Banca IFIS SpA
MIL:IF
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Banca IFIS SpA
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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 Mr. Frederik Geertman, CEO of the bank. Please go ahead, sir.
Thank you, and good afternoon, everybody. Welcome to our call. I will, as I always briefly present the results. We have a couple of slides, and then we will take your questions if you have them. Page 4, the synthesis. We had a good quarter. Net income in the third quarter is EUR 33 million. That's a 4% increase year-on-year. Even though last year, we had TRY 10 million benefit that was booked in the third quarter of 2021. Over the 9 months, we booked EUR 105.5 million profit, which is plus 32% year-on-year, which is a record for the bank. We have revenues in the quarter of EUR 165 million, driven mostly by the core business that's delivering on both sides, commercial banking and NPLs.
9 months revenues are at EUR 489 million. That's a plus 10% year-on-year, and that's another record for the bank. Commercial activity, very solid, driving the numbers I just mentioned. So we have factored turnover in the third quarter, it's plus 9% year-on-year. It would have been 24%. If we had excluded structuring versus the public administration, which is a business that we have restructured in the last 2 months, as you will remember, leading to a very, very significant slowdown. New business in leasing, plus 58% in the underwriting year-on-year, and we have a record quarterly cash collection of the NPL portfolio at in excess of EUR 100 million. That's plus 24% year-on-year.
Operating costs were stable Q-on-Q, thanks to contract renegotiation, offsetting some inflation pressure that we're feeling now. Loan loss provisions of EUR 50 million, and that includes a $7 million prudential add-on that's underperforming book on concentration risk, further increasing the management overlay that we put on the provisions. We paid an interim dividend of EUR 1 per share. That's a 50% payout ratio as usual. So we're paying EUR 52.4 million. The dividend date is on November 21, the record date is on November 22. Very nice projection of the CET1 ratio were above 16% at 16.18% on September 30, including the net income over the 9 months, but this time we included given that we're paying dividends. So the part that we're not paying out is included in the CET1 ratio that I just mentioned. Let's go into some of these numbers in a bit more detail. Page 5, revenues, as we mentioned, plus 6%.
I would like to draw your attention to the development of the blue bar, the dark blue bar that excludes one-offs and excludes the PPA. So we have a progression of $140 million last year, EUR 150 million last quarter, EUR 162 million this quarter. It's a typical, I think, in Q3 to have this revenue dynamic. Normally, Q3 is a bit foster, but we had a very good July and a very good September compensating for the normal August slowdown. Commercial Banking revenues of EUR 83 million in the quarter, was EUR 68 million in the previous one, reflecting for the first time, some positive interest rate correlation.
As you will remember, during the quarter, the interest rates started moving up. So we're starting to see some contribution there. On the NPL side, $66 million revenues. Normally, we would have expected a bit less, I would say, right? So we're offsetting negative seasonality there with production. Finally, GNS, negative development, meaning EUR 160 million against EUR 27 million in the previous quarter, but the EUR 27 million included a one-off -- to benefit, which was booked in Q2 of EUR 7.5 million. So all in all, very solid Q3 that you would normally expect to be a bit weaker, but in fact, came out stronger than Q2 in terms of revenues, especially core revenues.
Moving on to commercial activity. So why did this happen, right? Why are we seeing these results. On Page 6, a few examples of our commercial activity, the ones we normally show you. So you have some historical debt factoring turnover, plus 24%, excluding factoring versus the public administration, right. very largely, market did plus 18% in the same period. New leasing underwriting plus 58%, still small ticket focus. So there is no big tickets in those numbers. It's all productivity and it's especially solid in terms of SME lending, therefore, equipment, tat equipment for SMEs. The automotive side, same level of dynamism also due to our historical strong presence in electric vehicle brands.
Page 7, a little update I want to give you on the digitalization. I put some information on that slide. I'll try to be synthetic about it, and please bear with me, but I think it is important, and we'd like to show you that these projects go ahead. We have 4 pillars of digitalization, client orgnisation, client onboarding, client management and commercial development at mostly after sales and risk and credit assessment. Let me give you just a few means about what's happening on each of these pillars. So on client origination, what it is you try to generate new flows of people that want to get in touch with the bank. We have now reached 25% of new customer origination from online channels.
That was 20 when we started the plan, and we hope to close the plan around 40. We have fully digital long-term lending operational. So if a company wants to, they can apply and contractualize a long-term lending operation fully remotely signing digitally, and we have fully digital leasing and rental that we will launch in Q1 2023. Client onboarding with platform, we call NEXT. It's both the platform for our dealers and our commercial partners, so people who distribute our credit and the platform on which the clients can onboard so become our customer and digitally get recognized to the antimonide stuff and sign. So this platform is partly delivered partly being rolled out.
