Raiffeisen Bank International AG

VSE:RBI

Earnings Call Transcript 2020-Q1

[Operator]

Good afternoon, ladies and gentlemen, and welcome to the conference call of Raiffeisen Bank International. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Johann Strobl, Chief Executive Officer.

[Johann Strobl, executive]

Good afternoon, ladies and gentlemen, and thank you for joining the call today. I will start by taking a brief look at the first quarter numbers. And then, of course, we will also update on our outlook. The operating result was up 33% year-on-year, which we like very much, and this is driven by a 7% increase in net interest income and even more so by an 11% rise in the net fee and commission income.

The net trading income and the fair value results also increased following the introduction of hedge accounting for certain portfolios and the reduction in consolidation effects. You might remember that last year, we suffered from inefficient hedging, but this was improved substantially with 1 of -- 2 of our subsidiaries.

On the other hand, we see already the first negative impact of these extraordinary times. The consolidated profit for the first quarter reflect EUR 165 million negative impact, which is due to the COVID-19. Out of this, EUR 96 million are related to risk costs. And this includes also updated macroeconomic scenarios and postmodel adjustment, and Hannes Mosenbacher will talk about it later.

We also felt the negative impact of the COVID-19 in some impairments on investments in associates and goodwill, which came in total to EUR 61 million. And we had, out of the moratorium in 2 countries, already calculated the NPV impact from these contract modifications, namely in Hungary and in Romania, and this amounts to EUR 8 million.

We saw a very good loan growth in almost all of the markets in local currency. And these were -- had been very good numbers throughout the first quarter. Just in the recent weeks of the month, when we saw a substantial depreciation of some local currencies, this was reduced in euro terms to a small growth of just 1% on group level.

And the second part of the negative impact came from -- came to the -- or relates to the CET1 ratio where we see somehow 40 basis points impact from these currency movements and a 38 basis points growth in the credit risk ratings, but I'll come to this later on.

In the numbers. So in the consolidated -- sorry, in the CET1 ratio, there is still the dividend proposal for last year incorporated. So it's not part of the CET1 ratio. We postponed our annual shareholder meeting to October. Currently, it's planned to the 20th of October. So this gives us the opportunity, following the ECB, EBA requirement, that we have a second look on the development in our markets and get a deeper understanding of the potential future impact.

If we then move to the next slide, which shows some more details on KPIs. The one thing is the very positive that we could keep the net interest margin at 243 basis points, the same level than in the first quarter of '19. Also, we have to make you aware that this number will decline a little bit. There are a couple of reasons for that. The one is that we have seen in a couple of countries, which are important for us, substantial central bank rate declines.

And what we also see in -- or have seen in April, also continuing in early May that given the impact of this closedown that there is a lower demand in unsecured loans from private individuals. In terms of volume, this is more than compensated by corporate loans, but you're aware that corporate loans and mortgages usually have a much smaller margin than what we earn on unsecured loans.

The cost income ratio looks very positive. But again, there, it's clear for all of us that given the shutdown in the various markets with the negative impact, not only on the net interest income, but also in the fee and commission income, we will see a deterioration in the cost income ratio throughout the coming quarters. The consolidated profit leads to a return on equity of 5.6% in the first quarter.

If we continue with a short update on how we do our business. I can say that we had been very successful in changing from the traditional way of working to the safe one, which means home office for most of the people, which also means to a secure way of dealing with customers in the branch environment. We had hardly any infections. And if we had to close branches, then it was only for a very short period of time. We worked very well, and we could address all the customer requirements and could virtually -- by virtual means, meet all our customers. So this was working very well.

And the other report I would given you for sure follow these numbers very closely is the impact on this pandemic in our core markets. And what we see is that the fatalities calculated as a number per million inhabitants is low in all our countries compared to the big developed ones. There might be many reasons, and future will show where analysis, what really worked. But what we have seen is that most of the countries took really restrictive countermeasures, limiting the movement of the population substantially. And currently, this is the assumption that this worked very well. We will see further analysis on that. And I think it will be important to understand what works and what does not work.

What we also see is, given the good progress, that in some countries like Austria, Czech Republic and Slovakia, we already see the first ease in restrictions, and we deem this is very important because, for all of us, for our economy, it would be very, very good to come back to more or less normal activity.

When talking about the virus, we also have to mention the various support mechanism, which had been established, and we are now on Slide 7. There are a couple of them. It's different. It varies from country to country. Some have packages announced, which seem very generous in terms of percentage to GDP. It varies also in the structure being it's direct supports from the state budgets or be it indirect supports where guarantees, payment deferrals and so on. Of course, it will take a couple of more weeks to understand how these instruments really work and how fast they will contribute to also overcome these difficult days. And we will see how much they will also be supportive to bringing us back to a normal working environment.

In addition to that, we see a couple of additional support measures. We have seen in many countries, probably different to historic experience, that countries which were used to increase central bank rates to defend their currency in earlier crises, they now were able to reduce central bank rates. And you see it in the box at the lower-right hand.

And on the other hand, there had been, in addition to what the ECB announced, within the euro area, we also have seen announced ECB swap plans for Croatia and Bulgaria, those who soon will join the euro. And then we have another programs for the Western Polkan countries. We have seen the IMF activities, and we see also in some countries quantitative easing measures like bond purchases in Hungary, Romania, Croatia and the Czech Republic by the central banks.

If we move to the next slide. I talk a little bit now about our segments, corporate. What we see in the corporate area is after, let's say, 2 weeks or so where our customers were reorganizing their own operations, we had intense talks with them about their potential needs. We saw drawings from them. And it seems now that after a couple of weeks of intense discussion, everyone is clear what they need and what the future could be over the next couple of months.

Of course, it also led to a repricing following the capital market, price developments. And of course, we have a very specific industry approach, depending how sensitive the various industries to the COVID closedowns are.

The state guarantee schemes look similar from country to country. As I said before, it might take a while till we have figured out how they really work in some countries. There are still talks about the details because it's the one thing is to set up the guarantee, but the other is to come with all the various details and conditions.

What we see in countries that -- mainly smaller corporate customers, start to make use of the moratorias (sic) [ moratoria ]. It's in many countries. It's not that big. But it's one instrument which is also used by our customers.

When talking about moratorias, we should also have a look in -- at retail. You are aware that the moratorias look similar in most of the countries, but varying in details. So we have seen periods ranging from 3 months to until year-end. We have seen opt-in concept in most of the countries but on the other hand also, opt-out concepts like in Hungary, Serbia. And it does not come as a surprise. That countries which offer an opt-out concept, there is the usage substantially higher than in those where there is an opt-in. In total, it's about 12% of the portfolio where customers make use of this concept.

Moving to the macro outlook. I here have to say that compared to the last time when we talked to you, there had been further developments. We had assumed at that time a short severe lockdown but then coming back rather soon. What we figured out, meanwhile, what we have to learn is that in most of the countries, the lockdown is considerable longer. And this also has a negative impact on the macro outlook, so we adjusted that.

Starting with Austria, we substantially reduced to minus 7.2%. We had also adjustments in most of our markets. And you see the decline is now significantly higher. Probably, the biggest change to last time is the one in Russia, where we had 0% last time and which is now at minus 5%, around. Reason for that is at that time, we only had to consider the low oil price. And now came in addition also a lockdown in Russia given the increasing number of infections.

