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 morning. This is the chorus call conference operator. Welcome, and thank you for joining the MPS Fourth Quarter and Full Year 2022 Results Presentation. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Luigi Lovaglio, CEO of MPS. Please go ahead, sir.
Good morning, everybody. My warm welcome to all of you. Many thanks for joining us for Monte Paschi Fourth Quarter and Full Year Results. This morning, coming to the bank I had a thought that today is exactly 1 year since I'm honored to have the front row seat for Monte dei Paschi.
I would have never thought a year ago that, after 1 year and only after 7 months since launching this strategic plan, I will be here to present to you a quarter with a sustainable net profit of EUR 156 million with a cost/income of 60%, and the core Tier 1 of 15.6%. As I told you during the previous presentation, the third quarter was really the turning point.
Now, we are in new journey, a disciplined journey that will bring us to the destination we envisaged in our business plan. Let me allow to say that Monte dei Paschi is not anymore a systemic problem, but it should be considered for what is a truly country's asset.
Let me give you some highlights of the fourth quarter and full year 2022 results I will elaborate during the call. This is the first quarter after the implementation of the capital increase and the implementation of the main business plan action relating to the more than 4000 headcount reduction to the voluntary scheme. It is the first sustainable quarter. It can give a sense of what the profitability going forward can be.
Fourth quarter profit is EUR 156 million compared with EUR 79 million losses in Q4 last year. The year net profit excluding HR restructuring costs amounting to EUR 925 million that we booked in Q3 is at EUR 720 million, driven by net operating profit, supported as well by a positive tax effect of EUR 425 million. Including the one-off restructuring cost, the 2022 net result is negative EUR 205 million.
Quarter gross operating profit is at EUR 333 million growing by more than 60% compared to the previous quarter into the fourth quarter '21. Year gross profit is at EUR 989 million, up by 13.2% year-on-year, thanks to both, an increase of operating income and the reduction of cost.
The quarterly net interest income is up by 31.4% quarter-on-quarter and 54.5% compared to Q4 of last year, driving full year '22 net interest income up by 26% year-on-year. In Q4, we have started to book [Technical difficulty] [ exit ] of personnel is around EUR 300 million, if we consider the annual basis. And in this quarter, we booked the benefit only for 1 month.
Gross NPE ratio is 4.2% compared to 4.9% 2021, thanks to EUR 900 million NPE disposal and to the proactive management of portfolio. The net NPE ratio is at 2.2%, well on track with business plan targets. Full year '22 cost of risk at 55 bps with NPE coverage increased to 48.1%, despite the disposal of NPE portfolio.
Finally, on capital ratio, CET1 ratio fully loaded is at 15.6%, growing by 90 bps in the quarter on the top of the capital increase, thanks to the organic capital generation, the reduction of risk-weighted assets. This number is well above the original envisaged in our business plan.
Let's go now through more details in Q4 results. Net profit yearly evolution. As you can see from the slide, we reported this EUR 156 million, and it is interesting to note, the fourth quarter result is coming after EUR 10 million resulting in the first quarter, EUR 13 million in the second quarter and the losses of the third quarter. This is a confirmation that this is really the first effect of the action we put in place, and this can be -- the EUR 156 million can be a really good base for the next year.
Regarding the profit for the year, I'm on Page 5, the net profit is positive for EUR 720 million, excluding the HR restructuring costs that we booked in Q3. This result is driven by gross operating profit, and this is well sustained by EUR 425 million of positive tax effect. Including the one-off restructuring cost, the net result is negative for EUR 205 million. The comparison with the previous year is not really effective because, last year, we had some one-off in terms of release of provision and much higher gains from securities.
So if we move on to the next slide. I think this is one of the most important, interesting slide of the presentation. The gross operating profit for the quarter is EUR 333 million, and is up by more than 60% quarter-on-quarter and year-on-year. And I think it's worth to mention also that we reach cost/income at the level of 60% in the quarter.
Gross operating profit, as you know, is the capability -- is presenting the capability of the bank to deliver sustainable results. I believe the action we put in place in this -- in the last 6 months, are well reflected in the slide where you can see the potential of the bank, the power of the network and the resilience of the distribution capability that this bank has.
