Erste Group Bank AG
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Erste Group Bank AG
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Good day, and welcome to the Erste Group Q3 2020 Results Conference Call. Today's conference is being recorded.
Now I would like to turn the conference over to Thomas Sommerauer. Please go ahead, sir.
Thank you, Diana, and a very warm welcome on behalf of Erste Group to this Q3 results conference call.
Today, we will follow our usual conference call routine whereby Bernd Spalt, Chief Executive Officer of Erste Group; Stefan Dörfler, Chief Financial Officer of Erste Group; and Alexandra Habeler-Drabek, Chief Risk Officer of Erste Group, will lead you through a presentation highlighting the main achievements and developments as well as trends of the past quarter, so Q3, and also give you an outlook on what we see happening in the future.
Now before handing over to the colleagues, I would like to point out to you Slide 2, which is the disclaimer on forward-looking statements.
And with this, Bernd, please take it away and start the presentation. Thank you very much.
Thank you very much. Good morning, ladies and gentlemen. Welcome to our Q3 earnings call. Let me say that we will follow broadly the same routine as we have chosen last time. So we will not go through the figures straight away because you've seen them anyway, but we will much more sort of reflect on the environment which we are in, the public response which is being taken and our interpretation of the measures on our business model as such.
Before I go into the slides, let me also say that what you see does reflect a very strong confirmation of our business model throughout all of our countries, throughout the region, that the business model is robust and intact and works, that the operating trends are good. And yes, of course, we are subject to a situation which has so far not been seen and which translates a health crisis into an economic crisis.
Now let me turn to Page #4, the first slide, really, the evolution update on the COVID situation. You do know that in the first phase of the crisis, all of our governments have responded rigidly to the crisis, have shut down the economies and brought down the infection rates rapidly and effectively; supported the local economy with very robust fiscal stimulus programs and then sort of have seen that an opening up of the economy was possible. However, now that we are entering into the cold season again, as we're entering into a situation where infection rates are going up throughout the region, again, policy response is strong.
So what we see is, in all of our countries, infection rates are going up, and we see different kinds and shapes of lockdown situations, which respond to a situation where the paradigm is that the access to public health services is being preserved. I think this is the major paradigm which is now taking place, and I will lead you through a couple of features in our countries.
If you look at the Czech Republic, facing the worsening of the pandemic, the government has recently launched several temporary containment measures, closure of schools and restaurants, limit to gatherings of however many people and sort of a lockdown-light, if you will. But what I think is important to mention. Yes, this will impact the services industries, but industry production factories are kept open. So I think if you look at the Czech Republic as an economic factor, industry itself is so far not affected.
If you look at the Slovak Republic, they chose a policy response which I think is quite unique. They have done a mass testing, a gene testing for now 3 million people. And the results are encouraging, I would say. I heard today morning that only 1% of the tested people, 1% of these 3 million people are tested positively. Bratislava is faring really well. Countryside is faring a little worse. But generally, what we see is a situation, which is better than anticipated.
If we look into our own bank, the positive cases are even significantly better, which allows for some level of optimism. So I think this is maybe an example which could be a benchmark for everybody else, where over a broad population, you get a feeling of sort of how infectious the disease is. Nevertheless, you see on this page that all of the countries are responding to increasing infection rates, and we will see a not linear recovery path.
So I think this is true for all of our countries, whether it's curfews like in Austria, whether it's the shutting down of hotels, of restaurants, of bars. This is taking place almost everywhere, but the industry is kept open. Overall, I think it's the right policy response. Overall, I think this is something which serves a purpose to keep the public health system up and running and which is giving us time to prepare for a very solid and robust recovery next year.
If I may turn to Page #5, a page which is very well-known by you, but still I want to make a point on it. Our economies are going into this crisis from a clear position of strength. We have almost full employment everywhere. Real wage growth is still taking place, albeit at a lower pace, which is also good somehow. But there are still very, very solid labor markets.
And if you look at the current account balances of our states, they have materially improved over the last 10 years. And also the public indebtedness levels have come down. So all of these countries still are in a position where they can afford a support of the economy. And if we're now going into something like a 1.5 or second kind of wave, all of these liquidity measures, which will be necessary, will still be sort of supported from a public policy response point of view.
Low interest rates are dominating our markets, and this will not change in the foreseeable future. And if you look at the banking markets in our region, they are very, very, very robust. They are capital strong. They are profitable. They have a sound asset quality, and we also see a situation where this is a self-funded business which we run here. So I do think that we look into a plain vanilla business model, which benefits from strong market shares, which benefits from a very balanced kind of balance sheet position and which benefits also from a robust core business growth.
Now if I go to Page #6, we have said last time already, and we continue to support that, 2020 will be, in all of our markets, and that will be probably true worldwide, a situation where all of the economies will drop. Clearly, if the economy is shut down, with the exception of critical infrastructure, we will see a drop. So we have -- we will see that this year significantly. We will see, and this we still maintain, a recovery next year. And we have said from the beginning of the crisis that the recovery will not be linear. The recovery will be a bumpy road, but it will be a road upwards. So 2021 will be a year where sort of we see economy recovering. But we will see a, I don't want to call it hammering down, but I would want to call it a nonlinear way of recovery forward-looking.
What you see on the upper right-hand chart is something which is a home-made index, which tries to get the temperature of economic recovery in our region. We call it the CEE Recovery Index, which is published on our website on a weekly basis. It is capturing elements which are so far not captured by traditional macro predictions. It's capturing elements like electricity consumption, air pollution, mobility in all kinds of retail elements and trying to get a little bit of a real-time feeling of what is happening.
And if you look at the curve where sort of the low is sort of close to end of May -- or end of April, where sort of the first shutdown has taken place, we see that we have almost recovered to pre-crisis levels. And now the journey is getting more bumpy, clearly, because infection rates are rising and, clearly, because policy response is limiting economic activity again. Still, the line is up, but it's not a straight line up. So I think that's very important to see. And we believe in that for 2021 as well, and we will continue to publish this kind of recovery index.
Now you have seen all the GDP forecasts. I don't want to go into that. Let me speak a little bit on Page #7 of the presentation. What is happening in real business? What is happening on the Retail business? It's a little bit of a mixed bag, if you will. There is a diverging demand on products. While there is a very robust take-up of mortgage loans in almost all of the markets, the inclination of taking consumer loans is going down, which shows a little bit of a loss of confidence, which I think is important to mark at that point in time. So people are going for safety, people are going for security, people want to own what -- where they live, but people do not want to get indebted on holidays. And as long as the road to recovery, as long as the shape of the recovery is not clear, I think this will be something which we will observe over the next 1 or 2 quarters as well.