Yes. With that, I think I should move, as it's the standard in our procedure, to the outlook based on what I have explained to you throughout my presentation. We are slightly adjusting our outlook. In terms of loan growth, we now expect a modest loan growth in 2020. In terms of risk costs, we expect provisioning ratio of around 75 basis points. Of course, this will depend also on the length and the severity of this disruption.

I already mentioned the actual cost income ratio and the pressure on that because of the current development. We still aim to achieve a cost income ratio of around 55% in the medium term. And of course, we have to evaluate the impact of this development on the ratio in 2021.

In terms of profitability, we still believe that in the long term, a consolidated return on equity of 11% is a target for us. Today and based on our best estimates for this year, we expect the consolidated return on equity in the mid-single digit. And we confirm the CET1 ratio target of around 13% for the medium term. And finally, we also confirm our payout ratio between 20% and 50% of the consolidated profit.

If we now move to more details, the one is the CET1 ratio on Slide 13. I have already explained the drop from 13.9% to 13%. We have capital requirement and the CET1 ratio being adjusted because the structure of the Pillar 2 requirement was changed, and we now can fill this up by CET1 as well as by AT1 and Tier 2. And this means a reduction in the CET1 requirement by 98 basis points, which have to filled up by the other 2 components. We had, had our additional Tier 1 and Tier 2 optimized to that level. So currently, with this change in regulation, it somehow shifted more the bottleneck to the total capital, which will change as soon as we would optimize again our capital structure.

Yes. I think I had explained to a large extent already the development in the CET1 ratio. As I said before, this mainly came from the FX impact from the currencies where we had seen a significant devaluation, ruble-driven, Belarus ruble, also, Czech koruna and Hungarian forint. So this was substantial, and this led to this development. Yes, in local currencies, there had also been a loan growth, which I had been mentioning before.

If we move now to Slide 15. I mean at the beginning of the crisis, the biggest question always is what is the impact on liquidity. So what we can report, this crisis is understood by all participants as a health crisis, which has a very negative impact on the real economy, which on the other hand means that the trust in the banking system and the financial system is there. And we can see this in very stable liquidity ratios like the LCR, which on group level is at around 140%.

And yes, I think to spend a few words also on the quarterly results. I mentioned already the good improvement in net interest income in the comparison first quarter last year to this year. If we compare to the fourth quarter, then we have to be aware of some seasonalities, which we see in the fee and commission income on the one hand, but we also see in the operating results also some improvements on the one hand.

On the other hand, we see also quarter-on-quarter, a negative impact, which comes, to a large extent, from the SoftwareONE IPO. You know that we had in the fourth quarter the SoftwareONE IPO, which was very helpful to the result of that quarter. The very good share performance led to more gain than at year-end. And SoftwareONE had also felt in the first quarter the pressure like any listed company. So there was a reduced share price to be considered in the -- at the end of the first quarter. Yes. And then there had been some other positive or negative results like litigation provisions and some more.

And with that, I would like to move forward, maybe to the costs. Similar to the operating income, where we have seasonalities -- and I should have mentioned the fee and commission income usually at the year-end, and you have seen this in the comparison at the year-end is always very strong. So this is, fourth quarter to the running quarter, lower, I have mentioned that. On the other hand, there had been also some sales last year like the MasterCard shares and which were positive in the fourth quarter.

When talking about the general administrative expenses, we also should be aware that, again, there is this seasonality pattern which supports us very much in the first quarter. So mainly in the fourth quarter, we see higher increases. So the starting point for the beginning of this year, I think, is quite good.

When talking to the various countries, so our regions in Central Europe, we had given the depreciations in forint and in the Czech koruna. If we consider this, then I think the minus 1% in loan to customers in euro terms is a good result. Yes, we could find an improvement in the NIM and also in the cost income ratio. But there, I have already talked about also the seasonalities.

Also a positive picture in the Southeastern Europe segment with good development in all the segments. Some countries already suffer from being at the bank levers or contributions to some of the funds, which is also a traditional pattern. But overall, I think we can be fine with where the starting point is.

In Eastern Europe, on Slide 20, I mean, we are aware that with the exception of the FX rate, this had been a very positive quarter. And you see it in all the numbers with strong results in Russia, Ukraine and Belarus.

And also the corporate, so Group Corporates & Markets, we had a very good loan growth in the first quarter. So this is in euro terms. This gives you an idea about potential -- what the potential of the bank in normal circumstances is.

And with that, I hand over to Hannes Mosenbacher.

[Hannes Mosenbacher, executive]

Thank you, Johann. Also, warm welcome from my side, and thanks for participating.

Well, when looking at the first quarter, we have taken EUR 153 million of loan loss provisions. And the majority, you could consider and classify as preemptive and you may also say forward-looking and making use of the methods and the request by the IFRS 9.

Having said this, if you look at this EUR 159 million, some EUR 28 million needs really to be clearly allocated to Stage 3. And then, of course, based on some loan growth, we have a Stage 1 booking. But the remaining part can be clearly allocated into this forward-looking manner is it the macro adjustment and also the postmodel adjustment.

Before I start running you through the slides, let me also again reflect on our starting point, which is a very strong one. We go into this crisis with an NPE ratio of 2% and a coverage ratio, which I would consider best-in-class of -- among European peers with 62.4%. And also our portfolio is a very healthy one, having an average PD on the corporate side of some 1.15%, on the retail side, slightly above 2%.

Having said all this, I would now like to proceed on Page 23, where you can see that the total exposure was almost not moving. But please bear in mind that we had the strong devaluation on the FX side as mentioned. So total portfolio was up by 0.8%. Keeping FX rates stable, the growth demonstrated in the first 2 months would have summed up in total to EUR 6 billion.

On the right-hand side, we have added for transparency reason also the portfolio and industry split to be here complete transparent how our portfolio is being set up because I think what is very important and as we have talked in the second week of -- second, third week of March, besides that this is a health crisis, of course, this health crisis [indiscernible] completely to different industries in a different magnitude.

Committed lines, also one of the usual questions, so we have already taken this question upfront how the drawing behavior of our clients came in. In total, some EUR 1.2 billion were drawn in addition. And it was funny to realize that some of the corporates, with the beginning of the -- of this lockdown period, made use of their committed lines at the same time placing back the money with the bank. So it was just testing whether or not the line is working, I could say so. But this is not enormous money. And of course, a bank like ours is taking care having -- can easily manage this drawing on the committed lines.

On the next slide, on Page 24, going more into this industry perspective. And we have clustered it quite straightforward, just having 3 main sectors being shown here: the high-risk sector, moderate and low-risk sector.

You might recall, when we talked to each other last time, I was using this L-shape. So I think this would hold true for the high-risk sector, where the impact is a strong one, and the recovery may take us even a couple of quarters.

Then on the moderate risk sector, you could attach this U-shaped recovery. So a strong drop, a period of finding the new equilibrium and then a good recovery because basic demand is given.

And then last but not least, we will also consider the biggest part, almost 90% of our total portfolio, we consider as a low-risk sector. And here, there would be some not suffering at all and some others where you would see a V-shaped recovery.

Just to give you 1 reading example on the high-risk sector, what do we understand. As indicated last time, it's tourism, it's leisure, it's airlines and airport services. So we have a total cross exposure of EUR 2.2 billion. But at the same time, we have good collateral, giving us a net exposure of EUR 1.5 billion.

