Erste Group Bank AG
VSE:EBS
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
35.74
53.48
|
| Price Target |
|
We'll email you a reminder when the closing price reaches EUR.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Erste Group Bank AG
You don't have any saved screeners yet
Good day, and welcome to the Erste Group Bank First Quarter 2022 Results Conference Call. Today's call is being recorded.
I'd like to turn the call over to Thomas. Please go ahead, sir.
Thank you, operator, and good morning from Vienna to everybody who is listening in. We follow our usual conference call routine. The call will be hosted by Bernd Spalt, Chief Executive Officer of Erste Group; Stefan Dorfler, Chief Financial Officer of Erste Group; and Alexandra Habeler-Drabek, Chief Risk Officer of Erste Group.
They will lead you through a brief presentation, highlighting the major achievements of the past quarter. After which, they are ready to take your questions. And with this, I would ask Bernd Spalt to take it away.
Thank you very much, Thomas. Good morning, ladies and gentlemen. Welcome to our Q1 preliminary results for 2022.
I will try to indicate the slide which I'm commenting upon. And we'll take you briefly over the next couple of slides to guide you through where we are.
On Page #4, setting the stage a little bit and setting the frame. We have been enjoying a clearly V-shaped recovery out of the corona crisis last year. That was pretty much clear for all of our countries. So there was strong growth momentum, which [ stayed here ] in Q2 -- Q1 2022.
Of course, we're now facing different and other challenges. But we're going into this situation with strong corporate balance sheets, which are capital strong, which are very good on liquidity and where the order books are more than full. So I think the starting point is qualified by an overflow dynamics over the last -- of the last year, which shows a strong recovery momentum.
Now this translates into very robust loan growth. Also, the non-euro-denominated economies have responded to the high inflation pressures with very sizable interest rate hikes, which, of course, takes us on the revenue side. So this is the starting point how we go into 2022. This then translates into an operating result which is very robust by 10% -- 10.4% up in Q1.
And if we look at just the interest growth and the net commission income growth, it shows a very, very strong development of the underlying business. Both loans as well as asset management business as well as [ other businesses ] have developed incredibly strong -- exceptionally strong in the first quarter.
Expenses, of course, were also on the rise. There was, however, as you've read, a one-off element, and this is the Sberbank [ exercise ], which we have booked now for EUR 68 million. And we expect, without going into much further details, which we expect to be a very temporary phenomenon and where we would expect over time that we will have full recovery and will be not suffer any permanent losses here. So I think if we strip out this one-off element of Sberbank, then our expense growth would not be doubled but would be 5.8% in this quarter.
What is also important to say is that credit risk environment seems very, very healthy. As I said, strong corporate balance sheet, almost no delinquencies so far. Employment level is still high, and we also see no trend reversal at that point in time.
However, if the second and third round effects of the geopolitics conflicts continue, one cannot rule out that this situation will change over time, but not this year. It's also important to say that we carry over a very robust amount of reserves in credit risk provisions, which we booked for the purposes of corona, which we have not -- to a large extent, not touched, and which we will be able to deploy once the forward-looking information for our credit portfolio changes.
So overall, great risk situation. Still very much under control. Still very benign. Ultra-low NPL ratio levels. Ultra-high protection level. So I think that's a sort of fortress, if I may say so, in terms of balance sheet composition.
Now when it comes to 2022 guidance, which we gave last time, there are 2 elements which I want to express. Of course, the new situation, the geopolitical conflict, in a context of very permanent and high inflation levels or very fragile delivery and supply chain and also sanctions, which so far has not been seen and tested in the past, will slow down growth. So we will have to adjust GDP expectations for this year.
We do not expect, and let me say this, a recession for this year. We expect, however, significantly lower GDP growth rates. At the same time, if you look at the combination of loan demand, interest rate hikes and also demand for asset management products, we believe that we can post this year at least high single-digit NII growth. And also fee growth will be very robust this year in the mid-single-digit area.
Let me come to the capital side, where we posted, on the surface, a low 13.7% common equity Tier 1 ratio. This is characterized by a couple of features. Of course, you know that we do not accrue any trading profits in the first quarter. That's point #1.
Point #2, which we have already talked about last time, we now take into account the new capital regime on the structural [indiscernible]. And also, of course, we have seen much higher credit growth than we would have expected.
And then the positive FX translation effects within the other comprehensive income is not taken into consideration in this quarter. So there are a couple of effects which we will sort of see differently in the next quarter, which bring our CET1 ratio down to 13.7%, but very much dominated also by credit growth, which was above our expectations.
Now let me take you to -- very quickly to the next 2 slides, Slide #5 to start with, on the impact of -- the direct impacts of the war in the Ukraine to our own business models. You do know that we don't have any subsidiaries. You do know that we don't have any kind of material direct exposure to the region. You do know that the trade relations between our region and Russia have been going down significantly over the last 10, 15 years. So there is no direct first round impact.
Of course, we do have customers who do entertain strong business relations with [ Croatia ]. We are screening them. We're getting more and more close to this portfolio. From what we see is that the credit risk implication, even if this gets a lot worse from here, will be very digestible.
Also banking exposures are insignificant -- not insignificant, but very manageable and no cause of concern, and Stefan already commented upon. We have 3 countries where we're going to see more an issue for us. This is Austria, the Czech Republic and Hungary. All of the other countries have been dealt with. And as I say, no matter how this resolution or sort of cleanup will take place, we don't expect major net losses over time here.
So this is the direct impact. If you look at Page #6, where we talk about the securities business and the trading business and the market-related business, again, here, we are, I think, very safe because our exposure here is insignificant and negligible, and we do not expect any material economic risk to the bank. So there's no change here.
Now let me get to Page #7 of the presentation, where -- which speaks more about the macro implications of this Ukraine war. But it's not only the Ukraine war, it's also a combination of the geopolitical conflicts with a very high inflation situation all over the region, together with originally already very fragile supply chains which are getting more stuck, and also sanction regime, where I think it would be naive to think that sanctions will only hit Russia.
Yes, of course, the Russian economy will be put into a coma, but the sanctions will also have a dampening effect to the Western economy, clearly, and it will sort of slow down growth. So this is very clear. So all our GP growth expectations which we have seen before this geopolitic conflict, has been adjusted. You see this on this page.
And there's one other element which I think is very important to watch and monitor, and which is hard to predict, is the dependency of Europe and our reach as well when it comes to supply of oil and gas. Energy supply is a strong dependency and a concentration risk of most of our countries, with the notable exception of Romania and Croatia, who managed to become relatively independent. But others, we need to find a playbook on how to get independent of Russian energy supplies. So I think that is a destabilizing factor, clearly, and also possibly a growth opportunity at the same time. I do think that once alternatives need to be found when it comes to dependence on Russia, the supplier of energy, then possibly investment opportunities will come up.
