Raiffeisen Bank International AG (OTCPK:RAIFF) Q3 2022 Earnings Conference Call November 3, 2022 9:00 AM ET
Company Participants
Johann Strobl – CEO
Hannes Mosenbacher – CFO
Conference Call Participants
Andrea Vercellone – BNP Exane
Alan Webborn – Societe Generale
Gabor Kemeny – Autonomous Research
Olga Veselova – Bank of America
Mehmet Sevim – JPMorgan
Simon Nellis – Citibank
Johannes Thormann – HSBC
Hugo Cruz – KBW
Riccardo Rovere – Mediobanca
Krishnendra Dubey – Barclays
Mate Nemes – UBS
Operator
Good afternoon, ladies and gentlemen, and welcome to the Q3 2022 Conference Call of Raiffeisen Bank International. Today’s conference is being recorded.
At this time, I would like to turn the conference over to Mr. Johann Strobl, Chief Executive Officer. Please go ahead, sir.
Johann Strobl
Thank you very much. Good afternoon, ladies and gentlemen, and welcome to our third quarter results presentation. Thank you for joining us today. We can again report very strong earnings, the strong capital position, and good loan growth, and of course, excellent management of risk in these uncertain times.
Starting with the group consolidated results year-to-date, consolidated profit stands at $2.8 billion and record growth in core revenues. Our CET1 ratio improves to 14.6%, reflecting good RWA management in Russia in the third quarter.
Despite all that is happening in Russia and Ukraine, we can report 8% loan growth so far this year and in particular loan growth coming from our core CE and SEE markets, while at the same time shrinking loan books in Russia and Belarus.
As you well know, the results that we are reporting to-date include the full consolidation of our Russian subsidiary, which together with a strong Euro Ruble rate has performed very well this year.
As you perhaps also know, it is currently not possible for us to receive dividends from our Russian subsidiary. And this has implications on our capital steering approach which I will discuss in a few minutes.
If we turn to the next page. What we see is that the Russian business has been very strong, but I’m also satisfied with the rest of the group as it’s delivering very nicely. If we exclude earnings from Russia, Belarus, but also the one-off gain from the disposal of Bulgaria, we have earned €822 million in the first nine months of 2022, which works out to an ROE of 11%.
This has been driven by very good core revenues with nine months NII and NFCI up 38% and 18% respectively. As I just mentioned we have grown the loan book nicely in our key markets, in particular in local currency terms. We have seen 11% growth in the Czech Republic, 18% in Hungary, 9% in Slovakia and 22% in Romania. Going forward, however, we do expect loan demand to moderate.
I mentioned our CET1 ratio on the previous slide at 14.6% as of Q3. Looking ahead to next year, we will increase our CET1 target to 13.5% from January and to 14% by the end of the year.
At the same time we also steering the bank, so that the group CET1 still remain above 13% even if we have to deconsolidate the Russia for zero, meaning, we receive nothing for the equity.
I won’t say much on risk here as Hannes will cover this extensively as always, but I simply wish to highlight that we have continued to build up our stock of risk overlays, which are now at €776 million equal to 71 basis points of CET1.
If we look at the next slide, what you can see is what I already stated, a nice increase in net interest income where the bigger part is attributed or was delivered by higher liability margin in several countries.
There is also an FX effect from the Ruble and to smaller extend also from volumes. The NFCI is significantly increased. But there again a big portion comes from the Russian business from FX business, but also from settlement and payments.
If we turn to the next slides, then you’ll see more details, you’ll see the split up between the total group NII and those without the Russian, Belarus business. And what you see here is and turn on slide 7, also a very nice improvement if we compare the development with last year. And the same holds true also for the net fee and commission income. And I said before, outstanding, of course, is the FX business, but also clearing and payment was good.
Turning to the next page. I have mentioned the year-to-date loan growth what we see here that already in the third quarter. Overall the loan growth was slowing down, of course, this is driven by a reduction also in the loan volume in Russia and Belarus. And also the deposit inflow is less strong than it was in the second quarter.
