Good day, and welcome to the Erste Group Bank AG Results for the First Half of 2021 Conference Call. Today's conference is being recorded. Now, I would like to turn the conference over to Mr. Thomas Sommerauer. Please go ahead, sir. Thank you, Sharon, for this kind introduction. I would also like to welcome everybody on behalf of Erste Group who is listening in today. We are doing this call as usual from Vienna, and your hosts will be Bernd Spalt, Chief Executive Officer of Erste Group, Stefan Dörfler, Chief Financial Officer of Erste Group, and Alexandra Habeler-Drabek, Chief Risk Officer of Erste Group. As is customary for these calls, my colleagues will lead you through a brief presentation highlighting the main achievements of the past quarter, after which time they will be ready to take your questions. As is also usual, I would like to direct you before handing over to Bernd Spalt to page number two, which contains the disclaimer on forward-looking statements. With this, Bernd, I hand over to you. Thanks very much, Thomas. Good morning, ladies and gentlemen. Welcome to our Q2 earnings call. Let me directly take you to page number four of the presentation. In terms of key developments description, what do we see? I do think that what we have hoped for and what we have predicted at the beginning of the year, that 2021 will be a year of recovery, comes true. The CEE macro recovery is in full swing. We see very positive business developments and growth developments all over the region based on a situation where not only the warmer sort of season helps to keep infection rates down, but also vaccination strategies have been employed both publicly as well as privately, and they have been deployed a lot better than I would have thought. If I look at the relatively, how shall I say, amateurish handling of the testing and tracing strategy last year by the public sort of authorities, this year around, the vaccination logistics has been set up very well. We do have ample capacities, and the logistics work throughout all of our countries, and this prepares the ground for an economic opening and a robust and long-term economic opening. What you see is that economic growth has returned, and it's also important in the context of our business models that we have seen first rate hikes, and we will see more rate hikes. Here, a specific attention importance is certainly the Czech Republic. I think most of the optimistic hopes and promises turn into something like a reality. I don't think that it's the time to call victory over the virus and over the volatility because we still have some way to go. What could have been achieved so far has been achieved, and there's a very, very strong recovery taking place. If you look at our specific business performance in the first half of the year, you do know that we have announced in the Capital Markets Day of 2019 that we build very much on our ability to generate fee income in the context of an ultra-low interest rate environment, which will be very sticky. I would say that what we have done so far and what we continue to see, and I think that's also important to say on the fee generation side, no matter whether it's asset management, insurance business, or transaction fees, card business, is very much helping our revenue line. It's a very strong performance, I would say. Of very high importance is clearly, and Alexandra Habeler-Drabek will talk about that in much more detail, the risk development. We have taken a we-will-not-kick-the-can-down-the-road approach last year, where we took a lot on forward-looking credit risk provisions in the anticipation of rising insolvency rates and rising unemployment rates. What we see is that the government support programs have been very robust, have been very effective to a certain extent, and that moratoria, even exits from moratoria, have been digested really well. We see a very positive and benign credit risk environment where not only credit risk costs are low, but also our NPL ratios are going back again, and our protection and coverage ratios are going up again. I think on that, very strong. I would, in terms of outlook, say we'll get to that much later. We will expect NII to go up. We also expect, and that's important to say, loan growth to be better than we would have thought. What we guide is mid-single digit with upside, a very elegant wording. We also will return and do return to a double-digit return on tangible equity. In terms of dividend, we all know that the ECB has lifted its, not ban, but recommendation not to pay, which is basically the same. What we will do is we will return to our old dividend policy, which I think was saying that we want to pay progressively on the dividends. We will propose to an extraordinary general assembly close to the end of this year, a catch-up dividend for the business year of 2020 of EUR 1. We have put aside EUR 0.80 on the first half year for the dividend for the business year 2021, which one then can easily translate into a dividend proposal for the business year 2021 next year of EUR 1.60. I think this is broadly the summary of what we see. Let me take you to page number five of the presentation. I will be very quick here. On the left side, you see the Q on Q net profit reconciliation, which is dominated very much by operating income up drift, constituting a TLTRO contribution of EUR 90 million plus, which we have announced already last time. Stefan went through that in much more detail last time. This came through. This we have posted. On the operating expense side, we have had in the second quarter, lower expenses because of the deposit insurance and the resolution fund contribution. On this, you see a substantial increase on the net profit, quarter on quarter. If you look at the year-on-year net profit reconciliation, the major driver is clearly risk cost. We will talk about that later. In the year 2020, when we took this forward-looking approach, in 2021, we see, as I said, very benign environment. We see a net profit for the first half year of EUR 918 million, which I think compares even favorably to a pre-crisis year, 2019. Page number six, executive summary on the key income statement data. I don't want to repeat what I said, but maybe on the net interest income, clearly, the abundance of liquidity puts pressure on net interest margin. We do not see that subsiding. We don't see that going away. This will be a feature for the future as well. Yes, volume uptick helps us, and the return of the demand side will also help us to generate loans. The margin side will still be a tough game. On the cost-income ratio, and we will get to that later, yes, we have again, seen a quarter with positive jaws, and this is something which we promised and which we will continue to deliver over the next quarters to come to stick to our guidance and our ambition of 55% cost-income ratio 2024. Other than that, yes, return on tangible equity, I already commented upon double digits, and this must be our aspiration also forward-looking. Let me take you to page number seven of the presentation. On the balance sheet development asset-wise, clearly, yes, there has been loan growth, quite significant loan growth, net loans up by almost 4%, which I think is a strong sign. Of course, also in the context of a TLTRO, in the context of abundant liquidity, we see a substantial increase in cash positions. If you look at the liability part of our balance sheet, the dominating feature still is a very robust deposit inflow. While it's really hard to make a firm guidance here, intuitively one would say that the second half of the year in the context of an opening economy, in the context where people start to consume again, in the context of corporates resuming their investment behavior, these cash positions and these deposit positions should go down, would be my hope, my expectation. Let's see how this will develop. What you see is we have got now EUR 303 billion balance sheet with a, again, very strong liquidity position. Taking you to page number eight, clearly loan-to-deposit ratio is now at 83% record low. Credit risk-weighted assets are going up in the context also of a growing loan book, but also in the context of one-off effects when it comes to models. This is something which I would like you to consider as a rather special development for the first half year. Forward looking, we should look into a growing loan book, which is in tune with risk-weighted assets development. NPL coverage ratio, NPL ratio, already commented upon. Capital position, very strong with 14.2% common equity tier one and a strong leverage ratio as well. Taking you to page number 10, and I will reflect on that only very shortly. Whatever you see here in terms of forecasts is showing an upwards trend. Yes, recovery is in full swing. Recovery expectations are even going up, the whole context of Next Generation EU and the EU Multiannual Financial Framework will give an additional boost, not only in terms of consumption of, and hopefully exploitation of these funds, but also in terms of co-investments, follow-up investments, and follow-up demand. I think this will be having a supercharge effect on the local economies in all of the places. It's also, again, very important to mention that the interest rate policy of our central banks in the region will respond to this growth situation and to price pressures. We will see further rate hikes down the road, which will help us on the net interest income side. On page 11, it's just a couple of more details. We still, and I want to drive your