Raiffeisen Bank International AG

VSE:RBI

Earnings Call Transcript 2021-Q1

[Operator]

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. A very warm welcome. Thank you for joining the call today.

Talking about first quarter, profit was up 22% year-on-year, driven, to a large extent, by lower risk costs.

On the revenue side, net interest income was stable compared to the fourth quarter in 2020, and net fee and commission income has now almost recovered to the Q1 level of 2022 (sic) [ 2020 ].

We are seeing positive signals in some of our markets as yield curves begin to steepen. While this is unlikely to have a major impact in 2021, it is nevertheless a step in the right direction.

Loans to customers grew by 1.3% in the first quarter with some support by FX movements. In retail, loan growth was primarily driven by mortgage loans and, to a lesser extent, by personal loans. In corporate, new lending was mainly short term.

We expect loan growth to remain modest in the first half of '21, but for the growth rate to increase in the second half of the year. This assumes primarily organic growth, and there could also be some additional support from exchange rates. This does account for the consolidation of Equa Bank.

With respect to the Equa acquisition, we still expect the transaction to close in the second or third quarter, pending on regulatory approval. The ING transaction in the Czech Republic is also proceeding according to plan, with over 75,000 customers re-contracted to date.

We issued green bonds during the quarter and continuing to do so. You are aware that Slovakia came with EUR 300 million green senior preferred bond in April. And today, we had an inaugural green senior preferred bond in Romania -- in leu, if you're also interested in that currency. And we expect more from our Czech entity as well throughout this year.

When moving to the next slide, you'll see a little bit more details to the P&L. I already have mentioned the net interest and fee and commission income. And I think I can refer to the costs as overall in a positive development, but here, be aware that we have also a new definition of the cost/income ratio. Overall, this leads to an improvement of the operating results and on a year-on-year, quarter-on-quarter basis, minus 18% on a year-on-year. And to the risk costs, which are substantially improved. Hannes Mosenbacher will give you later on more details.

When looking at Slide 6, some more insights to the core revenue trends. I have mentioned previously that we believe that net interest income has now bottomed out, and you see this in the numbers of the last 3 quarters. The first quarter was somehow impacted by maturing hedges and the repricing, but now most of the structural interest rate positions have been repriced, and their contribution to the NII is expected to be stable in the coming quarters. And the rate hikes, what we have seen in Russia and Ukraine, should be supportive. We saw positive trends in the NII and net fee and commission income in the last weeks of the quarter, and this makes us quite optimistic for the rest of the year.

You have in the lower right-hand box also, a detailed overview of the fee income. You're aware of the seasonality which we have at year-end by some of the commissions by card partners being paid always in the fourth quarter of the year. When comparing first quarter this year with first quarter last year and considering the substantial restrictions what we still have in movements, if we compare that to, I think that the number is good and gives room for positive optimism in the course of this year.

Then moving to the next slide. And here, before we move, I should say that -- and you have heard this also in the last couple of calls. In these days, the net interest margin is not that informative as it usually had been. We are flooded with liquidity, and also the central bank's supportive measures make their way to our balance sheet and put us diluting a little bit the net interest margin.

When looking at the segments, yes, what you see here, as I mentioned already, decrease in the net interest margin in most of our segments. As I said, this comes from the high liquidity in these countries.

Loan growth, you see is in all the market somehow visible. But as I said, modest at the beginning of the first quarter, but it's visible now. Quite a lot of contact with customers, quite a lot of interest. Maybe there's still more discussion than real drawing on investment loans, but we believe a pickup will come in -- also in the unsecured loan in the second half of next year.

You still see there -- on Slide 8, you see the volatility in the various loan products. You see stabilizing in the retail area and the volatility in the long term corporate part.

Moving to Slide #9. We have almost stable CET1 ratio. You see that on the ratios in comparison to the requirements, a very stable picture on Slide 9. And the impact of the development of the first quarter is visible on Slide 10. So minus 18 basis points impact from the credit risk. Some additional impacts from market and operational risk. FX, not visible, and retained earnings are compensating for that. So that we almost end just 7 basis points below what we had at year-end.

You are aware that the dividend was paid out in -- not had been reflected and is not relevant the way we handle it for the CET1 ratio. The EUR 0.48 had been paid out on the 30th of April. And we keep the intended dividend of '19 -- for the business year '19 still in the profit carried forward. So that this gives us another opportunity, maybe by the end of the year in the fourth quarter, for another dividend payment.

When talking about liquidity, you see that the -- on Slide 11, you see that the huge liquidity, this enormous liquidity is dominating everything in our balance sheet and, of course, the offer from the TLTRO finds its way also in the balance sheet. Currently, we have drawn around EUR 8 billion, EUR 5 billion on head office level, and Tatra banka took another EUR 3 billion.

