Banca IFIS SpA
MIL:IF
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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 Third Quarter 2021 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Frederik Geertman, CEO. Please go ahead, sir.
Good afternoon, everybody. Welcome to our third quarter results conference call. I'm here with Martino Da Rio, as usual, to illustrate the results. We are presenting a quarter that confirms the positive trend of the first 2 quarters. Results have developed better than expected as we have benefited from a nice macroeconomic recovery.
We have a net income in the third quarter of EUR 32 million, leading to EUR 80 million in the first 9 months of this year. We booked revenues in the quarter of EUR 157 million, which is the highest of the last 6 quarters, excluding PPA, EUR 151 million. We have very good NPL cash collections of EUR 82 million, which are up significantly also against 2019, not only against 2020. And we've booked loan loss provisions of EUR 20 million, which includes EUR 8 million of extra COVID provisions in our NPL portfolio and EUR 5 million on the credit portfolio for potential concentration risks. So these are both, I would say, prudential.
Lower range of our full year guidance for this year has been achieved in the third quarter, we gave a guidance of $80 million to $90 million, and we're at $80 million today. So we updated. We are giving a guidance of EUR 570 million to EUR 590 million of revenues and net income of $90 million to $100 million.
CET1 at 11.68%, an increase of 24 basis points without La Scogliera, 16.2% CET1 ratio.
We'll give some update also on the transfer of La Scogliera to the Canton Vaud in Switzerland, and I'll give you some updates on that time line basically, in an appropriate charted outcome and I'll comment in a few minutes.
Getting to the third quarter results. Moving to Page 5, net revenues. So the revenues were rather strongly up. You see that in the third quarter, we booked revenues that were even slightly higher than the second quarter. That doesn't normally happen in a bank. Third quarter tends to be a bit lower than the second. We had August as usual, that was slow because it's a holiday month. But July and September were both slow, and I would say, positive that overall, we managed to equal Q2 revenues.
NPL revenues were EUR 61 million; commercial banking at EUR 74 million. We should add that we also have a EUR 10 million extra, which is not PPA, but it's TLTRO benefit. You will recall that the TLTRO rules stated if you meet certain lending thresholds when you get 0.5% bonus. And that came in, it was worth about EUR 10 million and came in in Q3. So there's a little extra that's not entirely repetitive, obviously, right?
Moving to Page 6. We mentioned we benefited from quite a nice macro environment. We also want to stress that the bank has been rather dynamic and quick in reacting to commercial opportunities. So it's not just some things -- it's also a very fast and dynamic approach to commercial opportunities.
You will recall that in 2019, we launched lending guarantees by the state, which is quite a contribution. It's the green parts of the chart, right, during 2020 when that became very popular. In 2021, we have another one of these cases, superbonus 110% credit. So that's basically tax credits that can be traded. So the bank purchases them of companies that benefit from them that install energy saving and energy saving equipment in households and in businesses.
You can see how the composition of revenues, just by adapting to these 2 [indiscernible], I should say, just by adapting to these opportunities can change over time. I think that's a particular of a bank like Banca IFIS. We have versatility that allows us to capture opportunities, right? So I want to clearly say that it wasn't just a market tailwind, but it's also been commercial adaptability.
We might have put another chart in here on the NPL side, where similar things have been done in order to maximize the productivity of the collection business. But this is basically the idea, and it's a point that we wanted to make and I think will also help us during the plan.
Going to Page 7, we want to update you on some news that we gave a few days ago. We were one of the first 3 Italian banks to join the Net-Zero Banking Alliance. The other 2 were the 2 market leaders. We're pleased to have been in this first group. We think it is a relevant fact for our positioning. And we think it is also an economically relevant fact in the future.
The Net-Zero Banking Alliance is basically a commitment in which the largest and most significant financial institutions commit to getting to net 0 emissions, not only in their own operations, but in their financing. There are immediate targets for 2030. And if you commit to this alliance, then you commit to giving your targets and to reporting on them. It's both -- in my opinion and in our opinion, it's both civic duty, but it's also good business.
We think that -- and it's good capital market strategy, I think -- we think that we are very well positioned to make quite ambitious statements on the quality of our loan book expressed with this criteria. We start with a fairly limited exposure on Priority 1 and Priority 2 sectors. And we will be able, I think, to be at the forefront of this type of phenomenon of this type of movement.
Once again, much better to lead and to help your clients, right, to make the adaptation than to be a follower in these things.
