Raiffeisen Bank International (RBI) reported a robust consolidated profit of €1.3 billion for the first half of 2024, with a notable return on equity of 15%. The bank's CET-1 ratio, a key measure of financial strength, stood at 17.8%. Amidst these positive figures, RBI is also navigating the complexities of its Russian operations, implementing business reduction measures and exploring exit strategies.
Key Takeaways
- RBI reported a consolidated profit of €1.3 billion in H1 2024 with a 15% return on equity.
- The CET-1 ratio improved to 17.8%, with an expected ratio of around 14.7% excluding Russian operations.
- Loan growth was observed in retail unsecured lending, mortgages, and corporate lending.
- The bank is reducing its Russian loan book by 55% by 2026 and seeking exit options.
- Net interest income has decreased slightly, while fee income rebounded in the quarter.
- Operating expenses increased by 5% compared to H1 2023.
- RBI is sensitive to foreign exchange fluctuations in several countries, including a €500 million potential impact in Poland.
Company Outlook
- RBI provided guidance on revenues, fee income, operating expenses, cost-income ratio, risk costs, profitability, and CET1 ratio.
- The bank expects to meet subordination requirements without preferred senior issuance in the near term.
- Subsidiaries in Slovakia, Czech Republic, and Hungary have completed successful placements.
Bearish Highlights
- Net interest income slightly decreased, mainly in Hungary and the head office.
- Operating expenses rose by 5% in the first half of 2024 year-on-year.
- Exposure to the Russian market and foreign exchange fluctuations present financial risks.
Bullish Highlights
- Fee income has shown a rebound in the quarter.
- Positive loan growth trends in various segments.
- The bank is actively managing its Russian exposure and seeking to de-risk its presence.
Misses
- No immediate solution for the Russian operation's exit that satisfies all parties.
- The impact of Basel IV regulations could see a decrease in credit risk but an increase in operational risk.
Q&A Highlights
- RBI is in dialogue with regulatory authorities regarding the impact of reducing the Russian loan book.
- The bank is steering towards a zero-price book multiple deconsolidation.
- Dividend policy is dependent on the outcome of the Russian bank sale.
In summary, Raiffeisen Bank International (RBI) has demonstrated strong profitability in the first half of 2024, with positive growth in key areas despite the challenges posed by its Russian operations. The bank is actively managing these challenges while continuing to focus on growth and stability in its core markets.
Full transcript - None (RAIFF) Q2 2024:
Operator: Good afternoon, ladies and gentlemen, and welcome to the Q2 2024 Results 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. Please go ahead, sir.
Johann Strobl: Good afternoon, ladies and gentlemen, and welcome to our half-year ‘24 update call. Thank you for taking the time to join us today, and I hope that you will enjoy your summer break once the current reporting window is over. In the first half of the year, we can report a consolidated profit of 1.3 billion and more importantly, 604 million excluding the profits in Russia and Belarus. Our return on equity stands at 15% for the group and around 10% or 9%, sorry for excluding Russia and Belarus. Finally, the CET-1 ratio improves to 17.8% for the Group, largely driven by the appreciation in the quarter, and remains stable for the pyramid, excluding Russia and Belarus. On Slide 5, we can report that loan growth is picking up confirming the green shoots observed in the first quarter. In our core customer business, the good dynamics in retail unsecured improved further various mortgages and corporate lending, which were quite in Q1, have also accelerated. NII is, again, slightly down this quarter, mainly in Hungary and head office, which are the two areas where we expect the most pressure. Elsewhere across the Group NII is very stable. Fees have rebounded in the quarter after the seasonally weak first quarter, but also reflecting the pickup in landing activities. OpEx are 5% higher in the first half of ‘22 compared to the first half of ‘23, but up less than 2% in Q1, ‘24 versus Q -- sorry, Q2 ‘24 versus Q2 ‘23. We will discuss all these a bit further on. For now, let's move to the next slide and focus on the substantial business reduction measures which we're implementing to de-risk our presence in Russia. Until we find a way to exit Russia, we will accelerate the business reduction plans for the bank there with the clear aim to make sanction compliance as simple and verifiable as possible. As you know, we restricted business in Russia immediately at the start of the war, including strict limits on landing payments and new customer onboarding. You have seen the state reduction in our loan book and what is perhaps not immediately visible are the broad restrictions on payments in and out of Russia, but also to and from the neighboring countries. We have implemented broad sector restrictions for our payments and trade finance business, including, for example, all electronic goods, the auto sector, oil, and all related products. As a result, this has transformed the Russian balance sheet as you can see on the left-hand side of this page. The Russian loan-to-deposit ratio now stands at 37% and the liquidity coverage ratio is above 300%. Local CET1 ratio is above 48%, meaning over and excess 4.5 billion of equity above local requirements. More importantly, we believe that these measures significantly reduce the risk of our continued presence in Russia until we find a way to exit. As I told you on our last quarterly call, the business reduction in de-risking strategy will accelerate in coming months, and you can assume that the business model of the Russia bank will further simplified. In essence, it means, the loan book will shrink even faster. To a large extent, there will be no new landing or rolling of existing lands, very few exceptions will be