BAWAG Group AG

VSE:BG

Earnings Call Transcript 2019-Q1

[Operator]

Good day, ladies and gentlemen, and welcome to the BAWAG Group Q1 2019 Results Call. [Operator Instructions]

As a reminder, this conference is being recorded, and a replay as well as a transcript thereof will be available at BAWAG Group's website.

I would now like to hand the conference over to your speaker today, Anas Abuzaakouk, Chief Executive Officer. Please go ahead.

[Anas Abuzaakouk, executive]

Thank you, Operator. For everyone, it's Anas Abuzaakouk. Good morning, everyone. I hope everybody is doing well. I'm joined this morning by Enver, our CFO.

Let's just get right into it. On Slide 3, you see the bank generated strong earnings during the first quarter. On a reported basis, we delivered profit before tax of EUR 127 million and net profit of EUR 97 million. This is up 9% and 12%, respectively, versus the prior year.

Normalizing for the effects of regulatory charges, which we've communicated in the past, which are, as usual, front loaded during the first quarter and cover 85% of total annual regulatory charges, we delivered profit before tax of EUR 151 million and net profit of EUR 116 million, both up, 6% and 8%, respectively, on a year-over-year normalized basis.

In addition to a strong set of earnings, we continue to execute on our strategy and transform our business. To date, we've made very good progress delivering on Concept 21, with 14 new branches scheduled to be opened by the end of the second quarter. We've launched multiple retail partnerships, with MediaMarktSaturn having launched in January and the Jo bonus loyalty program launching in May, which by the way covers over 4 million customers in Austria across leading retail loyalty programs.

We've also released a number of digital products that have been in the development for some time, introducing our point-of-sale finance product with retailers and our revamped mobile banking app, called klar, in Austria, which is German for “clear and transparent.”

We closed on the 3 acquisitions we signed in December of 2018, adding platforms that will help us grow our SME presence in Germany and Switzerland, which are offering attractive factoring and leasing products to our customers.

In terms of capital generation, we generated 70 basis points of gross capital during the quarter and increased our CET1 ratio by 40 basis points, to 14.9%. This is after accounting for the impacts of IFRS 16 and the Swiss acquisition which closed in March of this year.

We're on track with regards to our planned capital returns. On April 30, the AGM approved our proposed share buyback program of up to EUR 400 million, which is pending regulatory approvals, and we paid a dividend of EUR 215 million last week, which represents 50% of the 2018 attributable net profit.

Moving on to Slide 4, all around a very strong first quarter in terms of financial performance. Our reported pretax profit was EUR 127 million, up 9% versus the prior year. This was driven by higher core revenues, lower costs and risk cost down over a quarter. Our cost-income ratio came it at 42.4%, consistent with our annual target for the year of under 43%. The reported return on tangible common equity came in at 12%.

On a pro forma basis, which considers normalized regulatory costs, a proposed share buyback of EUR 400 million, the dividend of EUR 215 million that we paid last week for 2018 and the dividend accrual for the first quarter of 2019, the return on tangible common equity would be 17.8%, in line with our stated targets of 15% to 20% for the year.

Additionally, the CET1 ratio came in at 14.9%. On a pro forma basis, the CET1 ratio would be 12.7%, within our stated target range of 12% to 13%.

Moving on to Slide 5, at the end of the first quarter our fully loaded CET1 ratio was 14.9%. We generated 70 basis points of gross capital, partly offset by 30 basis points on acquisitions and the impact of IFRS 16, resulting in a net capital generation of 40 basis points. Considering the proposed share buyback of EUR 400 million and a dividend accrual for the first quarter of 2019, we would have a pro forma CET1 ratio of 12.7%, in line with our target range. We have a highly capital-accretive business which allows us to grow organically and inorganically, in addition to returning capital to our shareholders.

Our capital distribution policy is for a 50% payout ratio of attributable net profit. To the extent that we generate excess capital and are unable to deploy such capital through growth measures, we will distribute capital back to our shareholders. We will always strive to be good stewards of capital, ensuring we deploy capital sensibly in meeting our return thresholds of over 15% return on tangible common equity. Our pro forma return on tangible common equity provides a more accurate picture of our underlying profitability and captures our capital deployment strategy.