At the same time, what I already said, I do expect, and we have said throughout the last 12 months, I guess, we expect inflation to remain elevated. Energy prices are high, food prices are high. And commodity prices are, to say the least, volatile in the stated way. And of course, also specific currencies will see protracted volatility, to put it that way.
Let me guide you to Page #8, our group income statement performance when it comes to net profit reconciliation. I don't think that -- what is important to say and I want to guide you at the right part of the chart, which is a year-on-year net profit reconciliation, where you see that operating income has been very strong in the first quarter. both on the loan side and better than the [indiscernible] commission income side, even above our expectations.
And the operating expenses, as I've said, are qualified, not only by Sberbank but also by the product guarantee system contribution. So I think overall, the underlying business has been doing really, really well.
If you look at Page #9 of the presentation, the key income statement data, net interest margins are going up. For the first time for very many years, we see a reinvestment situation on the bond portfolio, which is a net positive, so our reinvestments are yielding better returns than the maturing bonds on our books. So that we have not seen for quite a while. And the loan demand, together with the interest rate hikes, takes us on the net interest income side quite significantly.
We've been talking about the cost at straight out the Sberbank side. Then I would say that also we offer from the positive jaws, which we always have strongly quite usable an underlying level. Regarding tangible equities, you see we promised double digits and we do see double-digit delivery here.
On the Page #10, where you look at the balance sheet performance, yes, very strong loan growth. But what surprised us and is continuing to surprise us is that we still see an unstopped inflow of customer deposits. I'm always very much tempted to say now this is the turning point how we see a changed dynamics in terms of more loan growth than deposit growth.
Seeing the deposit growth, really tangible just it is very, very robust. And of course, helps us as an incumbent player. [indiscernible] perceived as a very reliable and dependable player in the market.
Now on Page #11, this has something reflected in a record low loan-to-deposit ratio of 83%, which we so far have not seen. Credit risk, that I covered, 2.3%, again, record low NPL ratio, with a record high of almost 92% coverage ratio. I do believe the balance sheet is a fortress and is supporting our ability to support these local economies, even in very difficult times.
Now a couple of things still on the macro. Let me guide to Page #13, macro update. Yes, we do see lower economic growth in the situation of uncertainty for 2022. No, we do not see at that point in time a recession, but we see a significantly lower growth.
Let me speak to a couple of -- about a couple of countries in this context more specifically. If I look at Hungary, for example, the GDP growth forecast is now 4.8%. So -- and it's likely to sort of overshadow the upstream foreign demand and outweigh the consumption that was driven by safety retention. But I do think that we will see here begin a slow down below 4% next year. And on the monetary policy front, we expect that the key policy rate to gradually converge to 7% in the summer.
Romania should grow by almost 3% this year, hopefully, and provided that the geopolitical tension will subside, the economy should rebound significantly next year. International Bank of Romania is expected to bring rates to 4.5% this year, so an inflation still flares up significantly.
Croatia, for another country, ended 2021 on a very strong note. In Q4, delivered a quite a bit, 9.7% year-on-year growth. And the 2022 year outlook is impacted by the war, of course. So we expect a baseline forecast at 3.4% GDP growth.
And Austria has been doing really well in 2021 with 4.5%. And the first week of 2022 have been also still very, very strong. Winter season has been okay. And the precrisis weeks in the last couple of weeks have been showing the similar pattern as last year. So I think, yes, we see impact. We see a slowing down of the economy. But still, we believe our best bet is a mild and moderate growth in our region throughout this year.
Now Page #14, very quickly on the retail side of what is happening. The demand for loans is still strong, especially on the housing side, in all of our countries, despite the fact that interest rates are going up, despite the fact that inflation rates are going up. And despite the fact that we have not only countercyclical [indiscernible], but also macro potential measures in place like loan-to-value and [indiscernible] to income level. We still have seen so far a very strong demand for housing purposes.
We do expect that this will now be somewhat reduced. But we do not expect this to completely change in terms of trend reversal. So the demand is still very strong. It will sort of suffer somewhat, but it does not come also to negative territory.
Customer deposits, as I said, still continue to increase significantly. And the client demand for securities do remain higher. And if you look at the Page #15, operation. While Omicron has not hurt us when it comes to keeping our branches open and operated, it has not sort of stopped us from delivering our services, and George is now available to more than 8 million users in all of the 6 markets where the George is in our life. So I think that is something which is going on which is continuing to develop according to plan, continuing according to the location. And customer experience is very, very good in all of the countries.
On the corporate side, Page #16, we still have a very dynamic loan development, where customer loan growth demand -- loan demand has been strong in all of the segments, SME, the real estate side or the large corporate side. The order books, as I said, are really full on a lot of demand. Where there is a scarcity, there's, of course, scarcity of skilled labor force, and sometimes a scarcity of input, of material input. But generally, the demand situation is very strong.
Capital markets have been doing really well. And on the asset management side, just to conclude, that picture is, of course, we have seen in the first quarter the market volatility. We're also hitting asset management volume. Assets under management stood now at EUR 73.6 billion at the end of the third quarter, which slightly down from the high point.
So I think overall, I would say, a very robust region, very robust business model and of course, dynamics are now coming sort of down in a way that people are getting more cautious, where people are possibly postponing them again in the future investment decisions and the decision to take up housing loans. But overall, very robust business model, very robust region and high profitability.
With that, I would like to leap over to Stefan to go into the operating trends. Thank you.
Thank you very much. Good morning. Let me give you a couple of more details on the underlying operating trends, and let's start on Page 18, with the developments on the lending side.
The year-on-year loan growth has been strong and well balanced across all business segments, slightly more pronounced in the first quarter towards the corporate side. We expect a certain slowdown on the back of higher rates, inflation and, of course, the reduced macro outlook. However, I feel very confident with the mid-single-digit year-on-year loan growth outlook.
Let me please refer you also and please bear in mind that the year-on-year euro loan growth in the Czech Republic is quite well supported by the FX effect. Of course, also in the local currency, very strong growth. Still, please take into consideration that there is a certain share of FX effect in the euro numbers.
When it comes to the deposit development, you are aware of the exceptional inflows, year-on-year basis. The loan-to-deposit ratio has been relatively constant, however, has not been -- is not going further up as we originally expected in the V-shape recovery due to the new crisis and -- or very attractive name for many, many depositors.
So 83.3% is the number for the first quarter, pretty much the level of the first quarter in 2021 and usually, of course, a little bit down from the year-end number. Again, let me point to the fact that there is a significant FX effect in the area of 35% to 40% in the numbers, in particular, when you look at them in euro terms.
Very importantly, and of course, in the core of our focus in the developing 2022 business year, are the facts that are represented on Page 20, NII and NIM development. The way I would phrase this today is that we see stabilizing trends on the net interest margins across the businesses, not yet on an overall group level significantly going up. However, in those countries where we saw rate hikes, clearly an upward trend seems to be developing. And the euro -- in the euro countries or [ cabazi ] euro countries, we see a stabilization.
