Raiffeisen Bank International AG

VSE:RBI

Earnings Call Transcript 2019-Q1

[Operator]

Good afternoon, ladies and gentlemen. Welcome to the conference call of Raiffeisen Bank International. Today's conference is being recorded.

At this time, I would like to turn the conference over to Mr. Johann Strobl, Chief Executive Officer. Please go ahead, sir.

[Johann Strobl, executive]

Good afternoon, ladies and gentlemen. Welcome to RBI's first quarter call.

I think it is good that you joined this call. The results need an explanation because there are many, many changes if we compare the numbers with the numbers of the first quarter of last year. A couple of reasons for that is, of course, that meanwhile, the core banking operations in Poland are not anymore included in the numbers. And we also had, in the last year, a couple of very positive one-offs from the history, and this year, we will explain especially one negative impact, which comes from hedging activities.

Let me start with Slide #5. What I -- what you see here is that -- the core revenues if I may say so, which for me are the 2 big ones, so the net interest income and the fee income are solid. In most of the countries, they are substantially up. Let's take the net interest income, for example, in Romania, year-on-year up by 20%; Czech Republic, up by 18%; Hungary by 11%; but also Slovakia and Bulgaria, up by 5%. And if we exclude Poland for a like-for-like comparison, the group net interest income was up by around 8%.

This was driven mainly by volumes. Loan volumes were up 7% year-on-year on an unadjusted basis, and like-for-like, even by 13%. And there is still a good momentum in most of the markets, and this is also visible in the numbers of the first quarter's compared to year-end, which sees an increase by 6%. But bear in mind that half of it is very short-term business or repo business, which is, of course, not very supportive to the net interest margin. And this net interest margin, this we saw in some countries higher but overall, we saw it lower. And Martin, when explaining the details, will go in more detail, especially as Russia is concerned.

The fee and commission income, there's always a seasonal effect as we generate quite a lot of the fee and commission income from the eastern parts of our regions. And you know that there is, because of the Christmas holidays at the beginning of the year, some seasonality, so this is what you should consider. If we simply look at the numbers and do this like-for-like comparison, then we see it grow by 6%.

The operating income was impacted by EUR 46 million, which some of them are one-off items, and this is the valuation of economic hedges. I mentioned that already, that we have, especially in our savings bank, Bausparkasse, a long-term fixed interest rate, fixed business, which is hedged by interest rate swaps as there is no hedge accounting. The recent drop in long-term interest rates led to this negative valuation impact.

The risk income is still very good and on a very, very low-level. And we also have seen -- and Hannes Mösenbacher will talk about that, the further reduction in the NPE. Of course, if you compare it year-on-year, then we had very good write-backs last year with EUR 92 million. So this is why we see a difference. If I move to the next -- yes, I should also mention on that page that the CET1 ratio, if we include the first quarter earnings, then we are a solid 13.6%.

If we move to the next slide. Quite a lot of what we see here I did already mention. It's -- I think the most important striking thing is this 10% drop in the net interest margin if we compare it with the fourth quarter of last year. Two effects: one, Russia 69 basis points down due to lower yields on the liquidity buffer and some pressure also on new business margins. And secondly, we saw a higher portion of assets in the Group Corporates & Market segment, which has a very low-risk profile and therefore, also relatively low margins. This is repo business, short-term lending business. I mentioned that already.

We see -- as indicated in earlier calls already, we see pressure on the cost side. Staff expenses are impacted by the wage inflation, what we see in most of our markets. And as we also outlined in calls earlier, that we are adding staff in a couple of areas, not only for in-sourcing but also to support our digitalization development. So this -- if we exclude the Polish expenses from the core business, we saw an increase year-on-year by around 6%. Consequently, also, this has a negative impact on the cost-income ratio. Yes. And with that, maybe the last remark on that slide is that book value per share has increased to EUR 33.36.