Now if you look at the lower chart, which is showing the branch traffic, it was an interesting development over time. In the first part of the crisis, everybody changed to digital behavior. Everybody transacted digitally. Everybody sort of scrutinized his or her balances digitally. Once the coffee shops opened again, once the restaurants opened, once people went -- or children went back to school, people went back to the branches. So it was an almost return to precrisis levels. Still, what you see is somewhat below precrisis levels. And what we still see is a significant change in digital behavior, and this will not go away. So I think that's important to mention. It's not a radical shift, but it's a permanent shift, which is taking place and which will deepen over time.
On the Corporates, Page #8, what we see is that clients are very much understanding the situation. So they continue to adjust to what they see to a lower visibility, to a little bit more fogginess when it comes to when and how will the economy recover. There is still a sound demand for loans, but rather on the bridge loans, working capital loans, not so much on the investment loans and not so much on the M&A activity loan side. So I think while loan demand is robust in terms of composition, it's showing a wait-and-see character.
It's also important to say, and my former risk heart was a little bit more skeptical than what we see, what is important to see is that the utilization rates of credit lines and of balance sheet lines is not rising dramatically. So people are not panicking. People are not sort of trying to shore up liquidity. People are sort of carefully balancing. So I think on the drawdown behavior, there is no radical and no hysteric behavioral pattern change.
Core revenues in a situation where all of the banks are sitting on enough capital, are sitting on enough liquidity and want to do business and want to support the local economy, of course, reflects into margin pressure on the corporate side. This is something which will not go away very quickly. So I think that's also a statement which I want to make. And on the SME side, the growth is still here, but has slowed down somewhat. So I think this is what is happening on the ground.
I would like to hand over to our Group CFO, Stefan Dörfler, to elaborate a little bit on the trends which we see on the operating side, capital and liquidity.
Thank you very much, Bernd. Good morning, everyone. Let me follow up regarding net loan growth. I'm sure you all have our statements in mind. So far this year, recently, talking about a flattish net loan growth or net loan development, rather. We are -- despite most recent developments, now more confident and believe that a low single-digit underlying net loan growth can be expected for the year 2020.
Let me also mention that starting from a level of just about EUR 160 billion at the beginning of this year or the end of year 2019, respectively, we have now seen in the course of the first 9 months a growth of 2.6% precisely. However, taking into account the currency effects, this is rather reflecting an underlying net loan growth of around 4%. So that's why we make the statement that the underlying net loan growth for 2020 is to be expected in the low single-digit area.
Now as we have been discussing, not only with you, but also with the public and with a lot of our customers, the support of our region and the support of the economy of our region is absolutely of core importance for us. Erste Group has so far been supporting more than 1 million customers amid the evolving COVID-19 situation. And it's our obligation and pleasure to report and be very transparent about all kinds of information connected to that country by country.
And on the lower-left corner of the Page 9, you find the volume-based activity -- active moratoria participation. This time, we are showing here a comparison between the end of June and the end of September. The participation in Q3 has remained pretty much stable, slightly falling in one or the other country. For those of you looking for the retail/corporate breakdown, you will find this on Slide 66 of the details -- in the details of the presentation.
What is, of course, equally important is the actual active volumes, which are subject to key COVID-19 measures. Those you find represented in the lower right-hand corner of this slide. Again, as already in the former reports, we point to the fact that state-guaranteed loans continue to be an Austrian feature rather, whereas moratoria are broadly spread across the region. The total of the moratoria active volume as of September 30 is EUR 11.8 billion compared to EUR 13.7 billion by the end of June. And it remains to be seen how this develops in the course of the second wave, also depending on the extension or another extension of moratoria in the respective countries.
With that, I may ask you to flip to Page 10, where we are presenting the key information on operating result components. Well in line with what I said about the net loan growth developments, we are now expecting a flattish NII development year-on-year. So far, if you remember, we have been pointing to a slightly decreasing trend. Now of course, the impact of the rate cuts, in particular in Czech Republic, have been showing their impact, no doubt about that. In the same moment, the business development, as Bernd Spalt has already been elaborating on, have been giving us the confidence that we can reach a very similar NII result 2020 as in 2019. On top of that, we will see some positive impact from TLTRO III.
Just to give you the figure right away, I assume that it will be part of Q&A later on anyway. For the full year 2020, we're talking about an area of around about EUR 15 million. So it's a positive impact, however, of course, not in the dimension of other influencing factors for the NII.
Our fees are expected to decline, however, only in a low single-digit area. My personal expectation now for the year-end is north of EUR 1.9 billion compared to EUR 2 billion in the year 2019. Some parts of the fee development are very, very promising, especially those which we have been defining as absolute core targets of our business goals in the upcoming years at the Capital Markets Day back a year ago, and you see some details on the lower right-hand corner of the slide.
Last but not least, we can confirm that costs are set to decline year-on-year, 2020 over 2019. We are looking into some details of our cost-containment measures also to provide a very strong and disciplined commitment on costs into 2021. And with this basis being set in the year 2020, we are confident that good cost discipline can contribute to an excellent or at least, depending on the environment, satisfying operating result development.
And with that, I hand over to Alexandra for the risk part.
Good morning, ladies and gentlemen, and I hope you are all well. After second quarter with heavy front-loading of provisions, mainly due to the FLI update that we performed and manual stage overlays, provisioning in Q3 comes back to lower levels of somewhat below EUR 200 million, equaling 46 basis points.
The major drivers for the risk costs in Q3 are mainly effects from rating migrations. We also have some smaller effects from additional manual stage overlays, roughly EUR 22 million, and some very minor effects from the FLI update we performed in September. We also saw some Stage 3 bookings, but so far, nothing material as we haven't seen yet any significant defaults. Year-to-date, that brings us to 70 basis points, which is well within the range of our guidance of 65 to 80 basis points for the full year, which we herewith confirm.
Regarding the outlook '21, given the well-known and also recent uncertainties around the rising infection rates and potential new lockdowns or actual new lockdowns, we are, of course, very cautious for '21. Still, given the front-loading that we are undertaking this year and assuming ongoing government support measures, we expect risk costs for '21 being below 2020 figures.
One factor I would like to mention are recoveries. We have realized more than EUR 100 million, to be concrete, EUR 114 million in net recoveries year-to-date on our written-off stock, which compared to previous periods is somewhat lower, but not considerably lower and still shows that we are able to recover even under these circumstances from our written-off portfolio, resulting in quite considerable releases of loan loss provisions.
One short comment on staging. After we strongly increased our share in Stage 2, our Stage 2 share in Q2, we now see only a slight increase to slightly below 17%. Stage 3 is stable, as has already mentioned, no material defaults occurred so far. With the coverage in the various stages, we are still and continue feeling comfortable.
