Raiffeisen Bank International AG

VSE:RBI

Earnings Call Transcript 2018-Q1

[Operator]

Good afternoon, ladies and gentlemen, and welcome to the conference call of Raiffeisen Bank International. This conference is being recorded.

At this time, I would like to turn the conference over to Mrs. Susanne Langer, Head of Group Investor Relations. Please go ahead, madam.

[Susanne Langer, executive]

Thank you. Good afternoon, and thank you for joining us for today's conference call. The presentation for the Q1 results was sent out this morning along with additional insight slides. Mr. Strobl, Mr. Grüll and Mr. Mösenbacher will go through the first quarter results. After that, we will open the lines for your questions.

With that, I will hand over to Mr. Strobl. The floor is yours.

[Johann Strobl, executive]

Good afternoon, ladies and gentlemen. A very warm welcome. Today we can report good numbers for the first quarter. We have a consolidated profit of EUR 399 million, which is a substantial improvement compared to last year by 81%. And this was driven by strong positive contribution from our risk costs. We had exceptionally high net releases of loan loss provisions, which led to positive impairment losses on financial assets. Despite the positive result, risk costs for 2018 are expected to be around the level of the previous year.

Also good news, NPL ratio decreased further to 5.4%. The NIM is stable at 2.49% with improvements in the Czech Republic and in Romania. The IFRS 9 impact on equity net is EUR 130 million, which is 10 basis points on the CET1 ratio fully loaded. The CET1 ratio is at 12.8% fully loaded, including the year-to-date results and the IFRS 9 impact.

The disposal of core banking assets in Poland, with expected positive impact of 90 basis points on group CET1 ratio on closing, which we expect till -- in the fourth quarter, I would say. We also had been successful in improving our capital structure by the issuance of AT1 in January 2018 in the amount of EUR 500 million, and please be aware that all presentations are according to the new EBA Financial Reporting Standards.

If we move to the next page, you'll see a couple of numbers in detail. Positive development in the operating income by 3%; stable, slightly reduction in general administrative expenses. And as I mentioned before, very good risk costs. The impairment losses on financial assets were this time rather a gain than losses at the level of EUR 83 million. This all brings the first quarter P&L before tax to EUR 529 million and a consolidated profit of EUR 399 million. I mentioned already the NPL ratio. Let me make you also aware that also the NPL coverage ratio has improved to close to 70%.

If we move to the next slide, what you can see is the time series. And I think here, you can see the good improvement in the ROE. You see also the ongoing improvement in the cost/income ratio. You find the stable net interest margin, and you see the very good provisioning ratio in this quarter.

If we move to Slide 7, then you'll see our view on the loan growth in the various markets where we are active in, didn't change anything since we reported last time so the growth could come from the Czech Republic market, from the Slovakian market, Romania, Bulgaria. And we also expect in many other countries, a slight improvement in the loan volume. As a stand out, more or less, in the last couple of calls, I have 2 slides updates on Poland and Russia.

In Poland, we reported in a special call also on the signing of the transaction. For those who could not participate, just a quick summary. So we're selling the core banking operation of Raiffeisen Bank Polska to BGZ BNP Paribas. We expect the closing in the fourth quarter of 2018. The sales price will be approximately EUR 775 million, which is equal to a preliminary multiple of around 0.95x tangible book value.

On group level, as I mentioned before, the reduction of the assets should improve the CET1 ratio on fully loaded level by 90 basis points based on the fiscal year 2017 numbers. The impact of the sale on the P&L will be negative by EUR 120 million as a result of the sale. And the full impact, we will only see at the date of closing, where potentially additional negative impact will come from the deconsolidation. So the core bank operations include approximately EUR 9.5 billion of total assets and the RWA of around EUR 5 billion.

What will remain from Raiffeisen Bank Polska operations are mainly the FX retail mortgages, which amount to EUR 3.5 billion in total assets, and we will also take others of around EUR 5 billion in RWAs. And the basic idea is that after closing, we are going to transfer. This is our intention. We will transfer these assets to a Polish branch of RBI AG. And in the mid to long term, we will run down the portfolio.

