Intesa Sanpaolo SpA

MIL:ISP

Earnings Call Transcript 2022-Q2

[Operator]

Good day, ladies and gentlemen. And welcome to the Conference Call of Intesa Sanpaolo for the presentation of the 2022 Half Yearly Results. Hosted today by Mr. Carlo Messina, Chief Executive Officer.

My name is Nadia, and will be your coordinator for today's conference. At the end of the presentation, there will be the question and answer session. [Operator Instructions]. I'll remind you that today's conference is being recorded.

At this time, I would like to hand the conference over to Mr. Carlo Messina. Sir, you may begin.

[Carlo Messina, CEO]

Thank you. Welcome to our first half 2022 results conference call. This is Carlo Messina, Chief Executive Officer; and I'm here with Stefano Del Punta, CFO; and Marco Delfrate and Andrea Tamagnini, Investor Relations Officers.

Today, I'm going to walk you through an excellent set of results for Q2 end of first half. So, first let me say a few words on the overall situation we are passing through. Even if there are some elements or possible concern like growing inflexion, the seclusion of Russia-Ukraine transmit and unstable political situation, I remain positive. So, my confidence is based on facts. First of all, the Italian economy is now much stronger than it was during the previous crisis, thanks to solid fundamentals. Despite the level of government there which is I but not sustainable as in many other countries. Italian household wealth is one of the highest in Europe, coupled with one of the lowest debt levels. Italian corporates had stronger financials than in the past with much lower leverage. And the banking system is far more solid and better capitalized enduring the previous crisis.

Secondly and even more important, our bank is now much better equipped to face challenging environments for multiple reasons; the best-in-class risk profile. With NPL stock that is a fraction of the past, a fast stronger capital position and top notch cost income. But in any case, we are aware that a strong rate inflation is driving in and call it in Italy. So, that's the most important part of the negative consequences of the situation. And at Intesa Sanpaolo, we are active with many solidarity initiatives and to support our own people. So, Intesa Sanpaolo people, we decided to provide a one-off contribution of €50 million to mitigate the impact of inflexion. So, is that we were into €500 each including excluding managers or manager equivalence.

Turning to our business. In the first half, we worked along to the nation, first delivering excellent economic performance in the short-term, and second, building a strong bank for the future by continuing to execute our business plan which is well underway. In the first half, we delivered €2.4 billion net income while provisioning €1.1 billion for Russia-Ukraine. Excluding these provisions, we would have delivered our best first half since 2008. We confirm that this year we'll deliver more than €4 billion net income assuming no critical changes to commodity supplies. Even in a conservative scenario of hosting 40% coverage of the entire Russia-Ukraine exposure, we'd deliver net income well above €3 billion.

And regarding our business plan, I want to remind you that if it is a real industrial plan that creates the bank for the next 10 years. And those are the key industrial in each of these are well underway and I'm proud with the progress that our people are working so hard to deliver. In particular, our technology evolution is moving quickly with significant investments and the roll out of our new digital bank Isybank is well underway including the appointment of key management in this setup of the tech delivering unit with 230 specialists that we had in the market. Over the past two business plan, we have been a resilient delivery machine fully equipped to face the most difficult global challenges with confidence. And now we are including also the technological area of our group.

We are among the best bank in Europe for NPL stock and ratios and we are very efficient. Out underlying cost of risk reflects our status as zero-NPL Bank and our common equity Tier 1 ratio is solid. Now let me provide the highlights of our results. Let's move to Slide 1. In the first semester, we delivered excellent operating performance, thanks to a well-diversified and resilient business model. We delivered net income of €3.3 billion when excluding provisions for Russia and Ukraine. We achieved the best ever half year in second quarter for operating income and operating margin. Net interest income strongly accelerated on a quarterly basis. The second quarter was the best quarter ever for insurance income. We confirm our high strategic flexibility in reducing costs, massive deleveraging has allowed us to reach one of the lowest NPL stock and ratios in Europe. And ISP zero-NPL Bank status is driving a very low underlying cost of risk.

Slide 3. Overall, we are fully in line with our €5 billion 2022 business plan net income target when excluding provisions for Russia and Ukraine. Slide 4. Despite the challenging environment, we delivered high quality results with the best ever healthier or revenues and operating margin. Net interest income grew by 2.5%, commissions were very resilient and the decline is almost internally due to performance fees. Profits on trading were very solid. Revenues grew by 1% and operating margin by 4%. Operating cost decreased by 2.5% and we have been conservative in provisioning and net income was almost €3.6 billion while excluding cost concerning the banking industry and provisions for Russia and Ukraine.

Slide 5. Q2 performance was excellent with the best ever second quarter for revenues and operating margin. On a quarterly basis, the net interest income strongly accelerated up 7% more than compensating for this slight decline in commissions. Insurance income was the best quarter ever, up 60%. The top tier contribution from commissions and insurance income was up 1%, in a very difficult environment demonstrating the resilience of our Wealth Management Protection and Advisory model. Net income was €1.6 billion while excluding €300 million Russia-Ukraine provisions. Slide 6. In this slide you can see that net interest income accelerated on a quarterly and yearly basis despite the impact from NPL stock reduction and from the strong increase in retail deposits, which is a valuable asset in the new interest rate scenario and remains fuel for our wealth management engine.

Let me remind you that the interest rate increase is a strong upside for us because for a 50 basis points rate rise net interest income and increased by €900 million. Slide 7. Customer financial assets were €1.2 trillion. Short-term direct deposits increased €16 billion on a yearly basis. Net as our management inflows were €11 billion on a yearly basis. The decrease in assets under management invested under administration was due to negative market performance. In the first semester, Valore Insieme our advanced advisory service for Affluent and Exclusive clients add €8 billion in customer financial assets inflow. Slide 8. We continue to be very effective at managing costs down 2.5% and depreciation is up as we keep investing for growth.

Slide 9. We are proud to have one of the best cost/income ratios and in this light we will place our leading position in Europe. Slide 10. Thanks to the massive deleveraging NPL ratios were the lowest ever. Our underlying cost of risk stood at 27 basis points. Loan loss provisions were down compared to last year when excluding Russia and Ukraine. Let me remind you that we have €400 million in generic provisions conservatively booked in 2020 for COVID, still available for the future. Nearly all moratoria had already expired and the NPL inflows remain very low, even lower than pre linear prices levers. Slide 11. Gross NPL stock reduction was over €4 billion in the first six months of the year and almost €5 billion on a pro-forma basis.