If we move then to the next slide, which is Poland. And I'm aware that currently, there is a communication by the Supreme Court, senate of 7 judges, on the question of statute of limitation and the theory of 2 condictions. Here, I'd rather give -- and I cannot in detail comment on that. We will have to look it up. We also had a ruling by the European Court of Justice on the 29th of April to request of the BPH case. I find this ruling very informative, very clear after our Dziubak case also the direction was -- for legal experts was set rather clear. For nonlegal experts like me, it still was difficult to fully understand the intention and the ruling of the European Court of Justice. I think the good -- the very good thing of this ruling now is that it's very clear stating that indexation is not something which is unfair or abusive or whatever. It's one way to create the Swiss franc loan.

We also understood that there is a clear declaration that invalidation of contract is only the last resort to resolve case. But the main goal would -- should always be the establishment of a balance between the consumer and the bank, and even more so that it's not up to the customers' wish to decide whether a contract shall be invalidated or not, but it's an objective court decision, depending on which parts of a contract might be, the road is unfair. And yes, it was again a strong statement that for the consumer, there is some support by the court or, putting it in other words, the court has the obligation to inform the customer in detail about the consequences.

And yes, following the public discussion, I think it's also important to read in that resolution that invalidation is -- of a contract cannot constitute the sanction against the bank. But it's just, as I said, at the very beginning, the last resort to resolve the issues. And personally, I also think that the statement on the blue-pencil rule might also create quite a lot of certainty for all this.

What does it mean for us? We have a portfolio, just an update for you, of around EUR 2 billion in Swiss francs, 31,000 loans. Amortization in the range of EUR 100 million to EUR 110 million. So very long term, high RWA weighting of 118%. Huge number of cases pending at courts, more than 4,700. Recently, we had an inflow of 250 to 300 cases per month. We will see if the ruling, what we have seen today, in combination with the ECJ ruling, and there's another one announced by the full -- by the Supreme Court, the full Civil Chamber to the 6 questions, which had been asked by the President, and then we will see if this changes anything in the inflow.

Coming to the future, macro outlook, of course, this is on Slide 13. It had been, of course, adjusted quite frequently depending on the restrictions from the pandemic. The overall picture is very optimistic. I think everyone is seeing now that vaccination, which compared at least to our expectations, probably started relatively slow. Maybe we were just having too high expectations, but what we see now is that the speed is picking up substantially. So that in the second quarter, I believe that many, many people in most of our countries will be vaccinated, at least those who are willing. And with that, I think normal life is back in the service industry, consumption, hotels, restaurants. And we anyhow have seen a strong growth in industry output and also in trade. We always see the headlines that many big markets were recovering very well. So we have a nice forecast for '21 and a very strong cast for '22.

If asked what would it mean in terms of loan growth? We had been asked several times this question in the past. So we added an additional slide, Slide #14, where based on Raiffeisen research, you see a split between retail and corporate forecasted loan growth in our countries in local currencies. And not to a surprise, I think what you see here is that Hungary having a different way by the government to deal with the crisis, will keep a double-digit loan growth, rather smaller. But every -- in all the markets, I think it's nice -- it are nice growth numbers and this year as well as next year. Only Croatia, which suffered because of the tourism impact, the structure of the industry substantially last year, and there is a question mark this year.

But what we hear is that the country is getting ready to host quite many tourists. Some of the hotels are, of course, with reduced capacity, already open. Those who go there enjoyed very much. Everyone feels safe, handled in a very careful way. So our colleagues in Croatia are very, very optimistic. And when I report about spending sometimes at the sea, it does not come from the Croatians, but from people coming from abroad because you have -- tourists from abroad is very important for Croatia.

So overall, a very nice picture. And of course, if it comes in the second half of the year, in the NII, we will not see the full impact as this is only pro rata, of course. But we are very optimistic that it builds a nice loan book till the end of the year and also in the coming years.

Coming to our targets on Slide 15. I can repeat what I said, modest loan growth in the first half of '21, accelerating in the second half of the year. The provisioning ratio, we keep the 75 basis points at the moment as we have to understand what is the impact of expiring moratoria and government support programs, but Hannes will talk on that in more detail. Cost/income ratio, I mentioned before that we have adjusted the way of calculation. Some have asked, would you then, then also bring it down a little bit, not at this point in time. So we keep the 55%.

Profitability, confirmed again that we expect an improvement compared to 2020. We will not reach in '21 the target of 11%. CET1 ratio, I confirm the 13%. As I mentioned before, the Equa acquisition is not in the 13.6% included as of now as the closing will only be in the second or third quarter. And I confirm also the payout ratio.

And with this, I hand over to Hannes.

[Hannes Mosenbacher, executive]

Thank you, Johann. Also a very good welcome from my side to all.

Well, reflecting on the first quarter of 2021, we have seen risk costs coming in at EUR 79 million with a Stage 3 of EUR 44 million only. We have seen rather low inflow on Stage 3 loans. I will talk about this a little bit later. Given another lockdown and another lockdown, we thought it's consistent adding a little bit of the postmodel adjustment, summing up to EUR 26 million, leading to an NPE ratio of 1.8% and 61% of coverage.