allowed, and we now expect a loan book reduction of around 55% by 2026. In the medium term, this means that excess liquidity will increase for Ubers, all cash and excess liquidity placements are expected to be placed with the Central Bank of Russia. This means no more deposits with MOX or with Russian banks. The foreign currency placements this will all go to subsidies of Western parents. On the liability side, this means broad measures to reduce deposits, including no longer exact derm deposits, pricing all current accounts, both in rubel and in foreign currency at zero, and charging higher maintenance fees on all current accounts. While there are certain products, which we cannot legally terminate, our goal is to make these as unappealing as possible. Another restriction on deposit-taking relates to business with other financial institutions. Going forward, only subsidiaries of Western parents may place deposits with Raiffeisen Bank Russia. In the medium term, you can expect to see the balance sheet shift to a higher share of equity on the liability side and liquidity placements on the other side as loans to customers and deposits from customers continue to shrink. As a side note, we should be aware that RWS at the Russian Central Bank will rise as the risk weighting of CPR deposits is higher than the previous alternatives. This is already visible in Q2, as you can see on the graph. This increase in RWS will continue as we move more deposits to the CPR and away from OX (ph) and local banks. For the business with corporate clients, only very small number of pre-approved customers will still be offered borrowing facilities. These pre-approved customers will be large and internationally active customers from a selected list of sectors and for each of these and individual compliance assessments will be made. Overall, this pre-approved customers will be a very small fraction of our existing customer base. This very small list of pre-approved customers will also apply to payments leaving Russia from 45,000 monthly payments on average in Q1 ‘24, we expect to process less than 15,000 per month in Q4, mainly in Euro and the Chinese yuan. Dollar payments have all but ceased, and here the list of pre-approval customers is even much more restricted. We are all discussing the final restrictions for the retail business, but also there you can assume that at least 90% reduction in lending and payments with very strict limits and restrictions across the port. More importantly, these many measures materially reduce the compliance risk for the Russian bank and for RBI group as a whole. We have aligned these measures with the ECP and briefed the US Treasury on our plans as well. With both of these authorities were in constant and transparent dialogue. In parallel, with this de-risking approach, we are fully committed to finding a way to exit Russia, including via sale or partial sale of Russia Bank. We have so far not found a solution, which certifies the requirement of all parties, but we will continue to work on this until we do. Let me be clear, however, any exit from Russia will be orderly and in alignment with local requirements. Even as we seek to disengage, we have a responsibility to our employees and our customers to ensure a smooth handover. Let us now look at the core revenues on Slide 7. As you can see, and as we have guided for net interest income has likely peaked at the end of last year. On the other hand, the decline is very moderate and we do not expect the call-ups. The rate cuts across the regions are of course, the obvious driver for the trend downwards. In some areas, we have also seen increased pricing competition, which has added some pressure as well. On the other hand, I'm satisfied that we have hedged our NII about as much as possible, and the big up in loan growth should also help offset some of the hedge funds. Most of our markets, NII was stable with the drop largely coming from Hungary where rates continues to come down and where we have very little room to reprice current accounts and in the head office, where our deposit are largely from corporate accounts and therefore more sensitive. Overall, however, NII development is probably better than we might have expected and we have slightly increased our guidance for the fiscal year to the full year 2024 to around 4.1 billion. Net fees and commission income has peaked up and we can confirm our guidance at around 1.8 billion. Let's move to Slide 8. On the lending side, we continue to see an increase in demand for new lending, retail unsecured products, or another record quarter for new lending driven by the Czech Republic, Romania, and Serbia. Retail mortgages are up 1% in the quarter but with good new volume trends in our two largest mortgage markets, Slovakia and the Czech Republic. Margins are stable at Q1 levels, which is good news after the very narrow margins, what we have to accept in 2023. On the corporate side, demand for long-term loans has picked up nicely driven by Austria, Slovakia, Romania, and Hungary. In Austria, there was also some further growth in repo and short-term facilities as we highlighted it last quarter. On the deposit side, we continue to see inflows across most of our countries with these higher liability volumes, probably helping to have set some of the margin pressure from lower rates. Let's move to Slide 9, where you can see the liquidity ratios very stable at very high levels. And now with this, I can do this short. Let’s move to Slide 10. The capital and what you see here is on Group consolidated base including Russia and Belarus, the 50 basis points increase that you see here is largely from the ruble appreciation, which we witnessed in the quarter. As you know, since the start of the war, there are no instruments available to hedge our ruble overcapitalization. Furthermore, as we reduce the loan book and our excess CET1 ratio in Russia continues to increase, our Group sensitivity to the Euro ruble volatility increases. Also on this slide for good measure, let me remind you that we deduct