If we move to the next slide, you can see that the total gross operating profit of the year is EUR 989 million. It's 13% up year-on-year. And if we close -- we take off the capital gain from security disposal that we realized last year in EUR 100 million more, compared to this year, the growth is at 28%.
Net interest income. As you can see, we are showing a double-digit growth in both quarterly and yearly comparison. Net interest income is up by 31.4% compared to last quarter. And year-on-year we are reaching 26%. The result is positively impacted by the -- a better spread. That is a combination of capability on one side to resist and to face properly the pressure that we have on deposit. On the other side it's also a benefit that we have from the structure of our balance sheet that is well exposed to the interest rate increase.
Now, if we move to volumes. Net customer loan. We are consistent with our strategy. We want to grow in retail, and particularly on mortgage and consumer lending, and as well in small business. In this slide, you can see that we are confirming the third quarter as far as the volumes of retail despite, as you know, the trend of the rate is not facilitating the granting of mortgages, and as well, December is not the best month to do this kind of transaction. For small business, we have a reduction in the last quarters also because restarted the post-moratoria repayment in this quarter.
We go to the funding composition. We are resilience on retail deposits, despite there is a sort of continuous trend towards investing in fixed income, particularly govies, due to the attractive interest rate. On corporate funding, we have a sort of opportunistic approach. We don't need deposits if we have to pay too much.
Moving to Italian govies. The portfolio has been reduced by EUR 1.8 billion since December 2021. The credit spread sensitivity is also down to 0.7%, and the portfolio duration decreased below 2 years. I think this is part as well in this slide is showing the conservative approach we want to keep in delivering our results. We like to drive and to manage what we can control. That's why, as you can see, the total -- 60% of the portfolio is allocated at amortized cost portfolio in the light of the strategy of the bank, because we want to use this portfolio just to support the interest income, giving a sort of stability to the results of the bank.
Now looking at the quarter evolution of fees and commission. I think I want to pass 2 message. First one is that we are growing in what we call operation with customers. So the customer activity, of course, during the quarter is growing. Q4 is also a quarter of settlement, particular December. So we had some yearly settlement of agent fees.
Moreover, looking at the interest related -- the loans-related fees, we are slightly down because, practically, is the consequence of switching to the in-house business, the consumer lending activity.
Overall, resilience on banking fees, as I mentioned, wealth management fee are affected, particularly on upfront fees, by the particular market condition. And fortunately, we are observing at the beginning of the year a different trend, and we are confident that the performance in 2023 can be better.
Now, indirect funding. In the last quarter, indirect fund stock increased, thanks to the asset under custody benefiting from positive net flows due to the renewed customer interest in fixed income security, also as a result of the rising yields, while the asset under management component is almost stable.
Really, the comparison year-on-year is driven by the market effect. In some way, we are resilient, having a decrease of the stock slightly below what we estimate is the market effect on the stock.
Now, on cost, we see the positive first effect of the current reduction with total operating cost down by 3.2% quarter-on-quarter and 2.3% year-on-year. Again, I would like to stress that Q4 includes only 1 month of savings. And on a yearly basis in 2023, we can count all savings in HR cost above EUR 300 million.
HR expenses so are down quarter-on-quarter by 7.6%. Non-HR costs are impacted by usual seasonality of the fourth quarter, some inflation pressure, the pickup in energy costs. And by the way, I think it's not very effective compared to previous quarter -- the quarter of last year that had been impacted by some one-off cost release. The yearly evolution of the cost is showing practically a small decrease year-on-year with a combined effect of lower HR cost and, as I mentioned, slightly higher non-HR cost.
Now on asset quality. The NPE stock decreased nearly 20% year-on-year, thanks to the disposal of portfolio of EUR 900 million. The stock today is EUR 3.3 billion. The NPE ratio is 4.2% in line with our pro forma ratio. Their flow on NPE also in last quarter is absolutely under control. I believe that it's a combination of capability of the bank to act in a proactive way towards the critical position. At the same time, it's also the structure of our portfolio that practically is well known due to the limited activity we reported in the last 2 years in granting new loans.