Some of you who follow us closer have already got the opportunity to hear a little bit of our business activities. I want to sum up for those who have not been in our London presentation. We -- and now I'm on Slide 6. In retail, let me confirm that we have long-term growth ideas. Part of it will come from a growing customer base. It is our intention and our target that we add, over the next 3 years, 15% to our active retail customer base. We believe that we have quite a lot of potential to outgrow the markets.

Areas where we will focus is that -- we have identified areas to increase the sales effectiveness of our distribution, and we find in many countries also good ways to transform our branch network, taking or reducing the pure-service character like cash supply and other things and moving more to sales advisory activities. And of course, there are areas where we further will improve our digital transformation. This is the mobile experience, but even more so the end-to-end digital sales capabilities, which I will touch a little bit more then also on the next slide.

Slide 7 now. I think what you see here is that also in our markets, the part of the digital lending is increasing currently. Last year, we had been on the level of 20%, and this is initiated digitally. So there are a couple of countries where you still need to have at the end of the process also physical contact with the bank, but more important, initiation is done via these channels. And we expect that we can increase this ratio to 35% within the next 3 years.

We have, in some countries, really a high level already. These are Slovakia, Czech Republic, Russia, Croatia. And in some others, we will follow soon. We would be able to fully digitalize the lending process end to end, but this depends also on the legal environment of the market. And there, we will work again. And depending on the opportunities what we get by the legislation, we will deepen that as well.

If we move to Slide 8, corporate business. There is, I would say, a constant, permanent improvement. We strongly believe that our broad CE footprint gives quite a lot of opportunities to improve the customer experience to build on the good relationships what we already have. And we strongly believe that offering our cross-border product range being supported from one center, from one customer relationship manager, this is a big advantage for us, and it's an enormous reduction of the burden in terms of KYC and whatever you have in banking as well. And of course, also in that area, there is quite a lot of room for improvement, be it in the simple knowing own customer, on-boarding process and the access to the service, to the products and also making use of artificial intelligence and process automation.

If we move to the next slide, #9. I have, like in all the presentations in the past, present at least one slide on the development in Russia. Russia is always of high focus for most of you and many investors. Of course, one part is the political development; the other, of course, is the strong position what our bank have in Russia, but also the importance of what it is for our bank. We had EUR 126 million profit after tax in the first quarter, which is down by 8%. Of course, this comes partly from the ruble depreciation, which was considerable.

We have seen a decrease in the net interest margin. I mentioned that already because of the substantial change in what we can earn on the liquidity buffer. The risk environment is still good. The NPE ratio of 1.9% is low, and the coverage ratio with 51.2% on the nonperforming exposure, I think, is good.

You are aware that Russia had been recently upgraded to investment grade by Moody's, which supports our positive view on the economic development in Russia. The portfolio -- in the right-hand upper part of this slide, you see that the portfolio is very balanced, retail -- corporates, but also we see in the retail lending products, again, very balanced. We are making very good progress in the customer experience, in the way what we offer, and so we're very fine with the development in our Russian bank.

Coming to Slide #10, which is the macro outlook. There have been almost no adjustments since the last time. This -- the outlook is confirming what we are expecting since quite a while. Having seen the peak in '17, we now see -- or '18, we now see a reduction in the speed of GDP growth, still on a good level of 3.5% on average in CE or 3% in SEE and on a stable level of 1.6% in Eastern Europe, and this might slightly decline in 2020. But this is strong enough for -- and I'm now moving to Slide #11, to what we expect in the loan growth development. So based on this GDP growth and some inflation in the countries, we expect that our target of an increase of the loan portfolio in the mid-single-digit area is reasonable and achievable.

We had been also talking quite intensively on the risk provisioning what we expect in '19. Of course, the extraordinary good year of '18 will not be repeated, but the expected risk cost of 45 basis points are below the long-term average what we see. We also expect that also, on a slower pace, the NPE ratio will reduce -- will be reduced further, and we confirm our cost-income ratio target of 55% in 2021. I also can repeat here that this is the most challenging target from our perception from all these targets what we show here. 11% ROE, we confirm.

