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 Results Call for the Third Quarter of 2018. Today's conference is being recorded.
Now I would like to turn the conference over to Thomas Sommerauer. Please go ahead, sir.
Thank you, operator, and also a very warm welcome to everybody who's listening in, in behalf of Erste Group.
Today's call will be hosted by Andreas Treichl, CEO of the group; Gernot Mittendorfer, Chief Financial Officer of the group; and Willi Cernko, Chief Risk Officer of the group. They will lead you through the presentation highlighting the achievements of the third quarter and the first 9 months, after which time we are ready to take your questions.
Before handing over to Andreas Treichl, let me point out Page #2, disclaimer for our forward-looking statements.
And with this, Andreas?
Thank you, Thomas. Good morning, ladies and gentlemen. Let's start with our presentation on Page 4.
Net profit on a quarter-to-quarter is slightly up from EUR 438 million to EUR 454 million, basically due to a very stable operating performance quarter-on-quarter and a better other result.
On the 9 months basis, profits are up by nearly 25%. That's due to a better operating performance based on strong NII growth of over 4%, strong fee income growth of over 5% and extremely benign risk cost, as you can see.
If you look on Page 5, NII has gone up on a 9 months basis and also on a quarterly basis. The net interest -- the margin has come down a bit, but that's basically due to the buildup of interest-bearing assets, particularly in the Czech Republic where we switched from Central Bank deposits to 2-week instruments. The overall operating result is up 3.7% from 9 months '17 to the 9 months '18, and cost-to-income ratio relatively stable and improved from the last quarters. Cost of risk, as I mentioned, are extremely positive for the moment. As a result of all of that, our return on equity in the third quarter increased to 14.4% and the return on tangible to 16.4%.
If you look at the asset development, here, you can actually see also the reason for the slight margin erosion loans to banks, and net loans have increased very substantially. So we've increased our interest-bearing assets by over EUR 20 billion.
The ratios on Page 7, loan-to-deposit ratio, I mean, strong loan growth, almost equally as strong deposit growth, so stable at 92%. The net loans, as you can see, a very strong increase of over 6%, in some countries much stronger on the corporate side like in Hungary or Slovakia. In other countries, more retail-driven and the continued, really, I think very positive development on the risk side. NPL coverage up to over 70% now, and the NPL ratio down to 3.5%.
Capital, stable or slightly improving. And if you look at the core Tier 1 ratio in the third quarter, including profits and the new AMA model, we are above 13%. Liquidity coverage, again very good, and leverage ratio above 6%.
If you look at the business environment in our region, it continues to be very strong. Real GDP growth with the exception of Austria, which also performed relatively well, where we expect growth in excess of 2%. Next year is 3% plus. So a lot stronger than in other European markets to varying degrees, much of that depending on much stronger local consumption. In some countries, also the export contribution growing.
In almost all our market, inflation is above 2%. And as a consequence also, you see rates going up. Just another hike this morning in the Czech Republic, a base rate of 1.75%. But also in Romania, rates are going up. And I think all the other macroeconomic indicators remain in a very positive trend. Particularly okay is the fact that public debt as a percentage of GDP is decreasing in all our countries with the exception of Romania, where it's stable.
Interest rates on Page 10, you can see, I mean, upgrade in Hungary, both the development for us but particularly in the Czech Republic and in Romania.
Not much change on the FX side on Page 11. We'll see whether there will be an effects now of the other -- of the next base rate increase in the Czech Republic and whether Czech crown will grow stronger, but other than that, relatively stable development.
Also on the market share side, Page 12, stable or positive development in all countries and in all major business segments.
So if we go to the business performance on country-by-country basis on Page 14, you see that the performing loans are growing strongly in almost -- in all our markets actually. But as I said before, different segmentation, and Slovakia and Hungary, very strong growth on the corporate side, not so much on the retail side. Czech Republic and Croatia and Serbia, very balanced growth between corporates and retail loans.
If you look on the deposit side, same picture, stable or continuing to increase in some of our countries, particularly Czech Republic. You see nearly EUR 3 billion additional deposits vis-à-vis a year ago. But also in the other markets, the deposit buildup is now happening, which was not the case in Romania and Hungary until 2017, but now deposits start growing actually in all our markets again.
