Addiko Bank AG

VSE:ADKO

Earnings Call Transcript 2022-Q3

[Operator]

Ladies and gentlemen, thank you for standing by. Welcome, and thank you for joining the Addiko Bank AG Results Q3 '22. [Operator Instructions] I would now like to turn the conference over to Herbert Juranek, CEO. Please go ahead.

[Herbert Juranek, executive]

Good afternoon, ladies and gentlemen. I'm here with Edgar, Tadej, Ganesh and Constantin. It's a pleasure for us to welcome you to the presentation of the third quarter results of Addiko bank. We have with us the following agenda. I will start with the key highlights of our third quarter results and give an overview of the key developments. Ganesh will now take you on the positive progress [indiscernible]. In the second chapter, Edgar will provide you with more details on our financial performance and Tadej will walk you [indiscernible] At the end, I will give a quick wrap-up and detail outlook before we finally move to Q&A.

Let's start with the half. For the third quarter was a very positive one in terms of progress on the business side. This led to the third quarter result after tax of EUR 7 billion. As a consequence, the year-to-date net profit doubled from EUR 9.6 million in 2021 to EUR 19.6 million in 2022 and our earnings, especially rose to EUR 1.21 million.

Our cost of risk amounted to 49 basis points and EUR 16.3 million, including improvement for model adjustments. And then we'll share more details of the major. Our internal petrol equity, an important part of CET1 ratio decreased to 4.6% vis-a-vis 2.10% last year. Our operating results stepped up by 28% year-on-year to EUR 65.6 million as a result of our increased operating income generation and the reduction in operating expenses. First of all, we were able to improve our coverage ratio to 78.8% based on stable and volume of EUR 150 million. Our NPE ratio of on balance loans stand at 3.5%. We are happy that our brand repositioning activities, carsharing, traction and then our efforts in the transformation program are reimbursed. Altogether, it has resulted in a double-digit growth for both focus areas, consumer and SMB business.

In addition, invest the positive momentum in net banking income and our new focus business grew significantly 30% year-on-year. At the same time, we intentionally reduced our on-source business by 24% since year-end 2021, in line with our strategy. Our banking position remains stable and solid with EUR 4.7 million customer deposits and a liquidity coverage ratio of almost 225%. Our capital situation is very strong and the IFRS 9 ratio of 21.3% compared to 18.8% as of June. This improvement is based on the ECB base for traction effects and on the mandatory reclassification of part of our own portfolio based on our change strategy. More cap on the next page. According to the recognition of our new business strategy last year, we changed our B&M and treasury strategy with the aim to mainly invest in long-term, high-quality bonds to generate interest income margin maturity without interest service. Hence, we have to review [indiscernible] compared by the expert opinion of our group or return, we came with a conclusion that we must reclassify our treasury portfolio in the go entities.

This accounting change is currently in agilence process with Latania. Edgar will give you more account later. Let me also share our expectations on the SRA based changes, which effective from the 1st of January 2022. From today's perspective, we anticipate no changes in our Pilatus Requirements and EBITDA guidance of around 3.25%. We will receive the final results before in debt. I would like this for you that after the share buyback program later this year, realistically a new share buyback program to use all purposes in accordance with the organization of AGM, which we will move forward for renewal in 2020. The concerning ESG, I can tell you that our broad action plans were on track and our policy incineration phase. We will partnership together with the year-end results. Let's move to the business environment. The elated inflation drive pressure on costs so come more and more difficult and an improvement on the microeconomic environment is also not predictable for time being.

Consequently, [Technical Difficulty]. In addition, we continued repricing activities. Also in some of our markets, many direct competitors are still waiting for expect on that front. Nevertheless, we are quite positive as we are able to continue a part with our focus business despite all of these indications. Let's look at the current development [Audio Gap] the definition of the new business surge last year, we changed our RM strategy with the aim to [Audio Gap]. Our transformation program is stable also on the business side. Also, we intentionally increased our media SUV business by 16% to reduce concentration risk and improve margins. We did achieve a 10% growth rate in our focus book in Q3.