Moving to the next slide, number nine. What we see here is the development of the CET1 ratio from end of June to end of September. I think what I should highlight here is on the waterfall to 62 basis points are the credit risk.
This is the result to a large extent of the optimization of the liquidity management in Russia where with changing of the structure that RWA’s could be reduced significantly. As we see here, we have driven by the operational risk from the Swiss Franc developments in Poland, but also from the market risk we have increased, we have seen and increased RWA requirements market risk.
You are aware that the hedging opportunities are not anymore existing. So, our structural FX position from the participations especially in Russia is increasing, thus requiring more RWAs and capital. We had seen another positive impact from the OCI and one remarks to the retained earnings here. Dividend accrual is also considered which is in the level of 43 basis points.
If we move to the next slide. A few words to our capital steering approach. I mentioned the in my introduction that we are raising our CET1 target from the beginning of next year to 13.5% and by the end of the year to 14%. This reflects our increased capital requirements, which we expect from next year onwards.
To be clear, the new capital targets assume that Russia is part of the group. At the same time, we also steering the group so that our CET1 ratio remains above 13%. Even if we are forced to deconsolidate at zero. This is very similar to the approach we shared with you in Q2.
As I mentioned in the introduction, we are currently unable to upstream dividends from Russia to the head office. As a consequence, we will need to calibrate our dividend policy accordingly. This means, that any decision on dividends will be based on the capital position of the group excluding Russia. Finally, as we announced on Monday, we have decided not to call our 6.18% [ph] 81 note at the first call date next month.
Moving to the next slide, this is a CET1 outlook towards year end. So I finished on the slide before December 14.6%. We have a couple of indications which we can share with you. We assume a retained earnings of 60 bps in Q4. We assume and we have some buffer for additional RWA requirements depending on the liquidity placements what we can find in Russia.
We have a negative FX impact assumed, as we assume a Euro Ruble rate at 68. And then there are some inorganic and other elements regulatory model calibrations, which have to be considered as well and all these together brings us to the above 14% CET1 ratio and group level by the end of the year.
As I have stated whatever CET1 is generated in Russia will not be invested in RWA, somewhere else in the group. And I have already mentioned therefore, the three basis points. Accrual dividend, accrual, this remains as the Q4 distribution decision will then be taken finally.
As I stressed several times, managing the capital on an assumption of a zero price book multiple deconsolidation scenario for Russia and you have it here, what if we had to do this by end of September. So then the landing point would have been at 13.3%. So good above our target. We have a €4.3 billion CET1 capital, which is the consolidated and in the simple assumption at zero.
And on the other hand, we have €21.5 billion of RWA also be deconsolidated. If you add this up together, then you drop from the 14.6% to the 13.3%. As this was fully focused on the CET1 for those who want to see the full potential, full impact, you would then also consider the intra-group subordinated instruments, which are in the amount of 30 bps.
Yes. And with that, I would move to the capital requirements on slide 13. So you’ll see here the actual numbers for CET1 Tier 1 total capital. I think what’s important for you is also our expectations for 2023. We expect an increased pillar 2 requirements based on some preliminary discussions, what we had with the regulator.
This would mean in the usual capital structure 21 basis point increase on the CET1 ratio. Then we have the OCI buffer to be increased in January by 25, and in December, then again end of the year by 25 basis points. So, in total of 50 basis points. And then we expect further increases in the countercyclical buffer from the various network banks which on group level would mean another increase to by 30 basis points to 56. So, this adds up to by the end of next year of about 100 basis points.
Coming to the next slide, the MREL. You’ll see the numbers you are aware that we could issue some benchmark issues in the third quarter and in addition to that we have at the senior one also in October. So all together this brought our MREL well above the requirements, which as we shared with you last time was for a short period of time, a bottleneck within our group. And please find also on the slide the additional requirements from the resolution groups, within our group, Czech Republic, Slovakia, Hungary, Croatia and Romania.