We now have on the factoring and lending side, 130 commercial partners on it. We're selling 28 products through it, and we had more than 10,000 client visits of people, therefore, entering an onboarding process or entering a product exploration on that side. On leasing and rental, we have 600 partners on it with dealers in their car leaders, equipment distributors. So all the people that sell stuff that we put leasing contracts behind. And over there, we have now in excess of 50% of the leasing contracts in excess of 70% of the rental contracts being signed digitally that includes all the documentation for the purchase of the goods being exchanged digitally. So that's a 100% paperless experience. which 12 months ago would have been 0, roughly, right, these 2 percentages of 50% and 70%. So we get some very, very serious headway there in terms of getting to a paperless distribution and onboarding of our products.
Getting to aftersales. The third column, fis for Business platform, we had 90% of all active factoring clients onboarded onto the system in 6 months, leading to a fully digital customer experience for them. It means that, for instance, their invoice of loading is done digitally. Vector approval, new vector approval is done digitally. So the request and the approval request for increase in limits is done digitally. So all the after sales that the company might want to do when they have a factor relationship with us is done through that platform. And you can see the numbers coming off, right, 150,000 digital clients request 100,000 online interactions now managed there. substantially the whole of the factoring after sales has now moved to digital. That's going to be extended by 3 -- third quarter hot the whole leasing and rental world as well. Finally, risk and credit assessment.
We are completely digitalizing and rewriting credit processes. We're now in leasing and rental on 60% automated digital credit decisions. That means almost instant the machine approved in the leasing and rental. By Q3 2023, we will have fully digital factoring credit renewal. We expect roughly half of the decisions to be fully automatic, 40% require a one-click manual confirmation by the underwriter, less than 10% to be fully human. If you add these things off, you can see that Today, we're probably halfway, slightly more than halfway, I would say. And by Q3 2023, this bank will be substantially paperless and digitalized in its client direction in its credit underwriting and in its after sales. I can't stress the importance of this type of development enough, even though you'll see it expressing itself in the numbers only over time, but it's the type of projects that we believe are -- if you execute them well our transformation. Moving on Page 8, the NPL portfolio performance. On the left-hand side, 101 million quarterly cash collections.
We make you appreciate the projection, right? 82, 9110 million. 49 million judicial, EUR 52 million extra judicial. We put a little bit of focus on the ERC, so the expected cash recovery out of the portfolio. You can see that roughly 2/3 of that is [indiscernible]. And that has quite a nice distribution of workplaces where we can get the salary through the courts. On the nonjudicial part or the extra judicial part, we give you a bit of breakdown of how the portfolio is made up. Why? To show 2 things. One is the fragmentation and the other thing is the age distribution of the debtors. Now this is a very different business than corporate NPLs with private individuals, time is usually on your side.
So if you have a debtor that over time will improve his or her situation, you can still get to extra individual repayment plans even if a few years have passed. That normally doesn't happen with corporate because after the liquidation process of the NPL, right, the company doesn't exist in or -- and so you don't have a chance to work on that side. So we're starting to see a little bit of difficulty, a little bit of slowdown on the extra judicial side, still weak signals, but we can expect in the coming months and years, probably inflation there to bite a bit, and I'll get back to that later.
Page 9, costs. I'll pay a little bit of attention to the numbers here. So hopefully, to explain what happened. First of all, I would like to focus the attention on the purple bar, the EUR 5 million in Q2. Those were costs that have been booked as provisions the quarter before. In is traditional, if you will, we book these requests that come from the resolution funds and from the guarantee funds at provisions as soon as they come in. Then we booked them as costs with 0 P&L impact in the following quarter when the number gets designed. So what you saw in Q2 was that there was $5 million there that we don't have in Q3. Other operating costs, the blue part, light blue part is exposed to inflation.
So that's the part where you should expect probably a bit of pressure, right? Not present yet. That means that for now, although I don't think that this will be true forever, right? But for now, the contract negotiation that our colleagues from the COO department are carrying out is offsetting pressure on prices. Then we have the green part, revenues related costs. There you see an increase. The costs are related to NPL recovery, it makes sense because you saw the cash collection also increase, and it makes sense twice because the part that's mostly developing is the judicial part, which is a little bit more cost intensive than the extra divicial part. So the consequence of keeping up the cash collection in the NPL business and compensating with judicial collections, the extra judicial part is that we get a bit more cost with our revenue-related costs.
Finally, on personnel, there's a bit of rounding there, which might lead you to think that there is some increase. In fact, it's substantially stable Q-on-Q. You can look at the FTE development in the appendix, we show the numbers quarter by quarter. You can see that the headcount is significantly increasing. Now in order for you to understand this little mechanism of provisions that then become costs. We show on the bottom 2 lines, right, what's happening on the provision side, right? That start in Q2 2022, the middle of a bar, you see that as EUR 5 million costs were focused in Q2, EUR 5 million provisions for the [indiscernible], right? Other provisions, we also had a -- we put back some other provisions on connected to this mechanism.
In Q3, there are no costs for the resolution fund and for the economic guarantee fund, but we have a EUR 7 million provision coming in that will become caused in the next couple of quarters. So there is no P&L impact in the next quarters, it's already in the books. It might look a bit volatile if you look at the totals, but in showing you the dynamic we hope to have been a little bit clearer page, TEN, cost of risk and asset quality.