I'm now talking about Page 17, where you can see that we have seen a growth by some EUR 11.2 billion, mainly coming and borne by the sovereign exposure increase. And also on the corporate side, we were capable to demonstrate an increase by EUR 2.1 billion and on the retail side by EUR 0.8 billion.

I already moved on to the next page, #18. As said, we have seen very low inflow in the Stage 3 bookings, which are, of course, very much appreciated. And -- but because of these renewed lockdowns are impacting, of course, mainly the service industry, again, increased our Stage 2 postmodel adjustment, especially on the hotel portfolio, leading in sum -- the total sum to EUR 79 million of risk costs for the first quarter and to NPE ratio of 1.8%.

Since I would expect there's one other question when it comes to the risk cost guidance, I have asked the Head of Investor Relation already to give me 2 or 3 keywords regarding the assessment. So supportive, what could bring the risk costs lower? As said, we see currently very strong momentum in the leading industrial indicators and also now the leading indicators on the service industries are picking up. When talking to our clients, we learn from them that the order index is at the all-time high, and the support funds given by the governmental measures are not yet fully put in place. At the same time, and I'm not one of these 8 million Austrian experts when it comes to virus mutation, but still reading the news, this could be in place that we see some differences how these viruses developing. What I'm pretty sure on is we see currently a gap on the default rates compared to historical inflow.

Last year in Austria, 2019 versus 2020, we have seen 30% lower inflow to defaulted and insolvent companies. And also this year, year-to-date, again, comparing with 2019, which was already a very good year when it comes to default dynamics, we are now lagging behind the 50%. Assumption could be that a certain stage in time, we see a closing of the gap versus the historic default rates. And last but not least, of course, all these very supportive contribution which we all enjoy very much, they're also causing structural challenges. We now see that in the one and other industry, we see some shortages on goods.

I'm moving on to the Page 19. This is more for your reference that you see that one could say we have done our homework. So the full corporate portfolio, of course, is completely reviewed when it comes to the credit rating. 40% of them already have been reviewed 2 times. You see what happens to the portfolio from the beginning of 2020 to the first quarter of 2021. 39% of the customers have an unchanged ratings, 34% have experienced a downgrade and only 27% experienced an upgrade.

So swiftly talking about those who experienced -- or what are the dynamics? You can see on the left chart of this slide in the middle box that we have a very solid going-in portfolio, a rock-solid going-in portfolio. And we see the shift mainly from really minimal and excellent credit quality to a very good and sound rating quality. And the industries, which have been subject to the downgrades, are posted on the lower part of this chart.

Let me move on to the Page 20, when talking about moratoria. While at the peak we had to report EUR 10.7 billion of our exposure being subject to moratoria. Currently outstanding is EUR 1 billion. It's equally distributed between households and corporates. EUR 520 million from the household side, EUR 338 million being also covered by collateral and mortgages. On the corporate side, we have EUR 206 million collateralized out of the EUR 515 million.

So how do these exposure perform? And last year, on the retail side, without having the deep knowledge how this pandemic situation could develop, we were assuming that maybe some 10% may need another restructuring or support from the bank. Today, I'm happy to report that almost 93% completely resumed their regular payment, 3% were asking for further restructuring and 3.9% of those, who have consumed the moratoria, unfortunately defaulted. On the corporate side, the situation and the dynamics look even more benign. 98.6% resumed completely regular payment. 0.1% of these clients have asked for further restructuring and 1.3% of them defaulted.

I'm moving on to the RWA development. I think it was covered already by Johann when he was talking about the CET1 dynamics. And so I move on to my last page, Page 22. where you can see now we have an NPE ratio of 1.8%, good coverage ratio of 61.2%. And if we would sum up as some other market participants are doing this, our Stage 1 coverage and our Stage 2 coverage, this would give us a full NPE coverage of 96%.

Well, having said all this, we are now eager to take your questions. Thank you.

[Operator]

[Operator Instructions] Our first question comes from Anna Marshall from Goldman Sachs.

[Anna Marshall, analyst]

2 questions from me, please. Firstly, in terms of NII trajectory in the coming quarters. Could you please confirm kind of the key drivers? And, if possible, quantify some of them? So to confirm basically it's loan growth, which you expect to accelerate in the second half of the year, positive impact from hedging and rate hikes in Russia and Ukraine. Is there anything else missing in the picture? And basically, could you quantify the hedging and hikes impact?

And then in terms of capital, which is my second question. On the adjusted view of capital, including interim earnings, what is the assumed dividend allocation from 2021 earnings, basically from Q1 2021?

