong sign of the much anticipated cliff effect.
Regarding cure rate and recoveries rate, I would just highlight that the differential quarter-on-quarter on the flows is linked to the sharp reduction in the stock managed due to the deconsolidation of the Hydra portfolio. Actual rates show an important improvement.
Slide 20 on nonoperating items. This includes the contribution to the systemic fund and the usual DTA fee. We released provisions for risk and charges previously booked. The amount is immaterial, but it's probably another sign of the approach followed by the bank in assessing risk. You will remember what I said about Valentine's in 4Q results presentation.
Taxes are positive for EUR 6 million. As has been the case last quarter, the tax line includes a limited reassessment of our DTA just for the time effect. And excludes any impact from the '21-'25 group strategic plan, which is currently under review by DG Comp. This would add an important positive effect.
Now on to balance sheet figures. On Slide 21, customer loans. These are almost stable quarter-on-quarter with an increase in medium to long-term loans, boosted by the government's financial relief measures, a decrease in repos and a decrease in other form of lendings, mainly corporate and short-term loans and current accounts. New lending is mostly composed by low RWA density state guaranteed loans and other secured lending to creditworthy customers.
So all things considering at the end of March, our loan book stock is mostly secured. 60% is composed by retail loans. Let me remind you that we do not currently have any consumer finance activity. And for around 40% by corporate loans, of which 25% to 30% benefit from state guarantee.
Slide 22 on direct and indirect funding. The reduction in direct funding is driven by the active management of our commercial cost of funding. We have started to put in place some initiatives to reduce expensive large corporate deposits, and we have significantly more to do.
Repos decreased EUR 3 billion quarter-on-quarter. Total indirect funding increased quarter-on-quarter by around EUR 1.7 billion, and we have close to EUR 8 billion more in managed assets compared to 1 year ago. This is an increase of 14% year-on-year.
Slide 23 on capital structure. This provides some more detail on the quarterly evolution of our capital structure. The main components that explain the movement of the ratios in the quarter are: first, the phase-in of IFRS 9, which had a negative impact of around EUR 270 million; the positive, number two, contribution coming from the change in the criteria of evaluation of the real estate portfolio from cost to fair value in line with our peers; three, an RWA decrease, thanks to the focus on guarantees.
Capital ratios do not include Q1 profits. Including the results of the period, pro forma phased-in CET1 ratio would be at around 12.5%. Fully loaded ratio is up 50 basis points quarter-on-quarter, and it would be around 80 basis points higher, including the profit of the period. Let me stress, that these results have been achieved with minimal impact on net income.
On capital on Slide 24. As has been explained, Q1 ratios are better than December '20, and most importantly, they are also 2 percentage points higher than expected in our capital plan. As you will remember, already full year 2020 ratios were at 25 to 30 basis points higher than those expected in the business plan we were required to publish.
In Q1, we have a Tier 1 capital buffer for EUR 700 million or EUR 800 million, including the net profit of the peers instead of the EUR 300 million shortfall expected in the press release we communicated to the market in -- at the end of 2020. This additional EUR 1 billion capital is due to a combination of factors.
The delay of our increase of RWA increase for model changes, that explains around 1/3 of the additional buffer; new lending focus on guaranteed loans; and capital management actions, some of which were included with low probability or small impact in our capital plan. This includes synthetic securitizations, SACE guarantees, optimization of the BTP portfolio and the disposal of own shares. These actions have given us EUR 0.5 billion additional capital.
You will find in the appendix a page on change in valuation criteria for our real estate portfolio, which aligns MPS to most of its peers.
The capital shortfall for Q1 '22, originally quantified EUR 1.5 billion, is now estimated to be lower than EUR 1 billion. And let me stress, this is assuming a P&L evolution for the remaining part of the year in line with the assumptions of the 2021-2025 strategic plan. You can judge whether this is a conservative assumption or not. It is important to remind that no shortfall is expected by that date on our common equity Tier 1.