Without [indiscernible] book increased even 15%. Our new business generation went up 30% year-on-year. The focus book grew by another 3 percentage points in the third quarter to 81% of gross per borrowing loans. This development was driven, on the one hand, by a strong 10% increase on our consumer book since year-end. And on the other hand, by 27% jump in our micro and small book. All of that has been achieved based on our proven risk approach and newly calibrating underwriting criteria to expect the macroeconomic environment. Now I'd like to hand over to Ganesh to give us more insights of the business development.

[GaneshKumar Krishnamoorthi, executive]

Thanks, Herbert. Good afternoon, everyone. As Herbert mentioned, I'm pleased to inform that our transformation has produced strong business results in the third quarter despite the challenging macroeconomic environment. On Page 6, I would like to highlight quarterly results in the focus areas, consumer and followed by our primary users in Q4. At specialist consumer end, our strategy is to grow active customer base with low ticket based loans in our partnership and digital change. Using speed and convenience as the USP. As a result, we were successful in branding substantial 150% growth in new customer acquisition compared to last year, complemented by strong repurchasement and marketing campaigns. Furthermore, our upselling of acquired customers through our branch channels and new business generated by newly signed 200 partners this year and incrementally contributed to a 27% growth in our gross disbursement from BRL 373 million to BRL 475 million compared to last year.

Additionally, we also cross-sell the acquired customers with our pulp packages, insurances and cards to deliver 16% year-over-year net concern growth. We believe card sales demand, which grew 78% year-over-year is also a key contract. Last but not least, with elevated interest rates and inflation, we have gradually increased the fees for conservice and prices for new builds [indiscernible] We will continue to build on these achievements by further improving the [indiscernible] where financing led to make customer [Audio Gap] Our key focus is to scale value to underscore micro and small segment through our digital platform with the speed of a clear USP. We are working on further ordering, our end-to-end digital lending platform for micro and small SMEs to enhance it and bring new functionalities to make our services faster and even more continued for our SMB clients.

Overall, we are seeing more exciting results in our micromoles and uses. Our capital basin micro and small area is up more than 38% year-over-year, and this is recognized by approximately 70 basis point year-year increase in line contracted interest rates in the total [Technical Difficulty]. Based on this remarkable results, we achieved every one disbursement in these 2 segments and outstanding growth at about 64% year-over-year from BRL 268 million to EUR 439 million. Unfortunately, for Q4, levitation, energy crisis and the geology reticulation has changed the market conditions, and it's fair to expect economic growth to slow up and therefore, we need to adapt our business models. We are rated business model the following it.

Number one, we are introducing varying pricing and also increasing expressing reflecting the market conditions. Number 2, our team has tightened our underwriting criteria to [indiscernible] Number 3, we are focusing on further improving end-to-end paper and end capabilities in both the [indiscernible]

Moving on to Page 7. [indiscernible] firstly, technology has been a key growth for our business energy. On the consumer front, from expanding our partnerships or enabling euro reducing variable price or the car development and also introducing binocular in the key partner, the key product partner. Technology [indiscernible] , in saying it's smooth for SSD. We have introduced a new mobile app in AC followed by enabling variable prices and risk into integration to a landing system and are working on further optimizing our paperless end-to-end [Audio Gap] Secondly, we also focused on reducing our IT Vanderbank costs. We are roughly, say, EUR 1 million so far compared to last year. Last but not the least, technology has been a pioneer in driving operational excellence, one of our focus topics going forward.

Moving to Page 8. Now let's take a quick look at the progress of our work on the Addiko ecosystem. I would like to highlight that we are on a good path to deliver our vision to become the best specialist bank in the region, and we are convinced that Addiko ecosystem is the key to achieve the specialist status. As you can see on the slide, we've already implemented 4 of our top-tier ecosystem to its in 2022. Fortunately, they are positively contributing to the excellent results and customer acquisition. Furthermore, we are working on fully digitizing our SLE processes and are expecting to launch end-to-end digital lending capabilities in our key markets in the second half of the year. The implementation of all priorities this year will be important step to extend our ecosystem. This will give us also an opportunity for further expansion and to become an attractive plug-and-play embedded financing platform for our consumer-related and SME partners. With that, please let me hand over to Edgar.