So why has the NIM then been going up in the first quarter? That's very much on the back of excellent group market contribution, the investment book that already was mentioned by the CEO, and significant large corporate take-ups in the first couple of weeks of the crisis, which already left some footprint in the March result. And that is something you should also expect further on throughout the year.
Meaning I see a couple of risks to the further NII development, a couple of maturities. On the risk side, naturally, I would name especially the funding costs, at a certain point in time, going slightly up since on the levels that we see now in some of our countries with regards to interest rate environment, it's a natural effect that deposit pricing is adjusted to a certain extent.
The other point, obviously, is that on the loan growth side, there is a certain question mark for the further development. Meaning, I see both risks and opportunities on their side, since there are, in the expectations, some reductions expected. In the same moment, we have seen loan developments holding up very strong so far.
It was already mentioned that the front book versus back book development has turned around, and this remains for the rest of the year for sure. We have been quite, I would say, successful in picking the right spots in the curve, and we expect a good contribution from the investment book. And last but not least, obviously, on the back of higher rates, we expect the net interest margin not only to stabilize, but potentially to step by step move slightly higher. Hence, in our base case scenario, we expect at least a high single-digit NII growth on a year-on-year basis.
So how about the other operating income components? And with that, we turn to Page 21. Fee income, as already mentioned by Bernd Spalt, has been holding up very well in the first quarter. And this has been across all the fee income types. Obviously, there are certain risks to further fee income development in 2022. Still, our guidance of mid-single-digit year-on-year growth, and please let's remember that 2021 has been a fantastic year on the fee development, is what we're guiding for as of today.
Given the very high volatility in recent weeks, I would call the net trading and fair value result of the first quarter a red zero. However, please take into account that there are 2 effects in there. On the one hand, the fair value portfolio is from the savings banks and the fair value accounting of the baby loan in Hungary, both round about EUR 30 million of impacts -- EUR 30 million of impact in the first quarter, which drew down significantly the first quarter fair value and trading result. What I want to say with that is the normal run rate of EUR 50 million to EUR 75 million per quarter on that income line is solidly okay, adjusted for this special effects from the 2 components.
When it comes to operating expenses, explained on Page 22, we have already heard all the elements around the deposit insurance contribution. And I want to reiterate that out of the EUR 132 million cost increase year-on-year for the first quarter, the lion's share -- really the lion's share of this increase came from the deposit insurance increase, concretely EUR 92 million. PerEx have been under strict control. However, of course, we expect a certain uplift to arrive throughout the year, as we have been discussing in calls already in the past.
All of that results, on Page 23, into an excellent EUR 801 million operating result for the first quarter, which represents a 10.4% year-on-year increase.
And with that, I hand over to Alexandra for the risk situation.
Thank you, Stefan. Good morning, ladies and gentlemen. I will be reasonably short, as the main points have already been pointed out by our CEO, Bernd Spalt.
Let me turn your attention to Page 24. So risk environment again and continuously was benign also in Q1. Our risk cost of 13 basis points came mainly from some single new defaults and downgrades in the corporate segment. The vast majority is not related neither to the COVID pandemic nor to the war in Ukraine.
Given the existing big uncertainty in the geopolitical and in the macro environment, we kept the full cushion of performing loan loss provisions, which, as you know, is EUR 630 million, equaling roughly 30 basis points of risk costs.
When you turn now to Page 25, also not very much to say, a record low NPL ratio, a record high coverage and also the share of our Stage 2, in line with our expectations, improved to 16.6%. Stage 2 coverage with more than 4% is strong.
So with this short risk part, I would hand back to our CFO, Stefan Dorfler.
Thank you, Alexandra. On the other results, Page 26, nothing spectacular other than if you allow me this comment, resolution fund contributions going up, going up, going up, and the same again.
In this quarter -- for the first quarter, we have booked so far 22 million more than in the year 2021. Why doesn't this really reflect in the absolute total number? That's for the reason that this has been offset by positive valuation effects, meaning concretely that, on the group level, our booking for the Hungarian -- when the option of our Hungarian minority shareholder option has this time going into our direction when it comes to the P&L effect.
So on Page 27, all that translates into a EUR 449 million net result. And summarizing, this is mainly driven by substantial higher -- substantially higher operating income, and also to mention, to a certain extent, on lower minority charges with the lower results on the savings bank's level this time.
Let me just mention that we have been applying a tax rate of 19% for the first quarter, so very much comparable to the full year 2021. This is, I would say, the usual approach for that part of the year. And the return on tangible equity has already been mentioned, 12.2% for the first quarter.
When it comes to wholesale funding and capital, please let's move directly to Page 30. And on Page 30, I want to inform you about what we have been doing so far on group level on the funding side.
In January, as already mentioned in the February call briefly, we have been executing 2x EUR 750 million syndicated covered bond transaction. In March, we have been executing a EUR 500 million 4-year senior preferred bond, contributing to the MREL plan. And then we also did a small nice transaction, as you will see on the next page in a minute, in Romania for the MREL plan.
With regards to the TRO, the total outstanding amount is EUR 21.2 billion. And as we have mentioned a couple of times, from a liquidity standpoint, we could redeem the full amount at any time, or let's say, at every redemption window. The concrete timing, though, of repayments will be decided depending on the relative profitability, and we will inform you on that on our respective quarterly calls.
When it comes to MREL under Page 31, we gave a more detailed update last time. So there is little else than the 2 transactions that I mentioned already on the group and the Romanian level this time to mention. Just take away, please, that we are in complete fulfillment of all SRB requirements and we will continue to execute our MREL plan according to market situation and, of course, in full compliance with all regulatory expectations.
The CET1 ratio waterfall on 32, I'd like to draw your attention to the onetime jump due to the consideration of structural FX, was already mentioned by Bernd Spalt, and we have been talking about that in the last call. In concrete terms, this has now had an impact of 30 basis points, exactly as we expected, also indicated earlier on.
The strong loan and consequently credit RWA growth and the negative part of the other comprehensive impact -- income developments let us arrive at the 13.7% CET1 ratio by end of Q1. And it's very important to me to mention that in any pro forma calculation, though, including the positively contributing factors into the capital, the CET1 ratio lands safely above 14%.
And since there are no really new and additional important information parts on 33, I would pass on to Bernd Spalt for the conclusions and outlook. Thank you.
Thanks very much, Stefan. Let me take you to Page #35 of the presentation, on the outlook of 2022. And I will quickly remain on the right part of the presentation. While we've been touching the key takeaways for Q1, so I think that should be clear.