Moving on to Slide 6, we highlight how we continued to deliver on our M&A strategy. So over the past 3 years we've built a track record of identifying and executing on highly accretive bolt-on acquisitions. These bolt-on acquisitions have reshaped our business and play a larger part in the transformation of the group as we continue to grow across the DACH region with a strong focus on the retail and SME segment, which today accounts for over two-thirds of the group's profit before tax. Since the fourth quarter of 2015, we have made 9 acquisitions, strengthening our retail and SME offering in Austria as well as allowing us to enter the German and Swiss market.

Our 3 acquisitions announced in December of 2018, which were BFL Leasing, Zahnärztekasse and Health AG, have already closed, and we're excited about the businesses and the teams that are joining the group. The acquisitions provide access to a solid SME customer base and will be earnings accretive from day one. However, they will have a de minimis impact on our targets for 2019 and 2020. We expect the businesses collectively to contribute over EUR 25 million of pretax profit by 2021 and be drivers of growth throughout the group. The day one capital impact from the acquisitions will be approximately 50 basis points, of which 10 basis points was already accounted for in the first quarter and the remaining 40 basis points to come in the second quarter. The transactions were underwritten to generate a return on tangible common equity of over 15%.

The additional 12 to 18 months will be focused on integrating the platforms into the overall group, executing on our transformational plans and expanding the business footprint to grow across new channels and geographies. We're extremely excited about the opportunities ahead and continue to assess various bolt-on M&A opportunities of the same flavor and variety.

Acquisitions are an important part of our strategy. However, our main focus continues to be on executing on our organic business.

Moving on to Slide 7. At the beginning of the year we changed the segmentation of the group to simplify our reporting structure as well as to make more visible our strategic focus towards retail and SME in the DACH region, complemented by disciplined and conservative corporate and public sector lending across developed markets.

Our retail and SME business delivered a pretax profit of approximately EUR 84 million. Core revenues were up 2%, operating expenses were flat, and risk cost and regulatory charges were down. The business generated a reported return on tangible common equity of 18.5%, or 22.1% on a normalized basis, a cost-income ratio of 41.7% and a stable NPL ratio of 2%.

Our consumer SME and housing loans were up 1% versus the prior quarter and 5% versus the prior year. The runoff of our different mortgage portfolios was in line with our projections. The focus for the business in Austria has been executing on Concept 21 and building out our independent branch network by the end of the year. Additionally, the focus across the DACH region is on building out our retail partnerships where we have a strong pipeline of new partnership opportunities and rolling out digital products across all of our brands and channels.

Our digital products aim to be easy to use, easy to understand, transparent and are designed to meet our customers' needs while creating a seamless and efficient middle and back office. We are leveraging the development of our retail products across all of our platforms, be it with the point-of-sale financing product, revamped mobile banking or SME lending.

On Slide 8, here really the message is pretty simple. We continue to execute on the many operational and strategic initiatives while pursuing new growth opportunities, which has been consistent throughout the years. We have a natural bias for execution and focus on the things that are within our control.

As far as transforming our core Austria franchise, we continue to make very good progress this year. On Concept 21 we are ahead of our plan in terms of retention, improved customer feedback, new hires and building out our independent branch network of under 100 branches by the end of the year, adding 14 new branches by the end of the second quarter along with the new design focused on creating a paperless environment with enhanced digital functionality. The retail partnerships are off to a great start, and we're excited to see how this develops over the coming years, as we believe the combination of new partnerships, new technologies and digital products offered to our customers across our multi-channel platform will allow us to best serve customers today and long into the future.

Our DACH growth strategy has also progressed with the Südwestbank and Zahnärztekasse transformations. The momentum from 2018 has actually continued into 2019 and, more importantly, we're looking to grow through new products and channels across Germany and Switzerland.

Expanding our retail and SME offering and leveraging new products and distribution channels across Germany and Switzerland through retail partnerships, direct platforms, brokers and dealers will allow us to best leverage our technology and operating platform to deliver value for customers. With the additions of the leasing and factoring businesses, we're in the process of setting up our site presence across multiple cities to best drive operating leverage and continue to benefit from group-wide synergies.

