Banca IFIS SpA
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Banca IFIS SpA
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Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Banca IFIS First Quarter 2021 Results Conference Call. [Operator Instructions]
At this time, I would like to turn the conference over to Mr. Frederik Geertman, CEO. Please go ahead, sir.
Good afternoon, everybody, and thank you for joining the call. Welcome to our first quarter results conference.
Being new, I would start with a few very brief observations and then dive into the number. As you know, I joined the bank in February, and I'm very excited about the potential of the business. It's a unique organization with, as we will see, quite a resilient business model. It's active in profitable businesses, which IFIS has chosen. I found excellent know-how, good margins protected by competence, by innovation, and fortunately, a lack of historical legacies that afflict many other players. So as you can imagine, as we come out of this COVID phase, it's a good time to work on our 3-year plan, and I'm very enthusiastic about the prospects and about the job, frankly.
Second thing I wanted to add is just a little comment on the balance sheet. Obviously, I've been diving into it with the team, and I can report that I see no need to make significant write-downs in either the commercial banking or the NPL portfolio. I based this on file -- by file review and on very encouraging data on moratoria. And of course, we have to assume a progressive improvement of the macro environment coming out of the crisis, but nothing discontinuous that in our opinion is necessary. We will do in the context of maintenance really some derisking and some small NPL queues and some more dated pharma exposures, but you can see it, as I said, as a maintenance exercise, not as something discontinuous. So having said that, I would take you into the presentation and the highlights of the first quarter.
Page 4 of the presentation. We are reporting net income of EUR 20 million, revenues at EUR 138 million, which are up relative to first quarter '19 and first quarter of 2020. If we exclude the PPA and focus on the actually industrial part, we're reporting EUR 126 million, which is both up versus first quarter '19, first quarter '20 and fourth quarter '20. NPL cash collection at EUR 81 million, up versus the previous quarters. It's been record cash collection.
And we report loan loss provisions of EUR 16 million, including EUR 8 million of prudent COVID-19 provisions, meaning that it would have been EUR 8 million, including a minus EUR 4 million due to a model change, so with a bit of help. But we added EUR 8 million of prudent COVID provisions, as we will see later, in a specific portfolio.
CET1 at 11.77%. So plus 48 basis points since last quarter. This excludes the net income we report in this quarter, as usual. And we're at 15.97% without consolidating La Scogliera, right, for the obvious consolidation issue that you all know.
2020 dividends of EUR 25 million are to be paid on May 26. The 2019 dividends for regulatory reasons, as you know, are still in the bank. They are booked as debt to shareholders. So you do not see that as capital.
Let me go into the revenues, Page 5. As we said, we have this net revenues, excluding the PPA, which I would focus on, of EUR 126 million. Net NPL revenues are up 35% year-on-year and 26% Q-on-Q. That's both the normalization of the courts, obviously, but also some management action aimed at reducing the time frame of collection. Revenues, we are quite resilient after the bounce back that we had at the end of last year, as you see.
Commercial banking revenues up 21% year-on-year and 3% Q-on-Q. Various contribution, both cost of funding and the good performance of medium-term lending and of structured finance. Still, looking forward, every now and then I will make a statement that looks ahead a little bit, still some potential in cost of funding reduction in our opinion. So that has a lot of focus.
I bring you to Page 6. NPL collection, as we said, EUR 81 million. The management action that is mentioned of shortening the voluntary repayment plans and increasing phone/web collection, as you see on the right of the chart, lead to quite an improvement also in the extrajudicial recovery from EUR 37 million to EUR 42 million last quarter. I want to stress that this shortening is a file-by-file exercise, right? So it's not sort of a wholesale discount strategy at all. The saldi e stralci for the Italians, as a component of cash collection, has gone up from 7% to 12%. So we've seen an improvement, but it's nothing dramatic.
Actual cash collection outperformed the model estimate. There's a slide in the backups, which shows you a further acceleration relative to the model. So that gives you some comfort versus the quality of the portfolio. And we remind you, obviously, that we have posted EUR 23 million provisions last year to reflect the COVID effect and that we have some other characteristics, which we find reassuring, namely that 40% of the order of assignments are towards public employees and retirees and that we have a very granular portfolio.
Forward looking, we're looking at a portfolio now of a pipeline of about EUR 3 billion. So we think we can be reasonably selective in what we'll eventually purchase. And we're streamlining servicing operations in NPL servicing, including migration onto a single IT platform that happened in the last month, which we're quite happy with. So lots of operational work.