For a total NPL reduction of €64 billion since the peak of September 2015. The net NPL stock is now at just €6 billion and the net NPL ratio is 1%. As a result at Slide 12. As a result of these impressive deleveraging, NPL stock and ratios are now among the best in Europe. And our underlying cost of risk is in line with being a zero-NPL Bank. Slide 13. On this stage you can see an update on our exposure to Russia and Ukraine. The exposure represents just 1% of that group customer loans and also our exposure is decreasing and is already down by €400 million since the beginning of the conflict and cost of the exchange rates; whopping €1.5 billion when considering the provisions booked in the first semester.

Slide 14. Let me give you some more details on our Russia-Ukraine exposure. Only 400 million in loans are currently under functions. Over 2/3rds of loans to Russian customers and be first top notch investor groups featuring long established commercial relationship with customers a third part of major international value chains, with a significant portion of their proceeds coming from commodity exports. Our footprint in Russia is more-or-less and our lending to Russian clients is very limited: below 0.2% of group customer loans. The cross-border exposure is almost entirely performing and classified in Stage 2. Slide 15. ISP pool is facing Common Equity Tier 1 ratio is 12.5%. these already includes €1.65 billion of accrued dividends and a 100 basis points impact from the entire €3.4 billion buyback authorized by the ECB but does not include the 110 basis points of additional benefit from DTA.

Deducting only the €1.7 billion first transferred buyback, the common equity ratio stands in 13%, 14.2 including DTA absorb. Slide 16. Contributing to society has always been a key part of our DNA and our excellent performance allows us to create sustainable benefits for our -- for all our stakeholders. Slide 18. In addition to delivering excellent economic performance, we continue building a strong bank for the future by deploying our new business plan. The plan is proceeding at full speed in those the people of Intesa Sanpaolo are working other across all the key industrial initiatives which are well underway. The next slide provide an overview of what we have done in just five months. I'll give you some color on some of the most significant industrial initiatives.

Slide 19. The first pillar of the business plan is massive upfront de-risking, and we have already brought the NPL ratio with 1%, the lowest ever. We've also set up that the new Anti Financial Crime hub now. Slide 20. There is a talk of Isybank, our new Digital Bank and one of the most important initiatives of our business plan is well underway. "Domain Isy Tech" the new delivering unit for Isybank development is already operational, we do have to a 230 dedicated specialists. We hired the new heads of Isybank, sales & marketing digital retail and another 270 people working in this sector. We are already fully operational. And we have already defined that the Isybank offering structure and functionalities. Slide 21. Several key initiatives to fuel our wealth management banking in the coming year are also well underway.

We fully implemented a new dedicated service model for exclusive clients. We strengthen the advisory service Valore Insieme for Affluent and Exclusive clients. With €8 billion customer financial assets inflow in the first semester. We leverage our own asset managements and insurance product factories to enhance our commercial proposition with the development of multiple new products and continuous enhancement of the ESG offering. Slide 22. We are accelerating our strong ESG commitment and with a world-class position in social impact, a strong focus on climate and the leading position in the maze, in ability, in existent rankings. We will go through the details in the next three slides but for the sake of time let's move to Slide 26. The people of Intesa Sanpaolo.

We have planned significant investments in our people and many initiatives are already well underway. We are quickly proceeding with renewal of our workforce with 900 people hired since the beginning after 2021 and 850 people reskilled in the first semester. In the second quarter, we booked a one-off contribution of almost €50 million so that we can give our people €500 each to help mitigate the impact of inflexion. Slide 27. Finally, let me remind you how we are supporting the Ukrainian population and our products thankfully, it's with the implementation of multiple projects including the donation of €10 million to support humanitarian initiatives. Slide 28. In this slide you can see the four pillars guiding our strategy to take the unique ISP model to the next level.

We remain committed to our €6.5 billion net income target in 2025 and we can do these even in the current already challenging environments for multiple reasons. Our target was not factoring in any potential upsides from an interest rate increase. We have flexibility in reducing costs as continuously demonstrated in the past and we have already achieved zero-NPL Bank status with a very low underlying cost of risk. Let's now move to Slide 30. Looking at the macroeconomic situation, all the main institution continue to forecast the scenario with positive with de-evolution in Italy. In any case, if we compare our current position to where we were at the beginning of the last downturn, we are even better equipped to face challenging environments for multiple reasons.

As you can see in this slide, our capital position is much stronger and our NPL stock is a fraction of what it was in the past. Slide 31. Furthermore our business model is more resilient and efficient with commissions exceeding 50% of our revenues in cost income below 48%. On top of these, we expect an additional benefit from the interest rate increase. Slide 32. At the same time when compared to our peers, we are fear better at interest to take in the challenges ahead. We have a best-in-class risk profile, we have a solid capital position with a large buffer versus regulatory requirement and we are one of the cost income leaders in Europe. Slide 33. And finally, let me remind you that the Italian economy is stronger than in the past.

The Italian debt is much more sustainable. Italian corporates are more resilient and the banking system is more solid. Slide 34. And thanks to its solid fundamentals, the more leading household wealth, our economy is expected to continue growing baked by strong government information and significant EU financial support. Slide 36. Let me now recap the key points that demonstrate the sustainable strength of Intesa Sanpaolo. Our resilient and profitable business model over-delivered even in the first semester with strong acceleration of net interest income. We achieved the highest ever operating income and operating margin. Costs were down sharply, interest income is best-in-class.

NPL stock and ratios are at record lows and ISP is now a zero-NPL Bank with a low underlying cost of risk. We maintain a very solid capital position with low leverage. We already allocated €1.1 billion for Russia-Ukraine and we still hold €400 million in generic provision related to COVID. Slide 37. So to finish, let me turn to the outlook. All the business plan industrial initiatives are well underway. As proven again-and-again, Intesa Sanpaolo is an unstoppable delivery machine. We are committed to over-delivering on our promises even in a challenging environment. This is thanks to all our people in to a strong and cohesive management team.

In 2022, we expect to deliver best-in-class profitability in line with our excellent first half performance. We've already accrued dividends of €1.65 billion in the first half and we expect a minimum €1.1 billion to be paid as an interim dividend this November. The outlook for this year will be fine-tuned in the coming months based on the impact of the Russia-Ukraine conflict. We remain committed to our €6.5 billion net income target in 2025 and to a 70% dividend payout in each year over the plan. The first half of the €3.4 billion buybacks is underway and the second branch is subject to the approval of the Board by the time of the full-year results. So, thank you for your attention and I'm now happy to answer your questions.

[Operator]

Thank you. Dear participants, will now begin the question and answer session. [Operator Instructions] Please standby, I will compile the Q&A roaster. This would take a few moments. Thank you. Now we're going to take our first question. The first question comes from the line of Andrea Filtri from Mediobanca. Your line is open, please ask your question.

[Andrea Filtri, Mediobanca]

Thank you. And the first question is on the NII sensitivity. We've seen the €900 million but it's only a bit hard for us to reconcile. I would ask if you could please provide us the NII boost of Intesa Sanpaolo if you were to adopt the forward rate curve under current --.