attention to that, we still see very, very strong labor markets, with almost full employment throughout the region. I think this is also very important to mention. When it comes to can the whole growth potential be captured in the region, it comes also to the question, will there be enough skilled labor force to work on the orders which are building up now in the order books of the company? I think this is a critical question, which will also stay around for quite a while. How can we get access to enough skilled and even unskilled labor force to attend to all the growth opportunities? Public finances also, of course, public debt has been built up in this time, but at these interest rate environments not threatening. Generally, I would say that all these structural fund developments will help to create growth opportunities and help also to increase the tax base for the governments as revenues. Now on page number 12, retail, what is happening on the ground. We slowly return to a pre-crisis model when it comes to branch traffic. We're almost there where we have been when it comes to customers visiting our branches. Consumer loan demand still muted, I would say. It's still a matter of confidence. It's still a matter of is it all over yet? Housing loan demand, incredibly strong, very strong throughout the region. We will expect that to continue over the next couple of quarters. On the fee side, the fee income line has been very much a reflection of a high demand for securities products where cash and deposits do not generate any returns. Customers do have a very strong desire to invest on a monthly basis into alternative opportunities, and this is being taken up well and helps us on the fee side. Security savings plans are really doing well, and this will not go away. Also insurance products are doing well in this context. If I may take you to page number 13 on digital. George now has over 7 million customers with the rollout to Croatia and Hungary. Our platform, George, is now fully operative in all group countries except Serbia. We passed this milestone of 7 million customers, and the engagement rates are high and also the daily actives are growing every single day. Digital contributes to sales and earnings more and more. You see on the lower chart how the development of digital sales develops. We have quite a couple of features which are in the pipeline, which will help our customer experience down the road. On the outlook side, I think that the expanding of the digital platform user base will sort of help us also very much on the corporate side. We are very strong retail clearly, but also on the corporate side, on the SME side, there's a strong desire to have a digital experience on all ends. I think we're doing well here. On the corporate and markets, what is happening are also here a very strong sign for recovery. Loan demand is coming back not only when it comes to working capital loans, but also investment loans. M&A activity is clearly going up on the way out of the crisis. Our own capital markets business when it comes to transactions, when it comes to own issues, when it comes to mandates, is clearly showing a much improved market. Our asset management sales are up, and our own first issue in a green bond, a benchmark issue of EUR 500 million, has been a very strong success seven years tenor. We printed at 35 basis points above mid-swaps, and it was very much oversubscribed. I think this is a territory which really fits well to our business model, and we will talk about that possibly a little later on. With that, I would like to hand over to Stefan on the sort of P&L and balance sheet details. Good morning, everyone. Much has been said already about the operating trends, basically, we have very much positive information to share with you today. Let me start by going back on page 16, to the net loan stock and growth. Here we have been upgrading our guidance to mid-single digit with upside, and this is based on a 3.7% year-to-date growth and a year-on-year growth of 5.1% comparing 2020 to 2021. What is remarkable is that retail and in particular within the retail area, mortgage business has been strong throughout the months in the year 2021. We expect this momentum to keep up, while of course, the adjustments on the interest rate side in the countries like Czech Republic and Hungary will potentially slow down a little bit the growth in those countries. Which brings me already to the distribution across the countries. Czech Republic, Romania, and Hungary have been the main, I would say, outstanding drivers of the growth. In Czech Republic, we have to consider that there was a certain element of Czech koruna appreciation in the EUR numbers. Still, it's fair to say that the growth in mortgage business in particular has been unprecedentedly high in the year 2021. Going to page 17, looking at the deposit development. You will remember that we talked about potential kind of stabilization of the loan-to-deposit ratio in the course of the reopening of the economies in this quarter two. Exactly that happened. That's why the loan-to-deposit ratio now stands at 83.4%, slightly up from the level of Q1. One remark here regarding the composition, more than 50% of the year-to-date increase comes from retail, and that also shows in which area we have more, and which area we have less possibilities to manage the deposit inflow. Just referring to the fact that my colleagues on the corporate business side have, in the meanwhile, introduced, I would say, a market according pricing of corporate deposits, something that is very difficult, not to say impossible on the retail side. Looking forward or going forward, we expect a certain stabilization to establish further on the back of the environment that Bernd Spalt already explained. However, it remains to be seen how in this structural over-liquidity environment longer term, the loan-to-deposit ratios of banks operating in Europe will actually develop. Just one very brief remark regarding the quite significant volatility on the AT, Other Austria segment. This very simply comes from seasonal increases and then afterwards decreases in our activities in the group markets and branch business across the currencies. On page 18, we have a detailed breakdown on our NII and NIM development. Of course, the not dominating factor in the second quarter was the catch-up booking of the TLTRO III. The current volume stands at EUR 19.8 billion. We have been adding EUR 1.8 billion in the June take-up, and as already explained by Bernd and as indicated by myself already in the Q1 call, we have been delivering now fully on the slightly above EUR 90 million catch-up booking in the second quarter. What is important to remark here is how is this distributed across the geographical segments. You see in the breakdown of, especially on the [inaudible] also in the year-on-year comparison, that the countries where this TLTRO III booking took place are Austria OeEB, Austria Savings Banks, Slovakia, and then not to forget Other, which is the holding ALM booking since we book the group component, the group element of the TLTRO III in that segment. Important information for you, how would the NIM look like adjusted for the TLTRO III booking in the second quarter? It would have been pretty much stable, ending up around 1.98%. Compared to the first quarter, a stable development. Still, as already explained given the economic development, the liquidity situation, and the competitive environment, there is still significant pressure on margins in certain business segments. All in all, and this brings us to page 19, this results in an excellent operating income development from the NII front in the second quarter. Talking about fees, we fully kept the momentum on fee income. Based on a further strong asset management and with the reopening of the economy, an increasing quarter-on-quarter development on payments and lending-related fees, we are fully back on track for our medium-term growth story around fees that we have been outlining back 2019 in the Capital Markets Day. A few words about trading and fair value result with some quarterly volatility, especially in the year-on-year comparison to the second quarter 2020. Remember, there was a bounce back after the sell-off in March 2020. We are still simply running around the run rate of EUR 50 million-EUR 70 million per quarter. Given current market environment, we will stick to this run rate for the rest of the year. Page 20 on operating expenses, we can keep reasonably short, which I think is always the best to talk about expenses. We have been keeping our expenses basically flat year-on-year, despite some adverse FX effects in the amount of about EUR 10 million just for Czech koruna. We have the ambition, as you remember, we have as always guiding, keep an orientation against the 2019 cost. We have the ambition to land somewhere around these levels. It's depending a little bit on FX effects and how spending will further evolve in the second half of the year, but be sure we will be applying significant and very disciplined cost management in the second half of the year as well. Therefore, we believe that costs will simply be a stabilizing and supporting factor for the operating result overall, which we have summarized on page 21. Here I would simply draw your attention to the cost-income ratio development. It was already mentioned by Bernd Spalt that all the signs are confirming our trends that we want to work on going forward to the longer-term goals on cost-income ratio. Let me just remind you that