Turning do the next slide. I have already mentioned our funding activities. So, I think here, I do not have to talk about history. What we can see here in the numbers is that the liquidity ratios on group level, all what you have the LCR, NSFR, the loan deposit ratio, all they are very nicely throughout the group. Moving to the next slide. Some more details on Russia. I mentioned it several locations during my presentation already, that the Russian bank is developing very well according to our risk policies and to our steering.
So, compared to Q2, we saw further improvements, a reduction in credit RWAs, but also in the RWA requirements from the liquidity placements, and of course, we allocate some operational and market risk which increased a little bit. So, overall, we have a very strong capital. We have on local standards, CET1 ratio of 13.6, which again is up and which is a very nice buffer. And what you can also see on this slide that we also have a very good loan deposit ratio meanwhile in the bank.
Moving to slide 17, we have adjusted the macro outlook. Probably not to such an extent as other state. We probably at some point in this, during this year, we have been a little bit more pessimistic. We see the impact of the supply shock in the Euro area, and we assume a technical recession in the winter. But overall, we remain positive in most of the countries.
Of course, soft on Euro better because it’s more service related industries will dominate and yes, we see further recession and ongoing recession in Russia as well, minus 4% in 2023. This year, probably much better than we had assumed a couple of months ago. Ukraine with minus 33, very hard hit by the war. And there are more concerned now with this destruction of the infrastructure, electricity is challenged.
Moving to slide 18. Here, it’s just for your report probably you follow it up from other sources. We have seen in the core countries, a significant anti-inflationary measures by the various governments and to see also the impact on the various price baskets. Yes, unfortunately, we have seen another what is called a windfall tax in Hungary, a cap on mortgage rates and obviously, if more comes and there is still an ongoing discussion about the windfall tax in the Czech Republic. From the parameters we have seen so far, this could lead to a reduction by €30 million.
Moving to slide 19. An update on our guidance. All under the assumption that Russia and Belarus remain in the existing footprint. Under these assumptions, we have a net interest income to be expected around €4.8 billion and then fee and commission income around €3.7 billion. And if we would exclude Russia and Belarus the net interest income might be at €3.2 billion and the fee income around €1.7 billion.
As far as loan growth are concerned, we expect stable volumes in Q4 with some selective growth still in some of the CE and SEE countries. We expect the OPEX around €3.5 billion. This would then lead to a cost/income ratio of around 40%. We expect 100 basis points provisioning ratio, and these all together would lead to a profitability or a consolidated return on equity at around 25%. I have already mentioned to CET1 target above 14% by the end of the year, and adjusted targets for the coming year.
And with this, I hand over to Hannes Mosenbacher.
Hannes Mosenbacher
Thank you, Johann. Good afternoon, ladies and gentlemen. Thank you for joining us for Q3 update today. Since our last call, it is fair to say that the operating and macro environment has made us more cautious. We have seen the IMF and SMB [ph] gross for 2023. Industry and consumer sentiment surveys have deteriorated and more general, we have level of uncertainty has risen. Of course, geopolitics continue to play a large role in this increasingly unpredictable backdrop.
At the same time, we continue to focus on what we can control and I’m satisfied that RBI is in a very good position. As you know, our rating was confirmed earlier in the year and we recognized upfront. The spillover effects of the board is included internal rating downgrades, adopt low inflation, and a prudent approach to provisioning. Our capital and liquidity positions remain strong.
I’m very proud that we have continued to grow in our core markets, while at the same time improving our resilience and dealing with the direct and indirect effect of the war in two of our countries. In the third quarter, we have again increased our stock of overlays to €776 million. To put this into perspective, this is about 18 months worth of [Indiscernible] risk costs.
On my next slide, I will share with you our updated inflation energy vulnerability assessment. And as you know by now, our Russian operations are ring fenced and Johann, has explained how we think about steering the group’s capital ratio including and excluding Russia. And of course, our cross border exposure to Russia is shrinking now around the €300 million.