Moving to the next slide, Russia. What we have seen in Russia in the first quarter was a loan growth by 2% in euro terms. We saw improved net interest margin, which is close to 6%. This was mainly positively influenced by depository pricing. We saw a very positive impact as well in the risk costs by net releases of provisions in the amount of EUR 17 million due to NPL sales.

We have a good NPL ratio, which has improved to 4%; and a stable coverage ratio of close to 76%. And we already reported in the mentioned special call, also on the -- on those volumes, which are directly affected and impacted by the sanctions, which is about 0.1% of RBI's total assets. There is some negative impact from the ruble depreciation on the CET1 ratio.

In the lower part of the slide, you can see a breakdown of the loan book. So we'll see it's already quite well diversified. Also, our intention is to do more on that. And on the right-hand side, you see also that the lending in the retail area in terms of product is also well diversified, having a good unsecured and secured portfolio, but also a nice share of credit cards.

As far as the strategy in Russia is concerned, we had been, I think, very prudent through all the years. And this is what we're going to be also in the future. We will expand, it's our intention, our retail market by increasing our customer base in the private individual segment and in the SME business. And we will achieve this by increasing our geographical reach in both segments through new digital sales and service model.

In corporate markets, as I said already, we are going to further diversify within the large corporate segment. And we will expand the coverage to the mid-caps, with a focus on low-risk, fee-generating and capital-light products. So you can see that we stay committed to the Russian market, and we will offer high-quality customer services also in the future.

If we move to Slide #10, this is our macro outlook. What you can see here, our view is that we -- it seems that we have seen the peak of this cycle last year. But we expect that '18 also has a very good development with only being slightly below or at the level of '17. And even the '19 numbers as of today, look rather good. So the macro base is a good and sound one. If we talk about potential threats, then it mainly comes from the political area. As we said just recently, the U.S. sanctions have, of course, increased the uncertainties for Russia. On the other hand, the high oil price is a good supporting factor.

I'm coming to Slide 11, which is our outlook. We will pursue loan growth with an average yearly percentage increase in the mid-single digit area. The impairment losses on financial assets, risk costs, in 2018 are expected to be around the 2017 level. We anticipate that the NPL ratio will further reduce in the medium term. We aim to achieve a cost/income ratio of below 55% in the medium term. We target a consolidated return on equity of approximately 11% in the medium term. We target a CET1 ratio fully loaded of around 13% post dividend in the medium term. And based on this target, we intend to distribute between 20% and 50% as a dividend payout ratio of the consolidated profit.

And with this, I hand over to Martin.

[Martin Grüll, executive]

Thank you. Also from my side, welcome, and good afternoon. Johann elaborated on the most important financial highlights for the first quarter already. I will come to general administrative expenses revenues later on. Other results, I should draw your attention, improved EUR 58 million because we had impairment losses on associates in the last quarter 2017. And levies as usual are booked upfront, EUR 116 million recognized in the first quarter.

Moving on to the development of the regional segments. Central Europe profit increased by EUR 39 million, mostly driven by improved risk cost. Additionally, we had also higher operating results, EUR 11 million up, coming mainly from the Czech Republic, but also from Poland. Southeastern Europe, profit up EUR 42 million, mainly from net release of risk cost, EUR 14 million in the first quarter '18 versus allocations we made in the amount of EUR 35 million in the comparable quarter, first quarter 2017.

Strongest improvement, and this is remarkable from my point of view, in Romania, where we had a very good first quarter performance. Volumes are developing nicely, both in retail and corporate. While we see some pressure on new lending margins on the asset side, we are benefiting significantly from the higher interest rates on the liability side. Eastern Europe profit increase, up EUR 30 million triggered by, again, higher net releases of impairment losses predominantly in Russia. Group corporate and market also here, we were significantly benefiting from a very favorable development on the risk side here.

We had a special case, after many years of disputes -- court disputes, we finally won the case in the High Court of Justice on an Icelandic bank, which in the impairment line triggered a positive contribution of EUR 27 million. Corporate center, as usual, you have here, group overhead in the first quarter, EUR 73 million. And bank levies, as I mentioned before, upfront booked, EUR 42 million.