Moving to Page 8, NPL collection EUR 82 million. As we've stated before, actual cash collections exceed the model estimates. That's no surprise. It was true also through COVID. So we're quite proud of the resilience. We initiated in the second quarter, as we know, a detailed review of the potential long-term impact of COVID-19. So we really learned to look for places in -- maybe some additional prudence was -- let's put it this way, could be justified. We made another EUR 8 million of provisions in this exercise, and we're slightly above [ 3 quarters ] of the analysis. So in the last quarter, we expect to complete the review and also to have a smallish additional impact still to be accounted for.
On November 2, we announced the completion of a very significant transaction. We bought EUR 2.8 billion gross book value from Cerberus Capital Management, its 300,000 debtors. It basically sets us in a good position to surpass our full year purchase target because we've already completed it now, being about EUR 3 billion. We are looking at another EUR 1 billion additional portfolios right now. So we're quite sure to do some more. And the significance, I think, of this transaction is to confirms our bank as one of the few players operationally capable of pulling off this type of transaction.
Onboarding a few hundred thousand debtors is not an easy thing. So we take pride in doing this in a very smooth way with respect to both the organizations that sell and with respect, obviously, to the debtors themselves.
Asset quality, Page 9, we have a fairly constant situation in terms of ratios. We have a slight increase that's due to the seasonality in the size of the customer loans. It's typical in factoring that in Q3, your end of period starts, go down a little bit, and that's the reason why the ratio has got slightly up. If you look at the actual exposures in terms of NPEs, you can see that there's EUR 13 million, we actually were slightly down, right?
We booked EUR 20 million loan loss provisions in the third quarter. And they include, as I mentioned, EUR 8 million additional COVID provisions in our NPL portfolio and EUR 5 million for potential concentration risk. That means that naturally, if I can use the term, right, the cost of risk in the quarter was 20 minus 8 minus 5, and very low, right? It continues to be very low. I think this is the same in our bank as what's happening in other banks.
Obviously, the extra provisions that we took are there to be able to be very well prepared and very comfortable when all the public support measures cease to exist when the moratoria cease to exist, when the other public [ administrations ] were on hiring and firing cease to have effect. And to be in the first month of 2022 present with very, very comfortable provisions in order to be able to accommodate what might coming in terms of flows, right? But today, in our bank, as in other banks, we don't see yet the flows arriving.
Moving to Page 10, or it's the guidance, as we mentioned, we reached EUR 80 million, which was the lower range of the guidance for the full year. We reached it this quarter, it was unexpected for us, too, meaning that we were positive, as we mentioned in the previous call, but July and September were actually really great months.
And August was slightly less slow than normally. And so citing what to do given this result, we decided to update the guidance, not updating it might have given the signal that we were expecting or we would be expecting a bad fourth quarter, which we're not expecting at all, right? So in terms of transparency and in terms of the signaling the right type of expectations for Q4, we prefer to give you a formal update and, therefore, to increase the guidance to EUR 570 million to EUR 590 million of revenues and EUR 90 million to EUR 100 million in net profit. The same assumptions apply, right?
So obviously, this won't be the guidance, if really huge macro shocks happen both on the pandemic level or on the macroeconomic level, okay?
Capital ratio evolution from 11.44% million to 11.68 %. This is not to retained earnings that come in, it's increase. What it is, is the seasonal contraction of the factoring volumes, right, that leads to slightly lower loans and, therefore, slightly higher CET1 ratio. The profits are not yet in there, right? So you can work out the numbers yourself. If you assume a reasonable payout ratio, a good part of the EUR 80 million that we booked today will be retained to earnings and also constitute capital.
Let me give you -- then finally on Page 12, and then we'll take questions, an update on the move to Switzerland. We have been also in the conversations we've had in the last months with the investors or some types of -- some questions, right, some desire get update. We represent here a time line, and I'll comment a little bit on the various phases.
So on the 18th of June, last La Scogliera Shareholders' Meeting approved the transfer, subject to the satisfaction of certain conditions precedent, including a favorable opinion from the Italian internal revenue agencies. The feedback from the Italian internal revenue agency is expected by the end of December or early 2022. They don't give you intermediate feedback, so it is impossible to know during the process in what way they will reply. Therefore, we have no update on the content. When we reiterate the statement we made last time, it's probable, but not certain.
We expect the conditions precedent to be completed in January, therefore -- and we shall present the plan immediately after in February. Together, as I suggest, with the full year 2021 results so that you can appreciate stable numbers on 2021 and the plan right [ growth ] on top of those, right? So they did to go through February is both connected to being able to give you certainty around La Scogliera transfer and to have the full year presentation on -- the full year numbers in the presentation. Sorry, I was distracted for a second.
The transfer will lead to 450 basis points of impact on the basis of the numbers of September 30. I'm on the right-hand side of the slide now. We should keep in mind a few things. Obviously, we can't be certain, so we're developing scenario in which it might not happen without making any changes to the statements that we made regarding what we expect. But we, obviously, have to be prepared for a scenario in which it doesn't happen.