[Johann Strobl, executive]

Thank you for your questions. As regards to the NII, I think with the steepening of the yield curve in some of the markets, we are a little bit relieved. In the past, we were worried about an additional negative impact by this structural hedging of liabilities. So this is, as I stated before, it's -- I think there -- I won't expect any further negative impact from repricing. As far as the ruble and hryvnia hikes, what we have seen so far, this could add a high single-digit, low double-digit, very low double-digit positive impact on it.

The key drivers for the NII will be the loan growth in these days. And it -- of course, the most positive impact might come from unsecured lending in the retail area. The mortgage business was doing very well. But the -- in most of the markets, the margins are small in that. So that's less supportive. What was weak is the outstanding on credit cards. In our area, this comes, to a large extent, also from people traveling and, with all these restrictions, this was smallish.

When talking about dividends, yes, we -- usually, throughout the year, we do about 20% of the profit. So in the first quarter, it was about EUR 40 million, which was accrued for dividends and therefore, not in the CET1 ratio.

[Operator]

Our next question comes from Olga Veselova from Bank of America.

[Olga Veselova, analyst]

I have several questions. First one is about the -- your Polish unit, your exposure to Swiss franc mortgages. After this Supreme Court rulings on the 7th and 11th of May, do you think you can consider participation in the loan conversion? Or that's still not interesting for you given that the solution is not systemic?

My second question is about M&A. Would you consider now M&A -- emerging M&A opportunities? I'm particularly interested in potential M&A in Russia. We all know that Citibank is exiting the market or partly exiting the market. Do you think this could be an interesting asset to look at? Or your exposure to Russia is close to your cap in terms of risk-weighted assets?

And my third question is about a page in your presentation. Let me open it. It's Page 14 where you show the loan growth forecast for CEE. This is a very useful outlook, which you provide here. So am I right that this is for the banking sectors, not for the group? And if that's the case, how you would look in each region versus the market average?

[Johann Strobl, executive]

Yes. Thank you for your questions. I have to say the sound quality here in our room was rather bad. So please, if I do not -- in my answer, if you get the impression that I probably have not understood your question in the way you intended it then please interrupt me and maybe ask again.

What I understood is what is -- depending also on the outcome of the rulings of these various courts, our willingness or our interest in participating in a systemic solution. I assume you have in mind that PKO or KNF proposal. So our view is that the rulings that we have received from the European Court of Justice and the quick info what I got also from this today. But here, I have to ask that you give us 2 or 3 weeks' time till we find in writing, so that we do not misunderstand anything. I think the core of the question till now, is there any abusiveness at all in the Swiss franc contract? If yes, which part of it? Can it be eliminated without challenging, leading to an annulment of the total contract, has to be answered by the courts.

Our -- my strong personal view is this is not the case. You have indexation, which is also what I understood from Polish courts, but even more so from the ECJ, clearly confirmed that, that indexation per se is neither abusive nor unfair nor anything else because it was the intention of both the borrower and the bank to create a loan, which follows the rate environment of the Swiss franc and with that also comes the currency movement.

And what I also understand is that many, many customers have changed their behavior. And instead of paying in zloty they paid their installments in Swiss franc. And the nexus which then, where necessary, we have created as a result of the will of the changed behavior of the customers. So there are quite a lot of arguments why unfairness is not a systematic issue, but is rather something which comes -- or which has to be viewed in the single case, if there is anything. So nothing which is systematic wrong, but there might be something wrong in the single contract.

So -- and the other reason which we also gave is that this voluntary agreement might not -- as of what we know now, might not create this certainty, this legal certainty. I don't know if after the European Court of Justice ruling and maybe also after some Supreme Court rulings, we then find a way or it leads us to a way that this certainty -- legal certainty will be created, then one could consider something. But currently, I rather believe that it's to the courts to take this objective decision on every single case.

When talking about M&A, you're right, we never mentioned Russia. Russia has an important contribution to our overall P&L, to our revenues, to everything. We love it. We like it. We are proud of it. In the past, we have acquired the one or the other loan portfolio from a bank -- a western bank, which was leaving the market. This was successful. We can repeat such successes. Of course, we don't need a full M&A at full scale because here, we believe our bank is big enough. Some room, we might always find.

When talking about the loan development, I think in most of the markets, we believe we can grow with the market. It might happen if in one or the other segment the price competition is overheated, we would not fully go to our potential. So we are always price cautious. We have seen this in the past. So let's assume if the price competition is reasonable, we grow with the market. Otherwise, it would be a little bit less. Thank you for your questions.

[Operator]

Our next question comes from Gabor Kemeny from Autonomous Research.

[Gabor Kemeny, analyst]

I will just continue on the Polish FX situation. I understand that you expect an individual approach with the ongoing court cases as a base case. You gave us a useful estimate on the potential impact of the voluntary settlements on the last call, which I believe was 40%, 45% relative to the loan values potentially. Would it be possible to give us a range of the impact of the ongoing litigation? So let's say, the court cases continue, as you expect, like 200, 300 new cases per month, what additional provisioning may that require in the next few quarters?