On Slide 9, our corporates and public sector business delivered pretax profit of EUR 47 million. Core revenues were down 2%, which was primarily impacted by lower fee income. However, this was offset by operating expenses being down 14% and positive risk costs. The business generated a reported return on tangible common equity of 11.8%, or 13% on a normalized basis, a cost-income ratio of 35.4% and a stable NPL ratio of 1.3%.

We have been disciplined as it relates to growth, never overextending ourselves, focusing on risk-adjusted returns and always taking a conservative approach to credit before anything else. We are cognizant of the fact that we are in the late stages of a credit cycle and remain vigilant in assessing and pricing risk. When underwriting transactions, we base our loss analysis on through-the-cycle credit losses and idiosyncratic risks, not merely just relying on current low losses that are a result of a benign credit environment and truly not a reflection of the credit fundamentals of a business.

We have stayed committed to our disciplined underwriting approach, focusing on senior-secured lending, day one average LTVs under 65% and maintaining an interest coverage ratio of greater than 2x. We continue to see pricing pressure across the corporate lending space, with assets down 6% versus the prior quarter. We will remain focused on assessing financing transactions based on risk-adjusted returns that make sense and will not chase volumes or put on unprofitable business. We believe our patient and disciplined approach will pay off over time. Conversely, we continue to see good opportunities in asset-backed lending, with assets up 5% versus the prior quarter and a solid pipeline of opportunities ahead of us.

With that, I'll turn it over to Enver.

[Enver Sirucic, executive]

Thank you, Anas. I will continue on Slide 11. So we delivered a strong first quarter, with profit before tax of EUR 127 million, which is up 9% versus the prior year. On a normalized basis, profit before tax would be at EUR 151 million and net profit at EUR 116 million. Core revenues improved by 2% versus prior year and were stable versus fourth quarter, with a slightly better net interest margin of 226 basis points.

Operating expenses came down, both versus first and fourth quarter of 2018, with a cost-income ratio now below 43%, which is in line with our full year targets.

Risk costs remain at a low level, with risk cost ratio of 13 basis points being a little below our 15 to 25 basis points guidance range.

Generally, I would say all numbers are in line with our revised targets.

So moving on to Slide 12 and analysis of our balance sheet, customer loans and deposits remained largely stable in the first quarter. We increased our cash position, which we are planning to mainly use for an early redemption of the TLTRO-II by June this year. In March, also we issued EUR 400 billion (sic) [ EUR 400 million ] of Tier 2 capital and completed our total capital optimization after the Tier 2 tender and additional Tier 1 issuance back in 2018.

Risk-weighted assets remain stable versus year-end after absorbing the effects from IFRS 16 implementation and our new Swiss acquisition that closed in March this year.

On Slide 13, we saw a stable development for our core revenues in the first quarter. Net interest income was up 3% on prior year but slightly behind the previous quarter, reflecting the fewer number of days that we have in Q1, but it was in line with our expectation.

We saw good developments across our core retail products, mainly consumer loans and mortgages, and this was also reflected in our net interest margin of 2.26%, which is up 1 basis point from Q4 level.

Solid net commission income, showing an improvement of 3% versus prior quarter. Positive development in retail SME, driven by lower payments to the Austrian Post. And a better loan commission income as well as stabilizing securities in the insurance business. This was partly offset by softer commission income in corporate and public, but all in all a solid quarter of core revenues and a good start into the year.

With that, moving on to operating expenses, on Slide 14, operating expenses have normalized after seasonally high expenses in the fourth quarter. Costs were down 3% year-on-year. Cost-income ratio came in at 42.4%, which is in line with our full year target. We will see continued investments into our branch network, and this will gradually lead to an increase in expenses in the coming quarters. With the completed closing of our new acquisitions, I would also expect an increase of approximately EUR 11 million per quarter of additional expenses for the rest of the year. We already started working through the next level of cost savings and we'll continue to work hard in cost control and remain laser-focused on efficiency.

Slide 15. Again a very solid quarter on the risk side. Risk cost ratio was at 13 basis points and our NPL ratio at 1.8%, reflecting our focus on developed markets, with over 70% of our customer loans being in our home countries, which is the German-speaking region, and roughly 30% in Western Europe and the United States.