[Carlo Messina, CEO]

Sorry, I cannot hear you very well. So, if you can, repeat and speak slowly, please.

[Andrea Filtri, Mediobanca]

Yes. Is this any better?

[Carlo Messina, CEO]

Yes, better.

[Andrea Filtri, Mediobanca]

Okay, sorry. NII sensitivity, we have seen the €900 million but it's very hard for us to reconcile from outside. So, I would ask if we could please have the NII boost of Intesa Sanpaolo if you were adopting the forward rates curve on the current balance sheet at zero sort of pass through. The second question is if you could elaborate what conditions would you need to see in order not to undergo the second lag of the buyback. And then thirdly, congratulations on the initiative to support your employees during the current challenging inflationary environment. I don’t think we've seen any other bank doing that so far. I wanted to ask you if you see any pressure on the cost side going forward this inflation space elevated. Thank you.

[Carlo Messina, CEO]

So Andrea, I will this one -- I'll will give you answer on the second and third question and then I will leave Stefano Del Punta to give you the detail on sensitivity so he can answer in more technical details. And but just on the first question, my point is that you have to look at the cost in Intesa Sanpaolo. So, looking the figures of back Intesa Sanpaolo in the past with the level of interest rate much higher than these. You can have the evidence in practical what can happen in a bank that have a significant amount of share and that can maintain a degree of control on the evolution on net interest income. And on these point I will ask Stefano to elaborate.

Looking on the conditions for the buyback, I'm fully committed that to deliver also the second branch of the buyback there. It is clear that we are today in an environment that's not only for the Italian political situation in which I have to tell you I'm not worried at all, I think that Italy in any case has such strong fundamental in that any kind of our parties or coalition that we win the election, we'd be obliged to deliver the next generation you find the program. And especially if the coalition will be the results of the portion of the Italian families that there's a lock of money and doesn’t simple want to lose their money and they want Italy to remain with a clear focus on Europe and with the possibility to remain one of the best country euros.

I have to tell you I'm not worried at all. So, looking at the Italian political situation, I'm not worried. Then what I have to consider and that’s the reason why we need the Board of Directors to move in further evaluation in the second part of the year is these kinds of attitudes of the ECB and supervisor to give these negative comment on the evolution of the real economy also considering in scenarios of the possibility of a recession. So, if and that’s not what we're seeing and that's not what we can consider as likely looking at the corporate side and the family side in Italy because all the owner of companies in Italy and the majority of household support come from in a quality area.

So, the area that are affected by the situation and probably poverty is really one of the most important area that we have to consider in the future in this count. But all the majority of the other players that we are used to talk with directly or through the next operators are not negative on the go evolution they are ready to invest money, they are ready to work for diversification of sources of energies set to work or renewable sources. So, there are a lot of attention in Italy to investments, so that there is a wide in that these attitude to consider the recession as one scenario that face a high degree of probability is not what they consider the most likely scenario.

But in case of a recession, we are to be in a position to consider also what kind of implication we can have in term of performing the share buyback. And at this point, we would make evaluation also considering the timing of a possible recession. Because if you look at the expectation of ECB, they are talking about there's a possible recession in 2023 but with a significant rebound in 2024. So, we will see what would be the reality in case of not hurt in the recession, I'm fully committed to pay also the second branches of the buyback in case of a potential recession, you can consider just the possible postponement of these situation. That's what I think we have to consider hope for the future.

But again I have zero signal in Italy of potential recession in our country. Possible slowdown but for sure what we have today also in conversation with the key part of the real economy society in Italy is not the recession that the likely scenario in our country. On your good points or salaries, I think that this situation has forced all the CEO of the most important organization to consider that they have the bank the company as a family. So, in a family in difficult conditions, you have to be close to the person that can have a need of support and this is a situation for all the people that there's a salary that is not equivalent to a management and managerial salary. And I think that it is something that we have to give to our people in order to allow them to reduce the impact of these of this scenario.

This is something for grant, so it is not a component in a formal way of their salary but it is something that we consider as very important. And I have to tell you that I hope that this kind of situation can be transitory, so okay and we only did despite of a one-year time, otherwise we will have to consider some form of compensation also in next year. So, that's my point. We are a company that is performing very well delivering a significant amount of net income a sustainable net income. And I'm pretty sure that it is part of the social responsibility of the CEO to be close to the people working within their innovation that there's the salary that is not so significant. So, then that's part of our commitment.

Then on net interest income, I will leave to Stefano.

[Stefano Del Punta, CFO]

Yes. Andrea, I'll answer it, your question is on the sensitivity?

[Andrea Filtri, Mediobanca]

Yes, that's on it.

[Stefano Del Punta, CFO]

Sensitivity, of course that's calculated, it's calculated and then these funded the ways like the way it was best calculated, it's on the balance sheet. It's been around a €100 million and these are pretty stable. Actually deliver a bit less now because some of that the civilians already be catch by interest rate as it moves place. So, these of course made should be very responsible before the rates started to come, it declines on the 12. Of course if you look at the sensitivity in whatever, the respond is to answer that is lower that it was making much, it was that has been already captured partially by the movement that we have recorded that in there locked. That's across the money market current in anticipation for the move that it should be in these in July.

So, you will see also discounted and that interest value is increased also the formation of performance increase. So, of course the sensitivity is always taken and that your risk decrease and that it is logic or then peak you know one of the British market offset and receding of the particular way of move in a better decline in what we saw. Because of the sensitivity that's already been captured because of cost part of the third is already moved out. The bigger part, of course, so we can then now that ECB is moving this in that interest rates and we can of course understand that on the current account we put into there zero or is that on the asset side we will re-price. So, I have to know if this answer your question, while I mean is it will see more from.

[Operator]

Thank you, Andrea. We're going to take our next question, please stand by.

[Carlo Messina, CEO]

You have another?

[Andrea Filtri, Mediobanca]

Okay. You can go on the next question, thank you.

[Operator]

The next question comes from the line of Azzurra Guelfi with Citi. Please ask your question, your line is open.

[Azzurra Guelfi, Citi]

Hi, good afternoon. I have two more question. One is on the NPLs, you continue your de-risking and now you are almost already at the level of the target for the end plan for your better NPL ratio of 1% versus the target of 0.8%. How do you think these will support already your cost of risk in 2023 or it will be and if in case of a recession it will be more on 2024 where we'll see all the positive balance sheet towards in light of the fact that you have released already some of your overlay? The second question is again it's just a little bit of detail on your NII. I've looked at the sovereign and it seems that quarter-on-quarter you have actually decreased the amount of government bond and I was wondering whether this is something that might change in the second part of the year given the development of this spread as well.

