Banca IFIS SpA
MIL:IF
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Banca IFIS SpA
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Good afternoon, ladies and gentlemen. This is the Chorus Call conference operator. Welcome, and thank you for joining the Banca IFIS First Quarter 2023 Results Conference Call. [Operator Instructions].
It is my pleasure, and I would now like to turn the conference over to Mr. Frederik Geertman, CEO. Please go ahead, sir.
Good afternoon, everybody. Before we start the presentation, let me briefly touch on the news of a tragic event that has touched our controlling shareholders family yesterday. Today, the Board of Banca IFIS has approved our Q1 results with this spirit that our best way to be close to the family is to continue doing our utmost best with dedication and professionalism. And in this period, we present our results today.
I will then take you to Page 4 of the presentation, where we have the executive summary. We post net income in Q1 of EUR 46 million, that's plus 31% year-on-year, confirming our acceleration. Revenues are at EUR 176 million. That's plus 8% year-on-year, driven mostly by performance in Commercial Banking.
Commercially, factoring turnover, plus 17% year-on-year, excluding the factoring versus the public administration. New leasing volumes, plus 22% year-on-year, and cash collection of NPL portfolio is at EUR 97 million, which is plus 7% year-on-year.
We post operating costs at EUR 91 million. That's a plus 4% year-on-year. And that means that the inflation impact, as we will see later in detail, was countered by efficiency and discipline and cost control.
Loan loss provisions are at EUR 10 million, which includes another EUR 5 million of prudent add-on provisions against macro risk on the performing book, confirming what we believe is an outstanding risk return profile of the loan book.
Deposits stable and resilient, average cost of funding is developing as expected due to the rate scenario at 2.24%. And finally, capital, up by 20 basis points to CET1 ratio to 15.21% in support of our growth, and of the dividend payout.
On dividends, we have the EUR 0.40 per share to be paid on May 24, 2023, record date is May 23, ex dividend date is May 22.
Page 5 let's look at the revenues. As said, EUR 176 million. PPA is by now negligible. This comes off Commercial Banking revenues at EUR 88 million, which was EUR 74 million last year, reflecting our rates correlation and especially, I would say, the ongoing loan repricing. And we include this quarter, EUR 8 million capital gains on a number of direct and indirect private equity investments.
So these EUR 8 million come on the back of a long-term continuous and selective program of equity investments, we consider it the core business. And we consider them recurring maybe on an annual basis. So you won't see them every quarter, but we expect this very selective and high-quality equity investment book fragmented and done with highly professional partners, we expect it to continue to contribute periodically in a slightly longer-term perspective.
NPL revenues at EUR 69 million, more or less flat versus last year and noncore and G&S at EUR 19 million with a recurring and stable contribution to revenues.
Page 6. Commercial activity, so we have a nice factoring turnover increase that's plus 70% year-on-year, where we exclude the factoring towards the public administration, where, as you know, we have reviewed our business model following the application of the new definition of default. What you don't see here is that we also have a acceleration of new customer acquisition that will support future potential. So we are very much in love with this factoring business.
Leasing, plus 22% year-on-year new business, excellent commercial productivity, no change in small ticket focus. So these results do not come from large tickets. We see acceleration in equipment and tech leasing. You know we don't do real estate. You know we don't do article.
And so we have a very good first quarter '23 notwithstanding a peak that we had in the fourth quarter last year due to certain fiscal benefits, which led to a bump in the final quarter of last year, which had actually led us to expect a bit less for Q1 '23, but it didn't happen. We have this nice growth.
Automotive, plus 26%. We continue to have a very nice presence with electric vehicle brands, and that's a profitable and very nice low-risk business.
Moving on to NPL, Page 7. There, you see that we have cash collection of EUR 97 million in the first quarter '23, similar to fourth quarter '22. Revenues at EUR 73 million. Comment on that, if you compare it with the fourth quarter of last year, that included positive contribution of the release of some specific and very large newly acquired NPL portfolios that boosted both the recognition of revenues and variable recovery costs at the release, so one-off.
As a result, both revenues and costs increase and, in that quarter, and the NPL variable cost decreased by EUR 12 million Q-on-Q. So it's very much a continuous performance and we can compare it with the fourth quarter -- first quarter of last year.