[Edgar Flaggl, executive]

Well, thank you, Ganesh, and Hi, everybody. Now on Page 10 to our performance in the first 9 months this year. Starting on the left side of the page on the composition of the P&L. Our year-to-date unaudited net profit amounted to EUR 19.6 million or more than double last year's results for the same period, which includes a quarterly profit of EUR 7 million. The operating results were a year-over-year increase was further improved to 28%, provided momentum for the bottom line increase during the third quarter. This is due to strong business development that continued in the third quarter on the back of the solid first half of 2022 and [indiscernible] already. Net banking income continued its upward trajectory and is showing an improvement of 4.8% year-over-year, with NI furnancing up despite the average loan book, decreasing by EUR 192 million year-over-year in the transformational bridge year 2022.

The positive momentum in NI , we started to see in the second quarter also continued in the third quarter, and it's proof that our strategy to reallocate capital to the focus areas be it marketing. Together with higher NTI, this allowed us to compensate lower revenues from the reduction of the non-focused portfolio. During the first months of this year, we delivered a roughly 10% growth in the focused loan book, offsetting the intentional and accelerated rundown in nonfocus as well as low-yielding, high-ticket medium TV loans. So in short, we remain on track in the transformation of the loan book. The other income comprising the net result and financial instruments and the other operating results continues to be mainly driven by 2 things: first, lower gains from the sale of financial assets, which is for in line with our new business and treasury strategy to keep our mainly government bonds until maturity to local interest income; and second, higher deposit insurance costs.

Now down to operating expenses. Our operating costs are down year-by-year , which also includes 1.8 million costs for the implementation of the euro integration and front-loaded marketing spend on campaigns related to our brand repositioning with the introduction of Okta. The other results remain influenced by charges related to active impactive legal claims, including our initial costs for the big claim against Slovenia. Together with the quarterly review of the legal provisions related to Croatia, this reflects the continued prudent approach on legal risks and recent development, as I said by our legal team. Now the credit loss expenses. The short portfolio dynamics still remains denied, the post model adjustment booked in the second quarter reflect the current volatility remained unchanged in the third quarter. So Dave will provide an update on the main highlights in a few minutes. Briefly over to the right-hand side of the page with the key operational P&L drivers and their development over the last 5 quarters.

Herbert pointed out earlier, we had positive results from the transformation program on the business side and a strong third quarter. The chart on the upper right-hand side of the page illustrates further improvements during Q3. In a nutshell, growth in net banking income and improvement in NIM continued in the third quarter, also supported by descent tourism season. This improvement is even more visible when looking at yields as the average loan book is lower by roughly EUR 190 million compared to last year, as I already pointed out. During the last months, and we think that the third quarter, we also see first results from regressing of new business and to some extent, repricing of the variable backlog. Drawbacks OpEx, which came in at EUR 41.9 million in Q3, while the pure operational run rate was once again beating our previous guidance of EUR 41.5 million per quarter.

While our transformation enabled us to continue reducing our income ratio further during this quarter, the dynamics caused by inflation are already visible, for example, in staff costs. The spending of the euro penetration project in Croatia will peak in the last quarter of this year, and we still expect mid-single-digit euro million one-off cost for this so the significantly elevated inflation across all our markets, as pointed out already, will continue to inflect the remainder of this year and be more pronounced in our cost base with next year, reflecting pressure on basis, cost of energy and channel surplus. While the environment remains challenging, we are confident we can achieve our cost guidance for this year. On Page 11, which illustrates our strong capital position. On this page, we created the fully loaded capital ratio [indiscernible] and we also added the 2022 market value development of a highly effective Croatian government bonds in our portfolio as an example, which is a great shaded area between the waterfall specs.

At the end of the third quarter, our CET1 ratio excludes the interim profit is back to 2021. During the third quarter, we obtained the opinion of our group auditor that the reclassification of the treasury portfolio in our EU entity is mandatory to reflect our new treasury strategy with these reclassifications being effective from the 1st of July 2022. As it's leveraged by IFRS 9, the stopping of the old business model sold to connect and sell. And the starting of the new business model AutoCollect, are both representing an activity significant to the bank's operations. As Herbert pointed out, this reclassification is currently in the clearance process with the Austrian regulator, which means that theoretically, this could still change. Now [indiscernible] As this go together with our half year results, we received the ECB's waiver and [indiscernible].