Well, I move on to the next page, on Page 25, and giving a little bit more insight when talking about RWAs. As said, and you are following our bank quite closely for some time, the FX always is working on both sides of the equation. In this case, also on the RWAs, so the RWAs on the nonretail side, we're up EUR 165 million. Excluding the FX effect, the RWAs would be up by EUR 1.5 billion. And retail risk came down by this FX impact by EUR 635 million. Usual, in times like this, when volatility starts increasing, in this specific case, even soaring, we have seen that market risk RWAs have been up by EUR 804 million.

I move on to my next page on the IFRS 9 provisioning in the Q1 2020. As I stated in my initial statement, total was EUR 153 million, Stage 3, EUR 28 million. So very low inflow of really defaulted loans, summing up of risk costs need of EUR 28 million. And the remaining big part, you could consider as loan loss provisions, forward-looking as the request by the IFRS 9 method. So we have added another EUR 28 million for the macro assumptions, and we already allocated as of today, EUR 68 million when it comes to the COVID-19 post model adjustment.

And as I said beforehand, of course, who is heavily impacted, these are the industry on the tourism side, consumer good, but also, of course, segment-wise, we see that for the micros and for the SME, this is a very challenging and a demanding environment.

For you to have a good transparency and to see what did we do in which segment and region, we have also split up this IFRS 9 provision according to the different segments. So it's in total some 66 basis points. And the reason why we have adjusted our forecast to 75 basis points is also to accept the truth that now the macroeconomic forecasts came in more bleak. And I mean we have talked to each other last time the forecast in Russia was almost 0% GDP impact. And now also here, we see a quite negative outlook when it comes to the GDP development.

Having said all this, it brings me to my last slide before opening up for questions. Let me just make some 3, 4 highlights on this page. As you can see, we have NPE ratio of 2%, being capable to bring down the NPE ratio another time down to 10 -- by 10 basis points to 2%. We have really a very good and high NPE coverage ratio was 62.4%.

And the third bullet, what I'm very happy about is that out of our Polish exposure in the due course of the M&A activity, there were some corporate exposures, which have been left with our branch. And here, we had some good results on the workout environment. It was a difficult and demanding workout situation. But now what you can see is that also the coverage ratio, important, is jumping up to 69.3%.

Well, having said all this, we are now happy -- more than happy to take your questions. Please go ahead.

[Operator]

[Operator Instructions] Our first question comes from Sam Goodacre with JPMorgan.

[Samuel Goodacre, analyst]

I've got a couple of questions. The first is bigger picture on your capital position. Given that now you effectively are operating at your midterm CET1 target level rather than in excess, I mean, how are you thinking about capital? Does this impact at all the potential dividend decision given that you currently are accruing the 2019 busy in capital? And is there any update on any change in equity or capital since the quarter end, such as mark-to-market impacts that could paint a slightly different picture? So that was the first question.

The second one was about the sizable corporate default that you experienced in Russia. Are you able at this stage to give us any more color on the segment of the corporate or nature of the default? Was it, for example, related to the current pandemic situation? And does it imply increased risk of similar defaults going forward?

[Johann Strobl, executive]

Thank you for your questions. If I might start with the capital. As I outlined, the dividend decision for the year 2019 is finally up to the shareholder meeting, which was postponed to 20th of October as it's currently planned. And this is this EUR 1 per share. So this would mean in terms of CET1 ratio, some 40, 45 basis points. What we also do is, when talking about the current year, we usually allocate around 20%, so the lower end of our payout ratio, as a potential dividend. So this is also not part of the CET1 ratio.

The biggest driver in unusual circumstances is the development from the currencies. We have seen huge devaluations in currencies I have mentioned, so ruble or hryvnia, Belarus ruble, but also Czech koruna and forint. We strongly believe all our forecasts that probably it was at the bottom of this year. So it's either flat for the rest of the year or even improving as we see it now with some of the currencies.

And with all the improvements and the packages with -- might come also the -- let's say, the improved oil price. So we think we will -- so we have an improved position since the end of the quarter by all elements, which had been negative in the first quarter.

[Hannes Mosenbacher, executive]

Well, when you talk about the defaults in Russia, the complete sum when talking about risk provision in Russia, for me, this is not anything to be concerned in the first quarter. The first 2 months, we have seen almost 0 risk costs. On retail, with the beginning of the crisis, we have seen some clients asking for postponement and for restructuring. And there was one, this was a little case on the nonretail side, which is, not for me at least, not being attached too much to the current situation. Of course, in a connected society, you may be tempted or you might be tempted to relate everything. But it's a big company out of the industry environment and energy environment. And there was a little restructuring time, not a big issue at all.

[Samuel Goodacre, analyst]

Okay. And then just the third and final question from me is related to the -- I think it was approximately EUR 10 million charge taken to amend contracts to reflect the moratorium in Hungary and Romania. I think you alluded at the beginning that it's NPV related. So could you just remind us how the accounting works around that?

But also, what is the risk of these increases in future quarters? Have you, for example, seen more participation since the period end than 42% in Hungary and 8% in Romania that you outlined on Slide 9?

[Johann Strobl, executive]

Yes. The way it works is that in some countries, I mean, the idea of the moratorium, let's start with that, for private individuals is that you try -- you agree and if you not agree, you simply add the installments, which not -- which have not been paid at the end of the contract. So if they do not pay for 3 or 4 months, then the tenor is 3 or 4 months longer with the installments which had not been paid. Of course, interest has to be paid, but what we miss is the interest on the interest. And this becomes clear in the NPV. And we show this in the other result as an NPV adjustment.

And based on this, we have to say it's quite difficult to figure out. So we have done this in 2 countries, as I said, Hungary and Romania. I mean we have to carefully look at it. So there might come something also from the one or the other countries.

As we said, the 12% of what we have seen so far in the moratorium is, I mean, the pattern is usually that in the first few days, it -- the number is huge and then it flattens. So we are already in the flattening process. So not all of that 12% already covered in the NPV calculation. We will update this in the second quarter report. But as of now, I do not expect that these numbers will increase substantially, so the 12%, as we have already seen a flattening. Still customers can change their mind, but I think the inflow slowed down substantially.

[Operator]

Next question is by Anna Marshall with Goldman Sachs.

[Anna Marshall, analyst]

Two questions, please. First, on your cost of risk guidance, could you please confirm what assumptions regarding various support measures are included in this number, in 70 basis points? And what it would have looked if their assumptions included, what it would have looked like if there were no support measures. And also, could you please confirm the expected trajectory throughout the coming quarters for fuel cost risk? So that is my first group of questions.

And the second one on costs. Please, what additional steps can you take on the cost efficiency side to at least partially compensate the revenue environment?

[Hannes Mosenbacher, executive]

Okay. Thank you. So I got some English lessons still. Colleagues were helping me. So the first part of the question, Anna, is pretty straightforward and easy. We tried to approach it from different sides. And this was the reason why we came up with this around 75 basis points. The one was looking in the industries, and we have done, I at least would consider a quite thorough and deep analysis on a portfolio level. For the high-risk industries, we have assumed the fallout, the complete fallout of 6 to 9 months of sales with no support measures at all and then looking what could be the potential risk outside of this -- out of the strong deterioration of course in the ratings and then looking at the expected loss. So this was the one big approach what we did. So for the high risk, we were taking 6 to 9 months. For moderate, we were taking 3 to 5 months. And for the low-risk bucket, we even took for this 1 or 2 months of fallout of sales revenues without any support measures. So this was the first thing what we did.