Page 8, costs, EUR 91 million. So on the green box in the middle, revenues related, you can see that we go from Q4 to Q1 from EUR 32 million to EUR 20 million. That's exactly the EUR 12 million of NPL costs that disappear that were connected to the release of these large portfolios.
I draw your attention to the blue box, the top one, where you see that we have year-on-year basically a flat performance, which means that we are offsetting the inflation impact with discipline and contract renegotiations. So that is actually a very, very robust performance on cost control. You also see it in the cost income ratio that results from this.
Page 9, risk. Loan loss provisions in Q1 are EUR 10 million. The natural, if I may call them like this provision, so the actual provisions connected to deterioration of the loan book came in EUR 5 million. We added another EUR 5 million of add-on against macro risk. We believe we are done with these prudential add-ons for the time being, we'll see how it develops.
But the total management overlay, right, against performing loans is now EUR 60 million. That means that we have more than a year's worth of loan loss provisions set aside for a macro scenario that might deteriorate.
NPE ratios. You can see that we are at 6.1% growth, 4.1% net, but that includes a 1.6% of the application of the new DoD on the pharma portfolio. The total NPEs are more or less stable Q-on-Q, actually, they decreased by EUR 7 million. The reason, the ratio increases a bit is that we have the seasonality of the denominator. So the total book in factoring from 31st of December to 31st of March, decreased a bit due to the typical seasonality. And as a result, the ratio slightly increased, but you don't have to see an increase in flows in that. It's just a technical effect.
So we have net of the Italian Public Health System ratios of 4.5% growth and 2.5% net. We expect from here to the end of the year, to further significantly digest the 1.6% of past due effect due to the application of the new DoD vis-a-vis the Italian Public Health System, very solid risk performance.
I will now take you through 3 slides that we added this presentation because we wanted to pay a little bit of attention on what we consider to be a very interesting risk return trade after this present in our balance sheet, right?
Let's start on Page 10. We took our customer loan book, and we want to give you a picture of the residual risk, if you will, that is in there, EUR 9.8 billion total customer loans with the accounting definition, right? So it's all in there.
The first element is factoring, EUR 2.5 billion. That turns 4x per year, it entails a double risk assessment. So both the client and the final debtor that pays the invoice. It's a very short book, so we can rapidly adapt sector exposure. And given how quickly it turns, it's highly unlikely that we would have surprises in there.
Second element, leasing and rental. These are substantially all marketable assets. You will remember that we don't do real estate leasing and we don't do an article leasing, 70% of this exposure as underlying assets with remarketing contracts in place at defined prices, meaning that the residual risk in those loans is very, very, very limited.
Then we go to medium-term lending, EUR 0.7 billion. Of those, 80% is stayed guaranteed, and more than 80% is in rating classes 1 to 5. So it's a very high-quality book. It could easily have been bigger. But given our approach to long-term lending and to the client -- the quality of the clients we want to serve with it, this is the growth rate that we like to see.
A question that sometimes comes up is the state guarantees. Are they solid? It depends on how well you've documented your case. Obviously, it depends on how precise you've been with all the formal aspects of the acquisition of the guarantee. I want to share with you that the track record of Banca IFIS in the execution of these guarantees is 100%.
Loans to pharmacies, EUR 0.8 billion. So those are mostly secured against the pharmacy itself. I don't have to explain that, that's the regulated sector. These businesses are protected from competitors. As a result, the average loan loss provisions in that segment in the last 5 years have been roughly 25 basis points. So very high-quality type of exposure.
Then we get to sovereign bonds. Well the sovereign risk, of course, we'll return to it later, but that's basically the Italian state. And then we get to NPLs, EUR 1.5 billion. It's a book with an average ticket size of EUR 12,000. Cash collection is 120% or more of the recognized revenues has been like this for the past 2 years. You -- you'll remember that in the appendix, we give details.
You'll also remember that the model collections were outperformed by the actual cash collections for more than 5 years in a row. So fragmented book, highly statistical business, long-term performance, very stable that includes shocks like COVID and the inflation that we had in the last 12 months.