If you look at NII on Page 16, I think that gives you a pretty good picture on how business margins are going. You see here relatively stable development on the business margin side in most of our markets. You actually see them going up in Romania, but that's also a consequence of the higher interbank high rates. And in the Czech Republic, you see the drop. But the drop is, as I explained, the switch from overnight to weak repos.
Also, a strong performance on the fee income side, and almost all our markets have now resulted in operating income growing from the last quarter to this quarter, actually in all our markets, a positive trend that we hope we will be able to continue.
On the cost side, Page 18, I think we've been able to keep costs stable despite relatively high pressure on the wages in some of our CEE markets. And in principle, that's a -- so that stability is something that we can also keep over the next quarters. As a result of that, basically stable cost and increasing operating revenues. The operating result has gone up nearly 10% on a year-to-year basis. These are very positive development that we hope we'll be able to continue.
And with that, I pass on to our Chief Risk Officer, Willi.
Thank you. Just a few comments with regards to risk. We can see on Page 20 year-on-year and quarter-on-quarter developments. This is characterized by the continuation of healthy asset quality, which result in net releases in most of our geographies. There are just 2 countries who get mentioned here, Romania and Croatia. They are 2 simple cases that are provisioned.
When it comes to the NPL ratio, we're further down. We're at the level of 3.5%. And when it comes to the third quarter, we are stable in absolute terms at the level of EUR 5.3 billion despite continued loan growth.
And on Page 22, when it comes to the NPL provision coverage, we are still at a very nice level of above 70%.
With that, I will now leave the floor for Gernot.
Good morning from my side. We continue on Page 27 -- 26. You see just simply -- completely the same picture last quarter.
Performing loans development year-to-date, plus 6.5%, which is in line with our guidance and a very nice development, hand in hand the reduction of nonperforming loans by 7.6%.
If we continue on Page 28, the liquidity situation, still excellent LCR at 139.4%. No change vis-à-vis the last couple of quarters.
We look -- have a look at Page 29. You see the continuation of growth in overnight deposits and stable development on the term deposit side. No significant development here. This is driven by the unchanged interest rate environment.
If we continue on Page 31, funding. We've issued covered bonds this year and fulfilled our funding trends mostly by this. You see the maturity profile unchanged and very favorable, reflecting just simply our liquidity position and our continuous deposit inflow.
If we have a quick look on the capital position, Page 32, we are not doing a review of the third quarter results. So the third quarter profit is not included in the capital position. We've got, in the meantime, the approval of the new AMA model, which will increase the -- retails our risk-weighted assets and will increase our CET1 ratio. On a pro forma basis, we are about 13%, which is reflecting the continuous buildup of our capital towards our targeted ratio. Other than that, we expect a stable development in the fourth quarter.
And with this, I hand over to Andreas Treichl for the outlook.
Yes. Just a few words on the outlook. On the macro outlook side for '18, we continue to expect the 3% to 4%. As it looks right now, we're going to have across the region also 3% GDP growth in 2019. And we see a continued strong development with maybe somewhat lower loan growth in '19 vis-à-vis '18 also due to the fact that we have some measures by some of our regulators and central banks to curb loan growth, which is nothing that we're upset about. We actually think it's a good regulatory move. Therefore, again, a very good outlook earnings-wise for 2009 (sic) [ 2019 ]. For 2018, we expect now a minimum ROTE of 12%, and we assume growing revenues and flat expenses for the remainder of the year.
With that, thanks for listening, and we're ready to take any questions you might have.
[Operator Instructions] We will now take our first question from Anna Marshall from Goldman Sachs.
My first question is on cost, please. Specifically, could you provide more details on the drivers behind the more conservative cost outlook for 2018? And what's on it for the coming quarters as well? Specifically, how should we think about cost into 2019 onwards? And speaking of 2019 outlook, could you please provide a bit more color on the outlook apart from slower loan growth? And if you could mention what is the rationale for holding off on a more formal guidance for next year this time in Q3.