both for the year 2019 and 2020, we have been arriving at the cost-income ratio of pretty exactly 59.0%, and our ambition is to clearly bringing this ratio down for the full year 2021. In other words, a strong and clear positive core result development for this running year. With that, I hand over to Alexandra for the risk cost development. Thank you, Stefan. Good morning to everyone. Risk costs in the second quarter amount to EUR 47 million, which is only slightly up compared to Q1 with 11 basis points. Again, as also in the first quarter, we are positively influenced by repayments and upgrades. On the other hand, we saw some increase in defaults compared to Q1, but with these defaults still on a very low level. Year-to-date risk costs are EUR 83 million, 10 basis points. As there's still a lot of volatility and uncertainty outside regarding the COVID situation, we remain cautious and have not yet updated the FLI. The review and the update of the FLI and the heatmap calculation are planned for the second half of the year. In the upcoming months, we are expecting a portfolio deterioration connected to effects of COVID and also the final phasing out of most of the government measures. We have reviewed our NPL inflow expectations for 2021. We revised them significantly downwards. We expect the NPL ratio to stay below 3% also as of year-end. Given this reviewed NPL inflow assumptions, we also have reviewed and adjusted our risk cost guidance. We now expect a faster return to a normalized level of risk costs, therefore guide for maximum 30 basis points for the full year. When you switch now to page 23, NPL ratio has been mentioned. Bernd Spalt has already mentioned the increased NPL coverage, now also above 90% again. A short word on post-moratoria experiences. What we have seen so far has also continued in the second quarter of this year. No significant increase in hard defaults has been observed yet on the post-moratoria, exited moratoria volume, which was huge. When you remember, at the peak, it was EUR 15 billion in the moratorium, which is exited, and we still stand at a very low default ratio. Before I hand back to Stefan Dörfler, let me add one short comment on what has been mentioned by Bernd Spalt regarding the model or regulatory one-off impacts on credit risk RWA. This is a twofold effect. One is the implementation of the CRR2, and the second is the implementation of the LGD model. Very important to say, the model-driven increase is due to a methodological change as we were an early adopter of the updated regulation on PD and LGD, and this is not a sign of a worsening of the recoveries impacting the LGD. With this, back to Stefan. Thank you very much, Alexandra. Since there is exactly nothing to say about other operating results at that point in time, let me jump directly to page 25, which sums up the net results. We have been talking about risk costs. We have been talking about operating income. TLTRO has been prominently mentioned. All of that results on the basis of a tax rate, which we currently calculate at 20%, into a Q2 net profit of EUR 563 million, respectively EUR 918 million for the first half year, resulting into a guidance for the full year of a double-digit return on tangible equity. On page 27, to follow up with wholesale funding and capital chapter, I just would like to mention that for obvious reasons, the interbank deposits have been driven throughout the last 12 months by the TLTRO III take-ups. You see those booked here on the right-hand side of that page, and there is nothing particular to mention. On the left-hand side, I just want to mention the yellow box, which is showing the increased MREL-related issuance, and with this, the stock of senior unsecured bonds. This is expected to be prolonged in the upcoming quarters in execution of our MREL issuance plan. On page 28, we show an update on our wholesale funding, and capital long-term funding. There is not too much activity to mention apart from the already mentioned sustainability bond, which we are very happy about. There was a EUR 500 million, seven-year preferred senior note, and we are very keen on extending our footprint in that field. Be prepared to see more on that area in our long-term funding activities going forward. Page 29 is an update on MREL. Let me spend a few seconds on this one, since we are very happy to announce that in execution of our MREL issuance plan, we have been progressing very well in recent months in our countries executing our NPE strategy. Here, namely to mention is our issuances of Banca Comercială Română in Romania, RON 1 billion transaction. In Croatia, we just recently were successfully printing a EUR 400 million transaction. Don't forget, for such a market, this is a very remarkable transaction, and we are very happy that we could execute at very favorable levels for this, still to be fair, underdeveloped capital market. Last but not least, we were issuing preferred senior green bond in the amount of EUR 100 million in Slovakia. I think what one should keep as a summary in mind, fully on track in our MREL execution, actually at more favorable levels than originally anticipated. On page 30, you find our usual CET1 waterfall representation. What is of course the most important information here is what Bernd Spalt already in the headline presentation mentioned, is the detailed explanation of what we are planning to distribute in the upcoming quarters on the dividend side. To sum it up once more, EUR 1 per share additional payment following the ECB lifting of the restriction subject to the approval, of course, of the extraordinary general meeting. This is supposed to happen in the fourth quarter of 2021. Based on our accrual of EUR 0.80 per share so far in the first half of the year, we are targeting EUR 1.60 dividend per share for the full business year 2021. All of that combined with the RWA development that Alexandra already mentioned ends up into a nearly 14.2% CET1 ratio, Basel III fully loaded. Just to mention for the order of completeness, the phased-in number would be 14.4% as of end of June 2021. On page 31, I just want to mention that we have been receiving the ECB approval to call our AT1 instrument as planned. The final formal management decision will still take place in August. However, we have already been deducting this AT1 volume from our ratio, and that's why it's mentioned explicitly here on page 31. With that, I pass back to Bernd Spalt for the outlook. Thanks very much, Stefan. Let me take you to page number 33 just to wrap it up. I think the first half year has been a quite strong year in terms of operating environment returning to a growth mode. Business performance strong, especially on the fee side, a benign credit risk environment. Capital strong, liquidity strong, and I think overall a positive picture. I still would want to say that we still remain cautious. It's not the time to sort of early celebrate a victory over COVID. There are still many things ahead of us. What could have been achieved has been achieved, I think, in the first half of the year. The outlook is to that extent positive that we have upgraded and everybody's upgrading the GDP outlook for the region. We expect positive jaws, as we've promised last time, to continue featuring our performance. We have talked about the dividend policy in abundance. Profitability, yes, we expect double-digit return on tangible equity for 2021. With that, I would like to conclude our presentation. We're very much looking forward to take your questions. Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. We will pause for just a moment to allow everyone an opportunity to signal for questions. We will now take our first question from Izabel Dobreva from Morgan Stanley. Your line is open. Please go ahead. Hello. Good morning, thank you very much for the presentation. I wanted to ask you two questions on net interest income and one question on provision. Firstly with the NII, I had a question on the Czech NII because it was flat sequentially despite the loans being up over 2% over the quarter. If we look back one quarter ago, the NIM had stabilized in Czech. Could you share with us the moving parts behind why the net interest margin dropped this quarter? Also your outlook for the Czech NII by year-end. In other words, what are you assuming here in terms of rate hike when you give us the full-year NII guidance for the group? My second question on net interest income is regarding Hungary. I saw that the NII there declined by about EUR 11 million sequentially. In the slides you mentioned there was an intercompany loan. Could you quantify for us the impact of this item. Also, is that a one-off that we should be cleaning up? Finally, I have a question for Alexandra Habeler-Drabek on the provisions. I just wanted to clarify the 30 basis points across the risk guidance. Am I correct that this does not assume any macro releases because those will be in the second half? If so, is it possible we will see write backs in the second half because the Stage 2 ratio is still quite high. Thank you. Izabel, it's Thomas speaking here. Some of the questions we understood and some we didn't. I think Alexandra is clear with the question on provisions and Stefan not completely clear. Check. Check. The quality was very bad. What exactly? If it's just the general comments on Czech NII, no problem. You were, I think, asking something specifically, Izabel, on Czech NII. Maybe while Alexandra is addressing the question, which we understood well, maybe think about it. Can you repeat it