On the outlook, as I said, real GDP to rise between almost 0% to 5% this year. Inflation will be very elevated, lower in Austria, but probably double digit in most of our CEE countries. So we do expect a mid-single-digit loan growth for this year in this environment -- in this operating environment. We do expect at least a high single-digit NII growth for this year and still a quite -- a very robust mid-single digit fee growth.
We continue to promise positive draws, so that we should be below 55% cost-income ratio already in this year, which has been the original target for 2024, remember.
On the risk side, as Alexandra has been elaborating upon, we stick towards below 20 bps of credit risk cost for this year on the back of a very, very, very strong credit portfolio to start with, with not only strong corporate balance sheet, but also with very high employment levels. And there is a robust personal income side. So I think that is something which is a starting point, with almost no delinquencies. And even if growth slows down significantly or more than I would think, this will not lead to major credit sort of [ limps ] this year. And we also benefit from a very significant cushion built in the times of COVID. So I think that is a very strong pillar of our business model.
On capital position, 2022 dividend per share, we don't discuss much. But at that point in time, we will discuss that in the next quarter. But you can safely expect that we continue to sort of follow our policy of a growing dividend payout year-by-year.
And on the profitability side, we stick to our double-digit return on tangible equity for 2022. So I do think that our region as well as our business model is dealing well with a situation, which holds a lot of uncertainties, and uncertainties will not go down from here. So they will possibly continue to rise, but we are perfectly in a position to deal with these uncertainties and going into this situation from a position offering strength.
So with that, I conclude our presentation. And we are very happy to take all your questions. Thank you very much.
[Operator Instructions] We'll take our first question from Izabel Dobreva, Morgan Stanley.
I have 3 questions, please. My first question is on the costs, and I saw that they were impacted this quarter by the deposit guarantee contributions. But if we look at the underlying cost growth, it's running at about 4% year-on-year for the quarter. So my question is, is this a representative run rate of underlying cost growth for the rest of the year? As we go through the coming quarters, given, on the one hand, the wage pressure you're accelerating, but then on the other hand, I know in the past, you were guiding for some efficiency savings.
Then my second question is on NII. This quarter, there was a step-up in the Austria other segment which you called out. And sequentially, I think it's about EUR 30 million, coming from bonds in the interest rate book -- interest rate derivative book. Is this a onetime gain? Or would you expect to be able to hold on to that and build onto it for the coming quarters? Perhaps you can also qualify the benefits from the replicating book? That would be helpful.
And then my final question is for Alexandra, on the cost of risk guidance. If I recall last quarter, the below 20 basis points cost of risk guidance was assuming a release of the overlay, about half of it. And now the guidance has been reiterated. So how should we interpret? Are you still assuming you will be making some releases of the overlays? Or has the underlying asset quality just come in a lot better than expected?
All right, Stefan?
Yes. Thank you very much, Izabel. I'll start with the costs. So I would first stress up that we are, especially in this incredibly dynamic inflationary environment, very much sticking to our overall operating performance as a guidance and what we mostly talk about. So cost income ratio, operating jaws and so on. And it's very tricky, as you can imagine, to give specific cost indications for this and that legal entity at that point in time. Still, I think your assumption and what you draw away -- what you take away from [ core 1 ], assuming that the inflation expectations are around about in the area that we have seen in the presentation, is a good idea to look at it.
I think we will see over -- in the course of the year, certain PerEx uplift that we have been, I think, very successful in negotiating in Austria in terms of having a very limited increase there from -- what is it, 3.2% or so in the negotiations of the collective agreements. But of course, there are other countries like Romania, especially, or Hungary where we have been adjusting already, and I think for very good reason, the salaries of our staff. So this will drift higher. Of course, the full annualized will not be seen yet in 2022. So definitely, we should expect a level that can be on the PerEx side that can be managed in the lower to mid-single-digit area.
When it comes to OpEx factors, yes, most of what we saw will be one-off [ ideally ]. There might be even from the Sberbank and [indiscernible] already paybacks this year. God only knows, if I may say so. But certainly, this should not be extrapolated in any form. So I'm reasonably optimistic that we can keep those cost factors that are really in our control very much strictly managed and limited. And overall, it's about creating a positive operating dynamics and keeping a positive operating dynamics.
NII. First statement, and this is really, as Bernd already mentioned in his presentation, first time in definitely more than 10 years that we can say the dynamics in the front book versus back book or on the investment book contribution are becoming significantly positive. And that's one part of the answer.
You were mentioning, rightly, the treasury and the markets impact. This is something which will not necessarily repeat each and every time. But still, I would not call the effects there a one-off as such since the positively contributing factor into the NII on the back of higher rates, on the back of much more positive realized investment levels will remain, and we believe that there will be a significant positive contribution on the front book versus back book. You remember, we had minus EUR 50 million, minus EUR 30 million in the years back.
I can't and I don't want give you a number today, but be sure, it's a significant double-digit number. So we will have a positive contribution. My plan is to give you a full year front book versus back book and investment book contribution by the end of the second quarter. That's the plan.
So to your question on the risk cost guidance, Izabel, I can confirm that the risk cost guidance of less than 20 basis points for the current year still includes some release of the EUR 630 million cushion that we have approximately in the same amount as we announced in the previous call.
So in other words, we plan to carry forward at least half of our reserves to '23, which observe some cushion for an uncertain future. And also to -- just to avoid any misunderstandings, as you referred to FLI only, the EUR 630 million consists of FLI and stage overlays. So EUR 450 million FLI, EUR 180 million stage overlays.
Next question then from Mehmet.
Congratulations on the results. Just one question on the Czech Republic, please. Are you seeing the funding costs there already going up? Because one local peer yesterday reported some 50, 60 basis points increase in retail deposit costs. How are the trends looking for you, given your very much comfort that you have in this country?
And maybe one more question, on M&A. Do you have an update on the potential opportunities where you're looking at the moment? And what specific opportunities do you see from the current crisis? And that, coupled with your capital, can you please comment on how much excess capital do you think you currently have to deploy for M&A, particularly after the first quarter moves?
Okay. I hand over to Stefan for the first question on tech funding costs.
Yes. Thank you very much, Mehmet. I can be very concrete on that one. Insofar as given the, I would say, weekly dynamics, there are, of course, very, very detailed -- there's, of course, very detailed interaction of my balance sheet management colleagues and my Czech team.
So there have been adjustments in the Czech market already on the term deposit market. So assume that around 2.5% to 3% are the levels that are now offered on 3 months, 6 months, 12 months term deposits. However, of course, that requires the respective clients to come to the bank and move their savings or their holdings on their current accounts into those products. And it's something which doesn't happen, of course, 100% of all the respective clients. So that's something which we see.
So the answer is there have been -- as you would expect, they have been moved. We are positioning ourselves, given the liquidity situation, at the middle, slightly on the lower end of this development. It's very important for us to have a very solid and positive reputation. So we offer appropriate market rates to the clients, but in the same moment, of course, to protect our P&L. So the levels are around 2.5% to 3% as of today in the 3 months, 6 months, 12 months area. I personally expect this to shift still a little bit higher since we have a 5% key rate in Czech Republic.