On NPE coverage, we show a slight improvement quarter-on-quarter year-on-year, despite NPE disposal of EUR 900 million. And we are now at 41.1%, that is slightly higher compared to the previous year despite the sales. Cost of risk at 51% in the quarter, 55 bps, is the cumulative after 12 months, and is at the same level of Q3.
This result is also factoring the NPE sales mentioned before. And I have to say that we are keeping a conservative approach also in setting the level of provision. And as I mentioned, if we look at the inflow and the default rate, it looks like we don't see any signal yet of deterioration of the overall economy.
Now on capital. I think there are 2 important messages. We reached a level of 15.6%. That is not only the results of the increase of capital. In the quarter, we increased by 0.9% the CET1, and this is a strong evidence of capability of the bank to generate capital.
This is a level that is even above our expectation. I think it's a results of a disciplined approach in risk-weighted asset, a selective approach in lending and also some housekeeping activity we are performing in order to optimize the level of risk-weighted assets we have.
The profitability of the bank of the quarter is showing that, structurally, this bank has a strong plus in generating gross operating income, and this is the base also for generating capital, and we are quite confident about this capability throughout the time of the business plan.
Now the slide on extraordinary litigation and extra judicial claims. Gross petitum related to what we call the core claims, remain almost unchanged versus September. Let me add for the record the recent positive judgment confirming the positive jurisprudential trend of the precedent years, including particular 2 new judgments taking place at the end of January, beginning of February.
Regarding extrajudicial claims, the amount at the end of December is EUR 1.5 billion. As already I mentioned in the previous presentation, the majority of such claims are characterized by lack of documentation, lack of legitimacy and casual nexus, and are promoted by the same consulting company on behalf of institutional investors.
In this context, in January 2023, the bank received a letter of complaint for another amount of EUR 700 million. As we were -- already mentioned in the previous presentation, we already ask our legal advisor to protect the bank interest, taking the next action. And I think it's quite interesting to observe that this kind of claim are really coming [ punctual ], close to the presentation, and the preparation of our financial statement.
As I mentioned in several occasions, I think the bank has properly addressed these kind of legacies, and we believe that our balance sheet is well equipped to [ guard ] also this kind of risk.
Now, let's go on what really is the ground, what we were doing during the last months. So, I think it's quite interesting to see altogether what has been achieved by the bank during this time. Starting from capital ratio. The CET1 fully loaded is at very comfortable level of 15.6%, and allow us to easily deal with regulatory headwinds expected in the Q1 '23.
On cost saving, I think, what has been done with the voluntary scheme was an important achievement, because, practically, we reduced the staff by 20%. In the quarter, we have the benefit only on 1 month. And I believe that to count on the next year of saving, about EUR 300 million is one of the most important achievement of the bank.
On asset quality, as we already mentioned, thanks to the NPE disposal, we reduced our gross NPE stock by around 20% year-on-year. And the NPE ratio is now at 4.2% compared to 4.9% last year.
We significantly improved our efficiency, thanks to the reduction of HR cost, and the cost/income ratio decreased to 60%, a level already in line with business plan target at the end of 2024, and I believe, we have further room for improvement.
Important steps have been done also on the simplification of the group structure. Practically, the IT company has been already incorporated in the bank. This was -- this happened at the beginning of December. And within mid of this year, we are going to incorporate as well the 2 product companies, and -- Capital Service and Leasing & Factoring.
Finally, in line with business plan pillars, we are putting great focus on Widiba, with important results already achieved. And this is the company where we want to invest. We believe that it is an important asset of the bank, not only because it's clear that the multiple in terms of valuation are much higher, but especially because the technology of this company is really one of the -- is the best-in-class, and we believe that we have a champion inside the group that can generate a lot of value for overall valuation of Monte dei Paschi Group.
Let me conclude the presentation by giving some guidance for this year. Let's start from revenues. We do expect increase in net interest income driven by improved commercial asset mix in favor of retail lending by higher rate, and that [ belief ] that this will completely offset the higher cost from institutional funding.
Fees are expected to come back to a positive dynamic, driven by expected better market condition. And also, the support will come from the new group network reorganization, particularly focused on retail business.
On cost, we have done a lot last year, paving the way for further savings on staff cost, and we continue to implement other important initiatives outlining the plan, and we believe that this initiative will bring costs down even in a higher inflation scenario.