Well, first, development this year, it was mentioned already. We've seen wage inflation in especially CEE. We have some cost items that were included in the cost line that we were not expecting like expenses that we have in Romania for cash servicing whether covered by income, where we have the income in the other result and the expense in the expense side and small things like that, that led to the update on the cost line. Overall, we see in the fourth quarter a stable development and nothing to worry about. The rationale why we don't give a guidance for 2019 is very simple. We have usually we're giving it with the full year result, and we want to come back to this routine that we give the outlook with the full year result because there, we have a full year comparison and easier for you to follow what we are saying.
We will now take our next question from Máté Nemes from UBS.
Yes, I would like to start perhaps with the Czech Republic. I mean, I noticed that NII had a strong trend. It's up 6% quarter-on-quarter, but the NIM is down 8 basis points. Is this still a technical effect of shifting cash to interbank market? Or what's explaining the divergence here? And also, if you could update us perhaps the NII sensitivity to any additional rate hikes. I think in last time, you mentioned that further rate hikes from current levels would have a diminishing impact. And then secondly, on capital. I noticed in the appendix that now you are targeting 13.5% internal basis at 2020. Could you perhaps elaborate how do you think in this context for capital buffers and capital management and perhaps broadly dividends for 2018, 2019?
Well, on the Czech net interest income and net interest margin, as already mentioned, we were shifting from overnight deposits to send from the Central Bank overnight to 2 weeks repo, and this has been entered into the calculation. And as such, with the higher volume below the average net interest margin is a drag on the net interest margin. So this is -- the impact should be broadly over in terms of net interest margin compression, but we are continuing to invest in the 2 weeks area because this is giving us a higher net interest income. On the capital target, we were presenting the reasons why we think it's prudent to go up by 2020 to 13.5%. Broadly, as you've seen, we are already above 13%. If we include dividend for this year, the anticipated, we think that we continue in a strong capital build and capital generation, and don't think that a 50 basis points is a significant deviation of what we've seen until now.
We will now take our next question from Gabor Kemeny from Autonomous Research.
Gabor from Autonomous. Firstly, I'd like to follow up on your capital targets. So can you help us understand how is your own capital target, the group's capital target linked to the low capital requirements? I understand that the rise in the capital and the CET1 target was driven by higher countercyclical buffers in Czech and Slovakia. So if we get further increases in the Czech and Slovakian countercyclical buffers, shall we expect a further increase in your capital target? That's the first question.
We don't think that we will have a similar impact as we've seen it right now. It depends how big the buffers, any potential buffers would be. But at this point in time, we think it's prudent to go to the 13.5% target.
Okay. And secondly, on the provisioning, you've had quite significant write-backs in a number of geographies even though the nonperforming loans have been coming down. So can you help us understand what the write-backs -- whether the write-backs are coming from the nonperforming loans or also from the fully written-off loans, which you moved off balance sheet? And if you could help us understand what sort of a buffer could you have here from the loans that you have written off.
As you have seen in the recent past, we were benefiting from a number of write-backs, especially from provisions, nonperforming loans. And this is also something we can see during the course of 2018 flowing down, for sure. But what we still can see is the inflows are lower than compared with the past. So I would say cost of risk and the overall profile is pretty nice.
Okay. So we should expect write-backs next year, but most likely lower write-backs overall than this year?
Yes.
We will now take our next question from Benjamin Goy from Deutsche Bank.
Yes, 2 questions, please. The first one on net interest income and then particularly, your rate sensitivity. Seems like you're actually better than you guided in the past, particularly Romania. So I was just wondering whether you could update the sensitivity for Romania and Czech Republic as well. And then the second question, I guess you touched on it to some extent, but just wondering whether, more or less, progressive dividend policy is still possible with your new go-to ratio on the capital side.
Okay. On the net interest income sensitivity, naturally, now in the Czech Republic, the impact is lower than the first rate hikes because we will see at levels we are seeing right now a shift as well in the customer behavior. But we still have very nice positive impact, and we still have -- we'll see nice positive development. The capital equation and dividend outlook, if you add 50 basis points, which is not a significant number to our capital position income, combined with our capital generation, we think that we will still have a very nice dividend development going forward.
