Erste Group Bank AG (EBKDY) CEO Willi Cernko on Q2 2022 Results - Earnings Call Transcript

Erste Group Bank AG (OTCPK:EBKDY) Q2 2022 Earnings Conference Call August 1, 2022 3:00 AM ET

Company Participants

Thomas Sommerauer - Head, Group Investor Relations

Willi Cernko - Chief Executive Officer

Stefan Dörfler - Chief Financial Officer

Alexandra Habeler-Drabek - Chief Risk Officer

Conference Call Participants

Izabel Dobreva - Morgan Stanley

Gabor Kemeny - Autonomous Research

Hai Thanh - Concorde

Mehmet Sevim - JPMorgan

Andrea Vercellone - BNP Exane

Mate Nemes - UBS

Alan Webborn - Societe Generale

Johannes Thormann - HSBC

Hugo Cruz - KBW

Krishnendra Dubey - Barclays

Robert Brzoza - PKO Capital

Operator

Good day and welcome to the Q2 2022 Results Conference Call of Erste Group. Today's conference is being recorded.

At this time, I would like to turn the conference over to Thomas Sommerauer. Please, go ahead.

Thomas Sommerauer

Thank you, Cecilia, and a very warm welcome to everybody who is listening in from Vienna. Today's conference call will be done in the usual way before -- our usual conference call routine, meaning that our CEO, Willi Cernko; our CFO, Stefan Dörfler; and our CRO, Alexandra Habeler-Drabek will host the call. They will lead you through a brief presentation, highlighting the achievements of the past quarter and of the half year, after which time they are ready to take your questions. Now is this just one usual reminder that you should always consider, especially in times like these, the disclaimer on page two.

And with having done this, I hand over to Willi Cernko.

Willi Cernko

Thank you, Thomas. Hello and good morning to everybody. I want to get started with the key highlights and setting the frame for today's presentation. We see a continued strong business and financial performance in the first half of 2022, a robust economic growth during the first half 2022 in CEE as well as in Austria, but the outlook clouded by some uncertainties, we want to come back to that later.

We see a higher-than-expected loan growth on an annual basis, on a year-to-date basis 6.3%. This is predominantly driven by Austria, Slovakia, Romania and Croatia. From a segment perspective, it is first of all the corporate business, but not to forget also the mortgage businesses performing well.

NII growth of 15.9% in the first half, driven primarily by rate hikes in Czech Republic, Romania and Hungary, but also by a decent volume growth. Fees up 10.2% in the first half, but stagnating at a high level in Q2 in 2022 due to less investment activities by clients, but still good performance when it comes to payments. Operating expenses up 8.7%, driven by other administrative expenses. Operating result up by 10.3% and the cost/income ratio at 55.1%.

Partial release of general provisions for FLI, favorable underlying credit risk environment led to net release of risk costs €500 million on general provisions carried forward available for portfolio macro deterioration. Risk cost guidance can be confirmed of less than 20 bps for full year 2022 and there is planned dividend per share of €1.9 already accrued pro rata in first half and the CET1 ratio of 14.2%.

When it comes to the stress scenario, no gas from Russia. We are clearly convinced this is manageable for the entire CEE region. Currently, Russian gas continues to flow to CEE. EU gas embargo seems from our point of view not feasible. There is a specific level of vulnerability. This depends on four key items. Gas share in energy mix, Russian import dependency, storage capacity and storage levels.

Higher prices will lead to declining demand and substitution wherever possible. What we do see right now, governments are reacting aiming to substitute other forms of energy production for gas. Energy prices will continue to drive inflation, unless geopolitical conflict is resolved and sanctions unwound.

Let's move on to page five of the executive summary. Quarter-on-quarter, net results rises strongly on improved operating performance and lower risk cost. This is partially offset by higher tax charge and higher minorities contribution.

The operating income primarily attributable to a strong NII growth and operating expenses improved on upfront booking of deposit insurance contribution in the first quarter of 2022 and the reversal of Austrian Sberbank-related contribution in Q2 of 2022.

On a year-on-year, net profit view profit growth primarily driven by substantially higher operating result and lower risk cost. Operating income up on rate hikes in CEE. NII up by 15.9%. Costs are primarily due to higher deposit insurance contributions and IT expenses.

If we look at page 6, some key income statement data. I will let just highlight a few of them. Good news margins are going up on a half-year comparison as well as on a comparison first to second quarter. Then return on tangible equity comparing first half of 2021 versus first half 2022 we're up at the level of 14.8%.

Walking to page 7, group balance sheet performance. Total assets grew on the back of a strong rise in net customer loans, and loans to banks and higher volumes of trading and financial assets. The net customer loan growth is predominantly driven by strong demand from large corporates, but also across all the other segments. And retail growth is driven by mortgages, especially, in Austria and in Slovakia.

Looking at the liability side, total liability growth driven by higher rising consumer deposits 7.1% and bank deposits it is growing. Customer deposits drive the loan/deposit ratio of 84.9%.

This leads me to page 8, some other key balance sheet data. As already mentioned loan to deposit ratio is more or less at the level of 85%. The NPL coverage ratio is further improving to close to 92% and the NPL ratio is at the level of 2.2%. This is at least from Erste Group's perspective an all-time low. Capital ratios total capital ratio is at the level of 18.5% and CET1 level is at 14.2%.

Let's move ahead to page 10 macroeconomic update. What we can see is for 2022, we see -- and this is worth to be mentioned -- based on our base scenario we see growth throughout the entire region. Looking at 2023 growth rates will come down again to mention based on our baseline scenario so it is slowing down. When we look at the unemployment rate it is still very favorable. In all our countries will stay extremely low and public debt should further go down in 2023.

Let's look at the businesses page 11. Let's start with retail. What we can see demand for housing loans continuing to be strong, especially, in Austria, Slovakia and Romania whereas significant drop in the Czech Republic due to interest rate development. The mortgages in Hungary are stable due to government interventions.

Demand for consumer loans increased to pre-COVID levels mainly driven by positive labor market development and still positive consumer confidence. Client deposits continue to increase. Erste Group across the entire group is perceived as trusted partner for customers. Securities business influenced by volatile markets, especially, in the second quarter.

Page 12 looking at our digital initiatives. Clients are going digital. Overall number of George users are now up at the level of 8.3 million. And what is extremely positive digital sales are further increasing. The most pillar digital products are current accounts debit cards and consumer loans as well as green products enjoying our high customer interest. We do a lot of so-called green lending offering in all markets.

Erste Group's banking subsidiaries also assist clients with state subsidies. There is an ongoing focus on improving our customer experience. Results are further improving across all geographies. And looking at the savings banks sector, they are extremely performing well.