Then we get to 0.7 others. Most of those are related to the financial bonds portfolio that we bought or these counterparties, they are mostly global cities, and the vast majority of those bonds are senior, we have a little bit of Tier 2. And we had originally bought some A T1s that we sold before the Credit Suisse situation. We didn't have Credit Suisse, but we had already made some trading gains on them before that situation arise. So that's basically senior debt of globally significant institutions.
Then we get to EUR 0.7 billion the last element, structured finance, ticket size, EUR 12 million, which is rather modest for structured finance, leverage 2.7x EBITDA. We don't do much higher leverage. Commercial real estate risk, not material in there. Sometimes we get questions about that.
So if you look at all these elements, then you'll see that only about maybe 10% to 15% of our loan book is actually direct and mitigated medium-term lending to enterprises. And in this book, leverage and concentration risks are kept low, as we stated. And they are strongly reserved against. Remember, we have EUR 60 million management overlay. So we have mitigants basically on every category, sometimes more than 1.
Okay. So if counterparty risk seems very benign. Let's go to Page 11, we take a look at other aspects that sometimes come up. And what we are asked about is duration and ticket size. And here, you see the same categories, right? We start with factoring duration roughly a quarter over year, as mentioned, with an average ticket size of EUR 300,000.
Leasing very short-term book, 2.7 years is our average leasing duration. And ticket size, EUR 40,000 for the auto for the automotive and EUR 60,000 for the equipment leasing. So there too, small ticket specialty finance is what we do.
Rental, ticket sizes are even lower. It's mostly tech, means PCs, copiers, printers, that type of business. So we have a ticket size of about EUR 7,000 on average. Then we get to medium-term lending. For us, that's lending that has 3 years average duration. So there too, quite short with EUR 300,000 average ticket size.
Moving on to the pharmacies, EUR 400,000 average ticket size slightly longer, 7.5 years. That's the longest book that we have in the bank. It's about EUR 800 million. So it's less than 10% of our commercial lending.
And then we have structured finance, EUR 12 million at 5 years. NPLs, EUR 12,000 per ticket. So there are 2 very high fragmentation and with a 4 years duration. The government bond portfolio is classified as all to collect, and this EUR 2.5 billion roughly in size.
So you see that over 70% of our customer loan book has a duration shorter than 3 years. I think this is a very significant element if you compare us to classical commercial banks considering that we don't have large retail mortgage books. We don't have long plain vanilla unsecured lending towards corporates. We don't have these businesses.
Third element that we wanted to share, Page 12, is always on the risk return trade-off is funding. So especially in the light of what happened to the U.S., let's take a look at our deposits. First thing to note, is that from Q4 '22 to Q1 '23, the customer deposit breakdown. You see it on the left, deposits were absolutely stable. They were stable at the end of March. I will add that they were stable in April, and they were stable in May. So throughout all the turmoil, we had actually a slight increase in our customer deposits.
How are they built up, you might ask yourself, once again, I'm thinking about the U.S., right? So are these corporate? Or are they retail? And the answer is top right, 93% retail more than 100,000 depositors, average ticket size EUR 40,000. Are they protected by the deposit fund? Are they protected by the government or by the Italian feet. You see the answer, below 100,000, therefore protected 83% above 100,000, 17%.
Then you might ask yourself, okay, but are they site deposits, right? Could they flow out. Only 16% of this book is site. 17% has a 30 days' notice period, and the remaining 67% our deposits -- actual time deposits, where we favor 2-year, 3-year, 5-year deposits. And therefore, we have quite a long duration in that deposit base.
So regardless of the point of view that you take counterparty risk, which was Page 10 that we consider highly, highly mitigated duration, Page 11 and concentration, so ticket size. And finally, the way it's funded, Page 12. We believe IFIS represents a very, very attractive risk return trade-off.
Back to our normal flow, Page 13, capital. So we posted an increase of 20 basis points in our CET1 ratio. You can see the components. We have a negative. That's the phase-in of the transitional filters. And then we have a positive, which is the seasonal risk-weighted assets decrease. We do not compute as always, in this ratio the effect of the profits, right? The retained earnings of the quarter. We compute that -- we will compute that later in the year when we will probably make an advanced payment as we've done this year.