Now I move on to the top line development revenues. Net interest income, up EUR 11 million, mostly in Czech Republic and Romania. Net fee and commission income was down quarter-on-quarter, EUR 37 million, due to lower volumes in payment business. Overall development of net fee and commission income, from our point of view, is driven by seasonality. Other net operating income is up EUR 25 million due to gain on bond sales in Group Corporates & Market, but also to release of provisions. The Iceland case, which I mentioned before was split. The release was split, EUR 25 million, as -- EUR 27 million, as I mentioned before, on the impairment line. And EUR 25 million was booked in other net operating income.

Cost is quite under control. As you have seen, the level was EUR 58 million down compared to the fourth quarter 2018; expenses down EUR 24 million largely due to higher expenses in the last quarter '17. And other administrative expenses were down EUR 29 million, driven by lower advertising and legal expenses and also lower office expenses, partly offset by higher deposit insurance fees and higher IT expenses.

Balance sheet, I'm moving on to Page 17 now. You may have realized that the loans to customer were significantly up year-to-date. But you should keep in mind a bit, the increase in group corporate and market was mostly driven by the repo business we do with insurance companies and securities companies. Russia in euro terms, EUR 200 million, despite the depreciation of the ruble. Hungary, Czech Republic and also Romania, each roughly also EUR 200 million growth. Overall growth in retail loans were EUR 0.5 billion year-to-date.

Moving on to 18 -- Page 18, which shows you the IFRS 9 impact. We do have the final numbers now. The total pretax impact on the opening balance for this year was EUR 162 million, reductions of EUR 244 million and an increase of EUR 82 million. The total impact was -- on the opening balance of RBI Group equity after deferred taxes was EUR 130 million. The capital impact is as follows: net 10 basis points resulting from provisioning minus 31; classification and measurement, plus 8; deferred taxes, plus 5; and lower RIB shortfall, plus 8.

Moving on to Page 19, showing you the development on the capital ratios year-to-date. Common equity Tier 1 capital down EUR 330 million to a level of EUR 8.9 billion mainly due to IFRS 9 as I explained before and also to the full application of the CRR transitional rules. The IFRS 9 impact, I elaborated already a minute ago, of course, the recognition of the IRB shortfall will only be possible following the external audits.

Total risk-weighted asset increased by EUR 1.2 billion. Credit risk non-retail, EUR 0.9 billion, mostly Russia and Romania; credit risk retail, EUR 0.4 billion; and market and operational risk remained more or less stable.

Moving on to the slide showing you the details of the capital ratio on the CET1, Tier 1 and total capital. I mentioned here we compare the requirements with our actual ratios as of end of March. You see that on the CET1, we have currently a minimum of 9.71%, which compares with a regulatory actual of 12.2%; and including Q1 results, 12.8%. So you see, we are well on track with regards to our 13% capital ratio target. The 2018 SREP Pillar 2 requirement is unchanged at the level of 2.25%. Also the Pillar 2 guidance is unchanged at 100 basis points.

Currently, we have a combined buffer requirement of 2.96%. As you know, that will go up beginning of 2019 to 4.5%, consisting of the capital conservation, 2.5%; and the systemic buffer of 2%. With our last, AT1 issue, we have now fully covered our requirement. MDA restriction is at 9.71%, so the buffer to the MDA trigger is 2.51%. And including Q1 results, the buffer to MDA trigger is slightly over 3%. ADIs, or available distributable items, increased significantly to a level of EUR 1.6 billion from EUR 1.4 billion at the end of last year. Yes, and the IFRS 9, impact growth is 18 basis points net. As I explained before, it will be 10 basis points.

Coming to my last slide showing you the funding and loan deposit situation. We are based on the new EBA definition on the loan/deposit ratio of 97%. Customer deposit inflow remains quite strong, and we also expect this to continue for the rest of the year. You see on the right bottom side of this slide, that also with regards to the liquidity coverage ratio, we are doing fine. We are at the level of roughly 140%.

And with that, I want to hand over to Hannes.

[Hannes Mosenbacher, executive]

Well, thank you, Martin. Thank you, and also a warm welcome from my side to this Q1 presentation. Well, if I would reflect on the first quarter, I think one could easily sum up saying we have achieved quite some good recoveries. We are very happy about this. Secondly, we have seen, on the macro side, supported low inflows. And also, we have seen good business growth leading to very favorable risk numbers and also leading that we have adjusted our outlook.