Then I would like to ask you to continue to go to Page 12 to the NPL ratio. The NPL ratio as of 30th of September is stable at very low 2.4%, again, mirroring the fact that until now, we haven't seen material defaults in our portfolio. Coverage is still on the rise and exceeding 95%. For the full year, we expect the NPL ratio to only slightly rise to somewhat below 3%. The coverage for the year-end is expected to stay strong, even somewhat below the current level.
Now I ask you to go to Page 13, where I would like to comment briefly on our COVID-related focus exposures. No changes and still no concerns for our oil and gas portfolio, which is concentrated on few major prime name companies entailing large downstream operations. A mixed picture we see in automotive. The positive aspect is that in our region, all manufacturing plants are open. And even in the new lockdown scenarios, no closing of manufacturing plants is planned as we currently know. On the other hand, of course, a big question mark on demand and consumer behavior in the next few months. Equally mixed, cyclical consumer goods. Some sub-industries are even booming like do-it-yourself markets, also sports, retail and consumer electronics. Others, especially clothing and footwear, are strongly hit.
Finally, to hotels and leisure, with no doubt, one of the most-hit industries in this crisis and also an important industry for our bank. Our hotel exposure is mainly booked in Austria, including the savings banks and in Croatia. City hotels make up for less than 20% of our Austrian hotel exposure. This is mainly booked in holding, and the portfolio shows a very comfortable risk profile. Exposure in Vienna is limited. The picture in tourism so far is extremely mixed. Of course, we all know city hotels down, on the one hand; summer season, July and August, on the other hand, much better than expected in Austria and also quite good in Croatia, at least until the second half of August. Prospects for next summer season '21, quite good, especially as most tourists in Austria and Croatia come by car.
At the same time, extremely difficult to assess at the moment is the upcoming winter season. Basically, winter tourism is structurally very sound in Austria after so many very good years. And given the super low interest rate environment, however, a lot will depend on extended and potentially additional state support measures in this extremely difficult environment.
To complement the picture on the industries, may I ask you to switch to Slide 14, where you find the snapshots on real estate and on consumer loans. The portfolio quality of our residential portfolio is so far unchanged, and also the outlook is rather positive; so unchanged, very good, and a very good outlook as demand, as Bernd has already mentioned, is on a continuous good level. Driver there is Czech Republic with historically low interest rates and also tax incentives, which helps a lot creating new demand.
Also, our commercial real estate portfolio so far proved to be crisis-resilient. We have seen a very swift recovery of shopping centers after the first lockdown, surprisingly swift. And we are also profiting from a low-risk profile in these segments. So not only in terms of LTV, we also do have a relatively low share in projects under development. Overall, this is a result of stringent underwriting criteria in commercial real estate applied over the last years.
Finally, consumer loans. As you know, roughly EUR 10 billion out of our EUR 219 billion total loan exposure is consumer loans. So far, we observed no noticeable negative deviation or development. And also, the take-up rate for moratoria is pretty similar to mortgage loans.
With this, I would hand back to Stefan Dörfler.
Thank you very much, Alexandra.
Capital. The key message for the third quarter is that the capital position remains strong and very much helps us to weather the storm. On Page 15, you find the waterfall that we have been using already at the Q2 report, and it's a representation of the year-to-date developments. So most of that is very familiar to you, I assume.
So what happened in Q3 with regards to our common equity Tier 1 position? On the one hand, we had RWA up-drifts amounting to roughly 8 basis points. We are accounting for the Q3 risk cost. That's in the dimension of 17 basis points. This is represented in the CET1 other block. And last but not least, and I'm sure you have been following the CEE currencies, there has been an effect in the other comprehensive income of around about 12 basis points for the -- from the currency translation. Making up for that is the fact that we have been partially reversing the 2019 dividend proposal. 28 basis points is this effect, representing the now proposed and already from the Supervisory Board confirmed a proposal of EUR 0.75 for the year 2019. All of that translates into a common equity Tier 1 Basel III fully loaded position of 14.15% at the end of the third quarter.
On top of that, we can inform you that there is an additional cushion, which is some of, on the one hand, no consideration, respectively, exclusion of all minority effects in particular or the year-to-date profit from the savings banks, which is totaling to a 30 basis points contribution that is not included in the currently reported capital position. On top of that as well, as you know, the third quarter profits and interim profits are not reflected. And last but not least, we are accruing, as already at half year 1, with around about 12 basis points for 2020 dividend. All in all, strong capital position, enabling us to support our clients in the difficult environment and, in the same moment, setting the base for a reasonable and appropriate capital distribution to our investors.
With that, back to Bernd Spalt for the key takeaways and the outlook.
Thank you very much. Let me turn to Page #16, and I will not waste much of your time on the left side of the slide. But still 2 words on that. Q3 has shown that the operating model really is working and is solid. Underlying trends are good. Our asset quality is good. Capital is strong. Liquidity is abundant. And yes, we need to deal with the crisis, but we're dealing with that from a position of strength.
If I go to the 2020 and 2021 outlook, as daring as it might be, I would like to say that, yes, we will see a GDP decline this year, which might be even a little worse if these shutdowns now come until the end of the year, but we will see a rebound in 2021. And we have also seen, of course, a very challenging environment which will keep us busy for a while. Still, there is organic growth. There is credit demand, which we continue to serve.
If we look into risk cost, and I think this is probably the core of the attention of everybody now, we do believe that we have done our homework in Q2 and Q3 this year. We have anticipated a lot what we will see next year to come. And we are saying that next year, in terms of risk cost development, will be better than this year because without any kind of insolvencies, without any kind of increase of delinquencies, we have front-loaded substantially next year to come.
If we look into capital, and I think this is also very important to say, Stefan has led you through the logic of our capital buildup situation, we are in a capital-strong situation. And next week, we will have our annual general assembly, where we will make a proposal to the shareholders when it comes to dividend distribution for 2019. You do know that based on a recommendation of the Systemic Risk Board, the ECB has issued a recommendation, which is basically nothing else but an order to not distribute any dividends this year.
Now what we will do is propose to the AGM that we will distribute a dividend of EUR 0.75 per share for the business year 2019 because it has been very profitable. We are capital strong, and we are also continuing to be profitable. So we want to distribute a dividend of EUR 0.75 per share starting next year, conditional upon a situation where there is no legal ban on any dividend distribution and conditional upon that the regulator does not recommend us not to distribute dividend.
So if these 2 obstacles will not be here, a dividend will be paid beginning of next year, probably February, of EUR 0.75 per share. How the regulators will behave until then or we will shape their views until then is anybody's guess, but we will know probably in December this year. So I think that's important to mention, but it's also a very strong statement of the management that we do want to honor the shareholders' interest in a consolation of, of course, a lot of stress and crisis, but also in a consolation where our business model holds up very strongly.