I would stop here with the presentation. And if there are any questions, I'm happy to take them. And thank you for your attention thus far.
[Operator Instructions] The first question comes from Manuela Meroni from Intesa Sanpaolo.
Yes. Good afternoon, and thank you for taking time for this conference call today. I have 4 questions. The first 1 is on the cost of funding. You reported a significant increase in the cost of funding in this quarter from 1.49% to 2.24%. I'm wondering if this increase is in line with your 2023 guidance. How do you expect the cost of funding to move going forward? And how much has the cost of deposits decreased quarter-on-quarter?
The second question is on the deposits. Your deposit has remained stable quarter-on-quarter, and you mentioned that also -- they are also stable in April and May. What are you expecting going forward? We will accept some deposit outflows to keep the cost of funding under control. Or on the contrary, you are expecting to gather some deposit from competitors?
The third question is on the TLTRO. When and how do you plan to renew the TLTRO? And finally, on unrealized losses or gains, what is the value of your fair value to other comprehensive income and as you collect this service as of today?
Okay. Manuela, for your questions. So cost of funding, yes, you mentioned the numbers, right? We went from 1.49% roughly to 2.24% that was exactly as expected, I would say. The increase was in line with our expectations. We expected it to increase from roughly 1% in 2022 to 2.5% in 2023 on average, right? So we assume the stabilization of funding costs and spreads. We also assumed the wholesale market to remain open at least in certain windows, but with a higher cost of new issues, right? And that's more or less what we see, right?
So the increase of roughly 75 basis points, right, Q-on-Q, that came from the forms of funding that reprice in the short time frame, right? So that versus banks, TLTRO, which was retroactively changed, as you know, right, the terms. And finally, securitizations.
The increase of the cost of deposits, right, was roughly 30 basis points, and that's been mitigated by the term base, right, the term deposit base. Now you ask me for an outlook, what we generally do is we do not like to pay at the top end of the range. So you will see we will try to be slightly above the middle, right? We try to be attractive, right?
But we don't -- certainly don't want to be the market leader in terms of what we offer, given the reputation of the bank, given the history also of this book, right? These are clients that have been with us for years and years. Many of them renew. So we do not want to be at the top end, right?
So expect this to increase a bit more, but in a very gradual way. And then keep in mind that on the other hand, right, the -- on the asset side, right, we have -- I think it's more than 85% of the loan book that's Euribor sensitive, right? So actually, what's been happening until now is that this whole -- this whole rate scenario and also the spread scenario worked in our favor.
Keep in mind that on the asset side, we don't just benefit from the rates increase, we benefit significantly from a price increase. We've increased the revenues on the factoring book. It's in the appendix somewhere you can look it up in the last year by the order of 100 basis points. So it's quite huge.
Therefore, is it as going as planned? Yes, it's going as planned. Revenues are better than planned. Cost of risk is better than planned, but cost of funding is exactly as planned. So that market is more challenging, as is obvious.
The deposits are they stable? Do we foresee them being stable going forward? Most definitely, yes. We don't have any indication that there wouldn't be. It's also quite dynamic because if you see that the market becomes a bit more demanding in terms of what you expect and what they expect, right, to get further money, then you can increase prices.
So we manage it quite -- in quite a delicate way, right, month by month. And when we review the offers of the rates that we give to clients, and no, there haven't been any outflows at all. And as you've seen, we haven't -- there are some easy things that you can do are relatively easy. We could go after corporate deposits quite easily for instance, right?
You saw the very limited component of corporate deposits in the book. We don't feel the need at present, but there are some things that we might -- if needed, right, we might go and activate.
TLTRO, it expires in September 2024. We're going to repay that by substituting in part. By the way, the cost benefit of TLTRO is rapidly eroding, right? So it is not going to be a huge deterioration of the cost, unfortunately. But if you look at the glass, how full it means that we're not going to have a very significant P&L impact once we substitute that. Partly also, we're going to pay for it, gradually reducing the govies portfolio. right? So we'll do one in the other.