And if you can comment on what's your strategy on TLTRO. Clearly you have liquidity, so that would be just something to continue support the NII. And if I may, and sorry for the noise -- that's coming from inside. And just a clarification on the interim dividend, you are talking about the minimum of €1.1 billion which if I calculated correctly is 70% of the minimum net profit after million that you give in in case of a much tougher scenario. But would you consider paying only on household this year, let's say, household the full-year profit when we come to the third quarter or it would be proportionate to the amount of profit that you already accrued by then. Thank you.

[Carlo Messina, CEO]

So, thank you. In looking at the NPL, we are obviously at the level of being close to zero-NPL Bank. So, this means that our cost of risk is mainly related to new inflows. So, the cost of risk embedded in our current situation is for sure a cost of risk that could be also for the next years in the range of 30 basis points looking at current conditions. It is likely that's we did and the conditions can be probably with some form of slowdown. So, it is likely that these best case of maintaining the cost of risk very low would not be the case in the next years. But I do not see any significant increase exceeding 40 basis point or 45 basis points also in an environment with a slowdown in terms of cost in terms of GDP growth.

What I think is very important is that according to this situation, we will add such an amount of net interest income, I mean, next as to that our net income generation will be in its increasing as acceleration also in case of a slowdown in real economy. In case of a recession in 2023, for sure there could be some form of peak in terms of cost of risk than 2023 or 2024 depending on the timing of the potential recession. But again, due to our credit quality, our expectation is that in many case we will remain between 50 basis points and 60 basis points also in case of a recession. And again, that the increase in net interest income will more than compensate this impact and a possible reduction in the trends of our commission.

So, net/net in any case what I'm seeing there is an increase in the potential of medium term value creation for the group in comparison with our regional plan also in scenario that can be considered a slowdown. And also in one year recession, I think that we can deliver very good performance looking at the increase in net interest income. Looking at government bonds that we'd have used the government bonds portfolio that we may dispose and also realizing capital gain that this is a dynamic approach in terms of while where corporate and business banking activity and treasury activity. So, the level of this portfolio will move according not only to the condition the potential to have net interest income but also on the potential of deriving possible raising income to the movements of the portfolio. So, what I can say to that, I do not expect the portfolio to increase in comparison to the current level.

And looking at the final question on interim dividend. The real amount of the interim dividend will be fixed in November. We will lever the timing the clear evidence of two points. The first one is our ability to further the risk the Russia-Ukraine exposure. So, at the timing you may view we'll have a clear understanding of our possibility to the risk we did the exposure that we have towards mainly obviously Russia. In time, we will have also some evidence on slowdown the real economy in Europe and in Italy because as you and the occasion to see in just in the today's news on the GDP dynamics of Germany is and in Italy because as you and the occasion to see in just in the today's news on the GDP dynamics of Germany is suffering a lot.

And that and we are not yet be obvious because Germany in any case is a key pillar of Europe and there's a lot of interaction also with Italy, France, and we are delivering a very good performance in terms of GDP but we have to consider also the dynamic in Germany. So, to this point we'll have another a three gather, we will consider in November end of the timing we will be in a position to have a clear understanding of what could be the final outlook. And my expectation is that also in the worst case scenario, these amount of interim dividend can remain the real minimum level that we can pay. Because my expectation is that it is possible to improve this feature. But we have, we will like to check these two points. So, exposure and the dynamics in Europe and not only in Italy but especially in Germany.

[Azzurra Guelfi, Citi]

Okay.

[Operator]

Thank you, Azzurra. Now we're going to take our next question, please stand by. And the next question comes from the line of Andrea Vercellone from BNP Paribas Exane. Your line is open, please ask your question.

[Andrea Vercellone, BNP Paribas Exane]

Good afternoon. I've got three; one on NII; one on risk weighted assets; and one on Russia. On Russia, can you just give us an update of about the size of the equity of your local subsidiary as of Q2? And on risk weighted assets, can you give us some comments on the drivers of the decline in the quarter-on-quarter given that loans have actually gone up. And can you remind us of the regulatory headwinds that you still have to take between now and year-end if any. And finally, on net interest income, can you disclose the current size of the structural hedge that you have. Can you comment on the rationale for increasing it in Q2 and you as if I'm not mistaken you had already increased it in Q1 judging by the higher contribution to net interest income which you show in your slides.

And also finally, you mentioned in the answer to the previous questions in question that the sensitivity to 100 basis points increasing rates has declined quarter-on-quarter. And it will be in their interim documents but we don’t get them yet. Can you just give us the number?

[Carlo Messina, CEO]

So, starting from Russia. The equity value of our participation today is zero in sense that these are completely evaluated. So, we have no more exposure in terms of equity toward to the Russia to our Russia subsidiaries. On risk weighted assets, we had some benefit in terms of risk weighted assets working on collateral and non-recovery of guarantees. And then we have some positive coming from some modern adjustments in terms of probability of the folds. We have the need that offset the declines in terms of regulatory impact in these semester. We expect to have another 20 basis points in the second part of the year so that we think and be compensated by our accuracy work on the risk weighted assets total amounts of the group.

And we will remain with 30 basis points during 2020 and also in this case there would be a possibility to compensate. And do not forget that we have a significant amount of DTA that we will recover within the period of the business plan. On the net interest income, I will leave again that to over to Stefano, so he can elaborate more technically on answer he will give.

[Stefano Del Punta, CFO]

Yes. The size of our structural edge related to the core deposits has increased, it'll be a size of the hedged components. And so, we have to mention almost entirely our core deposit base because at a certain point we have adjusted a confusion that the Intel is very curt before our rates were above the corner key anticipating the actual future expected more ECB. Actually in our being market at a certain point it was over shifting and so anticipating too much and too fast increasing. Let's say basically and so we decided to increase the hedge a proper bit. And also of course it's reflected in the increased contribution from hedging or that you could see in our presentation and is so much seen as already ruled that aside.

In terms of the sensitivity to 100 basis points, that actually have increased for about €1.6 billion, and back in March it were about €1.2 billion. Now lots of example for these aspects, please try not to until a million euro's and this is a part that is already been captured basically by this interim. In the moment, we go straight outside the loans and capital. I hope this answer your question.

[Andrea Vercellone, BNP Paribas Exane]

It does. Thank you, very much.

[Operator]

Thank you. [Operator Instructions]. Now we're going to take our next question from Giovanni Razzoli from Deutsche Bank. Your line is open, please ask your question. -- Giovanni, your line is open.

We'll proceed to the next question. And the next question comes in the line of Britta Schmidt from Autonomous. Please ask your question, your line is open.