a dividend from our retained earnings and regulatory capital. This dividend deduction is based on last year's payout ratio applied to the earning of the consolidated group, including Russia and Belarus. Like in the previous years, the final decision on dividends will be taken in January based on the consolidated profit excluding Russia and Belarus. On Slide 11, the outlook for the ECT1 is around 17%. This drop is largely attributed to the shift of all our liquidity placements in Russia to the CPR. As I mentioned a few minutes ago, risk waiting on CPR placement is much higher than where we placed rule of liquidity until recently. This RWA increase in corresponding impact on group CET1 is as mentioned a consequence of the business reduction plan in Russia. Of course, this has no impact on the CET1, excluding Russia, what we have referred to as the price book zero scenario, which brings us to the next slide. Group CET1, excluding Russia, improves slightly to 14.7% and expected to remain stable at these levels into year-end. Again, please remember that this does not include any relief on operational RWS deriving from the Russian business, which would add the further 70 basis points to this worst-case scenario CET1 ratio. Let me now jump to MREL and funding, which is on Slide 14. MREL for the Austrian resolution group as the core, our ratio drops 1 percentage point due to expected recalibration of eligible liabilities, which was partially offset by the senior preferred bond, which we issued in June. We remain 7 percentage points above the requirement, and when the subordination requirement will be reintroduced in January of next year, we again expect to be comfortably perfect. This also means no preferred senior issuance in the near term. The other purpose for non-preferred securities issuance was the LGF analysis at Moody's (NYSE:MCO), which based on the latest review now stands around 8.6, leaving a decent buffer above the 8% requirement to maintain the three-notch uplift. In terms of issuance plans, we look at another senior preferred issuance after the summer. Our subsidiaries were also in the market in the past few months with successful placements by our Slovak, Czech, and Hungarian subsidiaries. Each of our man MREL relevant resolution groups is now comfortably above its requirements with very little issuance if at all still do come this year. Let's now move to the macro outlook. This is an update confirming the good prospects of the core of our regions and if I now move to the next slide, which is the inflation. So here what we see is broadly unchanged and what we had last in the last presentation in some markets, slightly above the targets but what we can say, and we have forecasted it on that slide in some of the countries with quite some room to reduce the key rates. In some others, maybe it'll come at this lower base. And with that, I would move to the guidance, which I touched already, a 4.1 billion in four revenues. I mean, just, just to restate and to be clear, this is guidance excluding Russia and Belarus; 1.8 billion net fee in commission income along growth somewhere between 4% and 5%; the OpEx around 3.3 billion and the cost-income-cost income ratio of 52%; risk cost around 35 basis points; profitability at around 10% and CET1 ratio in the price book zero deconsolidation scenario of Russia 14.7. And with this, I hand over to Hannes, please.
Hannes Mosenbacher: Thank you, Johann. Good afternoon ladies and gentlemen, thank you for your interest today. Allow me to share with you a brief risk update. First of all, portfolio quality remains solid with NPEs near record loss and improving coverage ratio. In the performing part of the book, we even saw rating upgrades. In fact, the Raiffeisen relief from the improvement in the portfolio quality more than offset the organic loan growth in the quarter. As you can see, our coverage ratio improved to above 53% as we were able to sell a defaulted exposure with a very high recession. Defaults and insolvency are still low. With that being said, we remain cautious. Refinancing rates remain elevated and for some of our customers, this may well become problematic. Let me move on to the Page 20, giving you more details. Risk costs in the quarter were EUR 78 million for the core of the group. We saw releases in Stage 1 and Stage 2 based on rating upgrades and better market development and disallowed us to book around EUR 60 million of additional overlays in the core of the Group, excluding Russia and Belarus, which brings the stock of overlays to EUR 505 million for the core of the Group and to EUR 788 million including Russia and Belarus. This increase in overlays were mostly related to leverage finance portfolio in Vienna and potential future interest rate risks in Hungary. The three risk costs came in at EUR 60 million for the core of the Group, half of which is related to adjustments on already defaulted exposures and the other half are new cases in the leveraged lending book. In any case, refinancing risk is already covered by the overlays. All things considered, we are satisfied with the risk costs year to date and this allows us, as stated beforehand by Johan, to improve our guidance for the full year to have risk cost of roundabout 35 basis points. Let me move on to the Page 22. Well, here would like to address our FX mortgage portfolio important. Overall, inflows of new cases have stabilized, albeit at an elevated level. Litigation in the Euro portfolio has increased, but the run rate is -- this has led us to book an additional EUR 282 million of provisions. As Johann just said, we're now getting around EUR 500 million of litigation provisions for the full-year 2024. I should also highlight that we have improved our settlement offer in line with what our peers offering. Based on the early data, we have reasons to believe the customer's acceptance rate will increase, potentially to above 50% over the course of the program. Here all this is my very brief risk report, and we are now more than happy to take your questions.