There have been no changes to our risk strategy, which remains consistent with what we have communicated in previous quarters. We have no relevant exposures to Turkey, Russia, CEE or, more broadly, to emerging markets. And given our business is mainly domestic mass retail banking, we do not have any operations in countries with elevated AML risk.

For the rest of the year, absent any unforeseeable events, obviously, I would expect to stay at the low end of our through-the-cycle guidance of 15 to 25 basis points in terms of risk cost ratio.

On Slide 16, more details on capital. So our CET1 ratio came in at 14.9% before dividend, and our total capital ratio was at 18.7%. The key drivers behind the capital ratio [ walk ] are really 3 elements. On the one side, we have earnings and a positive RWA development that contributed around 70 basis points, which is a bit stronger performance than in the previous quarters. Then we had higher risk-weighted assets from IFRS 16 implementation, which cost 20 basis points. And the third bucket is a 10-basis-points impact from our Swiss acquisition which we closed in March. So net-net, 40 basis points CET1 accretion in the first quarter.

On the total capital side, the EUR 400 million Tier 2 issue contributed an additional 200 basis points and now completed also our total capital optimization which we started a year ago.

On Slide 17, we are reiterating our financial targets. At year end we upgraded our targets by moving our [indiscernible] three-year targets one year forward, on the back of strong operating performance in 2018. Our profit before tax target of greater than EUR 600 million in 2019 and greater than EUR 640 million in 2020 represents annual growth rate of over 6%.

The cost-income ratio target is under 40% in 2020, and we have a target of under 43% cost-income ratio for 2019.

The return on tangible common equity target also remains the same, within a range of 15% to 20%.

And our CET1 ratio target ranges from 12% to 13%.

Our pretax EPS targets are greater than EUR 6 per share in 2019 and greater than EUR 6.40 per share in 2020. Our target [ post tags ] EPS is greater than EUR 4.50 per share in 2019 and EUR 4.80 per share in 2020.

Please note that these are all before the impact of any capital actions.

With that, Operator, let's open the call for questions, please. Thank you.

[Operator]

[Operator Instructions] The first question we have today comes from the line of Pawel Dziedzic, from Goldman Sachs.

[Pawel Dziedzic, analyst]

Just a couple of questions from my side. The first one is on the buyback program. Can you just give us a little bit more details on where you stand with regulators, where would you expect to see approvals, and also if this is done, if the approvals are out of the way, in what time frame you would hope to complete the program?

The second question is just on your cost to income. So you just mentioned that you are now below your 43% cost-to-income target. It looks like this bolt-on acquisition will push out the cost-income up, probably if we can look at the numbers that you gave us in a pro forma basis over 44%. You also mentioned that there is a cost associated with branch network. So could you help us understand which part of the business will drive these cost efficiencies in 2019? Where do you see the scope for biggest gains? And I'll leave it at that.

[Enver Sirucic, executive]

Thanks, Pawel. So I'll cover the first question, on the share buyback. So what happened since we spoke on the full year earnings, 2 things. So we have issued the Tier 2 capital, which gives us now also comfortable buffer on the total capital ratio. And the second one, the AGM took place, what Anas mentioned in the call, and everything was approved as suggested by the management and Supervisory Board.

So now we have the corporate approvals. What is now the next step is the approval from the regulator plus the approval from the Austrian Takeover Commission. We cannot give any comments to the specific timeline. But if you read the AGM approval, you will see that the timeline is defined as a within-6-month period of execution. So what we can say, in the next 6 months is what we would expect the execution to take place.

I think the next question was on the cost-income ratio. It's a fair comment. So fortunately we closed a bit earlier than expected initially. So yes, there will be pressure on the cost-income ratio just given the balance PBT for the acquisitions. But what I mentioned, we have a couple of measures that we're working on in the core businesses that will offset that cost pressure that comes through the new acquisitions.

[Pawel Dziedzic, analyst]

Perfect. And maybe just a follow-up if I can, so could you give a little bit more clarity on those particular measures that you have in mind? I think, what will offset the cost growth? Just a little bit more color on what parts of business you see as still capable of delivering cost efficiencies.