The waiver is now fully embedded in our RWAs and allows us to reduce RWAs by more than EUR 90 million to EUR 98 million from the roughly $150 million increase related to that topic earlier this year. That all leads to a [indiscernible] ratio of 21.3%, while the transitional CET1 ratio stands at 21.8%. To summarize, a strong capital position with substantial butters, while these ratios do not include interim profits or accrued dividends. Without the reclassification, the CET1 ratio was decreased from 21.3% to 19.1% on a fully loaded basis. Now refill SREP, as we talked earlier, we expected the results of the comprehensive assessment test through the part, which is showing a high capital decision in the adverse scenario to have an impact on. Therefore, our current expectation is that the [indiscernible] for the next year will come in at around 3.25%, while on P2R, we don't expect any other [Technical Difficulty] as we have appointed others. To conclude, the current capitalization continues to provide significant network. Let me now hand over to Tadej for an update on risk metrics.

[Tadej Krašovec, executive]

[indiscernible] On Slide 12. On the slide, we could see that the NPA volume increase time on the previous level of in a store ratio of 20.8% or 3.9% based on a balance loans, which is in line with our expectations. For the next quarter of management tools, which are several major players further release in the stock. Over to the right side of the page, you will see higher euros of APs during the third quarter of 2022 compared previous quarter. This development was driven by [Technical Difficulty] in large corporate segments, which [Technical Difficulty] that are part of normal in operation. [indiscernible] have already been due in October. Looking at ALD over the year, we conclude the [Technical Difficulty] in acceptable levels and were well compensated by good fuel rents. Overall, our net call release at a high level and is underbid by still stable paces of customers. For more information, I will refer you to Slide 39 in his presentation.

If we continue on Slide 13, Credit loss expenses in the first 9 months of 2012, grew at a level of EUR 16.3 million, resulting in a cost of risk of minus 0.49% on a net loan basis. In the same period, the cost of listing our consumer business was a balance of 1.4%, which is in line with our expectations. In terms of offer, we saw higher credit loss expenses in SME, resulting in 2.34% quarterly losses. This is the result of previous metier deposit files [indiscernible] in both clients. The higher credit losses in the quarter 3 are following lower anticipated costs in the first half of the year. As I commented during our last earnings call, is better the expected developments in the first half of the year, specifically in the first quarter is on the lower level that you would consider as being the course of normal means.

However, looking to the first 9 months of the year, credit losses seen at CV segment are still lower than what [Technical Difficulty] segment, relies the source of provisional leases, [indiscernible] The post model adjustment remains unchanged versus the previous quarter and stand at EUR 30 million. The payer at EUR 9 million end of '21 and the additional were allocated in June this year to reflect our prudent approach in this currently in our environment. Again, I would like to be first present topic and into PCG shared before by [indiscernible]. We want to identify areas where we currently apply elevated consultant infections compared to market purchases and keep on solutions that are better reflected with the part of our portfolio, which would positively affect future set results [indiscernible] [Technical Difficulty]

[Herbert Juranek, executive]

Thank you, Tadej. Let me give you a quick overview on the status of our [indiscernible] program. The progress broadways and gives approach is tense. We are confident to meet our growth in all 3 pillars of the program. In the fourth quarter, we will complete the program to the parallel repair and make steps for 2030. We will update you on the outcome during our next earnings call in the beginning of March, and [indiscernible] We compare our Alto 2022 on the grounds of our upward revision in August. Based on the bad opinion of OS, we reiterate our expectation that the [Technical Difficulty] report. However, we believe that this decision might stick longer as expensive and happened only in the first half of 2021. The management is committed to retain an appropriate dividend policy.

Hence, we will start an alignment process with ECB at the end of the year with intention to find an agreement going forward. Consulting back on economic headlines, this [indiscernible]. Therefore, we will face in our planning assumptions for the coming years, and we will continue to function our risk models such a painful business growth going forward. Nevertheless, the board remains very confident that our business one is sustainable and the reorder attractive growth potential also in the gaming bank. l, as the CEO, together with my team, will continue to bear the full ambition to improve the bank to create better or guidance and for our shareholders. With that, I would like to conclude our year-end results is scheduled for the week of March 23, and the AGM is 23rd April next year. Now back to you, operator. We are ready for your questions.

[Operator]

Ladies and gentlemen, at this time, we will begin the question-and-answer session. [Operator Instructions] One moment for the first question, please. The first question comes from the line of Hugo Cruz with KBW.