Now there's a lot of risk to whatever we say because nobody knows how the recovery will take place. But what I want to say to wrap it up with, our countries are, in terms of robustness, in a very good shape. Our economies are in good shape. We are in good shape. We will go through a very tough winter with a lot of volatility still. And there's no reason to cheer up right now, and nobody is happy to see a lockdown again. But I do think if anybody's business model is good at this stage, it's ours.
So on this notion, I would like to end the presentation, and we're very happy to take up your questions. Thank you very much.
[Operator Instructions] We will take our first question from Anna Marshall with Goldman Sachs.
Two questions for me, please. Firstly, on the dividend, you've mentioned that if you may provide some sort of communication in December on the topic, would you expect them, if there was a lift in the dividend plan, would you expect it to be a blanket list or some sort of more of an individually assessed approach?
And the second question I have is on asset quality. I just wanted to clarify, in your updated cost of risk outlook, both for 2020 and 2021, to what extent is this kind of second wave and particularly the restrictions factored in? Because I see in your outlook that it says Q4 restriction is not yet incorporated into the GDP forecast, but I wanted to clarify if they are incorporated into your cost of risk expectations.
I'll start with question number one on the dividend and on our guess on what the ECB will do. And I would also invite then Stefan to complement my statement.
I do think that this is completely impossible to tell right now. I do think that the ECB has a very sound understanding about the profitability capital position of the individual banks. So I would hope there would be some differentiation and a distinction between who should be allowed to pay and who not. But this is something which is completely anybody's guess.
I do really reaffirm that from a business model point of view, from a capital point of view, from a profitability point of view, forward-looking, which I think is important, that even if we see more shutdowns, we will be in a position to pay dividends. But to predict what they will do is very hard.
So maybe Stefan wants to complement that, and then I would like to hand over to Alexandra on the risk cost.
Yes, not really, Bernd. It's absolutely reflecting also my take, very hard to say. Maybe just one comment with regards to the time line, Anna. I think originally, one would have expected from the discussions that were, I should say, that were leaking or at least we heard from ECB Council that November will be the time of offsetting the rules for Q1.
In the meanwhile, at least from the information flow we received, maybe also in the light of most recent developments around the pandemic, early December, as Bernd already described in his summary, is the more likely time line. But again, this is all just a little bit reading between the lines and no one really knows until they really announce something.
And with that, Alexandra, please?
Yes, regarding risk cost, of course, you are right, our FLI updates that we performed in May and then a second time in September did not yet factor in the new macro figures which we expect for the next quarter. So we will perform another FLI update in November. But we see, as of today, we see sufficient room in our risk cost guidance also to take into account a deterioration of the macro outlook. For more details, you will see, starting on Page 57 of our Q3 disclosure, some sensitivities. So what would it mean if we would take into account the downside scenario, et cetera, so you can see the many details.
For '21, as I said, with all cautiousness, and we all see the volatility currently in the environment, but still, we are confident to be below 2020 risk costs, even given the deterioration of the macro environment as we see it now.
Our next question comes from Johannes Thormann with HSBC.
Johannes Thormann, HSBC. Two follow-up questions and another one, please. First off, on your dividend policy, how likely do you really think that you can pay out the 2019 EPS, which will be hopefully voted on by your AGM in the next days?
Secondly, just for understanding, so you're expecting 2000 -- 2021 loan loss provisions below 65 bps, below the low end or just below the upper end of your guidance for 2020?
And last but not least, you elaborated on the change in digital banking behavior and the branch visits. How big will the impact on your branch network be? Some German banks are already cutting branches by 20% to 50%. Is this something you're also thinking about? Or is this still completely different in your scenario thinking?
Thanks very much, Johannes. Let me start with dividend policy, and it's something where probably will not make you happy. What we can do is showing and sort of determining a clear willingness to pay. And this is what we will do in a way next week on the AGM, which is irreversible. So if at the beginning of 2021, these 2 obstacles, which I have mentioned, will not be in place, this will not be a debate whether or not we will pay, but we will pay. This is a sort of very clear sort of mechanism. So I think this is showing management commitment and management understanding of how to protect our shareholders' interest.
What the ECB will do, again, is anybody's guess. And I do hope, and if you read through the elaborations of ESRB and ECB on that context, they do understand exactly what the problem of banning dividends is. So there is an understanding of banks need to be investable. There is an understanding of sort of how do we get access to capital, and there is an understanding of the cost of capital as well. So there is no ignorance on that side.
So my hope or our hope here collectively is and our belief is that if you're sitting on a sound business model, if you're sitting on sound capital and liquidity basis and if you continue to show profitability through these very difficult crisis times, then what else should justify to a dividend payment. So I think we're in as good as a position as we can be. We do understand and believe that a regulator appreciates these considerations. And this is how we propose the decision next week. So I think this is as much as we can say and as much as I can tell.
With that, I would like to hand over to Alexandra on the 2021 outlook on risk costs before I take back the floor on the branch expansion strategy.
Okay. Given the aggravated development of the crisis, especially in the last days and the expected impact on the macro outlook, I think it is a reasonable assumption that for this year, we may rather end up in the upper range of our guidance than in the lower range in 2020.
So when you're asking what does mean below, this is what I can comment on. So for 2020, given the recent -- most recent developments, I would expect the upper part of the range and for 2021 be below what we will be booking this year. More precision, I'm afraid, to the -- for the time being, I'm not able to provide.
Thanks, Alexandra. Maybe still responding to your third question on the digital/physical footprint, which we're having, I continue to support the strategy that a combination of physical accessibility and digital competence will be part of our success model. So while, yes, all of our countries will reduce their branch footprint over the next couple of years, some of them will even speed up a little, we will continue to hold up to this hybrid strategy.
So I do think that it is very important that we're still accessible, that we're still also in terms of giving advice to people from a human point of view, this is something very reflective of the shape of our economies and population in our region. So yes, the branch build-down will continue, but no, we will not leave the hybrid model and we will still offer physical services to our customers. And I believe in that, and this will be true for a very long time, not cut our branch network to 50%, certainly not.
Our next question comes from Gabor Kemeny with Autonomous Research.
I have a couple of questions about core revenues, please. Can you share us -- can you share with us your views about the core revenue outlook as we go into 2021? And you are guiding for flat net interest income for this year in an arguably challenging year. And I guess now that we have the low interest rates mostly in the numbers, and you mentioned the strong mortgage lending, I wonder whether you think it's fair to assume some growth in your net interest income next year.
And then we see, obviously, a decent recovery in the third quarter. To what extent do you think this was driven by the kind of pent-up demand after the lockdown measures have been in? And to what extent should we expect some further gradual growth in fees over the coming quarters?