If we move on to Page 23, you can see here what happens in the last quarter. RWA has increased by EUR 1.2 billion. Some EUR 863 million can be allocated to the non-retail part, mainly to Romania and Russia. On the retail side, we will also keep people to grow the business by some EUR 363 million, on the PI business, and this could be allocated to Slovakia and Russia. Market risk and op risk RWA stayed flat. And in some countries, you could see that we have reduced slightly our sovereign exposure and increasing our business towards corporate clients.

Let me move on to Page 24. While I think it was stated already some 2 times, 3 times, that we could see some strong improvement on risk cost and NPL ratio, now being an NPL ratio of 5.4%, still having a decent coverage of 69.7%. And on a year-on-year comparison, we see that we now have net releases when it comes to impairment losses on financial assets of EUR 83 million.

Remind you that last year first quarter, we had 2 things to cope with. The one was the retail in Croatia. And secondly, we also made have another offer to our Swiss franc for us in Romania. But it's also the reason for having this huge magnitude. And also to remind ourselves that, of course, first quarter should seasonally show anyway lower risk numbers because if something would pop up in the due course of January and February, we might have been forced to cover it anyway in the previous year.

Well, what else did we mention on this page? The largest changes are coming from group corporate and markets. This relates back to a bigger default we have experienced on Q4 2017, but also to cases where we were capable to have nice recovery success, one allocated to Ukraine and the other one to Russia.

Well, let me move on to my last -- or to our last page of the presentation when it comes to the NPL distribution. You'll see that we have now a stock of EUR 4.4 billion when it comes to NPL leading to NPL ratio of 5.4%, having a coverage ratio of 69.7%. We have seen some countries with an increase. This is Ukraine and Hungary.

Bear in mind that the main part of this increase must be allocated to an inorganic effect related to the IFRS 9, where certainly, we, again, have to cope with the interest rates accumulated. But I'm very confident that the announced ambition when it comes to Ukraine, but also to Ukraine to further reduce our NPL that this gives us that control back and we can move efficiently.

NPL ratios have been down across the regions. Notable on the fourth bullet is the decrease in Croatia, where we already executed an NPL sale in the first quarter. In some other countries, NPL sales were following Q2 and Q3. NPL coverage ratio, besides having this nice write backs, stays at a favorable 69.7%. Not to keep you apart from all the many questions you may have in mind, this would be my contribution to the presentation, and we are more than happy to take your questions.

[Operator]

[Operator Instructions] Our first question will come from Benjamin Goy from Deutsche Bank.

[Benjamin Goy, analyst]

Two questions please from my side. First one on asset quality, so you highlighted in macro, NPL coverage went up and basically across regions. And NPLs are going down further. So aside from the Russian uncertainties you mentioned earlier in the presentation, are there any specific countries or portfolios in your -- on top of your head you're concerned about that might lead to an increase -- a more significant increase of loan losses? And then secondly, you also mentioned deposit inflow was strong in Q1 and likely to remain so in the rest of the year. So just wondering what's your experience of cross-selling after deposit inflows and how this might help fee income generation?

[Hannes Mosenbacher, executive]

Well, if I may cope with the first question, yes, you're right. The macro is very positive for -- we see in many countries and, of course, this is very much supportive for the retail business, super low unemployment rates. And we have, in our risk metrics, we're looking at 30 plus and 90 plus. We see really historic low levels. So from the peer market side, I would have no headaches or no sleepless nights at all. More so, I can talk about any large corporate, which is currently on the first line of argumentation. As you also rightfully pointed out, there is the sanction part. And secondly, there's still the ongoing discussion on the criteria’s. And having both side mentioned now and this very positive first quarter, this was the reason for us to adjust the outlook. Yes, this would be my answer to your first question. Martin?

[Martin Grüll, executive]

Yes, on the deposit inflow and cross-selling questions, we do not publish any data on cross-selling ratios. However, I can share with you the rationale. We have been quite successful in attracting -- I would -- so compared to the market, over proportionately current accounts in Romania, over 60% of our liabilities is coming from current accounts. And since we pay more or less 0 on those accounts, we are benefiting strongly from the rising interest rate levels. And also, that is true for the Czech Republic.