I want to spend a little bit of time on Pages 7 and 8 on digitalization. So I'll try to be short, but I did want to devote a little bit of time on it because it's got some emphasis also in the media. What does it mean digitalization, right? Why are we even talking about it?
So on Page 7, we take the view of the commercial side, right? You can see the typical phases, right? Origination, customer onboarding, risk and credit assessment and then customer management and commercial development, right? The phases that a relationship goes through. You can see the old process briefly described. You can see where we are in April '21 and you can see where we expect to be next year.
So 20% of the new clients we have originated in April or in the months up to April have been generated online. We've got 500 online requests for full MCC lending, right, done fully digital. So we are already operational in these things. And for next year, we plan to double our investing in digital marketing. We've increased it by roughly 1/3 for '21. So this is rapidly ramping up.
Onboarding. We plan to roll out the onboarding platforms that we use in leasing and rental to all the core commercial banking products. But also this is a case of something that is already live and that will lead to formal client acquisition done digitally. So in a very customer-friendly way without need for physical presence.
Risk and credit assessment. Here, also, we're already doing things in leasing and rental with a digital credit assessment. We're rolling that out to the other products of the bank, where we intend to assist the analyst with a first credit assessment. Therefore, greatly simplifying his job, but not substituting the credit assessment, obviously, by the colleague for the larger files.
And finally, on the customer management side. We've launched our Ifis4Business platform, and that will also be rolled out. So what I wanted to show is that it's concrete. It's happening today. Why is it relevant? Because it will allow us to pursue growth in volumes with a very attractive marginal cost income ratio because as you collect, as you expand volumes in this way, you're not increasing your cost base in the same way, obviously. And therefore, it will be relevant in our plan and it's already happening.
Page 8, similar story. I won't be too long on it. We show you a typical factoring process, which is traditionally very fragmented. It's logical because you're advancing specific invoices, single invoices. So we're going to this mostly digital process by the end of 2021 with guided upload request and control of documents on the customers' operations, right? That will allow him to basically do things without physical documentation, traveling, streamlining their administrative processes, benefit for the customers, reduction of time to yes, benefit for us. It's quite obvious. If you go to the right of this right-hand side of the slide, digitalization of checks, integrated dashboard for the analysts, streamlining of back office and therefore, economies of scale, right?
So here too, the platform exists. It's operational. We go down from 11 steps to 6. We cut the time that it takes, right, for an invoice to be managed or for a bunch of invoices from 55 to 17 minutes. It's relevant because it will allow us to have more turnover without having to add costs, right? So once again, attractive growth with very attractive marginal cost income ratio.
Page 9. I wanted to give you a little bit of focus on moratoria. Cost of risk is coming out low. We're also, I would say, pleasantly surprised, if I may use the term, by the development. The moratoria can give you, I think, a bit of flavor of the sustainability of this. So what you see here is on the left-hand side of Page 9, you can see the original moratoria exposure, right? So we had EUR 800 million that was basically on a payment holiday, right? That's gone down on a voluntary basis to EUR 533 million at the end of March. And if we look at the end of April in a further month, another EUR 40 million has come out. So we're now at EUR 319 million, right? So IFIS customers have the right to lengthen these moratoria. They're not using it. They're coming back to us and they say, "Okay, let's start repaying."
Now in each of those categories, I won't read it in detail. You can get the detail, right, of how that category is restarting the payments, but we've also added some notes about why we're reasonably comfortable about the part that remains. First of all, we are doing a client-by-client review. We're calling them and we're asking them, "Are you ready to come back?" And we're getting quite reassuring messages. The clients that talk to us about serious problems are in the single digits. Some of them may need maybe some help, some additional, a little bit of flexibility.
But once again, we're reassured and I remind you that we've posted EUR 31 million in 2020 on the right-hand side of the slide and another EUR 8 million this quarter as an extra precaution. The EUR 8 million in this quarter, we've put it in a category that protects us from concentration risk and structured finance.
Are there any specific issues in structured finance? No. Why did we use that category? Because it's a generic category. We have a portfolio there that has an average size of about EUR 12 million. And therefore, the loans are slightly bigger than the ones that we have on average. And we're protecting against concentration risk should something happen, which is, once again, a flexible category where you can put an add-on without having to go against a specific loan. Looking forward, we're not expecting COVID to have an impact beyond what we've reserved for it.