The second one is we were looking at our historic stress test. And if you would just simply employ the stress test, and this is now very important and sensitive for me to make you aware of the stress test always assumes that management is just watching and see how the balance sheet is performing over the next 3 years. So no possibility talking to our clients, no possibility to restructure our clients, no means at all. So you're just being there and you see how your portfolio is [ still rating ]. And based on the stress test, which is maybe comparable with the [ evo ] stress, but also the internal stress test we have performed last year. And here, we have seen in total a risk costs of somewhere around 100 to 120 basis points.

So from -- so if you look at these 2 things where you say, well, the stress test without any management action would sum up to 100, 120 basis points, then you do the bottom-up result. And that was the reason why we came in with the 75 basis point.

I cannot give a clear number, but it would -- easy would be saying it's a difference between this 100 and 125 basis point and the support measures. But we rather try to approach it from the different sides of the equation and to see and if the perception and the output and risk costs needs came in at the comparable level. That's the reason why we felt comfortable at this time with the guidance of 75 basis points, around 75 basis points.

And the move from the one to the other stage. What we believe is, Anna, that in the first 2 quarters, I would not wonder if we see that we still see a lot of postmodel adjustments because, as I said, the real risk cost made on the Stage 3 was very low in the first quarter. And we also see that there are -- that for the big companies having good liquidity positions, yes, they may have -- they may experience the one -- a rating not share movement. But this is it.

And as long as the customers are being shielded by the moratoria, we will not see a bunch of Stage 3 bookings. Having said all this, of course, it is extremely important for us to see on a monthly basis how on the retail side the 30-plus bucket is behaving, the 90-plus bucket is behaving. And also, the most important and decisive factory is the length of the moratoria.

And of course, we do not wait for the moratoria to finish. The work of the risk management and the collection starts much earlier. But this could be in the time when the Stage 1, Stage 2 turns into a Stage 3. But that's the reason why we are now working heavily on these preemptive measures and forward-looking measures when talking to the postmodel adjustments. Sorry for this long answer.

[Johann Strobl, executive]

As to your second question, the OpEx, I mean, the one thing is that we have started. And obviously, it's already well-known to the community target operating model review, starting in the head office and followed on in the Austrian subsidiary. We started already last year with implementation. So the implementation was planned for partly '19 already, partly in '20 so that we have the full impact of the cost reduction in '21.

The idea was to save around EUR 60 million. As I said before, quite a lot of it had been executed. Some more have to come. Yes, we delayed the layoff of some of the people in these difficult days, but it will happen over time. And the progress in the Austrian subsidiaries in terms of defining, structuring and partly executing is also well underway. And we had asked our network banks for additional cost savings as well. So in total, we targeted around EUR 130 million, and this is -- will happen in '21.

What -- we see, in short-term measures, additional potentials, which means with all these frozen activities what we have, no traveling, no events and a couple of other things, almost no hirings. So we see, one might say, a natural support in cost saving for this year. And this we will execute, of course.

And then there is something which are just thinking, but of course, the learnings, what we have from home office. And we have to elaborate on that. There are a couple of ideas at the table, how to work in the future, but this is too early to announce. So currently, it's the execution of the old cost project, if I might say so, with the expected EUR 130 million, plus a couple of technical measures as well.

[Operator]

Next question is by Gabor Kemeny with Autonomous Research.

[Gabor Kemeny, analyst]

My first question is on the margin outlook, please. You mentioned a couple of margin headwinds from the rate cuts in Russia, Ukraine and some other countries and also the regulatory caps on the state-guaranteed loans interest. How much margin erosion shall we expect from this over the course of 2020?

And then moving to asset quality. Can you talk a bit about why the Stage 2 exposures increased so significantly in Q1? I think it doubled to about 21% of your total exposures. It would be useful to get some color on which countries, which segments drove this. And what's the likelihood of migration to Stage 3?

And then finally, you called out Russia with the biggest macro adjustment in Q1 as you move to a 5% GDP contraction assumption. Yet if we look at Page 27 in your slide deck, it seems that the macro parameter, that the provision top-up related to the macro parameter adjustment was relatively modest. What's the likelihood that we will see a further macro-driven provision adjustments here?

[Johann Strobl, executive]

So if I may start with the NIM expectations and give you more detail. So let's -- you already summarized the big drivers of this reduction in the net interest margin.

The portfolio in Ukraine, if I start with the country with the biggest rate cut, is relatively small. But given -- and the sensitivity is also not huge. So we shared with you in the past that 100 basis point shift might cost us EUR 4 million. So this adds up already to more than EUR 20 million. The highest sensitivity, we also mentioned -- always mentioned, comes from the Czech Republic with 50 basis points and EUR 24 million, EUR 25 million. So big impact.

Russia is traditionally less sensitive. We always said 100 basis point shift might cost EUR 10 million, something like this. Romania is more sizable, but 50 basis point might cost another EUR 10 million or so. So -- and it goes on the others are smaller. So there is a considerable part of deterioration. What we see in the net interest income simply comes from that impact. So maybe 40% or so, but just this calculating out of my head, might come from the central bank rate cuts. And then the rest probably comes from others.

Yes, the bigger part is the structural shift in demand from unsecured to either secured or corporates. And to some extent, the state guarantee packages also limit the margin.

On the other hand, we have to say, okay, the good point is that with the state guarantee, there comes also less impact on the RWAs. So I would say, on a stand-alone basis, still, this product could be quite efficient if the states are not too extreme in their request of the contribution of the banks.

[Hannes Mosenbacher, executive]

Gabor, I take the second part of the question. When talking about the Stage 2 in the asset quality, yes, you're right. We have been quite comprehensive when putting certain exposures in industries into the Stage 2 bucket. I gave the reason beforehand, this preemptive and this forward-looking measures. So the entire high-risk bucket is being put in Stage 2. Also, the moderate-risk bucket is being put into the Stage 2. And then we were also, of course, looking carefully on the one which we currently consider as low-risk bucket, if there are some exposures would qualify as Stage 2, we have done. So the detailed split-up per country, per segment, Investor Relations will follow up on this with you.

And the other thing is what is maybe important, when I look at the names we have added there, a sizable Stage 2 contribution, we can talk about exactly what you would expect that we are doing. The one is -- the one or other hotel in city centers, where we have allocated Stage 2 bookings. So and the other one is what we also have seen is, and this is maybe important to know, is that the duration -- the usual duration of our loan book is rather short term, maybe in 2, 3 years duration, credit duration. That's the reason why the Stage 2 impact is not more pronounced.

But as I said, it's the high-risk bucket. It's the moderate-risk bucket and some other exposures from the low-risk bucket, which we have put into the Stage 2. And also, of course, goes without saying, on the retail side, those clients, making use of the moratorium, we also have leveled there as Stage 2. So this is the thing what we have done and why we see such a strong increase. Yes, this would be my input.

And your second question is regarding the macro in Russia. Please bear in mind that on the 31st of March, the previous outlook was the reference outlook and not the current outlook. So we have -- we would expect in the second quarter maybe another macro overlay. As we have indicated in the first quarter, we could also consider a comparable size for the second quarter. Thanks for the question.

[Gabor Kemeny, analyst]

That's very useful. And just finally, can you give us a rough sense how much of your consumer unsecured loans is under debt moratoriums across the market?

[Hannes Mosenbacher, executive]

Well, we look it up swiftly. Give me 1 second. I come back in the due course of the conference call. I just need to find it out in my material.

[Operator]

Next question is from Máté Nemes with UBS.