So this carry, right, might become a bit smaller. It might also become a little bit more remunerative, right? But it will become a bit smaller. We have a very detailed plan in place quarter-by-quarter for the substitution of the TLTRO. We're not going to wait until September 2024 to pay back everything. We're going to do that progressively.
And we've just gone through I think I can say this. We've just gone through also like most of the other Italian banks and exercise with Bank of Italy exactly on this issue. And it's given us the opportunity to really plan in detail and to think it through also with the Board. So is there, but it's definitely a manageable issue, we think.
I will confess that I didn't get your fourth question. So do you mind repeating it?
Yes. I would just understand how much are the annualized capital gains or losses and messaging to govies portfolio as of today?
Okay. You're asking about the value of the -- fair value of CI and how to collect reserves today, okay? And you're referring to capital gains, I guess, you mean capital losses. So I'll give you some flavor.
So the duration of this bond portfolio book is about 2.5 years. So any negative reserves will absorb over the next 24 months, right? The potential capital impact, right, if we were to mark-to-market, which I think is your question, right?
We don't give the number explicitly, but I will say this, that it's significantly below 10% of our book equity, okay? So we had in -- we had -- in the U.S., I think, 25% to 30% to give you an element of comparison.
The next question is from Irene Rossetto from KBW.
Yes. So those were the one. A couple of questions from my side. The first one in 2021, you reported the net income of EUR 101 million and possible interim fee is EUR 150 million. How much of this increase is driven by interest rate, do you expect your capital adequacy decreased after the interest rate decrease the asset quality deteriorate, and property portfolio change due to the TLTRO payment?
And the second one is what are the main risks that we expect in the coming quarters, in which sectors we expect the higher asset quality with remuneration factor?
Irene. So I'm going to give you some broad flavor on what you asked because they're really attributing the increase of a P&L to the single sources, it's kind of a theoretical exercise. But I'll see if I can get close to what you need.
So you mentioned we had an increase of the profits, right? So from EUR 100 million to EUR 150 million, right, in 2023 as a guidance, at least, right? Then of course, we're in Q1, but with the 46, I think we're well underway.
I think, first of all, you can break it down like this, roughly 50% is in Commercial Banking, right? Roughly 30% is in the NPL business. Roughly 20% is in governance and services, right? Let's take a look at commercial banking, and then we get to your question on rates, right?
Actually, if you take a look at what happened, roughly half of the increase in profitability of Commercial Banking comes from volume effects. Therefore, commercial productivity. The other half is revenues effect, right? But that's a combination of rates and prices. So I wouldn't even attribute right, the other half all to Euribor because a significant part of the contribution there actually came from the increase in spreads. So what we make the customer pay.
Then NPLs, we have an increase in profitability. Well, for one, remember that in Q4 of last year, we had a negative one-off in the NPL business, which was we took the hit, right, all in one, and we're not foreseeing to have that again, right? So that's an element.
And the second element is that we are progressively through efficiency and specialization, automation, process improvements, et cetera, offsetting negatives that you have in the market and the negatives are maybe slightly more challenging prices as we buy or the inflation effect on the voluntary repayment plans, right? If families are challenged at the end of the month to pay the bills, you can imagine that they have less right to dedicate to the repayment effect.
But we're keeping up. And you also see that with respect to the cash collection, right? So we're managing through productivity specialization improvement, and it helps -- certainly helps being the market leader in our segment having the scale, right? We're offsetting this.
And then finally, the G&S part, well, that's the increase also of the size of the proprietary portfolio, right? You remember we made a rather timely, if I may say so myself, right, investment into a strategic portfolio of financial services players, right?
Then you asked me for the main risks, right, what you expect in terms of risk development in the coming quarters? So let me say something upfront first. We've been going through at least 4 quarters now, where the dialogue with the market has been about macro issues, right? As we came out of COVID and everything normalized and we had a short window of optimism, and then Ukraine and macro and inflation came, right?
And every quarter, we say so far so good, right? And that's what I will say today, right? It's so far so good because we have central banks that urge us to be cautious. We have expectations for the GDP that are actually slightly improving, but still low growth in Italy. But we do not see today risks in the credit book or also in preparation of this, right? Customers that are telling us my businesses significantly slowing down, right? Or I don't see orders. Factoring is quite sensitive, as you can imagine, right, the development of the turnover of the businesses. So there's nothing there.