We have a EUR 5 million loan loss provision in the quarter. I want to underline that what came up naturally is about million -- so still a very modest cost of risk in terms of flows to nonperforming and in terms of additional provisions that become necessary in the nonperforming loan books. Once again, only $8 million. We added another $7 million of management overlay. Booking is against concentration risk. That's just a way in order to put it prudentially against the structured finance portfolio where we want to have a bit of prudence in terms of the macroeconomic situation.
So by now, not having taken any write-backs for the Covid provisions and having added a bit throughout this year, including in this last quarter, we are now closed, I would say, we're at about 50 million provisions against potential macro risks, right? So we think that considering that this is by now roughly the amount that you would expect to book in a full year, right? We think that we are adequately prepared for a severe downturn scenario would it materialized. On the ratios, bottom part of the slide, we show you separately the gross and the net NPE ratio with and without the gray bar, which are the invoices that we have advanced against the Italian public health system.
So starting with the core staff, gross NPE ratio of 5.3%, net NPE ratio of 2.7%. The 2.1% is there because we classified into [indiscernible] most of our exposure towards the Italian public health system. In the third quarter, we executed the transaction where we sold some of these invoices. The effect on the ratios of that transaction will happen in Q4 because there's a little bit of delay for technical reasons I won't get into now, meaning that what you should read there is roughly 70 basis points lower in the gray bar than what we show here because of the transaction that's already carried out. Very limited impact on the commercial banking portfolio. We have a EUR 5 million increase Q-on-Q of past due. So -- and I think on the risk in the commercial banking portfolio, I'll comment a bit later on the next couple of pages. I know that there's a lot of interest in this subject. Let me just clarify what happens on the Pharma stuff. You will remember that Banca IFIS had a business of advancing invoices towards the Italian Public Health System.
The total book used to be around EUR 500 million, roughly EUR 500 million to EUR 600 million. The characteristic of the business was very low risk because it's public. And because in the end, the public health system paid even if you had to take them to court over the delays. In the meantime, applying interest rates, and in some cases, penalty interest rates of about 8%. And -- so that business model, the way it was conducted in our bank, and I can't speak for other banks was assumed to be not compatible with the new definition of default. So after also extensive dialogue with the regulator, we decided to classify the remaining exposures we have against those counterparties in past due, of course, when the payments are late and to manage that portfolio downwards.
We're still happy to take this business with the Italian Public Health System, but only with counterparties where we can avoid to classify the exposures in pad and where we can have a very rigorous management of the payment times. -- business model based on penalty rates is considered possible, but you need to be prepared to classify and past deal. And we think optically, this would be -- and also in terms of capital usage, this would be not ideal for our bank. So we decided to really restructure it and become very selective in the type of risks that we take, okay? That's what happened. So we're now managing this gray bar downwards, as you will appreciate from the next quarter onwards. We already made quite some headway on this since May versus roughly when we or April, which is roughly wanted to give decision.
Still on the next slide, Page 11, looking forward. Asset quality deterioration, is it there? Is it not there? You can take a look for yourself. I already mentioned very modest increase in past due coming into the portfolios. And so also, if we look at the performing book, -- we still have very moderate signals. Let me take you through how we view this normally, both to show you how we -- how we manage internally, frankly, so how we think about this type of risk and also to give you some numbers on the scenario. So you will remember, in Q1, we presented this to the market. We did an extensive survey, detailed survey with 560 corporate clients that operate in the most impacted sectors, steel, oil, auto, luxury, energy, ceramics farming, impacted by energy or impacted by raw materials like farming,for instance, it has fertilizer, of course, right?
We are then, do you have direct impact from the Russia, Ukraine situation on the left, most of them said, no, I don't, or meeting to low impact. That's still the case. -- let's not spend too much time on it. And then we asked them, do you have indirect impact, meaning do you have a severe impact of raw material prices or of energy prices. So what happened since Q1 -- we're giving you an update. First of all, the $530 million that we had in Q1 in the sectors became EUR 490 million. So you can see the beauty of factoring. When you decide that certain situations become a bit tense, you exit rather quickly. short-term credit has this advantage. So we have a 7.5 percentage point decrease against these high priority sectors. Second thing, on the right-hand side, all those clients that declared a relevant impact from this phenomenon, how is the rating distribution.
And you can see that today, we have plus 41 million plus 30, so roughly 95% of the clients in ratings of 5 or better. Keep in mind that 6 and 7 are still commercial, right? They are not defaults. How did that develop? You can see in the gray numbers next to it, how it was in Q1. And there, you can appreciate that we get some modest flow from the highest -- from the best ratings, right, into the intermediate ratings. So from the rating 1 to 3 from 37 to 25, rating 4 from 33 to 41. So it accepted some clients from the rating 123 category previously and so forth. Moderate increase in rating levels, therefore, right, so a moderate increase in perceived risk and nothing much further. I would consider this a very benign [indiscernible] situation.