And just to mention for the sake of completeness, don't forget that the Czech curve is significantly inverse on the back of expectations that rates might turn around in 2023. And therefore, longer term deposits so far, at least in the mass market, also are not of relevance.
Okay. Thanks, Stefan. Bernd, do you wish to comment on M&A opportunities?
Well, I do, of course. There's not much which I can candidly tell you at that point in time, other than we're seeing screening opportunities in our region when it comes to extra sale -- businesses for sale or, as I mentioned [indiscernible] for sale.
There's also a new consolation, which, again, I would not want to comment specifically. But structurally, if you look at situations like Sberbank where possibly assets are being up for sale, then we have a situation which is quite positive, I would say. We either sort of can purchase portfolios at a price which is, how should I say, are attractive to us or somebody needs more, and then the recovery on the deposit guarantee system will be a lot better.
So I think that is a situation which plays into our hands. So we're looking at it and we're watching and monitoring it from position of strength. There's no need to rush. Nothing has changed significantly. As soon as there is anything more tangible to tell you, we will get back to you. So there's -- situation is unchanged, and I think the opportunities are out there.
And sort of coming back to latter part of your question, what is our sort of excess capital, I think that's very easy to be answered. Our internal management limit which we want to hold is 13.5% common equity Tier 1. So if you look at our present situation and if you sort of include the interim earnings, if you look at the OCI development and if you look at the ability to build up capital-accretive business, I think it's easy to calculate what the use of [indiscernible] can go on.
Can I just ask, would you be ready to go below the 13.5% target in the interim in order to add any increase on a transaction, just given the recent moves and maybe expectations for the future?
Not long term. I would think the 13.5% is a good level. But if we combine it -- it's a good question. If we combine it with what we have said so far that if we want to buy something, that it should be really capital accretive, one sort of should not treat this 13.5% as a religious level, in a way. Because I have something which you say will build up capital relatively quickly, one could even go below that.
We'll take our next question from Gabor Kemeny, Autonomous Research.
First question is on rates. I mean rate expectation has increased quite a bit on the back of the recent events and now point to a bit further rate hike, I believe. So can you give us an update on your rate sensitivity, please, especially in Czech and the Eurozone?
Another question is a broader one on the Czech Republic, where I think you now expect that stagflation, that this is the base case for this year. And you've been growing profits here pretty consistently quarter by quarter. How long do you think this can last in your expected escalation scenario?
Stefan, the first question on rate.
Yes, absolutely. Gabor, I can be quick on this one. So Czech rate sensitivity down to around about 25 bps, translating into something like a little bit north of EUR 10 million nowadays.
The real part to watch, I think for all of us, in the months to come is Euroland. There, as we have indicated in the past, the first part of a potential, [ okay ], into positive territory would be already positive for the bank, however, not skyrocketing. Everything brings us back to the zero line in Euroland will be kind of double-digit area or so.
However, should we already go into positive territory and significantly, though, in the Euroland, then this would still already in 2022 already have certain impact and obviously would be a positive going further than in the full year of positive rates, Euroland, but of course, that's all subject to the further ECB decisions. That's the way to look at it as of today.
Okay. Thanks, Stefan. Bernd, the second question was around how long can we deliver good profits in the Czech Republic in a stagflation era environment?
Look, the Czech Republic and the structure of our business, we see for quite a long time deliver very positive results for our business model. Of course, if stagflation is here to stay, one of the consequences -- economic consequences of stagflation is higher unemployment, of course.
Now if you look at the employment levels in the Czech Republic, to go from here to the unemployment situation, there also sort of consumption there is going to drop very significantly in quite a way. If that stays a lot around for the next 2 years, then you have a point, and this is something which we'll change income streams and we change customers' behaviors. If this stays around for this year and then slowly recovers, I think we have [ no ] problem because of the employment level and the blend of the personal rate, also robust on the corporate balance sheet are so good that possibly, we will not even see it in our own income statement.
But if this stays around -- to follow up on your question, if this stays around for 2 years, then the situation might turn. I would agree.
Alan, please go ahead with your question.
Could you talk a little bit about the nature of the corporate demand for loans in the first quarter? I mean do you see it as the companies reacting to a more difficult situation, locking in credits whilst the rates were low?
Do you see anything exceptional in that? Because clearly, you mentioned a couple of times that in some ways, that's driving your loan growth a little bit more than perhaps the retail was. And clearly, in terms of the mid-single digit outlook, I mean after what you've achieved in the first quarter, even if there's some impact of currency, I mean, it does suggest a rather sort of [ roofs or ] full stop in later quarters.
It doesn't sound as if you're seeing any signs of that yet from your comments earlier this morning. And I just wondered if you could sort of put that into context. And specifically in the Czech Republic, in terms of mortgage demand, are we going to see a real sort of full stop in terms of mortgage demand? In Q2, I think there's a regulatory issue there as well. So I'd be interested both on the corporate side and then on the retail side in the context of your overall growth forecast. That would be one thing.
And then on deposits, I think clearly, you've got a number of markets where most of your deposits have been site deposits. Could you give us any parameters that show what -- how much of a shift you're seeing already from site to term? And how quickly you think, looking at past experience, that's likely to happen in markets to which you're sensitive to that? That would be great.
Stefan, please?
Yes. So on the corporate take-up, and this was very much the case, as you can imagine, in March, on the back of the evolving war in Ukraine, we saw a significant take-up of working capital on the corporate front. And this is something which certainly cannot be extrapolated throughout the year. This is something which you, of course, also found partially to back again on corporate deposits.
I think a typical reaction. We were, and I'm really proud to say so, on our teams on the corporate front very much and very close to the clients, helping them out on short-term needs. And that worked very well. This is something which was definitely an effect of the very early part of the war situation.
The other thing that you mentioned, and this is, of course, very much also a focus on our side, is the mortgage demand in Czech Republic. I think it's realistic to assume that it will slow down to a certain level. You were, I think, using the word, full stop. No, that's not something we would expect, please.
Again, don't forget the downward sloping shape of the curve. The borrowing levels on the longer end are still at historically, I would say, in the meanwhile, no longer too low, but the average level. So it very much depends on what Bernd discussed in the last question. It depends on the overall economic situation of the people on the household income relative to their spending. I think that's the decisive factor that we need to watch. And obviously, as you can imagine, we are monitoring the situation on a monthly basis. And my current expectation would be a slowdown, certainly not something like a full stop.
On deposits, so far, we see a very slow shift. I'm talking about single-digit percentage shifts from site deposits to term deposits, even in Czech Republic, where as you can imagine, the interest rate gap between the levels on the site deposits, which are practically zero still, and the term deposits is quite significant. That's on the retail side.