In this scenario, we need to keep in mind that in the first month of 2022, it is almost certain that the NPL weighting in terms of risk-weighted assets for purchased NPLs on the basis of the EBA -- E-B-A decisions, right, the European Banking Authority, will go down from 150% to 100%. This will generate 60 basis points of CET1 impact favorably right? In addition, you will recall that we haven't yet put profits in the retained earnings for this year. That's putting us in a very comfortable position in any case, in terms of capital and CET1 ratio. So we are developing a 3-year plan, and we've run the numbers now and we think that we can present -- in fact, we're certain that we can present a growth-based attractive plan even in the scenario in which Scogliera doesn't happen.
Having said that, there is no change in the statements that we've made regarding what we expect. So all this is just maximum clarity and transparency.
I will take some questions now. And I'm available for any additional clarification on this or any other subjects that you may find -- require some additional comment. Thank you.
[Operator Instructions] The first question is from Christian Carrese of Intermonte.
The first one is on top line trade receivables. We saw a positive trend in superbonus 110%. I think this could -- the loan loss in 2022, I was wondering if there is any risk of clawback, so buying tax receivable? Or if there is any insurance [ clubbed ] into for the tax officer is coming saying that debt receivable is not, I would say, approved? The second question is on -- are you going to answer each question or...
No, no, just give them all, and I'll take them all together. Thank you.
Perfect. Second one is on NPL. We saw a very nice big transaction in NPL business just a few days ago, EUR 2.8 billion gross book value. We met at the NPL meeting just in September, and there were discussions about the prices of NPLs I suppose that portfolio. I mean if you can give some color in terms of vintage and in terms of prices, just I mean in the sense of low single digit, high single digit. What are you seeing in terms of market price on NPLs?
So the question on cost. Some extra cost could be booked in the fourth quarter related to Scogliera the transfer of the office of Scogliera. If you can tell us in the guidance you gave for the full year 2021 are included in those costs. Can you give us an idea of the magnitude.
Last 2 questions. Cost of risk. The guidance, short term and medium term, I mean in the last few years, we saw some pickup in cost of risk, relating, for example, to the construction sector. But if you go back to, let's say, few years ago of 2015 and '16, maybe because the risk was very, very low compared to the last couple of years.
This year, you've done some precautionary provisions again on concentration of risk and on COVID-19 outbreak. I would like to understand what I did that in mind. I know that you are going to present the new business plan, but what is a normal cost of risk for the run rate for Banca IFIS?
And finally, on capital, [indiscernible], the managerial buffer with lower weight in risk-weighted assets on NPE. So you had a pro forma of more than 12% -- 12.3% common equity Tier 1. I was wondering if the Scogliera -- the transfer of La Scogliera will go through, the excess capital on the additional capital buffer you will have could be, let's say, distributed to shareholders? Or do you see that the 40%, 50% payout ratio is adequate.
Thank you. That's quite a list, Christian. Thank you. Luckily, I wrote them down. So question number one, the superbonus business, is there a risk of clawback? Fortunately, no, because when you buy the tax credit, you do it on the basis of the existence of documentation, that makes the responsibility for the correctness of the tax effect fully on the player that is selling it, right? I'm sorry if this is not said very adequately in English, but I'll try to say it again.
The responsibility for the -- vis-Ã -vis, the tax authority is not on us that have bought it, if we buy it with certain documentation. The only situation in which we buy it is it -- this documentation exists. So we've looked at this very carefully also with lawyers and everything and very clear consensus is that there is no clawback risk in this business for us, okay? Then maybe you can conduct this business also in another way, but we will only buy credits that have that type of documentation that completely shields us.
NPL prices. Well, let me say this. One of the nice things about the secondary market is that prices tend to be what we've seen until now, prices tend to be okay. On this transaction, obviously, there is a player who's selling, that's competent, right? We're talking about a professional player. So I'm sure they wouldn't be selling anything at the wrong price.
We're quite happy with the conditions at which we bought it. And we think the reason that we can be happy is that we have scale and recovery performance that allows us to price this correctly. It's exactly our type of stuff. So it's small tickets, unsecured, banking and consumer, 300,000 counterparties with EUR 2.8 billion gross, you can work out the math. It's small stuff. It's exactly what we like.
So we can price this well and still earn nicely. So actually, we think that we made a transaction that is very nice for us adds positively to the average profitability of our overall stock, and is a good deal for the people who have sold. So combination of these 2 things, it's possible when you are able, as we think we are, to extract value from this portfolio.