then once more? I think it was a precise question on something. Yeah. I would start with your question on the risk cost guidance. The 30 basis points for the full year do include assumptions on partial releases from FLI. As you said, whether you're correct, this is including some releases. We have a current assessment that we would carry on some parts of these FLI reserves or general provisions, onto 2022, but some we expect to be released for the full year. It also includes parameter updates. We already had one parameter update in Romania, and you can also see it quite good in the risk cost figures on page 22 for Romania for Q2. There, we are also performing and of course, we are expecting here some counterbalancing effects to the FLI partial release. Thank you very much. I think we got the Hungarian question. You were asking about what one-offs were taking place there in the second quarter. Those were breakage costs on an intra-group Tier 2 repayments. That's what happened in Hungary in the second quarter. Generally speaking, on the Czech NII, I think any impact of the rate increases naturally will only be visible in the second half of the year since the rate increases just took place in June, and we expect, it's a point of discussion whether there will be one or two further hikes still this year. The annualized impact, of course, will be less than, hopefully than for 2022. However, yes, we are very positive on NII development in Czech Republic on the back of the rate increases. If there was a more specific question, may I kindly ask you to repeat it because we didn't understand it. Thank you very much. Yes, sorry, my line was bad. The only other remaining question on the Czech Republic was if you could explain why the net interest margin dropped sequentially, because the NII was flat even though the loans were growing, and we saw the net interest margin inflect in Czech last quarter. Yeah. What led to the drop? That's unfortunately very easy to explain. The one part is not a problem, and it is explained on page 18 that we have, of course, an FX effect, which then in translation into EUR, shows a little bit adverse picture. The second reason is very simple, enormous competition and pressure on margins in the very well-growing mortgage business in the Czech market. Those are the reasons behind. Thank you very much. Maybe just double check whether, because we couldn't hear you properly, you also raised the question on the Stage 2 development. Was this a misunderstanding? Yes. Yes. Yes, I was asking whether we could see write-backs there. Yeah. Stage 2, we see as a peak and unchanged to the previous assessment, we expect that it will go down until year-end to around 15%. Thank you very much. That's very clear. We will now take our next questions from Mate Nemes from UBS. Your line is open. Please go ahead. Good morning, Mate Nemes here from UBS. I have three questions, please. Firstly, on housing loans. You mentioned that you're seeing very strong demand across the entire region for housing loans, and I'm just wondering how do you see this demand evolving in the next couple of quarters or perhaps next year in light of the monetary policy tightening cycle in some of the countries, I guess most notably and most importantly, Czech Republic, but also perhaps in Hungary. Do you expect some sort of fading of that momentum over the next couple of quarters? Secondly, on capital management. I'm just wondering, with the CET1 ratio now very firmly above 14% after the dividend accruals and Erste getting back to double-digit ROTEs, could you update us on your plans regarding surplus capital? Are you willing to tolerate some slack on capital ratios? Perhaps so you can have some optionality should opportunities arise. In this context, if you could update us maybe on M&A, what do you see in the region? Lastly, a question perhaps for Alexandra. Are we expecting any further methodology changes or regulatory-driven changes on RWAs? Thank you. Thanks very much for the question. Let me start with the housing loans and the expectations. I think if you look at the overall supply-demand balance, I would expect that there will be still, for the next couple of quarters, a very strong demand, even a demand overhang. There will be still a lot of requests coming in. Even the tightening policy of the central banks, I think, will not be the decisive factor here. I don't think that this will lead to a fading away of this momentum. What I think is a more problematic issue is the overall development of house prices and real estate prices as such. Affordability might be a more limiting factor when it comes to house price development through the region. I still see a sustainable demand overhang, and I see also real estate prices growing more than wages are growing. I think that might be somewhat of a limiting factor over the next couple of quarters. Still, I think demand will be strong. On the capital side, let me elaborate on the M&A part of it and then hand it to Stefan when it comes to our views on how we want to deal with excess capital. On the M&A side, our story is unchanged. We see all over the region, all of our countries where we're present, opportunities potentially and in reality coming up. To the extent that these potential targets fit to our strategy, to the extent that they're capital and earnings accretive, we take a look from a position of strength. At that stage, there is nothing specific which I can report other than that we're watching out. Just adding to that, it's for us of enormous importance to be able to finance organic, and if popping up, anorganic growth to the extent possible out of our own capital strength. That's one element and one driver of having a good cushion on our capital position. You're of course spot on. We have been, and I think to the surprise of, I would say, many in the market, we have been seeing a very swift and strong recovery, which is stabilizing, and even if we are performing well in the second half of the year, bringing further up our capital position. It's our clear commitment, and I think we have shown this also throughout the crisis, to distribute in a proper and balanced manner to our investors. In other words, the progressive dividend policy confirmation is the one part. The other part is that we have all the toolbox around. Should there be less of opportunities than we currently think around us in order to acquire some really interesting targets, then we will certainly think and have to think of distributing capital further and beyond the dividend track anyway. Now to your question on the outlook on the credit risk modeling world. We are very advanced in our model overhaul. TRIM exercise is digested. Basel IV also very important to note, still with no noticeable adverse impact expected. Going forward, we are focusing on remediation measures regarding various add-ons and then so-called limitations. This should contribute to an optimizing of our RWA consumption. This does not mean there will be no more changes in the model, but as I said, majority is done, and now focus is on optimization. Thank you. Very clear answers. We will now take the next question from Johannes Thormann from HSBC. Your line is open. Please go ahead. Good morning, everybody. Johannes Thormann. Two follow-up questions and one other, please. First of all, on the dividend policy, in terms of progressiveness, is it rather on absolute or relative levels in terms of the payout ratio in the next years? If you could help with that. Secondly, on the cost of risk, as you decreased the guidance to max and 30 basis points, what are the remaining areas of concerns? How is Austrian tourism doing? Is there any other area where you're currently massively concerned? Also to understand the outlook for the next years, and then maybe you can also help us with the absolute risk cost levels for those years. Last but not least, a simple question on could you update your tax rate guidance? Thank you very much. Johannes, I will take very quickly and briefly the two questions around dividend policy and tax rate. Dividend policy, it's dividend per share. The progressiveness. On the tax rate, 20% is our current guesstimate. You know that we had an elevated level in the year 2020 for explained reasons. Overall, this is the area what we guide for in the upcoming years. Let's see, depending on the overall results in the second half of the year. It could even tend slightly lower, but it remains to be seen. That's currently our best guesstimate on the tax rate. I will continue. Sorry, is it? I would continue with your question on more flavor on the cost of risk guidance. As mentioned previously, the 30 bps, of course, strongly reduced guidance still. It contains some element of caution, which means, so that I am understood correctly, as you have asked what needs to happen or whether I am worried. I am not worried, but we are cautious, and as you have mentioned, Austrian tourism, the next winter season is extremely important. Even if the situation would not develop perfectly and would continue as it is, we are confident that we have this maximum 30 basis points, as we are currently assessing that we only will release part of the FLI stock and will carry on part of the FLI to 2022. We would expect, even if in a not 100% super perfect environment, also for the years going forward, to stay on this already normalized level of risk costs. Okay. Thank you very much. We will now take the next questions from Gabor Kemeny from Autonomous Research. Your line is open. Please go ahead. Hi. A couple