Finally, you would have noticed that in Ukraine, our risk costs are close to our initial guidance in February, and we will make some food adjustment in Q4. We are required, our exposure in the regions most affected by the fighting are well covered. Looking ahead, it is reasonable to expect lower demand for loans in both the retail and the corporate business lines.
In retail the combination of higher interest rates and increased uncertainty are waiting on consumer confidence and will impact loan demand in the quarters ahead. In corporate, we’re still seeing good demand for working capital products while investment demand has slowed significantly. The recent ECB senior loan officer survey suggests tightening conditions and disputes as well as we have generally be seeking better collateral and underwriting term throughout this year.
At the same time, it is worth highlighting again that many of our corporate customers have used to recover in 2021 and 2022 to strengthen their balance sheets, and are now in very good shape as we face more headwinds. As for risk cost guidance, I can confirm the previous guidance for 2022 namely up to 100 basis points. As a first estimate for 2023, I can guide for around 90 basis points, excluding any release of overlays that may be justified. This assumes roughly half in Eastern Europe and the other half in the rest of the group.
Let me move on to page 22. Here we have tried to build on what we were sharing with you last time when we were talking about the potential gas impact. Many of whom I met in London have asked me well, but now the topic is much more broader. It’s about energy and inflation. So what did we do? We have done a desktop exercise on the potential impact of pessimistic development with respect to energy and inflation, under the assumption for further shortening of supply as well as reduced Russian gas through Europe.
We assume for this scenario, a gas price of about €300 per megawatt hour and additional high gas prices in this scenario over 12 months. And of course, having said this inflation rate will stay high. We assumed around about 12% in this scenario, and interest rates will further increase to cope with this higher inflation environment. This was the way how we have set up the scenario.
Further on, we of course have asked ourselves, which are the industries which will be most impacted and affected by this environment? We were thinking about industry specific impacts on sales, costs, interest rates, and leverage. Having done all these three things, if I talk about now, the Red industries, you could think about paper and packaging, metals and mining constructions materials to chemical industries.
We assumed that sales are being impacted by minus 20%, that material input costs are going up at least for 62, in Europe, almost doubling, causing an P&L impact for those companies in the specific industries of P&L impact of more than minus 60%.
Having said all this, of course, we then ask ourselves what was the impact on RWAs and risk costs. If you deploy this scenario, of course, you would see a downgrading for some of the companies. And you have seen our red flags companies are summing up to €12.6 billion causing currently in RWA €7 billion Euros and using this stress scenario, we could see for the Red industry an uplift of €2.1 billion.
Next to this, we would see on the corporate side, an increase in Stage 1 and Stage 2 of roundabout €158 million. Next to this desktop exercise, we also reached out to our top 200 customers, trying to better understand what is the impact of these higher energy prices to their current cost structure. To sum it up, they would give us currently a limited impact, at least till Q4, 2022.
While if you think can open up your mind when it comes to energy and inflation, of course, you also have to look at your retail portfolio. Currently, we can share with you that we can see a stable asset quality and households were capable to build up safety buffers in the preceding years. And we also of course, benefit and customers are benefiting from the one other governmental support measure.
As you would expect is that we also have adjusted our credit policies here and there. On the DTI chart, you can see that over 70% having DTI of our customers between zero and 40%. And please bear in mind, this is after the strong increases in local rates what we already have seen this year.
Let me move on to page 23. This is just for documentation that we are continuously working on our current list of sanctioned corporate. This is now summing up to an exposure at default of €637 million, which is a reduction of around about 30% since the end of February. Johann already touched the RWA development just to repeat the one other highlight. The main decrease in credit risk is from the rational liquidity placement and the exposure increase in various countries have been offset by the reduction in Russia.