We improved in line with our business plan target, the asset quality. And looking the last quarter, and what is also happened in the first month of the year, we believe, we are confident to say that the cost of risk in 2023 is expected not to exceed the 2022 level. On pre-tax, we are committed to implement actions that will lead to our target pre-tax profit in 2024 of EUR 700 million, and we believe as well that we are getting closer to these results already in 2023.
Finally, on capital. Core Tier 1 ratio is expected higher than the planned target and is -- be ready to absorb the impact of AIRB models. Such impact is expected to be even lower than the EUR 5 billion -- sorry, EUR 5 billion, EUR 6 billion, I think, was a sort of guidance we gave in the business plan, and we believe, will be even lower than EUR 5 billion.
Conclusion. We delivered in the quarter more than EUR 150 million, giving proof of the bank's achieved capability to deliver sustainable results. The evidence of such capability is in the EUR 333 million gross operating profit generated in the quarter, that is up by more than 60% compared to the previous year, and to the cost/income at the level of 60% that is already the level of the target we fixed in the plan for 2024.
We reinforced our balance sheet structure, reaching 15.6% for Tier 1, ensuring confidence on future results. Monte dei Paschi is now a structurally improved bank, well positioned compared to our peers in terms of asset income and economic indicators. I believe, we have a clear vision, and we are very committed myself, the Board and all the colleagues. We are going straight and as fast as possible to our destination. And after a long and difficult sailing at site, there is a safe harbor or better. I believe we are now in the position to choose the best safe harbor site, and we will get there, for sure.
Thank you very much, and we are ready for answering.
[Operator Instructions] The first question is from Giovanni Razzoli of Deutsche Bank.
I have 2 questions. The first one is a clarification on the NII. I was wondering whether there are any one-offs in the Q4, mainly related to the TLTRO accounting or something like that, as we have seen for other banks in the last few days?
And then, if you can be -- if you can provide a little bit more of a guidance for NII in 2023? You reported that -- you've mentioned that you expect growing in NII. If you can please detail what is your expectations, and also in order to compare banks more properly, what is the base of the deposit that you are assuming for 2023? I understand this is a very fashionable question, but it's what I think will help us to differentiate on the performance of the banks in terms of NII generation in 2023.
The second question is on the risk-weighted assets inflation. You mentioned that the inflation will be lower than EUR 5 billion. I was wondering whether is there any possibility that this headwind is weighed by the regulators in the context of the very successful implementation of the business plan? Or shall we take any way risk-weighted asset inflation growth as the grant and even is below EUR 5 billion?
And the last question, allow me again for this legal risk issue that we hope sooner or later will stop. So basically, if I take number -- Slide #20, is it correct that sum -- all -- the total that I've seen there at the end of the Q4, the legal risk amounted to EUR 3.4 billion? And then, because of this EUR 700 million of random request that you have received in January, the total has now increased to EUR 4.1 billion. And if you can share with us -- you mentioned instead on the positive side to judgment, in the first week of 2023, what is the amount there of these adjustments, if I interpret correctly, or your slide?
So I can answer to the first 2 questions, and then Luigi will take the litigations. On the net interest income, actually, in the fourth quarter, we still have a positive contribution of the TLTRO because the new terms and conditions set by the ECB were effective as of 22nd of November by heart. So we still have a positive contribution of around EUR 27 million in the fourth quarter. While in '23, let's say, the contribution of ECB relationship -- or the [ relation ] with ECB will be negative.
Having said that, let's say, the rest of the dynamics is mainly related to the increase of interest rates and the impact on the loan side. As you know, ECB has in the meantime further increased rates. This will have a positive impact on our NII.
So, as mentioned by Luigi, when commenting the outlook, we expect NII to go up, definitely more than offsetting what the non-headwinds are, like the cost of the funding plan. So we are confident that the NII will provide further support to our bottom line in '23 and being higher -- far higher than what our original targets in the business plan were.
As regards RWAs, as mentioned, the RWA inflation deriving from the update on AIRB models will be lower than expected in the first quarter. So we were guiding to EUR 5.6 billion when presented the plan. Actually, the impact will be lower than EUR 5 billion. So, definitely, this is a positive. Apart from that, we do not expect other -- main impacts other than deriving from the normal business dynamics on litigations.