And finally, a slide on our Italian Govies portfolio. You can see that the fair value to other comprehensive income and amortized cost components are down again quarter-on-quarter with the banking book now at EUR 8.8 billion versus EUR 10 billion in December '20 and EUR 10.6 billion in December 2019. I believe we are among those to reduce banking book portfolio and sensitivities the most.
Trading portfolio increased quarter-on-quarter, exclusively as a result of MPS Capital Services' market making activity. As you know, they are a leader in the sector.
On this note, we can now open up for questions.
[Operator Instructions] The first question is from Jean Neuez with Goldman Sachs.
I just wanted to ask about -- because you provided the slide on the capital shortfalls and the better outcomes that predicted. I just wanted to understand, firstly, if in the capital shortfall that you have pegged at around maximum of EUR 1 billion by the first quarter of next year, you've included extra measures, such as the one that have allowed you to outperform so far, so extra measures, or if it's just from here the natural business evolutions, et cetera, that have got you to that minus -- maximum minus EUR 1 billion? If you have included such measures, or if you haven't, actually, could you tell us about what these measures could be to improve it further?
And the second thing is, if I remember well, at the time when you first talked about the capital exercise that you might have to do in order to replenish capital ratios, I think it was meant to be essentially mostly, if not all, in common equity that it was supposed to be completed. I just wanted to know that whether that even if you haven't revised the amount, you were thinking of a different composition, given that the shortfall is no longer expected to impact core Tier 1 equity ratio.
Thank you, Jean, for the question. On the capital shortfall, we have included another EUR 150 million capital management actions. This is a probability weighted impact of various measures, I think on which I think the management is confident they can deliver.
To be clear, because I made reference to this, we have also included around EUR 750 million of cost of credit for the year, and we have included the cost reduction measures on personnel, which is embedded in our plan.
We have not -- I think I said this during my presentation, we have not to date changed the hypothesis on the capital increase. And also, in our press release, what we say is that if a structural solution does not materialize earlier, the capital increase would still go ahead. We had previously told in our press release that it would happen probably in the third quarter of 2021. We are now saying it would happen in either fourth quarter '21 or in the first half for the reasons our CEO explained related to discussions with DG Comp.
Okay. And you haven't changed the composition then, I understand? Same amount, same composition?
Yes. For the time being, yes.
The next question is from Antonio Reale with Morgan Stanley.
I've got a couple from my side, please. And the first one relates to, if you could please have an update on your litigation charge, how do you feel about your level of provisions against these claims? I see that there is a level of provisions for risk and charges that looks a little bit more normalized. Any for the trials we should be aware of in the pipeline? The total amount doesn't seem to have changed quarter-on-quarter. Any comments or color you can share there would be particularly helpful.
My second question is on the P&L trends in current conditions, and how do you see them holding up against your draft plan targets for 2021, in particular, if you do go through some of the key line items, NII, fees, costs and provisions, perhaps? And any comment or color you could share there would be very useful.
Thank you, Antonio. On litigation charges, you're right. There has not been any material changes in either the provisions nor the petitum. I think this is incrementally positive news because I think investors or some investors were expecting something to happen post the 955 post judgment. And we have not seen anything of that.
I said we released some provisions in fourth quarter on Valentine's, and we did release some small provisions in the quarter. You have also seen for a new technical opinion on the assessment of nonperforming loans, which has just come out today. Of course, it's early to say what would be the impact. I would just stress: Number one, that, of course, we haven't seen anything to date; number two, that if anything happens, and I don't know. I don't want to be pessimistic. But if anything happens, there would be a big overlap between the various claims. So I think the impact on the overall petitum and provisions should be relatively small.
I think I said this also in the previous call. So far, when we have settled out-of-court on various level of judgment and on different sectors, we have been able to release provisions and not the other way around.