On the corporate side, as already mentioned, we see a very strong loan demand across all segments; large corporates, SME, commercial real estate and public sector. When it comes to the various industries and sectors, it's first of all, real estate, telecommunication, media and technology and energy; and corporates start to increase their working capital facilities as well as investment loans. Asset management results are subdued by market environment.

So with that, I am going to leave the floor with Stefan. Stefan, please.

Stefan Dörfler

Thank you very much. Good morning everyone. We've heard already about the key lending trends hence let me just summarize that year-to-date we have been growing the net customer loans by 6.3%, which represents a year-on-year growth of 11.3% on the quarter 3.4%. Based on those trends and our expectation for the H2 developments, we guide now for a high single-digit loan growth for the full year 2022 over the full year 2021.

Two brief additional country-specific remarks. Czech Republic as has already been mentioned by Willi Cernko in Czech Republic, the strong loan growth overall holds up. However, what we've been seeing in particular towards June and now also in July is a significant slowdown since the rate hikes have been reducing the demand for mortgages, something that we have been discussing in the past and it has been broadly expected. It took a little bit longer and it's also not as sharp as expected, but still it's noteworthy.

And another brief remark, technically in Hungary, obviously, in the euro numbers -- for Hungary in the euro numbers you see the impact of the Hungarian forint evaluation. So we have been growing again in the local currency, but due to the devaluation of the Hungarian forint the euro numbers are negative for the -- post the quarter and the year-on-year comparison.

This brings me to page 16, the operating trends on the customer deposits. The Q2 inflows have been dominated by corporates and grew markets activities. Not only deposit ratio is overall stable. I would say mid-80s is what you should expect also in the forthcoming periods. As a consequence of the ECB move in July, the charging of client deposits is discontinued in our euro countries. This is already being implemented as we speak.

So let me come to -- maybe from the perspective of operating trends, the key page of today's presentation, page 17, on net interest income and net interest margins. So let me start specifically with Q2. It's very important to remember that last year in the second quarter, we were booking the 90 million-plus TLTRO one-off effect the so-called catch-up booking. And in that respect, it is very remarkable that year-on-year still the NII improving by 13.2 for the quarter and 15.9 for the first half year respectively, driven by very good loan growth and of course also higher rates in CEE. We have seen first impact of the higher euro rates. I'll get to that one in a minute.

I promised you that, I'll give a better indication and more detailed indication on our year-on-year investment book developments and that's what I want to do now. We have been entering the year expecting first time a positive – slightly positive impact on the year-on-year investment book developments. Now, we are confident to say that, this will translate into roughly 100 million positive impact.

Overall, we were reasonably, I would say not lucky, but I think we were relatively good in our timing of catching the highs in the investments both in CEE and euro so far, so that we have been improving our run rate from the investment book to the extent, I just described.

The other point, I want to mention is NII sensitivities overall. When it comes to CEE currencies, almost neutral with an almost some metric sensitivity, I would say, around €50 million across all countries – at least for a 1% move. So what you actually can take away from this is that, given the fact that we expect the rate hike cycle to come to an end in most of the CEE countries, I'm sure, it will be a topic of the Q&A still We have been putting ourselves in a more or less – different position when it comes to rate hikes and rate cuts in CEE, completely different situation obviously in euro land.

Here, we are now indicating that a positive NII effect of more than €300 million for a 1% upward shift in key rates can be expected, and this is obviously then visible fully in NII and operating result should the ECB move on as currently expected by the market.

Let us turn to the total operating income. Net fee and commission income has been holding up very strong 10.5% year-on-year for the H1. 7.2% still Q2 2022 over Q2 2021. So, a slight slowdown, but still holding up very well, the mix is different as the growth has been shifting more to the payments side from the asset management business.

What is very important to mention when it comes to trading and fair value result, this has been weak, it's minus €142 million to be precise year-on-year comparison. But what is important to understand is the lion's share of that is coming from the fair value portfolios in the savings banks and in Hungary. A total of roughly €135 million is coming from that side. So we are pretty optimistic that most of that will over time return to our P&L.

So maybe also one remark a general one. As you know, a lot of the activities of the Group Markets business are reflected more in the fees and NII business. So it's very important not to mix up – fair value with the segment group markets, which is anyway represented in our detailed report.

Coming to page 19, a couple of remarks to cost development. In Q2, and that has been mentioned already by Willi Cernko before, we have been seeing the reversal of the extraordinary contributions related to the Sberbank Europe in Austria. Not yet reversed is the amount of 21-plus million in Hungary, although the respective legal entity has been sold. We have not seen this return yet in our accounting.

Let's see what happens in the further development of the year 2022. When it comes to our expectations for cost, let's have a look at the 5% year-on-year comparison Q2 2022 compared to Q2 2021 on the one hand.

On the other hand, year-on-year, the half year one has been – we have been seeing increases of the costs of 8.7%. Now given the latest inflation numbers, given the latest inflation stabilization is – I would interpret a little bit on very high levels. We would see somewhere in the range between 5% and this 8.7%, a fair expectation, but let me really make the remark, it's very difficult to forecast the dynamics on the cost side, since it's a very volatile environment, especially when it comes to energy cost, and then the related impact on various direct and indirect costs for Erste Group.

Coming to page 20, all of the discussed numbers lead to an operating result of €1.06 billion for the second quarter and a total of €1.861 billion for the first half-year respectively. Both are representing a 10.25% year-on-year increase. We keep our guidance for positive jaws for the year 2022, and see good chances to deliver a cost-income ratio of less or around 55% for the full year 2022.

And with that I hand over for the risk part to Alexandra.

Alexandra Habeler-Drabek

Thank you, Stefan, and good morning, everyone. Q2 in terms of risk cost is characterized by a continuous strong underlying performance of our loan portfolio and the revision of crisis-related overlays. So what exactly did we do? First, we phased out COVID overlays and COVID heat map, which resulted in the release of €155 million, but we still keep our overlays for the city tourism portfolio. At the same time, we introduced new PD-based overlays for cyclical industries, which to our assessment are most exposed to the current crisis environment including the high energy prices and to supply chain disruptions. These overlays led to provisions of around €150 million.

As already indicated in previous calls, we now also performed an FLI update and given our very conservative assumptions that we built in during COVID the updated cost releases in the amount of €125 million, despite the current difficult macro environment. All these together sums up to a release of €132 million in general provisions, which were partially offset by some single new defaults and rating deteriorations resulting in a net release in Q2 of €85 million, which is very important to say and also displayed on page 21. We kept €500 million of our crisis-related reserves down from €630 million and as already indicated by Willi Cernko in the beginning, we confirm 20 bps guidance for the full year in our base case.