of clarifications from me, and another question. First one on your NII guidance. When you guys were rising net interest income in 2021, is this a function of the TLTRO gain? Would you expect your NII to increase on the back of the rate hikes, et cetera, excluding the TLTRO? The second one on the capital distribution comment. Just how shall we understand your planning here? Let's say the capital ratios, the CET1 ratio stays above your 13.5% target, potentially above 14%, would you think about share buybacks in the next few quarters? Just another question on the IT spending you are flagging for the second half, would you be able to quantify that, and maybe elaborate a bit on what are you actually spending on? Thank you. Okay. NII, Gabor, very clearly, the guidance is including the TLTRO catch-up of the second quarter. Still including Czech rate hikes and some, we would not be that confident for 2021 without the TLTRO catch-up booking. Going forward into 2022, and I'm sure we'll discuss that after Q3 earnings call and latest then beginning of next year, we will assess the impact of the rate increases and to what extent this enables us to give a positive guidance on NII for 2022 then, where we have the full annual impact. That's too early to discuss today. The answer, clearly including the TLTRO III catch-up booking. On capital distribution, Bernd will for sure also want to say something about it, and since it is very much connected also on potential M&A elements. To clarify the technicalities, it's completely unchanged. We've always been saying, should we sail significantly and constantly, sustainably above 14%, we have to discuss very thoroughly the capital distribution in addition, because that's significantly above our management target. In other words, 13.7 or whatsoever would not trigger such a discussion, but a consecutive 14.2, 14.3, 14.1, 14.4 series certainly would bring us in a situation where we very concretely would have to think of further measures on that side. Bernd, anything to add on that? No, it's precisely, I think the line, 13.5% target unchanged. Nothing to add on what Stefan has said. I didn't fully understand the IT spending reference, Gabor. Can you help us what you meant there? I'm sure you have been referring to some statement on what there was light, but I'm not fully aware of what you meant there. Yes, you are flagging some slight increase in the cost for the full year. I think in the outlook statement, you also mentioned some spending on digital and IT. Sure. I wonder if you could elaborate on what this spending is and if you could help us quantify the additional spending relative to H1 in 2020? Thanks. I think two remarks, a general one and then an IT specific one. The general one is that we expect, if you look at the concrete numbers of half year one and compare them to our, let me say, rough estimate and guidance for the end of the year, you'll see that includes a certain uplift in the second half of the year. Not yet any kind of impact of wage inflation, which might be kicking in a little bit later on and impacting 2022, but definitely some more spending on the back of strong economic momentum and so on. That's confirming what we've always been saying, if we are consequently following the interpretation that the economy is strong, that of course also has a certain impact on spending. That's generally speaking. Specifically on IT, it has always been strongly confirmed, of course, especially by the CEO, the COO, and our Chief Platform Officer, that digital investments into our digital future, are absolutely key investment areas. Obviously, in a mix of overall spending, this is going to be more prominent. However, if you look at the IT spending in total, we are saving a lot of money, and we are making very good progress in modernizing our overall IT. I would say in an overall balance, the share of the IT spending is not going to increase. However, the investments into our digital footprint is. Thank you. A small follow-up on your capital distribution question, please. Do you have any preferences between doing share buybacks or potentially paying a special dividend or raising the dividend payout? Let me take this one. I think we're broadly agnostic as to the tools of capital returns to our shareholders. We also get mixed feedbacks, if I may say so, from our investors, what would be a preferred instrument. We ourselves are open to both instruments. Understood. Thank you. We will now take the next questions from Mehmet Sevim from JP Morgan. Your line is open. Please go ahead. Good morning. Thanks very much for the presentation. I have three questions, please. The first one on your NPL ratio and coverage guidance. Now with coverage at 91%, you were previously guiding that over time, you'd return to normal levels in your coverage ratios and as NPLs would build up. You were expecting a 3%-4% NPL ratio before. Now that you're guiding for lower than 3% NPLs, how do you see coverage ratios in relation to that? Shall we expect visible provision releases if all goes according to the plan? My second question is on fees. The performance is really eye-catching, and I was wondering if you're able to give us an indication of how much of this is a catch-up from last year and how much is related to the structural changes that you're pushing for. Looking forward, is your 4% annual growth guidance by 2024 still a good level to think at least maybe let's say for 2022? Finally, on dividends, do you have a more specific timeline in mind in terms of the EGM and the potential date of payouts for the catch-up dividend from 2020? Thanks very much. Mehmet, if you allow, I would take the last two questions first because they are, especially the timing of the EGM. It's easy to answer. It will be November. We have a forecasted date. It's not yet officially fixed, therefore, I hope you will understand I cannot give you the exact date, but it's planned for the second half of November. On fees, I would say that's very straightforward to be answered in the way that, obviously, especially in the payments area and partially in the lending area, there is an element of catch-up in there simply because of the lockdowns and so on, all the measures around COVID. However, in the other fields, we see really a very constant growth because we are not building our asset management and security strategy on any actionistic kind of short-term shots. This is built very much on ongoing investments on our broad retail investor space. The answer to your question around the 4% annual growth rate is yes. This is exactly what you should build your expectations on the years forward, and we will work very hard on delivering on those. Maybe just to follow up on what Stefan has said on the fee side. We have put up this 4% compound annual growth at a time when Corona was not there. It's not only that we don't have lost the last year, but we are now performing better than we would have thought. I think there is every reason to believe that this is a sustainable strategy working, and there's no reason certainly to reduce the targets here. On to the questions on NPL and NPL coverage. For the year-end, we would expect the coverage ratio to go down a little bit compared to the extremely strong above 90%, but still stay comfortably above 80%. Why reducing? Because as you know, new NPL inflows usually have a lower risk cost coverage, and especially in this case, we are assuming also some loans being state-guaranteed and therefore needing a lower coverage. Going forward, this 3% for this year might go up slightly next year, but not considerably, and also for the upcoming years, we expect the coverage to remain comfortably above 80%. When it comes to Stage 3, when you look at page 23, you see the 54% coverage on Stage 3, and this is a level which we plan also to take forward. Thank you very much for the comments. We will now take the next question from Jernej Omahen from Goldman Sachs. Your line is open. Please go ahead. Yeah. Good morning from my side as well. I have two questions. The first one is on page six, just looking at your cost of risk here of eight and 11 basis points. I want to ask the question this way, what would need to happen for the cost of risk in the second half of the year to be in line with the cost of risk for the first half of the year, essentially 10 basis points? Would anything need to change for the better? Would things just need pretty much to stay as they are? That's question one. Question two is on page 17 where you discuss the inflows into your deposit base. I was wondering two things here. Number one, particularly for your EUR denominated liquidity, what is the reinvestment profile of these surplus deposits, i.e., what yields are attainable for the net inflows that you're getting in EUR, and what form do these reinvestments take? The second thing I wanted to ask here is I think that you commented at some point that you're hoping for the inflows to slow down because pricing for corporate and retail deposits, so I'm assuming you were alluding to negative rates for the EUR accounts is "almost impossible." I was wondering, why is that? One thing is to go negative rates on retail or corporate accounts, Another thing is just to change the fee pricing structure around these things. I was wondering why is that so problematic? Thank you. I would start with your question on cost of risk, which was put. What needs to happen that they stay as low as they are? As you all have read is that our guidance is 30 basis points max, yeah, which is also indicating that we would