[Britta Schmidt, Autonomous]

Yes. Thanks for taking my questions. Two questions, please. One was on client behavior. What are you seeing on the lending sides with customers acting to the environment and also the outlook, are you seeing an activity of customers drawing more and they overdraft their credit cards and personal loans? And also, in the investment space, can you give us a bit of color on the trends in making money, customer switching, or taking out funds, and some guidance as to how you expect that to develop until the end of the year. And then the second question was on the overlays. I think in the last quarter you said that you didn’t expect to use any more overlays this year. You haven’t used any in Q2 but can you confirm that you don’t expect to use any this year. Thank you.

[Carlo Messina, CEO]

Sorry, Britta. Could you repeat the second question because the line was not good and I didn’t understand the question?

[Britta Schmidt, Autonomous]

So, the question was related to the overlays. You've got €400 million left, you haven’t used any this quarter. And I think in the last quarter you mentioned that you didn’t expect to use any more for the rest of this year. And shall we expect that this remains the case and that you'll carry the overlays brought to 2023? Thank you.

[Carlo Messina, CEO]

Stefano, you could?

[Stefano Del Punta, CFO]

Okay. So, looking at the lending and what we are seeing in the market. As I told at the beginning of my presentation, the situation in Italy is a situation in which there is a significant hesitation from the corporate side that to accelerate in terms of investments. The next generation new funds are considered really an opportunities in the field. So, this is the trend of the growth in terms of loan book and that we are seeing today so between 0% and 2%, probably is something that is underestimated that the real potential of investments that the number of companies want to consider. The first part of this investment probably will be set finances because these this company has a lot of money placed with the banking sector.

So, do not forget that during this of the COVID period a significant number of companies placed a lot of deposits within the banking sector. So, the first part of the investments would be in my view financed with their self-cash flows and they will have access to the banking sector. So, my suggestion is that in terms of lending and also in an environment with some kind of uncertainty today in terms of our political situation but the attitude of the corporate sector remain very positive. Also because especially if you look at the ex-correlated sector, this the kind of diversification of the Italian real economy is really very positive in a situation like these especially if you compare with German that was much more relying on Asian counterparties or other counterparties that are more effected by this situation.

The SMEs, the ex-correlated company in Italy in my view are placed in the best way in order to continue to have significant cash flow. With the point of attention is as I told in my previous answers, that the Germany situation for us remain very important. So, if Germany can enter in some form of this section or some form of reduction on speed, we can heavily impact also in the corporate sector in Italy mainly the portion of the sector that is in the North of Italy and North East of Italy and are more correlated than with the German situation. But looking let in my view is that the attitude is positive and we can see further increase in terms of demand of loans coming from companies.

In terms of overlays, we have this €400 million that are in a standby situation. Again what I consider very important is where to have a clear view on the future evolution of the GDP because I was surprised by these very positive results of this quarter in Italian GDP. And we have to consider also that it is likely to have further positive trends in the third quarter due to two reason. And even there it's not possible to find a place in which through to try to have holidays so that there is a boom in terms of real economy related to raise them in our country. So, I think that also that the third quarter will be positive.

And so, the final point of 2022 in my view on average for whole 2022 will be very positive. Probably we will slowdown in the fourth quarter. And we will have to consider what kind of reputation can have the slowdown in terms of 2020. We're also considering the shortage the potential shortage of gas. I think that in case of a shortage manageable through some floor mobilization that we will not enter into a recession. In that case, probably the amount of €400 million will be in any case enough to face also some review in terms of the future probability of the folds. Usually the reduction of GDP will be massive in terms of expectation for 2023 with the rebound in 2024 what we have to consider would be the average strength of the next two or three years.

And so, also in that case, my expectation is that you will note that to place further significant amount. Then we would see that my expectation is that will not be significant amount but we will have to place also in case or recession that is for 2023. That the situation of adding such a very low level of not performing most mix is very positive from our side because at the end we will have all the cash flow available to face the potential increase in terms of cost of risk maintaining the possibility of increasing net income in comparison with 2022. That's our expectation.

[Britta Schmidt, Autonomous]

Thanks.

[Operator]

Thank you, Britta. We're going to take our next question from Domenico Santoro from HSBC. Your line is open, please ask your question.

[Domenico Santoro, HSBC]

Hi, good afternoon. Thanks for the presentation. A follow-up on NII and a question on fees. On NII, I mean the direction now is clear, internally positive but I was just wondering whether you can help us to isolate the minus and the plus going forward especially from the third quarter in particular. How much money you are going to lose on the TLTRO side, whether this is going to be compensated by from the impact from rates. And third, you mentioned the notional on the hedging will be helpful also to understand what the reference rate and since this has been a tailwind so far. I wonder whether from now on instead would be a headwind to NII and just a detail on these financial components whether there was any impact from time value in the second quarter given that the new flow entity have just likely increased.

Then the fee line has upped very well. In the second quarter had seen collection payments increasing. So, I just wonder whether there was any re-pricing and any impact. And more-or-less and more broader speaking, sorry, on your ability going forward and to compensate asset management in case this continue to be under pressure with other parts of fees. Thank you, very much.

[Stefano Del Punta, CFO]

So, thank you. I will start from the fee and commissions point. Because on net interest income, okay, we'll kind of cover elaborate on the different components but the trends here we learned such an increase in terms of net interest income that you will see a growth and a significant growth in terms of revenues from this portion of the economic figures. On fee commissions, we have to manage in a more defensive approach. So, we want to try to defend the level of revenues and try in any case to accelerate the amount of fee and commissions also in an environment that is not so positive looking at the implication for fee and commissions.

If I can just address give you some point on commercial side, M&A and advisory fees and work management. So, looking at the and the area of commercial, now we think that's on a yearly basis so not considering some quarterly variation about and the other basis and we'll have a significant increase in this amount due to volume and pricing. So, these two area can bring positive evolution of the commercial side. On M&A and then corporate investment banking fees, our expectation is that we had looked at four months in these two quarters. Albeit, third quarter will have some reduction in terms of trend but in the final quarter we can have again and speak with them some contribution from this fee and commissions.

And looking at wealth management commissions. The main driver would be from one side they issued us an area. This will continue to give positive contributions in the next quarters. And on the other side, what we call "Valore Insieme" is this kind of advisory tool that we use in order to manage some of deposits and asset and the management of our clients. We continue to increase quarter-by-quarter with giving us a positive contribution in terms of fee and commissions. So, net/net, this is an area that we want to defend.

But my expectation is that we can continue to have good results in defending this season. Then probably we can have a reduction in the third quarter and we have bound in the fourth quarter. We will see what can happen also in the dynamics of the market. We are not relying along performance fees. So, that will remain for 2022 a negative impact in the total amount of our fee and commission income. But and not so negative also looking at this component of our revenue for sure. This is not the option for growth for the end of the year in 2023. Net interest income will be the option for growth because what we expect for net interest income is to have a clear acceleration in 2023 during the second part in 2022 will have positive trends and we'd reduction in terms of contribution from TLTRO and an increase in terms of contribution from a markdown.