Andrea, sorry, can you share with regards -- kind of deposit beta you're assuming for 2023? [Technical difficulty] It's a KPI we can [ come here ] with -- over the last few quarters. So if you can then share with us this value?
Our deposit beta at the moment is currently estimated at around, say, 40%. And then, of course, let's say, the management cost of funding will be a key lever for '23, for us, as for any other bank.
I just -- we first -- just to add something what Andrea was mentioning. It's clear that the guideline we are giving for interest income is based on the change of the mix as well. It's an important element. That is on the top of what practically we are reporting 2022 where, for example, the consumer lending activity just started. And this give us confidence, despite the interest rate that, in addition to what happened this year, we can change to the business mix of our loans and get some benefit on that.
On this extraordinary claims, yes, the EUR 700 million were just reaching the bank. This letter of complaint, I want to underline really that all this balance sheet -- the balance sheet of the bank, the P&L of the bank is important to mention, is always prepared with a strong conservative approach, and this is reflected in the line of reserve for loans as well reserved for risk.
And part of the reserve we set aside in our P&L in the fourth quarter, even reflecting a conservative approach, looking forward that we want to keep and to have, because we want to deliver sustainable results during the horizon of the plan. And the sustainability is exactly what I was mentioning before. But we can influence the results because results depend on what we are doing, and it's better to have some buffer time to time to offset some negative events that can happen. So this amount should be added to the total.
The positive results that we have in the court in the end of January and February are not relevant in terms of amount. Normally, we're not disclosing that. But quite a fundamental important for the -- what are the consideration of the court regarding this plan, because it's giving a sort of trend, how should be considered and what should be taken as a base for the judgment to what the bank has done.
And moreover, I think also important to mention that, recently, we had also some positive evidences about what the bank has done on the past, especially on what we call the issue of financial information of non-performing loans, and also some authority was -- were confirming that the bank was acting properly.
So, as I said before, it just -- I believe that it's just a matter of time. What the bank has set aside more than sort of the detrimental of -- sort of negative aspect for a merger transaction, will be a nice and significant surprise in terms of value for any future transaction in which the bank will be involved.
The next question is from Alexei Lougovtsov with Bank of America.
I wanted to ask about your funding plan for this year on the fixed income side.
Okay. The funding plan in '23 is expected, let's say, to -- as regards wholesale funding, MREL eligible, is expected to have volumes, say, higher than EUR 2 billion. We will most likely be [ shorting ] the market in this respect. The bulk of it will be [ senior ] preferred, and the remaining component will be [ Siena ], preferred with specific regard to senior nonpreferred bonds.
We expect the subordination -- the MREL subordination requirements to actually go down in the next, let's say, decision because, our total assets end of '22 are definitely lower than the total assets as at 31 December '21 due to the TLTRO reimbursement. So let's say, the mix of our funding plan might change favorably towards senior preferred over the course of the year.
Anything on Tier 2 or additional Tier 1?
No. At the moment, we are not planning any issuance of AT1 and Tier 2 also because we are, say, fully capitalized. So we do not need -- our funding plan will be mainly targeted to MREL-related issues.
And just finally, is it where beginning -- I'm not sure I got this right. Is it up to EUR 2 billion or more than EUR 2 billion MREL?
More than EUR 2 billion of wholesale funding, MREL eligible. Then we might have bits and pieces of covered bonds, I would say.
The next question is from Andrea Lisi with Equita.
The first one is, again, on NII for 2023. In particular, I want to understand -- I would like to have a bit more color on the trend that you see there, in particular as regards about, what do you see in terms of evolution of the commercial spread which rose by 54 bps quarter-on-quarter? And so, given also the trajectory we see on -- therefore on the rebar for [ workover ] and the deposit beta you have in your assumption, how do you think the commercial spread could evolve going on?
And again, on NII evolution, I wanted to understand a bit more what are your expectations in terms of loan origination and also the capacity to retain deposits, if you see some pressure there? And if this could result maybe in a further increase in the cost of funding?