Okay, perfect. Sorry, and then just to come back specifically on Romania because, at least it was my expectation, that stood out very positively. Any thoughts around that here with higher interbank rates, how this is playing out?
No, I mean, we take it as it is at the moment. But in Romania, you have more development on the liability side than you've seen in the Czech Republic if you look at the overall market. So I mean, it's a very nice and very positive development, but I don't think that we will see such a positive impact on any potential rate move from the Central Bank.
We will now take our next question from Simon Nellis from Citi.
Yes. My first question would be about the net interest income outlook in Czech, Romania and Hungary. And I saw that those 3 divisions had very strong progression. Just wondering if you could elaborate on, if you think the margin expansion that we saw, particularly in Romania and Hungary, will continue? I'd also be interested in knowing what was behind the strong net interest income at the other Austria division. That'll be my first question.
Well, overall, the development, I mean, is reflecting markets where we saw positive moves on the interest levels. And this is something we hope that will continue, especially in the Czech Republic. With the rate hike from yesterday, we think we will have another support on the net interest income side.
But in Hungary and Romania, do you think that the margin expansion will be sustained? I mean, there's nothing one-off? Is the run -- will the run rate, quarterly run rate continue to improve?
Yes. I mean, we have -- there are no more one-offs in and the -- it's a mix development that was positive. And Austria is a money market activities that we've seen in this quarter.
Will that be sustained? Or will that reverse? What's behind that? I'm not sure what -- how sustainable that is?
This is a -- I hope.
You hope? Okay.
That they will be sustained.
Yes. And then just on the trading side, I saw that, particularly in Austria, you had a large trading negative. Can you give us some color on what was behind that?
Yes, but this is -- you have to see it together with the gains and losses of financial instruments. You know that we have reclassified EUR 12 billion in liabilities with the IFRS 9 introduction. So you always have to add the 2 lines together because they are moving or they are offsetting each other. And so the derivative valuation on these EUR 12 billion liabilities is going to the trading, and the rest stood at gains and losses line and is offsetting each other. So the more move you are seeing in a quarter, the bigger the impact. This is nothing -- has nothing to do with underlying negative business development.
Okay. But even if I look at all of the kind of other noncore income and trading together, it was lower than most other quarters than last, I don't know, 6 quarters. Just wondering if that's seasonality or...
We have last year a very positive impact from the Czech crown, and this cannot be repeated this year. So that's explaining the lower result in 2018 vis-à-vis '17.
Right. And then sorry, just one last question on the dividend. So you're now targeting a 13.5% core Tier 1 by 2020s as I understand it. So are you committed to pay out dividends above a 13.5% core Tier 1? Or what's your guidance there in terms of capital return?
I think in principle, you can say that, as Gernot mentioned before, raising the target from 13% to 13.5% by 2020 has no impact on our dividend policy. Our dividend policy is basically a result of our retained earnings-generating capacity. If that continues as we had in the past quarters, we see no reason on why we should not show a positive dividend development. The only thing that could hold us back from that would be a major investment in earnings-generating transaction, which we have no specific plans for the moment.
We will now take our next question from Giulia Miotto from Morgan Stanley.
A couple of questions from me as well. Just to go back quickly to the dividend point. In terms of dividend payout, should we be thinking about after -- ultimately targeting a 50% dividend payout? Or is that too aggressive? That's the first question. And then I was just wondering if you could give us an update on George. We haven't spoken about it today yet. I remember in the past, you said you may consider entering new geographies with the platform. I was just wondering how your thoughts are evolving on that.
Well, again, I think on the dividend policy, we have return on tangible equity in the last quarter of 16%. So we also sort of upgraded our minimum return on tangible equity target for this year, which will show you that our trust in our ability to generate retained earnings is here. And raising the bar for 2020 by 50 basis points will have no influence on our dividend policy. We're not targeting a payout ratio. We're targeting -- a specific payout ratio. We're targeting, as we said in the past, a step-by-step increase in our payout. I would guess sort of that 50% payout ratio would be the maximum that we would like to see in the future because we still want to have the ability to expand George. That is, I think, the main issue that we will have in the next years. Most of the thing that we do on George are already included in our forecast on our equity-generating capacity, therefore, also, on our ability to pay dividends. And the first and 2 most important targets for George are now, so the completion of the product range and the expansion of George in our present region. We're now online in Austria, the Czech Republic, Slovakia and Romania, growing extremely well. We're going to reach 4 million clients relatively soon. We're in the process of expanding it into Hungary, Croatia and Serbia. And as we said, our next plan will be to move with George in a new country. But we don't envisage that any of that will require investments of a magnitude that it would have a serious influence on our dividend payout policy.