So I don't think we can do anything else to give you forward-looking appreciations on the cost of risk. The only thing I can say is in our bank, and I think it's true also listening to the other banks and speaking to my colleagues. In terms of risk, it is apparently all still so far, so good. We're not seeing any issues yet. Now I remind you that in this quarter, we took another EUR 7 million of management overlay, leading to EUR 50 million of management overlay in terms of cost of risk. So we're not saying that it won't happen. We're saying that it's still looking very benign. And then if it will deteriorate in the future, we think we're prepared. A lot of it also has to do with of your loan book is from the start. And that's why we like to share with you this rating distribution because when you start with a very healthy loan book, even in case of deterioration, it doesn't get that bad. When you start with a risky loan book, even though bonds in case of deterioration, it can get obviously bad much more quickly. Page 12. Net income guidance here, we want to make a little bit more focused than we did in previous quarters.
Now of course, we presented EUR 105.5 million net income over the 9 months. So if you just project that -- and we take into account that Q4 is normally the most dynamic quarter, then you might assume that we would be closing around 140 maybe. And what we are confirming is 120. Why are we confirming 120 because we want to keep space for a couple of one-offs that we expect in Q4, and we're going to share with you what these are. First, the government in -- I think it was August or September, passed a decree by which they increased the threshold for the execution of legal proceedings against pensions from EUR 750 to EUR 1,000. That leads to a slightly decreased capacity that we have to grow with legal proceedings against these NPL debtors.
We're still estimating the impact. We are currently a range. We expect that to impact between 0.5% and 1% of our ERC, okay? So the expected recovery of collections. Second element, inflation. I mentioned it already earlier on the voluntary plans, when you double the energy costs of the family, then the likelihood that they would have at the end of the month, right, the same amount to give you to repay their old loan is obviously diminished. So we are assuming pension inflation effects on the NPL bettors. Back to faithful to our tradition. We take it as a one-off, so we do the mobile changes, and it will appear as a one-off in our numbers. Now the way this works and amortized cost accounting is that we will have in Q4 for these 2 elements, negative revenues. So this will be booked as negative interest revenues.
You would expect it to be provisioned maybe, but it's mostly going to be negative interest income. I will spare you my own personal thoughts on this, but apparently, it's the rules. So we will follow them. That means that we will have in Q4 a net interest impact on these 2 things that we estimate between EUR 30 million and EUR 40 million altogether, right? And we want to take that upfront because we don't want to take into 2023 wait or actually, I call them, right? -- further effects, right, when we can make the estimate now and just take the effect upfront. In addition, I expect the first small impact of the TLTRO part, right? As you know, all the banks have published that, right? We have the TLTRO becoming less becoming less attractive. That starts between the second half and the end of November, formally and also economically.
So that means that we'll have a couple of million of net interest income going away there too. So on the basis of this, I would prefer to confirm the guidance of EUR 120 million and not push further into increasing the guidance that we already have. And that includes, therefore, the provisions that we made with the management overlay that I already spoke about, and that includes taking the full upfront hit of these effects on the NPL business of both the decree and of inflation according to our models. Page 13, CET1 and 9 closing, very nice numbers, growing above 16%, significantly of 16%. Where do the improvements come from? You may remember in Q3 that we had transitory dipped below 15%. It was optically less beautiful than I had hoped. But as we discussed, it was transitory because we have a permanent risk-weighted assets decrease of 84 basis points.
That's both due to the change in the risk weighting of the purchased NPLs. You will remember that goes down from 150% to 100% by itself, that's worth EUR 390 million of risk-weighted assets. And regulatory derecognition of a transaction we had done in Q2 already, but that we needed to complete an SRP process, a significant risk transfer process with the regulator that's now completed. So we can account for 170 million risk-weighted assets further reduction, leading to 84% of CET1 that's permanent that we did back. Then we have the interim results. We paid the dividend, so we keep the payout ratio at 50%. And therefore, we show it -- those are the 2 more important ones, leading us to a very comfortable 16% CET1 ratio, which incidentally is more than our MREL requirement.
It means for those that are interested in these types of things that we don't have any specific MREL issues around bonds or other stuff because the capital that we have is enough to satisfy the greater requirement, making us very comfortable also on that front. We maintained the payout ratio of 50%, and we consider this CET1 ratio as a guarantee of being able to pay the dividend in the future if such a thing exists, right? But let's put it caller extra safety. I won't use the word guarantee. And also we regarded the strategic flexibility. So in case something would come up, that is core business that looks nice, that adds value, we might be able to purchase it without too much worries about the capital effect.
That's the significance of [indiscernible], so we're not planning anything special on either buybacks or macro dividends on top of the 50% that you are aware of. I've finalized part of the slides that I want to discuss with you. So I would encourage everybody to flip through the appendix. Nobody ever does it, but it's full of lots of details. I think we're being quite extraordinarily detailed and transparent on those slides. If you want to take a look. And in the meantime, I'm here for questions. Thank you very much for your attention everyone...