Operator: [Operator Instructions] Our first question comes from Mehmet Sevim with JP Morgan.
Mehmet Sevim: I have just a couple questions please, if I may. Maybe starting with the Russian exit or the de-risking that you're currently taking. On the RWAs and the increase there that you're saying is because of the increase of reserves at the Central Bank. Could you please clarify this is because these were loans previously and which now you have to basically place as cash at the central bank, and going forward, where would you do, where would you see the impact of this? So how would you basically think about the RWAs increase over the say 18 to 24 months in Russia because of that? And secondly, if I may ask just on the CHF provisions, obviously, the provisioning has increased now, but when I look at the disclosures that you provide, the total coverage seems to be 98% now with 2.1 billion of provisions and set one held against it. In the first quarter, it was 99% with EUR 1.7 billion of provisions and set one held against it. So it seems that denominator has increased this quarter. If you could kindly explain why that's happened and how you see also the future trajectory there that would be very helpful. Thanks very much.
Johann Strobl: Thank you. So if I may start with your Russian question, the RWAs indeed the risk rate for the Russian Central Bank is, believe it or not, for ruble above a 100%. So all those banks and even the corporates, which are under the modeling what we use a better risk weight than what we have with the CPR and as we have to move away from the MICEX, which was also one good source of or one good place for depositing, so this increases significantly, and you have seen these numbers, as I said, partly because of this change, partly also because of the improved ruble rate and this is an impact, which should also be considered as compared to Q3 to the end of March that the ruble rate has appreciated significantly, I dare to say. It is difficult to give you a longer view. So I think you can at your end, we try to figure out or to explain in the CET1 ratio and the longer end, it depends also very much from the customer behavior. So what we assume is of course the reduced loan book. I think on the other hand we will see how Russian customers deal with our very strict approach, paying no interest, and some other limitational factors also are reduced their payments. So I think, sooner than later, we will understand to what extent also the liability side will start shrinking and then this will have also an impact on the RWA requirements. Hannes, please?
Hannes Mosenbacher: Mehmet, thanks for your question and I'm happy that you also spotted it yesterday when we have done our final preparation. I was also asking my dear colleagues to give me the details on how these things have changed and there would be two immediate things I want to point to at; one is that, of course, the FX part, because we have seen an appreciation, this is increasing somehow underlying stock; and the second thing is of course, that partly also provisions have been used because of experienced losses. So, the one is that we have built up provisions and the other thing is that now provisions are being utilized when we have a final ruling on the cases outstanding. So that is the reason why we have seen then the changes you clearly observed, when it comes to the overall coverage. And the second thing, most properly, what we also have done is that initially in our coverage, we were also mainly focusing on the Swiss string loan portfolio. And there you could also already see that we have a coverage of -- above the loan amount outstanding but now, of course, you also have to consider seeing the current dynamic that we see also Euro lenders and borrowers to reach out and find the settlement. These are the main reasons. Thanks for your question.
Mehmet Sevim: If I may just follow-up on one comment, and this is, do you have any early indications at all how the Russian customers are reacting to your more strict offering right now?
Johann Strobl: We saw an outflow of liabilities but not at a huge level. You can see this if you compare the numbers, I mean, as I said, as we report in Euros, one, have to consider also the ruble impact. So we see a reduction in dollars. We see a reduction also in rubles, not a big amount. I think, only in the course of the fourth quarter, we will get a better understanding which, what dynamics we will then have to face.
Operator: We'll go next to Matt Nimetz with UBS.
