Erste Group Bank AG
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Erste Group Bank AG
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Good day, and welcome to the Erste Group Bank AG First Quarter 2020 Results Conference Call. Today's conference is being recorded.
Now I would like to turn the conference over to Thomas Sommerauer. Please go ahead, sir.
Thank you, Sergei, and a very warm welcome to everybody who is listening into this conference call. It might be unusual times, but we will follow our usual procedure. And this is with Bernd Spalt, CEO of Erste Group; Stefan Dörfler, CFO of Erste Group; and Alexandra Habeler-Drabek, Chief Risk Officer of Erste Group. We'll lead you through the prepared presentation, highlights, the main achievements of Q1 and obviously, talk about the big elephant in the room, which is sort of the outlook for the future, after which time we are ready to take your questions.
And with this, I would like to hand over to Bernd Spalt, before that, as usual, highlighting the disclaimer on Page 2 of the presentation. Bernd?
Good morning, ladies and gentlemen. Welcome to our Q1 results presentation. As Thomas has said, rather unusual times. We will slightly sort of change our usual flow in a way. But before we go into the detailed figures of Q1, I would like to describe the environment which we're operating in, how states have responded, how we have responded. And then we will also do a deep dive on credit risk, which is certainly the wildcard in our P&L lines are forward-looking, which will be presented by Alexandra, before we go back to our usual flow where I talk about the Q1 results and Stefan also will sort of share his views on our Q1 achievements.
Let me take you to -- before I start with Page #4 where we go into our exhortation, just a very quick word on Q1 itself as an entry point. What we saw was a basically very intact macro environment until mid-March this year. This translated into very, very healthy NII improvement. So we grew almost at 6% in the first quarter. We had excellent growth on the fee income side. We had a setback on -- clearly on the trading side because of our valuations going wild in the first quarter. We will talk about that later. Credit risk in the first quarter still at very, very benign levels even though we took a first special COVID hit of EUR 61 million for special portfolios. Alexandra will talk about it. Capital position now at 13.1%. Core equity -- common equity Tier 1, of course, also reflecting a depreciation in local currency. So I think, overall, a very healthy picture. So whatever we announced on the Capital Markets Day late last year, I think from a core business point of view, you can see happening in Q1 2020. And also on the cost side, I think we see a reasonable development.
So until mid-May (sic) [ mid-March ], as I said, everything went well and then the lockdowns came in. All of our governments, and I think this is also important to say, have responded in a very similar fashion and very robustly and swiftly.
Now let me take you to Page #4, which is giving you a first insight on the health situation, which is developing well based on these very effective measures of the government. Whether or not we have been efficient only time will tell because they will come at a cost and not at an unsubstantial cost, but they have been effective. So what we see is that the health ratios look good. And if you look at Austria specifically, at the peak of the infection time, we had around about 15,000 people in Austria being infected by the virus. We're now down to 1,900 and every single day, this is significantly less. So there will be a time, not far out, when we know everybody who has caught the coronavirus presently. So I think this is working really effectively.
Why is this important? Because it also allows these governments then to slowly and step-wise open up the economy, and this is happening now. This is happening in Austria. This is happening in the Czech Republic, and the other countries will follow.
Now let me take you to Page #5. Where do we -- how did we start into this crisis? I mean it's fair to say that this started as a health crisis, a global health crisis and turned very, very quickly into a very robust economic recession. So a health crisis transforming into an economic crisis, it is not a banking crisis and everybody knows and everybody sort of also plays his or her role. And I think, it's important to understand that CEE, our region, is entering into this crisis in a position of strength, right? On the economic side, on the macro side, we have had very strong labor markets, we have very solid public finances and low debt to GDP levels, which also allows our governments throughout the region to respond very robustly when it comes to fiscal stimulus packages. Banking markets are also in a lot better shape than pre-global financial crisis. Equity ratios are higher. Liquidity buffers are a lot better. There's no cross-border funding anymore. We're talking about self-funded business. There is negligible foreign exchange risk in the credit books. So I think -- and we're looking at historically low NPL rates. So the shape we're going into this situation, which has clearly been unpredicted, unplanned, is a strong one, both from a public finance side as well as from the bank sector side.
Let me turn to Page #6, and look into the monetary policy reaction. And clearly, sort of this is wherever moves can be taken to cut interest rates, they are being taken, most notably in the Czech Republic. ECB will stay on very low levels for long. This is not something which has changed, but this -- a crisis situation is also not a situation where one would expect interest rates to be taken up. So this will stay around for a while. So in the local currency, we also expect further interest rate cuts. For the future this will clearly be a headwind for our net interest income going forward.
If you look at the regulatory reaction on Page #7 of our presentation, I think what is very good at this time is that all the stakeholders act responsibly in a way that everybody understands that anything which is acting procyclically or sort of impacting the world procyclically is bad. So everybody tries to understand the play rolling away, which is not aggravating the crisis but creating rooms to move. And this is what we see also on the regulatory side. Generally, on the dividend, the reaction of the individual policymakers is, how shall I say, not a very homogeneous picture. On a -- in a European context, and this, I think, is important, ECB has made it perfectly clear that inside a group, dividend payments upstream up until to the parent company level are allowed, unless there is a significant capital problem on the local side, which, of course, we see in many of our countries. However, local central banks partially have issued recommendations not to distribute dividends this year, which is not in itself creating a problem for a potential dividend payout for 2019, but it's showing, to my belief, a wrong attitude because refencing and fragmenterizing the economies will not help much. We will talk about dividends generally in more detail later on, but there are also a lot of other kind of policy responses which generally are pragmatic.
Now if we look into Page #8, then the picture shows that all of the governments have chosen a wide set of tools when it comes to responding to this crisis. So basically, in a nutshell, they all have said whatever it takes, they will support that the local economy will not fall into nowhere. So we're talking about loan moratorium and payment holidays, and we'll talk about that later in more detail. We're talking very much about bank loans being guaranteed -- partially or fully guaranteed, by the state. We're talking about short-time work programs, which are very, very beneficial for employees and provide unemployment rates to rise -- sort of prevent unemployment rates to rise too steeply. And there are significant amounts of tax incentives and tax cuts and tax holidays, tax deferrals and also nonrepayable contributions by the state directive corporate customers. So all of this translates into significant stimulus packages. Austria's 10%, as I said, translates into something like EUR 38 billion. The Austrian government has also said very clearly, if it takes more, it will take more and they will go there. And I do think that in the context of low debt to GDP levels, generally all the states are in a position to mitigate the impact of this crisis. And even 10% compare very favorable to EU level, the EU averages. If you look at the Czech Republic, they're going up to 21% of GDP, and we should not forget that Austria, Czech Republic and Slovakia, which sort of form a very substantial part of our balance sheet, they're all indirectly benefiting from the significant input and impact which the German fiscal stimulus has. So, I think, this is a very robust response. It now depends very much on sort of how quickly do these large figures translate into economic reality. So I think it's also very important, the banks will have a very significant role to play in this context.