We expect this to shift to a certain level higher and keep you informed about it. Typically, a lot of the money, don't forget that, is kept as a liquidity reserve by people and not so much as an investment as such. And historically speaking, it's very difficult to say because we haven't had, for a long time, a comparable situation. I expect it to go into double-digit area, but not that you have a transition of like, I don't know, 40%, 50%, at least not in the short term. We'll keep you updated on that. On corporate side, as you can imagine, this shift is much quicker there. We are in the area of 15% to 20% as of today, since, of course, the people managing the moneys there are reacting much faster.
Thank you, Stefan.
Can I also ask...
Go ahead, Alan.
We'll take our next question from Johannes Thormann, HSBC.
Johannes Thormann, HSBC. Three questions from my side. First of all, follow-up on M&A. Which countries would be in your focus? As Slovakia and Czech Republic are probably [indiscernible] by market share, all other -- including Austria? Or is the focus still on Hungary and Serbia?
Secondly, on the fee income, which segment surprised you most in its strength this quarter? And last but not least, in terms of the risk situation, which of the neighboring countries to the East worry you most in terms of spillover effects?
Thank you, Johannes. I would hand the first question to Bernd, and then Stefan, and then Alexandra.
Johannes, can you repeat the first question? Because there so much noise, I didn't get it.
Yes. It was...
So I'll repeat the first...
It was basically on M&A, which countries do we prefer?
All of the countries which we are sitting in plus Poland is unchanged. Of course, when you look at the position which we have, from a competitive position, Czech Republic and Slovakia will be more difficult, and we're dominating a large share of our markets. But the short answer is other markets, we believe completely. If an opportunity turns up, we would be sort of more preferring one country over the other, we would probably look at both of them.
I take the fee income question. And I think the question you put it that way, Johannes, what surprises we had? When it comes to the improvement on year-on-year levels, none. So we expect those to go up. When it comes to the dimension of the improvements, I would say, across the board, positive. Why do I say so? Because intuitively, one might say that on the asset management side, you should see maybe some impact.
Yes, this is, of course, also our expectation going forward. However, we started the year on a much higher level of asset under management. We have seen a very, very strong start into the year, and also the March was still, of course, based on those asset management levels. This is something which can be expected to come down a little bit, both in terms of volumes of transactions on the security side, but also in terms of contributions from custody business and assets under management.
On the payment transactions, I'm, especially on a year-on-year comparison, quite optimistic. Let's not forget that here, indirectly, the inflation level also kicks in positively since you have a multiplier in there on the side.
So no surprises in terms of direction. Positive surprises in terms of absolute levels.
Now to your question on what country or whether there's a country which is worrying us more or most? So our home market goes into this crisis or went into this crisis from a position of strength, and this is true for all our geographies that we are operating in. And also the very extensive portfolio screening that we performed did not reveal any weakness of any particular country.
So summing it up, no particular worries to a particular country connected.
We'll take our next question from Mate Nemes.
I have 3 questions, please. The first one is on capital. On Slide 32, and then also during your remarks, you mentioned that in the OCI impact, there's no consideration of positive FX translation effect. Could you just clarify what that means exactly? And better, that could mean a slightly more positive OCI impact in the second quarter? That's the first question.
The second one is on the investment book. I think Stefan mentioned that we are seeing good front-to-back book dynamics, which has turned finally. Can I ask if you're also planning to increase the size of the investment book, all else equal, to benefit from higher yields?
And the last question is perhaps for Alexandra on cost of risk and asset quality outlook. In Czech and in Hungary, now you're seeing policy rates at or above 5%. Can I ask you how you think about cost of risk in the next couple of quarters and especially into next year in these 2 markets? And are these levels already creating perhaps some prospective deterioration in asset quality? Or that could mainly come from potentially higher unemployment, as Bernd alluded to?
Stefan?
Yes. Thank you very much. Your assumption is clearly right. We can't include the positive FX effects in OCI until the profit is not included. So this is a high single-digit basis points number, which will clearly return into the CET1 number by the end of the second quarter.
When it comes to the -- and the other positive effects that I mentioned, then they have been explained both by Bernd and myself, so income and including of minority, all these things. So I think it's very important. And we were also, of course, in the first slide, I'm not happy with the 13.7% number, as you can imagine. But taking everything into account, I can again repeat that we are safely sailing towards a 14%-plus number later in the year.
So second question was on the investment book. The answer is yes. With one remark still, please bear in mind that obviously, both when it comes to our overall sovereign exposure to the respective countries as well as to our interest rate risk, both externally in terms of regulatory limitations, but also internally, the interest rate sensitivities are going a little bit more wild than in usual times. If I say usual times, the last 10, 15 years. With rate increases of that dimension, also the models on the interest rate side puts a certain limitation. So the answer is clearly, yes, we have been very active in investing into the sweet spots of the curve already so far. And we will do so going forward based on our interest rate expectations, but we will not go anywhere beyond some kind of reasonable risk limits just for the short-term profits since the interest rate risk sensitivity is not to be underestimated. That would be my answer. And I hope that has been sort of hitting the point of your question.
Now to the risk part. Not very surprising, given the current uncertainty, I will refrain from giving a risk cost guidance for year '23. However, what I can -- what I would like to mention, especially to the 2 geographies that you have been mentioning, on the interest rate, especially Hungary, already seen some time our new business is mainly fixed rate. So from the rate hike, we do not assume any specific risks.
Inflation, of course, is included as a factor also in our risk models. Also this shouldn't turn out to be a big surprise. And unemployment in both markets, Czech Republic and Hungary, is no area of concern currently, also not for '23.
We'll take our next question from Riccardo Rovere, Mediobank.
I have three, if I may. One for Bernd, one for Stefan and one for Alexandra, if I may. The first one from -- when you mentioned you might have actually been interested in Poland, what makes Poland so interesting to you, given that Poland has been more of a headache over the past few years for banks already present there? And they clearly tried to recolonize the banking system over the past few years. So there must be something interesting in Poland that maybe I personally cannot see.
The second question is for Stefan on the rates. If you had -- I mean the ratings team moved fast and systematically up over the past few, what, was not more than a few months. If you had to throw a ballpark, your balance sheet to what extent has already been responsive to the various rate cycles? Meaning, all the rate efforts you've seen are already somehow captured in your balance sheet? Or there is something that still has to be incorporated?
And then you provided a sort of indication, maybe not a guidance, but a sort of indication of what might be the impact which the ECB had to do. I think I missed that. And I would be really -- totally appreciate if you could repeat it.