CET1 ratio, I mentioned before, we are nicely above 13%. So there is room for growth. And for a while, we will keep this broad range of profit distribution between 20% and 50%.

My last slide is an update on the anti-money laundering. Reason for that is that, in the last couple of months, this was in the focus of many meetings and many questions. I can confirm that we have broadly used systems throughout the group in use, which is the Norkom and BAE system. We have one standard across the group. We have many internal and external verifications, optimizations.

We are fully compliant with the legal requirements. And so we believe that we meet all the required standards, and we are fairly staffed. And as far as our internal review of the informations we saw from Ukio's leaks, we haven't found any shortcomings so far. This audit is still ongoing and will be closed, as we announced, by end of June.

And with this, I would like to hand over to Martin.

[Martin Grüll, executive]

Thank you very much, Johann. Also, from my side, welcome to this first call in 2019.

I consider the set of numbers quite satisfactory. What I like most is the very dynamic growth in lending, 6% in only 90 days. I think this is remarkable. Please don't multiply by 4. But it seems to be that we will be over the mid-single-digit growth indicated for the -- as an average growth pattern in the coming years. So I'm quite happy seeing this nice growth across the group. That will support net interest income. We need it since net interest margin seems to be under pressure, but I will elaborate on the NIM in a minute.

Fee income might have been seen by some market participants as a bit disappointing. I'm not disappointed. Looking into my forecast, I'm quite confident that we will catch up, and the EUR 400 million which we achieved is due to seasonal reasons only.

Trading income. Johann mentioned already the valuation of hedges which impacted us, in total, EUR 49 million. I see already, in April, a reversing trend. I don't really care so much because there is no economic loss. It's just a valuation which, of course, will neutralize over the lifetime of the hedges. Costs, we indicated at the Investor Day roughly mid-single-digit growth for 2019 on a new cost base of EUR 2.850 billion, so I think we are totally in line with expectations and, at the same time, trying hard to manage the cost down so that we will achieve the 55% latest by 2021.

Finally, I think I should also refresh that we booked most of the regulatory charges, bank levies and what have you in the first quarter. We paid EUR 48 million resolution fund fees and already EUR 66 million bank levies out of a total of EUR 110 million. This is the projection for the entire year on the bank levies.

Moving on to the income and expense overview. As Johann mentioned, pretty difficult to compare; Poland sale on the one hand and also the already mentioned hedge valuation impact. Nevertheless, if you adjust for Poland, I'm quite happy with the dynamics on our main source of income, the net interest income. And if you dig deeper into the various countries, you will realize that the development of the net interest income is quite satisfactory.

Trading income, we mentioned already. Administrative expenses, much better than Q4, no surprise. First of all, Polish sale. Second, usually, we book -- we booked in the last year in the last quarter higher bonuses because of the higher-than-expected bottom line result. And the other administrative expenses typically are much higher in Q4 than, of course, in Q1, and that is also the reason why Q1 is much lower than Q4.

16 is an overview of the profit after tax contribution from our segments. I don't want to spend much time on this. Let's move on to Slide 17, giving you, in a new format, the 4 main segments we have. Starting with Central Europe, which comprises Czech, Hungary and Slovakia, you see 3% loan growth and a slight reduction of the net interest margin. Digging a little bit deeper, 2% growth in the Czech Republic in the first quarter. So we should see a nice growth again in 2019 after terrific growth in '18. What I like in the Czech Republic is that we had 30 basis point higher net interest margin year-on-year; and again, compared with the fourth quarter, an 11% uptick on the NIM.

Hungary seems to be growing very strongly compared to the other countries, 6% loan growth already quarter-on-quarter, 14% year-on-year. Also, in Hungary, we had seen 16% uptick of the net interest margin quarter-on-quarter. So this is becoming one of our growth countries in Central Europe.

Slovakia, 3.6% loan growth, also nice forecast for the full year. Here, the net interest margin, while it was stable year-on-year, we, unfortunately, had an 8 basis point drop. So here, competition seems to be getting quite tight.