Second one is the op risk RWA, which is mainly driven by the Poland Swiss Franc portfolio and last but not least market risk RWA given the higher volatility increased also because of the structural Ruble FX position. let me move on to the next slide, page 25, when talking about IFRS 9 provisions in Q3. Stage 1 and Stage 2 we have seen releases of €61 million. This comes by model updates in Poland and Russia.
Macro update giving that iteration of the outlook is causing an uplift of €27 million. And we again made heavy use of overlays, allocating another €108 million in Q3 only, €29 million is allocated to Ukraine and Russia. Spillover energy inflation and supply shock, we have increased by €151 million and at the same time we released the one out of COVID BMA in total €65 million Euros.
Stage 3 in Q3 is summing up to €86 million and year-to-date risk costs you can see on the bottom of the slide is summing up to $721 million Euros. This brings me to my last slide, NPE ratio and NPE coverage ratio. NPE is down to 1.5% with a very solid coverage ratio of 61.5%. At the same time, you can of course see that NPE ratio in Eastern Europe is now on an increasing trend.
Having said all this, we sure you have one other question, which we’re happy to take. Moderator?
Question-and-Answer Session
Operator
Thank you, gentlemen. Ladies and gentleman, we may now start the Q&A session. [Operator Instructions]. And we take our first question from Andrea Vercellone with BNP Exane. Please go ahead.
Andrea Vercellone
Good afternoon. I’ve got three. The first one is on the management overlays. I was just wondering if any of those are booked in Russia, Belarus or Ukraine or not. The second question is on net interest margin in Czech Republic and Romania. You’ve done very well in the quarter. This is contrary to what we’re seeing at system level where we’re seeing shrinking spreads i.e. deposit costs are going up by more than loan yield. So, can you tell us what is going on in your group and give us a bit of an outlook for the next few quarters? And finally, on FX fees excluding Belarus and Russia, so everything else they’ve also been very strong over the past few quarters. What is the driver of this? And what could cause? And what is the risk that they may revert to a lower level in future quarters? Thank you.
Johann Strobl
Well, if I may start with the management overlays what we have done. When talking about Russia, the entire amount of overlays what we have booked or the biggest part is locally booked in Russia. We have allocated some of the overlays currently also to our cross border exposure. This is what we have done. The cross border was mainly added into Q2, Q3 when it comes to the overlays. But the biggest part when talking about overlays in Russia is being covered locally. Ukraine, is half-half. Part of it was already with 2021 numbers if you can recall, was allocated on a holding level. And as time passes it’s being allocated and booked locally. And the same holds true for Belarus. We have already allocated early on in 2021 some overlays for Belarus and now we also see that most of these overlays are being covered locally. Hopefully this helps to understand our policy and our approach when it comes to management overlays.
Andrea Vercellone
It does. But do you have a number or much is booked locally in these three countries?
Johann Strobl
While the quarterly numbers I would have here with me [Indiscernible 34:32] well, then give me two more minutes and colleagues will come up with the stock year-to-date. The year-to-date stock for Russia on overlays is €190 million. Give me one more second. The overlays for Russia of Ukraine is €135 million and the overlay for Belarus is €40 million. Hopefully this makes sense for you. So I repeat myself, €190 million of overlays for Russia, €135 million when it comes to Ukraine and 40 million when it comes to Belarus. Hopefully, this is answering your question, sir.
Andrea Vercellone
It is.
Hannes Mosenbacher
I take over the net interest margin question and Czech Republic and Romania. You also kind and referring to Q3. You might remember that in Q2 we were earlier than others increasing deposit rates in the Czech Republic. And so, we were front running, collecting deposits, but we were, yes, we were well ahead. So we did not have to adjust throughout Q3. And I think this made the market come closer to us. So that’s the simple part of the answer, maybe in Romania as well, if you compare us to the competition. One element which is painful in Romania is and maybe this holds true for many more markets, that asset marching in times where interest rates are moving so quickly, are under pressure, very much under pressure. Our mortgage business in Romania is smaller than those of the competition. So the structural, one might say disadvantage, or whatever it was, we never had been so much focused in Romania on mortgage is structurally helping a little bit.