[Anas Abuzaakouk, executive]

Sure. So Pawel, I'll just add on to what Enver had mentioned earlier. The cost efficiency on, excluding the acquisitions, is really across the board. If you look at the German platform, we had strong momentum in 2018 for Südwestbank and Zahnärztekasse. I mentioned that will actually continue into 2019. We're doing a lot when we talk about an operating platform with digital products across kind of creating seamless middle and back office. That impacts our operations in Austria, that impacts our operations in Germany.

So it's not any one particular initiative; there are a host of initiatives that give us a sense of confidence that we'll be able to deliver on our cost-income ratio target this year given the fact that we still closed the 3 acquisitions earlier than anticipated.

[Pawel Dziedzic, analyst]

That's very helpful. Thank you. And maybe just clarifying question on execution. You mentioned that you had planned to complete it within 6 months from. Can you give us a sense of the structure of potential buyback? I think last time, in 2018, you managed to complete around EUR 30 million, EUR 35 million per quarter of a share buyback. So clearly, EUR 400 million is a large number in that context. Any thoughts on that from your side would be very helpful.

[Anas Abuzaakouk, executive]

So Pawel, obviously we don't want to get ahead of ourselves. The most important thing is -- it's pending regulatory approvals. I think we've been consistent on that. As it relates to the transaction, you're absolutely right what we did last year in terms of the baby buyback was more safe harbor, over the counter. This is going to be of a different variety, in a different transaction type. So most likely a tender, along those lines. But that's, again, getting ahead of ourselves. It's more important to focus on getting the approvals, first and foremost.

[Operator]

The next question today comes from the line of Gabor Kemeny, from Autonomous Research.

[Gabor Kemeny, analyst]

My first question is on capital. Can you give us any color why the drop in the risk-weighted assets in the corporate segment? You had a 6% drop there while assets were down less than 2%. And related to that, how shall we think about the risk density over the coming quarters? Do you see the model approvals you were expecting or anything else benefiting you further on risk density? That's the first question.

[Enver Sirucic, executive]

So Gabor, on the RWA development you're right. We had a positive development in the corporate segment, which are a couple of initiatives that we did. One of them is just also deleveraging some of the assets where we don't think we get the right return on the risk-weighted assets that we invested.

On the density, what you see is a bit more density in Q1 because we had a higher balance sheet just given the higher cash position that we built up to repay the TLTRO-II. Over the next couple of quarters, I would say, is the consistent guidance that we gave that we want to be in the low 40s on the RWA density, and this is really a 12- to 18-months period that I can give you as a guideline.

[Gabor Kemeny, analyst]

Okay. Thank you. And the other one is on margins. Do you see any upside to your margins from the current levels? You are most active in Austrian consumer lending and you are active in asset-backed lending, which I understand are higher-margin businesses. So do you see this benefiting your margins, going forward?

[Enver Sirucic, executive]

Probably in a longer term you're right with the assumption, but it just takes time to change the asset mix of the balance sheet. So what I said in Q4, take the 225, and now the 226, is I think a good proxy and I would expect a stable margin for the next couple of quarters.

[Operator]

The next question today comes from the line of Mate Nemes, from UBS.

[Mate Nemes, analyst]

Two questions, please. Firstly, on fee income. I was wondering if you could give us a bit more color on Q1 fee income. I think you mentioned that fees were sequentially up 3%, but when I look at year-on-year they are down 3% and when I look at the 2 main operating divisions it seems like fee income development underperformed the asset development. I was just wondering if this is temporary in your view or you're seeing a bit more fee margin pressure or perhaps in the retail and SME business client activity was just simply lower.

And secondly, I was wondering if you could talk a little bit about the performance in Germany; more specifically, on Südwestbank, what is the status there. And related to that, any updates on Qlick would be appreciated.

[Enver Sirucic, executive]

So on the NCI development, so what happened in 2018 we saw softness in securities and insurance just given the market conditions back in 2018. That has stabilized now in Q1 '19. And also what I mentioned before, we had seen strong NCI on the loan product side, and also the commission expense from Austrian Post is now less versus 2018. So yes, it's down versus Q1 2018, but good trend on securities and especially on the loan products. So I would expect that to further continue into the year.