Now if you turn to Page #9 on the political and fiscal reaction on the moratoria. I will not go into a lot of detail here. It's all sort of relatively transparent or very transparent. What you see is all the governments have addressed the issue of liquidity problems on the private as well as on the corporate side. But all of them have done it in a slightly different way. So there are 3 months moratoria. There are 9 months moratoria. There are different kind of segments being addressed. There are opt-in schemes and opt-out schemes, different kinds of treatment when it comes to all the treatment of capitalization of interest, which we'll also talk about a little later because this has then an impact on the impairment, which we need to make or on the NPV, which we see on the loan book side. But generally, all of the countries are reacting with public and private moratorium schemes. And it's also clear that they have, of course, attracted a lot of interest immediately. So customers did sign up for these moratoria. We talk about participation rates certainly a little later. You see them here per country, but I'm sure Alexandra will go into more detail on that. All this, of course, is a temporary relief. All this does not solve solvency problem because clearly in a falling economy where you're putting more leverage, solvency ratios will suffer, and we need to do something about it on the way of recovery.
Now Page #10 shows the details on the loan guarantees. There are very different kinds of programs. Austria has made, I think, the most progress in reality here. Most of the other countries have announced programs, but not yet really put them into, how shall I say, economic reality. Overall, I think this is something which is a very important tool, but not the only tool which is necessary. So we see guarantee programs up to 100% in Austria. And you see also then these maturity levels which are available.
On Page #11, just to round out the picture, of course, there's a lot which one needs to do in a situation where basically the economy is shut down. It's important to say that very quickly the government has made a decision that everything will be shut down, except critical infrastructure, critical infrastructure being food, pharmacy, health products generally, energy, of course, postal services and bank services. So we have been qualified as critical infrastructure, also meaning that we kept our branches open to a very large extent. And we also very quickly and in a technologically very well-working way have sent our people to home office. So just one example on campus side, in Vienna, we have -- our campus holds generally 5,000 people. We're now down to 250 people. Everybody else is working remotely, and it's working really reasonably well. So we have to take care about the health of our employees. We have also to take care about the health of our customers when they visit the branches. And of course, we need to be here for them to navigate through the channel of the individual public state programs. And when it comes to community positioning, of course, this crisis is not only translating into an economic crisis but also into a social crisis. So also we help both in the health as well as on the social side.
With that, I would want to turn over to Alexandra to discuss the deep dive on credit risks.
Thank you, Bernd. Hello, everyone, in these special times, and I hope all of you and also those dear to you are well. As mentioned already by Bernd, the wild card for this year and certainly also for 2021 is risk costs. And the current dynamic developments and uncertainties make it very challenging to come to a risk cost estimate at this point. But let me start with our Q1 results for risk figures. We started really strong into the year also in terms of risk indicators and this throughout our region. We saw hardly any defaults in the first quarter, and we could even successfully close 1 very long-term large record case in Romania, which contributed substantially to the very low level of risk costs as of end of March. In figures, this means that our ordinary course of business risk costs, so not COVID related, amount to roughly EUR 65 million, which will almost fully offset the recoveries from the written-off portfolio. Major part as mentioned is from Romania, a large record case.
In addition, we performed an assessment of our industry exposures and the potential impact from the evolving COVID crisis. Based on the heat map, we reviewed our corporate clients individually, so really client by client, and those with higher risks as of expert assessment then migrated to lifetime ECL. As there was still a very high degree of uncertainty, such manual overlays that we did in Q1 were performed only in limited cases and resulted in roughly EUR 60 million ECL increase as of the end of first quarter.
We did not yet perform an update of the FLIs in the first quarter as there was huge dynamics still in the macro forecast, and there still is, and also very dynamic developments around the various state measures in all our countries, which Bernd has already commented on. Altogether, this led to risk cost of 15 basis points, which will be significantly higher in the next quarters.
NPL ratio in the first quarter is further slightly down to 2.4%. NPL coverage, again up and stands now at above 80%, 80.9% to be precise. What is our process now going forward? Now in Q2, we will update our FLI parameters, and this we will review again in the second half of the year for potentially needed adjustments. In addition, we will continue on an ongoing basis to review our industry heat map, our portfolio and decide on individual names and maybe also portfolio basis on manual state shifts to provide for lifetime losses as soon as we see significant increase in credit risk.
Now from week-to-week, it should become clearer, and this also Bernd has just mentioned, now we will see, and this is very crucial, how successfully the huge government aid programs that we see throughout our region will arise in the economy, will support the economy and how consumer confidence will develop. What we expect to see now in the upcoming weeks and months, especially now that not only Austria, but also other core countries of our group, Czech Republic, but also Slovakia and Croatia are opening up again and also the very important country for us, Germany.
As already mentioned several times today, and all of you know, it's extremely hard to assess the future developments and impacts on risk costs in such an environment. Still, I would like to shed some light on our current best estimate for risk costs and also the underlying assumptions. During March and April, so we started with the -- when the crisis started in March and during April, we adjusted, we performed essential simulations. There is news that the virus can be contained within 6 months and that economic activity will recover in our home market in 2021. So not being fully back where we are, but we will recover in 2021, also strongly supported by the huge public measures that are now implemented during 2020. We modeled on macro assumptions which were below the latest IMF forecasts, but included a piece of conservatism in the form of expert-based industry sensitivities and also rating migrations that we experienced during the last crisis. We also used expert judgment to estimate the supportive measures of the various governments. And based on these assumptions, and I want to stress it again because it's very important, very much expert based, our currently most probable risk cost estimate range is between 50 to 80 basis points in 2020.
The simulation will, of course, be refined over the next months, and we will update it, of course, regularly for new information.
With regards to RWA development, we expect credit risk RWA in 2020 to grow in an area of mid-single digits, mainly due to rating migrations and still some asset growth. We will see some counterbalancing effects from the lower risk weights of the state guaranteed loans. However, the overall trend we see rising credit risk RWA mainly due to the mentioned rating migrations.
Now to asset quality. We expect asset quality to deteriorate in both years, 2020 and 2021 after most moratoria expected then to have ended. Our very low NPL ratio is more than the solid -- is more than solid NPL coverage, as I already mentioned before will help us at that time.
On the next slide, Slide 13, you can see the breakdown of our total gross exposure of EUR 280 billion, and on the right-hand side, some selected key industries. As I already mentioned before, in the corporate business, we are regularly streaming our portfolio according to heat maps on a single client basis. And this procedure, we are continuing on an ongoing basis.
Before I hand back to Bernd Spalt, let me say one sentence on tourism as this is a very important industry in Austria and in Croatia. Only 2 days ago, Austria has announced to allow the reopening of hotels by end of May, which was, at least to some, a positive surprise. And now it's extremely decisive if the borders will be opened and for Austria especially German tourists are extremely important. And also, Croatia is already negotiating with some countries in order to allow summer travel. So with this still cautious but gleams of hope for the tourism summer season in our region, I hand over to Bernd Spalt.
Thanks very much, Alexandra. Let me take you now through our usual presentation of Q1, starting on Page #15 of the presentation. If you look at Q-on-Q development of the net profit, only moderately falling because the negative impact on the trading and fair value line has been almost offset by other results and minorities. So we're coming out now with EUR 235 million net profit for the first quarter, which -- and we will discuss it in a minute, is very much dominated by strong NII, a very strong fee growth and also good cost containment.