On the P&L, we have not revised our budget despite the results of first quarter. But I think on -- compared to our expectations, net interest income is slightly lower compared to what we would have expected, but we had some buffer embedded in our budget and business plan. For instance, we did not include the additional special reference period from the TLTRO. And as I said, we have a number of actions, which we are putting in place on deposit.
On commissions, we are ahead of budget so far. Clearly, much will depend on market conditions and the request from credit from our client base.
Cost is an area where we are below business plan, and I think I tried to explain the reason because we have been unable, pending a potential structural solution or a capital increase, to renegotiate with unions. We have around EUR 8 million higher cost based on personnel compared to any national basis. And we have been unable, of course, to structure a redundancy plan.
Cost of risk is low. As I said, we have many yearly overlay, which is very important on the number of the -- for the quarter, very important. And we have not seen any sign of deterioration on -- in April. So there is probably upside, but we have not quantified it yet. That's why I pointed out the fact that our shortfall still assumes the same cost of risk that we have embedded in our business plan.
That's very clear. Can I just ask a follow-up on TLTRO and what's your expected contribution for the rest of the year, if you have a number?
Yes. I think we should have in the second quarter around [ EUR 60 million ], which is not in our numbers. And you see, as you've seen our presentation, deposits from central banks, and 2 central banks are effectively matched. So most of the contribution would really just come from the special reference period than anything else due to the liquidity position of the bank.
The next question is from Luigi Pedone with Equita.
I have 2 questions. The first one is on stress test. I wondered if you have any comments about the methodology, what to wait the outcome of the stress test may have of the capital increase in the absence of the structural solution for the banks?
And the second is a clarification on capital. So the EUR 1 billion shortfall in the first quarter of the next year includes the RWA inflation of EUR 4.3 billion?
I think we cannot comment on the stress tests out of respect of regulatory authorities. But of course, when we do our capital plan, we make our own assumptions.
The EUR 1 billion includes close to EUR 9.5 billion of RWA inflation. There are 2 components. One is the TRIM, which should arrive in the second quarter of this year, at least, partially. And then there are new EBA guidelines, which will impact our RWA. The EUR 1 billion assumes they will arrive in the first quarter, but we have no certainty of that.
The next question is from Riccardo Rovere with Mediobanca.
Just 2 questions, if I may. The first one is on the decline in risk-weighted assets in this quarter, especially the part related with the valuation of the real estate portfolio fair value instead of cost. Can you explain us what has happened here? And still related more or less to the same topic, this impact that we're seeing related to the extensive use of guaranteed loans, is it expected to continue more or less in the same way also in the coming quarters?
Then just a clarification on the previous question. Did you mention RWA inflation EUR 9.5 billion expected over the next 12 months, just wanted to be sure I got it correctly.
Then the other question I had is on -- is more of a conceptual one. Italy is to suffer the kind of 9% GDP decline in 2020. If I remember correctly, GDP was down, at least preliminary estimates, down again into -- in the first quarter of 2021 year-on-year about 1% or even a little bit more than that. And we have seen banks charging, let's say, relatively low-risk cost or, let's say, risk costs below expectations. How can we -- how can you tell us -- what can you tell us to better understand to square the circle here because the 2 things seems to be fairly counterintuitive here?
And then the other question I had is a bit on NII. Aside MREL, should we assume that what we have seen in Q1 could be seen as the lowest, let's say, the possibly the lowest level without taking into account eventually the need to issue more for MREL just from a commercial standpoint?
Maybe I'll start with the NII. On NII, I think, obviously, a lot depends on rates and in the short-term rates and long-term rates. But I think what I can say is first quarter is where would I see the first clean quarter without a high impact from nonperforming exposure.
We are putting in place measures to reduce the cost funding on deposits. Obviously, this takes a bit of time to flow through the P&L. And either quarter, which frankly comes after the 2 quarters where the bank has been focused on guaranteed loans. With a better capital position, we may release a bit of that focus. I think it may take some time, but the trend should be positive on net interest income.