And another question is if you could give us an update on what kind of RWA inflation that you expect for the rest of the year?

[Johann Strobl, executive]

Yes, referring to the -- to your first question, the Swiss franc mortgages. If we end up in litigation and if we then lose a case, which happened relatively often in the recent months, I think the loss what we then face might be around this 45% to -- if I remember correctly. As I said, the new cases on average, 250 per month over the last 4 months. And the number of cases, which we were losing at court, was increasing in the past. I mean, of course, I hope that over time, more and more will come to the real question what is at all abusive. And of course, you might say I have a very biased view, but the clearer the ECJ ruling is the less I understand what at all will be abusive after this development. So this is my first -- my answer to the first question. I hope it covered it.

And then the second is, so the RWA inflation probably means the inorganic or whatever, you would -- if Hannes is not precise enough, you would re-ask, of course.

[Hannes Mosenbacher, executive]

What happens to the RWA inflation? I think what you have seen in the first quarter, Gabor, a couple of things. The one is, one could say, inorganic on the market risk side. We have done a quite pronounced hedging, over hedging in the first quarter, expecting the dividends to be paid. That was the first thing. Of course, this is being now reduced. That's the one big thing.

The other thing, what we must not forget is that on the retail side is the expected change on changing from a point in time, RWA way of calculating through the cycle way of calculating. And on the rating migration, given what I have talked to you and reported to you, my current main assumption is that we're done. So having said all this part of the RWA uplift on the market risk side, hopefully is returning back, of course, subject to the volatility first thing. On retail, please, do expect that there is a certain uplift when it comes to the RWAs because of this change of methodology. This could sum up to about EUR 1 billion, EUR 1.5 billion in total. This I would consider inorganic rating migration, I was talking about this and, the rest, hopefully, mainly comes from the growth of our balance sheet. Hopefully, this helps.

[Operator]

Our next question comes from Alan Webborn from Societe Generale.

[Alan Webborn, analyst]

Could you give us a little bit of an update on how you see the market progressing in Russia? Do you think that the margin will actually go back up from where it is in Q1? And clearly, retail lending is quite strong in the market. Could you just give us an idea about how 2021 has shaped up so far? And also, briefly, could you do the same for Ukraine? That would be helpful. Do you think the Czech market has now sort of bottomed out in terms of its margin? Or are there other sort of the securities, repricings or anything else to come that will put further pressure from where we were in Q1? Those were those 2 questions.

And then I guess, more generally on the competitive environment. When you say you will grow in line with the market unless competition is particularly tough. I mean is the sort of relatively low level of growth in Q1 a function of demand? Or is it also a function of competition in terms of there's an awful lot of liquidity around? And that would be my second question.

[Johann Strobl, executive]

Yes. When starting with Russia, the start in the year was slow, and the competition is negative currently on the margin. So we have seen a reduction in margins on the assets as well as on the liabilities. I think it's fair to assume that with the increasing central bank rates or with the hike in the central bank rates, this will be, to some extent, also supportive on the margin. Yes, I've been talking to our colleagues in Russia. They are not optimistic as far as the next couple of months are concerned. As I said before, the first 2 months, we are really slow in our bank in Russia. But the last 2 months were substantially improved.

In Ukraine, our bank in Ukraine is rather small. So here, it's the asset base. Still I think there is room in some areas for loan growth. So here, our policy is to, over the time, move a little bit from the money, which is placed with the sovereign, not the central bank, to some more loans. But here, the -- it's rather the rate level, which makes the difference.

I would assume that in Czech Republic, the margins are at the bottom. Well, yes, here and there, we see some of the competitors who -- it's difficult to make a forecast on competition there. In this market, it can always happen that one creates the specific attractive offer. I won't expect it in these days, but I would not exclude it till the year-end.

And your last question was, our own loan growth, I understood, versus the market. Is this the way I should understand it? Go ahead.

[Alan Webborn, analyst]

What I was guessing -- sorry, what I was guessing was that you've had a fairly slow start in general to the year. Is that being impacted by competition levels that you're not happy with? Or was it simply a function of relatively slow demand at the beginning of the year?

[Johann Strobl, executive]

Yes, I think it was in our area, a combination of a little bit less demand from our customer base. This I could confirm when talking about Russia. In some markets, it's also the pressure. Here, probably, it's more the TLTRO-driven area. So wherever euro is involved, which creates additional pressure in some of our markets.

[Operator]

Next question comes from Johannes Thormann from HSBC.

[Johannes Thormann, analyst]

2 follow-up questions, please. First of all, on the risk cost guidance. Yes, thanks for the supportive and downside comments. But still looking at the statements from yourself and the fact that we saw less risk costs in 2020, and Q1 was probably also far below the anticipated run rate for 2021 and the very bullish or relatively bullish outlook by the CEO for the economic environment. What is really needed to get to 75 bps in the full year? What does it have to happen on the corporate side, for example?