Extra cost of Scogliera, I'll give you a ballpark indication. We have 2 types of impact. We have a tax impact, and we have a fees impact, advisory fees on a success basis. So if it happens, the adviser fees could be paid and the tax impact is to be paid if it doesn't, nothing is to be paid. And assuming it happens, the cost would be in excess combined tax and fees impact will be in excess of EUR 10 million.
I underline that in the guidance we gave for the full year and, therefore, for the fourth quarter, this number is assumed to be payable, right? So we're assuming in the guidance that we gave that Scogliera will happen and that we will incur the cost.
Cost of risk, EUR 80 million, yes, which is roughly what we expect this year, right? We expect an improvement. If you look at historically what happened for a few years, the bank has a cost of risk, which was a bit inflated because of the number of decisions, especially on the construction sector that were made.
At some point, the bank had acquired quite an exposure to Italian large constructors. That sector has gone through quite a lot of upheaval, many of them actually defaulted. And over a number of quarters, the bank had to make the reservations, right, for the damage that was occurring in the book.
If you take that out, right, you get a more, how should I say, representative picture of the cost of risk in our book, right, which is mostly, and remind you, factoring business, which turns rather quickly. So I expect cost of risk to be reducing over time.
If we look at our book today, we are very actively looking for places where we can place additional prudence. Now we believe it's the time to put in place additional prudence given that the COVID effect will materialize in the next few months. And given the fact that commercially, things are going so well for their space. I expect cost of risk to develop better positively, so to go down. But I don't want to sound too tactical, but I would probably still prefer to see a plan, which is not too aggressive in the reduction of the cost of risk, okay?
Yes. On the constructors -- maybe a before, let's say, 3 years ago and now the construction sector, how much representative of the loan book?
I think today, it is marginal, not something that you would need in your [ stats ] Christian. Okay? And in the leasing portfolio, it's 0, all right? It was long-term lending to constructors, which has either been repaid or has been unfortunately disappeared, okay.
So, CET1, your last question. Yes, so we would go on the basis of what we saw today, right, north of 12% right? And once the risk-weighted assets of the NPL business are improved, right, with 100% risk weighting. We would go north of 12% including the retained earnings also. And then adding to that, the impact of the -- potential impact of the move of the holding company through Switzerland, we would grow in excess of 16%.
The way we interpret that is that it is a buffer that gives comfort and certainty around a rather generous dividend payout policy. But in our opinion, would be -- historically, was around 40% to 50%, and that we would like to keep. It would give us some strategic freedom, if you will, to maybe capture some opportunities.
Obviously, I underline, we're expecting the criteria that we have given on these types of transactions, i.e., in or close to our core business and places where we are able to give value on an industrial basis, right? So where our skills will help improve the target. No transformation in M&A outside of our core businesses, yes. But still a little bit of extra CET1 space might give us a little bit more flexibility to maybe capture some opportunity if it were to arise.
We are not foreseeing today, share buybacks or a [ maxi ] dividend if the Switzerland transaction happens. So it's going to represent an end of a discussion around CET1 ratio. And we're happy to end the discussion, right? And no particular one-off measures are planned at all if it comes in. By the way, we haven't even explored this. But from a regulatory point of view, I don't think any of these would be much encouraged. I mean that even before getting to the regulator, we don't see it. Okay, Christian?
The next question is from Manuela Meroni of Intesa Sanpaolo.
Thank you for all the presentation, very clear. And also for [indiscernible] who gave [ division ] on [ La Scogliera] that is extremely useful. I have a few questions. The first one is, again, on the jumbled NPL portfolio you purchased from Cerberus. I'm wondering if there are some differences between portfolios that you purchased on the primary or on the secondary markets. So if there are differences in terms of IRR on onboarding fee [indiscernible] purchase price, is this cash-to-cash or any other elements? And if you could provide some additional details on the transaction on this assets.
The second question is on the one-off provision you posted in this quarter. So if you can elaborate a little bit more on the EUR 8 million write-off on the NPL division and the EUR 5 million provision in Commercial Banking in the quarter. Do you expect further one-off provisions on your portfolio?
Then just a clarification on the guidance on the cost of risk or the loan loss provision in full year 2021, can you confirm the provision guidance of EUR 80 million you gave last August? A gain on provision, could you remind us how many [ macro overlay ] provision you accounted for in 2020 for the update of the macro scenario. There are any chances that you may write back these provisions anytime soon?
On the moratoria, what default rate of losses do you expect from your loans under moratoria?
And then [ La Scogliera ], excluding the potential one-off costs related to La Scogliera. Do you expect some seasonalities on cost in the fourth quarter of this year?
On capital, one of your competitors reported some additional impact from the new definition of default following a clarification published by the regulator at the end of August of closer to [indiscernible]. Do you expect to have any additional impact from the new definition of the defaulters?