And perhaps if I could have a follow-up on this. So you say, of course, you want to keep investing on George and potentially even move to a new country, and then we see wage inflations in CEE. How do you offset these 2 items that are clearly increasing in order to be able to keep the group cost basis flat?
Well, first of all, as you see, we have very different cost situations in the different countries and different cost levels between Austria and Central and Eastern Europe. We said already in the past, and that you could always still hear, that we target a cost-to-income ratio of below 55% on a group level. Wage inflation in CEE countries and also if it comes into Austria, I mean, there's a very, very clear and simple measure if you look at personnel expenses only is if you have wage inflation, you reduce staff, which will come automatically because we are approaching the sort of our target that we have of not only a good and cross-border, fully equipped digital front office but also a digital back office. And we are getting closer and closer to a state where we will be not only able to save cost on the front-office side by reducing our network, and we're now even getting the savings banks to agree that they have to move into some serious branch restructurings. But we also will have major opportunities to reduce cost on the back-office side. So I think much of the future performance, '19, '20, '21 will also come from improved efficiency ratios.
We will now take our next question from Johannes Thormann from HSBC.
Johannes Thormann, HSBC. Just 2 follow-up questions. First of all, on your provisioning policy and your healthy trend in NPL ratio. How far do you think can the NPL ratio on group level go? And probably, in some markets, how far can it drop? Or have we seen the low point already? And on your loan-to-deposit ratio, which slightly improved this quarter, any remarks? Have you -- any ability to do deposit inflow to a stronger extent than before? What is your outlook for the next quarters in this -- for this ratio?
Yes. Johannes, when it comes to the NPL ratio, we will expect for 2018 a ratio that's probably slightly below 3.5% down midterm. We see further room below 3% is what we can achieve.
Okay. On the loan-to-deposit ratio, I mean, we had a nice quarter with an almost balanced growth. And going forward, I think we will see our customers went hand in hand with the rate development, deploy their savings again and invest more than they've done in the past. So I would say over the -- depending on the rates and the development. But in some markets, less inflow of deposits and more asset management, not in the eurozone at the moment. To add there, we see similar development as we could see over the last couple of quarters.
We will now take our next question from Riccardo Rovere from Mediobanca.
A couple of questions, if I may. The first one is, again, on capital. Can you give us an idea of where the fully loaded common equity Tier 1 ratio could be if you included the interim profit? And I'm not sure I got it, but right at the beginning of the call, you stated that your operational risk model has been changed. The brand-new one will come into place in Q4. What is the capital impact expected from the switch to the brand-new operational risk models? This is the first question. The second question I have is on cost. You keep reiterating that you want to get to 55% cost-to-income ratio at some point in the medium term, but you have never really detailed how you want to get there, especially on the cost side. You have really never formalized all the actions that you intend to execute to get there. Are you planning any formal, let's say, communication to the market on how on a cost base you think you have to execute to get to the 55%? Because otherwise, we keep hearing that you want to get to 55%, but if I remember correctly, you've never really said that we want to get X billions of savings here, X billions there and so on.
I'll just start with your last questions. So you're not going to get that. And I see absolutely no sense in that. I mean, announcement of we do this, this, this and that are not the way we proceed. If you look at -- and I think you read anyway a lot out of our numbers. And if you look at our cost-to-income ratio this quarter or last quarter, of that part of the cost that we can influence, so -- and actually, that part of the cost of that is of value to investors because it seeps down to the net profit is getting very close to the 55% already. So this is not a target that is unachievable, that will be achieved relatively quickly and doesn't need substantial explanations. The part of the savings bank, which is about EUR 1 billion, so 25% of our cost base does not feed into the return on equity, and that is what makes our cost-to-income ratio look worse. If you take that out, we're already at around 57% or even below that. So that's just relatively minor steps to get there. And if we talk about that target, that doesn't need any specific explanation. If we give you a target on how we get the group's cost-to-income ratio below 50%, you will get very detailed explanation because that will require a major step forward on the digitization of our back office, which is well advanced but not yet at the stage that we can tell you by this and that date, this will all be done. The moment we feel extremely comfortable by which date we can actually achieve that, we will announce it, and that will result in a major reduction of the cost-to-income ratio.