[Mate Nemes, analyst]

I have 2 questions, please, and then perhaps a small follow-up. Firstly, on fees and commissions. Can you talk a little bit about your experience in April and the first few weeks of May, what have you seen in terms of activity levels from clients, payments? How do these perform? And what would you expect in terms of full year income on fees?

And secondly, a bit on volumes in GCM. Obviously, you flagged some increase there from committed credit lines. But it seems like you also had some unrelated lending growth in GCM. Can you talk a little bit about the outlook there? What do you have in the pipeline? How shall we think of GCM volumes going forward?

And a small follow-up or clarification in terms of cost. You mentioned that you have asked the natural banks for cost savings to the tune of EUR 130 million, that you said this will happen in 2021. Can you clarify here, should we expect this EUR 130 million to start coming through in 2021? Or this is a multiyear exercise? Anything in terms of timing would be helpful there.

[Johann Strobl, executive]

Yes. If I start in the order of your questions. I mean, of course, if you look at the absolute number in euro terms, one have to consider that, of course, we also have the currency devaluation. So in those countries, which are high contributor like Russia, like, also to some extent, a mall in Ukraine, but also the Czech Republic. You have on the one hand, the currency impact, what you already see in April. And then you see less activities in all fees, which are transaction based, and we see a substantial reduction.

If I go line by line, of course, you see very little credit card payments. You see no traveling, so reduced FX. So you see low loan demand in unsecured loan. Usually, this goes hand-in-hand with cross-selling products like insurance. So we feel it everywhere. And so the drop is 30%, 40%, 50% in some areas in these markets.

Of course, we assume that in the course of the year, we see -- we will see a recovery, but still it's less -- it's more -- let's say, more reactive than the net interest income. So potentially, the impact in that area, in combination, of course, with the currency devaluation, is more than the pure GDP drop because the GDP prop is currency by currency.

In terms of your second question, the loan growth, yes, we had seen a 7% loan growth in this area. So our international customers of the business was good, yet part of it is always also short term. What we have seen is increased activities throughout all our regions, but especially in that, and as mentioned that already, in the end of March and April, these activities are less.

So yes, many of the customers might need additional liquidity throughout the year. But no one panics, so the loan demand is not huge. But this, I think, does not come as a surprise as the customer base is very good. So they have ample of reserves. There are some who are filling up their wallets for, let's say, later on in the year for consolidation opportunities. But overall, it ends, as I said, in growth in the loan portfolio, but lower than under normal circumstances, of course.

Yes, sorry. The last question, cost savings in '20 to '21. Yes, I think half-half would have been a good assumption how it should come.

[Operator]

Next question is by Johannes Thormann with HSBC.

[Johannes Thormann, analyst]

Three questions from my side, please. First off, on your nice display of your industries and exposure by sector on Page 23. I was puzzled at real estate, which is quite chunky, doesn't lend up at least in the moderate risk sector. What led you to the assumption that -- or what kind of exposure do you have in real estate that is rather to the lower end side?

And secondly, on your NPE ratio, on Page 28, which regions or countries would you expect the biggest move now we've seen NPE ratio dropping around 2%? And then where could it jump up the most in your view?

And last but not least, you said on Page 25 and you elaborated in your speech that you want to manage your CET ratio and the strong commitment to the 13%. But effectively, we've been slightly below it now, excluding the profit. How far can you think it would drop in a bad case scenario? Would you touch your buffer of 10.6%? Or will you be far away from this?

[Hannes Mosenbacher, executive]

Well, there are a couple of questions going under the risk bucket. Yes. It's a question of flavor where you want to allocate certain sub industries. The reason why we have chosen for real estate to be considered for us in -- currently in the low-risk bucket is what typical sort of real estate you could imagine.

The one is office building. The other one is warehouses, and the third one is residential real estate. So we do not have big infrastructure buildings included in our real estate. So that's the first thing.

The second thing is maybe to give a little insight on the way how we perform our underwriting. And we carefully -- whenever we do the underwriting, we carefully look at the discounted cash flow. We are not a pure LTV underwriting organization. Yes, it's a consequence, but we are not purely underwriting on the LTV. And we also assume, when discounting the cash flow, a minimum level of the discount rate.

Having said this, I think we are taking a quite prudent approach when it comes to the real estate in total. And for many of our real estate exposures, we also have a cash and a reserve account, the debt [indiscernible] restructuring was some 3 to 6 months of reserve money is included to cover complete follow-up of the rents. So this was, for us, the motivation at this point in time talking about a medium or a lower risk in assessment.

The other thing is, and this is very little in our portfolio. For me, it's -- if you have a lot of to be finished projects in a developing phase, in the final phase of the developing where you're still suffering based on your historically high cost of build, is it the land plot, is it the cost of billing, I think this is the part which is more challenged.

But as I outlined, also talking on the high-risk bucket when talking about some of the hurdles, usually, we are not doing Tier 2 or Tier 3 locations. We rather also tempted to go with good locations. But as I said, the classification, we have shared with us -- with you our classification and I also was sharing with you our underwriting standards why we believe that this is the appropriate insight.

The second question is a very tricky one. I have to admit and to tell you at this point in time. And I could now be quite talkative, but I think it's too early to give a clear insight. Maybe a little bit going back to the question -- from the previous question from Gabor, it depends on the portfolio development. It depends on the support mechanism and on the portfolio split end and end.

So you would have ample criteria where the NPE ratio has been collected. But what we believe on the total sum is that we might go somewhere slightly below the 3%. So is it 2.6%, is it 2.8%, but I think we are now really -- tried to be over precise by the mid of May knowing that we have to do another 7 months, 7.5 months for the whole year, but this would be currently my best guess on the total portfolio. So NPE ratio might come in at 7 -- 2.6% to 2.89%. This would be my guidance when talking about NPE. I would not yet feel in the position giving you clear insight in which country, which portfolio we would see the soaring part.

The second part of your question. Yes, I think this is the most important thing to be answered. Johann?

[Johann Strobl, executive]

Yes. If I may answer your question to the CET1 and the potential further drop, so let me sum our thinking. The big movement, the big movement in the CET1 came from the currency. And probably this could be one source of further deterioration in the CET1 ratio. What could it be? Another 40 basis points? I don't know, but this would then be a further big devaluation, which we currently do not assume.

Secondly, when coming to the positive contributions, first, yes, we have we have a risk cost assumed, which I think was fairly explained. And implicitly, given the reason why, as of now, we do not expect that substantially more would come. Thirdly, we explained that we see a substantial drop in revenues.

I think this is, again -- I don't see substantially more. So there -- we would have to argue under totally different scenarios if we consider that. So based on this, we see some positive contribution to the CET1 ratio from the profit, what we expect for this year with a considerable buffer in the risk.

Then secondly, as we said before, we don't see a substantial growth in the loan portfolio for all the reasons we have given. It will take some time till the loan demand picks up again in the retail sector. And in the corporate, it has to be seen if a bigger demand is visible. But what we see is, given this -- the negative GDP development, we cannot be so optimistic to see a substantial demand in corporate loans. So no big impact from organic growth or so, I would say, unfortunately.

And then we have inorganic elements. So there is rating migration, which was answered by Hannes Mosenbacher already. Then there are some other impacts negatively like additional capital requirement from the operational risk. Yes, this comes from the -- mainly from the legal risks of our Swiss franc consumer loans and mortgage loans in Poland and Croatia. This is considered in these expectations. And we also have seen additional requirements from the market risk. Yes, this is -- this model is sensitive to increased volatility. But since the beginning of April, May, we see a substantial drop in this already as the volatility has come down.