[Operator]

Our next question comes from Pawel Dziedzic from Goldman Sachs.

[Pawel Dziedzic, analyst]

I have 2 questions as well. The first one will be a follow-up on asset quality. Would you be able to give us a little bit more detail on the NPL sales that took place this quarter? I know you mentioned some of them were maybe in a group center. But what impact did they have on the P&L? And what is the pipeline going forward? Because it seems that your NPL ratio went down this quarter by 30 basis points, which is less than in any other quarter last year, but this is the first time when you actually got a meaningful bottom line impact and positive provision releases. So any comments on what happened this quarter and on -- maybe on the pipeline for NPL sales going forward would be very useful. And then the second question -- and then I have a question -- more detailed question on capital, but I can let you answer the first one.

[Hannes Mosenbacher, executive]

Well, thank you. And we, anyway, were assuming that this catches your attention. Well, when talking about the NPL sales and write backs, one was mentioned very explicitly. This was the Icelandic case summing up, in total, the EUR 50 million. The other one was a single large case coming from Russia, very complicated. It took us a couple of quarters to work them out, but also take more or less to release in risk costs. We have been capable to earn out of this. So the write back was even more pronounced. The third one was a huge case coming from the Eastern part from the Donbass region, where we, in the due course of 2014, '15, experienced quite some heavy headwind and, of course, have acted as decent as we always do when it comes to provisioning. So this was another case where we could then finally be refinanced by another bank, sir, and the work out, and especially exposure management did a great job here. And finally, also on the group corporate markets asset, there was, in Q4, a huge company exiting in Europe, famous for retailing furniture. And we also have reduced our exposure to this company quite significantly in the first quarter. So this would be the single cases. When then looking on the NPL sales, most notable out of the total of EUR 134 million that we have exited was Croatia. The Croatian NPL sales sums up to EUR 30 million. This was a non-retail portfolio and we could also release some EUR 9 million of risk costs because of this sale. We kept on doing our job in Raiffeisen Bank Aval when it comes to NPL reduction. This was an NPL of EUR 17.6 million. And not to bore you with all the details, Poland was also notable with EUR 25.2 million. And in Russia, we were capable, but this is the one case I have now indicated included and we have reduced by EUR 27.2 million. Well then looking ahead a little bit, and I also sensed that this was part of your question. I think you're -- I'm confident to report that the first couple of weeks already in Q2 show still some decent successes on the recovery side. But you know, we're talking about, it's May. And however, as you said, there are still some things to be observed like the rate restrictions and like the sanctions. But hopefully this gives you more color when talking about risk costs and NPL development. Last thing, you also mentioned that the speed and dynamics on the NPL ratio was not moving as fast as it was done beforehand. Well, I think, as soon as you come to your strategic leveling where you would like to go, please do also accept that we slowed down to a certain extent and we also have been impacted by the counter effect of the IFRS 9. Without this one, I think we would have been even lower. But I think also, Q2, we're again taking up speed here.

[Pawel Dziedzic, analyst]

Okay. That's very useful. I will leave it at that. I'm sure you will get more questions on asset quality. And just maybe 2 more technical questions on moving parts in your capital going forward. So in your presentation, you mentioned that impact from ruble depreciation in Q1 was relatively benign, impact on capital. Can you confirm if there is an impact in 2Q, and what magnitude it might have? And also, if you can comment if you -- on any feedback you received so far related to TRIM?

[Martin Grüll, executive]

On the impact in Q2, I can confirm that we had seen, of course, the impact following the sanctions, roughly 4, 5 basis points. We saw the ruble strengthening a little bit, also thanks to the rising oil price. And there is a quite simple formula. For one, ruble point movement, we have 1 basis point on the CET1 capital ratio, including all hedge impacts.

[Pawel Dziedzic, analyst]

That's very helpful, and just wanted to follow up on TRIM.