On the capital calculation and the op risk model impact, the op risk model will lead to RWA reduction of more than EUR 3 billion and translates into 30 basis points plus on the CET1. The approval is already -- we received already the approval, and we will apply it in the fourth quarter of this year. If you include the quarterly profit and deduct a similar quarterly dividend, then the Q3 CET1 ratio would stand at 13.2%. And so this is a calculation of all the impacts if we were to include op risk model and the quarterly review of the results.
Just to be 100% sure I got the numbers correct that you said that 13.2%, including the AMA and including the interim profit. So this is to say that the 50 basis point increase in your internal target has been covered basically in 60 days, not even a quarter, in less than 60 days?
This is a very nice way of looking at it, but one thing you should -- it's deducted, and this is the dividends as well, the 13.2% calculation. The dividend is half of what we've reflected in the first year result.
But this is the way to look at it, 13.2%, including the interim profits, excluding the dividend, including the lower operational risk on the AMA. So 60, so let's say it's 80 basis point versus the current one, 80 basis points higher versus the current one, which is exactly that kind of 60 days versus the 50 basis point increase, right?
As I said, don't be carried away. The AMA approval, we will get just once. It's not repeatable.
Of course. Of course. And then if I may, a little follow-up. On Slide 32, I also see that there is a regulatory one-off effect, higher sovereign in equity RWA of EUR 1.6 billion. Can you explain what that is?
Well, this is this year's Basel III development that we've had.
But is something that is there to stay?
Yes.
We will now take our next question from Alan Webborn from Societe Generale.
Just a couple of questions. On fee income, I mean, how do you feel trends have been going across the summer? I mean, you've got reasonably optimistic earlier in the year about fees. Over the summer I think sort of capital markets in the region haven't been particularly buoyant. How have you seen sort of -- how have inflows been over the summer period? Are you still reasonably happy with the way fee income is progressing? That would be the first question. Secondly, on deposits, I mean, clearly, you're still getting a very good, in certain countries, very high inflows. I mean, are you happy as to -- are you happier now to receive those flows as rates have gone up a little bit? I mean, you were working quite hard to try and persuade or find products that could push people into more profitable funds. Is that process still ongoing? Or is sort of the rate situation in the Czech Republic, for example, now much more interesting for you? And sort of leading on from that, how -- are you now at a point where you're having to start putting rates up in the -- for deposits in the Czech Republic? Because presumably, someone is going to wake up and see that the bank rate is 1.75% eventually and realize they're getting nothing on their deposits. So I wondered if there's any sign of a changing trend there. And on top of that, do you think you will be able to push mortgage pricing up finally because, clearly, it's been lagging. And I guess the last question would be, give us an idea of how the takeup of digital origination is progressing. I think you talked about consumer loan origination, would be interesting to know whether that's actually been accelerating, expanding over the rollout period?
Okay. So in principle, we're happy and continue to be positive on the fee and commission income. And as we said before, we think that the main drivers will be asset management and insurance and on the insurance product side, particularly the nonlife products. And in both segments, both asset management and insurance, we see about 10% growth, and that's I think a pretty positive development. Could be a lot better if we had more asset management products available. But with the development of the interest rate curve in some of our countries, some of the products have not been attractive 1 year or 2 years ago slowly are again moving into a range where we can structure products for our retail investors, including some interest-rate-linked products that give them attractive returns. So I think we're well on our way to the EUR 2 billion commission income target.