If you go to Page #16, and I will be quicker on the individual slides. What you see is margins are holding up well in the first quarter. I do not expect this to continue over the next quarters, of course, as we will see interest rate cuts and as we will also see loan demand probably going down. So our net interest margins are sort of stable in the first quarter. But of course, we will see headwinds forward-looking. Cost income ratio, because of the trading and fair value result, negatively impacted to now almost 67%. Cost of risk, including all the elements, which Alexandra has mentioned, now at 15 bps in the first quarter and, of course, it will rise in future quarters as well. Banking levels show the impact of the new Slovak banking tax already in the first quarter. They do not show the newly introduced onetime banking tax in Hungary, which then can be sort of offset in the next years to come. So return on tangible equity for the first quarter of this year at 70 -- 7.3% compared to 6.1% in Q4 of 2019.
Page #17, group balance sheet performance, sort of were 7% up on total assets, which is very much fueled by a huge deposit inflow on the customer side. So we have very robust deposit inflow which then translates into a larger cash position on the asset side. So this is something which, despite the low interest rate level, deposits are streaming in without any sort of change in dynamics.
Page #18, key balance sheet data. You see loan-to-deposit ratio, of course, on these deposit inflows still falling. So we're now down to 88.4%. We have a slight increase in credit risk-weighted assets. We'll discuss that a little later when it comes to the composition of the loan growth, which is more corporate heavy this time, which means that the risk-weighted assets incrementally are also rising. NPL ratio, very favorable, coverage ratio at 80.9%, which is, I think, very, very robust and solid. And capital ratios, if you strip out the currency effect, are also strong. Liquidity is strong as always, and also leverage ratio is robust.
Page #20, I think we discussed that briefly in the beginning. We see, of course, a very positive entry point when it comes to macro picture in the region. And yes, of course, the region will be hit hard by this complete shutdown. So yes, we will see a recession, and we will see robust recession. The figures which we show here are our internal estimates. They are to -- in some of the countries, distinctly more positive than what the IMF has been disclosing, specifically, if you look at Austria, which is now here shown at minus 4.5%, IMF is more skeptical on that, will depend much on the holiday season this year and on travel restrictions being lifted or not. But this is our internal demand picture, which we see on the macro picture. And we, as Alexandra has said, form a central view that we will see a rebound in 2021.
Now I also do not expect that this will be one straight-line up. There we will probably be setbacks on the way to recovery and probably there will be responses if infection rates flare-up again. So there might be hurdles on the way. We believe that there will be rebound in 2021 and the structural features of the fee economies in terms of growth dynamics will not disappear after crisis. So I think this is the very strong view which we have here. And yes, of course, unemployment rates will go up and public finances will suffer because all these stimulus packages will entice a rise in the leverage ratios and probably also in the budget deficit ratios. None of our countries will show any kind of positive balance when it comes to budget figures.
Now on Page #21, more sort of directly on impacting our business. We have seen already significant policy rate cuts in the Czech Republic, also to some extent in Romania and Serbia. In the Czech Republic, there's still a lot of room to move on. Very hard to predict how deep it will go, but they have acted very swiftly when it comes to the interest rates, and they are now down to 1%, down from 2.25% a while ago. So clearly, the central banks in the local currencies will use their room to move when it comes to policy rates.
On Page #22, even if the currencies in CEE have not weakened as much as other emerging markets, currencies have weakened, they have weakened significantly in the Czech Republic and also in Hungary and this has a direct impact, of course, on our both balance sheet position and forward-looking also on our P&L position, right?
On Page #23, we'll be very fast. We see stable market shares in the first quarter all over the region. We see, again, a similar picture, which we discussed on the Capital Markets Day in November. The corporate market shares are rising, mostly on the SME side. Let's see sort of how the confidence level of our corporate customers will develop because it would be intuitive that the confidence of corporates investing will suffer at a time where visibility is low.
On the Page #25, performing loan growth, I think still it's a picture which is a continuation of trend which we showed over the last quarters. Performing loans continued to grow. We have a couple of segments where we have incredibly strong growth. Hungary is doing exceptionally well up until now. And sort of overall, we see a healthy picture on the loan growth side, probably something which will be more subdued for the next couple of quarters.
Deposits on Page #26 are already discussed. This is -- the buildup continues, and it continues at a pace which is quite surprising, I must say, and is something which is strengthening our liquidity situation and our self-funding business strategy generally.
On Page #27, NII, and I think this is a very good story. It's especially a very good story not only for Q1 this year but also for the time after this crisis. It shows that we're on the right track. It shows that we're in the right segments. It shows that we are in the right region. And this will return after this crisis. So we show a very positive NII. Income, stable margins, which will be under pressure forward-looking but positive. On the trading and fair value results, it has been a heavy weigh on our P&L for Q1. Clearly, very much dominated by markets being very volatile in the first quarter, starting with the oil price shock and then other markets also being affected. So we've got a very significant deterioration on this line. Stefan will talk about it a little more later on. This is something where we also would expect that we will see a recovery in the next sort of quarter to come.
On Page #29, cost, operating expense going down quarter-on-quarter and even sort of year-on-year. So I think a positive development. Clearly, there are some windfall profits. There are some very sort of low-hanging fruit like not traveling anymore, consultancy expenses going down, marketing expense is not very expressed. So I think this is something which is not anything to brag about or to be too proud about, but certainly going to the right direction, also forward looking. We will have a very close look and a very close management of our operating expenses at a time when revenue streams are significantly attacked.
Now Page #30, I will jump all across, the cost/income ratio is nothing else but a reflection and a function of what I've been talking about. Also 31 (sic) [ #31 ], risk costs has been clearly described by Alexandra and analyzed. This is something where we will see more to come. And it's anybody's guess sort of how deep this crisis goes, how long it goes and what the shape of recovery is, but this is reflecting what we see now, and the outlook is reflecting what we see for the recovery shape.
We'll not going to nonperforming loans and NPL ratio, and nonperforming loan coverage ratio because they show a picture which is a picture of the past and a position of strength, which will suffer over the next couple of quarters, I think suffer from a very, very luxury level.
As a result, sort of stable, even though sort of the Slovak banking tax has doubled, I think that we also expect that this year we will not see a recurrence of the features which we saw last year. There's one element which we certainly need to flag here. That is also something which we talk about in the end. Of course, if the economic situation deteriorates further, there will be also sort of a question of goodwills which are still on our balance sheet. So we will do our impairment testing very regularly as we go through this year.
On the trading and fair value result, as I have been saying, negative in the first quarter very much driven by valuation. A significant part of it goes to the savings banks. This is something which, again, our CFO will talk about, and we expect that to slightly recover over the next couple of quarters.
With that, I will sort of conclude my statements on the P&L, and I would hand over to Stefan, our CFO, to discuss the balance sheet.
Thank you very much. Let me pick up on your last point right away and comment very briefly on the trading/fair value result. As you can see from all our detailed P&L statements, there was a drop of EUR 120 million in some of those lines year-to-date. The composition of this is 1/3 really coming from trading operations. The other 2/3 from valuation effects, mainly driven from fixed income portfolios in the savings banks and in some financial institutions. There was some counter effects into it from FX hedging on the balance sheet. But overall, of course, there was a strong impact on Q1. As Bernd Spalt already mentioned, we will see a significant recovery on that in the -- at least for the time being in the second quarter with the financial markets recovering.