Operating costs on Page 10. We had stated EUR 79 million in the fourth quarter of 2020. If you want to look at what that would have been without one-offs or any distorting events, right, the extraordinary items, you should add EUR 20 million, which is the net of EUR 10 million NPL indemnity from sellers, EUR 16.8 million badwill from Farbanca, which were both positive, right, partly offset by a EUR 7 million contractual guarantee provision that we took based on a contract that we signed and where we had to give guarantees. So the regular number would have been EUR 99 million without those one-offs. And that compares to EUR 91 million this quarter, which breaks down on the right-hand of the slide, as you see: EUR 34 million, cost of personnel; EUR 52 million, other admin expenses; and EUR 5 million of others, which includes a EUR 4 million contribution to the single resolution fund.
Looking forward, this, in our opinion, has scope for improvement. We are embarking on a cost containment program, and we're very carefully watching supplier by supplier and cost item by cost item what we want to do. We, for now, declare that until we have a clearer picture, basically hiring freeze, and we're working very actively on this item. And we think that in the 3-year plan that we will launch, we'll give a bit of attention to it. Of course, we're interested in having the right amount of cost. What I mean with that is that cutting projects is easy, but it would also be not beneficial, right? We want to lower the cost of running the bank and increasing the cost of changing the bank, right? And therefore, it's not an exercise of just numbers, it's also an exercise of quality of your costs.
Page 11. Capital ratios evolution from 11.29% to 11.77%, 48 basis points increase. Two effects. One, seasonality. Factoring will always have a bit of a contraction at the end of Q1. It's been like this in previous years as well. So some of this volume is going to come back, and we'll generate some RWAs, obviously, which will lead to some capital absorption. Another part of it is managerial. We bought ratings from external agencies, and that allowed us to reduce the RWAs of a whole bunch of loans. I would say that, once again, forward-looking, we will continue hovering between 11% and 12%, being closer to 12% than to 11%. We -- for obvious reasons, right? But once again, there too, on the base of what we see here, don't expect any significant surprises in the coming quarters.
Obviously, once again, in terms of projects, in terms of 3-year plan and all this stuff, absolute rigor in capital allocation. IFIS will allocate capital where it is remunerated, both in terms of existing businesses. We now have a happy mix that we like, which has sort of an internal hedge because we have an NPL business and the commercial banking business, which are fairly independent in terms of their dynamics, right? When the NPLs improve in the country for us, it's partly good news, which is obviously a hedge in itself. And we will continue to make sure that we're balanced in that respect. But entry into new businesses or entry into specific loan categories and other stuff will be done exclusively on the basis of capital remuneration in a very reasonable time frame given that we start from businesses that have reasonable margins. So no need to change that, I would say.
I would thank you for your attention this far. We try to keep it a bit succinct until now, but we are very happy to take your questions, together with Martino Da Rio, our Investor Relator, who luckily for everybody hasn't changed and who keeps giving me his advice and his guidance. And he will take some of the questions, I think, in the remaining part, especially where I might not be able to reply perfectly given the fact that I'm still, obviously, a bit fresh in the job.
Happy to take your questions, and thanks for your attention up to now.
[Operator Instructions] The first question is from Manuela Meroni with Intesa Sanpaolo.
First of all, I would like to welcome Mr. Geertman. Thank you very much for your very clear presentation. A few questions on my side, starting from nonperforming loans. What are the prices that you're seeing on NPLs now? What kind of pipeline do you see in the NPL market in terms of total amount and type of NPLs, to secure or more unsecured? What is the current behavior of banks selling nonperforming loans on the market? Is the growing role of GACS reducing the amount of nonperforming loans in primary market or not? What is the percentage of nonperforming loans subject to the calendar provisioning that you have seen in the NPL transaction?
Then going to the EBITDA. In the presentation, I saw that the residual amount of PPA is EUR 47 million. What is the expected time frame for this reversal? And finally, on cost. In this quarter, you had EUR 91 million cost. Is it fair to annualize this number to have an idea of your full year cost?
Thank you, Manuela, and thank you for the questions. I wrote them down. If I miss something, then do remind me, okay? So NPLs and prices, I would expect them to be more or less flat, but we're preparing for them to go slightly down, right? We see a mix of effects. On the one hand, competition. We see it on bids that are ongoing. There are a couple of quite large portfolios in the market right now, and we sense competition. On the other hand, offers will also be there, right? There continues to be regulatory pressure to offload. The 2 largest banks, including yours, are setting the example of becoming as clean as possible. So some offer, some competition. I would say, all in all, prices to go slightly down, right, maybe flat or slightly down.