So what I actually see as a scenario, but everybody can have their own ideas about it is that what's very relevant is that the central banks are still or at least in Europe, clearly, on the bulk of fighting inflation and raining liquidity, right? So we must expect it's going to have some macro impact. So I would expect the economy to grow very modestly in our country, and we might expect some financial -- I'm not sure if we can call it shocks or in any case, more uncomfortable situations as the liquidity is drained from the market?
Now I would sit against this, the 3 slides, right, that we presented earlier. So profitable bank, short-term maturity of the loan book, 15% CET1 ratio, stable deposit, very significant management overlay against the performing book. So we're looking at this with a lot of confidence. And I will say again, we've been talking about risks for a long time now and for quite some time, we haven't actually seen them bite. I'm not going to sit here and say that they won't, because I don't have a crystal ball, but I will say that we don't have -- we continue not to have concrete, tangible quantitative indications of issues.
Have you got the answer, Irene?
Yes. Very clear.
The next question comes from Christian Carrese from Intermonte.
Look, the first question is on cost of funding. Looking at the Slide 12, if you can break down the cost for a single deposit for Randy Mack Germany so on corporate and so on?
Second, on cost of risk, you kept making some overlays, EUR 60 million up to date assuming the macro scenario you just gave to us a modest growth in 2023. Would you expect to release at a certain point, those overlays or to keep them for 2024?
And finally, on the net interest income overall, looking at the structure of your asset and the liabilities. When do you expect net interest income to peak?
Yes. Yes. The third one is the trickiest. So I'll start with the cost of funding by source, right?
So I'll give you some broad numbers, right? So Interbank cost of deposits, right, in all the various forms, right, including repos and such, roughly 2.5%. That's Q1 '23, right? So this stuff evolves, obviously, right? So I don't say this installment, please, right?
TLTRO, roughly 2.4% in Q1 '23, and a broad average of all the deposits, 1.5 roughly percent. Then we have the bonds, which you can work out for yourself right they are publicly traded.
The management overlay in cost of risk, yes. That's now EUR 60 million, right? So if the macro scenarios you said if it turns out as you expect, I would say, officially, I still expect a downturn, right? So that's what we planned for, and that's what we're going to assume for now, right?
Then you may have heard from my words that I'm not seeing issues yet, right? But I don't want to go into too confident, right, wording on what might happen in the second half of the year, right? But let's assume that things don't deteriorate drastically. In that case, we're sitting on EUR 60 million of macro risk that obviously, sooner or later, also our auditors are going to ask us how we're going to deal with that because you can keep this as long as you have concrete prudential reasoning for keeping it.
So sooner or later, if it's not consumed by provisions, it's going to flow back to the P&L. I wouldn't probably expect us to start doing that in 2023, because the whole point is to look forward and be a bit cautious about how the year might develop. So if you were to ask me when that question becomes relevant in a benign scenario that we cannot take for granted. I think that question will pop up sometime in 2024, roughly.
Finally, net interest income, when do you expect it to peak? Actually, I'm not sure I would like it to peak. So this is going to be various elements, right? It's going to be a rate scenario. There's going to be a pricing scenario, there's going to be a volume scenario because you mentioned the net interest income, right? So you're looking for the end result of all this stuff, right?
And the end result of all this stuff is also in our hands. We have 15% CET1 ratio. That means we have 15.2%, right? That means we have space for underwriting nice risks and we like to put the capital to work. So a counterbalancing effect might be that we grow.
We have until now a very reliable track record in terms of increasing prices. And in a scenario in which liquidity becomes less freely available, and that's clearly been signaled by the central banks, and in which the offer of credit is not so easy, right, as it's been, one of the things we can do is work on price. And then we get to the rates finally, right?
One of the things we might do is take countermeasures in the structure of the balance sheet or in financial strategies to offset a reduction in the rate of the curves. And then you finally have the effect of the rates itself, right, unmitigated regardless of all the 3 things I mentioned, right? What might be the impact. So there you get into an expectation of what's going to happen on the rate scenario.