Now let me come to the last chapter of the presentation, and I will give you a little bit more insight on some balance sheet developments, our liquidity and funding situation and finally, very importantly, our capital position.
When you follow me to Page 37, you see an overall reflection and overall overview of what has been said already about the significant further deposit inflows that we saw in the first quarter and, of course, in particular, in March, when the crisis unfolded. We have been attracting a significant inflow from customer deposits, both on retail, but in particular, also on corporate side, and this has been translating into a significantly increasing cash position for time being. Obviously, there was also quite good growth of the loan book still in Q1. Don't misunderstand the slightly lower number here. This is, of course, a euro number. And as we will see on Page 38, due to the massive impact of the currency depreciation, in particular, in euro Czech and also in euro Hungarian Forint, the significant loan growth in local currency even translated in the case of Czech Republic in a drop in euro terms. Nonetheless, one can say that the growth of our core business across all the segments and across the region has been very strong in the first quarter. Obviously, it remains to be seen how this develops further now in the crisis situation.
On Page 39, the most interesting part is the significantly increased liquidity buffer, which is, of course, a function of what I've been talking about just before. And the liquidity buffer is calculated as a percentage of -- as defined as unencumbered collateral plus cash. And obviously, this position has been further increased. We have been doing extremely well throughout the quarter in the first tumbling markets in all our liquidity management, nothing that will surprise you. The increasing share of overnight deposits with significantly longer behavioral maturity, of course, should also provide cost-effective funding source going forward. This is something we should also be counting on. That's the only positive effect, of course, also of the rate cuts in countries like Czech Republic, and we will see how this will be reflected in our NII over time.
When you look at Page 41, then you see that further, we have been reducing over time the wholesale funding reliance. Nothing spectacular happening in Q1 as such. What I would like to mention, though and, on Page 42, you see that -- and what we talked about already in our year 2019 presentation, end of February, that we could execute in January 2 excellent transactions, first, the covered bond and afterwards the AT1 transaction, which I think one can say has been a fantastic timing, especially looked at in hindsight. Basically, we are sticking to our original funding plan. We might technically adjust them and optimize since we are in a very comfortable position due to the transactions of January. What is worth to mention is that the early terminated LTRO II funding, which was terminated in December 2019, has now been rolled into the more attractive TLTRO III in the same amount in the course of March.
We have informed you -- and this brings me to Page 43. We informed you last week that in the meanwhile, binding MREL target for the Austrian resolution group has arrived before and we had already received the ones for Slovak Republic and Romania. The total MREL based on end of 2017 balance sheet -- it's always worth to mention, regulators sometimes are not reacting as fast, but these times they do, has been set to 14.9% of total liabilities and owned funds. This was exactly matching our expectations.
No change to our most recent presentation on Page 44. Therefore, I would like to focus on Page 45, our capital position. The change in common equity Tier 1 capital in the first quarter of slight -- of a drop of around about EUR 500 million was purely driven by 2 major positions. The one is the FX translation as already mentioned by Bernd Spalt and the second one is, of course, the fact that we are not including the Q1 2020 profit, therefore, we are very comfortable with the 13.1% common equity Tier 1 ratio at this point in time. Worth to mention, of course, is that on the Tier 1 ratio itself, the AT1 issuance of -- in the first quarter has been moving up, both the absolute number and the ratio. And I'm sure you have been following the fact that we called our Tier 2 dollar issuance late in March. And this, of course, is changing the Tier 2 volume.
Our medium-term targets, and this is very important to mention at this point and in this face of the crisis, remains unchanged at 13.5%. Short-term usage of increased management buffer might happen. And this concretely translates into our temporary minimum target of well above 12%, something that I'm sure is being discussed among investors and analysts intensively.
And with this, I hand back to Bernd Spalt for the outlook.
Thanks very much, Stefan. Let me take you to Slide #47 of the presentation, and I will not cover the left part of it, the Q1 takeaways because they have been amply discussed. Going into the 2020 outlook, I think it is very clear that the combination of a contracting economic activity with very sizable government stimulus, and the speed at which these restrictions, which have been put into place are being lifted, is then sort of ultimately determining the size of the damage to our P&L for this year. And in this context, I think reaction has been very swift, stimulus is large and we're seeing already a first sign of releasing the pressure. Now, of course, the holiday season this year in countries like Austria, which are very much dependent on holiday, sort of -- and tourism, will sort of also size the damage which we see. And we are confident, as we said, that we see in 2021, a kind of new normalization of economic activity. Now, of course, for this year, we'll see lower organic growth. We will see both on the loan volume side as well as on the fee side clearly impacts because confidence in sort of taking up investment loans will probably suffer. At the same time, there is a balancing move of the moratoria because a significant part of the balance sheet will be covered and freezed by moratoria. This we keep up interest generating pools of loans. But still sort of the new loans will probably suffer forward-looking. Fee income reflecting lower economic activity probably also being hit. And credit risk costs, we've debated. And sort of what we have -- what Alexandra has shown is reflecting a recovery in 2021 in a very robust way.
Now CET1 ratio will decline somewhat, not only because of currency effects, but also because of risk-weighted assets inflation as probably also we will see downward migrations in our loan portfolio. Still, what Stefan has said, 13.5% long-term is our unchanged target in terms of common equity Tier 1. So net result will be meaningfully lower this year than last year. Still, we believe that the business model works incredibly well. We are here, and I think this is also very important to see a very important player in this situation between the state and the economy where we are playing a transmission role to transport the sort of public and fiscal stimuluses into the economy. So I think we are not only critically in this crisis time -- in this firefighting time but also in the time when recovery will shape its form. So I think this is something which, again, in positioning ourselves in also making it clear that we are contrary to, I don't know, fintechs or online banks or new banks, are playing a very significant role in the society and the economy, and this will help us long term. So yes, a tough time, which we need to address, but this is something which we address from a position of strength, and there will be an end to this health crisis, there will be a recovery out of this.
With that, I would like to conclude our presentation of Q1 and would like to hand back for questions and answers. Thank you very much.
[Operator Instructions] We will take our first question from Sam Goodacre from JPMorgan.
Hope you're all keeping safe. I wanted to delve a little bit more into risk costs. So perhaps this would be a question for Alexandra. If we refer to Slide 31, Alexandra, is it fair to say that the COVID-related provisioning on specific files this quarter really were limited to Austria and the Czech Republic? And are there any other sort of notable moves you would point out from this slide? It does, for example, seem that there was a 50% increase in provisioning in Croatia, for example? And then related to risk costs and your guidance of between 50 and 80 basis points, could you give us some color on what would be the sort of purely coming from the macro model and inputs that you're putting through rather than an actual observed deterioration or expected deterioration in NPLs and migration through staging, for example?