When we turn now to page 22, you see the NPL ratio which improved as mentioned by Willi to a historic low of 2.2%. On the basis of accelerated loan growth, the coverage remains extremely high at almost 92%. The share of Stage 2 decreased after the already mentioned COVID overlay phase-out is the new overlays resulted in a smaller Stage 2 share. Now it stands at 13.9% and at the same time the Stage 2 coverage increased significantly to 4.7%.

Now to the topic that has already been mentioned in the beginning, a potential stress scenario of stop of gas deliveries from Russia. I'll start on Page 23. There you can see an overview of various analyses of the natural gas situation in our region including the natural gas share in the overall energy mix and also the dependency on Russian gas imports.

When we turn to Page 24, there you see the detailed results of our stress scenario simulation including our detailed assumptions on the right-hand side. To be clear, we consider this scenario as highly unlikely. It is a stress scenario simulation, but this we want to share with you as our best estimate in order to provide utmost transparency. In this scenario, we would see risk costs up at 90 bps for 2022 and approximately 85 bps for 2023. NPL ratio would almost double and increase to 4%. To sum it up, the impacts would be meaningful, but in our view manageable and in both terms risk costs and NPL well below historic highs, again showing the overall quality of our loan portfolio.

Now finally to Page 25. On Page 25, there we display an overview of the industry's most exposed in the current crisis environment. A very short comment on metals and automotive, as these are the biggest buckets of the displaced industries. First metals, the share in our total portfolio is quite low with 1.3% of the total Erste Group exposure. Roughly 75% of manufacturers, mostly large corporate, who until now have been able to pass on the increased prices to the customers. Automotive, as you know, our exposure is mainly concentrated around OEMs and OESs which both are expected to show resilience, as the balance sheets are healthy after times of record high profitability and still healthy demand in the filled order books.

With this, I hand back to Stefan.

Stefan Dörfler

Thank you very much. Coming to Page 26, I would only highlight one particular element on the other operating result, since this has a significant quantitative impact both in 2022 and very likely in 2023, given so to say the design of the windfall profit tax in Hungary. We have been booking of €50 million in the second quarter and we expect a very similar amount to impact our P&L in Hungary in the year 2023 as well.

With the used effective tax rate of 19%, this is already page 27, and please note the Hungarian windfall profit tax or how they call it there is booked under other operating result, we are arriving with a full half-year 2022 result of €1.137 million and €688 million net profit for the quarter. We keep on guiding for a comfortable double-digit ROTE for the full business year 2022, in our base case scenario that has been described in the course of the call already.

With this let's spend a few minutes on funding and capital and let's please directly turn to page 30 for the long-term funding developments, obviously in a very different market environment, if we compare it to recent history. Following the Q1 2022 execution of a dual tranche of covered bonds and senior preferred bonds, in Q2 2022 we have been issuing a Tier 2 bond. I would say at that point in time we thought on a little bit elevated levels of 255 basis points over mid-swap.

Looking back I think it was a very successful and spot-on transaction and we are very happy that we could execute it in that quality. The overall funding volume for the year 2022 is very much comparable to 2021 levels. And it's worth mentioning that the TLTRO III outstanding volume as of June 30, 2022 stands at €21.2 billion. We have mentioned before that we are in a position to redeem the volume from a liquidity ratio position at any time. However on the back of the ECB trajectory, we will most likely keep most of the volume for time being and as always keep you posted on the detailed development as they develop.

Going to page 31, I'm – and when – there it comes to the MREL issuance activity. And on the lower right-hand corner you will see an update on all the details of the countries. Some parts of those being executed in the first quarter, some parts of those are being executed in the second quarter. We are very happy with the progress that has been made and I want to say that all across the region, not only the quality of the activities but also the respective transactions always in the light of the difficult and challenging environment has been very much to our satisfaction. So we are fulfilling all the regulatory requirements comfortably and keep on doing so in the forthcoming quarters and certainly also beyond that.

This brings us finally to the Page 32, our CET1 ratio waterfall. When reporting the Q1 numbers and at that time 13.7% CET1, we were guiding for a 14-plus common equity Tier 1 ratio for half year one including already our dividend deduction accruing. And here we are it's exactly what we expected though there was a lot of volatility around and I'm very happy that we can deliver on this guidance at this point in time.

Most important drivers of the ratio were obviously the profit inclusion, the RWAs for the growth that we have been describing including also on the market risk RWAs the structural FX and the dividend accrual for a €1.9 dividend per share that we are envisaging for the full year 2022.

Let me at that point in time remind you about our priorities for the use of capital. We are fully committed, especially and in particular in these challenging times to fund our healthy business growth to deliver on our dividend policy, which says 40% to 50% net profit after AT1 and this is then followed by smart and hopefully also capital-accretive and organic growth opportunities in the region and the possibility of a share buyback should there be still something left over after all these very important items for our capital use.

With this I hand back to Willi Cernko for the key takeaways and conclusions.

Willi Cernko

Thank you, Stefan. We mentioned already many, many times that the takeaways, so I want to focus on the outlook for 2022 before we -- then later on want to move further to the Q&A session.

When it comes to the operating environment, as already stressed, I want to repeat it. We expect a high-single-digit loan growth for 2022. When it comes to the business performance low-double-digit NII growth is expected, a mid-single-digit fee growth is expected and we are sure that operating income is expected to grow faster than the cost and the cost/income ratio should stay around or even below 55%.

Risk cost expected to be below 20 bps of gross customer loans and year-end NPL ratio is expected to be below 3%. And as already mentioned, EBITDA -- dividend per share is planed at €1.9. So, double-digit ROTE expected for 2022 and to close it excess capital above earmarked for bolt-on M&A and potential share buybacks.

With that, I will close the presentation, and we are ready and happy to take your questions, please.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] We will now take our first question from Izabel Dobreva from Morgan Stanley. Please go ahead.

Izabel Dobreva

Hello. Good morning and thank you very much for taking questions. My first question is on costs. If we strip out the reversal of Sberbank's contributions, it looks like your clean costs are running up 10% year-on-year for the quarter and within that the personnel was up 6%.

So, would you think about this run rate now has baked in the full wage inflation, which you expect for this year, and is it a reasonable guide for the rest of the year, or is there an element of further wage pressure to come maybe offset by some front loading of IT? What I'm trying to understand is whether the clean cost growth of 10% year-on-year is a reasonable growth rate for the rest of the year.

Then my second question is on provisions, I guess to Alexandra. Thank you very much for the sensitivity to gas cut-off. My question is why did you decide to release overlays at this point in time, if there is a possibility that we may see a spike, why not wait a little bit longer? And also, just a technical question on the 90 basis points, is that the gross or net of the overlays?