When looking forward, I think it’s very difficult to give an outlook. What we can say is that, of course, the more time passes, and the higher the rates are, the more we shift, we see, first the shift from current accounts. So we had countries were in retail a couple of months ago, a year ago, the largest part of the liabilities were on the current accounts. And we see this now, shifting month by month more to the term deposit and to the savings accounts. And of course, the good thing is that the remaining part, the current account, it’s still very low or not at all interest. But one can never know if when competition would start here as well, you could see it. It’s different in the corporate area. Corporate is very sensitive, and here we have seen quite a lot of adjustments.
So, I would say, especially when talking as you have stressed Romania here. What I’m wondering is to what extent the Central Bank is continuing to take out liquidity from the market. So, this of course increases and we see this increases the competition on the liability side. And yes, we increased interest rates more on the loan products than the competition. I mean, here of course, is question how long can we stay substantially higher than the others or if they would follow at some point in time. When talking about your question to fees, without Russia and Belarus, I would say it will be difficult to come with a similar number what we have this year. I think this year, it was very supportive that we had this high volatility in the currency markets. Currently, I would not assume that this will continue. So, less hedging activities from the customers which takes away some business potential. And then Croatia is working with all their energy on the introduction of the Euro. So also there we are going to lose fees. So yes, I would not expect that the fee development can develop as strong as it was in this year. Thank you for your questions.
Andrea Vercellone
Thank you.
Operator
Thank you. And we take our next question from Alan Webborn with Societe Generale. Please go ahead.
Alan Webborn
Hi. And thanks for the call today. A couple of questions, if I may. Could you just sort of detail what you’ve been doing in the corporate area in terms of risk costs, which clearly sort of had a bit of a spike up in the third quarter presuming that sort of prudent, but could you talk about what you’ve been doing there? Secondly, there seem to be some reasonably substantial write backs in the Czech Republic. I would like to know what they were for? So there was two questions. The third question on the sort of the Polish Swiss Franc mortgage situation. Where is your coverage now? I mean, clearly they’ve been sort of developments in terms of negative rounds of core cases in the Polish market across the third quarter. And how do you see that now are you expecting that you’ll need to up the level of coverage in future quarters? And I think the last question was, have you changed the tool, your lending policies in terms of fossil fuels, coal, et cetera, because in your region, clearly, there is a need for energy security. And I just wondered how you were preaching those — that particular situation across the winter in terms of what your corporate customers needed? Thank you.
Johann Strobl
Alan thanks for all your questions. You have raised and I may start with answering part of them. Group corporate markets risk cuts spike in Q3, it’s a mixed back. And please do not forget, in total, we’re talking about a provisioning ratio of 33 basis points only. But what have been the two main drivers as I indicated beforehand, we also allocated some post model adjustment when it comes to our cross border business. I think this is well argued and prudent. And the second thing is what we had to experience in the second and third quarter, sorry, was one mid sized corporate default. This is the main reasons for the risk costs dynamics in the corporate and market segment. First question.
Second question, the right back in Czech Republic. What we have seen here is one huge customer and please let me stay very abstract, because they’re still banking secrecy, which was or is acting in the cost supply industry. And we were capable to experience a positive workout company was sold. The third one when it comes to Swiss Franc mortgages to current coverage. We have currently a provisional stock as of Q3, 2022 of €554 million. And we have added another €47 million of net allocations in the Q3. This is what we have currently done. And the total disputed value is summing up to some around €600 million.
Lending policies on fossil fuels and coal in light of energy security needs of our region. What we have tried to do is we anyway have a lending policy, a clear lending policy when it comes to coal financing. And here we are still very restrictive and of course, complying with our coal policy. But if there would be fossil fuel needed in terms of alternative to current gas consumption for the one or the industry, we would be willing to cover this in terms of a working capital facility. My CFO just was shouting at me in the virtual room that the coverage ratio when it comes to this Slot D, Swiss Franc Slot D topic is currently summing up 34.6%. Alan thanks for your questions.