not exclude a lower number. Now concretely, what needs to happen to stay low? If all uncertainty around the COVID infection rates having potential impact in autumn and also going forward to 2022 would vanish, and the macro would develop so much more positive that the new FLI update would even indicate a larger release than we are currently assessing, then this could happen. Also on top, a continuous non-de facto, non-defaulting scenarios and non-NPL inflows. When we, for example, look at the Czech Republic, there the moratorium has ended quite early in October, and in the first quarter and second quarter now, we see the NPL inflow, especially on the retail side. Not huge and also counterbalanced by NPL outflows, but it still shows it takes some time after the end of the moratoria until the issues pop up. As I have said, default ratios are low. Yes, this is true. Also, the amount of clients needing restructuring is low, but still, this is roughly 10% restructuring needs of the post-moratorium clients. In time, we'll see whether these additional support measures are sufficient to prevent them from defaulting. To be very precise, so we would not rule out being better in case situation develops better, which is indicated by the word maximum. Maybe, Jernej, I'll take. Thank you. The part on the loan-to-deposit ratio. Why would I hope that the cash positions will reduce over time. This is not so much a reflection on can we pass on negative interest rates to the customers. I will get to that in a minute, why this is difficult. It's more a reflection of what is happening economically. Far in a situation where there was a lot of reduced visibility, where there was a lot of reduced certainty on how this crisis will play out, people increased savings patterns and put money, even if it yields nothing on their accounts. We have a savings rate in Austria, just for example, of 14%, which has been never seen in history. I do think that this will change now that people come back to the streets, now that people can travel again, now that people can consume again and can spend again. They will use, before they take up consumer loans, they will use parts of the cash which they have piled up. That's one element. Also on the corporate side, I would say that now investment behavior is returning, projects are coming up, M&A opportunities are coming up. Cash positions will come in handy when it comes to financing these opportunities. I would expect, even if I might be too early with that over time, this will change liquidity positions going forward, and it will help to normalize our loan-to-deposit ratio. Point number one. Point number two, why is it so difficult to pass on negative interest rates? This is relatively simple. On the corporate side, we are passing on negative interest rates to our customers. Here it's not difficult. As it's not difficult, and as it's not legally forbidden, we're doing that. It is impossible to pass on negative interest rates to the retail population because there is still a valid high court ruling in Austria and the Central and Eastern European countries are seeing that broadly. Similarly, that you're not allowed to charge negative interest rate on a savings product. Your very correct question, why can I not just charge fees to our customers so as to mitigate this effect? You do know in the European context, we have a very strong and strict consumer protection framework, where the arbitrary passing on or establishing of fees has significant borders. Think, yes, we're trying to sort of come up with services which justifies fees, but just sort of raising fees without any kind of additional services does not work on the European consumer protection frame. Overall, I think we will see that pressure, that high liquidity pressure subsiding, I hope, because of different spending and investment patterns, and I think that will be broadly the picture. Thank you very much, Bernd. I think nothing to add on this side. Just a few words on your kind of reinvestment question, Jernej, that I think you were asking. Beyond the general answer that we, of course, ideally want to deploy it for clients' business on the asset side, on the loan business, as well as leading our clients into profitable asset management business. We are of course, using all means on our multiple central bank axes to optimize on treasury management through Hungarian, Czech, U.S., and so on, swap placements and so on and so forth, to optimize the P&L there. It's of course our core goal to really make use of it for our clients in principle. Just one remark on the CEE FX swap business. We can, of course, better than others, generate some returns there on the top of the ECB deposit rate. However, given the over amounting overall liquidity, that's limited to a certain share of the size, if this helps. Just a remark maybe because we discussed that in a different dialogue once. What is very positive for the year 2021, I'm sure you all followed the volatility on the long end of the bond curve in pretty much all currencies. We were, I think, pretty successful, and this is, of course, seen in the numbers in using the upticks in the bond yields for our reinvestments, and that is, of course, very well adding to our NII impact from the investment book. Excellent. Thank you. We will now take the next question from Alan Webborn from Societe Generale. Your line is open. Please go ahead. Oh, hi. Good morning. Thanks for the detailed call this morning. A couple of questions. Firstly, is the corporates and markets division now a new driver of earnings growth for Erste? You talk about quite a lot of activity there at the moment. Do you think this is an area where you will be investing more in? Do you see higher ongoing returns? Is what's happening in the region accelerating? What's your view about the potential of this business, which often seems to be something that we talk less about? That would be the first question. The second point of detail, would you be able to now or afterwards just detail exactly where the share of the TLTRO NII came through in Q2 between the corporate center and the other bits? That would be helpful. Thirdly, where are you along the development of the corporate George? Is it actually active? When do you think it'll be active? That would be interesting. Fourthly, on wage growth, not just from you, but all CEE banks are flagging rising employment costs. Is this something that's surprising you more than you thought? Do you have measures in place to offset it? Clearly you're making quite a strong comment on positive cost jaws, I just wondered what your views of how that's been progressing. Last question on ESG. I think you have a lot of quite granular targets, some of which have already been achieved in the regions, a number of which are, I think, finishing in 2021, I think you did talk about updating and renewing some of these targets. I wondered what progress you've made, when can we expect more in terms of measurable targets on ESG from Erste Group? Thank you. Good morning, Alan. Let me take the question on corporate, and let me take the question on ESG. On corporate, I think couple of things to mention. One is, I think corporate will continue to be a very important driver of our profitability. You need to look at corporate in a way that it has a very strong connection to the retail line in terms of our asset management targets. Our fee strategy, not only depends on demand side on the retail population, but depends also substantially on our ability to generate products and to come up with attractive investment propositions. To that extent, these two businesses go hand in hand and don't need to be necessarily seen separately. They work on the same target from different ends. Here, will continue to be a very strong strategic focus. Secondly, on the investment side, we continue, and we will up our investments into corporate infrastructure. What we have done over the last years on George retail, we will now need to do also on the corporate end. In terms of the front end and the customer experience part, we're very heavily sort of working on offering solutions which are modern and convenient and up to date. I think this will be an investment focus. Lastly, I think corporate will really benefit from all of these opportunities on the climate change, digital transformation, and structural reforms driven by so many public funds, which need to be co-financed by debt instruments. I think we see a lot of opportunities when it comes to sustainable growth on the investment loan and project finance side as well. Maybe as an element, which is again important, this post-crisis environment will show a lot of M&A activity, and I think our investment banking and our advisory services there will also benefit from that. If you look at it from a market share point of view, corporate is still significantly lower in terms of market share than retail in our core businesses. We think that when we look to what we have to offer and what kind of strategies we pursue, there's a catch-up potential when it comes to market share over the region. I think this is a big pillar of our core business, I would say. On ESG, you've correctly said that we have already come up and delivered on our targets, which we've so far established. I would say that on our next earnings call and also on our year-end earnings call, we will see next steps in terms of what we put out. You have seen probably that we would really put an end to coal financing in 2030, and that we have a transition period from today until 2023, when