Thanks for the questions, Gabor. With regards to an outlook on operating performance, operating result 2029 -- 2021, I kindly ask you for understanding that we do not give any precise guidance yet. However, what I can say at this point in time is that in a proper balance between cost containment and really good cost discipline, of course, a little bit more supported, if you want to use this word in that context, by the rather difficult GDP outlook.
Let's not forget that we have been facing significant pressure on wage inflation before the pandemic actually has been hitting the ground. We will have to watch, in particular, how the growth development on the asset side will develop. I think this is a very crucial factor because from the perspective of the interest rates, and I think you were including that into your question, we cannot expect too much of a support in the course of the business year 2021.
If you look at the latest statements of the most prominent economies, for example, from Czech Republic, they have been talking about, given inflation pressure, which is a very specific feature in Czech Republic, they have been originally talking about potential rate hikes in the second half of 2021. Now of course, in the light of the developments of November -- or say, October -- September, October and now going into November with regards to the aggressive spreading of the virus, most of those expectations have been taken back. So we see it's a quite volatile, let me say, environment.
Also, with regards to economic outlook, I do personally not expect too much of a support from the interest rate side, obviously, not in the euro area, but also probably not for most of our CEE currencies. So in other words, what we need to do, and this is exactly what we are doing day by day, is following through exactly what we have been doing in the last 2 quarters as well, meaning delivering good services to the clients, generating the best possible operating performance out of our own strengths and with that, delivering an operating performance which is, to the extent possible, not so much depending on external factors as it any way to a certain extent does.
If you ask me today what our ambition is for the year 2021, it's clearly to improve operating result from what we will be delivering in 2020. Whether we are going to set this as a guidance remains to be seen and developed -- depends on the developments of the next, I would say, 2 to 3 months and how the pandemic unfolds over winter.
And I think the other question was...
[indiscernible]
Yes, I think the other question was going about the third quarter. I think I would not see it just as a rebound factor. So I think that's the way you phrased it, whether it was kind of just making up for what didn't happen in the second quarter. I don't see it like that. I think it was pretty much normal course of business in the positive sense of the world. So I think it has been showing the potential that we have. Just look at developments on asset management side, but also things like securities business. Yes, there might have been some effects for a few weeks where really the first lockdown was holding back clients to do certain stuff. That was rather in the second quarter. I think the third quarter is pretty much representing of where we are really.
All very useful. Just to briefly follow up on what you said on cost discipline. When you mentioned like cost containment in 2021, do you see yourself being able to keep costs at least stable next year or potentially reduce them?
I think given the still life, and this is something quite surprising and overall relatively positive, honestly speaking, for our top line, but of course, on cost side, it's a certain burden. There is still quite some wage inflation going on in countries like Hungary and also Czech Republic, at least so far. So in that respect for those countries, especially in the local currency, it will be very difficult, not to say impossible, to keep costs flat.
It's a completely different story in Austria. You know that we have been talking long before the crisis actually hit -- started to hit the economy, we have been talking about a prudent and, I would say, balanced cost management approach for Austria. This has been proving right not only due to the crisis, but in general. So for Austria, this is definitely something we are targeting. In other words, it's all depending on each other, of course. So the better the top line can develop in a certain environment, the less able, on the one hand, and also, let me say, necessary it will be to react in the respective country on the cost line.
So what you can definitely expect is that if you remember the last few years, we have been growing the cost typically in the area of 2% to 4%, this is something we definitely would like to cut shorter. I wouldn't throw out a cost flat message at this point in time because that's for some of the countries simply a very, very tough call. So that's what I can say at this point in time. But we'll get -- we'll come out with the 2021 operating result ambition and also then guidance by the end of the year, respectively, with the end-of-year figures.
Our next question comes from Izabel Dobreva with Morgan Stanley.
I wanted to follow up on the risk comments because you have helpfully provided the guidance for next year, which is for the risk costs will be slightly down. And earlier, Alexandra, you commented that you would bake that against the top end of the guidance for this year. So I just wanted to ask if you could help us narrow down the risk cost for next year and how we should interpret this guidance for the risk cost to be slightly down. Just because if I look at your company consensus, the expectation is for loan loss provisions to be down about 20% year-on-year. So is that the quantum which you have in mind when you guide costs to be slightly down? Or do you think that might be a bit optimistic at this stage?
And then my other question was related to the rate cuts across CEE. In the past, you have given us very helpful guidance regarding how the rate cuts translate into net interest income. I was hoping you could help us quantify how much of that headwind has been taken already year-to-date and also how much remains as we think about the headwinds from rate cuts into the fourth quarter and into next year.
With the question on risk cost, yes, I don't want to repeat all the caveats that I have been -- already mentioned today several times, but to comment on your question, and hopefully, this will shed some more light for you. Slightly down is not understood in a sense -- if we'd put it very slightly, I would have said I expect stable risk costs for this year, but we are more optimistic and positive, and we are indicating that it should be below this year's level.
What does mean below? I do not and I will not mention any, whether this is the 20% or 15% or 25%. But what I can say is, first, it should be noticeable, yes, so not the same as stable. And the second, we still expect risk cost '21 to be above normalized risk cost. So '21 will not be a normal year, but it should be a better year than '21 in terms of risk costs.
So Izabel, on the NII impact of rate cuts, yes, it's completely clear that especially the intensive measures from Czech National Bank had an impact. We have always been very transparent on that, and it will have a further impact also in Q4 and very likely going into the new year as well.
With regards to what is already reflected in 2020 results, since most of the measures have been initiated when it comes to CEE currencies in the course of March, respectively, second quarter, 2/3 are reflected already in the same moment, as I mentioned earlier on. Some mitigating factors from Central Bank activities are standing against that, obviously, cannot be fully mitigate the NII impact from the cuts.
Now what is important to mention, we are all following the discussions around potential further cuts of the Czech National Bank. As you know, there is not too much room as long as we expect them to be remaining in positive area. There is speculation and discussion around analysts whether they might go to technical 0. Frankly speaking, this won't have a major additional impact on our results, definitely not in 2020, also not into 2021 to a dimension comparable to what we have seen.
Now that's the -- what we can say. Maybe one remark that is very important. When we look at the euro-denominated results on a consolidated group level, what is always also a factor, and of course, connected to the interest rate developments, is the FX development. This is true for the Czech koruna, but as well also and especially for the Hungarian forint. So this is a factor we should never forget also to look at. So all in all, I would say that we are used to this interest rate environment. It doesn't make us entirely happy. But in the same moment, we have learned to live with it. And this is all reflected in our expectations and our guidances, as we discussed them with you.
Our next question comes from Riccardo Rovere with Mediobanca.