[Operator Instructions] The first question is from Manuela Meroni with Intesa Saopaulo.
I have a [indiscernible] question. The first one is on the TLR. What is the impact on the cost of funding of the change in the TLTRO condition? And what is your strategy as regarding the repayment of the CFPO. The second question is on the threshold for the enforcement of tensions. So do you expect that is a threshold that 1,000 could be extended also to work airless not only pensions? Third question is a clarification on your 2022 guidance. This guidance includes 330 from EUR 30 million to EUR 40 million headwinds of revenues, if I understood correctly, considering both the threshold and the cash collection. I'm wondering this is the number is correct?
And if this includes also the higher cost of funding of the LPO? And finally, if this number is number that can be considered as a one-off or there is some part of this number that is recurring. Fourth question on the NPL. What do you expect the evolution of the prices on purchased NPLs? Do you think you see some not declining the prices considering the higher inflation and the economy slowdown. And the last question is on the NII sensitivity. Could you please update the utility of NII to the interest rate in place, please?
Okay. Well, thank you, Manuela. That's quite a lot really. I wrote them down, okay? So if I forget one, then please remind me, okay? So the TOP... Change in the cost of funding, yes. So the math is very simple. We have EUR 2 billion Pro. It went from minus 50, which what was originally to plus 150 today, right? So the impact annually would be EUR 40 million, right, 2 percentage points on EUR 2 billion. That would be the annual impact. What that does to our interest rate sensitivity, you may recall from previous calls, it was already -- actually, it was even you, I think, that asked about it.
You may recall that we had an interest rate sensitivity for a 100 basis points increase in Euribor right, or in all rates across the curve, right, a shock of all rates across the curve, I should say. We had an estimate of EUR 30 million to EUR 40 million, okay? So if we take EUR 20 million effect out, right, because that further increases in the refinancing rate, right, we should expect them to enter also in the curve, all right? Then the net rates sensitivity of the bank, including the negative TLTRO effect would be order of magnitude $15 million to $20 million, right? It could be slightly better, but that would require some action on our side on the liability side, right? So I won't push it further. But mechanically, about EUR 15 million to EUR 20 million. threshold for the pensions. Is that going to also be extended to wages, right.
Well, I'm not obviously the legislator, right. What I would say is that the threshold for the enforcement of the limit on pensions was under discussion for years, right? No one ever mentioned it for workers. The rationale of the law is to preserve retired people, right? We have little possibility to increase their income. Workers obviously, are in a different position. So I think in terms of vulnerability, it will be very different. Now any potential move on the worker side I think would severely impact the consumer credit industry as well, right? So there's -- today, as far as we know, there is no specific plan or a law being prepared in this respect.
And I think it would be very controversial if somebody went that way. Guidance on the full year, EUR 120 million, does it include the 30 to 40 million headwinds? Yes, it does. And it's the reason why we haven't increased it, right. And the EUR 30 million to EUR 40 million is one-off. Yes. I confirm. It also includes a negative TLTRO effect, but which is not one-off, obviously, because it will be with us. But in 2022, that will be very limited because it will only impact from the end of November 4, right? So it's is a couple of million. So it's not going to significantly impact the results anyway.
But when we gave the guidance, we were aware and when we confirmed it today, we were aware that we also had the TLTRO side, right? Keep in mind that normally, Q3 is a very dynamic part of the year for us, right? So we would have expected the Q3, all else being equal, to be actually better than -- Q4, sorry, right, is normally the most dynamic part of the year. So we would have expected the Q4 all else being equal, to be better than Q3, right? So that's included. Yes, in the guidance. Prices of the NPL portfolio is already declining, not yet actually -- that is a bit scary to watch, meaning that we see people purchasing portfolios at prices that both appear aggressive in terms of expected recovery and be aggressive in terms of cost of funding.
I would assume that prices have to go down. It leaves us in certain cases, to bid on auctions where we see that the portfolio goes another way. We can live with that. I think the bank could go on for a long time even without purchasing or with purchasing small amounts, working out what we have. We have actually the expectation to make our purchase budget this year. Remember, there's also a bit of secondary market going on, and we've been quite successful in there. But if you ask me, I think prices of NPL portfolio should come down, but haven't come down yet. You can also look at it positively.
I sometimes make this comment. The fact that we have foreign capital coming into the country and bidding on these portfolios is also maybe good news. It means Italy is an investment case still. It means that there's a live market. It means that it's a mature market that doesn't just go away when things get a bit tougher. So when I see these options, then I -- even if sometimes it means that we have to let it go, right, I'm still quite happy to see presence and lively participation. Net interest income sensitive, but I think I replied to it when we talked about the TLTRO. So I think Manuela, I went through all your questions. Tell me if I am mistaken.
Yes.
All right. Operator, do we have any additional questions?
The next question is from Christian Carrese with Intermonte.