So for us, what it means is that we have to prepare to be as profitable in an environment where the prices might be a little bit lower, right? And that means working on costs, working on efficiency of recovery, working on reducing the time of onboarding, working on effectiveness, also with some technology, right? I think in a market like this, if you stay still, then you're giving opportunities to others. So a slight decrease, but we will manage that.
In terms of GACS, yes, it's being used quite a lot, and I think it will remain popular. Now we are, of course, blessed in the fact that we are working small tickets on secured mostly, right, where the presence of GACS is a little bit less pronounced, right? In terms of calendar provisioning, yes, that's starting to arise. It's still low. In the last portfolios we saw, the range you have to think of is about 10% to 15%. We discussed one this morning that had around 21%, but it's a one-off, right? So it's still only starting, but it's coming there, right?
PPA, yes, that's EUR 47 million. So that's gradually coming to an end. And luckily, we are substituting that with industrial revenues. We expect in 2021 to consume about EUR 20 million; and in 2022, about EUR 10 million, right? Keep in mind that in Q1, we already had EUR 12 million, right? So that's coming to an end, and our challenge is to substitute that with real industrial business obviously, right? So -- and then that's also obviously going to be the amount around the revenues of the 3-year plan.
Costs, EUR 91 million, yes. I would -- if you will, I would refrain from quantitative guidance in this call, right, and take another quarter before venturing into quantitative projections, Manuela, if you don't mind. They were EUR 91 million this quarter. It's a focus of attention and it will be a project, okay? So let me not make predictions about how effective we will be for now. But let me just tell you that if your question is motivated by the fact that you think the costs are a bit high, then I would very easily confirm that that's my impression, too, and that we'll need to address it.
Maybe if you have -- maybe if you can also give us an idea about the pipeline of nonperforming loans in terms of type. And then I don't know if you want also to share with us also some of the results and the amount?
Absolutely. Yes. Sorry, I did forget something, Manuela. Thanks for reminding me. So we're now looking at -- there's quite some off from the market. We actually had a first quarter in which we bought quite little because we were all looking at portfolios and there weren't many transactions. So I think we're, in the order of magnitude, EUR 100 million of what was bought in Q1, right? But what we're looking at is actually quite a lot. And we're in excess of EUR 3 billion of pipeline that we are now aware of and that we're studying. So there will be enough to buy. I think we can afford to be reasonably selective, right? And especially be selective in terms of buying the stuff that we know we're good at, which, in the past, has always given us nice satisfactions economically.
Your next question is from Christian Carrese with Intermonte.
I have a few questions. The first one is on net interest income. I would like to understand the higher cash in registered in the first quarter, how could have an impact in the coming quarter in terms of trend? And as far as the TLTRO, I saw that the current take up was -- is EUR 2 billion. You can go up to EUR 2.8 billion. If you can tell us if your intention is to take the maximum amount or not.
Thank you, Christian. Oh, you weren't done. I'll wait until you're done, sorry.
Okay. Okay. I don't know. Okay. Okay. Second question is on -- okay, you said, on cost, I understand you want elaborate a little bit still for -- in the next quarter. Just on the previous guidance, in the past, previous management planned some cost, redundancy cost for, if I'm not mistaken, EUR 22 million, of which EUR 7 million has been already booked in the previous year. If you can tell us what are your thoughts on that, if you are going to book these costs, extraordinary costs in 2021 or not.
Then on cost of risk, EUR 7 million single position, EUR 8 million risk provision for concentration risk. So you have some buffers to deal with the COVID-19. I would like to see your thoughts on the evolution of asset quality deterioration. So I mean, do you expect the deceleration in 2021, in 2022? So defaults to go up in 2022 after moratoria hand. So some thoughts on that. And finally, on the common equity Tier 1 between 11%, 12%, you said near to 12%. You had some positive impact in this quarter due to ratings. Do you see any other tailwinds by the end of the year or headwinds? If you can tell us your thoughts on that.
And finally, last question on the strategy. Maybe -- you said that you want to exit from the large corporate to focus on mid-corporate. So I don't want your -- to ask your anticipation on the new business plan, but if you can tell us in terms of loans, what do you expect this year? And if you see any possibility of a partnership, take into account also, maybe even a larger deal with a merger, with another entity, take into account the DTA rules approved by the government that could free up some capital in case of merger with another company.