And last question on the remaining PPA. There are EUR 37 million, when do you expect the reversal of this remaining PPA?
Thank you very much, Manuela. Okay. So in terms of the portfolio that was acquired, was it -- well, actually -- I've noticed in the short time I was here that actually, most of these transactions, especially the large ones are -- have peculiarities, right? So there is not really a single type of transaction that you would expect and this one being slightly different for one reason or another.
Mostly, I think when you get to larger transactions, you run in, in many cases, you run into mix of type of assets. And it got even in certain situations to a point where we had to build consortia, right? Because we might not feel that we're the best guys, for instance, to manage mid-corporate secured loans, right? And we have certain partners that we involved in this with whom we participated in bids where we had these types of phenomenon, right?
So what I see is that most portfolios have their own characteristics, right? And this is not atypical or strange. What it is, it's a portfolio that is quite homogeneous in terms of the type of credit. So we don't have that issue that I mentioned before, right, that we needed other partners to manage it together with us or that we have significant chunks of secured debt of corporate or that we have that type of situation.
So it's a small ticket size consumer credit and small retail portfolio that's really very much in line with what we like. And that connects the pricing question that Christian just gave and then when I answered that, we feel very comfortable with this portfolio.
Onboarding, you asked, it will be done in Q1 and Q2 2022, mostly Q1 with a bit of a tail in Q2, if I remember correctly. But in any case, in the first half of 2022, we'll have it onboarded.
One-offs credit, so we have EUR 8 million in the NPL portfolio and EUR 5 million concentration risk. I'll start with the concentration risk. The concentration risk is something we put there in order to be ready, in case we run into issues on small and actually a rather fragmented structured finance portfolio that we have, right?
Concentration risk is a generic term. It has an advantage that we don't need to see the issue in order to make the reservation, rather, not even to make the provision. It's very much a potential risk. And the reason why we chose this is that having today, objectively, no signals of flaws, of defaults, right? We don't have concrete evidences of places where we might justify additional provisions on a single file basis. So why use concentration risk? And you saw that we used it twice. We used it in Q1 and in Q3 is because it's generic, right? And it can prepare us for whatever may happen in Q1, Q2 2022 as the COVID measures that we discussed cease to exist.
The NPL it is, EUR 8 million, it's our exercise where portfolio by portfolio, I should say, where we start to question, what may be the long-term impact of what we saw in terms of -- what we saw from COVID, long-term impact, meaning unemployment in certain places and slightly longer collection times due to the delay that was created in the course and due to maybe slightly less availability of the debtors of cash to repay, right, in the context of an economy which took a hit.
But once again, it is -- and thirdly, sorry, third element, making sure that the curve, the models on which the single files are placed, right, are still actual. There are various models with various curves, there are criteria for putting a file on one curve or another curve. And to check also -- the last element is a check on the criteria that were used for that.
Once again, it's actively looking for places in which you can today put in place safeties because the next few years, we don't want to underestimate whatever the long-term impact may be.
Third question, guidance, EUR 80 million provisions, we confirm, yes, okay.
The macro overlay. Yes, there was a macro overlay. Are we going to have a wright back soon? I'd rather not rush on that. We put these overlays in place because we wanted to be sure that when the pain of the pandemic heals after the [ inactivity ] right, that we got from the government doctor, right, goes away, that pain should be tolerable, right? So we're still on their anesthesia because it's 2021 and some of the moratoria are still active. So to talk about taking this back, these overlays, right, before the anesthesia has gone, in my opinion, would be a bit premature.
Am I expecting overlays to be necessary? It's early to say, but for what it's today, probably, they were [ great ] right? They were sizable probably, but I wouldn't touch them for now. The Chief Risk Officer is looking at me very seriously now, I think he agrees. He agrees, he certainly he agrees.
Moratoria. If we talk to the clients who asked for an extension of the moratoria until December 31. It's a minority, as you know, 74%, we started paying. The other loans are paying the interest on the capital. They tell us in the large majority that they don't see acute issues in going back to paying early 2022 when it all expires, right? If I have to close a number, I said this before, I say about 10%, right, of the ones that we have on the moratoria today will become defaults, okay?
Cost seasonality. Well, we're not expecting anything discontinues. We have 1 type of -- it's not really seasonality, it's the one-off that I mentioned, right, in the scenario in which the Swiss transfer happens, right? We have another one that's a one-off. It's a few millions in Q4 due to the workout of the service portfolio, which is a nice cost overhead, I believe. So nothing particularly unexpected. In general, I would say, is Q4 continues to grow like Q3 in terms of commercial activity, revenues and everything else, then you might also have a bit of variable costs connected to their productivity. You saw it in Q3, right, where we had some impact of the NPL business that has some variable costs that are directly connected to their activities and basically revenues. If it continues, it's likely -- rather lively activity, then I think we can expect a little bit of variable costs to be present, nothing unexpected, Manuela.