So good. I didn't understand everything 100% properly. So if I miss something, please just tell me. So the EUR 61 million that you were referring to in Q1, ECL, I understood that you asked if this was related to Austria and Czech Republic, which is not the case. So this is -- major part of it was also booked in holding. Also our London branch was a part aviation, the aircraft portfolio. We switched to stage 2. So answer, no, this is not only Austria and Czech Republic. Second Croatia, yes, of course, Croatia is one of the countries where we expect, let's say, the highest deviation from the op budget, which is clear, given the strong role that tourism plays for Croatia. Overall, the government support measures in Croatia are strong. We are also discussing and we would even rely on extension and increase of these government support measures, especially for tourism. And as already indicated, and this is really important for the country, is that they are, at least as it seems today on quite a good track of allowing at least some parts of summer tourism. On the 50% to 80% risk cost guidance, so -- pardon me. Basis points. Yes, yes, 50 to 80 basis points risk cost guidance, the overall impact, let's start with this one, the overall impact is a mixture of FLI impact stage 2. So those 2 would be the largest portion of the overall estimated impact but also some portion of stage 3 transfer. While stage 3 not so big, I think it's quite obvious as there's first the strong state support also with state guarantees, which we expect would push defaults to 2021 and -- which doesn't mean that we do not expect any defaults in this year. As I said, in Q1, we haven't seen any -- really, it's -- we were -- also in April it's almost nothing, but this does not mean that we will not see defaults if also the state guarantees and these bridge loans are not available to -- especially in Austria and also Czech Republic to companies which do not show a sound financial profile before the COVID-19 crisis. One more question...
Macro, I think.
What the macro is behind that.
Exactly Bernd. Yes. Okay. And maybe to repeat on the macro assumptions. So as I said, our underlying macro assumptions when we did this simulation was a little bit better than the current IMF outlook, but we put on some additional conservative expert judgments. So overall, pretty much in line with the current IMF figures.
Okay. And then just finally from me. Obviously, very early to tell, but I think you're potentially alluding to a recovery in risk costs next year. Certainly, given you would be expecting a V-shaped recovery in the macro post-peak COVID. But then at the same time, you have just spoken about some defaults from the timing issue not happening until next year. So have you got sort of a thought initially on what we might be seeing next year in terms of risk costs? And ultimately, when do you think we could be back to normalized levels?
I think it's fair to say that for 2021, we will expect elevated risk cost as well. But honestly, given this high degree of uncertainties, I can't give an estimate for 2021. What I can say is that, of course, this is -- of course, we will put whatever is needed, and we will also front-load to 2020 as much risk costs as justifiable based on the macro and portfolio development, which needs to be seen.
Okay. So -- and there was just one final one, which is, did you say earlier, Alexandra, that we will see the first sort of real impact of the increased risk costs in the second quarter already? Or have you implied that it will be evenly split between quarters going forward?
So we are expecting, as I said, in Q2, quite a big hit as we are doing this FLI update, which will have a significant impact. And I also would expect that for Q2, we would see the first defaults that I was indicating those companies that have been weak before and will not get the state support. But I do not expect it to too big as we have a very good overall portfolio quality.
We will now take our next question from Anna Marshall from Goldman Sachs.
My first question is continuing on asset quality. Could you please indicate any scenarios in terms of your cost of risk guidance for 2020 for different shapes of recovery, let's say, if we don't have a V-shaped recovery, for example? And also, what assumptions did you make in this guidance for support measures? And then, if there were no support measures, what would have been the cost of risk guidance? So this was the first question.
And my second question is on costs. Could you please provide more color on what kind of measures can be taken to offset the revenue pressures?
Anna, can you repeat the last question as I didn't understand. Anna, can you please, the last question, I couldn't hear it properly anymore.
The cost of risk related question or costs?
It was support measures from the government. This was what I understood, and then you had one more.
After that, the second question was on costs.
On costs, okay. That is precise.
Basically, the question on costs was, if you could please provide more color on what measures can be taken to offset revenue pressures?
So on your question, if we -- of course, we are thinking in various scenarios and you can see also in the range of 50 to 80 bps that we are here working with various sensitivities on how fast the recovery would go. But maybe just to give you a qualitative -- to give you some or more insight into our qualitative assessment what we -- what do we mean by these 6 months. So, of course, we are expecting an increased period of necessary containment efforts. So what the current expectation is that they really continue until a vaccine or a really good medicine would be available. We are also accounting with it at least for some period of time collapse of the private consumption. We expect that some containment measures might get lifted in April, like construction, residential shops, what we already have seen. Yes, so this, in our region, we can already see. We're expecting that consumption will be impaired for longer also due to psychological factors. That's why it's so important now to see, and Austria is one of the frontrunners in the country -- from the countries what this really means for private consumption. And this, of course, is massive stimulus program. For international travel and tourism, we'd expect that this will be impaired until 2021. So even going into 2021 to avoid the importing of new infection cases and we also would not rule out some locally restricted additional containment measures. As I said, there's a lot of expert judgment in, and the various scenarios or different assumptions are mirrored in the range of 50 to 80 bps.
Let me take the cost question. I would structure my answer to that in 3 parts. But before, I would say that as we have discussed in recent quarters, any kind of short-term move in the cost-income ratio has always been -- my conviction is mainly driven by the high risk we see and that we will see that quickly and that dramatically is, of course, was not on anybody's agenda globally, I would say. But of course, this is clear to everyone, I guess, we will not be able to make up for a crisis drop of -- in revenues by cost measures. However, it comes without saying that costs are very much on top of our mind.
And now coming to the 3, I would say, elements to it, that I personally see and will be the way out, although we will structure our agenda on that. First one, of course, is we will see a significant FX effect. In the first quarter, this was not yet so strong, but we see it in the forecasts and the expectations of the countries. If certain currency payers remain at the levels that we see, the flip side of the reduced income in euro terms is, of course, also significantly reduced euro cost representation, but it is something which comes automatically and technically.
The second one is due to the significantly depressed activity also within the organization when it comes to usual spending, like traveling, like all kinds of activities and events and also consulting spending, I have to explicitly mention, we will see a drop on that side, maybe not one which we have been actively planning, but which will have some effect, obviously.
And the third aspect is, there is an element to it, as Bernd Spalt also mentioned in his presentation, already with the actions that we took in the course of the second half of the year 2019 and into 2020 is, of course, explicit measures that we take, meaning streamlining our mid to back-office activities, significantly pushing our digitization effort. And in that respect, I see a positive in the current crisis situation because we saw that certain things which were regarded as being impossible or at least only to be implemented over a very long period of time, all of a sudden, worked pretty well in a very short period of time under pressure. This should also significantly enlarge our ability to cut certain costs, and we will keep you informed over time on particular measures. So in a nutshell, all together, we definitely see a lower cost than you originally expected in 2020. How precisely this will turn out, we will investigate, and we'll be more precise on that going forward.
I'd like to add to your questions. So one, in our expert-based simulation calculation, we did not assume that all the government supports will be fully affected. So we did an expert judgment, and we did, let's say, some haircuts on this topic. So this we accounted for. And the second on the portfolio, it is too early to say in which portfolios and industries, we see a deterioration. But what I can tell you is that we even now -- so even end of April, in the new bookings that we are seeing, we are still in line which -- with our average existing portfolio quality.
Our next question comes from Gabor Kemeny from Autonomous Research.
My first question is on the loan moratoriums. Can you give us a sense of how much consumer loans, how much consumer debt do you have under the loan payment holidays? I understand this might be the most risky part of these exposures and one of your competitors already set aside provisions for the consumer debt under moratorium. Would you expect to create provisions for the moratoriums in the second quarter or shall we expect this only at the later stages? And do you have any early sense of client behavior on the unsecured consumer debt here?