Deposits, yes, I mean, we definitely hope to see a better development on the mortgage pricing in the Czech Republic. I think now, you will see a trend towards increased prices there and going hand-in-hand with measures that the national Central Bank was introducing to slow down the growth rates. Deposits, when will the customer behavior change, when will banks change? I think now, we're reaching a level where we definitely will see some impact. The question is how fast and how intensive the impact will beat the moment, it's still relatively quiet, and our customers are still -- saw the current rate environment as not forcing them or that they would be missing something if they're not invested in term deposits or the like. I think we will definitely see better development in asset management. The question how quickly will be the repricing, it's difficult to predict. But at this level, as I said, it's definitely gone up and going to have an impact.
Okay. On the digital sales side, we see quite a lot of progress. We see different speed of development in Austria, the Czech Republic and Slovakia. And we clearly see that in those countries where George is established, usage of digital channels is increasing a lot faster than in those countries where we don't have it yet. For the moment, I think one of the strong drivers is end-to-end cash loans that it can draw, for the moment only for existing clients, but they use it a lot. And part of the stronger loan growth that we see on the retail side, particularly also in Austria, comes from that. Austria is typically a country with very, very low consumer lending activities. And it seems that some clients like to have that on a mobile device available so they don't have to go to a branch. So in principle, in Austria, Czech Republic and Slovakia, we see the usage of digital channels increasing, on the transaction basis, very, very rapidly. On the product basis, on the lending and the asset management side, as we load on available products, usage of digital channels is increasing. We hope now that couple of months, we also get the first numbers out of Romania.
We will now take your next question from Brajesh Kumar from Societe Generale.
Brajesh Kumar from SocGen Research. Just a quick one on your issuance plan. Given that you had to pull out of AT1 issuance in 2Q, are you thinking of testing the markets anytime soon, this year maybe or early 1Q? And where are you on nonpreferred senior issuance? Any new developments out there?
Well, on the nonpreferred, as soon as we have the final decisions in place, you will see us, we definitely want to be the first ones out of Austria to issue because we want to set the pricing point for us. And on the AT1, given the current environment, we will come to the market in the next 2, 3 quarters. But there should be a little bit more -- it should be a little bit more quiet around Italy, I would say. At the moment, with all the noise, you will not find us. If it's more quiet or more stable, you might find us.
Okay, fair enough. And on nonpreferred, do we have some kind of time line by when you expect some more clarity?
I think you have to wait until next year as we come out with something more tangible. We will have enough time and will not be -- volumes will not be so high that we need to rush and hurry.
[Operator Instructions] We will now take our next question from Stefan Maxian from RCB.
Two questions remaining from my side. One, regarding actually the Central Bank action that we see in Czech Republic but also that we see in Romania to curb the retail loan growth. If you could put a little bit more color on that and how you think that will affect your loan growth especially in these 2 countries? And the second, a little bit more technical question on the other result, the other operating result line, which was particularly low in 3Q. If there is some one-off related to that. I've seen in other Austria, for example, you have a EUR 25 million positive. What is that related to?
Loan growth will definitely be impacted in these 2 markets. Remains to be seen how much because there's underlying quite positive development hand-in-hand with the economic development in these 2 countries. But early, early numbers have shown that, first, you have some early development ahead of the introduction of some measures. This is -- you've seen it in Slovakia, you've seen in Czech, you've seen in Romania. And then the following 1 to 2 quarters are a little bit below the trend line. And going forward, I think we will see somehow lower numbers. The question is how big it will be. In the other Austria, there's a reversal of a provision in commercial real estate. This was related to a tax dispute that we had in the project that was financed out of Austria, a project located in the Czech Republic. This is a one-off.
We will now take our next question from Hadrien De Belle from KBW.
Just a few follow-up questions on capital ratios. When you mentioned in the slide, 100 to 150 basis points management buffer, could you tell us what is it above? And second, I'm just trying to understand the timing of this upgrade in capital ratios. So you just have a 30 basis points, kudos from the Central Bank on the models. You increased by 50 basis points. But you don't mention that much the outlook for dividends. Shall we rule out a special DV given this new guidance on capital ratios, at least for this year?
Well, what do you mean by a special DV?
I don't know. You had strong capital ratios. I was expecting hike -- a significant increase in the dividend.