Moving on to Southeastern Europe. Romania, the largest country, we had seen, in euro terms, slightly negative growth, but that was largely driven by the depreciation of the local currency. We are confident that we would be above the 5%, probably close to 10% loan growth for the entire year. And what I also would like to highlight is the increase in margin, 50 basis points year-on-year largely driven by nice liability margins.

Bulgaria, I would also like to mention it's not one of the biggest operations, but nevertheless, growth pattern is very nice. We might have similar growth as in 2018, which was double digit. And NIM is a little bit under pressure, but I would expect more or less stable development on this side for the rest of the year.

Moving on to Russia and Ukraine, Eastern Europe. Russia, this is a country where, unfortunately, we have seen the biggest drop in the net interest margin, 70 basis points quarter-on-quarter. Of course, that also impacted the total group NIM.

The major reason is lower earnings on liquidity positions, on the liquidity buffer in Russia. We had very nice, roughly 200 basis points swap spread on the liquidity positions, which, due to overall interest environment, unfortunately, disappeared for the first quarter. We believe this can be mitigated not so much because we believe that interest rate situation will change, but liquidity -- excess liquidity would disappear in the coming quarters. So this is why I do not believe that the net interest margin out of the Russian operation will stay below 5%.

Ukraine, we had a drop of 50 basis points quarter-on-quarter, but still enjoying 11% on total bank level, so I think this is very nice. Also, the bottom line contribution of EUR 38 million in the first quarter, I think, is very satisfactory.

The last segment is Group Corporates & Markets. Interestingly, this is the only segment which delivered an increase of the net interest margin from 1.22% to 1.33%. So that's quite positive. Also, we generated solid growth, 5% in the first quarter; at the same time, only limited growth on risk-weighted assets.

Capital ratio. I am now on Page 21. You see with 13.6% CET1 ratio, we are well on track with regard to our targets. As you know, this is approximately 13%. So that gives us a solid cushion also for more growth. This was supported by positive FX movement, in particular of the ruble, which brought around 7 basis points on the capital ratio.

Funding and liquidity, nothing to write home about. Very stable development, 100% loan-deposit ratio. Also, net stable funding ratio in green territory. I don't want to spend too much time on this.

Coming to my last slide, giving you an update on what's happening in the MREL situation. Unfortunately, I still cannot give you any specific numbers with regards to our requirements. You may have seen that total capital has gone up in the Austrian resolution unit to almost 30%. This might indicate that we do not have any time pressure to come out with MREL instruments any time soon.

It depends on various factors, which we have outlined on Page 23. And among those is also a possible change of the legal framework, which might even further reduce a potential gap of the MREL requirement in the Austrian resolution authority. Most likely, there will be a transition phase. Still -- also, this is not finally decided, but my guess is that in Austria, we might have around 4 years to fully comply with the MREL requirement. And of course, the moment we have more information, we will immediately update you.

That's all from my side. And with this, I would like to pass on to Hannes.

[Hannes Mosenbacher, executive]

Thank you, Martin. Warm welcome also from my side.

Well, having EUR 9 million of risk quarter by quarter, I think here my comments will be rather on the short side. So some rating changes I -- just to reconfirm what you anyway have seen in the market. Russia was upgraded by Moody's finally to a Ba3. Bulgaria also has seen positive rating movement on the BBB area, and outlook has been changed to positive. And finally, after some years in the non-investment grade, Croatia also is being back in the investment grade, with a BBB- rating.

Well -- and the other theme what I also would like to take already now because it's a repeating question is, how is RBI Group doing on the TRIM, the thematic review of the internal models. I may tell you, after 3 years of very intense and detailed assessment of our risk models, is it on the retail risk, is it on the non-retail credit risk models and so on and so forth, so some 4, 5 deep dives, I can confirm that there is EUR 0 RWA impact. So this would be my initial announcement before moving on to Page 25.