[Hugo Moniz Marques Da Cruz, analyst]

2 questions really. First question is really around your loan growth. You maintained a very strong loan growth in consumer, in micro SMEs. Obviously, this is not a difficult macro environment into a lot of uncertainty and it's growing very, very strongly. First of all, where are you getting the growth from is it the pricing is different from the competitors? Is it different types of products? And second, how do you make sure that this growth will not turn into future losses? Can you talk a little bit about your credit requirements? How do you make sure basically you are underwriting a good risk here? And then my second question is really around that you mentioned an appropriate dividend policy and just wanted to know if you could say a little bit more about that. When do you expect to finalize your dividend policy? And what type of returns are you thinking at the moment that you could target with that policy. That's it.

[Herbert Juranek, executive]

Thank you for your question. I have to admit that I understood your question because the bad sound quality is there. And I have to volunteer to everybody because we also market some messages backed from Europe and also more sites with the south quality spare. So voice with it. So what I would suggest -- I think at the question, maybe you can rephrase what you understood?

[Edgar Flaggl, executive]

Hi Hugo, I hope you can hear me. I'm trying to speak a bit louder as well. The first question was about -- well, it looks like you had some nice cost growth on the consumer micro-small SME growth. So exactly what we have been planning to do and how we ensure that in this trend environment, we remain as prudent as needed on the risk side, so that it doesn't turn into [indiscernible] right? I think that was question number one. And question number 2 goes around [indiscernible] what's the time line for revamping or discussing the dividend policy. Hugo, can you just briefly confirm if a brief, yes or no if this is a great summary.

[Hugo Moniz Marques Da Cruz, analyst]

Yes, that's all correct.

[Herbert Juranek, executive]

Yes. So maybe I start with the answer of the dividend, and then I will hand over to Ganesh for the [indiscernible] Tadej. So the dividend, as you know, we have a discussion when before the Swiss and law came out. We had a discussion with the regulator. And from our effectiveness, we are already quite close to an agreement how we how we trust a dividend for 2022. Then the Swiss bank goes and we regulator that we don't pay out this year as well. This law is not guarded.

Now going forward, we believe if we look now to our capital situation, and also the breadth of the Swiss bank law, we believe that first of all, this loan would go away. And numbers 2 in the case the law would come. We did a calculation and the potential threat would not be going the first place, about EUR 100 billion would be rather now based on our new calculation in the range between EUR 85 million and EUR 90 million. [Technical Difficulty] also would be small as originally expected. Nevertheless, we believe that this is in come as the law will be turned down. So that's why we believe also give our business progress and our retail situation that we had to serve grounds to pay out the dividend in 2023. And our idea would be that we start the discussion with the regulator of our view of the strategy in our agent by the end of the year. So our discussion will start already this year, where we will end up the gain. Now I will hand over for a Tadej to answer the other question.

[Tadej Krašovec, executive]

Yes, regarding this at some certain times or in the situation of the economic downturn. We are having a cellular step approach by applying the forward-looking changes on the respective that direction impact the predictions of economic growth under a more scientific scenario, trying to exclude further business within client detector we estimate it would have higher impact if the economy contained direction that now about our current predictions, we are prepared to plan, so the people tighten the criteria based on the situation in the economy but not to apply all possible I would take time [indiscernible] in the first place. With that, we believe that we can very manage the prudent approach, but [indiscernible] business in a changing economic environment.

[Operator]

The next question comes from the line of Simon Nellis with Citibank.

[Simon Nellis, analyst]

Just to follow up on that and to clarify. So on the dividend, you're saying that you're hoping that you will be able to pay out something from 2022 earnings in '20 [Audio Gap]

[Edgar Flaggl, executive]

Let me try again to the sound quality translation. So your question is if your understanding is correct that we will try to pay out a dividend out of the ‘22 earnings. Correct?

[Simon Nellis, analyst]

Yes.

[Herbert Juranek, executive]

Well, as I said before, we have an agreement with the regulator of the dividend strategy we need to align with them, and we will start this process, as I said, by the year-end. But the intention of the management is clearly to pay out the dividend from the earnings of this year.

[Simon Nellis, analyst]

Yes. And it's mainly the Swiss franc mortgage law in Slovenia that's kind of making it a more...