I don't know what you expected, but we were guiding for slight increase on year-by-year basis, and we see that not being impacted by any new capital requirements. We also don't see that impacted by the 13.5% target for 2020. So we stick to what we said in the last quarters. And we think also due to the fact that there will be no special 200 year bonus dividend next year as there also will be no 200 -- special 200 year bonus for the employees.
That was part of my question.
And management buffer, 100, 150 basis point obviously is just impact. I mean, you see we have capital -- a part in a capital that are volatile, especially if you look at FX volatility, Czech crown volatility, especially because we have a very big operation there, and any other things that you want to have run the business at a comfortable level above the regulatory minimum requirement.
So the 100, so it would be above the minimum regulatory, including B2G. Whatever is this number, we should add 100 to 150 for your comfortable zone?
The regulatory minimum, depending on the development of B2G, this should be a little bit going down going forward. So I don't know. I don't want to tie it to concrete numbers, concrete elements, I don't think. Regulatory minimum, we have defined as whatever we have to fulfill plus a buffer. And then if B2G is excessively large, that's a discussion we can have when the whole thing is finished and everything is included.
We will now take our next question from Tobias Lukesch from Kepler Cheuvreux.
I just want to say, kind of wrap-up follow-up on the kind of Q4 that we can expect with regards to risk provisions in particular. So if I understand you correctly, you now have had a risk releases in all the quarters. Should we expect in Q4 a very different risk assessment on that side that would probably end up with the kind of, yes, balanced risk result for the whole year, which would then mean that you basically, more or less, come out where consensus currently sees you for year-end? Or would you say that, okay, with the result, we're 10 months into the year, yes, we probably have 4 months of risk provisions, which is what you're looking at, or 3.5% before you do the final calculation. And where you're now, would you think that there's a fair chance to see a fourth quarter which is very much in line with last year? Or do you expect here some risk provisioning -- some bigger risk provisioning? I'm looking at Brexit, and Brexit may be a reason for some of the banks acting already in Q3, maybe in Q4. But in the past, if I understood you correctly, you said Brexit is not that much of a headache for you and you even pointed to some positive -- potential positives that might impact your business case. So if you could elaborate on that a bit, that would be very helpful.
Okay. When it comes to 2018, the expectation is that we will show up with a result that is oscillating around 0. This includes a few cases where loan to us, we want to refer to in the fourth quarter. So I would expect a result significantly below last year, but as said, oscillating around 0.
And on the Brexit side, the main issue are contractuals that I think the case for everybody as most cross-border transactions are based on U.K. law. With result to our business, we see no serious negative effect on our region. And the policy is, which we've actually seen a bit, is that due to new immigration conditions in the U.K., some of the expats might return back to our region, which could alleviate a bit of wage pressures. So that's what we see as a potential positive outcome of Brexit for us.
[Operator Instructions] We will now take our next question from Riccardo Rovere from Mediobanca.
So just one, if I may. Again, on NII, I see that, once again, the volatility in the derivative component is extremely strong also this quarter. If I add the contribution of assets and liabilities, this quarter is EUR 44 million. It was EUR 77 million the previous quarter. It was only EUR 4 million in Q1. If I remember correctly, in one of the previous conference calls, you stated there is some traveling between NII and trading revenues on this component. But if I remember correctly, you also stated that the derivatives at this time was negative mark-to-market of roughly EUR 60 million, if I remember correctly. Now do you think there's a possibility that this number, the contribution of NII from derivatives become a little less volatile, behaving a little less like a yoyo?
If I may answer to that, no, I don't think so. I mean, that's a result or maybe an unintended consequence of IFRS 9 that will stay with us, and you will always have to look at trading income, in combination with the fair value result. That's not going to go away. But if you net it against each other, volatility is substantially -- it is lower. It's just that it's between 2 different P&L components. But in my view, it's going to stay a yoyo number. We'll live with it.
As there are no further questions in the queue at this time, I would like to hand back to Mr. Andreas for any closing or additional remarks.
Thank you very much. So thank you very much for your interest and your questions, and our annual results will be.
28 of February.
28th of February 2019. It's going to be very good day, I hope. All the best to you. Enjoy it.
Thank you. That will conclude today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.