I would start from what you said on NPLs and the prices you would expect prices to go down. I was wondering if there is any risk of impairment on your current NPLs -- stock of NPL in the coming quarters due to interest rates. Secondly, on capital, there was a benefit this quarter due to the change in the rules of distressed credits. There is any tailwinds or headwinds that you expect in the fourth quarter?
The third question is on guidance -- as you said, current 9-month results would imply something like EUR 140 million net profit without the one-off that you are going to book in the fourth quarter. Taking into account the EUR 50 million overlays booked currently on your balance sheet. What do you expect for 2023. So the guidance could be improved? Or you expect still some deterioration as equity that could redial visibility on the target. Finally, on dividends, the interim dividend EUR 1 per share.
Do you confirm that you are not going to change your payout strategies of 50% payout confirmed because it's quite unusual to see such a big interim dividend compared to the full year dividend because we are talking about let's say, EUR 15 million net profit in the fourth quarter. So the last part of the EBITDA would be quite low compared to the interim dividend?
Yes. Yes. Thank you, Christian. So NPLs on prices, NPLs and prices, yes, I would expect to -- I would expect in normally, over time, these things may translate into the market, right? So I would expect prices to come down a bit. Do I expect an impairment? No. We manage it as we did actually or as we will do actually in Q4, right? So we have the models there and the funding that is connected to those portfolios, and that is there. So when we have situations in the market that forced us or that would bring us to changing the curves that come out of the risk models, then we change the risk models and we take the effect.
Now beyond what we've done, which is prudent, by the way, what we are doing in Q4, which is connected to inflation, we are not expecting to need to do more, right? Also, I have to remind everybody that we are in the context of a record in terms of cash collection coming out of the NPL business, right? -- and of a very solid P&L performance of the NPL business. So no, I don't think it would be reasonable in this moment to talk in any way, shape or form about impairments that are necessary in the NPL business on top of the of the inflation impact that we're taking in Q4. Tailwinds or headwinds in terms of capital in Q4 in the NPL business, no, we think it's stable now. So no, we're not expecting any further break or any particular bad news.
Guidance from 2023, are we ready to increase it. A little bit hesitant on that, I would say. In 2023, we're going to have a lot of different things playing out, and we are now running the numbers. So obviously, when we get to conclusions, we will be transparent and we will talk about the guidance, but I won't do it now in quantitative terms. Let me do it in qualitative terms. What we're going to have is we're going to have a rate effect. It's going to be positive, even net of the TLTRO. We're going to have an inflation effect that is negative. We're going to have costs coming in. We're going to have a cost of risk effect. It's true we had the overlay, but we're preparing for bad weather, right?
So we're going to assume that we're going to have due to the lack of growth or even slight contraction that some people are estimating. We assume we're going to have a cost of risk increase. Then we're going to have potentially a benefit from being able to invest in slightly more interesting terms on the proprietary portfolio, right? Because there are some good deals out there now compared to how they were a few months ago even. If you put all these Legos together, we're going to have a cost effect, which is not inflation that might be having to generate a bit more cost in the NPL business. in order to get the collection at the rate at which we want to have it, right, judiciary and nonjudiciay.
So we're putting these Lego blocks together. And the way this will pan out exactly for 2023 in terms of the goals that we give ourselves is not entirely clear yet. What I would say is on the basis of what we see now, we have no reason to reduce the guidance. I wouldn't go so far as to say that we will increase the guidance. We prefer to be a bit constant. I hope you appreciated this also in the last quarters. We try to work on predictability on transparency and on lack of volatility and the things we say and the things we deliver. Finally, interim dividend, yes, we confirm a payout ratio of 50%.
Now there was a decision about doing the interim of 6 months or 9 months, right? Paying the interim dividend for 6 months leads you to a more balanced probably payout. We decided to do it on 9 months for 2 reasons. One is that that would lead to a payment date in November and the payment date in May. So 6 months apart, twice a year, right? It gives a regular interval. Secondly, it allows us to pay the interim dividend when we have a very good understanding about how the year will go. Therefore, we're keeping 9 months and then the choice for us, are we going to use a payout ratio on the interim that's different than the payout ratio that we want to use on the full year, and it was just a choice to keep it constant.
We want to signal that to us, the payout ratio of 50% is something that we want to keep that will remain with us for some time. So just to avoid any discussion, interpretation or volatility on that number, we're keeping it. So that's why you have a slightly large interim dividend, and you're going to probably see it slightly smaller, I agree, right, final dividend, right, in -- as decided by the shareholders' meeting in April and paid out in May.
So can we say that compared to a few weeks ago, now you are a little bit more confident on 2023 because maybe a few weeks ago, you were not prepared to say that the target of 2020 could be reached because interest rates now went up, so positive and maybe asset quality is not deteriorating as you were expecting until now? And second, on dividend can you say like a joke that you prefer to pay a higher dividend because you ask that Mr. [indiscernible] could put, again, a ban on dividends.