Yes. So thank you, Christian. So the -- if your question was on -- starting with net interest income, do you believe -- do I believe, right, that the collections we had in Q1 will lead to a depression of the revenues in Q2, 3 and 4 because we've anticipated maybe a little bit, right, the collections of the following quarters, then I can answer no. We don't believe we have anticipated revenues. And so there's no feeling of cannibalization of future results, right? As I mentioned, we've had a little bit of increase of saldi e stralci, but it's been really highly technical and case by case and file by file, right? So it's not an opportunistic move at all. So...
No, it was more on internal model. Actually, it was the opposite. I was referring to the fact that better recovery could imply better revenues in the coming quarters.
Well, there's -- if you look at -- in the backup, there's an interesting slide, which shows you the correlation of cash collection and revenue recognition, right? What that shows is that the portfolios are maturing, right? Meaning that, as the legal stages progress, as you make a certain amount of cash, you're going to make a certain amount of revenues. And that changes over time, right? So you see -- and we give lots of details in those backups. So if you go there, you can see that it's all very progressive. And the only thing I would add is that I'm not foreseeing any change in this phenomenon. And that as we progressively become more effective as we should, right, month-by-month, week-by-week, right, in doing our job, then we will progressively be better at generating revenues. But nothing discontinuous and no movement between quarters, okay?
Okay.
On TLTRO, very simple question, very simple answer. You're right, we could do more. We won't. We're currently at a level where we think that the limit is not really if there is a regulatory arbitrage that you can push a little bit further out. We think that you also have to think about sustainability of your business model, what's going to happen when that carry trade either becomes less attractive or stops altogether, right? We think that there is an opportunity in there. Now most banks have taken it. We wouldn't want to become a bank that has its results entirely depending on this type of phenomenon, right? So we have EUR 1.5 billion capital. We have about EUR 2 billion TLTRO. We're happy with this proportion. We're not going to push it further out, right?
Cost of risk. I'm going to maybe clarify a little bit the cost of risk evolution because I'm not sure in what you said that I was entirely on the same page, okay? So we have EUR 16 million cost of risk. Out of those, EUR 8 million are an extra buffer that we put under the title, concentration risk. I want to really phrase it in this way. So an extra buffer that we wanted to put and the title that we found was concentration risk, okay, which leads you to have a generic post that you can use if and when necessary. Of the remaining part, which is roughly EUR 8 million, you should consider that it would have been EUR 12 without the positive impact from the model change. So we had EUR 12 million natural cost of risk, if you want, very low. That's probably because the economy is, to a significant extent, still under anesthesia, right, with all the government measures that have been taken, the moratoria that are out there, the liquidity that the banks have injected.
So the question is, okay, if we come out, right, will this fairly low amount of reservations spiral up? And the answer that I have to that is we don't think so. And not because the riskiness won't improve, but because we've taken quite a lot of reserves already and we've added more this quarter. And if you take a look also in the appendix to the structure of our loan portfolio, it's actually quite difficult to go and allocate further risk. If you go there, you will see that a lot of it is very short term because it's factoring. It's short cycles. A lot of it is versus the government. A lot of it has government guarantees. A lot of it is very small tickets fragmented with very good remarketing opportunities for the assets that are underlying. I'm referring to leasing now. So I'm not going to make it too much of a quantitative comment, but we do not think that the cost of risk will spiral up very significantly in the next quarters, even as the company -- as the economy comes out of the COVID crisis and the government measures cease to have effect.
CET1, yes, we had a bit of benefit from RWA optimization. Headwinds or tailwinds, I would say, fairly neutral. We will keep working on projects that can optimize, right? So if there are opportunities, we will seize them. I'd rather talk about them when they're concrete, okay? So we have some ideas, but it's a bit early days. If we're going to get some tailwinds, I think we'll be able to -- if we're going to get some headwinds, I think we'll be able to digest it. I would just assure, between 11% and 12%, closer to 12%, with some projects underway that can help us be -- maybe surprise you positively. But I'll talk about them when we have them, all right, and not before.
Sorry, go ahead. I had a final answer left, but if you want to elaborate on this one, I'm here.
No, no, no, please go ahead.