Matt Nimetz: Couple of questions, please. First one on NII and interest rate sensitivities. Johann, you have mentioned that you tried to hedge NII as much as possible, and Hannes, quite pleased with the NII development in the quarter. Also, I guess the increase in NII guidance is a reflection of that. Could you perhaps talk a little bit about the implementation of those hedges? And secondly, if you could update us on your latest rate sensitivities primarily in Euro terms but also in some of the local currencies for the larger operating countries? The second topic would be Russia and the Russian exit. You mentioned that so far you have not found a solution that satisfies the need of all parties. I was wondering if you could elaborate a little bit on that. What was really the biggest obstacle or what has been the biggest obstacle and what are the current options that you are reasonably pursuing? Thank you.
Johann Strobl: Yes, thank you for your questions, and to the NII sensitivity, what I understand, what you most of you prefer is a simple 100 basis point shocks and what the expected 12-month impact would be. And we are using here the sensitivity analysis from end of June, and to give you an idea, so reduction by a 100 basis points now over the various currencies in countries to give you some ideas. Yes, in the Czech, for example, it would be, this is a bank with a sizable book in the Euro currency around minus 12 million and in the local currency minus eight, so around minus 20. Hungary, less impact on the Euro, more on the local currency. Also, in total 20 million, Slovakia more sensitive 28 million, Croatia, 12 they only have euros than Romania, significantly, so 12 million in Euros, and 23 million in the local currencies of 35. Serbia, also very sensitive, given their size with around 30 million. Again, both in the countries, I don't know if you're interested in Russia here, it would be around 70 million, and in Ukraine around 14. So this adds up to around 220 million for the Group and 150 without Russia and Belarus. So here in this, you have built-in all those hedge positions already. Otherwise, the impact would be, of course, bigger, given the size of the banks. Now to your second question, which is Russia. What we have to satisfy is the approval of at least five involved institutions. So, there is the Russian Central Bank and the Russian administration. Then, of course, it's the European Central Bank and the Austrian FMA and of course, we also align with AFAD (ph). The reason for that is, we want to have a smooth transaction. We want to reduce the risks between potential signing and closing as good as we can. So the idea is to get the informal, okay by all these institutions, which I have mentioned and they have of course, different views. And the core of this first phase is to introduce the terms and conditions of the sales agreement and the potential names of the customers. Currently, we assume that the highest probability would be that we can sell around 60%. So, we will have to keep 40% and a spinoff in these days. I would say, we have not given up on this idea, but it's rather to be complete on all the options, what we have. So the obstacle is to get the approval of all these authorities. I think the expectations, what one can have around the commercial terms are well known. Of course, in these days given the high over-capitalization, one can hope for -- hopefully for a price hook, multiple of one around that, maybe a little bit less, we'll see and then you have the maximum sales price of around as a maximum 50 and then you have the exit tax, which either the seller or the buyer has to pay. So, this is it in a nutshell, but it's this approval of this variable authorities. For us, this is very important for the one reason, as I said, not to have negative surprise during the phase between signing and closing, but also then after we have to keep 40%, that's the basic assumption now and then you need an understanding that also the bank afterwards is not sanctioned or let's say, the probability is very low given that, it is done majority owned maybe by Russian shareholder. Thank you.
Operator: We'll go next to Gabor Kemeny with Autonomous Research.
Gabor Kemeny: Hi. A few follow-up questions from me, please. Maybe the first one on the Russian exit. So, if you were to de-consolidate, what would be the treatment of the overlay provisions? I think you have flagging some kind of 280 million of Russia overlays. Could this be released? The other question I had was on Poland and now, I understand that part of the portfolio -- now you have around a 100% coverage. I understand you also have a portfolio, which has been repaid already. Can you share how much in Swiss Bank and Euros have been repaid? Who I understand may potentially still come and see the bank? That's the second question, and thirdly, on NII, I think in H1, your core NII was annualizing at around 4.3 billion, which is so -- I mean that's a bit above what you are guiding for the full year. So I guess the question is, what you see coming in the second half, which makes you relatively cautious?
Johann Strobl: Yes, I mean the overlays in Russia will remain in the bank, of course, and this is part of the final valuation and negotiation, of course, with the potential buyer to what extent -- the buyer would consider this part of the over-capitalization. I mean, you have all these smaller impacts on additional tax and whatsoever, but it remains in the bank and probably then can be released, maybe sooner later but this is then a new policy.
Operator: Thank you. We'll go next….