New [ job ] impact, okay, so [ Board ] -- let me, first of all, say that our bank implemented the new rules in 2021. So for the most part, the impact is there, we have an exception which is loans, vis-Ã -vis, the public administration. I should say, advances of credit towards the public administration, right, which is probably -- you're mainly interested.
First of all, I would like to say that this for us is a reasonably small business. In terms of our balance sheet, less than 5% is made up of these types of credit. And we have quite some time until it actually starts to impact which would be at the end of Q1 2022 to do managerial actions, together with the administrations that make it possible within the rules not to register the past due, right. Acquiring commitments on timing, agreeing on the ways in which the debt will be paid back. We believe we can very much reduce the impact of that effect by these managerial actions that are planned.
So if I add the fact that we're looking at, I wouldn't call it a marginal business, but any case, we're not a mono-liner, right? This is for us one of many and one of the smaller businesses, right? If I add to that, the work plan that we have in terms of working with the debtors, I think in the end, we can say credibly that it's not going to be material, the impact for us.
PPA, you mentioned there is EUR 37 million remaining, correct. In 2021, we've had -- we benefited from EUR 25 million. We expect in 2022 to have less than EUR 10 million. So we're planning on that, right? I'm not particularly worried about it. As you saw, we -- until now, we have had the ability to substitute PPA with industrial revenues. And we published -- that's why we publish it quite explicitly. So that's what's left. I believe I answered all of them.
The next question is from Andre Lisi of Equita.
Sorry, but I have also a long list of questions. The first one is on your [ MDA ] guidance. I just wanted to understand what margin of prudency have you kept when giving your news as this guidance, giving the 9-month results and considering the upper end of the guidance, the fourth quarter was in end of EUR 15 million -- EUR 16 million below the third quarter, with the fourth quarter typically being the strongest quarter of the year. So if you can elaborate a bit more on that?
The second question is on the TLTRO contribution in the quarter that was EUR 10 million, but as you said it was kind of one-off. So if you can tell us if the contribution of TLTRO is reasonable to observe -- normalize in the next quarters?
Then another question is on the NPL cash collection. In particular, it continues to be really strong. And so I want to understand if you are confident about the sustainability of this cash collection in the coming quarters and years.
Then a question on the factoring in leasing business. So what do you expect in terms of volume evolution and also margins in light also, in current economic growth?
The -- a question on the recently acquired portfolio of NPL. It is about -- is this portfolio somewhat impacted by kind of provisioning? And in general, what do you expect in terms of impact of calendar provisioning going on, meaning that you will elaborate a bit more on that -- on the plan, but if you can anticipate on that, in particular, on the evolution of profitability on the NPL business.
And another question is if you can provide us some indication on a dividend for this year, but you have already said that you will commit with the 40%, 50% payouts, so imagine that it will be that level? And the last one is on capital headwinds. If you expect some headwinds on capital for next years -- like, I don't know, if [indiscernible] or other [ foreign sum ].
Thank you, Andrea. So you asked about -- I'm going to revert 2 of these questions to Martino, as who's right next to me. He's getting organized to answer you in a very precise way. Let me take the third one.
Guidance. I'm not sure whether your question was my prudence on Q3 or on Q4. I'll answer them both. But it was a fair question also on Q3. But so we'll go to Q4. Well, as a style, let's put it like this. I would rather be remembered for prudence than for excessive -- and for excessive, how should I say, optimism, okay.
We think that the Q4 guidance is reasonable. Keep in mind, you have the extra negatives, right, connected to the Switzerland transaction, right? And they are significantly in excess of EUR 10 million, okay?
So there is, I would say, an expectation to be comfortable in achieving the midrange that we gave, right? And we wouldn't go further, right? And that's it. I understand where it comes from giving Q3 and how it went.
Please give us little bit of a break in terms of the difficulty of committing to forward-looking numbers in an environment like we have now. But because in hindsight, it all seems natural that the vaccination campaign goes so well that economic activity picks up in this country so nicely. As we are talking in certain countries in Northern Europe, they are reinstating lockdown measures, and that's Europe. Okay?
So in hindsight, it all seems obvious when you look forward and you have to -- and you have to take responsibility for these things. It's not so obvious, right? So in Q3, we weren't expecting the type of acceleration, right, that the whole country had and that our bank greatly benefited from also in terms of productivity and dynamism that was ours. It wasn't macro, that was just specific to us. It wasn't so obvious to expect that to the extent that I could promise it okay? So Q4 is a reasonable guidance, it's not undershooting.