A couple of -- 2, 3 questions, if I may. The first one is on the moratoria. In one of your slides, you mentioned that you expect Stage 3 to go up at some point to reflect the fact that moratoria will come to expire in some countries. I was just curious to have a better understanding from you, what portion do you think of the loans under moratoria? And if I'm not mistaken, you mentioned we're in the region of 11 point -- EUR 11 billion or EUR 12 billion. Do you expect to go straight into Stage 3? Is there a number or a kind of default rate that you could suggest or anything that is included in your qualitative guidance in 2021?
The second question, still related to that. If you had to move positions, exposures to nonperforming, should we take into account the almost 96% coverage ratio that you add on NPLs? When you move a brand-new position into NPLs, like saying, because that is the coverage ratio of a position that is totally unsecured, but I would be surprised if everything that is moved to Stage 3 or NPL is unsecured, you must have some kind of collateralization here and there.
The other question I have is on NII. It's not clear to me what is the contribution of TLTRO in this quarter. Sorry for that.
And then the final question I have is with regard to major bolt-on acquisitions, there is a little bit of debate in the market around a possible M&A and so on. What is your position there if you want to share your opinion on that topic with us?
Yes, let me start on moratoria and NPL coverage. It has been presented -- the figures have been presented by Stefan Dörfler. What I would like to point out before I come directly to answer your question is that when we compare the total volume of moratoria and other forbearance measures between 30th of June and 30th of September, we see that the total volume is decreasing. So we have roughly EUR 2.2 billion less in active moratoria or other forbearance measure. So this is a very, very good sign and indication. This does not mean that not new clients are coming and asking for moratoria, but overall, this is a very strong positive signal.
To your question on our expectation, how many of those being in moratoria will get into severe issues. Well, this is still extremely hard to assess as, of course, it will depend on the duration of the crisis and especially, and this has mentioned so many times, but it is very important, that's why I'm repeating it again, especially these days show the volatility of the situation and how cautious we need to be. Still, we have experienced so far experiences limited to some countries, but still we have the experience.
What we can say -- what we observe in those countries where moratoria already have ended, only a small part of clients in the moratorium is showing and communicating a need for further restructuring. And even an even smaller part of those clients are really in danger of defaulting. Most experiences so far, we have in Serbia, where the moratorium has ended end of September. Here, we see no difficulties so far in the corporate segment. In retail and micro, a low- to mid-single-digit number of clients indicate payment difficulties. But overall, the volume there is small.
In Slovakia, a very similar and a very positive picture so far, but it needs to be said that only a small number of clients have exited the moratorium as of now. In Romania, already a considerable portion of retail clients, for them, the payment deferrals have expired, and the volume of the portfolio showing difficulties is very, very small. So what we can see until now is that many clients use the moratoria to build up reserves. And now it will depend on the length of the crisis. To that extent, these reserves will be sufficient to bridge the time until economic recovery or until employment again.
So to sum it up, experience so far, limited. But however, what we say only a very small portion of those clients that have asked for the moratoria really need restructuring or have payment difficulties. And overall, the demand and the volume of the active moratoria, other forbearance measures is going down.
Coverage question?
Coverage rates, yes, I mean you're completely right, 96% is extremely high. And of course, this does not mean that we have mainly unsecured loans in our NPL stock and taking into account the collateral be above 100%. So this gives us also comfort that we will enter very well prepared also in terms of risk provisioning into next year '21.
Of course, when new NPLs will arise and we will see this new inflow, we will not see this high level of coverage also in '21, '22, which we consider as peak years for the NPL ratio. So there, we would assume a decrease of the NPL coverage, which is also partially driven -- some state-guaranteed loans will become NPLs. We are afraid and for those who have, of course, a lower provisioning need, so the 96%, you should not expect for the next years, but still with an NPL count with an NPL coverage, which is still very, very sound.
If you allow me, Alexandra, with my former risk heart, to add to that and, of course, to complement that. If you look at the coverage ratio, what the coverage ratio represents is the total coverage of the NPL book. So it also counts, of course, the provisions which are booked in Stage 1 and Stage 2. If you look at Stage 3, the individual coverage ratio is something like 59% or so.
So if you look into incremental NPLs flowing into the book from now, you should expect that we probably would have the same coverage ratio on the specific NPLs close to 60%. So I think this is a good indication of our book and also of our sort of collateral coverage, which we entertain through our normal business.
So Riccardo then, let's talk very briefly about TLTRO. Of course, we can talk about a full day about TLTROs in the meanwhile. But let me try to be as precise and as accurate as possible.
First of all, volumes, because that's the easier part, we took a EUR 10 billion gross by end of June. I think we talked about that in our July conference call, and we took additional EUR 4 billion in the September take-up. However, as I may remind you, the EUR 10 billion were gross and we had beforehand already in the TLTRO I and II, we had volumes in there.
So the much more difficult question is always how exactly would you translate that into the P&L impact. It's always, of course, a question against what you calculated. You calculate it against the minus 50 basis points, how do you accrue for it and so on. So I'll tell you how we accrue for it and then I'll give you my take on what -- how -- what number I would allocate precisely.
First of all, let's never forget the TLTRO III is designed to last until 2023. So it's not a 1-year measure, as most people assume, but it's a 3-year measure, which is actually designed the way that if you fulfill all the criteria with regards to SME growth, then you can benefit from a minus 100 basis points funding rate for the first year and then minus 50 basis points for the years 2 and 3. And the way we account for it, in agreement with the auditors, is that we apply 66.6 basis points accrual throughout the 3 years. Of course, that means should there be either an extension of the minus 100 basis points later on or should we redeem after 1 year, which is possible, then there will be a jump effect in June 2021, but only then.
For now, we accrue for the 66 basis points. And that, combined with the volume and how we calculate it against, I would say, let's call it, the usual funding, that translates into the figure that I gave you, the EUR 15 million in the full year 2020. Given the volume buildup, the third quarter was slightly less than half of that for 2020. So that's the way how we look at it.
One very important remark, not related to TLTRO III, but related to the former TLTROs, you might remember that as a first reaction to the crisis, in the second quarter, the ECB improved, respectively, adjusted their interest rates and so on for the existing volumes. And that was a one-off positive effect of EUR 7.9 million in the second quarter. This was something which we remarked upon already in the second quarter. So summing up, the volumes are clear, the volumes are transparent, the volumes are simple. To say exactly what NII impact it has for a respective observation period is not that easy, and I tried my best to explain it, hopefully, to your satisfaction. Thank you.
Let me round that up with the answer on the M&A anticipations. I think our view is broadly unchanged to the Capital Markets Day last November and what we also said over the 2 last quarters. We do see that our markets offer growth opportunities, not only organically, but also through M&A. We do think that there will be businesses up for sale, not necessarily only banks, but also portfolios and sub-portfolios. And we will analyze and scrutinize them. We will do that from a position of strength.