So, with a clear trend in which with this two areas that the combination of the two one positive and one negative will in any case give us a potential increase in terms of the net interest income. And probably we will have also a reduction in terms of negative contribution of the accessibility that we have in our figures. And so, volume we'll continue to bring positive contribution and at the end our expectation is that quarter-by-quarter we can see increase in terms of net interest income. 2023 will be a year in which we can have really an acceleration and in the significant acceleration in terms of growth of net interest income. On this point, we will give a clear outlook in November in which we'll have a view that can also consider the real increase in terms of Euribor that is we will decide in the next months.

[Operator]

Thank you, Domenico.

[Domenico Santoro, HSBC]

Thank you.

[Operator]

The next question comes from the line of Anna Benassi from Kepler Cheuvreux. Your line is open, please ask your question.

[Anna Benassi, Kepler Cheuvreux]

Good afternoon. Thank you, for the presentation. My question is again on NII. I hear all your comments, I hear the moving parts but still I don’t reconcile with did you ever capture the €3 billion to €4 billion net profit guidance for this year. Given the H1 results, also affecting Russia, actually increasing the coverage, they use the overlays and more importantly that the speed that reach NII as moved in Q2. So, I would have expected at least to see the lower part to disappear. So, I hear you want to wait November but making all the calculations and most including what you said on contingency plan on cost. On cost eventually, I believe that the range should have been changed.

And on the politics, you were commenting that any coalition that will win the election is not a challenge or an award for our country. That’s good and particularly from you that has such a knowledge of the country as such an important position to judge that. Actually my question on that is about what we read on the ST, is to speak your knowledge to be put at the service of the country. Even we hear you could be a candidate to become the Minister of Finance of our country which is going to be good for the country but maybe a bit lesser so for Intesa. Thank you for any comments you are prepared to give on that.

[Carlo Messina, CEO]

Sorry about that. I think that at this point on I miss your economy is something that I think. It is absolutely something that we'll not realize in any case. I'm really fully committed to executing as the business plan and I'm a CEO, I'm a manager, and while you are used to deal with 1000s of people motivating people and working for a managerial approach, it is unbelievable that you can be transformed into a politician or in ministry also technical ministry. I would continue to manage this organization. This organization is my family and I demonstrated also with the support that I decided to give to my people in terms of a €50 million for inflexion. I think that is fundamental in your life to be happy on the work that you are doing and then previously on the kind of work that I'm leading in this organization.

I think that Intesa Sanpaolo need to have a clear execution of this plan. This biggest plan and not only because we have to deliver in terms of net income but also because we are transforming in a technological way this organization. And it is probably something that is underestimated by the market also because now there is a lot of view of something that is coming from very negative news, Russia-Ukraine, recession, inflation, political uncertainty. It needs a repack. What we are doing, what we deliver in this six months is really an unbelievable improvement of our technological area working, improve machine, and hiring super smart people from the market in order to increase the priced book of these organization.

In the first part of my job in this when I was appointed as CEO, I decided to work with all the people of Intesa Sanpaolo and keep transforming these organization into a work management and protection company and giving to the people of the bank the dream and this ability to realize to become a leader in Europe in terms of reputation and market cap. Now, I think that we have to continue to invest in this area but the second part of the story in terms of potential rerating of the group and this will start in from 2023 is when we will demonstrate how we will be able to transform also the technological approach of the bank. So, believe me, I will continue to be the CEO of this organization for this business plan and if my crew does will continue to support me also for the next business plan and also if my people will remain proud to have me as their CEO. So, near probability to do something different.

So, coming back on the point of on net interest income, the implication on net income and we did a kind of correlation that you can have in terms of the delivery of the net income that we realized in this first six months and the kind of outlook. And I have to tell you that in from a mathematical point-of-view, we have a potential of extra-delivering getting in our forecast in a number of items that we have considered. But I think that this is not the timing to give some improvements in terms of guidance. Because I foresee that for a company like us to deliver a net income of €5 billion in case of a no-negative news in Russia-Ukraine and we believe that well above €3 million is something in case of some further duration. It's something that could be the best way to enter into a 2023, that's if we not have a recession, we'd allow Intesa Sanpaolo to give really significant increase in terms of net income. And also with the recession, we'll be in a condition to increase net income and prepare us on with a 2022 due to the increase in net interest income that we will have in 2023.

[Operator]

Thank you, Anna.

[Anna Benassi, Kepler Cheuvreux]

Thank you. Actually there was a previous experience and that's why I asked.

[Operator]

The next question comes from the line of Ignacio Cerezo from UBS. Your line is open, you are more than welcome to ask your question. Thank you.

[Ignacio Cerezo, UBS]

Hi, good afternoon. Thank you for the presentation and taking my questions. A couple of very quick ones. I know it's a small base but if you can kind of elaborate actually on why it is the first time we see UTP flows rising a little bit. And going back in the train actually of declines we have seen in the last two to three years. And then the second one, if you can elaborate, give us a little color basically about the execution of the synergies coming from UBI's merger. I mean, we've seen branches going down. The employee numbers basically are more stable in the last two or three quarters and of course of going down 2% to and a 2.5% actually. So yes, just putting the scenario execution in context with obviously higher inflation et cetera and around there and then the total expense number. Thank you.

[Carlo Messina, CEO]

Sorry. Could you repeat your second question because the line it is not very good and so I didn’t understand. On the first one I understood that here we were talking about we are liking to pay and the dealers. -- The potential increase that we have in this quarter in comparison with the other quarter. But second question I didn’t understand, sorry.

[Stefano Del Punta, CFO]

Well, that's okay. Really sorry for that.

[Ignacio Cerezo, UBS]

Now, the second one was the execution of the cost scenario just coming from and a merger with UBI. How that is progressing, how -- do we need to think about it actually in terms of pending synergies, we've seen a number of branches going down more clearly than the number of employees. So, can you just deliver the color basically on how that is progressing? Thank you.

[Carlo Messina, CEO]

Okay, sorry. Now, I'd answer. On that likely to pay -- so, but there is in a trend of credit quality, you have a level that could be considered real the meaning on level which you can have in an organization with €500 million of loans. So, it's clear that in this environment and also if you compare these with this the situation of likely to pay the dynamics with some positive cycles in the past in our country. The level of it is that we have today and then the inflows that we are seeing from performing loans is barely at a minimum. So, we'll have in any case some movements that could be 200 more or 200 less but the level is so low that it is difficult to remain at this level without any kind of movements.