I'll answer both of your questions with the mile. So on my words and what they mean, you're starting to make me feel like a central banker, interpreting my words, but I'm not that important, Christian, so I'm just a guy trying to figure out what this P&L looks like in 2023. And and let's put it this way. We would really like to be reliable in terms of delivering your plan, right? And we're still working on the positives and the negatives. And it's, in any case, going to be a very different P&L than we thought when we wrote the plan only 9 months ago, right?
It's going to be different in its buildup, different in its sources. So let me maintain this a little bit of prudence before going further and just say that we would really like to be reliable in the 3-year plan, right? And that we will see if we can construct it in that way. But let me not make a promise now before I have the numbers, okay, before I have the number solid. In terms of paying in the meantime, well, obviously, there's a lot of -- there's a lot of debate at Central Bank level about the level of prudence that will be appropriate given the macro situation. There are some messages around buybacks.
And around extraordinary dividends. But there are no messages around normal dividends. So we are not rushing to pay because something may happen in 2023. I'm not expecting anything to happen to our regular 50% payout ratio in 2023. It's not in my hands, but we don't have any signal and I'm not interpreting what's coming out of the Central Bank is something that will be something that will imminently impair our ability to keep the payout ratio where it is. And I also say this on the strength of a 16.18% CET1 ratio, which I think is in the context of still retaining half year earnings and keeping them as capital is, I think, a very, very comfortable number. And it's what I mentioned when I said consider that to be an extra element that will make us reliable on the dividend policy. Okay.
[Operator Instructions] The next question is from Andrea Lisi with Equita.
The first one is on the CET1. Just wanted to understand at which level of Seton you expect to land by year-end? And the second one is on the management of cost you have seen that revenues are above the business plan CAGR, but also cost are able because obviously, inflation also costs related to management and so on. So if you have plan to make actions to mitigate the increase in cost and in case of is [indiscernible].
Yes. Thank you, Andrea. CT1 year-end would be nice optically to keep it above 16%, but I'm not sure you have a little bit of volatility, right? I think I can promise that we'll be north of 15.5% in most scenarios, right? Remember that when we presented the business plan, we said we're going to gradually consume some capital, right, or absorb it, and we will. All in all, you could say it's -- sorry, I mean the 9, sorry. So yes, you have the part that's exposed to inflation, and I expect that to grow.
I've already been told by my COO, Fabio is looking at me now that we should expect a couple of millions, more than a couple of millions next year, right, to come in on this blue part of the chart. That's energy costs because we don't have so much, but still, we have the offices and everything. And we had an interesting conversation with the energy supplier the last couple of months, leading us to really see what happens also to our clients, right? And in general, whenever you -- whenever something expires, when you sit down with the supplier and you talk about costs, right, you get to face an increase.
By now, it's become pretty metric. So I would like to tell you the lightly part, right, on the chart, we're keeping it down, and we have been keeping it down until now. We're doing everything we can, but I expect that thing to grow. HR, we're being quite judicious with hiring. You can see the FTE is not growing a lot. Actually, we'd like them to grow a bit. We want to make a bit of investment into the commercial part. We'd like to reinforce the network a bit.
We think we can earn that investment back easily, right, given the commercial dynamics that we have. And I think over a few tens of people more in the network would be really nice in terms of client development and everything. So expect that number of FTEs to grow a bit, but not us. We're going to have contract renegotiations by the with the unions on the sector level, right? So the whole of the banking industry is going to see the effect of those negotiations. I would expect those negotiations to lead to cost increase. So on the dark room side, too, I think cost would be -- would tend to increase. Then we have the revenues related side, green. Those are good costs, if you will. So let's assume stable, all right, which means that we will be still vigorous, right? But but we will earn the revenues on the NPL side.
So what can we do beyond the contract renegotiation that we already mentioned, there's also a bit of selectivity, I think, in advisory costs that we can afford and therefore, work a bit on consumption. But overall, I think the question is that costs will increase and that our challenge will be to increase revenues further also, frankly, using the rate scenario. So -- and this is one of the reasons why I was a bit careful on 2023 and the numbers is precisely these are the dynamics that we want to see in more detail before making explicit and definitive remarks about the guidance for next year, okay? So how we can manage downwards, we will. But the things that I mentioned to you, some of them are, frankly, not so much in our control.
The next question is from Simonetta Chiriotti with Mediobanca.
A couple of questions from my side. The first is on the David Administration segment, the fact segment. I would like to understand that your strategy going forward. So if you are completely exiting this segment or just shrinking your presence in this business -- and the second question is on the NPL business, where you said that you plan to reach your budget for the year in terms of purchases -- do you think that the market will change in the coming weeks, allowing an to do so or because during the third quarter, basically, the activity was very low.
And finally, as far as the impact of the new decision of the government on pensions. If you -- everything will be absorbed by the provision that you are going to make provision. I mean, the measures that you are going to take in the last quarter of the year or if we can expect a lower profitability of this business also in the coming years.
Yes. [indiscernible]. So public administration.