And then, my final question is on bank tax. One of the locally listed banks in the Czech Republic has made an assessment on the introduction of bank tax in the Czech Republic, which they see as quite likely. I wanted to check if you had any comment or any preliminary assessment on the impact to your business.

Stefan Dörfler

Good morning, Izabel. I'm taking the first question on costs. Two remarks on the Q2 development. Yes, you're right, and this is what we also mentioned in the presentation actively that Sberbank, so to say, back-booking was -- happened in the first -- in the second quarter, but don't forget that it was booked in the other direction in the first quarter. So, that's also very important to understand the full half-year figures.

The other element that I have not mentioned, but it's now worth mentioning answering your question is that we have been booking our contribution or a significant part of the contribution of the own share program for our employees WeShare by Erste Group in the second quarter, which has been an element of an updrift.

The other elements were, obviously, some wage increases that we have been granting in both Romania and Czech Republic, as a reaction to the really very much elevated inflation in those countries.

Now coming to the very important question of expectation. No, the 10% certainly is not a run rate that you should expect. In the same moment, the 5% that has been so to say adjusted by the Sberbank booking, the year-on-year quarter result is definitely too low. So I would say something in the area between 5% and 9% as I mentioned in my presentation is a good understanding of the overall total euro growth for costs.

However, as you know from many, many dialogs in the past, we are not particularly guiding for a cost item either on local nor on group level, but rather see the overall operating performance as our goal and that is, of course, in both hands on the operating income and on the cost side driven by the inflationary developments.

So what is important for us can we deliver on a good operating momentum overall. And there the cost side is an element we see inflationary tendencies definitely also reaching out into 2023 since some of the impact will only materialize there, but again we will discuss that always in the context of the overall and total operating performance.

Alexandra Habeler-Drabek

Now to your question on risk costs. As you have seen during the pandemic, we not only said, but we proved that we really did very prudent risk cost booking, some even say very conservative risk cost bookings, and we kept those provisions as long as possible. But now and we are also having or had intense discussions with our auditors. It was really time to phase out the COVID crisis overlays. This does not mean and you can already -- you can also see it on the pages that we do not keep general loan loss provision.

So from the €630 million, we kept over €500 million despite the releases that we undertook. And we've released at the same time before releasing the COVID stage overlays, we introduced the new overlays, which were a little bit less but only slightly less and again overall with the €500 million, we feel very well-prepared for the future, and as we also showed in the case there should be the stress scenario of no more gas deliveries from Russia then risk costs would be higher as displayed.

But overall yeah, and the second question with the 90 bps, this is in total so gross result any deduction of overlays, so 90 bps overall risk costs for the full-year 2022 in the stress scenario.

Willi Cernko

Okay. Coming back to the banking tax, I want to give you a more general statement on that. Based on the macroeconomic scenario, and the very challenging environment we are in right now, what we see right now is across all countries, across various industries there is obviously a need and a request for showing solidarity. And when it comes to the banking industry and here we are totally convinced, first of all, it must be our aim to support the economy, to support the households and this is what we're able to demonstrate right now with the growth rates we have shown over the last few quarters when it comes to loans and mortgages to companies as well as to households.

So the first question is always what comes first. An economy that is up and running and supported by a strong banking industry or a banking industry that has first of all, let's say to live and to support the government with additional taxes. So for us it's pretty clear, as long as we are able to show that we are supporting the economy, the society, it's pretty obvious that we are not really prepared, let's say to go for any banking tax or levy you may call it. So, yes, we are facing these discussions across the entire region when it comes to any outcome, let's see.

Operator

We will now take our next question from Gabor Kemeny from Autonomous Research. Please go ahead.

Gabor Kemeny

Hi. A couple of questions from me please. The first one is on NII, your new guidance which is low double-digit growth for this year. I think we have seen a slight decline in your NII in the second half. Could you call out any one-offs in the first half and especially in Q2?

I saw that for example the other segment NII doubled in the second quarter to around €80 million. What should we assume there going forward? And in relation to that, the ECB rate hike you indicate the sensitivity of €300 million-plus NII from 100 basis point hike. Is this from future hike, or does this take into account the rate hike we already had? And if you could quantify what share of that is related to the savings banks, please?

And my final question is on the gas scenario. Many thanks for providing these, full disclosures. Just an 85 basis point assumption for 2023, what would be the basis here? So shall we, for example, take your normalized provisioning indication, which I think was, 30 to 40 basis points as the basis for next year's provisioning? Thank you.

Stefan Dörfler

Yeah. Hello Gabor. On the NII I cannot share your opinion that, if we double the first half year we are not inside our guidance, it would be, if you double the first half year NII we would end up at 5,674. And if I'm not mistaken that would be something like, a 13.5% 14% growth. So it's on the upper end of our expectations.

Now we have discussed it very thoroughly both with the countries and the segment-responsible colleagues. And we believe that the second half year of course will be challenging, if the loan take-up and the activities especially in the corporate area would repeat, then we will probably beat our current guidance.

Should this rather be following a little bit more stressed scenario, I think it's already a very attractive guidance. So it's -- you can see from either end -- and it's -- I'm more than happy if we beat our expectations to be very honest. But I think it's also fair and prudent to stick to a level which is most likely deliverable from our end.

And to answer the other point, no, there have not been any particular one-offs on NII side. To the contrary, as I mentioned before, the one-offs that happened in 2021 did not repeat in 2022. So basically what you see there is pretty much a good quarterly run rate.

On ECB, thanks for asking about the savings banks, we are talking about roughly a third a little bit more than a third that is due to the savings banks. You will see everything fully in the operating result.

But of course, as you say the non-owned -- non-safe owned savings banks would be about a third of the indicated run rate. And I think you were also asking about our ECB expectations what we have been basing our scenario on is basically the current market consensus expectation on the ECB trajectory.

Alexandra Habeler-Drabek

On your question on risk costs on our base case, so in our base case, meaning, that the gas would continue to flow for 2023, as you rightly say, we would expect to be -- to stay well within the range of our through-the-cycle risk costs which is as you all know 30 to 50 basis points rather inclined to the lower end than to the upper end. So I can't confirm your assumption.

Gabor Kemeny

Okay. Thank you.

Stefan Dörfler

Thank you.

Operator

We will now take our next question from Hai Thanh from Concorde. Your line is open. Please go ahead.

Hai Thanh

Hi. Thanks for presentation. I have two questions. The first one would be on the share buyback topic. You mentioned already that there may be a decision, but could you confirm that we would have a decision maybe this year or should it be delayed to next year?