Okay. Strategy, your last point. Are we going to exit large corporate? I want to make a distinction here. Structured finance, we like because it's a business that has margins based on competence. And the company has decades of competence because it had the Interbanca team, obviously, right? Very low level of issues also in terms of risk there. I don't want to say it because I want to be a bit prudent, but very, very, very low level of accidents in the structured finance portfolio historically and even in the last 12 months, right? Then we have large corporate. In a runoff portfolio that also comes from Interbanca. That's going to run off by '23, '24. It's high-quality stuff, but it's low-margin stuff. And it's not typical -- not our typical business. So we wouldn't want to do it.
Then there was an idea in the company to enter mid-market plain vanilla corporate banking in the -- especially in the Northeast, right? I don't want to rush ahead and give a definitive statement before we have made our plan. But if you heard me talking about capital discipline, the problem with that type of business is that even when you're large and have good penetration in the market and have economies of scale, it tends not to remunerate capital. If you look at the business plans of the large universal banks, it tends to be a problem there, right? Mid-corporate, plain vanilla corporate banking. And these players are all working like mad to generate cross-selling opportunities and sophistication so that they will alleviate the problem. For us to be able to beat that, I find it a challenge, right? I find it quite steep.
So I don't want to make a definitive statement. But if you add my comments, right, you can get an idea for the direction in which we're going. I would rather bring loans and capital allocation into places where we make 300, 400, 500 basis point margins because those are our businesses, and therefore, that's where we should go and do more.
Just a clarification on my question on cost of risk. I was referring to the fact that in the past couple of years, there were some single name, some additional provisions due to Interbanca loan book and also some factoring coming from Banca IFIS. And so the cost of risk was quite a bit erratic. So you confirm that the worst is over. So you should not...
Yes. I confirm it, yes.
Christian, if there are mainly positions that we are taking in 2014, '16 and were on the construction company, mainly. We are speaking about, can we say, EUR 100 million provision of 6, 7 names and the company learned the lessons. And even now that we don't have...
You mean the bank learned the lessons.
The bank. Not the company, the bank. We learned a lesson and so we took that lesson. And even now that we don't face at risk, we put some provision against concentration risk.
The next question is from Andrea Lisi with Equita.
Several questions on my side. The first one is on the trend you are observing in the last couple of months in the factoring business with respect to the beginning of the year and how SMEs are reacting to the environment, if you are seeing, observing a rebound here. Then the second question is on state-guaranteed loans. If you can elaborate on which proportion of new loans have guarantee -- asset guarantee and how is this helping you in sustaining volumes? And my last question is if you can elaborate a bit more on the components leading to the growth of the corporate and banking area.
Okay. Thank you, Andrea. So on factoring, factoring is actually -- the average of the quarter, if you look at it, doesn't show the underlying trend, which month by month is actually rather nice. So I'm going to give you a few numbers that hopefully will illustrate that. So if you look at turnover, in January, it was EUR 700 million; February, about EUR 800 million; March, about EUR 1 billion. So a nice progression. And margins developing rather nicely. So we're in excess of 5% now, right? In addition, you consider cost of funding reduction, right? It's -- that's a good business. And it looks like as the economy recovers a bit, awakens a bit from the horrific effect on the GDP, right, of the COVID crisis, it looks like we're placed to serve that. So once again, without sounding too triumphant at all, factoring is, as we would say in Italian, [Foreign Language], right?
In terms of government-backed loans, right? So with -- loans with the MCC guarantees, that's a good business for us because we go to not very large companies. We go to our usual midsized, corporate, small corporates, upper small business segment. And the amount that we've underwritten in first quarter of '21 was about EUR 460 million, which in the first quarter of '20 was about EUR 150 million, right? So that's gone times 3 with reasonable margins. Obviously, as a bank, we don't have the lowest cost of funding in the country. That's obvious. So we are competing against the large ones, in some cases, which have a different cost of funding than IFIS has.
Now regardless of the fact that we're working on it and that it can be further optimized and that we're very confident that we can, but we have to choose, right? So this type of stuff, we will continue doing it because it's very efficient in terms of risk-weighted assets and margins are there even with our cost of funding. So it's a nice business. So that was EUR 300 million year-on-year. And I don't know if I answered your question on the government-backed guarantees, but I think I gave you the number that you need to work out the proportion, right?
And sorry, Andrea, but I forgot your third question. You have to repeat it to me, please.
Yes. If you can elaborate on the moving parts leading to the growth in the corporate banking area.