My expectation is that we can remain in any case with a very positive inflows coming from and likely to pay apart from the case of a potential recession but also in that situation days of only one year recession, so the expectation obviously. So, 2023 to where could be in the worst case scenario and here in which due to gas shortage you can have a reduction in GDP and then a rebound. Also in that case, we feel that our net NPL ratio to move from 1.0% to 1.5% but at the end will not change in a significant way the structural condition of our group. In this quarter, we had also a two are likely to pay is coming from the Russia exposure. These amounted for an amount of €400 million but they gain also despite these are not companies that are performing with a negative cash flow.

The implication, this is the implication of the sanctions that are not allowing to these two companies to pay their cash flows to us. So, it's something related to the discretionary framework and not the cash flow positions of the company. So, due to Russia, this is the situation. In Italy, we think that we can have some further July with movements in terms of UTP dynamics apart from the recession but we are really close to the minimum. Looking at the synergies we did, the majority of the synergies today are coming from the administrative expenses system, the closure of branches but also from people. Because we had an exit of people like in the range of 2500 people in a one-year time. In this space, we've further 1000 people in the second semester of this year and then another 4350 people in on team 2025.

And this we realized in the next years but a significant portion of the exit has been completed. We will meet the impact of the exit of 2021 and 2022 in 2023. So, then will be a year in which we'll have the majority of this component. In terms of synergies, and I believe that these expenses we ended delivery also in 2022. And the second part of 2023 would allow us to compensate for the potential increase in terms of inflexion about of some areas of the cost. So, we will maintain a dynamic with a negative trend due to synergies coming from these sector.

And on the other side, our revenues just let me tell you that we had some slowdown in terms of delivery of synergies due to the fact that the environment is not in favor of work management in protection increase of volumes but at the same time we maintain a significant potential upside from coming from the retail deposits of UBI, is something that will give us a significant lot of opportunities in terms of net interest income and these figures are already embedded in the sensitivity that we gave to the matter. But a portion of this it is deriving from the UBI deal.

[Ignacio Cerezo, UBS]

Thank you.

[Operator]

Thank you, Ignacio. The next question comes from the line of Hugo Cruz from KBW. Your line is open, you're more welcome to ask your question.

[Hugo Cruz, KBW]

Hi, thank you. It was the clarification on the interim dividend. I heard what you said about Russia in the macro that introduces some uncertainty. But you still didn’t have that the situations, I mean how would you like to think about the dividend. And I ask that because the minimum you are promising this year seems to be in line on a payout basis as a percentage of for self-profit with the interim you paid last year. So, is that the way you should think about it, payout ratio on first half results or payout ratio on the first three quarters? If you could share thoughts on this, it'd be great. Thank you.

[Carlo Messina, CEO]

So, on interim dividend, we would try to use then a rule of the game entity is to have a clear outlook for 2022 and then to make 50% of the outlook and to apply 70% on payout ratio on the figure. So, for the time being to give to the market, our clear intention today interim dividends, so we have to confirm, I'm confirming that we will pay an amount in dividend subjects to Board of Directors' approval obviously but that's my intention to propose the interim dividend. Is to try to give to the market what we consider a minimal level. Because in all the different simulation we made on potential impact also of negative situation that can happen during the second part of the year, be this level of €1.1 billion of interim dividend and we foresee there its likely to be realized.

The final definition of this figure would be realized towards in November. Because in November, we will have the figure of an outlook that would be absolutely reliable in our expectation. And then at this point, we will fix the amount of the interim dividend. I can tell you but for the time being I consider this €3 billion. So, the amount of these net income is really the minimum that we can consider in terms of potential results for 2022. If we are to tell the €4 billion, in a moment there we decide to make a 50% on the outlook that we will either submit to the Board of Directors at the timing then will increase the final figures that we will give at the market. For the time being, we think that we are on a conservative side.

[Hugo Cruz, KBW]

Very clear. Thank you.

[Operator]

Thank you, Hugo. The next question comes from the line of Andrea Lisi from Equita. Your line is open, you're more welcome to ask your question.

[Andrea Lisi, Equita]

Yes, hi. Good afternoon. First question is if you can elaborate on your approach to reserving in for exposure of Russia and Ukraine. And the second one is based on your experience, at which level of your Euribor that you could likely to observe at a pricing on deposits and if your necessity which you already include that. Thank you.

[Carlo Messina, CEO]

So, can I just make a summary on your question just to understand if these are the questions? So, the first one was on Russia and Ukraine what is our strategy and the second point is what would be the potential implication of an increasing Euribors on our figures?

[Stefano Del Punta, CFO]

No, on the re-pricement.

[Carlo Messina, CEO]

On the re-pricing this year.

[Andrea Lisi, Equita]

No, on the re-pricing of deposits, yes.

[Carlo Messina, CEO]

Yes, on pricing deposits, okay. So, looking at it Russia, the strategy is to realize a clear everything on our exposure. So, we are truly committed to reducing the exposure to Russia. That's part of our commitment starting from the beginning of the war and with Ukraine and with the position of all the western countries. And so, the exposure that we are doing in order to reduce our exposure is obviously limited by the discretionary framework and that is increasing the number of counterparties that cannot be used in terms of potential buyers of assets or of loans. We are continuing to work in terms of this kind of attitude. But we are in a sense looking also at its potential medium-term because the majority of our exposure in terms of across board are with the top player that this top player in Russia and expiring part in from 2025, '26, and '27.

So, I have to tell you that it is difficult to say that we can lose in terms of the potential cash flow to this company that is probably one of the best company in terms of potential cash flows not only with Europe but also with Asia with India and with all the other counterparties that will have opportunity to buy the products that this company is producing. So, I have to tell you that our effort is to reduce in our local bank we made a complete evaluation of the equity value of the participation. So, and we hope to be in a position to operate but in any case the potential to lose further money is that only related with some reinforcement on sanctioning framework that can prevent us to have a real enforcement of our credit on the different installments of our credit. But I do not consider this really likely.

On Euribor, I will ask Stefano Del Punta to give you all the details.

[Stefano Del Punta, CFO]

So, certainly up to zero so to speak, there's no refractory of deposit obviously. The more doubt, they correct your model say that probably evolved zero, you can figure out re-pricing of deposit on that approach and got that to send of decrease over Euribor. And there to say that the my touch on its's been some very old now and be a President for a long time before being CFO is that in order to re-price a part of for deposit to be re-priced with any sense for clients, to attract clients or maybe to take clients although not the bank, there's a team. The interest rate that you will need to pay a deposit must be material, okay. So, no one is moving €10,000 from one bank to the next bank for interest rate that is less and Euribor 1%.

And so practically speaking, I think that the interest in deposit will remain minimum and key interest rates will become meaningful in terms of a work and the actual money that I'm talking about repaying of course now on corporate side it's also very different. So, there too theoretically you can figure how 10% of increase in the Euribor but I think that it's going to be much less than that until Euribor gets to we will say 1%.

[Andrea Lisi, Equita]

Thank you.