The other question is on fees that were down quarter-on-quarter. just wondering to understand how to grow from these levels and which are -- is the strategy? And if you can provide us an update on the [ DTA ] you have of balance. It remained the same.
And last one, if the positive judgments that you had in the first weeks of 2023 give a bit more visibility on the time frame of the judicial litigation or nothing changed from that point of view?
I will take the questions on NII and DTA, and Luigi will answer on the other questions. On the NII sensitivity, yes, we expect widening of the commercial spread. So we expect definitely a pickup of commercial NII in '23 boosted on the one hand from, let's say, the effect of the rate on indexing of the stock. For example, a part of the loan book was repriced as of 1st of January.
Then there is another impact which is not related to the stock, but which is somehow linked to your second question on volumes, i.e., we have some maturities in '23. And what, for example, matured in '22, was having rates of less than 2%, while the new business is written at above 5%. So there is -- on the one hand, there is an effect of index in the stock.
On the other hand, the replacement of back book at a low rate with new business written at a far higher rates. So definitely, there will be a pickup of the commercial spread that will be more than offset, let's say, the "headwinds", like roughly EUR 100 million of higher cost of funding for wholesale for the funding plan. Plus the other relevant headwind is the TLTRO contribution that was around EUR 155 million altogether, including the deposits [ received ] in '22 and will be negative in '23. So NII, as mentioned before, will definitely contribute positively to the bottom line in '23.
As regards instead DTAs, on the balance sheet, we have already written EUR 1.5 billion of DTAs, of which around EUR 600 million are the convertible DTAs. While we still have EUR 3.4 billion off DTAs of balance sheet, out of which around EUR 3.2 million are related to tax loss carryforward, and around EUR 160 million are temporary DTAs. So this regards the first question on NII and the fourth question on DTA.
Then you had a question on whether we see any issue in writing new business, so in terms of loan volumes, or we see pressure on cost of deposits and what our outlook is in terms of fees, commercial capability. And then you have a last question on litigations on -- this, I think, Luigi will tackle.
Okay. So I think there are 2 points. One is related to the commercial activity, maybe I will [ treat ] after discussing quickly about -- this point about the litigation. Clearly, I think, it's important to underline that, in 2023, already in January, and I said -- at the beginning of February, we are just reporting a positive trend, again, in all the court judgment, and this is a continuation of what happened in 2022 and also in the previous years before 2022.
Now we have an important data that is at the end of March where there will be the court appeal judgment relating to financial information 2014 and '16. It's clear that, having reported a very positive judgment last year in the -- something that is quite in some way connected, that is the court case relating to the financial information 2008 to 2011. We are looking at this deadline with a relatively positive attitude.
Then we have to see what is going to happen on the financial information relating to credit deterioration. But as you know, this is a chapter that is quite peculiar because it's connected with acquirer, that took place more than 6 years ago in all the banking sector, as well, according to what is the opinion of our lawyers. And we have several lawyers in charge of that, our expert as well. And those are our internal evidence, we believe still -- again, that the development can be positive for what is relating to the bank.
Now, on the commercial side, there are 2 important aspects. As was mentioned at the beginning, the bank implemented a new commercial organization from the 1st of December, was at the same day when we had the exit of 1,000 people. 2000 -- last year was a year of preparation, changing also a sort of a mindset that was much more focus on large corporate transaction and less on what we define the core business of the business plan, and it is the retail lending.
We have ambitious target in terms of consumer lending, in terms of mortgages. We are quite confident that particularly consumer lending will give a significant improvement to the mix of our lending, and so, we'll significantly improve also the spread and our margin in loans.
In some way, we expect to have a sort of recovery of the market for -- as far as wealth management products are concerned. We believe also that the organization -- we have more people that is dealing with this kind of activity. We have a new business line that is directly reporting to the Chief Commercial Head of Retail. We are strengthening the partnership with our long-lasting institution that are cooperating with us in distributing the asset management product. So we are starting with some context, particularly training. We have a new platform that will enable us to better identify the customer needs and to identify their profile.