And here, we'll add a very personal feeling, and I might be mistaken. Of course, there are curves on the market with right, that represent trade. So you have to look at that with a lot of respect. Personally, I'm not so convinced that the rates will crash in the near future at all.
So yes, I think I would definitely not put a date on a peak, and I would also not put a peak as a given, Christian because this bank is versatile. It has a short book. It has a history of adapting quickly. It's commercially a very lively organization. And we've gone through the last years with significant changes, and the bank has always been nimble. So let's not assume that things will peak.
Hope I answered your question, and I hope you can at least partially agree with me.
Yes.
The next question is from Andrea Lisi from Equita.
The first question is on volumes, in particular, on what are your expectations on volumes and loans going on, if you feel some signs of slowdown by companies if there is lower credit demand and so on. So just you're feeling on what are you receiving in the market? And so your expectation on the origination going on?
The second question is on the NPL market. That seems quite weak in terms of transaction, at least in the first quarter. So if you can provide us some indication in terms of pipeline deals that are on the market and the second, which are your expectation going on?
And the last question is on the dividend policy. The Chairman announced a potential increase in the dividend, when and is it reasonable to see something on that? And which kind of form can assume for 2023, will it be an increase in the payout? Or is it possible as a combination of cash and buyback?
Okay. Christian. So on volumes, so I'm going to give you an outlook. I think I can speak reasonably on an horizon of the end of the year, right? I wouldn't go further.
I expect the modest growth on most items that you saw on the slide, slide on most categories. Factoring, overall, a slight growth, but especially growth in the SME segment and maybe a bit less in the -- or negative effect from pharma, right? So we expect a decent growth of SME factoring also helped by inflation.
You have to remember that as you have inflation, the invoices grow, right? If the invoices grow, the turnover grows if the turnover grows, our revenues grow, right? So a couple of percentage points increase in factoring, which will be a net effect of a nice increase in SMEs and the negative of the pharma book.
Then lending, all in all, single-digit percentage growth that we control that pretty much. I mean, that's been a very, very thoughtfully managed business in terms of price. It is our opinion that if companies today ask you for 3, 4 years loans, right, that they should pay the marginal cost of money today.
The marginal cost of money today for us is a mix of what we pay for bonds and what we pay for deposits and what we pay on the other sources, right? But it's expensive. Therefore, medium- to long-term lending to companies, whether it'd be guaranteed or not should be expensive.
And therefore, we've been very, very thoughtful in managing the growth of the book. It would be quite easy to grow quicker, but we have to release a bit of the rigor on pricing, and we're not really keen to do that.
Leasing, leasing is growing wonderfully. The book will grow, I don't know, a couple of percentage points there to 5%, something like that, I would give you as a range, right?
Structured finance, same right? That's actually very easy to grow, right? It just means taking bigger cuts of the deals that come by, right? But we like this EUR 10 million, EUR 12 million, EUR 15 million average deal size, right? We like it because that we think it is in line with our size, right? Obviously, we don't have the balance sheet of a global CFI, right? So we need to fragment the risk.
So all in all, moderate increase in volume growth in 2023 without having to make any assumption on particularly aggressive acceleration commercially. It's coming in nicely now. And we don't see -- once again, we don't hear from the clients, not even in leasing, which is capital goods, right, we don't hear from the clients that there's a dry up in their demand for our products.
NPL market. Q1, you noticed a few transactions, I confirm. We actually did 2 very nice ones in April. So we'll report on that in Q2. We have our pipeline not already worried by it also because, as you know, right, this P&L is formed to -- by a large extent on the stock, right? So we expect to be active. We expect to be a bit careful with prices. We'll let some things go in the last weeks because we thought the conditions weren't good for us, which is a polite way of saying that the portfolio was a bit expensive.
Other things we bought. And there's a secondary market, which is interesting, and it's giving more and more opportunities. So not so worried about the purchase of NPLs. We'll keep you updated on that as the quarters come by.
And then finally, I was expecting the dividend policy. Yes, our Chairman announced that he has initiated with the Board a reflection on this subject. I will say what I can say because the reflection is ongoing, and I think it would not be opportune for me to rush. But we will probably finish off this work with the Board in Q2, which means that we will give certainty next time that we speak on our next earnings call.