Okay. So changes of perimeter, you mean, we had -- well, the large -- the only real big change of perimeter or reasonably big change of perimeter for us at least was Farbanca that came in, right? So that's EUR 4 million revenues year-on-year and a stock of EUR 600 million loans. Interesting business because we already had Credifarma, of course. The merger project has now started, and we're going to make a single legal entity of that. And in terms of understanding why there are margins, that's a business where you can understand why there are margins because that's based on real, deep understanding of the customers, allowing us to take risks that are low and that are lower than they appear because if you really understand how a pharmacy, how the P&L of a pharmacy works, you know what you can finance, right? That level of specialization is protecting us.
So I'm expecting that to grow. And if we can do more there, I would be very happy. So both the merger and the development project, we really like to push further. So these are the biggest changes, right, on the corporate banking side, the government-backed loans and Farbanca. I wouldn't -- the rest is pretty much continuous in organic development.
Your next question is from Simonetta Chiriotti with Mediobanca.
So the first question is on the factoring business, and in particular, on the pharma part. I think that you have made -- you have mentioned this business at the beginning. So I was wondering if you can elaborate a bit more on the strategy in this area. Second question on NPL collection strategy. You are increasing settlements, so saldi e stralci. This means that the process is quicker. But I'm wondering if the return, the overall return of the portfolio is lower if you use more of this type of collection and if this is just due to the current situation, so courts activity that is lower because of the COVID or if it is a change in the strategy.
Thank you, Simonetta. Okay. So factoring on pharma, yes, we have a book there of about EUR 0.4 billion, right, about EUR 400 million, which has been stable this quarter. You get some volatility there in the P&L every now and then depending on how the recovery of some large ticket goes, right? But I'll say this, in my opinion, it's an attractive business. It's not a secret that there are other players that have made very significant returns in it. It's definitely something in the 3-year plan that we want to look at positively, right? So taking a look at what we can do more there, right, given that we have tradition, right? But as we said, we haven't written the plan yet, yes? It does require, I think, a lot of discipline because it's a business that is basically based on loans that are on advances, right, on payments that are -- that can be quite dated, right? So I think prerequisites are that you know what you're doing and that you're disciplined in terms of revenue recognition, right? So on this basis, I think we look at it positively, given the fact that apparently, some people made significant margins on it.
With respect to NPL collection strategy, yes, I realized when we prepared the slide that this question would come up. But I think we can -- still, we wanted to share it with you, and I think we can be quite clear and definitive about what the implications are. So first of all, you're not talking about something that's huge, right? We're talking about something that was 7% and has become 13% of cash collection. So it's a little booster, right? It's a little accelerator, but it's not a radical change in how you treat your portfolios. Firstly, you should remember that this is not about how you allocate your portfolio between judicial and nonjudicial because if we were to take judicial recoveries, right, which are characterized by long times, but by very high percentages of recovery, right? If we were to take those and give the customer a strong discount and let the customer go, right, then we would be making sacrifices, but in the long term and vis-à-vis the models we would pay, right? That's not it.
So it's not about allocating between judicial and nonjudicial. It's within the nonjudicial payment plans that have been characterized by a lot of uncertainty. So very long, in many cases, in which the customer goes in and out of a plan, right, which is inefficient and leads to high uncertainty in the amount that you actually get file by file, right, giving a way out and increasing also the efficiency of the way in which you deal with your portfolio because obviously, right, renegotiating multiple times a repayment plan also carries cost, right? So this is about time, value of money, and it's about efficiency in managing the portfolio. It's not about allocating between judicial and nonjudicial. So we will continue doing this. And I don't think it will be to the detriment of the model performance in the long term at all. Actually, I think it's a smart way to maximize overall. I hope I answered your questions, Simonetta.
Yes, absolutely.
Simonetta, just one point. When you ask about the pharma, we had just a question if you were referring to the pharma in factoring or the pharmacy business?
No. No, the pharma in factoring.
Okay. Perfect, perfect, perfect. Okay.
So I replied...
No, no, no...
Pharma in factoring. I replied correctly, Simonetta, right?
No, no, no, just it was...
Okay. No, no. We got worried a bit.
The next question is from Luigi Tramontana with Banca Akros.