Are we planning on fully exiting this business? No. Are we looking at very serious selection of debtors today, yes, for cable. And will -- what is the consequence of that? The consequence of that is very limited purchases in the last months, right, as we digest the portfolio, whether or not clients will come back to sell of these invoices will obviously depend on what the rest of the market does, right? What we want to explore is the explain to which it is possible to buy, like some other banks have been doing for years already, right?
Extent to it, it is possible to buy invoices, make sure that they are managed in a short time frame make sure that we have documentation and proof of any commercial disputes in the cases where we have delays because if you have this documentation, invoice by invoice, then you can -- then you are allowed not to classify this past due. That's operationally a slightly different game. It's less remunerative because you will never have penalty rates, right? And it requires the people who sell you these invoices, i.e., the large pharma companies, the suppliers, right? It requires them to allow you to buy the invoices without buying exposure to those local health authorities that have particularly bad payment records.
So it's not an exit, but it's a very severe reset of business practices, leading to a very drastic drop in volumes that you've observed. How it will develop, it will also a bit depend on us, but also they depend on the market, okay. NPL business, you're saying we expect to make the budget of purchases. How is that possible when the market is so challenging. So I'm making the statement on the basis of our pipeline, right? We had quite a number of situations where we are quite far ahead. There's also some bilateral stuff in there on the secondary market. So we can't be sure. But if you ask me now, I think we have a reasonable shot at making the budget for the year.
Will the market change? I'm not really assuming that over the next couple of months, right? I would assume that during 2023, we're going to have the investors factoring in a different environment into their purchasing behavior in terms of cost of funding and in terms of collection expectations, but not in the last quarter. So the reason why we mentioned this sort of intermediate level of confidence about making the budget is that we have some view on the pipeline and there are a couple of transactions, which we think will come in over the next weeks.
Finally, pensions. Is it absorbed all of it one-off, the impact? Yes. No, Yes, the first impact, okay? And we take the majority of the impact probably depending on our final consideration. Of course, then there will be a recurrent impact, which is slightly quite or, let's say, between EUR 4 million, EUR 5 million, something like that. We are updating tracking the numbers and refining our assumptions. This, for sure, will be part of our 2023 guidance. We will discuss in that moment. Thank you, [indiscernible].
[Operator Instructions] The next question is from Giuseppe Grimaldi with BNP Paribas.
I have 2 questions. The first one is a clarification on the one-off items that you see. You were talking about EUR 30 million, EUR 40 million. So it's something that is going to be related primarily to the NPL in the fourth quarter, if I got it correctly? And the second point is on the funding. Considering what you have seen right now in the bond market, do you still plan to increase your exposure to bonds in terms of funding in the years to come, as you mentioned in your business plan or other thing is caused at the moment?
Yes. So I agree or I confirm, EUR 30 million to EUR 40 million is not being the NPL business... Yes. It is only in the NPL business except for the little piece of TLTRO effect that we mentioned, right, that's recurring, by the way, it's not a one-off, right? So we're going to have a Q4 NPL business, which has impacted quite significantly, right? In terms funding, do we still expect to increase our exposure to bonds? Well, if you look at the current environment, it looks like quite spectacularly an inefficient way to finance yourself compared to other possibilities we have. If we look at retail funding now, we offer 3% today on 5 years deposit.
And market appears to be accepting that nicely. I would expect the market to slightly increase that further, right, over the next month, and we will follow it like we always do, right? You have to be competitive in these products or you won't collect money, right? But if you compare this with what is it now, 6%, 7%, right, that we've seen on some senior issues, and I'm not talking about the price is would get. I'm just talking about what I observed in the market, right? And we've seen these numbers on senior preferred bonds, right? Then once again, they look like quite spectacularly inefficient. Would we all else being equal, prefer to issue paper on the market?
Yes, because it allows for more continuous relationship with the investors, rating agencies like it, -- so there's lots of reasons why if possible, we will continue to do it even accepting a bit of inefficiency in terms of price. But currently, it looks like it would be fairly -- it will be really much more advantageous to use other forms we have, right? Both institutional and retail funding in other forms. No decision made yet. It's one of the things that we'll feed into the P&L next year. So there you go. It's yet another one of these Lego blocks, right, that we're playing with to get the numbers in 2023 I think what we know now is what I've said.
I don't think I can say anything further that would make any sense. Of course, if the market improves, we will be quite happy to issue. We saw a lot of issuance in the last couple of days, by the way. So it looks like maybe it's opening up again. Regardless of the condition, there's also a question of availability, right? Last [indiscernible] has been encouraging. January is usually a very intense month in terms of issuing. So I think if we take a bit of a look at how November goes, and we take a look at how January goes, we will be probably more important to answer your question precisely.
Thank you. Mr. [indiscernible] any have no more questions registered at this time.
So thank you all. Thanks to my team. Thanks to Martino. Thank you all for your attention. It's a seeing afternoon. We've had a lot of calls [indiscernible] I -- thank you all.
Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.