Well, if you look at the RWA and credit portfolio development in the first quarter, eye-catching, of course, is the strong growth what we can see in Russia, but please bear in mind there are 2 things. One is that the currency depreciated quite sharply with some 9%, and of course, we also have seen some organic growth. I think this is the most important things to be noticed. And just to reiterate what Martin was anyway pointing you at is that the growth on the Group Corporates & Markets business, where you see that there is almost stable RWA development, but on the exposure side, we have seen some increases.

Let me move on to the next slide when talking about NPEs. So risk cost of EUR 9 million in the first quarter, I think, is not worth spending more time on them. Just for you to note this, we have changed our communication from the NPL to an NPE, and here, we follow the definition of the ECB. So it's the internal nonperforming exposure over the total exposure, but also including securities. So this brings us down to 2.5% of an NPE ratio and still very nicely covered with 58.4%.

When talking about this coverage, this is really the individual loan loss provisions purely coming on -- for the Stage 3. So Stage 1 and Stage 2 provisions are not included in this number of the 58%, and we feel very comfortable with his good level of provisioning.

I move on to the next page. I'm on Page 27. And if you would include -- just to proceed what I was starting anyway off and kicking off with my communication, NPE coverage ratio. If you would include Stage 1 and Stage 2, we would still sum up to 77% of coverage ratio. In this slide, you also can see, for instance, in Croatia that we made a very good move where we kept on going on reducing the NPE ratio. So we are now also in Croatia at the level of 4.5%. In Russia, really -- very, very constructive and positive having an NPE ratio of 1.9%.

Well, with this fast forward of walking through my slides, I'm done. And we are now happy to take your questions.

[Operator]

[Operator Instructions] We'll now take our first question from Anna Marshall from Goldman Sachs.

[Anna Marshall, analyst]

Two questions, please. The first one is on capital. Could you please indicate what is your expected trajectory for the rest of the year in terms of CET1 ratio? And given the solid result in Q1, although I do note the 7 basis points from FX moves, could you provide an update also in terms of your inorganic growth ambitions on top of the higher loan growth target now?

The second question is on bank taxes, please. Specifically, given the quite high loan growth ambitions you have in Romania, is there a scope to further reduce Romanian bank tax? And also, question on bank tax in Czech Republic. Do you see any likelihood of that being introduced?

[Martin Grüll, executive]

On the capital ratio, I don't want to make any specific number, forward-looking statement, but what we would expect that risk-weighted assets should be not higher than EUR 80 billion for the total group. So that would still accommodate for quite nice growth. It seems to be that -- coming to your second question, that we will be this year above the indicated mid-single-digit increase.

Regarding the bank tax, we indicate EUR 10 million. It's difficult to say. As you probably know, it depends on the growth. Once you exceed 8% -- and 8% refers, of course, to the taxable asset base in local currency. So you shouldn't use the tax -- the asset base in euro terms, where we had a depreciation in the first quarter. So this is what we would expect. There's also a second bonus, if I may say so, linked to the interest margin, but we have not yet reflected this in the EUR 10 million estimation.

And coming to your last question, the Czech tax is brand new. There was a proposal from the opposition party for a 30 basis point total balance sheet tax, and very quickly, the ruling party came up with a counterproposal, which seems to be a "tax on dividends" in the magnitude of 20%. I was told this would not be sort of withholding tax. It is more a charge will be -- which has to be then paid in or contributed to a state-fund and used, I think, for social purposes. Assuming a EUR 50 million to EUR 60 million yearly dividend payment, that might hit us between EUR 10 million to EUR 12 million, depending on our distribution policy.

[Johann Strobl, executive]

Referring to your other part of the question, inorganic growth. I can little add. There are no new developments. We expect some consolidation in some of our markets, but these are rather early announcements, so nothing concrete as of now.

[Operator]

We will now take our next question from Máté Nemes from UBS.