And my second question is on, gas flowing from Russia. And you said in your outlook that, this assumes like adequate gas is flowing from Russia and I was wondering, if you could share your view like what do you mean by adequate? Is the current on the amount of gas adequate? And also where would you put the scenario when where gas flows that maybe the prices are staying at this high so that would result in your previously mentioned 30 50 bps of risk costs? Thank you.

Stefan Dörfler

Thank you very much for the questions. On the share buyback, we have not been applying for a share buyback approval at ECB as we speak and given the environment given our intended dividend and given what we are seeing in terms of loan activity and lending activity, it's rather unlikely that we will do so in the next in next couple of months. So, don't expect a particular action that side in the short-term future.

Alexandra Habeler-Drabek

On your question on gas flow, so what is an adequate gas flow? As you know the figures how much gas is coming through which pipeline is quite volatile, but adequate gas flows would mean that the production and the industry can continue to work so that there is no standstill of production lines due to stop of gas case deliveries.

Regarding to the question on high prices so high energy prices, we factored in also in our base case and this is also a very important input factor in our FLI assumptions.

Hai Thanh

Okay. Thank you.

Operator

We will now take our next question from Mehmet Sevim from JPMorgan.

Mehmet Sevim

Good morning. Thanks very much for the presentation. Just two follow-ups from me please. Firstly, on the ECB rate hikes, thanks again for providing the update on your sensitivities. I would assume that the impact isn't linear given previously you were guiding for a very small uplift from the first 50 basis points of hike. So should we -- how should we see the impact from potential further rate hikes? More specifically, maybe if you have 150 basis points is it reasonable to assume that will be comfortably higher than say the €450 million as a normal linear scenario would assume?

And one follow-up also on the provision releases Alexandra if I may. On the FLI update-related provision releases that you've made this quarter, next to the COVID-related provisions, clearly you've been quite conservative previously it's still in the currently very difficult market environment, one would maybe assume the assumptions would deteriorate rather than improve. So, could you please provide some color on this point and what assumptions you're using now in your models versus previous data would lead to that release? Thank you very much.

Stefan Dörfler

Thanks very much Mehmet for this clarification question. You're absolutely right the ECB rate hikes would not be linear in the impact on any level. But what is important to say that the sensitivity I indicated is from here forward. So, that means the -- so far the one step in July so to say mentally is already in. So, this is this north of 300 impact is based on the next 100 basis points if you will.

And then, of course, it depends very much on the deposit beta that's kicking in. It's very hard to predict how the competitive competition would act in your land so meaning Austria, Slovakia, and of course, starting from January 1st 2023 also Croatia, how they would act and then react. So, the deposit betas are a little bit hard to predict since we have been -- have not been seeing that for a while.

So, my personal assumption is that for the first time that this is a very robust and solid indication. And then it should be a little bit less for the next 50 basis points. Most likely I would say maybe a third less or whatsoever but we will look at it depending on in which speed and at what point in time the ECB would react.

So, sum it up, as from here, you can expect this higher than €300 million impact and certainly a very good move should the ECB act up to 1% in the next couple of weeks or months.

Alexandra Habeler-Drabek

On your question on provision releases from FLI, thanks for the question. This is really not very intuitive given the current macroenvironment. The main driver of the releases was that we took out the COVID years out of the data series, which was also a strong request by our auditors. We kept very conservative assumptions, which is also shown that we still have a 60% probability for the downside case. So overall, still conservative and mainly or purely driven by having to take out the data series from the COVID years.

Q – Mehmet Sevim

Okay. That’s very clear. Thanks very much.

Operator

Our next question comes from Andrea Vercellone from BNP Exane. Please go ahead.

Andrea Vercellone

Hi, good morning. Two questions from me. One is, further clarifications on NII. The other one, is on strategy. On strategy, the not resignation but the not running for a second term by Mr. Spalt was predicated on strategic disagreements with the Board vis-à-vis, long-term strategy of the Bank or long-term strategic direction of the Bank? So for Mr. Cernko, what do you see as the Bank having to do differently, if anything relatively to what has been doing quite consistently over the past few years? So that would be the first question.

On net interest income, can you make any comment on the quarter-on-quarter decline we've seen in the Czech Republic, and what you expect going forward? And on Eurozone sensitivity, you clarified that the 300 basis points guidance is for the next 100 basis points. What should we expect for the 50 basis points that has already happened for H2, 2022? Thank you.

Willi Cernko

Let me start, with your first question. The good thing is, there is no need for any discussion about strategy. There is a strategy in place and my approach is a simple one to speed up, to bring the life, to create as many use cases as possible, to be relevant with everything we do, with regards to the big headline we want to build, financial health we want to become a financial heads company.

And second to answer to that, when it comes to any M&A considerations, the first question is always, is this supporting our strategic goal or is it probably creating the opposite. So as already mentioned today, we are happy to show up with very positive loan growth corporates as well as private households. So the first, is always related to go to push for organic growth and secondly inorganic growth. And here everything that is supporting also digi goal. But as well, when it comes to strengthening our position in our core markets, it is not considered any cross-border M&A activity, it is not considered any activity in Poland.

Stefan Dörfler

So on your NII question, I have two remarks. Quickly, on the one hand Czech Republic, well obviously the deposit repricing has been kicking in the second quarter and a couple of re-pricings especially of larger depositors, were just materializing at the beginning of the second quarter, which has been reducing some run rate on the overall NII, but this is nothing that will make the NII drop on Czech Republic going forward. We are seeing an overall deposit beta, which is quite satisfying and we are okay with the repricing we have seen an increase.

If you look into the details of our product breakdown, we have seen an increase first time in long of term deposit, which is the natural reaction mainly coming from the corporate side. So overall, that's a normal and expected development. On the first 50 basis points, thanks for getting back to that. I think I indicated in former calls, that the first step would be somewhere between 50 and 100. Given the timing of July and given the market reactions, we are now seeing something like 80 to 90 as a fair assumption and please don't forget that in all these equations and all these details on the NII front, the long end is very often underestimated. I said it frequently that just focusing on the short end doesn't give you the right direction.

So the long-end obviously has been going up, up until middle, end of June dramatically by up to, close to 2% in euro land and has now been dropping sharply as you all for sure know. So, I think it's very important also to look at the shape of the curve. But again, the first 50 basis points are materializing in something like €80 million to €90 million for a full annualized number in our P&L.

Andrea Vercellone

Thank you.

Operator

We will now take our next question from Mate Nemes from UBS. Please go ahead.