So we are in a position to buy if we think -- if and when we think it's capital accretive, it's making sense from a strategy point of view, it fits to our business model and if we think that it comes at the right price. So unchanged. So in our countries, we see M&A opportunities, and we will continue to monitor and scrutinize the markets.
But on this, just to be 100% clear on the last topic, here, we are talking about -- Mr. Spalt, you're talking about bolt-on acquisitions, nothing transformational, right?
We're talking about business models which fits to our business model. We're not talking sort of acquiring energy providers. We're not talking about acquiring car production factories or anything else. We're talking about whatever supports our business model, which we think is strong enough.
And our next question comes from Hai Thanh Le Phuong from Concorde.
I just have 3 questions. So first of all, it's on the payout. [ Is that ] now restricted or any kind of payout? But I was wondering if you would consider share buyback as an option from 2020 results. That would be my first question.
My second question would be, and this is somehow related [ to both ], is that could you indicate your margin sensitivity to euro rates solely? I know that there were some talks about it, but it would be helpful to have a clear figure on that.
Third question would be like kind of a clarification. If I understood it correctly, Alexandra, you said that NPL ratio is expected to rise to, but remaining below somewhat 3%, right? At the end of...
Maybe -- yes, maybe I would start with this with the last very short question. So for this year, given the extensive state support measures, we do not expect considerable new NPL inflows. So for this year, we would expect something close to still below 3%. Yes, so you understood it correctly.
Short answer to your first question, we do think that the economic result of paying dividends or buying back shares is broadly the same. I think for the short-term future, we have next week our annual general assembly. So we will not propose a share buyback, not for principle reasons, but because we want to propose a dividend contingent upon no dividend plan being in place for next year. So we're not religious about it. We're completely agnostic about it. For the short-term horizon, we'll propose a dividend. I do not rule out at any point in time in the future, we will also propose a share buyback.
And maybe with that, I would like to hand over to Stefan on the margin sensitivity on the euro rates.
Yes, euro rate, and I can be very short on that because we have traditionally not given any rate sensitivity one on one to -- on euro rates because this would not be in any form professional and serious. The complexity in relation to euro key rates is across our balance sheet. This is simply too big to give a one-to-one relation. I mean, obviously, in certain components, as we just discussed it before on TLTRO or, for example, also on the funding side, let's not forget that we follow through very, very closely all labels on AT1, on preferred senior and so on. And we give -- and we can also be always discussing respective NIM impact on the asset side. That's always possible and happy to do so. But simply, on a euro rate relation, honestly speaking, you will, 99.9 cases, you will be wrong.
Maybe to say something about the margin development. And I think, if I remember correctly, Bernd was commenting on that briefly in the context of the developments on the corporate business. I mean I would say the higher the proximity of the respective business segment and the respective also business area to capital markets, the higher sensitivity also in terms of the margin development. So obviously, our colleague, Ingo Bleier, is of course confronted with a much more direct impact on his large corporates business with short-term developments on margins in the spread market than maybe on the micro business where this takes longer.
So that's all I can say on that. Overall, as I mentioned, this is very important for everyone to understand, the liquidity in the market is at least as strongly influencing the margin developments as the rates and the rate levels as such, as I believe.
Our next question comes from Alan Webborn with Societe Generale.
A couple of quick questions from me. Does the change in the sort of economic outlook that's likely to happen in Q4 bring back into question the Czech goodwill, which I know you looked at, at the end of the second quarter and everything was fine. I mean is there any reason now to be more concerned about that? That would be one question.
The second question would be, following on from the last is, are you reasonably confident that the margin -- the group margin is at its bottom in Q3? Or do you think there is room for it to fall further before we stabilize? That was the second question.
Third question, when do you see the real hurdles from unemployment coming forward? Are there -- you said that you've had limited moratoria ends, and you've had positive experience so far. But when you look ahead, are there -- is it going to be January? Is it going to be March? Is it going to be June? Are there periods, both on the retail and the corporate, that could sort of be quite important in terms of understanding the behavior of clients post moratoria ending. That would be interesting.
And finally, on your risk appetite, particularly for mortgages, has that loosened over the third quarter as recoveries come in? Are you retightening again? Or have you been fairly sort of stable in terms of your risk appetite given sort of the uncertainties on unemployment that might come through later on?
You can start on the risk questions, unemployment and risk appetite.
Let me start with the topic of risk appetite. So we have not loosened our underwriting standards. So any relaxation of standards is not the reason why, especially housing loans, it is displayed also in the presentation, have increased so much.
To repeat, Czech Republic is the driver behind this strong increase in demand. And there are 2 main reasons. One is the historically low interest rate. So never in Czech Republic it was so cheap to borrow money for a mortgage loan and on top, the incentives from the state with the tax reliefs. But also in the other countries, we saw a strong -- or still see a strong demand. Partially, it was more in the first quarter, like, for example, in Romania. Then in Austria, again, picking up and remaining stable over the quarters as real estate is seen as a safe haven, and so many of us have experienced how important it is where you spend it even you're -- when you're working in the home office.
What we, of course, did, so we did not loosen; we tightened to some extent. So we did not one-size-fits-all underwriting standards adoptions, but we tightened individually in the countries and in the portfolios. So to give you one example, for example, we lowered the maximum acceptable LTV. We excluded some sort of income in the calculation of the income. So this is what we did. And we also now performed in Q3 very, very, very selective and very light relaxations again, but not relaxations compared to our normal lending standards, but very careful relaxations compared to the tightenings that we performed.
The examples that I gave you are mainly focused on the retail segment. In the corporate segment, we stick very, very disciplined to our lending standards and de facto allow no deviations. So in that sense, it's also some sort of tightening compared to normal times where some exceptions are approved. So this comes to the topic of risk appetite, very careful monitoring, very individual tightenings, but also relaxations when the times come.
Unemployment rate is the major -- or let's put it like this, the development of the unemployment rate so far in our region was better than we originally expected, especially when you look at Czech Republic, where we came from de facto full -- really fullest employment of all -- almost full employment in our region. There's hardly an increase that can be seen now. Some countries copied the Austrian Kurzarbeit model, and they're even calling it also Kurzarbeit. And especially in Austria, Kurzarbeit is the state measure that helps the most with the unemployment rate. So also in Austria, the current unemployment rate has slightly increased, but not dramatically.