Some positions also had been reduced. So from all what I have said, you -- I will not now mention a number, but I think from all what I have said, it should not be a big drop from the 13% if it comes much negative than we foresee and far away from the target you have mentioned before.

[Operator]

Next question is by Alan Webborn with General.

[Alan Webborn, analyst]

Just a couple of follow-ups in a way. On -- when you sort of did your macro assumptions for Q1, were you sort of surprised that the impact was only sort of EUR 28 million? I mean, I appreciate that you say that Russia wasn't in that macro assumption that there will be more on Russia in Q2, but still I wondered whether you were slightly surprised that they were so low. And would you expect to see sort of further model adjustments as we go through the second quarter because, clearly, the situation that you had even back in March and presumably, those assumptions were done in sort of February were KB just to rise across the region, I think, compared to what they are now? So I'd just be interested in your view on that.

Unless they -- as the second part, the Raiffeisen, traditionally, you have quite a big weight of provisioning towards the end of the year. I mean, do you think that's going to be different this year? Do you think you can sort of keep doing those sort of investments? And is your aim to get yourself as ready as possible for when you start to see more moves into Stage 3? And I'd be interested to know when you think that is likely to happen. So that was the question on risk.

Secondly, sort of overall, I think what you're saying is, is you're expecting, overall, a modest increase in revenues. I mean, where in your major geographies? And I guess, what you were talking here is more corporate than retail? Are you expecting to see a reasonable growth? I mean, clearly, you've had this sort of rather exceptional growth in the first quarter in the GCM, and we do see that with you occasionally. But I wondered, where do you think the better opportunities in corporate geographically are going to be in the next year, looking at the book you have at the moment? That would be also interesting.

And finally, just a small point of detail. I think you've said that you're going to pay the one-off Hungarian tax in stages over the next couple of quarters. How much is that going to be? And on the basis that you'll get it back in subsequent years, if I understand it, do you not just net that off? Or you just have to put that through the P&L? That was it.

[Hannes Mosenbacher, executive]

Well, Alan, thanks for the questions and understanding us so well. Yes, you're right, the EUR 28 million being based on the 31st of March. And you could assume a comparable figure in the second quarter because across Europe, we are seeing now like a more sluggish GDP forecast and also adding Russia. So this would be my minimum assumption as of today. This is the first one.

The second one is, maybe I was too loose on giving you guidance. I think what we also did, besides having some Stage 3 bookings or some model adjustments in the quarter 4, is that we are well-known for those -- try to make use of the IFRS model environment to make use of this preemptive and forward-looking environment and method allowed by the IFRS.

So I would be very much tempted to have another Stage 2 coverage increase in the second quarter could be comparable in the total sum, what we have seen in the first quarter. And Stage 3 will come in, as I said, depending on the maturity and term how long the moratoria will last. This, I think, will become the moment of truth. And of course, goes without saying that we already try to mitigate part of the potential inflow on Stage 3 well before the moratorium finished. So this is my guidance on Q2, but also when I assume that Stage 3 bookings will show up. So Stage 3, my assumption is we will see in Q3, Q4. Q2, we are very much limited to make further use of this post-model adjustment and because I think it's right, it's consistent with what IFRS is expecting from us. And if we do it in an appropriate manner, then hopefully, Q4 will not be again one of the quarters where we have to perform a big adjustment up.

Yes. So I think I have answered my -- most of my questions.

[Johann Strobl, executive]

Okay. If I continue, increase of revenues, I -- please apologize. I never wanted to mention that in these days we would get an increase in revenues. When I were talking about increase, I were talking about a modest growth in the loan portfolio. And these were talks in euro terms.

So as I stated before, in all the countries, I think with the exception of, I would have to look it up, with the exception of Ukraine, but even there, there is slightly probably. We have seen a considerable loan growth. The currency depreciation is, of course, big in Russia. So net, there will be a decline in Russia, even in corporate. But if I go -- if I split it between retail and corporate, then, of course, in corporate, we can outgrow the currency -- negative currency impact, and we will add to this. And in retail, we might be slightly below year-end numbers because, as I said before, the lower demand in unsecured loans, and in addition, the currency impact. So yes, increase in local currencies in a couple of countries, but in those with the big devaluations, it cannot be fully compensated.

Yes -- and maybe to reiterate what I wanted to say is, we will see a negative impact in both in the net interest income because of the reasons I gave before, and unfortunately, also in the fee income. To your other question, booking of bank tax in Hungary, as of now, we assume there is little what we net have to book. It's probably an NPV impact, which has to be worked out. But from today's perspective, the wording seems strong enough that we only have to consider the NPV impact from that bank levy.

[Hannes Mosenbacher, executive]

Sorry to interrupt. There was one question left by Gabor asking the question on how much of the moratorium have been requested from those having a personal loan and from those having a mortgage loan. With all the speed of calculating next of performing conference call, what I can share with you at this point in time is total restructured loans are summing up. This is a number coming from the starting of May to some EUR 4.2 billion. But please bear in mind that you have 2 countries where we have an opt-out model. This is Hungary and Serbia. This is very important because, of course, people, by law, have been within the moratoria. And it was a hell of a work to make sure that some people also realize, "Hey there is no need for me to make use of the moratorium."

Having said this, we have this about EUR 4.2 billion in total sum. If you look at the one page, Page 23, we have in total EUR 24 billion in mortgages. And the total sum of clients asking out of this product for a moratorium is some EUR 2.4 billion. And on the consumer finance, it sums up of about EUR 1.7 billion, making it a reference of EUR 17 billion in total, as shown on Page 23. This would sum up to another 10%.

So in both segments, it's about 10% and 10%. But let me add you one more thing what is maybe interesting for you to know is that also on the mortgage side, we have a lot of clients and they may use Slovakia as in reference that we have 50% of our clients having an LTV low well below 50%. Another 20% of our clients, even having a plus on their current accounts, so meaning saving deposits or site deposits end and end.

So this is the answer to Gabor on the questions regarding the split on the product level between unsecured and secured.

[Operator]

Next question is by Andrea Vercellone with Exane.

[Andrea Vercellone, analyst]

Three questions. The first one, it's on provisions. It's a qualitative -- it's a methodology question. On your Tier 2 -- Stage 2 provisioning overlay that you've done and you'll do more in Q2, you said, and maybe more later, methodologically, how long can you keep this portfolio-based approach for? Do you have to, at some point, decide whether this position is individually Stage 2, if not release it? Or if in the meantime, it's become NPL, you have to provide accordingly, so how long can you keep sort of guessing top-down for?

Second question is if you can give us an update of the carrying amount for these Swiss franc mortgages in Poland and the associated cumulative provision on that portfolio?

And third question is on costs, personnel costs. Are there countries where you have already locked in, in your Q1 costs, the salary drift for the year? Or there are potentially still to come later on throughout the year?

[Hannes Mosenbacher, executive]

Well, I'm always looking forward to this sort of question. Hopefully, the other ones participating in the call do not get bored. On this portfolio-based approach, what we believe -- what we are doing is -- or what we are doing and we don't believe we have a clear strategy on how we would like to execute on this one, Andrea. The way we have done it was this industry approach. And I think it's fair to assume that in some of the industries, the impact of the COVID could last for at least 1 or 2 years is it -- the one which we leveled as a high risk.