[Herbert Juranek, executive]

Yes, yes. The Swiss franc mortgage loan was to regulate [indiscernible] I had conversation with them and we agree with him to stop the discussion of the dividend policy. But we believe now with our current expectation of the law of the ban with the reduced damage on the other hand, it also came with the situation of the bank in terms of capital and results. We would like to take up this discussion and maybe we would be a one to now come to meet into the discussion, but we could also think about conditionality in terms of dividend because we need to prepare for April this year. And as I said, our intention would be to pay out the dividend.

[Simon Nellis, analyst]

Understood. And assuming that the Swiss franc mortgage issue goes away, I mean, it sounds like you think the total capital requirement will increase, including P2G to 17%, right? So what capital ratio targets longer term, assuming that's the regulatory requirement, do you think you need to hold?

[Herbert Juranek, executive]

Maybe I will hand over to Edgar Flaggl the CFO. We are currently in the planning process for the budget of 2023. This shall be approved by the supervisory port in December this year, connected with that is also the rework of the [indiscernible] Maybe I can move on to the because he's making this process on out.

[Edgar Flaggl, executive]

Sure, sure. Thanks, Herbert. Look, as Herbert said, we are right in the progress of running the numbers in the bottom of process and bolting everything together. The target capitalization, we would need to look at from 2 perspectives. One is what's the long-term capital target in that sense. And then, of course, how is it influenced from the recent addition of the B2G. This obviously needs to go and sink with what Tadej pointed out before because if you look at the benchmarking, so to speak, in the countries, for example, Slovenia, Croatia, Serbia, where [ ABA ] stress test data is available for other local banks. You would see there is quite a bit of a difference in terms of prudency, and we are on the highest prudency level. So this comes back to what today pointed out before. Now this doesn't change anything in 2023, but we still need to look at this topic and connect the dots here.

[Simon Nellis, analyst]

Okay. But I mean, I guess, what kind of buffer do you think you would need to have above your regulatory requirement? Or where would you be comfortable? Or would you rather not say at this point?

[Tadej Krašovec, executive]

Well, that's also a part where we have an internal methodology that is done on the back of the consolidated budget and calculated. So we currently don't see a big deviation to our former buffers that we have applied, but take this not as a final statement because we are not done yet with that process. But of course, requirements plus P2G plus the management buffer. This is the name of the game.

[Simon Nellis, analyst]

Okay. And my other question would just be on the net interest income, which was quite nicely up quarter-on-quarter. It sounds like most of that was coming from loan growth, right, loan shift, I guess, not rates. I mean what part was driven by rates. And going forward, can you share a sensitivity of NII to rate moves that we've been seeing?

[Tadej Krašovec, executive]

Sure. Simon, thanks for the question. This is me again. So if you look at the NII improvement, and as I pointed out before, we see a first positive impact, which is not that much reflected in the quarterly NII as such from us pricing higher on the new business, right, that we ramp up. And of course, also first results from the repricing of the variable back book. So I would say the second topic is having a more pronounced impact in the third quarter, but both are relatively small impacts, we should see a better impact in the fourth quarter.

[Simon Nellis, analyst]

Generally, the sensitivity of NII to euro rate hikes that we've seen, can you give us a rough estimate?

[Tadej Krašovec, executive]

Well, we disclosed the last time the sensitivity with the half year results. We didn't include it this time in the deck. So essentially, we said from a half year perspective, over a 12-month horizon, if we conservatively look also on the liability side, we had, I believe, 11 or 12 basis points on the 100% parallel shift in NIM.

[Operator]

The next question comes from the line of Mladen Dodig from Erste Bank.

[Mladen Dodig, analyst]

Yes. I hope you hear me. I have a really big trouble following the call because the line is coming very, very bad on my side. I don't know what might be the reason. So I hope I will also manage to catch up with the answer.

[Edgar Flaggl, executive]

Sorry for interrupting. I think -- well, we don't hear anything, but maybe someone else does. But you were so kind and send us in writing over the webcast also the question. So shall we answer them?

[Mladen Dodig, analyst]

Yes. Yes, I remember that you want to have analysts speak live in the call. So I'm here, but the questions are there. So yes.