On the GDP, on the comments regarding GDP, they make sense. We -- the way banks models work is normally they look at the evolution of GDP over time, looking ahead to future years to calculate the probability of default. When we model our probability of default, we have kept in our estimates 2020. So therefore, we have had a very bad year in our view of the future, and we have not allowed for an improvement in probability of default in our Stage 2 portfolio, which is very significant.
So what I can tell you is that the numbers are calculated in a conservative manner. The area of our lending officer is very focused on this fresh program that our CEO described. And the reclassification, this really implies going client-by-client and talking to them and understand their position, the reclassifications have been very low. So we do not have a crystal ball, but the approach has been conservative.
On the real estate, nothing really major. I think among the top 5, 6 banks in Italy, Monte dei Paschi was the only one that still used the amortized cost basis for reporting purposes. We have adopted a fair value approach and the impact -- you find it in the appendix in our presentation is relatively contained compared to what most of our peers on a relative manner I have seen. So we are talking about EUR 200 million.
The impact on P&L is twofold. Number one, of course, we would have lower depreciation and amortization going forward. Number two, it will be more difficult for the bank to capitalize, for instance, restructuring expenses on real estate property, there's nothing special there.
On risk-weighted assets, our CEO said a lot has been driven by the focus on guaranteed loand. I think in one of the footnotes of the presentation, you see the split of Slide 5. You see that in the first quarter, the bank has granted new loan, of which 60% were state guaranteed, 30% ordinary lending with real estate collateral. These would be retail mortgages, which we see as relatively safe. And 10% without real estate collateral. So this has been driving the evolution of risk-weighted assets. The CEO already commented on why we have done -- we have taken this approach.
Just a quick follow-up. The way of originating loans with the state guarantee, do you expect to go on also in the coming -- in the foreseeable future?
Yes. Of course, there will be a slowdown over time. For sure, second quarter, we should still see important volumes, and then they will probably go down in a more significant matters.
As I said, the raised EUR 9 billion are between 25% and 30%, I think closer to 30% of our corporate loans, which are now benefiting from a state guarantee. So after this exercise, the guaranteed part of our loan portfolio will be relatively high.
Okay. And finally -- just -- and EUR 9.5 billion was the RWA inflation that you just mentioned before, did I get that correct?
That's the number. It could be a few hundred million less or more. Looking at the way we have been making judgments in the past, it's probably a bit less. But we will see over the next few quarters.
The next question is from Giovanni Razzoli with Deutsche Bank.
Just a clarification on the agenda for the next couple of quarters. So you said you are discussing -- I mean, Apollo has accessed the data room. So they are still a number crunching. If there is no solution, you will revert to the market for a capital increase in the Q4 or Q1 2022, assuming that DG Comp approves the move because we are still waiting for that? And this is 1 or 2 quarters of delay compared with your previous expectations.
It is not clear to me what is the -- what drove these 1 or 2 quarters of delay in any -- in the right issue, if any, because the DG Comp is taking more time than expected to approve the recapitalization of the plan. Is this negotiation ongoing because there are other components?
I think there is a statement or a phrase in our press release which refers to ongoing the DG Comp discussions. So as we said also in the context of our full year results, we will have to finalize the discussions before formally launching the capital increase.
If they need, right?
If the structural solution does not happen before. And of course, this remains the preferred route of the majority shareholder and the solution the bank is focused on.
The next question is from Luigi Tramontana with Banca Akros.
Just 1 question left. When you say that the 2020-2025 group strategy plan will be very positive in terms of DTA recognition and considering that you have some EUR 3.5 billion of DTAs not recorded in the balance sheet, how much can we expect to be recognized overtime of those DTAs should the business plan be approved?
Of course, a lot depends on the timing of the approval. I think we had a write-down of DTA last year, probably the write-up would be of similar order of magnitude, if it helps. But I wouldn't say more at this stage.
Mr. Bastianini, there are no more questions registered at this time.
Perfect. Thank you very much.
Thank you very much to all.
Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.