[Mate Nemes, analyst]

I have 2 questions, please. Firstly, on the Russian NIM, could you perhaps share how much of the net interest margin drop came from lower yields on the liquidity buffer, as you indicated, and how much came from pressure from the lending business -- or new business? And secondly, on fee income, I think you mentioned that the recurrent print in Q1 is mostly attributable to seasonal effects, and you would expect actually gradual improvement from here. Can you share where this improvement should be coming from on net income line?

[Martin Grüll, executive]

With regard to the NIM, about 1/3 is coming from the already mentioned liquidity position, so it's quite severe. And the rest is sort of allocated over the core products in retail and corporate. But as I said, and I would like to repeat for those who may have joined later, that going forward for the rest of -- or for the full year, I would not expect NIM to stay below 5% on total bank level.

In terms of fee income, as we said, it's typically low. It is more a diverse reason across various areas with new business, in particular on the lending side. I would also hope that we can catch up. So there is no specific sort of single major reason. It's more across the board. That's all what I can sort of say on the fee income. As I said, I am confident that we can catch up in the coming quarters.

[Operator]

We'll now take our next question from Gabor Kemeny from Autonomous Research.

[Gabor Kemeny, analyst]

My first question is a follow-up on Russia. Can you comment on the revenue outlook? I understand you expect some sort of a margin recovery in the following quarters. And Raiffeisen Russia's CEO was also quoted recently saying that the 20%-plus loan growth could be sustained for a while. It would be useful to get your views on how revenues could develop from here?

The second one is on the cost-income ratio. I think your cost income was slightly above the 2018 level in the first quarter. How do you see the full year outlook here given all the different drivers?

And the third one is just briefly on the AML topic. You have some useful new disclosures in the presentation. Would it be possible to give us a rough sense of your compliance budget? And what sort of evolution do you expect in this budget this year?

[Martin Grüll, executive]

Starting with the Russia. The 20% local currency growth, and I think this is very important to mention this, is realistic. We are growing both in retail and corporate. We see the margin not decreasing any further; rather, probably a couple of basis points going up. I am quite confident that the total revenue -- the top line development would be quite nice, yes.

The cost-income ratio, as you realized, is above 60% for the first quarter; for the full year, definitely below 60%. I already mentioned at the Investor Day that we would not expect any level below the level of 2018. We have this wage inflation, which we see unfortunately already in the first quarter. Trying hard to manage this. So it will be, let's say, between 60% and the level of 2018.

[Johann Strobl, executive]

As far as your question to compliance is concerned, as I explained on Slide #12 in the AML part, which, of course, is only part of the compliance cost, we have some 80 FTEs in the head office and another 300 in the network banks. So overall, after the huge investments, which we had in the last couple of years in AML but also in MiFID and whatever, I would rather expect that, in terms of costs, we have seen the peak. It's going to be explored.

We had huge investments in IT infrastructure as well in the last couple of years. And when looking what we see from -- also from the U.S., OFAC refining their expectations and whatsoever. At least the first analysis of these requirements, recommendations, we feel that what we have achieved so far should meet these standards. So compared to the running costs, I would say, the additional costs what we have in this extraordinary audit, on this Ukio's findings, of course, people also -- experts are also working on that specifically, but these are low single-digit millions what we might have on additional costs.

[Gabor Kemeny, analyst]

That's useful. And can you give us a sense how much you have spent on the compliance processes and improving the processes in 2018, for example?

[Johann Strobl, executive]

My colleagues will share this information in a couple of days. I don't know it by heart. I would have to add all these IT costs in there then. So give us some time on that.

[Operator]

We'll now take our next question from Alan Webborn from Societe Generale.

[Alan Webborn, analyst]

If I remember correctly, you also had sort of an inflated level of loan growth in the first quarter last year, which was related to retail activity and so on. Could you just sort of put a little bit more color on what's going on here? Is it responding to the customer needs across the early part of the year? And will we -- and clearly, by saying that yes, you'll be above your mid-single-digit loan growth for the full year, but, clearly, after 6% in the first quarter, it's going to be somewhat lower going forward, one would think. Can you just give us a little bit of color in terms of what's going on there? And is this a sort of permanent feature of the business that you're doing for cooperates, I assume, and financial institutions? That would be interesting.