[Herbert Juranek, executive]

Your first question was what will happen when the transformation program will be finished. So how do we continue on that? And do we adopt a successful program? We are currently in the process of discussing that. And if you look to our midterm targets, you see, I mean, despite the fact that we did very good progress over the last one year in the quarter, we still have some get close in order to get to our targets. So certainly, we will come up with something new. And we are currently in the preparation of this program, and we will define the elements. And our plan is to present it then in the beginning of 2023 when we have our first earnings call. So that's our clear intention here.

There is a question on this. These are still declining. So when and if you expect this trend to reverse? I would like to give this question to Ganesh.

[GaneshKumar Krishnamoorthi, executive]

Thanks for the question. The consumer EBIT increasing slightly because of the spillover effect of the repositioning campaign. What I can assure you the trend will be the worse in Q4, as mentioned in the call, we are doing, first of all, we are introducing very good pricing in the market and then which will help us to increase our margins, affecting the market conditions. And number 2, we are also increasing our fixed pricing also affecting the conditions. I have to say I haven't seen so far competition reacting to the conditions. However, we want to be here, really focus and increase our margins here.

[Herbert Juranek, executive]

For your question, dividends, I think we elaborated on dividend already, and we would answer the other question. And then your last question is distributions are revising original growth again. So maybe if you hope give us a trend of former information and the potential development. I would like to give this question to Tadej.

[Tadej Krašovec, executive]

Thank you for the question. I don't have yet specific answer to that, that as mentioned before, the current level of overlay provisions or post-loan adjustments of EUR 3 million due to the current environment, volatility unseen team, it is very unlikely that we would release that part. As we are now in the process of finalizing the year, I would say, and preparing for the next year, we are also investigating at least something additional we need to be on micro regions. But nothing specific for the time being.

[Operator]

We have a follow-up question from the line of Simon Nellis with Citibank.

[Simon Nellis, analyst]

The question is about risk weight optimization. So your risk weight density fell over the quarter. Just wondering if there are other things you can do to further optimize? And I guess, longer term going out as you increase exposure to consumer and SME, do you still expect the risk weight density to increase and to what level longer term?

[Edgar Flaggl, executive]

Sure. Thanks for the question, Sam. Good question. So if you look at our risk weight density across the segments, you would find out pretty quickly that our mortgage book has a risk weight of north of 60% to 60% and that our larger cover book is actually close to 100% recently. While we focus portfolio, so [indiscernible] in SME is roughly around 75-ish percent. So overall, on risk-weighted asset optimization is actually running our round-one focus as well. Of course, once you move towards the midterm target, meaning 0 to 95% in focus book without having the releases or risk-weighted assets reduction from the run not focus anymore because it's mostly gone, you will have an increase in density. But this is not something we are guiding more specifically in the midterm, but there is no significant component of change to what has been previously disclosed.

[Simon Nellis, analyst]

Okay. So you think the 61% will last into, I don't know, next year?

[Tadej Krašovec, executive]

Well, that's probably a fair assumption with one addition with -- you know about the ECP Vapor and structural tics, right, which reduced our RWAs by roughly $90 million from the initial increase of EUR 115 million. And this is related to Kuna and Serbian dinar Croatian Kuna and Serbian dinar. With Croatia joining the euro from the 1st of January 2023. There is another reduction related to that in RWA because of structural fix alone. And besides that, we are actually running an ongoing other optimization. I don't want to call it a program because it's part of a course of normal business, where every little help, so to speak, and bits and pieces are optimized as they are found in this process. So I don't see in a note, I don't see a large scale out of regimentation potential, to be honest, on top of what we are doing anyhow.

[Simon Nellis, analyst]

Okay. Okay. And then just on the tax rate. Can you give a little guidance on where that's going, going forward?

[Tadej Krašovec, executive]

Well, I mean our previous guidance on a normalized tax rate of 21% is -- I would say mathematically, still a valid one. I know that in the last year, where we had quite significant restructuring provisions, for example, and also so far this year, we are at an elevated tax rate in that sense. And I think the reason is very simple because the taxation happens on the profit before tax, right? And positive profit before tax is happening in our entities. While in the holding, we don't have a positive profit after tax. So if you look at before you attach the holding, it's actually lower than 21%. Once you attach the holding, it's currently higher. But on the midterm, we will still take with the 21%.

[Operator]

We have another follow-up from Mr. Dodig with Erste Bank.