Having said this, what we did in 2 of our countries, we came in with this top-down approach. And we already have now done a single line assessment, whether or not this or that exposure really can be confirmed as Stage 2. And you won't believe it, at least on a portfolio level for the respective country, in this case, Czechia and Austria. The money allocated via the top-down approach was more or less met immediately. So first answer, I think I can easily argue for the next 3 to 4 quarters that this top-down is being COVID related.

The second one is, yes, you're right, we have done this top -- bottom-up assessment on individual loans already in 2 countries, Austria and Czechia and the amount of money has been confirmed on this post-model adjustment. But given also the current dynamic situation, I think it's a very good tool.

And this is what I also tried to indicate, and that was well understood that we will keep on doing this. What we are thinking about is the entire micro and SME part of the business and also to further explore in different industries.

The carrying amount on the Swiss franc mortgages and the associated provisions, currently, we have -- I just need to look it up, give me a second. There's EUR 2.3 billion in -- so it's EUR 2.265 billion in exposure by the -- in Poland. Our NPE ratio is 2.45%, and the coverage ratio is summing up -- the bureau credit risk coverage ratio is summing up to 7.78%. And of course, you know that we are being forced that we also add legal provisions and legal provisions are being now at EUR 57 million, depending on the utilization of the -- and coming in legal claims. This is -- this would be a very comprehensive picture when talking about Poland.

[Andrea Vercellone, analyst]

Okay. And cost?

[Johann Strobl, executive]

Could you please repeat the cost question? So we were talking about the Swiss franc...

[Andrea Vercellone, analyst]

Yes. My cost question...

[Johann Strobl, executive]

Please repeat the question, yes.

[Andrea Vercellone, analyst]

Was about personnel costs. If there's any of the countries where the expected salary drift has already been locked in in the personnel costs we see in Q1? Or if there will be some, for some are expected, they'll come when they come?

[Johann Strobl, executive]

Let's put it that way. There had been some negotiations in the first quarter like in Austria, where we saw a 2% increase in this agreements with the trade unions. And similar on that level, we might see it also in other countries. So this is not visible now in the numbers.

But on the other hand, I think this should be compensated to some extent also by other activities like you have less hiring, you probably have less working over time end and end. So more have to come in the second half of the year.

And in the first half, it's -- I have to say this crisis activities produced quite a lot of additional working hours, but I think it should normalize throughout the year.

[Operator]

Next question is by Riccardo Rovere with Mediobanca.

[Riccardo Rovere, analyst]

A couple of questions, if I may. The first one is in the moratoria. If I get back to -- and corporate, if I get back to Slide #8, if I understand the slide, you're saying that, I don't know, less than 40% in some countries, that's still meaningful. And between 40% and 60% of the clients have asked around kind of moratoria among key clients. But then you say that you expected the use of the moratoria could be in the region of EUR 5 billion, which is a fairly small amount in respect of your corporate book. So I don't understand the how to read those 2 numbers together. So the feeling I have is that all your small, small, small clients must have asked for a moratoria. And if that is the case, that might eventually signal, how can I say, a wild stride deterioration in local economies. But again, I'm not sure I understand the slide correctly.

And the second question I have is on your risk guidance. The previous one was a range between 50% and 75% if I remember correctly. Now your bond on the range, and you said a single number. I'm not interested in the number itself, but I'm more interested in understanding why you decided to abandon the range. Do you think the visibility is 2 months later, 2 months after the release, the number of full year numbers much better to abandon the range? Some of the banks, many other banks in Europe, when providing the guidance they yet provided the range. What makes you confident to provide a single -- kind of single and firm number for 2020?

[Hannes Mosenbacher, executive]

Yes, you're, of course, right. But at the same time, there are many others who are refraining from giving any guidance. And I think I'd rather prefer adjusting the guidance whenever we feel that there is the need of adjusting the guidance. And this is to the best of our knowledge.

I think this is all -- for all of us, a complete new situation. And I gave the arguments how we came to this 75 basis points. The big difference between the first forecast, when we talked to each other, a couple of weeks back was that at this time, we still believe that Russia will be less impacted. What we have seen in these 8 weeks, and this was also the recent motivation for us to adjust accordingly is, we have seen the strong deterioration on oil prices, and we have seen now the updated, consequently, seeing the update on the GDP forecast when talking about Russia. And we felt that it would be inconsistent leaving the old forecast in place with 50 to 75 basis points. I know that there have been many institutions following our approach, is it some banks, some other banks from Austria, is it some Italian banks. So seemingly, this was well perceived by the market. But this was the reason for us to adjust accordingly and that the 50 basis points now became rather unlikely, and that was the reason for going for around 75 basis points because this is the best what we can provide at this point in time. And I also gave you a little bit of the way of thinking, how we came to the adjustment of the risk-cost forecast.

[Johann Strobl, executive]

Yes, when talking about the moratoria on corporates, you're right, it's more the smaller ones who ask for it. This does not necessarily mean that the quality per say is bad. I think if you look at the situation in all the countries, all the discussion which is going on in the public is a strong signal and push for the smaller ones to just go for the moratoria and then to figure out how they qualify for the state support packages end and end. So it's -- yes, I think the smaller ones are for good reasons to be assumed more at risk than the large ones, it's clear, so this is another indicator. But what we see as of now is not that we are surprised by the numbers. So micro and small, medium-sized corporates are making use of that. And of course, some of them are also in segments where they face problems.

But I wouldn't say that this is, as of today, a worrying signal. I mean in -- we will see over the next couple of months or quarters, how they develop. And for sure, it also depends on how these restrictions are lifted. I think there has been other -- yes, go ahead.

[Riccardo Rovere, analyst]

No, just to better understand your wording, is it like saying that these micros are kind of making a tactical use of the moratoria. So regardless, what is your state of health, it's always better to pay tomorrow instead of today if you are allowed to do that? I don't know if I'm explaining myself. Even if you don't need it, it's -- there is always time to pay, okay? Is that's the kind of thinking.

[Johann Strobl, executive]

I think for a bigger number of customers, this is, at this point in time, the case. Of course, I mean, what else? They are confronted with a situation that the economy is not fully opening up. And also those which somehow have opened, they are worried about what is the use of their capacity in the coming in the coming months. And so yes, I fully understand that many of them take this cautious approach and say, let's keep the liquidity, what we have in our hands and see what the outcome is. I mean, this is why the moratorium is there to -- what we will do? What we will do is, of course, we will analyze then over the next couple of months, as we have started, and Hannes gave some first results from the reviews we did in, for example, in one of the country on what is the quality and the potential motivation of, in this case, it has been private individuals. So giving them mortgage loans, the LTV and whatever, what will be their motivation to pay? And of course, the willingness is one element, will they be able, depends also on the employment.

The thing is that surprisingly and different to other crisis and some of the neighboring countries, I'm not talking now about the East, but let's say, Central Europe. The unemployment rate is not that high. So this [indiscernible] concept seemingly also works in some of these countries as well. So it takes time to explore a little bit more. So I agree that the moratorium reduces the transparency for period of time. But from all the signals we have, it's not a reason to worry. Otherwise, we would have adjusted our outlook and the comments we gave on the risk cost development.

[Riccardo Rovere, analyst]

Okay. And moratoria would be more or less come to expiry in autumn -- late summer autumn, on average entering the various countries?

[Johann Strobl, executive]

Yes. So this is another thing which is unclear. We will learn in -- probably in June. There had been a couple of countries where the moratorium was rather short for a short period of time compared to others. I would not be surprised if some of them would consider a prolongation for, I don't know, maybe another 3 months. So I'm not sure if we will see the full picture already starting in early summer.