And my other question is a follow-up on the macro scenarios. Can you give us a rough sense of what probabilities do you assume to more negative scenarios than the base case V-shaped recovery you assume?
And the final question would be on the loan guarantees. Can you give us an indication, what sort of demand have you seen so far? And where do we stand on setting up the guarantees in your markets?
Let me start with the last question. As of today, we do not see yet a huge amount of the guarantee bridge loans. So we have quite something in the pipeline. But as -- in the individual states and governments, it was different. There was a lot of -- of course, it took time to finally agree on all the technical details. So the amount of bridge loans that are guaranteed are still not very high, but we expect that this now will increase quite strongly, as now at least in some major countries, the details are clear. What also needs to be said to this, and this is a positive news, is that with the current guarantee programs in place, this is not the end. So there are still works and discussions on further programs. For example, in Czech Republic, we have the COVID program. I think, we will also find there will be -- at least this is our expectation and the status of current information, another program also for corporate clients. And also in Croatia, an extension to tourism is expected.
On consumer loans, we are not a consumer loan heavy bank. So our retail portfolio mainly consists of mortgage loans, also cards play a super, super minor role. As you can see on Page 9, on the details on the moratoria, the amount of retail clients that have so far asked for the moratorium is very low. The only exception which is logical, are the countries with the opt-out. And even there in Hungary, we expect -- so at least this is what we get from the clients that we are strongly contacting, that approximately 40% of the retail clients, maybe even more, may opt out and continue paying. And for the other countries, you see it's in the very low single-digit number. And as -- it doesn't take long to get into this moratorium. So even if it's opt-in, it's quite simple, and we have also supported it. We are here charged, for example, in our bank. So I think it's a fair assumption. Of course, this will not be the end. Depending on how the crisis evolves, of course, we expect it goes up. But I think still it's a fair assumption that it will stay, yes, in some lower ranges. But again, consumer unsecured is not our topic. But of course, we will account for this also in the Q2 and also when we do the FLI update. This will have some impact.
And just on the probabilities of the scenario -- or the more negative scenarios?
Again, I can only repeat what I also said to Anna. Some deviations is mirrored in the range of 50 to 80, and we will have a clearer picture now in Q2. But we are aware that there is a downside scenario, of course.
Our next question comes from the line of Andrea Vercellone from Exane.
3 questions again on cost of risk and 1 on NII. So on asset quality, following up on the consumer credit topic, on Page 13, could you split out the 28% household into what is mortgages and what is consumer credit?
Second, on the moratoria, in some of the countries, they are rather low, including Austria, just a few months, 3 months, which is not very much. Do you individually, as a bank, plan to extend this period? Or once it comes off -- legally comes off and if the client can't pay, well, you try to recover the debt.
Third, on cost of risk, you mentioned -- your guidance says that you will try to upfront as much as possible in terms of provisions to this year. However, you also state, and that's also my view that Stage 3 loans are a 2021 topic, not really a 2020 topic. And obviously, provisions on Stage 3 are a multiple too. So my question relates actually on the Stage 2. Historically, you and all banks in Europe have had a coverage of these assets of about 5%, 6%, 7%, in that range. How high can this actually go, i.e., that's the only way I see in terms of upfronting as much as possible future provisions? So if you could comment on that.
And the final question on NII. If you can just give us an idea of how much NII you expect to lose in Czech Republic and Romania as a consequence of the rate cuts?
Okay. So on consumer loans -- so you were asking about the share of consumer loans in the retail portfolio or -- so it's approximately roughly EUR 10 billion, which is in our books. So it's quite well spread. The tenders are as according to consumer loans rather low. And we, of course, as I said, I'm repeating, we will figure it into our provisioning, but this is not a big portion. It's roughly 15% of the total retail exposure that we have on our books.
Moratoria to extend. So what I would not rule out -- and so first that the government moratoria are extended; second, that in case the legal moratorium is not extended, there might be an industry-wide moratorium, if we see it meaningful and supporting the overall recovery. Individual moratoria would be, let's say, the last option, the last option only. So this is nothing that we are now intending. But of course, there will be also individual -- single individual moratoria and those we will treat, of course, according to the existing rules that are in place. The exceptions are only granted for industry-wide individual moratoria.
On Stage 3, yes, of course, you're right, that Stage 3 provisions from demand are much higher. But 2 things to say on this. First, as a second, I wouldn't really underestimate that the retail clients that will not get the support and will be hit now first, you will see already this year and that the more solid portfolio will, of course, get the government grants and will also sustain normally in the future. And some of the defaults or parts of the defaulted loans that we will see in 2021 will then have also the state guarantees, which will also reduce the necessity of provisioning. But yes, of course, you're right this should be rather a topic of 2021.
But on Stage 2, on the specific question, realistically, can you continue to provide somewhere around 5%? I know it's an average of everything. Or could you actually have a lifetime loss on these loans which justifies much higher coverage than historically has been the case?
So provisions that you said is 4% to 5%. And the more we put in the higher the provision will be. But to say we go up from 5% to something for special portfolios, this is not what we are -- which we see in the current framework.
Okay. Addressing the NII question. And if I got your question, right, Andrea, this is about mainly addressing the NII-related impact of rate cuts and here, of course, as the prime question, Czech Republic, but you also mentioned Romania. I'll give you a number straight away which is completely in line with our communication that we've always had with regards to sensitivity of rates in Czech Republic. This would translate into EUR 80 million to EUR 90 million roughly. However, I need to add, of course, that there are a lot of parameters, as you can, of course, also imagine which are playing into that. Not only I have to flag that the translation into our European euro will be heavily influenced positively or negatively at the end by the FX rate. But also we will have a significant impact on the -- of shape of the curve, especially when it comes to the parts of the investment book playing into the NII. And last but not least, as I mentioned in the presentation already, we will certainly manage our deposit inflow as good as possible. So what we are saying here is the direct impact, and this is also reflected in the assumptions of our colleagues from the countries, is exactly as we have been communicating always. However, going forward, in the course of the year, many, many aspects, not the least, also are the impact of moratoria and, let's say, the structure of the loan book will play into that, and this, we have to bear in mind. Thank you.
We will now move to our next question from Johannes Thormann from HSBC.
2 follow-ups on risk cost, please, and 1 on deposits as well. First of all, just to get some numbers to understand the granular buildup of your risk cost. Could you provide the Stage 1, 2 and 3 provisions in the first quarter, just the pure numbers?
Secondly, how big is your aircraft portfolio in London? And how diversified is your EUR 300 million airline exposure as you might be adding, according to the standard, to another airline in Austria in the next days?
And the last thing is the deposit inflow as it was quite drastically, and I know you are in a far more comfortable situation than the German banks, for example, but we see far more negative deposit pricing in the German market. Can you revert to this? Or do you want to stick to your savings bank philosophy approach?
Johannes, Bernd Spalt speaking here. Let me take one of your questions first, head on, on this potential sort of involvement on the Austrian airlines which you aptly mentioned. Let me just affirm this without going into any kind of details, if we play any role there, this will be very much supported by state guarantees and this will not change our credit risk profile at all. So we will be very diligent when dealing with this. And there is still a political debate which is not closed, whether or not the state wants to support. So I think this is something where generally our exposure to aircraft, and Alexandra will speak about this, is very limited and we do not intend to single-handedly rescue national carriers who are owned anyway by German owners.