Johann Strobl: Wait. We're not quick enough. So, the second question was around Poland. This as it's about the Swiss mortgages rebate ones, here Gabor, I think what we are waiting before we have a better understanding is what is the ruling of the Supreme Court, the civil chamber of the Supreme Court in Poland and then we will have a new idea on what it could be. The outstanding, we still believe that the highest risk is with what is not repaid, so what is the outstanding now, this is why we focus on that. Maybe in the course of this year, we will also get a better understanding of repaid loans, but this is definitely too early to give any numbers. In terms of the NII annualized, I mean in my answer before I tried to share the sensitivity. I mean, yes, indeed, we see -- you see that there is a negative trend in this, as I said in my speech, not at the high speed, but if you run through the various countries, then, of course, we would expect, as I said before in Austria, so in the book of the bank here, we see from all the areas we see the asset margin here and they are under pressure. We see that as we have no, almost no in the Austrian business, almost no retail deposits, and if you say, but you do have some retail deposits in the posh podcast down here, we have an adjustment once a year and this has to be also reflected, and there we still see an increase. And, of course, till year-end, I somehow touched it, but the biggest impact we expect in addition to Austria will be in Hungary, maybe 40 million compared to your run rate and another let's say around 10 in Romania and in Croatia, and then smaller ones in others. So, this is the reason why we see a drop from the annual is 4.3 to rather 4.1.
Operator: We will go next to Johannes Thormann with HSBC.
Johannes Thormann: Johannes Thormann, HSBC. Three questions please. First of all, on your policy of a DPS accrual, excluding the Russian business and what impact would a price book scenario, a price book zero scenario have on this dividend payment, as this most likely would trigger at least a technical loss in the P&L? And you said that, it would have no impact on 81 and Tier 2 as the buckets are filled, but still how would -- what's your understanding of the reaction of the (indiscernible) to such a technical loss? Secondly, could you give an update on the sale of the bill of Russian unit announced on 14 February that this was in good stages, but we haven't heard anything since the end. And last but not least, really, how realistic is this? Did you say 500 million impacts from Polish FX this year and couldn't it be rather more this year or next year? And then please help me understand why you think that the size of the legacy book doesn't matter currently, other competitors eat differently.
Johann Strobl: Indeed, you're right. The way we look at it in enterprise book multiple zero in the deconsolidation case, one can say, why at all are you concerned about this huge loss? Nevertheless, at is a loss. There is -- in this 14.7, there is no dividend assumption, so no dividend assumption. Of course, if it happens then we would need to consider as the rest of the group is basically doing quite well. So when we talk about Belarus, yes, this is an ongoing discussion negotiation with the potential buyer. There is only one given the time since we thought we could agree on a deal, quite a lot of time has passed. Some technical questions have arose as well. So we are in discussion. Yes, we might slightly adjust also the terms. Maybe not to our benefit but we will see. So still in the range of possible transaction, otherwise, we would have already made a public statement but the timeline is difficult to say.
Hannes Mosenbacher: Johannes on regarding -- because you followed up on the EUR 500 million in Poland and also to the question raised by Gabor, the EUR 500 million for the full year when it comes to the litigation provision is the best guess what we can now currently share with you in the market and I think that is a prudent assumption and the best one, what we can currently say, we did not say rebate book doesn't matter. That's very important. Of course, it do matter. But I think it's fair to say that it's more accurate that we see a higher risk currently still in the outstanding loans because we have still too many uncertainties before we can quantify it accurately. And one last thought is you have discussion ongoing locally when it comes to the status of limitation and also legally, I'm not a legally expert, I'm a risk manager but as a legal expert, you could say, well, both parties have fulfilled the legal contraction -- contract. So we borrowed the money, the money was rebate, and both parties have honored the obligation and that's the reason why we are more mindful and with the rebate part of the loan book. And secondly, also as we see, it is the current, the outstanding loans who still suing us. And last thought, we also have really people where we are pretty confident that they would not sue us because of their local status or of because of their background. And so that's the reason why at this time we are focusing on the outstanding loans and let's see how much headache, the rebate part of the loan book will still give us. Thank you for your question.
Johann Strobl: Johannes, I have to correct my statement, give me one more time. So the team made me aware that they have in the 14.7 CET1, so in the zero deducted also a dividend of 1.5. So I was too pessimistic, sorry for creating confusion, but also happy to deliver a good message.
Operator: Thank you. We'll take our next question from Riccardo Rovere with Mediobanca (OTC:MDIBY).
Riccardo Rovere: A couple if I may. The first one is again Russia, correct me if I if to just tell me if I understand it correctly. The more you reduce your loan book, the more you free up deposits given that cash cannot get out of Russia and you cannot land in Russia. And so, you are obliged to park this liquidity to the central bank, the more your capital goes down because the risk weight assets keep going up because the sovereign of Russia is weighted 100% or maybe more than 100%. Is this what's happening…
Johann Strobl: Riccardo, perfectly, right. I should have given the risk weight. So the MICEX risk weight is around 20%, Russian financial institutions is around 50% to 75%, whereas CBR is around 100%. So you are fully right, it's significantly increasing. I mean, I'm not that much worried about it, no, whatever it means because, we are steering the Group at the zero price book multiple deconsolidation, which is somewhere between 14.5 and 14.7, 14.8, whatever the development will be. So, yes, wherever it develops, it's fine. Sorry, you might have another question.