And I would rather not place the payout ratio in your Excel spreadsheet. But what I would say is that it will be better than it's historically been. That was the whole point and that it will be progressive.
So higher net profit means higher ability to pay out. The perspective that we're taking is what are the retained earnings that the bank needs to grow responsibly over the next years. And therefore if the net profit exceeds right, certain thresholds, then the payout ratio can increase. So expect it to be better, expected to be progressive. This is also nice because if -- you have to also plan for bad years, right? I mean we're not expecting it, but policy should be a long-term instrument, right? So you also want to plan maybe for a situation in which they are bad years.
So the fact that it's progressive helps because if the profits are, for some reason, right, are low, then the payout ratio will be adequately corrected or not improved, at least is what I should say, right, and expect it to be more explicitly defined next time that we talk. I hope this is at least something, Andrea, okay?
Any other question, Andrea?
No. Fine from my side.
The next question is from Simonetta Chiriotti for Mediobanca.
A couple of questions from my side. Going back to the NPL segment. Do you think that purchases by GBV in line with 2022 can be a base case for this year, then the market is particularly sluggish in all segments. So I was wondering if you think that last year volumes can be matched?
And second question on the banking part on corporate banking. If I look at the net revenues on average customer loans ratio in factoring and also in leasing. I'm referring to Slides 18 and 19, it is decreasing with rate to year-end. So -- and the reason that is mentioned is a higher cost of funding.
I'm wondering how is the pricing playing here? Are you increasing also the commission portion of your revenues that is quite important in factoring. And are you pricing your loans based on variable rates plus a spread? So if you can help us going through the underlying drivers of this ratio?
Yes. Thanks for those questions. So can we match the gross book value we bought in 2022? Not necessarily. I mean, we might, but we might not. I think if we want to make those types of numbers, then we need to look at sizable transactions on the secondary market, which may be there or may not be there, right?
So I think 2022 is a particularly significant year. We bought some jumbo portfolios that doesn't happen every year, but it doesn't need to happen every year, right? As we said, it's stock business, right?
So -- do we expect the gross book value to be met, what we did in 2022? Well, we have a pipeline, and some more stuff may come in. I'm quite optimistic, even if it would turn out a bit lower, we would be entirely comfortable with that, okay? And since you asked about gross book value, a lot of that depends on the secondary market.
On the banking side, yes, our net revenues on average customer loans don't take too much -- don't look too much on quarter-by-quarter evolution, I would say. What I would suggest is that you take a slightly longer-term view on it, that excludes seasonality. What is happening there?
There are 2 mechanisms. One is the factoring mechanism where you reprice the stock, okay? So you -- basically, you're right to your clients altogether and you tell them that due to the changes in conditions, you need to have legal reasons to do it. It's the Italian terms, it's [ justific ] automotive, right? You write to them that you're changing the terms of an existing contract.
So that's quite reliable. It's quick because it goes to the whole stock. And it -- yes, in answer to your question, it touches both interest and commissions because commissions in factoring are -- it is true quite a relevant element of the revenue mix.
In terms of medium to long-term lending, it's different, right, because you have a stock, right, which is priced in a certain way. And then you have the new flow that you build on top. So first of all, consider the duration of these portfolios, you saw them, right, 3, 4 years, right, 2.5 years leasing. So imagine roughly that we replace 1/3 of the stock per year. You can just look at the durations and you can work out the math yourself, right?
And imagine that as we replace that with new volumes, the new volumes go in at new prices. Order of magnitude of the spread increase, I'm not talking about the rates. I'm talking about the spread increase. In the last year, on medium-term lending, order of magnitude, 100 basis points, okay? So it's no -- it's not been us. I think -- this would more or less cover it.
If you have any other questions, I'm listening.
No. No.
Okay.
Mr. Geertman, there are no further questions at this time.
Good. While it's 5 past 5, and it's been, I'm sure, a long day for everybody. You might have other calls, I'm not sure. So I guess we will leave it at this.
We thank you very much for your attention, and we will keep you updated on the news of the bank, and we hope to hear you all again in the next earnings call in Q2. Thank you.