And on this EUR 300 million that I mentioned on Slide 13, this is exactly the London book, which we have moved already to Stage 2. To your question how the provision stock is divided between Stages 1, 2 and 3? It's roughly EUR 200 million Stage 1, EUR 800 million Stage 2 and EUR 2.2 billion Stage 3 of the stock.
Deposit repricing question. Obviously, one has to distinguish between Euroland and non-Euroland. When I was referring to Czech Republic on the back of the rate hikes there, our management locally had decided to move customer deposits upwards. That, of course, has been revised and reversed in the meanwhile. So, of course, in countries where we had, before the crisis at least, a quite different short and interest rate environment, the answer is clearly, yes, where we can reprice to the new levels. When it comes to Euroland, and I would assume you referred to latest announcements of what other banks regarding reducing the -- for example, the volume up from which there will be negative rates, so to say, accounted for with clients. I do not see going forward a big change in behavior here in Austria or Slovakia Republic at all. When it comes to private individuals, no change of our statements from the past is to be expected. When it comes to bigger volumes on the corporate or institutional side, we have been charging fees for that already in the last quarters. And maybe a last element to that, of course, also the increasing is maybe the wrong word, but the less negative Euribor levels that we have seen in the last 1.5 months on the back of the crisis development, plays positively into our asset side. So all in all, deposit repricing in some countries, yes, not for private individuals, realistically speaking, in the euro countries.
We will now take our next question from Riccardo Rovere from Mediobanca.
I have 3 questions, if I may. The first one is for Alexandra to get back 1 second on your -- on credit costs. If I understand correctly all the statements that you have given so far, with regard to your V-shape recovery, and then time will tell whether it's going to be V-shape, the U-shape, L-shape, no one knows, your thinking is risk cost is 50, 80 basis points depending on the severity of the downturn. Then in 2021, you expect more defaults while you expect the risk costs to stay elevated. But given that loan state guarantees should somehow kick in is a fair assessment or a fair statement that you think that in your V-shape risk cost in 2021 elevated but lower than the guidance you have provided for 2020 in your V-shaped assumption. Is that a fair assessment? This is my first question.
The second question I have is on the guaranteed loans. Again, we expect these to be used more broadly than it is today. How should we think about the margins on this new origination?
And then I have maybe a final question for Bernd Spalt. If I think about the Capital Markets Day in November, is there anything that we could take out of that event given current conditions?
And then maybe just a very final one, if you ever had a thought on the possible impact on capital from proposals on SME relief and SME factors or these kind of measures that might eventually reduce some capital if you have had any thoughts about that?
Okay. Then I will take the question on the SME supporting factor. So as you all are following the discussion currently, so in case -- so we would be very appreciating the fact in case this SME supporting factor would come into force earlier than planned because for us, it would have roughly positive impact on other revenue of roughly EUR 3.5 billion.
Then I would continue with my part. So to be very open, Riccardo, no, I cannot confirm that it will be lower than in 2020. It's really simply too early now as we are in such an early stage of the crisis to give any outlook for 2021. And -- but the rest, you have understood correctly with this -- what you have outlined. Yes, I can just confirm except the second one. Yes, elevated means higher than our usual normalized risk costs that we communicated in earlier -- on earlier occasions. Then maybe Bernd takes on...
I'll take the one question on sort of margins on state guaranteed schemes. This is something which is very differentiated. The higher the guarantee amount goes the sort of the less margins we're sort of able to pocket in. If you look into the 100% state guaranteed loans in Austria, generally for first 2 years, margin is basically -- or the interest rate which you can charge is basically 0. So we made some disclosure on our pages. You can generally assume 2 things on the state guaranteed loans. We already have a confirmation by our financial market authority that these states' schemes allowed for a 0 risk weight treatment and allowed for a 0 provisioning treatment, which I think is important in terms of the incremental profitability. But yes, of course, the more the guarantees are the more restrictions on sort of profit margins are being put in place.
The second more strategic question, if I get it right, you're asking what remains from the Capital Markets Day in terms of strategic direction, and my simple answer is everything. Everything which we put out there, which we want to do when it comes to growth, efficiency and digital transformation stays in place. Let me start with digital transformation for a minute. Microsoft has said yesterday that a 2-year digital transformation progress has been now achieved over the last 2 months or so. So what we see on the customer side, both on their consumption behavior as well as on their changes in business models, we see radically a very fast transformation, which is, one, an opportunity for us. And we have seen in Austria and our George sort of channel, massive new customer onboarding through George in this crisis time. We've never had as many customers coming in, new customers, as in the last couple of weeks because of this crisis through digital. It's also, of course, an incentive for us to speed up our own digital transformation. So digital transformation and strategic target remains in place.
Secondly, on growth, we have been building a lot on fee income as we have been broadly discussing on the Capital Markets Day. And of course, after crisis, the desire and the customer interest in assets under management and also in protection when it comes to bancassurance product will rise. And so this direction is still all the same. It has worked really well over the last couple of months until everything was locked down, but this is not going away. This comes back as the economy picks up again.
And lastly, as Stefan has very, very aptly said, of course, in this time, the concentration of cost will not reduce but intensify. So what remains from the Capital Markets Day is what we have said there. The shaping where we can pick up work is maybe somewhat different, but the topics are very valid.
We will now take our next question from Stefan Maxian from RCB.
3 questions remaining from my side. One, with regard to your capital ratios. You specified the OCI effect and the FX effect from late 3Q. Can you give us a sense of how much of these effects have already reversed within the last weeks right now? And that would be the first question.
The second, on fee and commission, I mean, obviously, fee and commission helped up pretty well in the first quarter, but also, obviously, we will see an impact now going forward. Your competitor in Austria said that it could be up to minus 15% in fee and commission for this year. Can you give us any flavor what your expectation would be in that respect?
And finally, just a question to get it right. You've said that you see headwinds from Czech and Romanian rate cuts of EUR 80 million to EUR 90 million, is that correct, but that was only related to the Czech Republic?
Yes. So let me start with the third one. This is correct, this is a combination of the 2. And also worth to mention that, of course, this is reflecting only and exclusively the negative impact of the rate cuts directly. There are mitigating factors that I've mentioned. But of course, there are also some other trades like we saw in Hungary, which was already booked in Q1, the further impact of the harsh moratorium there. In Romania, it's not yet completely clear. Therefore, no booking in Q1, but there might be some impact, not in the dimension of Hungary, but there might be some impact from the execution of the moratorium there. So there are a lot of factors in that, you got the answer exactly right that this was the number for Czech and Romania rate cut.
When it comes to fee and commission income, no, we definitely do not expect a harsh drop in that dimension. By far not, we, of course, see, as Bernd Spalt just described, we see a kind of setback, in particular when it comes to our efforts on the asset management side logically because simply the volume that the fee generation that you're referring to is slightly lower due to the setback in the market. However, I can't give you a percentage number here. We will not grow the fee income probably throughout 2020, but we are way, way, way off the expectations that you were referring to.
And on capital ratios, no, there hasn't been any substantial reversal yet because, as I said, the major impact came from FX. And if you look at where Euro Czech is at the moment, it's CZK 27.10 or something in this area last time I looked at. So there is no major reversal. What has been improving substantially in April, as has been mentioned by us throughout the presentation, is the fair value and trading P&L line. But as we all know that throughout the quarter, this can be volatile going forward, and it remains to be seen how this develops.