corporates can present their transition plans. From 2030, we will not finance anything which is coal-related. There are many more things to come. You've seen our bond issue with the EUR 500 million benchmark issue. We're doing a lot of products on the asset management side. We will come up with the next steps in our next earnings call. On your two questions, TLTRO III and wage growth. TLTRO III breakup, it's around about 15% in Slovakia. A total of about 20% of the catch-up booking was in Savings Banks. Please be careful. A part of that is shown in the Austrian EBÖ part. This is the owned direct savings banks. Total on EBÖ side is, however you look at it, 20%-30%, and the rest, around about 55%, is booked on holding group, what I mentioned in the course of the presentation. Wage growth. Is it a surprise? No, it's not a surprise at all for us. You remember before, pre-pandemic, we have been very often mentioning and have been making topical anything around the tight labor markets in our core countries, in particular in countries like Hungary and Czech Republic. Bernd also today mentioned that this might be a limiting factor, not only for some of our customers, but even in the financial industry to execute some of the growth areas, the tight labor markets. In economic terms, I think it's basically net positive for us, as long as it's under some control, because obviously the wage growth, those goes very much to our customers. Therefore it naturally contributes to an uptick also in the ability for them to spend, to invest and so on. Of course, it also drives in the non-euro countries, I would say the more hawkish approach that some of the central banks have already been starting to execute. Nonetheless, I think the environment in general around inflation, wage inflation, and so on, is definitely one of the top topics for everyone to watch very closely in the quarters to come. It remains to be seen how it actually then really ends up going into 2022 and forth falling. Can I just ask from that point of view, your slight cost growth that you're forecasting for 2021. Oh, thanks. You don't think there's any risk to that? Thanks very much for reminding me on that one. I want to point out that we have never been setting, especially medium to long-term, any absolute cost targets, which I personally also, I think the whole management shares that, I would not regard as a very, I would say, sensible approach. We always talk about cost-to-income ratio. Of course, short-term, and explicitly for 2021, I'm absolutely confident that our cost indication for 2021 is not in danger. However, longer term, we always talk about parameters which are including the income and the cost side, and not separately just on one of the items, because those are naturally very closely connected. Thanks very much for reminding me to answer that one. Great. Thanks for all those responses. Very good. Thanks. We will now take the next question from Riccardo Rovere from Mediobanca. Your line is open. Please go ahead. Good, thanks. Good morning to everybody. Thanks for taking my questions. I have four, if I may. The first one relates to wealth management. Would you be able to give us an indication of what is the stock of wealth management at the end of June? In that respect, with loan-to-deposit ratio which keeps falling. Well, it has stabilized in this quarter or slightly up. Where can the loan-to-deposit ratio realistically go in the medium term? What part of the deposits that you currently have on your balance sheet, you think it could be moved off balance sheet into wealth management? This is first question. Second question I have is on the FLIs from Alexandra. Without entering too much into details, you clearly stated that the 30 basis points guidance assumes some kind of use of the FLIs, the location of release. Is that [inaudible] number above 60% [inaudible] below 50% would you want to share some color with us on this topic. Just to be sure, the amount that you booked last year is, if I remember well, it was EUR 680 million, if that is correct. Last thing, maybe still for Alexandra, you clearly stated that you have some RWA add-ons here and there that you plan to optimize over time, and you stated that you have digested stream Basel IV, not too much of an issue. Is it fair to assume that in the medium term, credit risk-related assets should go up, should grow less than the loan book, aside from mix effect due to the maybe housing loans and so on. Is it fair to say? Thanks. All right, Riccardo. Let me start with the asset management, less wealth management information. There's a constant and very solid, healthy growth. The latest number on consolidated basis is about EUR 73 billion under management. However, I want to point out this is our own asset management franchise, and of course, we are also especially for high net worth and so on, also using other products in the advisory business. There, I think it was explained by Bernd throughout the presentation. I want to draw also your attention to page 12, we will constantly report about our developments there, about the security savings plans. This is very much a focus, something which is broad, constant, and long-term. In other words, it's developing on a broad base. EUR 73 billion is the number of assets under management consolidated by the end of June 2021. On the loan-to-deposit ratio and our ability to transfer this one, to what level, to what extent we can translate it into asset management, investment, as well as loan business. This is always a question which you only should be answering over longer term. I don't give you any percentages yet, it would not be professional or serious. Given the experiences of the last few quarters and developments in the course of the economic uptick, I would say that sailing north of 80% should be possible in the upcoming quarters. In other words, no further reduction in the loan-to-deposit ratio is something which we would regard as healthy, as hopefully also realistic. I would not forecast anything like going back to 90%, 95% in the short term. That would be my take on that. With that, I would pass on to Alexandra. On your question on FLI. The number that you mentioned and remember is correct, EUR 5,650, but this is not only FLI, this is what we have created on performing provisions. Including the management overlays. From this amount, we would expect, to be as precise as possible, roughly up to 50% release is current assessment for this year, and the remainder being carried forward. To your question, RWA optimization of future development on the medium term. We would expect the RWA density to remain stable with a slight positive development. As I said, there is still a couple of add-ons and limitations where we are working on in order to optimize the profile. The profile and the development of the credit risk RWA will also be strongly dependent on the mix of business. Currently, as you also see in the material, business is strongly growing in corporate and off in the SL segment, and SL RWA are considerably higher than, for example, for the housing loans. Overall, stable with a slight positive trend. Thanks, Alexandra. Thomas speaking here. Thanks. Thank you very much. Very clear. Thanks, Riccardo. Thomas speaking here again, just a short housekeeping announcement. We have another 17 minutes in this call. We will finish the call at 10:45 A.M. I would ask the remaining guys in the line to keep the questions short, and I would also ask my colleagues to keep the answers short as well. With that, over to you, Sharon. Thank you. We will now take the next question from Krishnendra Dubey from Barclays. Your line is open. Please go ahead. Hi, guys. Thanks for taking my question. I have a couple of questions. First is regarding the fee, and second is regarding the ROTE. In terms of fee, the 1H 2021 run rate suggests an 11% or higher year-over-year growth in the fees, whereas you have guided to high single-digit number. Is that too conservative, or is there something that we should consider by looking at the fees growth in the second half? Secondly, in terms of ROTE, you suggest double-digit ROTE. Will it be somewhere like a 10%-11% that you have historically talked about? Because our calculations suggest it is somewhere around 11%. What should we think about the ROTE? Thank you. I'll take the second question on the ROTE. Your understanding is exactly correct. This is what we're thinking about if we're talking about double-digit ROTE. I can also be brief here, following Thomas Sommerauer's request to be brief. Fees, I think it's exactly on track. I think you can expect that we walk on that path, and the second half, of course, subject to some turbulences in the capital markets, should be delivering on that track. No specialties in there in the Q2, which you should be adjusting for. Thank you. Thanks, guys. We will now take the next question from Robert Brzoza from PKO BP Securities. Your line is open. Please go ahead. Yes. Good morning, everyone. Quick question on Romania. First, should we treat the provisioning 90 basis points annualized as a sort of run rate going forward? Second, there is other cost of EUR 16 million. What is it? What has caused this? Finally, NII is flattish over the quarter despite a growing loan book, and on top of this we had relatively strong growth in OpEx. Is it something to be sustained, this trend, not so favorable going forward? Thank you. Yeah, thanks very much, Robert, for spotting that, because not to getting too long, I didn't want to talk about every single country on