And then I have a question for Alexandra. When I look at -- your cost risk guidance for 2022 was conceived before the event in Russia and Ukraine, I imagine. Now you are reiterating it, and you do not, let's say, specifically mention risks to this guidance. I mean there is a statement, but is a fairly general one and maybe it refers to all due to the overall slide. What makes you so confident to reiterate this guidance without even having a kind of disclaimer on this guidance? And before, you mentioned that we -- at the moment, we don't see any particular based in any particular country. Fine. Should we actually be maybe more concerned about particular sectors like the automotive in Slovakia or Hungary or maybe Serbia? Any color on that would be really helpful.
All right. Let's start with Bernd, please.
Yes, sure. Riccardo, thank you very much. As always, you put questions on the table which are, on the surface, very simple and plain.
But let me start with the strategic consideration. We are playing here a long game. We're not in on this game for short-term tactical considerations and sort of opportunities, but we're in here because we believe, and this is the heart of our [indiscernible] strategy, that the eastern part of the European Union is a growth opportunity for the next many decades.
So -- and I think we have proved over the last couple of years that this trajectory works out. Now the only large country, which is kind of territories, which is not in China or our own realm is Poland. Poland is large. Poland is part of the European Union. And Poland is a prosperous country with still a lot of conversion potential.
I completely agree with you that there are a lot of structural problems, if you look at Poland, as an investment case. And I even don't want to go now into the geopolitical conflict, we can cover that also. The problem starts a lot earlier. The problems starts that we have there foreign exchange-denominated loans which are not resolved. We have the regime where you cannot acquire 100% ownership, whereas we need to have a sort of local free flow for whatever kind of purpose. All of these are things which are not particularly attractive and which need to be resolved over time.
So I can see we're offsetting very clearly. I also can see that the current proximity to this geopolitical conflict raises vulnerabilities. But what I want to say is, coming back to my sort of first statement, we're in here for the long game. I do believe that this crisis, as many crises, will be over at some time and we will be again back into European and global context where Poland can play a very attractive role and a very good role.
So I do think that if we -- if you believe us that we are not sort of changing our strategy based on 12 or 24 months horizon development, believe us that Poland has been attractive to us and is still [ encouraged ] for us.
And no, we're not naive. We're not stupid. We do see the problems on the way, and we will need to deal with them. And possibly, this complex situation also offers opportunities to solve structural problems which the current establishment in Poland has decided not to resolve.
I hope this answers the questions?
Yes, this answered the questions very well.
Stefan, please?
Yes. Thank you, Riccardo. I try to be very crisp on the question, to what extent have we been responsive with our positioning? I think you should assume that we have been adjusting our overall positioning, in the course of the rate hikes, very much in those countries where we believe the cycle is at least step by step going towards its end.
So I think, as you can also see from sensitivities, we have significantly reduced also both actively and on the other hand, also passively, this happens to the respective currencies. So the repricing effects are obviously lagging on both sides of the balance sheet.
On the asset side, we are catching up. We have been repricing significantly in many of the countries already the respective FTPs and so on. Obviously, the deposit side is not fully in our hands.
When it comes to euro, situation is different, and I mentioned it before, I don't think that I need to repeat it there. We have this positioning which is clearly assuming, sooner or later, this will be we'll have to act and then we will have a significant beneficial impact on our P&L.
And let me close by a remark. It's always very important to me as an old bond and interest rate trader, never forget to watch very closely the overall shape of the curve. So many people -- I'm sure you don't, of course, but many people tend to just look at the key rates and not taking into consideration the overall shape of the curve, which typically, for every balance sheet of the bank, is of very, very big importance. So that's something which we are also watching very closely and are managing in a very tight manner.
Alexandra...
Sorry to interrupt you, Stefan. Are you basically saying that your balance sheet is already responding? On the euro part is already responding to the yield curve -- to the shape of the yield curve today?
What do you mean with responding? This I have to ask, Riccardo, before I say yes or no. What do you mean with responding in this case?
Well, it is already affected. I would say it was already affected by slightly higher Euribor rates and on your sovereign yields and so on.
Okay. Look, the one positive thing is obviously that our investment levels in the Eurozone have been significantly improving since you -- as you know, the mid to longer-term end of the curve in Euroland has been going up to something like between 50 and 120 basis points. And that's actually the one part that already has been having a positive impact and is, of course, realized in the investments.
I would say on the day-to-day business as such, especially when it comes to the key rates, still, although compared to the last couple of years the magnitude is quite significant, there hasn't been a big change. And this will only happen in bigger terms once the ECB changes its tone significantly more to the upside and real rate hikes, I would believe.
Good. Then to risks, Riccardo, of course, you're right. Downside risks, there are plenty, and there is this [indiscernible]. So when I -- may I draw your attention to Page 35, especially the second bullet point on the risk factors to guidance.
But however, you asked what makes us confident? Yes, you're right. Our risk cost guidance came from -- originally came from a time before the war, or very timely, at the same time. Why are we still confident and did not change the guidance?
As you know, we built considerable reserves for the COVID pandemic already in 2020, which until now, we have not needed to use. So the impact from the pandemic on our portfolio, they're even lower, so the portfolio quality even higher and stronger than we expected.
When we reviewed our guidance now, in the light of the current situation, we already built in more conservative assumptions when it comes to NPL inflows. We also had a close look at our recoveries, which should be very stable. And, of course, a very thorough look on the various industries.
So there is a lot of underlying strength in our region: low unemployment; significant support also through the EU funds; tourism, important for Austria and Croatia, almost back to normal; real estate market still supportive and the order books are currently full; and this also holds true for the automotive industry that you have been mentioning. And also, please do bear in mind that, especially in the automotive industry, we have a very high-quality client portfolio.
We'll take our next question from Hugo Cruz, KBW.
Just 2 quick questions on NII. First on the rate raise from the ECB, the impact. I've heard your guidance. But I was just wondering when we start to see a positive effect, how it will play out in your different divisions. Will it be all the similar type of effect in the euro countries? Or will it be more booked in kind of the corporate center in the markets? Just wondering how I should model that.
And then on the -- more on the CEE countries, where you've had a lot of rate rises in the recent quarters, Czechia and Hungary, if we look at market expectations, at some point, these rates will start to fall. How should we think about that decline? Will it be reflected kind of straight away in the NIM as well? Or will it take longer? Because you mentioned you have fixed rates a lot in the loan book. Are you positioning to avoid any negative impact on NIM if rates start to fall? If you could talk about that, it would be great.
Yes, sure. Let me start with the second part. I mean this is, of course -- you're very, very rightly so looking a little bit beyond -- I would say -- around the corner, I would say. This is something which, as you certainly know, quite some analysts before the war started had in the cards for the [indiscernible], for example, for Czech Republic. I haven't seen recently any statements that still, this year, we would see a turnaround in rates there. So I would expect this to be [indiscernible].