Mate Nemes

Yes, good morning and thank you for useful presentation. I have three questions please. The first one is going back to the strategy in M&A, you mentioned that perhaps the key consideration for M&A is whether any potential transaction is supporting the overall strategy or not. I'm just wondering if you could give us a sense whether you're seeing assets or entities in the market potential in the market that could be considered support for inorganic growth ambitions and also whether you would be feeling confident underwriting a transaction in the current environment? So that's the first question.

Second question is perhaps for Alexandra on the stress scenario of Russian gas shed-off. Could you give us a sense to what extent have you factored in potential government assistance or government support, be it for the corporate sector or for household in your 90 and 85 basis point cost of risk guidance that you provided?

And the last question is, this is one for Stefan I suppose. You mentioned the €100 million increase in the investment book contribution, could you clarify, does that relate to the run rate or is that indicative for 2022 year-on-year, if you could just clarify that? Thank you.

Alexandra Habeler-Drabek

Maybe I start because I can be very quick on a question on the stress with gas. So, we did not factor in any material government aid. So of course, we do not rule out that the government aids would happen, but this is not decisive factor in our stress test scenario.

Stefan Dörfler

I won't be very short in that case. Thanks Willi. It's up -- the run rate is up. It's basically -- I've always been using also the front book back book, but Thomas reminded me in the preparation be careful that close will be the loan book. So, it's on the investment book front book, back book correlation. So, it's the new basis and certainly going forward it depends on the new rate levels which are very volatile as we speak. But as a matter of principle, it's an increase of the annual run rate in the investment book.

Willi Cernko

Okay. Let me close this round of questions. Again, coming back first priority is to follow up on opportunities for organic growth it is offering to us in our core markets. When it comes to M&A considerations, what do I mean to look for M&A transactions that are adding additional value complementary capabilities to that what we already have when we talk about, we are going to become a Financial Health Company.

This is first of all to improve our capabilities with regards to tighter analytics. This is of utmost importance, but also other competencies and capabilities that are currently not existing within our own portfolio of products and services, but would fit perfectly to the big goal of we want to become a Financial Health Company. So, it's everything that is supporting us to position ourselves as a Financial Health Company.

But I don't want to forget opportunities that may come up in our core countries when consolidation further takes place and in case, any M&A transaction that would fit to our strategy, that would be able to add value within just two max three years. Anything than that, would not be acceptable for our shareholders. So everything we do, it has to add value and on the basis of a low level of complexity.

Mate Nemes

Thank you, very much.

Operator

We will now take our next question from Alan Webborn from Societe Generale. Please go ahead.

Alan Webborn

Hello, hi. Thanks for your time today. Three questions if I may. Firstly on retail volumes. You flagged that the mortgage demand in the Czech Republic has sort of little bit ground to a halt perhaps towards the end of the second quarter. Do you think, you can keep the volumes maybe flat there, or do you think that you're going to see accelerated repayments? How do you feel that that business is going to perform for the next couple of quarters, as well if rates remain as high as they are? And is there anywhere else in the Group that you worry that you may see something similar? Clearly the Czech Republic is the focus point here, but I just wondered if there was anywhere else, given the fact that you talked about mortgage markets being generally quite good. That was the first question.

On consumer lending, again, you seem to be quite upbeat about consumer lending. Is there any way that you feel that higher rates could impact or general pressure on incomes could actually be impacting the future demand there? So, two questions on your feelings about retail volumes. And then on the corporate side, I mean clearly, there must be corporates that are reliant on retail demand to some extent and yet, the corporate demand seems to be driving your loan growth. Is there an element and given the fact that lots of your corporates are in the center of the issues and the debates about slowing growth about the risks in terms of gas and so on, is there an element of caution that you're seeing coming through, or do you think that the sort of corporates are still feeling that demand is sufficiently strong that they will continue to demand more in a higher inflation environment? Is there any sign that you're seeing anywhere of things starting to be a little bit -- people being a bit more prudent?

And then last question was on the sort of assets on the fee side. You suggested that the securities, trading and demand from individual securities accounts was coming down as we're seeing everywhere, but at the same time, your asset management business seems to be really quite robust. Do you think that continues to be the case, or do you think there's a risk as markets have come down that the demand for asset management products could reduce, so you're confident that you can keep that going forward? Thank you.

Stefan Dörfler

So, let me take the fees question right away. That's of course something that we are monitoring and watching very closely, since as you know, this is a very important pillar of our medium to long-term strategy. And so far, I have to say, we are very satisfied with the stickiness of the actual medium to long-term investments of our clients. Yes, the inflow has been slowing down. That's a natural effect of the uncertainty around us, but not only the uncertainty, also the availability of funds of our clients. But we have lost very, very, very few of those medium to long-term retail asset management so to say investments that we have been talking about in the past. And that keeps us very confident that, people understand that especially in difficult times, it's important to diversify well your future safety and your future -- so to say your household income also for the long term.

And in that sense, given the enormous potential that the CEE countries, but also Austria still have compared to other jurisdictions, other countries in the West, we are absolutely sure that the asset management strategy and the respective fee income is a long-term play and we are optimistic that it will not only recover, but grow much further. And overall, if you look at the fee income, in the second quarter, but also throughout the year, this has been made up – much more than made up by payments and income from other sources, since obviously on the back of the strong recovery after COVID times, the economic activity overall was much stronger in the first half year despite all the turmoil around us than in the first half year 2021. So, I think overall in the fee income mix, we are sticking fully to our growth expectations and we are going to update you ongoingly on how the different segments are developing.

Willi Cernko

A few comments to the retail volume in the Czech Republic, what we see right now is and we would expect at least for the upcoming 6 months to 12 months, a flattening around the level we see right now. It's not easy to predict in case fourth quarter, first quarter next year, second quarter next year rates are coming down slightly what is the impact on that, but all-in-all, we would expect flattening around a level we see right now.

When it comes to consumer lending, yes, you are right consumer confidence is going down. This leads to – in comparison to the last 6 months to 12 months, to a moderate growth rate. And when it comes to corporates, yes, we would expect a more moderate growth rate not anymore at the level we have seen over the last 6 months to 12 months. But still, we see growth rates based on many, many, corporates are well positioned with a strong equity base, strong liquidity base, and they still consider this – even if we have to talk about difficult times, but as an opportunity to take part in a consolidation, and they also learn meanwhile to deal with supply chain matters. So all in all, I tend to say, it's by far more positive that one or the other may assume.

Alan Webborn

That's great. Thank you.

Operator

We will now take our next question from Johannes Thormann from HSBC. Your line is open. Please go ahead.