And the second part is maybe you can see some of that in the corporates and markets division, but also, the margin in the corporate and markets division is higher in the first quarter, which is interesting because it's going against what's happening elsewhere. So could you give us a little idea of what the drivers are there? And do you think that's sustainable?

And I guess the third question was on fee income. As you push sort of digitalization and clients are going that way, is there pressure on fees in terms of attracting clients to new ways of doing business? I think we see this in a number of markets in the CEE, that one of the price you have to pay of digitalization is lower fees. And do you see any element of that yet? Or as you said earlier, this is just a seasonal weakness that you expect to pick up. And I don't think you've said what you think fees could be growing at this year, but what's your feeling?

[Hannes Mosenbacher, executive]

So Alan, let me start with the first part of the question when talking about loan growth. So what we can report that on the corporate segment, we have seen a growth of some 3.6%, would convert into some EUR 2 billion of loan growth. And please bear in mind that in this corporate loan growth, you also have the FX effect included, which sums up in total to some EUR 700 million, EUR 800 million. So that's on the corporate side.

Retail goes along our plan, which is slightly below EUR 1 billion of increase. But also here, you have the base effect of the currency. And finally, yes, we have increased our repo business substantially. This is -- you're following the company for a long period of time. This is our usual pattern that, in the due course of the year, we would like to make use of the short-term credit spread fluctuation out of the secured business, doing the repo and reverse repo business. And with the year-end, liquidity is rather with the central bank. So this would be giving some details on how the loan growth must be split up. So core business, retail and non-retail and also doing some short-term credit spread optimization would then be the reverse repo, but with, in total, some EUR 7 billion. Martin?

[Martin Grüll, executive]

The margin on the -- I think, the Group Corporates & Markets segment, I think that was the second question. It's more structured finance business which we did. Other than this, there is no major explanation. We don't see this as a typically seasonal effect. So I mean the margin uptick anyway was not very significant. So we believe that we can keep that level what we have seen in the first quarter.

On the fee income, yes, of course, there is pressure across the board. But we believe as I said, due to more business momentum, we can catch up. And I can't give you more granular information as far as the future is concerned, so -- other than we believe we can catch up on this side.

[Operator]

[Operator Instructions] We'll now take our next question from Riccardo Rovere from Mediobanca.

[Riccardo Rovere, analyst]

A couple of questions, if I may. The first one is on -- not clear to me the credit -- the outlook that you're providing for credit impairment for this year. If I understand it correctly, you are kind of reiterating -- or correct me if I'm wrong, 45 basis points as a kind of guidance, but I'm not sure I got it correctly. On the other hand, you are running well below that level, and you have mentioned and highlighted your upgrade in Russia, better conditions in Croatia and so on. So I was just wondering, if I got it correctly, about 45 basis points and if you think this is -- might not be eventually cautious. And if you think it is not cautious, why should the conditions deteriorate all of a sudden?

The second question I have is again on the Russian upgrade. Do you think, at some point, this could eventually be translated into a lower cost of funding for the overall group at some point?

[Hannes Mosenbacher, executive]

Well, I would start with the first question. And you have read me perfectly right. Of course, given this early part of the year, we are confirming the outlook, so it would be too early. But also, as we have this seasonality on the repo business, we also have that the first quarter usually is a very short quarter because at January, February, if something really big pops up for you, anyway, you would have to consider it in the former business year.

Yes, you cannot see my body language, but if you would see me, I'm looking quite confident in talking about the 45 basis points. So hopefully, this helps for you as a guidance. But formally, because -- as said, given this point in time, we would confirm the 45 basis points.