And secondly, just to get a feeling for your view of the current thinking of the regulator. How likely do you think a follow-up dividend in the fourth quarter is currently?

[Hannes Mosenbacher, executive]

Well, if I may start, and of course, our CEO gave me a very nice stage in intro, and I fully share this very positive economic development effect is in risk management. I think what we currently see is that the industry, as we have announced last year, is exactly going -- is moving along this fast. So we see some of the parts of the industry clearly benefiting. And this -- we will maybe see the one other upgrade. I'm happy about this, and I anyway happy for all entrepreneurs if they are successful. At the same time, what it would need, and I tried to indicate is that the big gap and closing the gap versus the historical run rate when it comes to the default rates. And in the end of the day, the calculus is not so difficult because I would need to have some EUR 1 billion to EUR 1.5 billion out of our big part of the corporate portfolio to default or to face financial problems causing a default. Luckily enough, we did not participate in any of the bigger defaults in the short history. So this is what it would need.

This is -- Johannes, we need 2 things. The big gap to the historical run rate, and the other thing would be the one other big default. And you integrated me completely right. Basically, we are constructive, and this was the point, which I tried to make is, please give me the time till Q3 to see the full when it's truce, when the support mechanisms from the governments are being lifted. We still have, in Austria, the insolvency law being ceased. So this means that, by nature, there is a gap on the run rate when it comes to the defaults. And this is what we still need to see to clearly assess the full dimension.

What it would need? I would need to have EUR 1 billion to EUR 1.5 billion of defaults on the nonretail side, that we still would be on this around 75 basis points. And hopefully, we see much clearer by Q3. Hopefully, this helps a little bit.

[Johann Strobl, executive]

To your second question, I mean, this is a very difficult one because well, I -- if you ask me, given this fantastic development, what we see in the recovery, the forecast is everywhere, there is no reason for a further dividend restriction. Still when our people talk to some of the representatives of the ECB, they come back with some cautious messages. One element could be that the ongoing EBA stress test might lead to a result, which gives them additional room for calling for cautiousness.

Why do I say this? I think we -- over the years, we have many, many stress tests, and we can compare now how it's going and how it's developing. And this time, it seems that the feedback, what we get, it's really -- it seems that we should expect some very painful outcomes from these stress tests. Because otherwise, it wouldn't make sense the way it's handled. Is there any good reason for that? I don't know. Maybe it's the dividend. So some uncertainty remains. I don't find any macroeconomic reason why it should stay.

[Operator]

Next question comes from Tobias Lukesch from Kepler Cheuvreux.

[Tobias Lukesch, analyst]

2 questions from my side as well, please. First, may I touch on the TLTRO, again, please. From the notes, I understood that the total amount you have drawn is now around EUR 8.1 billion, correct me if I'm wrong. Could you please split the impact for me again? So what is in the numbers potentially? And secondly, what is the big lump sum that we can potentially expect for this year? And then going forward -- I mean I'm looking at these numbers, which are more or less baked in with your competitors on a quarterly basis. What do you think about future instruments? We just had the stress test discussion. And how are regulators approaching the kind of beneficial instruments ahead in the future? So how do you expect the TLTRO or different instruments to support you even beyond June '22?

[Johann Strobl, executive]

Yes. As far as your first part of the question is concerned, the TLTRO, we believe it was not confirmed that we met the requirements for the bonus by end of March. This would lead to a EUR 22 million positive impact on RBI head office and another EUR 6 million on our subsidiary in the Slovakia. It's still an ongoing discussion when it will be recognized. So our finance people are discussing with the auditors, if it's spread over 3 years or any other option. Maybe at the later stage, I can answer that.

And yes, I think the fight for loans to get also the benefit on the next tranche will be huge. We have seen in some markets that banks pass on parts of this bonus or I don't know, by the end of the year, everything to the corporates. So here, it's a mixed picture, what I see, but maybe it needs another quarter or so to better understand how banks really behave. But as I mentioned before, currently, we participate on group level by EUR 8 billion, EUR 5 billion on head office and another EUR 3 billion from Tatra banka. These are our 2 banks who -- the rest is outside the Eurozone.

And the second question will be answered by Hannes.

[Hannes Mosenbacher, executive]

Tobias, the way I understood your question is what support mechanisms we still do expect on a broader scale? Is it from the institutions? Or is it also from the government? Well, I think what -- there are a couple of things which will stay hopeful. The one is the SME support factor. When also talking to the institutions, I sense the quite big willingness also to provide portfolio hedges. Is it on the mezzanine? Or is it on the senior part of the structure leaving the underwriting and the consequences of an appropriate underwriting with the bank? We did still not see the support funds really making their way to the real economy.

At the same time, having said all this, we also hope that some parts of the legal influence, ECJ, the ceasing of the insolvency law is being put back in place. And I don't know if you have read the article and the paper from ECB when talking about, is there a company which is viable and having a business case and a business model. So I also sense the strong political commitment that those companies now facing maybe to want out of trouble because of this specific situation and having a viable company structure that even here and there, equity instruments could be considered.