[Mladen Dodig, analyst]

You said that the reclassification within the new treasury strategy happened for the -- if I remember correctly, for the EU positions in EU there'll be more positive effects than this reclassification terms also, for example, for the Serbian portfolio of ones.

[Herbert Juranek, executive]

I understood bits and pieces of this one. So it's about reclassification. Maybe I try to answer holistically from the starting point and then to let me know if you want to tie that in one or the other rigs. As a new management, which came together in June last year, we immediately worked on what do we need to reshape in the business strategy, right? In the business strategy, which was the group in December last year is, of course, in sync with the business plan that was approved in December last year. Now on the back of that, this was already included quite a significant change when it comes to how we deal with treasury going forward. If you look at our previous numbers in those years in '19, also '20, you will see that there were quite substantial financial gains from selling bonds in specific quarters, which for us is not our business model.

Yes, that was maybe years ago in the case, but for us, it is not our business our business model is growth in the focus book and generating interest income in NPI. And therefore, we wait through this exercise to actually align with our auditor to reflect the new strategy also in accounting because, in our view, this change needed to be done. And on the basis of the opinion of our KPMG, the reclassification, they have the correct reclassification base following the decisions on the strategic plan and also on the detailed new strategy in terms of treasury investments, but the 1st of July was the adequate date for reclassfications.

I see a question coming from Stefan Kausman on the dividend. The question is concerning your future dividend. Is there a certain payout ratio you are aiming at? So look, currently, we have to state that we don't pay out dividends, and we want to start the discussion, as I said before and with the regulator again. Before that, our dividend our goal was 60% payout ratio. And look, we now enter the discussion with the regulator, I don't want to come up now with specific numbers. But what I can tell you is that 60%, I think, is something which is clearly doable from our perspective. And if I look to our current equity status and the amount of the equity excess equity we have, I think we also have a potential for more in theory [Audio Gap] but that's the final thing, We will let you know when we have closed the discussion with the regulator and then we have achieved an agreement, then we will announce it.

[Operator]

We have another question from telephone, which is a follow-up from Mr. Cruz, KBW.

[Hugo Moniz Marques Da Cruz, analyst]

So you mentioned that when Croatia joined the euro RWAs will go down further. Can you give some estimate for the potential impact. The potential impact on RWA Croatia joining the euro. You said that I should bring down.

[Edgar Flaggl, executive]

Okay. Maybe I'll start from the financial perspective. We have year-to-date, SEK 1.8 million booked as costs for the implementation of the Euro project and EUR 1.1 million alone out of this EUR 1.8 billion was booked in the third quarter. And if you remember, that's what we guided for that these costs will peak in the second half. Now we also guided that the total charge, so one-off costs for this topic is going to be in the mid-single digits, euro million amount. So you can, from that perspective, calculate what the range is that might be booked in the fourth quarter this year. Now going forward, and this is also nothing new, but just to remind everyone, we, of course, will have some impact of, for example, FX DCC income that we will not have any more from Croatia there is no Croatian Kuna , it's the euro. But this is already reflected in our guidance that we are in a midterm guidance that we previously announced earlier this year.

[Hugo Moniz Marques Da Cruz, analyst]

Yes. But just a follow-up. I understood that you said on the call today that there will be a decrease in risk-weighted assets after Croatia turns to euro.

[Herbert Juranek, executive]

The risk weighted assets. Okay. Well, I don't want to guide you for any amount, but it's going to be at the low double-digit amount in terms of risk-weighted assets decrease out of Croatia, showing the euro and you would see that not in the credit rate in the market risk lease.

[Hugo Moniz Marques Da Cruz, analyst]

You said a double-digit million amount.

[Herbert Juranek, executive]

It would be a low double-digit euro million amount in RWA reduction out of that.

[Operator]

There are no further questions from the telephone. And you may want to have some closing remarks in your hand.

[Herbert Juranek, executive]

Maybe this is my last comment. Thank you for joining the web call in the name of the management team of Addiko. We hope that you appreciate the results of the third quarter. We will do our best in order to continue our growth rate and our momentum. And we hope that we are confident that we can close the year by continuing our programs. With that, I would like to conclude. I wish you all the best and our hope that you will be online in our earnings call next year. Thank you very much.

[Operator]

Ladies and gentlemen, the conference is now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.