The sustainability of cash collection, I'll give the 2 -- for Martino give you at the end, right? The sustainability of cash collection. Actually, we are very pleased with the way the NPL business is performing, because we -- what we see is a lot of sustainability, not only in purchases of portfolios that conditions, in which we want to buy. I remind you that we are now right throughout the fleet because we made a big transaction and we did the full year, right, volumes a few months before the end of the year. But we've spent quite a few months this year with a purchase volume that was behind. And the reason it was behind is that we had price discipline.
So sustainability of cash collection is very much connected to the way in which you buy, right? They have to buy at the right price because you live with the consequences for years. So we are both pleased with the ability that we have to price and to buy at the right conditions and with the value that we are seeing in the existing portfolios.
We are just starting the whole project of reexamination of the EUR 20 billion that we have roughly in terms of possibilities to extract further value and initial signs there are quite encouraging. So I'm very comfortable with the sustainability of the corrections that you saw. And in the 3-year plan, I think the NPL business can give us some very nice satisfactions.
Factoring and leasing, volumes and margins, the 2 things are connected in our way of doing business, margins come before volumes. That's always been the way in which the company was managed. But I think -- and I deeply respect the tradition, and I wouldn't not to change it. So we go to business where there are margins and where capital is remunerated.
So what to expect? Expect us to defend the margins, which are quite high compared to traditional banks, as you know, and expect us to still give some moderate growth on the basis of additional distribution capacity, digital distribution and partnerships. In the context of economic acceleration that we saw, that's going to be, I think that's going to be a moderate to dynamic growth path.
Dividend, yes, we're looking at 40% to 50% that historically, what was done here, I have to be a little bit prudent there because, as you know, the regulators have entered this subject rather seriously. For some time, dividends were since severely discussed and for some time, they were managed in terms of the intensity, right?
So I think we'll go back to a situation in which banks can -- I wouldn't say decide autonomously because the regulators have stated that they will continue to watch this thing on a case-by-case basis. But given our profitability, given our capital levels, given our risk profile, in my opinion, a 40% to 50% payout policy is entirely defendable. And so that would be our story.
Capital headwinds, not really. Some capital tailwinds that we discussed in terms of the risk weighting of the NPLs. And also -- and this is too early to be specific that there could be some projects in our shop to do some optimizations outside of the Switzerland scenario, right, which we think could give us some additional benefits. So I'm not expecting a particular headwind. In fact, we will see if we can -- separate it from Switzerland, right, if we can organize some things that will give us some more space.
I have 2 questions that I didn't touch, I leave them to Martino. One is the TLTRO, and the other one was the calendar provisioning question.
Regarding the portfolio of Cerberus. No, it is out of calendar provisioning. We don't have credit subject took calendar provision.
Regarding TLTRO, let's say, TLTRO consists of 2 components. One is, let's say, an attractive cost of funding, which is, of course, we benefit each quarter. Then there calculate a special reference period that for this -- this booking is EUR 10 million, that you are speaking, starts from 1st of March 2020 until 31st March 2021. We reached the threshold for the for this, let's say, for we did [ 0.5% ] reduction in the cost of funding. So when this was communicated to us in September, then we booked afterwards.
So coming back, yes. If we did actually achieve loans -- growth target, in [ 2021 - 22 ] probably we will have a similar effect. But this one is the mean of minus 0.5% relating to the achievement of lending threshold for period 1st March 2020 to 31st March 2021.
Every bank, I know that many banks book this in different ways. We book in this way, I hope that this year also -- wait for next year if we achieve the target, next year in 2022.
Just to be clear, next year, if you achieve the target of lending, is it reasonable to see some similar impact just in 1 quarter, so kind of one-off? Or should it be it seen in the fourth quarter?
No, no. the same. The same. It's a question of style or different banks have different approaches to it. We like to show you the revenues when we're sure, right? So given that there are -- given that there are lending thresholds, okay? When we reach the lending threshold for any certain amount, when we cash it, that's when we show it.
Exactly, when we receive the communication from the authority.
So this -- the exact communication came in this Q, I think also the actual cash came in Q3. And so that's why we showed it.
Just sort of follow-up on the profitability aspect, I mean if you take us -- when kind of provisioning will be a full effect?
Yes. This one, it would be part of the plan, there will be mitigation actions we are going to put in place. The first won't be for sure giving more time to extra traditional activity, service strategy and to find all the possible way to, let's say, anticipate the cash collection.
The second can be, for example, even buy portfolios then work out the portfolio, and then we sell the portfolio afterwards.
The third can be find co-investors and find some co-investors, we will acquire portfolio together to buy and we perform in servicing by limiting the potential impact of calendar provisions. So in other words, the impact will start only 2024, probably after the end of the plan, and we were able to mitigate the impact of these management actions.