This discussion is not yet finished. I can report from Austria that there is a deep discussion on how these companies could be supported on the SME side or on the corporate side. But what I think is that there is a very broad, common understanding, if the business model is a viable one, instrument shall be found to support the respective company. This would be my swift reflection to what is my assessment on the current support mechanisms. At the same time, hopefully also bringing back some of the normal environment to get the clear picture on the real dynamics.

[Tobias Lukesch, analyst]

And following up on the RWA, if I may. If I understood you correctly, you have a 13.6% starting point. We have more or less EUR 1 of dividend still accrued, right? That's deducted. So looking ahead with the M&A, we deduct 30 bps, so we had 13.3%. And with the RWA, you said, it will be EUR 1 billion to EUR 1.5 billion, if I understood you correctly. If we then deduct the EUR 0.6 billion of market risk, which I understood was a kind of extraordinary in Q1, but might be disappearing in Q2, then we are around EUR 1 billion without loan growth. Is that a correct assumption going forward, basically from what we made today?

[Hannes Mosenbacher, executive]

Well, you have been very fast, Tobias, I have to admit. And my colleagues from the investors relation are more than happy to revert. On the market risk side, please bear in mind, you always have the 60 days window. So it will take a little bit longer till we can -- that the now more elevated RWAs because of risk costs would not be seen anymore in the reporting. So we could see it maybe by the Q3. This would be too early. I don't know if you've any swift calculation, you also incorporated the year-to-date profit until the first half year. And on the many other things you quickly shared with us, I would be tempted to agree with your statement. And please do not forget that we also, of course, have still the potential of securitizations in our hand, which we also demonstrated last year and executed successfully.

[Operator]

Next question is by Riccardo Rovere from Mediobanca Group.

[Riccardo Rovere, analyst]

Very, very quick one. I joined the call with a little bit of delay. So apologies for that, if you have -- in case, you have already answered to this question. With regard to the recent movement in rates in Russia and Ukraine, what we should expect in terms of margins and dilutions and NII and NII contribution in those 2 countries?

[Johann Strobl, executive]

Yes. The rate hikes in Russia and in Ukraine should be overall positive on the NII at the level of, let's say, low-double, high-single digit. So if I add it up -- and my colleagues advised me here, so my IR people are not happy with imprecise answer. So they say, why don't you say it might be 24. So I make this statement, 24 in both markets together.

Riccardo, any other question?

No, it's not the case. Is there -- operator, is there one more in the queue? Yes.

[Operator]

Our next question will come from Mehmet Sevim from JPMorgan.

[Mehmet Sevim, analyst]

I have just 2 remaining questions, please. One, on the cost performance, which is very solid so far. And based on the trends, how do you see costs develop in the next 3 quarters? And do you think it's still reasonable to expect the cost base at the level of 2020 this year? Or do you think there is room to maybe beat that ambition?

And my second question, you have recently announced a business BNPL, buy now, pay later product, I think, in Austria, in a partnership. Could you please give some more details on this business? So for example, would you be taking up the credit risk? And what would be the fee and infrastructure? And more generally, do you think there is an opportunity to launch a similar product in other countries, given how popular it is currently elsewhere in the world?

[Johann Strobl, executive]

Yes. Thank you for your questions. In terms of OpEx development, our guidance would be that compared to last year, we see a small increase by 2 percentage points. We took quite a lot to get our organization much more efficient. And we have identified quite a lot of tasks for that. Some of this takes time. So end-to-end automation, the remodeling of the branch network. On the other hand, currently, this goes hand in hand with some additional IT investments. And of course, IT people in all the markets are scarce resource, and they are significantly more expensive head -- cost per head as any other bank employee.

And then I understood you had a question on the Austrian. So probably this was a message we had in the news of a small cooperation with -- I hope you're heading in this, so that I really get your question right. We teamed up with a fintech, which is called Credi2 or its product, cashpresso. And yes, this is a company, which in the past, had a German bank as a partner. In our case, they will do the sourcing of loans, and we will take the credit risk on that. It's, compared to our size, a small business as of today. But I think it covers some channels, which we did not approach today. The reason why we partnered with them is they have solutions, which are currently in place in Austria and a very small amount -- also this is an Austrian company and in Germany. But I think they partnered with us because we see there is a potential also in CEE. And over time, the portfolio will grow. I hope this was what you were referring to.

Maybe there is one, operator, please excuse me. There was one from the chatter question, which I should read, which says, what are your expectations regarding Polish Supreme Court ruling, which should be announced on the 11th of May.

It's difficult to say. It has been postponed for many reasons 2 times already. And I think that the question so far had been phrased in a very clear way, very important question. On the other hand, it's difficult to see if this court would also consider the ruling, which I was elaborating quite in detail, so the recent ECJ ruling. We'll see if -- I mean, of course, I would appreciate if these various elements more and more fit together. I think also that today's decision does have some impact on the overall puzzle. So sorry that I can't give you more insights for the coming decision.