And to the second part of your question, if I do see any big things on the -- coming up, so some clouds on the sky, I don't see them yet there. But I also clearly explained and indicated that this part of risk cost also would incorporate a middle-sized concentration risk. And they usually, unfortunately, come by surprise and not by announcement. So this would be my answer when talking about the future perception when talking about our risk costs.

[Riccardo Rovere, analyst]

And on Russia?

[Martin Grüll, executive]

On Russia funding, the upgrade, of course, is perceived positively. We saw also the spread tightening. I mean you may have realized that we are not tapping them -- have not tapped the market for a benchmark transaction for quite a while. We don't need so much. We do a lot of private placements out of Vienna. Here, we saw the curve coming down. So we are in Vienna a little bit benefiting from this effect overall, although the market is apparently more bullish on bank names than 2 quarters ago.

I mean the cost -- as you know, 60% of our funding is done through deposits, and here, we had -- have extremely low funding costs. I don't see this going any time further. That -- there, we don't see an impact. Maybe in Russia, a little bit also, but in other markets, customer deposits don't -- customers don't care about the grading of Russia. So all in all, a couple of basis points better but not significant.

[Riccardo Rovere, analyst]

But I was mostly referring to, obviously, institutional funding. Given that -- I mean we all know that investors in general when they have something to say or some risks to point out on Raiffeisen, it's generally assumed it's Russia. And now the fact that someone has changed its mind on Russia, you don't think, in any case, it is going to have a material impact on your institutional cost of funding over time?

[Martin Grüll, executive]

As I said, maybe a couple of basis points but not very material.

[Riccardo Rovere, analyst]

And if I can, just a quick follow-up. On trading, again, it's not normal to have kind of EUR 60 million loss -- or EUR 50 million or EUR 60 million loss in a quarter. I understand the one-off of the devaluation of the hedges. But going forward, how should we look at this line of your P&L? Can we assume that the EUR 60 million -- or EUR 50 million, EUR 60 million loss that you reported in Q1 is certainly something that cannot be repeated?

[Martin Grüll, executive]

Definitely not. As I mentioned earlier, on these hedge valuations, we saw a reversal -- part reversal already in April, and the hedge accounting is being implemented -- or enlarged. And by beginning of 2020, we will have a higher -- we have this specific portfolio also under a hedge accounting procedure.

[Operator]

[Operator Instructions] We'll now take our next question from Alastair Ryan from Bank of America.

[Alastair Ryan, analyst]

Just really, growth is a lot better than the previous guidance. What's giving you the confidence to put that on? Is it that you

[Audio Gap]

finally with the capital [indiscernible]

[Audio Gap]

[indiscernible] and you held back, and now it come through sort of all of a sudden. It does feel like the growth is potentially quite materially better than the mid-single digit. I know it's still early in the year, but give us a sense of what was the thing that shifted there? And then does that last?

[Johann Strobl, executive]

This was very difficult so there -- we lost you here and there while you were talking. So what I understood was your question, why are we confident that we grow with a single-digit loan so that the loan growth will be a single-digit number. I didn't get if you expect more until year-end or less. I would just refer to my statement on the GDP outlook. So there are a couple of countries which still have this nice GDP outlook.

So you might say, "If you have 3%, 3.5% GDP growth and this good loan development, sir, why don't you expect more than mid-single digits?" In some markets, it might be even more, but overall, we should also consider that some of the central banks are putting some limitations on the loan growth. So here and there, we see also counteractions from the regulators. And this is why we are not, as of now, seeing the double-digit loan growth throughout all the markets, first. Second, from -- as Hannes and Martin explained, part of the loan growth in the first quarter was rather short-term and repo business and stuff like this. So this is not the core of the loan growth portfolio what we mean when we say a single-digit loan portfolio development.

[Operator]

[Operator Instructions] As there are no further questions at this time, we will now conclude today's conference call. Thank you for your participation.

[Johann Strobl, executive]

Thank you for joining the call. Thank you for listening to our explanations on these results, and I wish you a good afternoon. Thank you.

[Operator]

Thank you for your participation. You may now disconnect.