[Anas Abuzaakouk, executive]

So Mate, on Germany I would tell you the transformation and restructuring that we undertook in 2018, that continues into 2019. Now that was on an accelerated basis as it relates to Südwestbank. We're super excited about the platforms that we just closed on, and we mentioned earlier that that actually closed earlier than anticipated. What this is going to actually provide us with is a platform in Germany to be able to focus across the retail and SME segment on niche products, be it factoring, be it leasing, private banking and kind of situational areas, tapping into, call it, the platform-type banking with mortgages. The retail partnerships that we talked about in Austria, we're going to look to replicate that in Germany, as well.

So there's a host of things that we're pretty excited about. Obviously, driving the operating leverage was first and foremost. That was the thing that we could actually focus on. And now you'll start to see in the coming quarters really the top line start to improve as we're bringing on new products in new channels and take more of a pan-German view, as opposed to just a regional view which we had purely through Südwestbank.

So we're pretty excited. The leadership team there, too, we have in place. This is just something that just takes time. But I think from an underwriting standpoint everything is as we expected and probably better on the operational side.

On Qlick, a lot has gone into Qlick. We've launched that on a direct basis. We're going to be launching retail partnerships that effectively are using the Qlick brand and the Qlick technology. But I will tell you this, for 2019 and 2020 it's a de minimis impact. It's more a long-term play, similar to what you see with MediaMarktSaturn and the other retail partnerships in terms of a new customer acquisition channel and just the opportunities that it provides us, going forward.

[Operator]

[Operator Instructions] The next question today comes from the line of Marcell Houben, from Credit Suisse.

[Marcell Houben, analyst]

The first one is on the cost-income ratio. I know at the group level target, but you also had a divisional target at the retail segment. Now that they are merged, is it still 42% or smaller by 2020? Does that target still stands? That's the first question.

[Anas Abuzaakouk, executive]

So Marcell, on that particular one, I think you're referring to when we said BAWAG P.S.K. It will still be under 42% for the combined retail and SME, and hopefully even better. I think you can probably see the run rate just in the first quarter. We feel pretty good about that now.

[Marcell Houben, analyst]

Excellent. Okay. Second, Anas, on the EUR 400 million Tier 2 and the TLTRO redemptions, what is the impact on or the expected impact on the NII?

[Enver Sirucic, executive]

Almost nothing. This is, net-net, almost neutral. It's just a bit more efficiency in the balance sheet. And we also just want to early redeem it and not carry it on into the next 2 years.

[Operator]

[Operator Instructions] We have a question here from the line of Michael Dunst, from Commerzbank.

[Michael Dunst, analyst]

My remaining question concerns Concept 21. So how many branches [indiscernible]. And how much cost [indiscernible] BAWAG. And the other question, how much commission expenses were related to [indiscernible] 2019 and the comparable number in Q1 '18 in terms of how much commission expenses related to [indiscernible] planning for full year 2019 [indiscernible].

[Anas Abuzaakouk, executive]

So Michael, it was hard to hear you. The connection was [indiscernible]. So I'll try to repeat the questions and make sure that we'll address what you had asked.

So you asked about Concept 21, how many branches I think we have in [indiscernible]. You asked about the cost base, is that correct?

[Michael Dunst, analyst]

The commission expenses related to Post there.

[Anas Abuzaakouk, executive]

Commission expense. And then there was, I think, a third question. If you could repeat that, please?

[Michael Dunst, analyst]

How many of the Post offices are you still using? The last published number was 67 Post offices, I think.

[Anas Abuzaakouk, executive]

Yes. So Michael, really simple, so on a standalone basis we're at 62. We're going to be opening up, I mentioned earlier in the call, 14 new branches by the end of the second quarter. The transition, I wouldn't give you a number on the Post offices that are still open, just because that's effectively bleeding off. By the end of the year we're going to be under the 100 branches that we committed to when we discussed Concept 21. But 62 plus the 14, and then effectively we'll have a complete separation by the end of 2019.

And on the Post commission, you want to?

[Enver Sirucic, executive]

On the Post commission, we had roughly EUR 3 million per quarter last year, and it came down now by another 50%. So it's roughly EUR 1.5 million.

[Michael Dunst, analyst]

Okay. It's nearly nothing. Okay.

[Enver Sirucic, executive]

Yes, almost nothing.

[Anas Abuzaakouk, executive]

They're going very well, Michael, in terms of what we anticipated. It was always intended to be kind of a methodical process over this 2-year period. And I'd say it's probably ahead of our expectations in terms of operationally doing the changes, building up the branches, and then the customer retention has been fantastic as well as the customer feedback.