Just 2 left on your business areas. The first one NPLs, your Q1 performance was excellent and almost in line with Q1 '19. I mean it would be great if you could deliver the same results you delivered in 2019. And I would like to know are you thinking about that in terms of revenue generation? And the second one is on corporate and lending, which was very, very strong. If I understood well, this is due to your boost on state-guaranteed loans. Is it going to continue? Are you going to continue to finance SMEs through state-guaranteed loans?
Yes. So your first observation on Q1 '19, right, and the fact that we were even a bit better than -- in terms of cash collection, right, on NPLs in this quarter. That would be great if we could repeat it. I could only reply that, yes, it would be great. And so we want to be upbeat, but I don't want to make statements that maybe in the next quarters, I would have to revise, right? So I'm keeping it a bit dry today maybe, but -- in terms of the forward-looking part, but forgive me, Luigi. We're confident about the performance of the machine, okay? And I wouldn't add more. I'll keep it to this qualitative statement and just say this, right?
Okay. Fair enough. Yes.
So we'll see in the next quarters how it goes. I would rather not start in a relationship with you guys where we have to retract statements or seriously revise especially optimistic predictions. I'm happy to revise pessimistic ones, but I'd rather not revise optimistic ones.
Corporate lending, yes, so EUR 460 million was underwritten at a 2.6% margin. It's very good business. Also because one of the things that we will start working on in the next months and years is cross-selling between that and the factoring part, which until now has been fairly limited, right? So we'll continue doing it. We'll invest in digitalization in that area and invest in digital marketing in that area because we've seen that they react really nicely, the customers, when you approach them in that respect. A bit of sophistication on the customer side is apparently also happening, right? So these SMEs, they're happy to go online and do their application online. So there's really no -- all the traffic lights are green, right? And then we'll see how much we will be able to, right? But certainly, all the traffic lights are green, and I would aspire to keep doing it, and if possible, even do more, right?
We've got a lot -- as I mentioned on the slides on digital, right? We've got 500 applications in a month roughly of reasonable quality. Not all of these become loans, obviously, right, but of reasonable quality. So that feels like something we will be able to continue doing and has a much better profile in terms of risk, fragmentation, in terms of capital absorption and in terms of margins than plain vanilla corporate lending, for instance.
Your next question is a follow-up from Simonetta Chiriotti with Mediobanca.
So you have just mentioned the possibility of starting cross-selling between factoring and corporate lending. My question is on the same theme, but is it not happening that you have like corporate lending replacing factoring at the moment? So the pricing of the 2 products isn't such that a corporate sector in this period are basically reducing the use of factoring. And so is this something that is happening? And is the customer base almost similar or the same or is completely different?
Very interesting question. Thank you. So I will limit myself because I risk going on a long speech here. So first of all -- so what we've seen in the last 2 years in the Italian market, and COVID has deeply or strongly accelerated it is, yes, that short-term lending has been replaced by long-term lending to a significant degree. And the reason is that many of these companies took long-term loans in order to just ride out the storm whilst not having a real CapEx plan where the long-term lending would go, right? So -- and if you're then that liquid, why would you use short-term lending?
So let me first of all say that in general terms, what you say is observed in the market. So it's not only -- I would say it's a reasonable question. It's also a fact if you look at the market. Then, however, you have to make distinctions. First one, factoring versus general short-term lending. In my opinion or in my experience, the lines that are cut are generic plain vanilla short-term lending lines with banks. Factoring has a whole administrative part, which protects it from being cut out, right, very quickly.
Secondly, you have to take a look at the player that you are. So if you are a market leader with 30% market share, and you're in your home territories where your market share might even be higher, if you do something like that, then you risk cannibalizing. It's true. But if you're IFIS and you are, first of all, much less penetrated. And secondly -- so you have lower market shares regionally. And secondly, you're much less penetrated into the single client then you can go a long way stealing volumes from other banks before you start cannibalizing your own.
So I would say, yes, good point. To the extent that it will hurt us, not really. So I cannot exclude, obviously, that some percentage points, right, of factoring volume could be eaten up because of this push in long-term loans, but it's really marginal for us because of the space that we have and because of who we are and because of the specificity of factoring. I wouldn't say this with this certainty if our business was generic short-term loans, cash advances, [Foreign Language], we would say, in Italian, right, in mid-corporate Italy.
[Operator Instructions] Gentlemen, there are no more questions registered at this time.
Okay. Thank you. If, of course, you have -- you need any clarification, you can call us, and we would be very keen to have a follow-up. Thank you very much.
Thank you all. Thanks for your time.