Johannes Thormann

Good morning, everyone. Johannes Thormann. Three follow-up questions, please. First of all, on your NII guidance, why don't you say a quadrupling of the Q2 level, if possible what negative or headwind effects do you expect for the fourth quarter in terms of NII from the Czech Republic, especially considering that you guide for mid-double-digit impact – positive impact from the ECB rate hike this year? Could you give at least some indications, if you plan with NII going up or be flattish versus 2022? Secondly, could you update us on the discussions of the different Sberbank units, which are still up for sale and the rest of Eastern Europe? And thirdly, just help me understand, why did you vote for such a big dividend hike in 2022 when probably a lot of shareholders would have welcomed a small share buyback much more? Thank you.

Stefan Dörfler

So, one after the other. NII guidance. So, I think you've just heard in a couple of the answers, and many colleagues in the call have been asking for, don't you expect a slowdown, don't you expect less of a loan growth, how about massive reduction of production in different segments, and in different loan categories. I think that, answers your question right away.

On the one hand, we are talking about significant clouds – significant cloudy environment in the same moment, we have a very good run rate. That's a very tricky situation, as you would probably agree. And therefore, we are in our own simulations ending up right where we are guiding for. So this is exactly what we honestly believe is the most likely outlook.

Yes of course, there are scenarios, where we might be ending the year, I don't know €100 million, €150 million better than the current guidance would cover. On NII. There are scenarios, however, which would take us down significantly more. And just think of a no gas scenario, which would very quickly trigger a very, very much of a slow not only slowdown, but really will be halt of investment activities of many sectors.

So I think if you look at it from all kinds of perspectives you will see that we are trying to guide to the best of our knowledge for a solid, but not so to say incredibly strong second half when it comes to NII.

On your question for 2023, I think, it's too early to discuss 2023 numbers, but it's also crystal clear on the back of the inflationary expectations and the respective impact also on our costs, let me be very clear here we will certainly require a solid and good NII development to deliver a good operating performance also in 2023.

We will investigate all the details on that week and month-by-month since the environment obviously on that front is very challenging and volatile, but on the back of expected -- currently expected and let's see where it really will go to and the currently expected euro land interest rate environment I think there is a good chance that we will deliver also a very good NII outlook for 2023 going forward.

Sberbank so I think the things are completely settled in Austria. It's all done and dusted. They have been sold to various buyers and we are out of this discussion in Austria. Hungary, the thing is that the operation there the legal entity that has been sold. However, unfortunately and also to our dissatisfaction, the final return of the additional contribution to the Deposit Guarantee Scheme has not yet happened.

We expect that but what should I say -- Hungary is Hungary and you know it from all perspectives. Under normal circumstances this €21 million additional contribution to the Deposit Guarantee Scheme should have happened already and we are expecting it to happen going forward. Unfortunately, the likelihood the so to say, the proven likelihood for accounting has not been strong enough that we could really book it back.

And the third country that is worth mentioning here is Czech Republic. This is a very interesting story. There was a sale process initiated by the respective authority. However, this has been interrupted at a certain stage and now as I understand an insolvency of the local legal entity is in progress.

And after this insolvency has been put on track there will be the assets of the local entity offered again to the market. And given current assumption and given the actually attractiveness of the portfolio, we would certainly have a look at it and we would very likely be interested to acquire parts or the complete of these assets certainly not the only interest from our side there will be maybe also other competitors looking at that portfolio.

Last point dividend hike. Look we are fully in compliance -- precisely in compliance with our updated dividend policy and that is something which we also want to do going forward. We have slightly adjusted our dividend policy a couple of months ago by saying that we want to deliver on this 40% to 50% net profit after AT1 range when it comes to the dividend per share payout. And there is a slight adjustment to the former so to say progressive increasing year-by-year.

Why did we do? So on the one hand, the last couple of years have been teaching us that the results are quite volatile for various reasons that are out of our influence. And secondly, it's something which I think is reflecting constantly our commitment both to distribution in the same moment supporting our organic growth by a strong capital base.

And last comment, Johannes really the view on the share buybacks versus dividend distribution is everyone's own right to have an opinion some like the one some like the other more. We have been making very clear what our priorities are in terms of capital utilization in general and distribution in particular and this is what it is and we will stick to it and be reliable on it. But, of course, I respect the view that some are more keen on having a share buyback. We accept and respect that our commitment is also clear.

Johannes Thormann

Okay. Thank you. Just a -- question. If you can give more precise guidance for risk costs for 2023. Why can't you be a bit more specific for the NII outlook?

Alexandra Habeler-Drabek

So, you ask now again for the guidance risk costs for 2023?

Johannes Thormann

No, you gave the risk costs, you said, it will be lower than through the cycle, and then the stress scenario. You can also give some indication. So risk cost guidance is fine for 2023. But I don't understand why you can't be at least a bit more precise on the NII outlook for 2023?

Stefan Dörfler

You can't understand why I'm not more precise for the NII outlook for 2023? I have not been talking about the NII outlook for 2023 in any more detail and I will not today.

Johannes Thormann

Okay. Thank you.

Operator

We will now take our next question from Hugo Cruz from KBW. Please go ahead.

Hugo Cruz

Hi. Thank you for the time. I have three questions. First question is really around the gas shutdown scenario allow me to interact to your dividend guidance. First of all, I wanted to understand why do you assume the shutdown scenarios are likely? Is there a date where you could say, if the gas gets shut down by a certain month of this year then actually the scenario becomes more likely? And if there is any shutdown during this year, does that put your dividend guidance of €1.9 at risk for this year? And if it puts a risk what would be your fallback option would it be the payout ratio that you mentioned just recently?

And then second question on the cost of risk guidance, can you remind us what ECL amount you assume by year-end? So you have €500 million now, but what is your guidance implied by year-end?

And third on NII sensitivity. You gave the sensitivity for the CEE currencies. I was just wondering if you could split that for the different currencies so for Czechia, Hungary and Romania? Thank you.

Alexandra Habeler-Drabek

I would start with -- I mean, why we consider it unlikely, it's a difficult question. And of course, there is a lot of expert assessment included, but this is our current assessment, and as I said we want to provide utmost transparency and this is why we disclosed it to you, our assumptions even for the case that we consider unlikely how would it look like in terms of risk costs.

Of course, in case these assumptions and the circumstances change and the flow of gas stops in a way that we have to assume that it will not resume ordinary gas flows within a very short period of time, then this of course would be a reason to change our guidance.

On your question on ECL, the €500 million as of now can, you can you precise -- or let me come back to you after the other question, because when we said ECL now stands at €500 million as of end of Q2 and we would book another additional 20 basis points. So what exact -- so you're referring to the distribution…

Hugo Cruz

No, sorry. So you gave the guidance for the cost of risk for this year in your base case scenario.