[Operator Instructions] We will now take our next question, the follow-up question from Riccardo Rovere from Mediobanca.
Just a kind of curiosity over this, please. A few days ago, you stated that you comply with the MREL requirement under the multiple point of entry. Would you be -- both on the MREL and the subordination requirement, would you be able to tell us whether you are well above the minimum amount, the minimum that you could need so that you might eventually not issue the whole amount of debt, long-term debt that is going to come to expiry over the next -- in 2020 or maybe '21, given also that you are topping taking care of it and given the super strong deposit increase that you've seen because from our liquidity standpoint, you probably don't need that amount of money, if it's not for a regulatory reason?
Thank you for the question. So first thing on the subordination, we feel, as we also mentioned in the presentation, we feel to be pretty comfortable there. When it comes to the overall volume, I think, to be honest, looking at my funding structure and so on, MREL is not the main driver. Of course, we looked at it very thoroughly, especially we looked at it also when it comes to the local specifics. But overall, when I look at the funding plan, it's the structure of our respective curves as well as our overall wholesale position that's driving us in there. Of course, it will be very important to watch very closely the further developments on the balance sheet. So it's not a stand-alone position. It has to fit in the overall business strategy of the bank. And there, it's, I think, more uncertain than before how the loan book will develop, how deposit inflow that we have been talking about will develop. So as for now, we don't see any reason to change our funding plan for 2020. However, there might be some adjustments going forward that we'll keep you track on. But again, I think the most important part, which is, of course, also tricky on the capital side subordination and so on, it's completely fine from our point of view.
We will now take our next question from Tobias Lukesch from Kepler Cheuvreux.
Quickly on the market share gains that you mentioned in the SME space predominantly, could you please remind us of your market share and maybe quickly comment on the reason why that increased? Was it on committed lines that were grown? Was it on new customers that were basically gained? As far as I understood you, the government guarantees, the volume is very, very low at this time and you don't want to comment on it. So I expect -- or would you expect to see here some market shifts, some relevant market shifts going forward, which are not detrimental to your credit quality. First question.
Second question, on Page 9. Thank you very much for that breakdown and these details of the various moratoria in the various countries. Do I understand the last comment correctly that the upfront loss in Q1 from Hungary of EUR 17.6 million is basically a time value of money loss that you are considering here?
And then, of course, the question, I mean, so far, we have seen that other countries followed other first move examples with regards to charging banks, wouldn't you think that there is a risk where you might have to create generic provisions that other states follow here, i.e., you cannot charge interest going forward, loan will be extended and you have the time value of money loss basically to recognize?
Thank you very much. Let me take the questions one by one, and I'm sure that maybe my colleagues want to also add to that. First on the market shares on SME, this is certainly not a reflection of the state schemes because only in Austria, they have already now really hit the ground in terms of entering into disbursements, while, in most of the other countries, they are being -- the schemes are being prepared, being set up, being organized, but they have not yet changed the material business setup specifically. We also have not yet seen, but it's a good indication what you say. What we have not yet seen is a massive drawdown of the existing lines, but I would expect that liquidity positions are getting tighter, the more the economy contracts, we will see this going forward. So has this been the effect with market share gains of a specific, how should I say, initiative which we have been driving? No. It has basically happened in a constellation where maybe there is something like a flight to known names and quality. But there is no strategic sort of reason behind that, and there is not a reflection yet on the state schemes.
Secondly, your insinuation on the quality of the Hungarian moratorium and the P&L impact. Yes, this is a sort of a reflection of a time value of money. What the scheme is basically saying, and we see this on a very smaller scale in Romania and also in Serbia, the issue is that our interest, which is not being paid now, yes, has to be paid later, but there is no interest on interest. So there's no capitalization on unpaid interest, which, of course, reduces the net present value of the loan, which is held on our books. So that's a very correct interpretation. And the last question was...
I think the question also was added by -- do you expect these to be copied by others? Maybe I'll step in here in on this. Making predictions on the behavior of political decision-makers is a very difficult task. Can one rule it out completely? No. What we can tell you from various intensive consultations with our local management is that we see in some countries a very clear understanding that harming the banks and the banking system might hit back very badly at the end of the day to the sovereign. So there is also some trends in the other direction. But I would never answer such a question by ruling out anything. That's very hard to do.
And just one more sort of example to that, which Stefan was saying, Mr. Casimiro of Slovak Republic of the Central Bank has specifically said there is no desire of anybody to turn this economic crisis into a banking crisis without any necessity. So I think major players do know, apart from any kind of propaganda, that now this is a situation where we're all in it together. And I think this gives us very strong confidence that we will not have a major rebut on that side. But of course, as Stefan said, you cannot rule out anything at all.
Absolutely, yes. Maybe a very last question, if I may, on the state guarantees. Is my assumption correct that for the 10% to 20% risk part that you take, that you have a kind of pro rata risk sharing, even so these loans have 0 RWA? And is there a pro rata risk sharing with all these schemes? Or are they kind of first loss pieces for banks at any states?
It's partly both.
We will now take our next question from Máté Nemes from UBS.
I have few questions left. The first one is on provisions, perhaps for Alexandra. I was just wondering if you could share the sensitivities of your simulation and the resulting cost-of-risk guidance that perhaps significantly higher GDP decline may be in the high single digits. You have mentioned that you were using your own assumptions which are below the IMF forecasts but accounted for perhaps the delta of the expert judgment. I'm just wondering how much of a higher GDP present in your forecast would be offset by this.
And then the second question is referring back to the European Commission banking package 2 days ago. So my question for either Alexandra or Stefan, I suppose. Can you comment on what the impact on the changed treatment of software intangibles could be for Erste? That could be helpful.
Well, I would start on macro. So if you understood correctly, we did not assume any double-digit slump, but single digits, so very close to the current IMF scenario. We will know more in Q2, so we can -- we will also shed more light on this scenario on downside scenario, but I think it's a fair assumption that in case it turns out over the time that the GDP slump would be even more harsh that also the subsidy and support programs would still be enhanced, and this will be then also reflected in our maybe the new guidance or in the new scenario.
Yes. On the question regarding software assets and so on, on capital, no change since the last time we commented on this. We take a conservative assumption there also based on long-term experience and how these things are actually translated at the end of the day into concrete regulation. We do not assume at this point in time that all kinds of self-developed software will automatically be a positive, so to say, reflected in our capital ratio. Should these, of course, be more flexible and should we have some contribution, there's only upside to it. So that's our current interpretation. As you can imagine, the last few weeks or months, this topic has been a little bit overshadowed by other developments. But we have an eye on it. And we treat it the way that once it is finalized, it can only be an upside to our assumptions.
And as there are no further questions in the queue, I would like to turn the call back to Mr. Bernd Spalt for any additional or closing remarks.
Thank you very much, operator. Thank you very much, ladies and gentlemen, for joining our Q1 results announcement and discussion for today. It has been very comprehensive. We will reconvene at our Q2, half year 1 results announcement for 2020 on July 31. Thank you very much, and stay safe, all of you. Thank you. Bye-bye.
Thank you. That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.