Riccardo Rovere: No, but is this something that you are discussing with the ECB, because the more you are successful in the leveraging of the loan book, the more your capital requirement go up -- goes up, which is a bit counterintuitive if I may. The second question I have is still related to fiscal-graded assets. Now with the Basel IV to be introduced on the 1st of January, did you be in the position to give us an idea what would be impact on day one? So Jan ‘25 and what might eventually be the fully loaded impact. And then if something related to this, when it comes to your dividend policy, it's okay. You run the bank, excluding Russia, but the regulated entity includes Russia, correct me if I'm wrong. So was wondering whether, let's say if you reduce the loan book, but you cannot get rid of the deposits, so your risk weighted assets go up and up and up, would this be a matter of a problem for you in case you are offering zero admiration and all the things you're doing charging NIIs on deposits and current and counts, this is not too successful? Is it something that we should, we should be worried about?
Hannes Mosenbacher: To your action question. So I'm not worried about it. So, I assume at least we are in -- I dare to say in a permanent dialogue with the ECP, that ECP is aware of this. We had intensively discussed this and I mean you have seen that the perception of MICEX have changed internationally and this is what we also have to accept. My view is, yes, the Russian bank more and more will be a bank with less and less loans, and more and more cash, which is with the central bank, which gives a very good Russian CET1 ratio and whatever happens on Group level is not important.
Johann Strobl: Regarding, you also asked regarding the Basel IV impact. To the best of our current calculation and assessment, we would believe that credit risk may come down by roundabout on the RBI Group X Russia, Belarus roundabout EUR 3.5 billion, EUR 3.8 billion, up risk will slightly will increase by roundabout EUR 2 billion and as we're all being aware of that, the fundamental review of the trading book has been postponed to 2026 but also here we would assume a certain relief of a billion to EUR 1.5 billion. Hopefully this helps.
Riccardo Rovere: All those numbers, should I consider them on day one Jan ‘25?
Johann Strobl: Besides the fundamental review of today of the trading book, you may not assume on day one, but credit risk and up risk you may assume with 2025. Indeed.
Riccardo Rovere: And would this be more or less the same, fully loaded more or less?
Johann Strobl: Say again.
Riccardo Rovere: Would it be more or less the same numbers on a fully loaded basis with the 72% output for?
Johann Strobl: Yes, this is our assumption as of today.
Operator: We'll go next to Lee Street with Citigroup.
Q – Lee Street: I have two on Russia, please. Firstly, if you manage to achieve a sale of 60% and are left with a 40% stake, is it fair to assume that you will be permitted to receive dividends as it relates to that 40% stake from the Russian Bank? And my second question is, if you are not able to achieve a sale or a spinoff, over time in a year or two, I mean, is it tenable just to have a Russian bank with a big amount of equity and some deposits at the central bank, I mean, is that something that you know, I mean, what's the end game if you're not able to achieve a sale or a spinoff? That would be my two questions.
Johann Strobl: The connection was rather bad, but I hope I can grab your questions. So, of course, if we hope look, we hope so. If we have to keep 40%, we work under the assumption if dividends are paid out, our share is 40%. So, this is the first part of any decision. We work under the assumption that only dividends will pay out if we also would have access to these dividends. Nevertheless, I mean, one cannot exclude the risk that then the money would be on an ex-account in Russia and we would have limited access to that but the basic assumption is yes, we assume that we also would receive dividends. Now, to your second question, if we cannot sell, what is then the outcome? I mean, if we just look forward 18 months till end of 2026, then we will have a loan book, which is half of what we have now. So then around 3 billion or so, 3 billion loan book and I assume they still make profit over the next years. Then we have a loan book of 3 billion and equity of above EUR 6 billion, depending on the ruble rate. And as Riccardo asked before, I don't know where the deposits will be and what impact this would then have on the CET1 ratio of the Group but yes, the request of the ECP as a mean to de-risk the sanction risk, the reputational risk, this is what we implement. Yes, it's not necessarily the best state, what you might imagine, but in this direction, we are heading.
Operator: We will go next to Simon Nellis with Citibank.
Simon Nellis: Just one last quick one from me, and that would be on the Hungarian windfall tax. Just wondering if you have reflected the removal of the tax relief if you buy long-dated securities in the third quarter, sorry, in the second quarter number or is that ahead of us in the second half, and how much that impact would be? Also, I would be interested in knowing what you think the impact of the increase in the financial transaction tax in Hungary and the introduction of a new transaction tax on FX transactions will be. And then if there's any other movements in regulatory news in the region. I think the Czech are thinking also of modifying or imposing a new sector tax, if what's the latest on that? Thank you.