[Hannes Mosenbacher, executive]

Well, TRIM, the thematic review of the internal models. Believe me, we had already quite some assessments by some representative of the ECP, very intensive work. But the way I understood it is that they are now collecting all their insights across all different brands. So we have done our job when it comes to the market risk modeling. We have now our assessment when it comes to the bankbook interest rate. Risk perception asset, very intensive, but not yet any outcome. But we are well booked when it comes to the working with the ECP on the TRIM.

[Operator]

Next question is by Gabor Kemeny from Autonomous Research.

[Gabor Kemeny, analyst]

My first question is on costs, which stayed roughly flat in the first quarter or even dropped slightly, and this is despite you had a higher deposit insurance contribution this year. Do you think these kinds of dynamics are sustainable over the coming quarters? And of course, I'm talking about year-over-year comparisons.

[Martin Grüll, executive]

We still are relatively confident that administrative expenses in total will be more or less stable. We mentioned a couple of times in the past that we see increasing pressure coming from staff expenses. So payroll, salaries, all that is going up. We still have also regulatory and also innovation investment ahead of us. But at the same time, we, I think, have been quite successful to increase our operational efficiency in some countries. So overall, we are confident that we can keep it more or less flat going forward.

[Gabor Kemeny, analyst]

Okay. Just have another question on fee income. You mentioned a negative seasonality in the first quarter. But actually, if we compare this with the first quarter of 2017, your fees just stayed flat. So can you talk a bit about what could drive the upside here and whether you would expect any significant growth from the asset management business?

[Johann Strobl, executive]

What we have seen in the first quarter was, compared to previous years, little demand on several products, which are big contributors to the fee income. I think this was more to the market developments. I mean, you are aware that we always have the seasonality of the Orthodox Christmas so that we lose the first 2 weeks of the year when we compare quarter-by-quarter. But you are right also on year-on-year, we had this, I would say, not so good development in the first quarter. We see -- we expect that this is better in the second quarter what we have seen so far. But yes, the quarter is not done yet. And the question will be how are rates moving and if the demand is increasing further from this funds product as you mentioned already.

[Gabor Kemeny, analyst]

Okay. So what do you think the driver of the upside? Higher demand for asset management products?

[Johann Strobl, executive]

Yes, I think so.

[Operator]

We will take our next question from Victor Galliano from Barclays.

[Victor Galliano, analyst]

Just a couple of questions for me. On risk costs, you talked about risk costs for this year. The guidance you're giving is similar to last year. Obviously, you had a very, very positive start to the year. When you talk about it being similar to last year, you -- are you giving us guidance in terms of cost of risk as basis points of average loans? So are we talking about here as something in the region of 40 basis points? And the other question is with regard to Russia. Do you -- can you give us some sort of an update, if you can, any sort of color on Q2 and how that's going? And what do you think are the 3 biggest challenges to -- for Russia at this point? I mean, obviously, aside from sanctions. But what are the sort of 3 biggest risks there? Is it oil price, is it growth, macro risks?

[Martin Grüll, executive]

Well, let me start with the first question. Yes, you're right. And you know, 10 basis points, up or down, would be EUR 80 million when talking about the risk cost. When we tried to guide, we were talking more about the absolute level we have experienced last year than the relative level when talking about basis points risk costs.

[Johann Strobl, executive]

To your second question, I think by far, the issues, the tensions on the sanctions topic are the big challenges what we face. I think the way the U.S. sanctions had been established create quite a lot of uncertainty. And yes, we have seen that overnight, they might have a very big impact on single customers -- corporate customers. So this is, by far, the biggest impact. I think as far as the oil price is concerned, that level is now, of course, very positive for the Russian economy and for the Russian government. And so I think the Russian economy is well prepared to have a lower -- can deal with a lower oil price. So there, I think it's rather fine. And in terms of ruble currency, I mean, we -- Martin have mentioned it -- has mentioned it. It's stabilized now and we believe supported by the strong oil price. So I would say it's -- the real challenge are these political risks via the sanctions.

[Operator]

Next question is by Hai Thanh Le Phuong from Concorde.

[Hai Thanh Le Phuong, analyst]

Just two questions from my side. So the first one, you already elaborated on Russia and the CET1 ratio impact. But apart from that, shall we expect other impact from the weaker ruble in the second quarter, for example, in terms of translation risk or anything like that? And the second question of mine would be on Iran. So a couple of years ago, I think there were intentions to open a branch in Iran, and I don't know if you already opened it. And if you did, then is there any exposure to Iran directly?