Thank you. And now operator, sorry for interrupting you, please.

[Operator]

Next question comes from Robert Brzoza from PKO BP Securities.

[Robert Brzoza, analyst]

I have one follow-up question on the cost of risk during the quarter. I see that you had some releases of the postmodel macro adjustments. And my question is whether these were more or less equally spread across all the geographical units or whether there is some perhaps country or region left behind? And given that you already upgraded your macro forecast, does it also imply that the potential for the further release of this macro provision is now fully, I mean, sort of done? There is no more potential to release it.

And second, on provisioning level, could you elaborate more on what has happened regarding the provisioning for sanctions in Russia because I believe there has also been some movement in this regard?

[Hannes Mosenbacher, executive]

Thank you for the question, Robert. I very much appreciate. So it's split back what we have seen on the nonretail side. We did not make use currently, to a large extent, on the postmodel adjustment, which we have created last year. What we have seen is that on the nonretail side, in fact, you're right because also of our persistence on the workout, we were key people to collect here in the one or other euro. At the same time, in retail, we have seen a split or we have seen, in Hungary, that we made use of the postmodel adjustment. At the same time by the local regulator, it was requested that we book certain loans subject to the moratorium as a Stage 3. So it was this postmodel adjustment, which was created last year was perfectly serving our purpose that we think can use it later on.

If I would take your second question when it comes to the provisions for the sanction in Russia, I think the sanction game is ongoing. And what we also have done is that already with the inception of IFRS 9, we clearly flagged that there is this potential risk back in 2018. But looking now at the way how the administration, the U.S. administration is making use of this sanction, they are extremely precise. And mainly it's about the individuals which they are putting on a sanction list. And on the corporates, the administration is also extremely precise.

I think the first wave of sanction has been very broad-based. So after 3 years, we have reconsidered how we can make use of it, and we reallocated it also to the corporates and to the retail partly. So the money is not gone, but we reallocated it because we believe that is a very broad unstructured approach when it comes to sanction belongs to the past, and we would now see much more a precise way of tackling -- putting sanction to subject or legal entity or private individual. Hopefully, this helps, Robert.

[Robert Brzoza, analyst]

So it didn't affect the P&L-based provisioning, it simply was reallocated from like kind of general into more specific provisioning, thus increasing the level of loan provisioning. Is it correct?

[Hannes Mosenbacher, executive]

Yes, indeed. Yes, indeed, Robert. That's exactly the way we did it. So we have released from this buckets but making use of it for other buckets.

[Robert Brzoza, analyst]

And by the way, what was the size of this adjustment in total?

[Hannes Mosenbacher, executive]

Well, the Russian one was somewhere around EUR 40 million, which we reallocated to other buckets, so releasing some EUR 40 million on risk costs, Stage 2, allocated to sanction, we have reallocated them.

[Operator]

Next question comes from Simon Nellis from Citibank.

[Simon Nellis, analyst]

Actually, most of my questions have been answered. But just one last, maybe 2 clarifications. So you mentioned the impact of rate hikes in Ukraine and Russia would have a 24 basis point impact on margin. I wasn't quite clear what that was.

[Hannes Mosenbacher, executive]

Million euros, EUR 24 million.

[Simon Nellis, analyst]

Yes. And secondly, just to make sure I understand your provisioning policy on Polish FX mortgages. You're only creating provisions once you've lost cases. Is that right? Or is the EUR 28 million -- sorry, the EUR 150 million, does that include any kind of forward-looking view on potential litigation costs for pending -- for future cases?

[Johann Strobl, executive]

Yes, almost nearly, I would say, there is some element also for the inflow. So it's -- in essence, it's a model, which covers the trend in the inflow for 1 year, plus the ratio of what we are losing. And this leads to that. But the dominating element is the rate we are losing. And recently, this was rather high.

[Simon Nellis, analyst]

I see. So if the trend continues, then you're already fully provisioned for this year? Is that what you're saying as long as the loss rate doesn't change?

[Johann Strobl, executive]

Yes. Yes. But if you say the trend continues, then, yes, it's -- I dare to say that after the ECJ ruling and hopefully, a couple of other rulings, the inflow gets less and less. But this is -- we will see. This, we will see.

[Operator]

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

[Johann Strobl, executive]

Yes. Thank you very much for your time, your very good questions and for your ongoing interest in RBI. Thank you very much. Stay healthy. And you know our financial calendar, when we are next in the market with news. And from now to that date, we have a brilliant investors relation team, which is keen to answer all your questions. And if any questions to Hannes or me, please feel free to call. Thank you. Have a good afternoon. Bye-bye.

[Hannes Mosenbacher, executive]

Bye.

[Operator]

You may now disconnect.