[Operator]

There are no further questions over the phone today. Please continue.

[Anas Abuzaakouk, executive]

Okay. Is there any more questions?

[Operator]

We have a follow-up question here if you're happy to take it at the moment.

[Anas Abuzaakouk, executive]

Yes, sure. Absolutely.

[Operator]

The follow-up question is from the Pawel Dziedzic.

[Pawel Dziedzic, analyst]

Just one question, and it relates to progress you outlined you're going to make on these bolt-on acquisitions. So you mentioned that financial impact in 2019 and '20 will be minimum. But you also highlight that from 2021 they are likely to contribute over EUR 25 million. So maybe from your side a comment there what will drive that, to what extent you expect to leverage cost efficiencies there. Is it driven by also operating efficiency, cutting costs? Or do you expect growth there? Why do we have to wait, in essence, 2 years to actually see the results coming through? So that would be first follow-up question.

I also have a second follow-up question, if you have time, and that's on your cost of risk. It stays below across-the-cycle levels, that you say 15 to 25 basis points. And how do you think about this, going forward? Would it still stay at the very benign levels? So do you see any drift upwards? And maybe, put it differently, what type of environment or operating backdrop you would need to see for cost of risk actually to be closer, let's say, to 20, 25 basis points? Do we need to see any change or not? Or in the kind of environment is also a possibility.

[Anas Abuzaakouk, executive]

Sure. Okay. So Pawel, on the acquisitions, so that actually closed earlier than anticipated, which we mentioned earlier. I would tell you if you see our track record of the 9 acquisitions that we've completed, the consistent theme has been focused on operational transformation. That will be no different from the 3 that we recently closed.

It just takes time. I'm surprised. We closed in May. So if you say the 3, we had the 1 in March and the 2 in May. That's 18 months. That's a pretty, I would say, accelerated timeline. Südwestbank obviously was ahead of plan, and I think this will probably be along the lines of Südwestbank. You also have to give yourself time in terms of transforming the platform. These are great sales channels, great products. I think the teams that we're going to be inheriting or joining the group are great. But you also have to integrate into your middle and back office, and that's why we kept on talking about this platform or footprint in Germany. And that just takes time to develop.

So are we being cautious? Probably. But we feel pretty good about delivering over EUR 25 million of pretax profit in 2021. I thought that would be accelerated. That's the first time I've gotten some feedback that's too slow. That, I think, is the acquisitions.

And then on the question on the cost of risk, 2 questions. We've been kind of below the cycle that we talked about in terms of 15 to 25 basis points through-the-cycle risk costs. Probably the biggest thing would be on your consumer unsecured, right? We have a consumer unsecured, this is the personal loans, the overdrafts and the like, of EUR 2.5 billion, or so, in Austria. We've talked about this in the past. If there is a severe economic downturn, of course you're going to be exposed, but it's also, the weighed average life on that product is 2.5 to 3 years. So it burns off pretty quickly. We monitor 30-, 60-, 90-day past due delinquencies religiously. So it's something we try to get ahead of the curve. But I would say that's the one area if there was a significant macro downturn that we would be exposed, like any other.

One of things, funny enough, that's impacting the environment, as you continue to have negative rates it also, this is less I think how we underwrite but I think more of a general comment, negative rates also seems to trickle itself into lower risk costs on the corporate side, given that there's less financing pressure for corporates that might not have the most solid balance sheets. And this is something that when we underwrite credit we factor that in and look at through-the-cycle, that this benign environment of low losses doesn't necessarily reflect the viability of a lot of the corporates. But it's something that I think, generally speaking, it impacts the market and the overall risk cost.

Is that helpful?

[Pawel Dziedzic, analyst]

That's very helpful. Thank you.

[Operator]

Thank you very much. No further questions at this stage. Please continue.

[Anas Abuzaakouk, executive]

Thank you, Operator. Thanks, everyone, for joining us in the first quarter call and look forward to talking to you guys in the second quarter. Take care, and have a nice day.

[Operator]

Thank you very much. That does conclude the conference for today. Thank you for participating. You may all disconnect. Speakers, please stand by.