the net profit. While in Romania, we had an excellent, and we still have an excellent operating momentum. The second quarter was a little bit overshadowed by two special effects, which on country level were the same material. The one, and I ask Alexandra to comment briefly on that. There was a risk parameter update on PDs, and that was causing a EUR 22 million risk cost. I'm sure she can more precisely explain how that will behave going forward. There was a tax booking in the second quarter, which was in other operating, therefore, you saw a very strong operating result. However, a little bit of a downbeat net result in Romania. Both of them, to my knowledge, but Alexandra, please comment on the risk part, are not repeating. As it's also outlined on page 22. I've also briefly mentioned in Romania, the bookings is due to the increased portfolio provisions mainly due to method effects. This was the parameter update, which I also mentioned we will do in all countries and which will also have a counterbalancing effect. Adding to the risk provisions, counterbalancing the releases from the FLI and Stage 2 management overlays. On your question very concretely, is this roughly EUR 80 or EUR 90 that you have mentioned the future run rate? No, it's not. The expected run rate in Romania is considerably lower than the Q2 bookings. Thanks very much. We will now take the next question from Olga Veselova from Bank of America. Your line is open. Please go ahead. Thank you. Thank you very much for the detailed answers. I have two small remaining questions. One is about the TLTRO impact on NII. Shall we perceive this as a one-off or this can be actually repeated, maybe not this year, maybe next years? If yes, then when exactly do you book these gains? What triggers the booking of such gains? My second question is about the cost of risk through the cycle. Alexandra mentioned that the reviewed cost of risk guidance signals a return to normality. Shall we assume that the 30 basis points cost of risk is a normalized level for the group? Thank you. Thank you, Olga, for the additional question on TLTRO because that's very important. The straightforward answer is should the conditions around TLTRO not be changed going forward, and should there not be further take-ups or further runs by ECB that would add here, that you should not, and we should not expect any comparable catch-ups going forward because we simply accrue for the run rate. However, I think it's worth to mention that there are, of course, discussions in the market whether the ECB might be repeating, prolonging, adjusting the rules, and that will, of course, we will keep you in the loop of whether this has additional impact and further catch-up bookings going forward. How did it come? It's very simple. At the point in time when the bank, and of course, this is discussed with auditors, is firmly enough proving that the volumes and the volume growth, which is necessary to be eligible for the full amount of beneficial funding, then you can book those profits, and this is exactly what happened in the second quarter. As of today, and given current conditions, this will not repeat. Of course, if ECB changes course on those programs, then things might change. To the through-the-cycle risk costs, our through-the-cycle normalized risk costs are in the range of 30-50 basis points. When you recall in the last investors call, for Q1 this year, I was indicating that I'm more positive, and I would expect normalized risk cost on the lower end of this range, around 30. I can confirm your question or answer your question, yes, I would consider 30 basis points a very reasonable assumption for normalized risk costs. Perfect. Thank you. We will now take the next question from Andrea Vercellone from Exane. Your line is open. Please go ahead. Good morning. three questions. Again, on the TLTRO. The EUR 92 million one-off, can you confirm it relates to H2 2020 and Q1 2021? Linked to this, going forward, will you accrue for Q3, Q4, Q1, Q2 next year at 1% negative, or will you do something else? On Hungary, can you give us a sensitivity to rate prices, whether it's 25, 50, 100 basis points, whatever you want to give us. Can you give us the split of the loan book between fixed and variable? Finally, Czech Republic, do you see any meaningful risk of bank tax linked to the upcoming elections? Thank you. Andrea Vercellone, good morning. Let me start with your last question. Do we see a risk of, how shall I say, populist moves in the context of upcoming elections? Yes, there's always a risk. I think it's equally important to say that over the last many, many years, the Czech Republic always has steered clear from introducing banking taxes, and so I think, which is not necessarily a guarantee that this will never come. I think that so far, this debate has been held in a very rational way. Sort of, let's wait and see what comes, but I think you can never rule out this risk. We don't have any signs that this is now reappearing on the stage. Andrea, let me start with the fixed-variable split. Of course, there are significant differences across the countries. Across the group, the loan book is around about just below 60% variable and just above 40% fixed, with a different mix. Sorry, I just meant Hungary. Variable fixed in Hungary. There you have around about three-quarters of the book, 74% precisely, but you only have figures from March, April there, is floating and around one-fourth is fixed. That's Hungary. We don't give a ratio like in Czech Republic simply, there are so many elements of the fair value part on the baby loan, as you know. The way the key rate translates into market rate is a completely different one in other markets. Obviously it's net positive for us, the rate increase to nowadays 120, but we cannot translate it to any concrete euro figure on consolidated level. On TLTRO III, there is the booking that I have been explaining in the past, which is running with this 0.66%, so two-thirds of a percentage, and only the catch-up was booked to -1%. We are exactly reflecting the approach that we have always been using from the very beginning, and which is fully in line with the IFRS 9 accounting rule book. In other words, on P&L terms, and that's maybe the most important thing, you will not see any element of catch-up, but of course, also no element of reducing P&L on the back of the TLTRO booking. Going forward, Q3, for example, will you book the TLTRO at -1% or at -0.66% and then do a catch-up if you meet the benchmark at year-end? Look, the thing is it's booked on -0.66% for the very simple reason. If you look at the rules of the TLTRO III conditions, if you match the maturity, it's always a period which is defined with -1%, a period which is defined of -0.50%. According to IFRS rules, this is to be booked with an average interest rate, this is exactly resulting in a -0.66%. It's not something that we don't book the run rate properly. It's the opposite. We are reflecting exactly the conditions that are part of the programs and are building them into our accounting. The only point which is, of course, creating a jump are the respective achievements of the volume. That's in the nature of the full program. You see it also, if you look at the reportings of other banks, then some have been failing to achieve the volumes. In our case, we were fully achieving the volumes in all the legal entities where we were taking up TLTRO. Going forward, you will book it a minus 0.66. Then if, for example, next year you were to repay it, you will book a catch-up then? The rate is minus 1 for the next 12 months. It's not - 66. That's a different story. If you have an early repayment based on the catch-up booking we did this year, and in this case, Andrea, we would need to go into the separate tranches. As you know, the full TLTRO III program as it stands today is a mix of take-ups, which have been starting back in 2020. That's a good question whether an early repayment before the maturity of the program, which we don't have in the planning at the moment. This is your conference consultant. It appears that the speaker has disconnected from the call. Please continue standing by while we reconnect the speakers. Good. Please go ahead. Please continue with the Q&A. Hello, Sharon, we are here. Can you hear us? Yes, we can hear you loud and clear. Please continue. Okay. I would hand back to you. Andrea, are you still on the line? Yes. I think the last question. Yeah, Andrea? Andrea, do you hear me again? Yes, I can. Yep. Early repayment is a separate story. Of course, this is something which is depending on decision-making then only somewhere in June 2022, that could trigger a certain catch-up, but by far not in the dimension as we saw it now in the second quarter. Again, I think what will be most important is to see whether the ECB might consider an extension of the more favorable conditions later on in the course of the program. Yeah, for the year 2021- Okay. Thank you. no whatsoever further changes from the TLTRO. Thank you. Okay. With this, I hand back, it's Thomas speaking here again, to Bernd Spalt for his concluding remarks. Yeah. Thanks very much, Thomas. Thanks very much, ladies and gentlemen, for taking the time to tune in to this call. We will meet again in this format on the 2nd of November 2021, to discuss the results for the first three quarters of 2021. Very much looking forward to talking to you there. Have a good and safe summer, and thank you very much. Bye-bye. That concludes today's conference. Thank you everyone for your participation.