And as far as the update on the Swiss franc mortgage situation in Poland is concerned, a couple of information. I think there -- first, there is -- there has been a certain development last year, especially since the decision of the European Court of Justice.

Let me start with decisions. We had, in the last 5 quarters, 120 decisions. The picture, since the European Court of Justice decision, is more negative for us than it had been before. So before it was rather balanced, I would say, in the fourth quarter and in the first quarter, we mainly lost. We only had, in a single-digit number, decisions in our favor and the bigger number we are against us. And as said, in the last 5 quarters, we had some 120 decisions. In the second instance, it's more balanced. But there, we only had 14 decisions and a little bit more than 1/3 in our favor and 2/3 against us. So this is the one how it develops.

Yes, we have seen an increased number of inflows. I don't know if this comes with the stronger Swiss franc, maybe as well, but also with the noise, which we had in the last 2 quarters in Poland. There had been some decisions by Supreme Court, which somehow confirmed at least in some aspects, our view on how we should read the European Court of Justice verdict. And in addition to that, one might say that there had been another couple of, how do you call it, question addressed to the European Court of Justice, which where the decision is also meant to clarify and where we also hope for a rather positive development. So I would say that the recent decision did not clear anything, but the -- let's say, the worst-case scenarios should be clearly off the table.

And as regards to a question on our issuance plans for Tier 1 and Tier 2, I wanted to indicate. Yes, in these days, there, of course, with this change in the CET1 requirements, this I would perceive as an additional incentive to consider an issuance of, I don't know, maybe one might start with a Tier 2 issue, we'll see. But yes, we are carefully monitoring the market development.

[Operator]

Next question is by Thomas Unger with Erste.

[Thomas Unger, analyst]

Just 2 more questions from me. A quick follow-up and clarification on the effects of COVID-19 on new CET1 capital and the RWAs. What is the RWA increase that you assume for 2020 out of that? That's the first one. Second one would be the sharp slowdown in retail lending that you mentioned in the presentation. Could you tell us about the development of new volumes in April and May?

[Hannes Mosenbacher, executive]

Thanks for the question. In terms of RWAs, it goes beyond the COVID. It's just also looking at the economic impact, is it FX? Is it GDP development? We have assumed an impact, but this is being included in our CET1 guidance of some EUR 2 billion when talking about credit risk RWAs.

[Johann Strobl, executive]

In terms of new volumes, I can say that -- and I wanted to address it, but I try to be more -- even more specific. So in unsecured loan, what we see is a drop-down to 30% of what we usually see in unsecured loans. There is some fluctuation. What do we expect is this number will improve in the course of the time when we see somehow a release of these restrictions. This will come, but it takes some time. It's a little bit more difficult country-by-country to understand what is the impact on the secured part. So mortgages difficult to differentiate if there is a backlog from the days before they close down or is it that activities there are significantly higher than in the unsecured loan, but still down from normal times.

In corporate, as I said, there is and was increased activities in March and June, so much more than what we have seen in January and February. But here we assume it comes down to normal or maybe even a little bit below normal in the next coming months.

[Operator]

Next question is by Tobias Lukesch with Kepler Cheuvreux.

[Tobias Lukesch, analyst]

Two questions from my side as well. First, on SMEs and the regional split, respectively. The default rates you experienced in '08, '09, would you think that you see different mechanics this time? If so, why?

And secondly, if you look at smaller SMEs, you talked about the pressure on micros, some self-employed maybe that label as SME. If you consider them, let's say, having extended, for example, lease contracts in the past, which are required to run assets, assets as they may need for production or be it IT equipment and so on, is there a -- what kind of payment behavior do you see from these clients? Do they tend to pay banks first to avoid to come on blacklist? Or has there been a shift in behavior that they prefer to -- just lease payment and rather than talk with their bank about forbearance or any restructuring? This would be helpful.

[Hannes Mosenbacher, executive]

Well, on the first -- the second question you gave us is a little bit demanding, but of course, a very valid question. On the SME, the difference to 2008, I think it's multiple. It's really multiple. And let me start with some of them. When talking about 2008 or going into the situation, the way we have underwritten SME, this was based more or less, you could say, on an expert model.

Today, we are completely considering the balance sheet, the payment behavior and many other ingredients. So we see the drawings of the lines. This is being part of the rating method. We have an industry split on the ratings and to which company or to which industry within the SME sector we are willing to give money and to lend. So this is a big difference. So no FX, different underwriting criteria, also different infrastructure.

And what we also see on the SME clients and it's interesting to perceive also when looking at Austria, there are many SME clients where they have a good financial standing. And they don't make use of the current moratorium. But we see, of course, and then -- and this, I think, was the intention by the competent government and component regulators to introduce this moratoria that each participant in the society can reflect on the current situation. And as outlined in our today's very detailed press conference and now talking to you is to assessing the situation and managing the liquidity. And so this is why we believe that this time is a different when talking about the SME.

And of course, this is a part of the segment in industry which will be heavily challenged. And this was also the reason for me already indicating if I would consider any post-model adjustment in terms of IFRS what would be the most obvious segment, yes, you're right, it's the micro and the SME client.

The pressure on the micro and the payment behavior, I think it really depends on the different industry and subindustries. We had -- you have seen it in all our countries we have the moratoria being in place. It was a hell of a work and calling. And of course, we are much more happier if people are proactive and if we can support them in terms of restructuring. Because many of these clients, [ we combine ] since a couple of years. So if there is now a payment holiday of 3 months or 6 months, where is the big issue? We all know that this situation is special, and we had a real big queue of calling from our retail clients, from our micro clients that we settle on this current situation. This is the best, what I can share with you at this moment.

[Tobias Lukesch, analyst]

And the comparison leasing banking, is there any data, any empirical data you have on that issue?

[Hannes Mosenbacher, executive]

It's very much similar what we see currently. But you're posting a very fair question, interesting question. And we must not forget in some of the countries, the moratoria have been introduced with the first or second week of April only. So the insight on the detailed patterns is now -- we can't see it. This is what we can now realize, but also to be extremely frank to you our first our first priority was to get all the restructuring in moratoria requests being handled in the best manner, in the best manner and not so much focusing how much are calling us and how much are calling the others. So it was to serve our clients in the best manner, in a speedy manner. And then later down in the next quarter, I will, of course, give more details what are the characteristics of the different clients and also comparing ourselves to the industry.

[Johann Strobl, executive]

Maybe I can add one insight, which also reflects the moratorium. So our retail guys made a survey, so they ask customers, mainly in the retail supply and individuals to a large extent, in countries where we have the opt-out, because you see there the much higher take up in the moratorium. And surprisingly, the outcome was that the question was asked how strong are you impacted by the COVID? And the number was not significantly different in Serbia or in Hungary than in all the other countries. So this is one of the reason why we are not so much concerned as this point in time now on the higher use of the moratoria in Serbia and in Hungary. Okay. This is based on a survey, which is done by an independent research firm. But to some extent, I think there is some value in this information as well.

[Operator]

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

[Johann Strobl, executive]

Let me join this. Just thank you, and thank you for showing this interest, asking these questions. And following us closely. We highly appreciate your deep understanding of these banks, your contributions by your questions and your comments. And we wish you all the best for the next couple of weeks, stay healthy and goodbye.

[Hannes Mosenbacher, executive]

Goodbye. All the best. Bye.

[Operator]

You may now disconnect.