[Johann Strobl, executive]

So coming to your ruble question. Of course, in terms of euro, it will have an impact and I think you have seen the good results there. And it's amazing how the team in Russia could have compensated for the weaker ruble. Also the -- I would say, the weakening was not really effective in the first quarter, but rather came early in the second quarter. So Martin explained already there is, and this is what I assume you mean with translation risk. There is a negative impact on the CET1 ratio of 1 basis point per RUB 1 devaluation or this is the sensitivity. And as we said before that -- as I said before that the other is the impact on the income, so on the profit. In terms of risks, I think we do not expect a direct impact from the ruble development. It seems that the customers -- the corporate customers are -- know how to deal with and are, to a large extent, hedged. Whereas the private individuals, we don't have a big outstanding portfolio anymore. So there, it's [a lot] limited. So it's the 2 issues. One on the CET1 ratio, so the impact on the capital translation risk, and the other is the good income, which, in euro terms, will be a little bit impacted as well. As far as your second question is concerned, yes, in the past, like many other banks, we were considering as we have requests from our customers to reopen activities with Iran. In the last many months, we found out it's rather difficult to do so. We had an intention to reuse our rep office what we had before. We did not open it so far. And with the new sanctions, I think it's important to evaluate all the many impacts what might come from that. So currently, we don't neither have the rep office nor the exposure to Iran.

[Operator]

Next question is by Riccardo Rovere from Mediobanca.

[Riccardo Rovere, analyst]

Just one question from my side. Do you think your business mix is way too concentrated on Russia? Do you expect that you plan to try to, let's say, dilute the contribution of Russia in order to avoid, let's say, your share price to be so dependent upon any hard to predict development on what's going on in Russia?

[Johann Strobl, executive]

I mean, if you follow, and I'm sorry that I don't have the historic time line with me. But we have in the -- since 2014, substantially reduced the portfolio in Russia, the number of total assets. And I think if you look at Slide 23, where we have the RWAs, you see that with EUR 8.5 billion of RWAs, our exposure to Russia has been reduced to 8%, which is not big. And because of that, we stated in the past that this would be a reasonable level. So we are fine with that. And if you look at the mix of our business, then what you see is we have a broad business. We have retail there. We have SME customers there. So we have quite a lot of Russian population there. What we understand, it's not the intention of the U.S. government to hurt these people. We have also loan business with larger corporates in Russia. They -- all of them have a nice -- a good rating, a good quality. Still, there is some risk that further companies and we don't know which ones might be affected by further sanctions. This, we cannot include. But as I said, the starting point of the credit quality is good and it's our intention to further diversify this specific segment.

[Operator]

Next question is by Máté Nemes from UBS.

[Mate Nemes, analyst]

I have 2 quick questions, please. First one is just a clarification. If you could give us a bit more color on the EUR 28 million NII jump in the corporate center, that would be helpful. Where is this coming from? How much is it really related to funding cost? And whether there is any change in asset liability management that might have influenced NII there? And secondly, on Russian net interest margin. In Q1 sequentially, you saw some erosion after an excellent Q4. If you could give us a bit of guidance for the NIM outlook for the remaining quarters, that would be much appreciated.

[Martin Grüll, executive]

Let me start with the second question. The Russian NIM in the last quarter 2017 was somehow distorted, reflected -- there was a hedge dissolution, and therefore, that was artificially high, we believe. Looking into the new -- the margin on the new lending that we can keep the level of the net interest margin, as far as the total Russian operation is concerned, relatively stable. In terms of net interest income...

[Mate Nemes, analyst]

Just to follow-up on this. Is it stable compared to Q1 level?

[Martin Grüll, executive]

Sorry, I did not understand. We had a distortion in the recording. The net interest margin for the coming quarters at the level which we had in the first quarter. But again, the fourth quarter of 2017 is not representative. That was overstated because of this one-off effect coming from this hedge termination. The -- I think you were addressing the net interest income of Group Corporates and margin? Or was it the margin you were addressing?