Johann Strobl: Yes, these windfall taxes, it's really painful. It's the status of what, how banks are treated and it seems that the difficult for me to assume that, I mean, as you said, the reduced 50, the amount, what we can reduce is in Hungary. The 50% of the recovery tax, recovery bonds, what we have I mean the current assumption for 2024 is that it will be slightly lower than what we had paid in the first -- so what we paid last year. So we assume this 44 million -- I assume as of now the 44 million for the Hungarians but, yes, with all the uncertainties, what the disclaimers, what I can have – the transaction tax, what you also mentioned, transaction tax are 5 million to 8 million. So rather smallish compared to the big ones, what I've mentioned before. And then in the Czech Republic, there is quite a lot of work and discussion ongoing and I wouldn't dare to make any forecast how this will maintain, but there is an intense discussion between government and banking sectors how to adjust this windfall taxes and what the newly introduced.
Operator: [Operator Instructions] We'll go next to Iuliana Golub with Goldman Sachs (NYSE:GS).
Q – Iuliana Golub: I have one question, please. A local news outlet in Russia reported sometime in July that your Russian subsidiary could be downgraded from systemically important during the next regulatory review. I was just wondering would that be based on the size of the business or some qualitative metric related to business activity and is this something that would be of concern to your buyer.
Johann Strobl: Well, I think there were rumors in the price. I mean, one has to admit that the size of the bank is going down significantly. Our understanding is that if that would be the case, this of course has some consequences, but I think size is not the only criteria to be defined as significant or not. So, there are other as well. So we deem this as rumors, and I would not expect, I mean, the buyer knows what he's going to buy.
Operator: We'll go next to Krishnendra Dubey with Barclays (LON:BARC).
Krishnendra Dubey: Hope you can hear me and thanks for taking my question. I have couple actually. So first on the loan growth, you are talking about a new number, which is 4% to 5%. Could you please break it down into key geographies and how do you see the different parts of businesses, corporate and retail doing? And second question is on, sorry to go back again on Russia. I guess in case you're not able to succeed with the sale process and I guess based on your plan, you already have a two year continuity plan. So would you be able to get money or dividends from Russia in those in the next two years? Thank you.
Johann Strobl: Yes, to your Russian question. Of course, if we cannot sell, we would ask for dividend. Yes, I think then it's in the hand of the authorities there, if they would grant us this, to what extent, I mean that the rules in the past have been fixed and we have seen that some other companies also banks have received some dividends. So, but it's difficult to forecast to what extent we might accept dividend. I mean, one has to be aware that geopolitically the environment is quite volatile, so it's difficult to forecast but, of course, we would ask for and apply for and then see what we then would have. I mean, when talking about your first question, the loan expectations, we had some loan growth as I mentioned in the first half of the year, as I mentioned, some of it very short term. So this you has to be considered. We expect because of that also slightly less than what we have in the first half of the year, the best. So in volume-wise, I think in Slovakia we can expect something in Romania, we can expect something. As I mentioned before in Romania, we had a nice development. Now, again, in the unsecured loan, little in the mortgage business, Slovakia and Czech have some ambitions to grow. So these are the main areas, and yes, maybe still not too much on the mortgage area, but as I said in my introduction, the margin now in the mortgage books, at least for now are significantly better than they had been last year, where we kept the mortgage business only new business, new volume, not to be totally out of the market. So there, it's improving, not in all the market, but with the decreasing key rates. Then probably this will come rather next year maybe than this year.
Krishnendra Dubey: Sorry, can, if I can just have one small follow up, I think, I guess to previous questions, you did highlight dividend of 1.5 has been deducted in 14.7, have I heard the number correct, or like, was it something else?
Johann Strobl: Yes. So this is, if we have a full-year view, then this would be 1.5 what we deduct in this calculation. But it's a simulation and not now in dividend announcement. No, it's just for simulating the CET1 ratio.
Krishnendra Dubey: Sure. Not an issue, I was just checking, I think if I had the number correct. Thanks a lot for taking my question.
Operator: Thank you. As there are no further questions at this time, we will now conclude today's conference call. Thank you for your participation.
Johann Strobl: Thank you for participating. Thank you, operator. Once again, I wish you a very good summer. Enjoy recover from your hard work in these days. All the best. Thank you.
Hannes Mosenbacher: Have a nice holiday. Goodbye.
Operator: Thank you. You may now disconnect.
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