[Operator]

Thank you, Andrea. And the next question comes from the line of Delphine Lee from JPMorgan. Your line is open, you are welcome to ask your question.

[Delphine Lee, JPMorgan]

Good afternoon. And thank you, for taking the questions. And my first question is just -- sorry, just to follow-up again on interest rates activity. If you don’t mind, I'm sorry if you have already commented on this but why is the sensitivity now lower by 200 million to 1.4 billion, 400 basis points increase. Just wondering why that is. And the second question is around the assets line provisions. I don’t think it's taken any increase for stage one stage two in the quarter, so if you don’t mind in sharing your macro assumptions and probabilities for the different scenarios and especially the severe one? Thank you, very much.

[Carlo Messina, CEO]

So, on with the macro assumptions on our scenarios I will give you what I consider be this likely evolution in terms of Italian GDP and the other parameters that we can consider, then I will ask Stefano Del Punta to elaborate more on net interest income. The GDP assumption that we are considering today especially looking at what we received today as the trend of GDP is that in Italy we can have the GDP exceeding 3% GDP growth exceeding 3% in 2022. So, we think that this level could be a level that as embedded not only the first semester growth but also to recent growth we are seeing in our country and on this September we will have a lot of to reason giving momentum to the GDP growth.

Then in the last quarter of this year, the expectation is that we can turn into a slowdown and in the end it is likely that we can have more than 3% GDP growth in 2022. For 2023, our expectation today is that the GDP can be between growth be between 1.0 and 1.5, -- 1.6 of this between 1.0 and 1.6, the paying the amount, the exit point on 2022. So, we think that we that this can be considered in a constant material assumption in terms of the GDP growth for Italy. And then, also in 2024 and 2025 we can have above 1% GDP growth in our country, close to 1.5 and more than 1%. That's our view on the GDP evolution in the country in the next three years. For Euribor, we think that that could be increase also in the second part of the year.

We will see if it is another 50 basis points in the second part of the year. And then also in 2023, there could be further increase in Euribor but not exceeding 1.52% in the medium term. So, that's more-or-less our expectation in terms of the macro assumption. And in with this assumption, we will have a significant growth in terms of net interest income and we would defend commissions we will have a potential slight increase in cost of risk new level increase in net NPL ratio part of the level that we maintain as within the best performer in Europe in terms of NPL ratio. With the net income duration, that would be really in a significant acceleration comparison with 2022 and in any case we will confirm that 2025 with potential of exceeding our net income expectation for the original business plan.

So, right now we'll give the floor to Stefano.

[Stefano Del Punta, CFO]

Yes, on the sensitivity of the reduction in Ukraine. Unfortunately here in this July means it's quite difficult. But my understanding the question was about the reasons of the decrease of the 100 basis point sensitivity on that interest value for 1.6 to 1.4. But the reason is as I said in the previous answer that the part of that has been already cash fee. So, in fall of sensitivity in March was "x" and now we have a higher net interest margin is because interest rate they've already moved. So, the short-term interest rate didn’t move yet because ECB only increased the deposit rate in July, at the end of July. But of course all the rest of the cut up to a one-year and as far as the revenue being moved before.

So, part of the facility I've been testing and this is why our net interest margin in the second quarter net of the reduction on TLTRO effect is almost a 150 basis points of the one that we registered in the first quarter. Tendering the slight impact of the 100 basis point sensitivity which is more for the exposure and due to the fact that we have repaid €70 million and the €70 million of TLTRO. In June, this was a short-term TLTRO that would have expired anyway before December so we decided to repay and but of course on the formula on the theoretical formula of and in parallel immediate increase or one of the basis point is that necessary that with the sensitivity enough.

In actual terms, knowing part because as I said this current asset never move suddenly and overnight 100 basis points up over. But that most of the decrease if because we have cash fee part of the sensitivity move ahead in March.

[Delphine Lee, JPMorgan]

Great. Thank you, very much.

[Operator]

Thank you, Delphine. And the last question comes in line of Giovanni Razzoli from Deutsche Bank. Your line is open, please ask your question.

[Giovanni Razzoli, Deutsche Bank]

Yes, good afternoon. Can you hear me now? Hello, can you hear me?

[Carlo Messina, CEO]

Yes, go on.

[Stefano Del Punta, CFO]

Yes, go on now.

[Giovanni Razzoli, Deutsche Bank]

Okay, thank you. And sorry for this question may annoy you as it's probably the -- I thought you got already 1000s of question on NII but in order to conclude clearly, the scenario has improved compared with the last 10 year. It seems to me that you do have in your hands and made a single-digit grow for NII in the 2023. I know that you don’t want to give guidance, you have been quite annoyed in the past in for this kind of question. But I was wondering whether my understanding is more-or-less correct. Thank you.

[Carlo Messina, CEO]

And more so, is it all fully. We prefer not to give any kind of guidance especially for 2023 in which probably we would be in a position in November to give more-and-more figure also because there will be at the end of the budget process. So, that is something that is a bottleneck approach also not only top dollar approach. But believe me, I think that the growth in terms of net interest income would be really massive during 2023. So, I don’t want to give you single-digit double-digit or other figures but I can be really positive but on the dynamics of the net interest income in 2023.

And we evidenced also with the people in the field that is that the potential is really massive. And then there is or why I think that also not only the mathematical sensitivity is important. Well, those looking what was the situation a number of years ago of our net interest income. So, today the market share of Intesa Sanpaolo is so significant that we are in a position to work with our clients trying to give them the majority of the benefits coming from the market situation especially in work management problems but the amount of the volume of retail deposits and both loans that can be re-priced is so significant that our expectation is to have really a significant growth in terms of net interest income.

[Giovanni Razzoli, Deutsche Bank]

Okay. Thank you, very much.

[Carlo Messina, CEO]

Thank you.

[Operator]

Thank you, Giovanni. There are no further question. And I would like to hand the conference over back to your speaker today, Mr. Messina for closing remarks. Please go ahead.

[Carlo Messina, CEO]

Yes, thank you. So, I think that in this presentation and in question & answer session, we tested all the your point of attention on the outlook was to be the next phase of a number of items relative to net interest income fee and commission, cost of risk. These areas are the same in which all the people of Intesa Sanpaolo are today focused. The stand in how it is possible to extract the maximum value or to mitigating potential this people situation that can arise. And but I can confirm you that we are not upgrading our outlook, I do not consider that the safe harbor has started to make an upgrading quarter-by-quarter of the outlook. But I'm pretty confident and both are confident that we can deliver very good results for 2022 and we will pay sustainable dividends both in terms of cash interim and in terms of buyback.

So, thank you very much.

[Operator]

So, that concludes our conference for today. Thank you, for participating. You may now all disconnect. Have a nice day.