[Mate Nemes, analyst]

No, the Corporate Center NII development.

[Martin Grüll, executive]

Corporate Center, we understood corporate -- Group Corporates. So Corporate Center, this we need to look up and we will come back to you as soon as possible. For Group Corporates & Markets, but you are referring to Corporate Center, correct?

[Mate Nemes, analyst]

That's correct.

[Operator]

[Operator Instructions] We will take our next question from Alan Webborn from Société Générale.

[Alan Webborn, analyst]

Two questions from me. Firstly, could you just shed a little bit more light on what was going on in Corporates & Markets in Q1? Can you explain the movements in sort of repo business, and why they're there? How long they stay there to give us an idea of the dynamics of the balance sheet in that business, if you can. And clearly, I think you referred to some bonus disappearing, but the net interest income line in Group Corporates is also rather weak in Q1. Is that now a sort of run rate? Or do you think that, that is seasonally weak or unusually low because of what was happening in the quarter? So that was one question. And actually, the second question, under the sort of new reporting details that you've very usefully given us the restatements from. Your trading income doesn't look as if it really ever makes any money, and maybe that's a distortion. But can you give us an idea of, at the group level, when you're looking at your trading activities, do they actually generate positive revenues anymore? Or really, when we were in the past, used to seeing a trading line that was positive. It seems to be mainly being fair value gains and other sort of one-offs. But I just wondered if you could give us an idea of what that, say, net trading and fair value result should look like on a normalized basis if such exists.

[Martin Grüll, executive]

On the first question, just to remind you, this Group Corporate & Markets consists of the corporate business, which is originated in head office Vienna markets financial institutions and also the specialized financial institutions such as the building society, the Raiffeisen Bausparkasse in Austria. We had seen a relatively big amount of repo business and also short-term advances to corporates with relatively thin margins, that's why also the margin quarter-on-quarter dropped from 1.32% to 1.05%. We consider this rather temporary phenomenon. But as we many times also mentioned, this is a high quality but also relatively low margin. And also but -- also low risk weight business, and we would certainly not grow this very aggressively over the coming years. We had also seen, unfortunately, a bit of a margin drop in the building society. Here, we are talking about EUR 8 billion loans. As of today, also here, we saw a couple of margins lower in the last quarter. On the second question, the trading book. Yes, you may get the impression that we make 0 money on the trading business. In the new FINREP and EBA format, as you know, the trading -- the interest income resulting from the trading book is now booked in the interest income. So I think this is more transparent on the one side. On the other side, you may get the impression that our people in the trading floors don't make a lot of money. This is a net result. So that yes, of course, we do have a positive contribution coming out of the trading activity. But the line item trading result is also a net amount, so there are also deduction items. But overall, we can confirm that the group is not much dependent on speculative trading business. In the former format and P&L structure, you might have received the impression, I think we were earning roughly EUR 250 million, EUR 270 million every year that we were more dependent. But now you see that most of this or a large part of this income resulted from interest on the trading book, which now is recognized in the interest income line.

[Hannes Mosenbacher, executive]

And to add to what Martin was saying is please be aware of that also we have shared with you that we do part of our capital ratio hedging. This is done by derivatives and that's the reason why you see movements in the trading income. And in the first quarter, ruble and zloty were moving more or less sidewards, so you could have some gains and losses. But the real effect, the positive effect of the -- of these 2 hedges, we have experienced in the beginning of the second quarter.

[Operator]

[Operator Instructions] As there are no further questions at this time, I would like to hand the call back over to your host, Mrs. Langer, for any additional closing remarks. Thank you.

[Susanne Langer, executive]

Thank you for all of your questions. If you have any additional inquiries, please don't hesitate to contact me or my team. The next scheduled conference call will take place on the 9th of August, when we will publish RBI's half-year results 2018. Thank you once again for your participation and goodbye from Vienna.

[Hannes Mosenbacher, executive]

Thank you and goodbye.

[Martin Grüll, executive]

Goodbye.

[Johann Strobl, executive]

Thank you. Bye-bye.

[Operator]

Ladies and gentlemen, this will conclude today's conference call. Thank you for your participation. You may now disconnect.