Alexandra Habeler-Drabek

Yes.

Hugo Cruz

So what ECL does it assume [Audio Gap] 300, zero, what will it be? Thank you.

Alexandra Habeler-Drabek

So we would -- maybe I put it like this, maybe this answers your question. So we are not planning any additional methodological changes or releases. So we would expect the €500 million ECL to be there also by the year-end.

Hugo Cruz

Okay. Clear. Very clear.

Stefan Dörfler

So, thanks for that part. Dividend in an extreme case, Hugo, the dividend, obviously, would be at risk for discussion it is clear since if you look at the dividend policy should we drop out of the range, we would have to adjust it also from, let me say, prudency perspective. And obviously, the situation is, we have been applying for profit inclusion with the ECB and of course, I have been communicating to our supervisors as well, our intention for the 2022 dividend.

Obviously, they are okay with it at this point in time, and we strongly believe that in a base case, this is a very, very likely outcome, but we just need to look back two years to understand that no one can really predict what happens in the next nine months. So, I would say the likelihood that this will be the ultimate dividend is very high, but there are scenarios, obviously, which might be endangering at the end of the day such a payout.

And on NII sensitivities, on the CEE breakdown, I can tell you that roundabout half of this sensitivity of €50 million comes from the Czech Republic and the rest, which is then, as you will probably agree, not material on Group level, is split across the other countries, meaning Romania, Hungary and small little pieces from other currencies. So, that's where we are and which -- compared to where we come from on CEE sensitivities is showing that it's a quite balanced neutral positioning today.

Hugo Cruz

Thank you very much.

Operator

We will now take our next question from Krishnendra Dubey from Barclays. Please go ahead.

Krishnendra Dubey

Hi. Thank you for taking my questions. I have three questions. First, how did you decide on the amount for the cyclical overlays and why not take the 80, 90 basis points generally that you guide for 2022 or 2023?

Secondly, what are the regulators or supervisors saying on this, and how similar is there scenario to the regulatory stress test? Lastly on the CRE, the commercial real estate loans, just wanted to check your thought on what's the current LTV that you're seeing for your loans and what has been the loss rate or the cost of risk for this business in the last five years?

[Foreign Language]

Alexandra Habeler-Drabek

Yeah. I would start. Connection is not perfect, so maybe if we didn't get your questions correctly, please be so kind as to repeat.

Krishnendra Dubey

Sure.

Alexandra Habeler-Drabek

I understood that you are asking also for the scenario towards the regulator and what we disclose here. So, exactly the same scenario that we showed to you. So, there is only one scenario, and this is also shown and will be shown in detail and shared with the regulator.

And as you said, what the regulator is commenting. This we will see, but usually regulator is, of course, also following a conservative path and not questioning individual assumptions. So, our current expectation is that will be - or they are very interested in our assumptions and -- but we would not expect any major objections.

The topic on the cyclical overlays, I did not get acoustically, maybe you can repeat this question.

Krishnendra Dubey

Sure, I'll do that. I was just asking, how did you decide upon the amount of the cyclical overlays? What are the factors that you have decided, and why have you not just taken 85 or 90 basis point on that -- the one that you suggest on the Russians -- when you're stopping the Russian gas scenario? So, how those two are different?

Alexandra Habeler-Drabek

So, why didn't we book the full basis points right now, because the current assumption is that the no gas scenario is more unlikely than likely. So, it would be also -- so, there is no real reasoning how did we pick what we chose for the cycle overlays. So, as mentioned, it is PD-related.

So we took those parts, the -- I wouldn't say weaker, but the not so strong parts of the portfolio out of those cyclical industries, which we currently assume to be the most and the first to be impacted by the current situation and also going forward.

So, this is a wide range throughout the cyclical, so this contains parts of construction industry, also real estate developers, cyclic consumer goods, some parts of automotive, but not all of it, and as I said, PD -- with a PD threshold.

Krishnendra Dubey

Sure. Thanks. Thanks. I was just asking the same thing. And lastly, just on the commercial real estate et cetera. So what's the LTV that you currently have in your book and what has been the loss rate that -- or the cost of risk that you've seen in last five years?

Alexandra Habeler-Drabek

Yeah. So overall, our commercial real estate portfolio and focused commercial real estate portfolio is a very healthy one. And as you have seen from our risk cost bookings, we didn't see any -- almost no defaults and losses from this portfolio over the recent periods. Overall, our portfolio for developers is mostly focused on income-producing real estate with very good asset quality in better locations. And as you know I mean, it has also been visible during the COVID crisis. The crisis is usually a trend accelerator, so secondary locations and assets have been suffering good and prime locations and assets have been thriving. Now especially there is a focus on low energy consumption objects, which are of utmost interest and is our lending standards for many, many years. So since the global financial crisis, we have been focusing on exactly these higher-quality assets, higher quality locations and we also put very much emphasis on sound financing structures. We see our portfolio as basically resilient and well prepared for potentially very difficult times.

Krishnendra Dubey

Thanks a lot, Alexandra.

Operator

We will now take our next question from Robert Brzoza from PKO Capital. Please go ahead. Robert, your line is open. Please go ahead. [Operator Instructions]

Robert Brzoza

Can you hear me? I hope you can hear me now. I have one quick question regarding the quality of the Romanian loan book because I've noticed that's the only geographical location where actually in the quarter you have created more provisions than you had released. There were €33 million of cost of risk-related charges, which were obviously partially counterbalanced by plus €31 million of other operating income. So the question is about the loan book quality in Romania and those charges versus other operating income there? Thank you.

Alexandra Habeler-Drabek

So I will start with the loan quality on bitchery. So loan portfolio overall is not a topic of concern why is the risk cost booking in Q2 higher. In this €32 million risk costs that you were mentioning, €20 million were moratory related. As you might know in Romania, a new moratorium has been put into place. Now in August, the application period for these opt-in moratoria of 30 days will start and we front-loaded the expected impact already in Q2. So 20 out of this 32 is front-loading of an expected impact out of the new moratorium.

Stefan Dörfler

And just to give you the full picture Robert, the releases in the other operating result have nothing to do with the current risk situation. This is a release of abusive -- of a legal dispute on abusive clauses, it's long-term back and has now been closed to our satisfaction. So that has nothing to do with the current risk environment.

Robert Brzoza

Thank you.

Willi Cernko

So I think now it's on me. Ladies and gentlemen, thank you for your interest for all your questions and it's a pleasure to announce, we want to present the results for the first three quarters November 4, 2022. So happy see you to meet you to listen to you. Many, many thanks.

Stefan Dörfler

Bye-bye.