But I explained in answering Riccardo's question before that I would say we have been balanced our positioning in the CEE countries so that we are much more balanced now. And if there would be rate cuts already end of '22 or beginning of '23, I would say from that end, we would even have hopefully filled up our fixed rate acquisitions to an extent that we can bolster these effects. Clearly, NIM forecast at that point in time for later quarters or even going into 2023, I would not dare to make.
On the euro side, yes, that's absolutely the very important question. I would say everything that's coming on the investment book, obviously, will be in the Corporate Center. So this is something you would not see on the business divisions. However, once we go north of 0%, then you will see kicking in also positive effects, obviously, in the corporate and retail area. But everything up to the zero level will be, for the lion's share, in balance sheet management/corporate center.
We'll take our next question from Simon Nellis, Citi Bank.
Just two quick questions from me. Firstly, I think you mentioned in your release that you will have some further contributions to the deposit insurance for the Sberbank resolution, I think particularly in the Czech Republic.
I know you don't know the figure yet, but can you just elaborate on what kind of magnitude roughly you think we're talking about? As there further contributions that will be needed as well in Austria? And then my second question is, could you just run through exactly what the structural FX hedge impact on capital was? And under what conditions might that recur? I think you said it's not occurring, but -- yes, those would be my 2 questions.
So let me start with deposit insurance, Bernd. Thanks very much for giving me the opportunity to be specific on that. We do not expect any whatsoever material impact. And here, I have to distinguish, also in terms of payments in Czech Republic.
Now the big problem with the whole Sberbank, if you allow me to say, is that the transparency around that case is, I put it friendly, limited. So anything that's publicly available, available for us or other banks in terms of we can really talk about with you is very, very limited. So that's really a tricky situation. But what we know and our COO has been talking about, that is in the presentation. We know as of today that the likelihood of full or near to full recovery is extremely high for all the 3 countries.
How this will then be playing out in details with regard to the contribution to the deposit insurance systems is a second question. And will probably, as we understand these days, be treated a little bit different from country to country.
But the reason that we haven't poked anything in Czech Republic is that, according all information we have, unfortunately mostly informally, it will not trigger any P&L contribution of relevance no matter what the process will be in detail.
And this is also something which I can, as of today, indicate to you for Austria. So in Austria, we have strong indications that we will not have an additional contribution this year, ideally even maybe a reduction of the amount. Please bear in mind that in Austria, there hasn't been a payment. The only country where there's been an additional payment due to the Sberbank case was Hungary, where we received a clear order through a letter by the authorities there. So that's the part on Sberbank.
Most important part of the answer on the structural mix is there is no whatsoever recurring effect. We have introduced and we are now fully compliant -- [indiscernible] fully compliant. We are fully compliant with all the elements of the regulation which has been introduced with January 2022. And there will not be any whatsoever additional effect on that. Going forward, we remain -- we expect it to remain around this level of EUR 3 billion additional market risk RWAs. And the size of the impact as such depends on the volume of our non-euro denominated capital.
Happy to give also a breakdown. I think the number I have in mind is about EUR 6.6 billion overall structure exposure. Then split, as you can imagine, according to the size of our operations through the respective countries.
We'll take our next question from Jovan Sikimic, RBI.
Maybe just some general comments from your side with regard to maybe to potential political or regulatory risks in some of your countries. I mean we have some headwinds on the banking sector in Poland, coming from the politics also in Hungary, coming potentially fiscal consolidation, potential increase of bank tax. What's your take overall in the countries where you're operating on that front, coming maybe as kind of banking unfriendly measures?
Bernd, may I hand this over to you?
Absolutely. So I think we're pretty used to situations where political risk is on the rise. And of course, we're now going into the next kind of crisis situation where there will be a necessity for public spending that comes to supporting local economies in the context of flaring up of inflation and breaking supply chains and kind of -- other kinds of crisis situation.
So then we, of course, the incentive to local politicians to seek for pockets to fund kind of this situation. Now I don't think that we have learned over the last many years to be with this situation. I would not want to rule out any kind of unorthodox ideas come about. So this will come possibly, but not now I think.
I think now we are at the beginning of the crisis and political risk when it comes to determining who is paying for what, comes at a time when the waters are a little bit more calm. So I would say, yes, we touched upon which is important. I do not expect anything now very quickly to turn up.
But it is a risk, but I do think that what plays into our hand is that we are the [ road to ] stability. And like in the sort of last global financial crisis, we're not the source of the problem, but the government's needle of which a problem situation.
So yes, unorthodox ideas might flare around. There will be talks around that. Am I worried about this now? No. As sort of there will be debate around this, and we will deal with them as they come.
We'll take our next question from Krishnendra Dubey, Barclays.
I have a couple of questions. One, on the Hungarian business. Stefan highlighted a EUR 30 million hit because of the baby loans thing. Is that something which we could still see in the next few quarters? And is the number correct? That is one thing that I wanted to check.
Secondly, on the mortgage market, I guess to a previous question that you highlighted in Czech Republic especially, you don't see a full stop in the mortgage lending, but you see a slowdown. A related question, are you seeing ESG related or the green mortgages on a rise, which could partly offset your regular mortgage origination?
Yes. Thank you very much. Baby loans, very simply, this is a fair value portfolio, so to say. Therefore, it's a little bit hard to predict because it depends purely on the further development and the shape of the curve. My assumption would clearly be that this will not only not repeat, but potentially even turn around at a certain point in time. Definitely, long term, since with a pool to buy effect, like with the bond portfolio, you will see a full return of the current mark-to-market losses. So that's the one thing.
And by the way, you will see this in all the Hungarian banks because according to my knowledge, the pool market is accounting for this product on a fair value basis and not on an accrual basis. So that's point #1.
And point #2, that's a very interesting and I think a very good question we have for the reason of the current environment. I've not been talking so much about ESG today. You'll find quite some material in the presentation, of course, in supporting material. I would say this is something which, in the medium to long term run, is certainly an appropriate assumption. And we are working on that very much. We see this on the corporate front, in the team of [indiscernible] already that we are, of course, targeting the strong representation of green assets. And this is going significantly beyond the normal growth rate, short term.
So when it comes about the next 2 to 3 quarters developments on the mortgage lending side, I don't think that it will play a major role yet. So in the sense of that it could influence significantly positively our development on mortgage lending in Czech Republic or also Slovakia, I would dare to doubt.
All right. Thank you, Krishnendra, and thank you to Stefan for answering the question. Thank you to the operator for leading us through this conference call.
And with this, I would like to hand over to Bernd Spalt for his concluding remarks.
Thanks very much, Thomas. Thanks very much, ladies and gentlemen, for attending this call and for showing interest. Let me to make you aware of the next communication point, and this is our annual general assembly, which we will hold at May 18, so not far out, where we will have to make sort of opportunity to sort of discuss our sort of development.
It has been a pleasure to talk to you, and ask to see you on the AGM on May 18. Thank you very much.
This concludes today's call. Thank you for your participation. You may now disconnect.