The current expectations from the economists for next year see an increase in unemployment rates, but also not to a dramatic level. So when I'm not mistaken, still below the levels of 2008 and 2010, so even for the upcoming years. But again, the caveat, situation extremely volatile, hard to assess. But what we just have seen this weekend in Austria when the new lockdown has been announced, at the same time, a very strong state support measure has been announced as well, which means that for those companies, mainly restaurants and tourism, they will get reimbursed up to 80% of the turnover of last year's November. So a very, very strong support measure.
I will follow up on the question regarding economic outlook and potential impact on certain assets. Look, we will perform an impairment test by the end of November. November 30 is the date of observation. And definitely, it's a fact that the economic outlook, whatever it might be at that point in time, will play into the assessment. At the 30th of September, so by the end of the Q3, there hasn't been any trigger event whatsoever. So no reason to challenge our former assumption. But it's a clear fact that a significantly deteriorating environment will influence the impairment test. And it remains to be seen at what level the economic outlook will be at the point in time when we perform the respective test.
With regards to the margin development, honestly speaking, it simply would not be serious to call out any level at the -- as a floor. Given the developments of the last years, I would say, in the meanwhile, it's fair to say that margins, depending on the liquidity environment in particular, can also, going forward, be under further pressure. This is related, as I mentioned, to the liquidity situation as well as to the absolute level of interest rates.
So as you rightly observed, we have been keeping the overall levels pretty stable throughout the last quarters. But I know from the corporate business that there is some pressure still on. Obviously, it will also depend on the risk environment on the other hand, as Alexandra perfectly described just before. So definitely, no statement. The like of this has been the lowest level that can ever be. This would not be, I would say, a serious statement, and therefore, we also don't take it.
And for further comments on unemployment, I hand back to Bernd.
Thank you very much. I think most has been said. We do anticipate that next year, the permanent level of unemployment will somewhat rise. But as we see now the second wave of the lockdown, the measures which will be taken up by the government will again contain Kurzarbeit, as Alexandra has mentioned, which will buffer these developments. So we will see slightly elevated sort of unemployment levels from also already this winter on and going forward through the next half of the year 2021, but nothing where I would see a cliff effect.
Our next question comes from Olga Veselova with Bank of America.
I have 2 questions, please. One is about loans. I appreciate your useful comments about the behavior of borrowers, especially of corporate borrowers these days. Based on this comment and based on your outlook for 2021, could you share with us your expectations of loan growth next year? Maybe not in numbers, but maybe the direction, do you think it can be a little bit stronger as you expect a delayed demand? Or you don't think it's likely at this point?
And my second question is on your M&A in the Czech Republic. I saw you announced this M&A by Ceská Sporitelna. Could you share with us the rationale of this purchase? And what should be the impact on financials?
On the second question first, this is very simple. This has been something which is a minor exercise, which was responding to the regionality principle which we employ. There was a small portfolio ran by a savings bank in Austria on the Czech territory, which was now sort of being consolidated into Ceská Sporitelna's activities. This is something which is a bread-and-butter business, which is just allocating business where it should be and will not have a major implication on profitability either side. So it's something which is just a cleaning-up exercise, nothing else.
Regarding the loan growth on the corporate area, Olga, I would say that what has been mentioned in the presentation is one very important factor. And I again refer you to Slide 8 of our presentation. We will -- we see that there is a somewhat slowing down SME business growth, but that means still SME business growth. So slowing down from a very, very strong and I would even say a very strong label, at least with regards to Erste historical numbers.
So we are still very positive on that segment. We strongly support our SME clients. We are growing market share there, but it's also fair to say there is a somewhat reduced dynamics. The underlying demand is uncertain. This is logical given the overall, I would say, investment environment. And obviously, this is a macro play to a very large extent. We are clearly committed to grow in all segments with some reservations obviously in real estate. I think there has been a very detailed representation of our situation in real estate in our today's material. So I would exclude that sector, knowing from my colleagues that there, we feel comfortable with the shares that we have. But definitely, SME, micro and selectively in the large corporate area where we feel comfortable with the risk return, there is our commitment to growth. But clearly said, underlying demand remains uncertain given the crisis environment.
Maybe we should mention we have only 2 more.
There is one more question on the line because we have to speed up a little bit since we have follow-up press conference. So please, back to the moderator, if you could go on.
So we've got 5 minutes to go, maximum, so let's try to wrap it up then, please.
We will take our next question from Mehmet Sevim with JPMorgan.
My first question is a follow-up on dividends. Given your conditional dividend proposal, what would be the approach you'd follow if the current restrictions on the payments are not lifted by the end of February but at a later date than that, say, for example, in March or April? Would you return to a flexible approach like your peers are following, for example, by calling an EGM potentially if and when the restrictions are lifted? Or would you officially shelve the dividend payment for 2019 in that case?
And my second question is on moratoria. What's your view on the potential extensions across the region going into 2021 given the current developments? And can we expect any technical impact on your P&L? Should that be the case?
We'll be very brief on the first question on dividends, and Stefan will sort of complement me if I forgot something. Our proposal is something very mechanical. If in February next year, the dividend ban is off, then we will pay. If it's not off, we will not pay. The probability that the ECB will come up with a recommendation, which will say you cannot pay in February, but you can pay in March or in April, I assign a relatively low probability on. We will have the next annual general assembly in May next year if there is no COVID crisis next year. So probably, this will also determine the time plan.
So February is the point in time. If until then, the dividend ban is lifted, we will pay. If it's not lifted, we will not pay. The probability that we will do an extraordinary AGM between March and May, I would assign a relatively low probability because we always can sort of reflect the nonpayment of the 2019 in a 2020 payment of the dividend.
And that perfectly summarizes everything I would have said either.
Then on, quickly, on moratoria, currently, there are -- so there has -- for Austria, it has been extended until end of January. For Hungary, also an extension has been decided for another 6 months starting in January, but with a reduced scope of clients, which are eligible for the moratorium. So for the corporates, it will, instead of the opt-out, it will become an opt-in. For retail clients, it will remain an opt-out, but also with stricter criteria. So we are expecting that the share of our customers which are currently in the moratorium, which is anyway quite low given the opt-out scheme, will further shrink.
In Czech Republic, moratoria end, end of October. So discussions are ongoing. Romania, the same, so we do not know yet. We do not know, but we cannot exclude. And overall, we would not expect any P&L -- direct P&L impacts out of this. It will have an impact on the distribution of Stage 3 to Stage 2.
As we are running out of time, I will turn the call back to Mr. Bernd Spalt for any additional or closing remarks.
Well, ladies and gentlemen, thank you very much for your interest in this today's call. Thank you for your time.
We will have our AGM, as indicated, next week on the 10th of November, reflecting the business year 2019 and the dividend proposal. We will also have our full year preliminary results presentation on the 26th of February of next year.
Until then, I wish you to stay healthy, stay safe and all the best. Thank you very much. Goodbye.