The next question is from Simonetta Chiriotti, Mediobanca. Ms. Chiriotti, your line is open. Is your telephone on mute? Your line is open.
Hello, can you hear me?
Now, we can Simonetta, yes.
Yes. Sorry. Sorry. Just a couple of questions from my side. The first is on the NPL business, you reached the target with this large deal on the secondary market. I know that it's meaningless to speak about what is better, if it is backed by a longer primary or the secondary market because it will depend from the price. The question is different, is the market changing?
Do you expect to go on the secondary market, what's happening on the primary market, what's happening to originators. Do you have competitors bidding there for portfolios more on the secondary than on the primary market. If you can give us a sense of the changes that are characterizing the market and the impact for your business?
And the second question is on -- was the factoring business, SMEs business volumes are being sustained by these new initiatives that apparently are very profitable, looking at a result. So what is happening to your traditional factoring business in terms of volumes and the margins. Is your appetite from your traditional customer base the churn rate so they basically KPIs of the business are they evolving?
Good. Yes, very key. So on the NPL business, let me make some broad statements, right? Because it's difficult to make predictions. Is the market changing? Well, what we noticed -- we mentioned it also in the NPL meeting. We mentioned it in our report, the NPL market watch. We never really believed in huge flow of NPLs coming onto the market, swamping the few acquirers, right, and therefore, everything becoming a buyer's market basically.
In fact, we see a reasonable offer and quite some competition, right? So let me first say that this is a market where there is apparently capital, also foreign capital, looking for transactions. And there are players that have enough capabilities and that allowed this capital to bid.
We have a question of prudence also in terms of outlook, or assuming prices to gradually increase, both because the quality of the portfolios that are being sold will improve, younger fresher portfolios inherently are worth more and therefore, go at higher prices, mostly because there are some competition.
The huge cleanup phase of certain large banks, right, is behind us. There are, of course, single specific individual situations, which may contribute some volumes. We expect quite a thoughtful strategy from the banks on the primary market, right, being able to get organized the portfolios in a way that maximizes the result and generate some competition, right, that maximize a little bit of the competition right around that.
We expect in this context, the secondary market to provide some growth. We've made a rough estimate. You can find it in the report, right, at around 20% to 25%, but I remember it was 20% to 25%, to be honest.
After market would be at least 25, would be a secondary market, right? And that's also happening because as you've seen probably, there are quite a few gaps portfolios, which are underperforming. And so there, you can have different strategies, in some cases, it may be worthwhile for these portfolios to be -- maybe partly sold in order to accelerate some cash realization. So that's going to be a driver, right?
So I would say competition on the increase secondary markets, having opportunities our selectivity and competence in a very specific area where it's a little bit more difficult to create competence because it's all very industrial, it's IT systems, its sophistication of modeling its operations, right?
Our competency that respect shielding us from too much of a deterioration of the economics. And the assumptions that we're putting in the plan that we're writing, right, our assumptions in which we anticipate conditions to become slightly tougher, and we compensate those with operational performance that we can improve, right? So it's quite an active approach also in terms of what spaces we have for further improvement, processes, systems, strategies, use of technology, use of robotics costs of recovery, not just effectiveness of recovery, right?
Second question, factoring SMEs, yes. So we have a superbonus stock that we've built up, right, between March and September in excess -- significantly in excess of EUR 200 million, going up to EUR 250 million. Factoring is seasonality, right, very slight contraction between second Q and third Q. If you read through the seasonality, what we see is month-by-month an increase in activity, both because we activate accounts and accept new debtors, right? Expand the business, penetrate the clients with more, and because of the economic acceleration that we witnessed in the market.
So I think there is a -- if you take out the seasonality for a second, which is really typical, it's been there for years, right? And you see sort of the groundswell of our numbers that is increasing month by month and developing nicely on top of which we've built the superbonus business. This year, it's superbonus, next year, it's going to be something else, right? The point is not, all right? The importance of the superbonus for the bank because it's just an opportunity we took it. And the way it came, it might go away, right?
The point is, is this organization capable more than ours, I would say, to capture opportunities and be ready for the next superbonus. And on that, we wanted to put a little bit of emphasis because we think it's typical of us. I mean we think it sets us apart a little bit from traditional universal bank, where things going to be a little bit more gradual, okay? I hope I answered your question.
Absolutely, yes.
[Operator Instructions] And so with that there are no more questions registered at this time.
Great. Well, thank you all very much. Thanks for your trust and your time. We are happy to -- we're available, of course, Martino and myself, should there be any need for additional clarification through the normal channels. I wish you all a very good afternoon and evening, and thanks for your time and patience with us today. Good afternoon.
Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones. Thank you.