So we are quite confident that we are going to have -- to be back observing a positive dynamic in terms of fees and commission. So that's why, overall, the guidelines for the total commercial income, I mean, net interest income and fees, we believe, it would be quite positive in 2023, giving additional [ past ] to what has been already achieved on the side of cost, and delivering a gross operating profit that will be definitely higher than what has been in 2022.
I just add one thing on the commercial spread. Let's say, you can assume a widening of, say, above 50 bps in '23.
The next question is from Noemi Peruch with Mediobanca.
I have 3. The first one is on capital. If you could walk us through the quarterly evolution and moving parts of Common Equity Tier ratio in Q4?
The second one is on NII. If you could please quantify the negative impact on NII, on the net ECB funding in 2023, which also included the replacement of TLTRO?
And lastly, if you could shed some light on the drivers leading to an increase in the NPE stock in Q4? This, of course, includes the disposal.
Maybe I will start from the evolution of the fully loaded Common Equity Tier 1 ratio. So, in the quarter, we have, let's say, around 570 bps contribution of the capital increase. Then we have around -- slightly above 30 bps of net income, slightly below 60 bps deriving from RWA dynamics. And then we have some bits and pieces.
And then, as regards the RWA dynamics, -- the -- you have a reduction which is partially related to the credit RWA for just less than EUR 1 billion. Then you have largely a reduction of operating risk RWAs of around EUR 0.5 billion, a reduction of market risk of around EUR 0.3 billion, and then you have instead plus EUR 1.1 billion which is related to the threshold effect, i.e., since we have less deduction on CET1 because we increased the capital, then we have higher RWAs because what it is not deducted is weighted at 250%. So -- and this explains the other dynamics, I think. I hope that this clarifies the Common Equity Tier 1 ratio dynamics.
As regards the TLTRO is what I mentioned, i.e., they contribute -- if I got the question, the contribution in '22 was EUR 155 million. Let's say, the negative impact in '23 is -- I mean, based on the new ECB rates, it should be around minus EUR 100 million roughly. On NPE?
Now just a few words on that I will take, Andrea. So practically, the total stock increased by a marginal level. So if I remember well, between 60 -- is among -- between [ EUR 60, EUR 70 ]. As I said, the fault rate is keeping the level that we observed in the previous quarter. So marginal inflow absolutely below what even we were estimating.
Despite that, we adopted a very conservative approach as well on the area of provision on loans, having in mind that it's better to have some buffer in consideration of what is going to happen this year. That's why we are confident to give a guideline regarding cost of risk. It can be -- we estimate it to be not higher than what has been in the previous year.
And if I may follow up on the NII question. So the contribution of [ delta ] is EUR 150 million in 2022, which [ disappeared ] in 2023. So if I just look at the net delta in 2023 vis-a-vis 2022, it will be minus EUR 250 million, if the minus EUR 100 million that you mentioned is then linked to the replacement of Delta?
Yes, this -- you got it correctly, let's say, based on the evolution dynamic. Again, as mentioned before, the widening of the spread and the writing of new business on the commercial dynamic will be -- will more -- far more than offset both the negative contribution of the TLTRO and the additional cost of wholesale funding in '23.
The next question is from Antonio Reale with Bank of America.
I just have 1 follow-up and 2 questions, please. The first one is a follow-up on some of the questions asked already, and it's with respect to what you're seeing from competition and from your client base when it comes to deposit pricing, It will be good if you can share any anecdotal evidence deposit betas today? On Slide 8, I can see some of the change in funding rates versus the rate hikes, but I'd like to hear more color from you.
My second question is on costs and -- in terms of cost for the year. You've executed in early December on the restructuring. We've seen over 4,000 headcounts on early retirement, leave the bank. So I wonder if you can share with us what the underlying run rate for cost is? And what should we expect for 2023?
And lastly, can you remind us the size of your management overlays? And how are you thinking about utilization over the course of 2023? Are you assuming any -- gets used already this year?
So, as I mentioned before, it's clear that we are observing some pressure on deposits. That's why also to support some action that we have on commercial side connected with what we call win back with our customer, we are introducing, again, time deposit, because we believe it's a product that now is offered by several banks on the market, and we should have as well on our shelves.
The pressure on deposit is also connected with an attractive rate you can get today on fixed income securities. But, fortunately, we have a very resilient customer base, and we believe that the plan -- that we have to grow also in deposits for this year, specially retail. I'm just underlining retail. Our commercial action will be successful. We have to pay attention. And I think, in some way, we achieved important results in the last quarter. It's clear we plan for 2023 that in some way we have to follow the market, because we want to defend customer base deposit.
On costs, just to underline again, the overall savings net that we are expected to have in 2023 for 4,000 people that left the bank the 1st of December is higher than EUR 300 million. This is the impact on the bottom line. In the fourth quarter, we have only 1 month. So EUR 300 million divided 12 is EUR 25 million.
Then it's clear that in HR dynamic, if you look at the cost, year-on-year, we have to consider some inflation factor connected with the national labor contract to the introduction of a sort of variable remuneration because we won't come back to paper performance. Our employees -- But overall, despite of that, as we mentioned, we count on a significant reduction of the cost of personnel expenses.
Moreover, we set ourselves a very challenging target on non-HR cost. We already identified actions. Clearly, we have to cope with the scenario with high inflation, higher cost of energy. But, as we started already to put in place action in the second part of the year, we believe that especially in the second part of this year, we are going to report positive results of the actions we have put in place.
So, as -- I think we were mentioning, normally, if we achieve a target of the plan in advance, it's not that we lay on this target. So 60% cost/income has been already achieved. We want to go below in terms of cost/income in 2023. And this is coming necessarily by the 2 lines. One is the revenue. So I said the guideline is for growth, and cost as well. As we said, the overall guideline is low cost. Combination of the 2 is giving some benefits.
Then, if you combine this benefit in terms of gross operating profit, that is what is the real juice of what to measure the sustainability of our results in a scenario where we expect to have a cost of risk that is not different substantially from what has been reported last year. We come to a pre-tax profit that is very attractive and is very much in line with the target we gave in 2024.
And I think it's worth to mention because we have not to forget, is that we have still a bulk of balance sheet to deferral tax that will enable us to consider a capital generation the pre-tax profit instead of the net profit. This is a plus of this bank that, fortunately, will last for a few years.
And I think in overall consideration about the attractiveness of Monte dei Paschi, despite some negatives that I can understand, we are always speaking about risk -- legal risk. We have to consider a significant positive that is coming from this deferred tax, from a conservative approach in terms of quality of the assets, we put in this way -- to keep the quality of the asset, and the fact that the bank is coming back to a very sustainable capability in generating results that is putting the bank at the level of all other peers that are playing on the market.
And there was last question on the overlay. If I'm not wrong, they are over EUR 100 million.
The next question is from Hugo Cruz with KBW.
Just 2 questions. One, on the tax, what do you expect to -- do you expect any DTA reassessment in 2023? And if not, what should we assume in terms of the tax rate?
And the second question on the regulatory headwinds. I heard you that the RWA inflation in Q1 2023 should be below EUR 5 billion. But I was just wondering, should we also assume some threshold effects? So will that RWA inflation also lead to a lower CET1 ratio due to the capital position as well? If you could guide that, it would be very helpful because this is very hard to model, as you can imagine.
So on DTA, actually, as in -- as we presented in our strategic plan, we expect to have another reassessment in '24 because, for conservative purposes, the DTA assessment that was made in '22 was assuming forward-looking series capped in '24. So in '24, we will update the [ series ] and so, we expect to have another material reassessment as per our strategic plan.
In '23, anyway, since our '23 numbers are higher than -- let's say, [ starting ] the plan, we expect -- we still expect a positive effect on DTA that should minimize the tax rate.
As regards to regulatory headwinds in '23 -- first quarter '23, these are -- let's say, the ones we presented, we do not expect, I mean, pressure effects that in case would be related to the, let's say, capital movements.
Just to add one point about the structure of the positive aspect of the bank. In a conservative approach, we didn't account this year more than EUR 200 million of DTA that we could, and we didn't do just because we want to keep all the balance sheet in a very conservative approach attitude that is the history of this bank. And especially I have to say, the person -- our Chief Accountant that -- not only is a professional, but is also a looking forward manager in the interest of the bank.
Ladies and gentlemen, there are no more questions registered at this time.
Yes. So, thank you very much. See you on the next presentation.
Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.