Alan Webborn
Thanks.
Operator
Thank you. We take our next question from Gabor Kemeny with Autonomous Research. Please go ahead.
Gabor Kemeny
Hi. A few questions on Russia and capital, please. So, firstly, you are indicating this 13.3% pro forma CET1 ratio excluding Russia, the worst case Russia, walk away. Thanks for providing this number. When you say the NVA buffer is 270 basis points, does that take into account the expected increase in your capital requirements? Or shall we just deduct another 100 basis points for the expected increase there? And the other question is a broader one. And if you could give us an update on how you think about the restructuring options for the Russian business. And how do you see the pros and cons of potentially exiting from Russia?
And my final question is just a follow up on the Czech NII where you were you had a smart strategy of moving with the deposits pricing before the competition. What the outlook here? Do you see a room to further grow your NII or do you think NII could rollover under your base case rate expectations? Thank you.
Johann Strobl
Thank you for your questions. So the first I hope, I got your question right. So the 13.3% if we lose Russia with zero compensation for the equity, this is in the current regime. So the 10.5% capital requirement, what we currently have CET1 requirement what we have, as of September 2022. To the restructuring options, as you called it, so that the options what we have in Russia, I can only tell you that our team is working very, very hard. We do not exclude one of the many options which we are considering. So this what an implicitly means that the solution space has not narrowed given the complexity what we have around this topic. I cannot indicate any timeline when we will come up with something that there is any option would need quite the number of approvals by several authorities as well. So this makes it very difficult to give an indication of the timeline.
When talking about the Czech business, of course, I think here we are more or less at the end of the rate cycle. First, second, I think what I tried to describe when answering a question earlier is that the gradual movement from current accounts to saving deposits and time deposits is continuing. So here, I don’t think that we are already at the end. So I think it’s a challenge to strongly grow the NII in the Czech Republic. That’s my view. Also, because of the high inflation rate and say, I think that loan demand another area for growth is also limited. So here Czech, I think we had a good times so far. And we have to adjust now to the behavior of the customers. Thank you.
Gabor Kemeny
Understood. Thank you.
Operator
Thank you. The next question comes from Olga Veselova with Bank of America. Please go ahead.
Olga Veselova
Thank you. Good afternoon, and thank you for this presentation. I have a technical or theoretical question. What is your sensitivity of NII to potentially fall in [ 49:32 Indiscernible]? And the same question is what would be your sensitivity to lower Freiberg [ph]? Thank you?
Johann Strobl
I did not.
Olga Veselova
[Indiscernible] in Hungary and [Indiscernible] in Czech Republic.
Johann Strobl
I think [Indiscernible]. Now I got it. Sorry. Now I got it. You said [Indiscernible] NII sensitivity to So here I think, if we compare it to Czech, if you allow me some simplification, then I think we are in these adjustments in Hungary. We are — there is a time delay. So this means that I think pressure on the net interest margin should come over time as more and more customers are moving to term deposits and also savings account. So, here it’s I think we have seen much less change in the structure than what we have seen so far in the Czech Republic. I don’t know how the competition will develop in the country. So this is, it’s a volatile. And I think here that the banks would also look at the overall pain what they have to accept. So, I think with all these caps on the various floating products, I think it’s much more difficult to adjust as you do it in other countries.
In terms of Russia, I think here, we are in a good range. So that the Central Bank rate is, I would say, almost back to the normal level. And so, the adjustments have been done. Of course, in foreign currency, there is still some movement back. I think, let’s put it that way. I think that our pricing which was very favorable in Russia to our sensitivity, and you see it from the number. This was driven by the huge RWA requirement. And therefore, I’d say, from the customer perspective, the rates were not attractive at all. So I think we’re back to the level where we should be from, I mean, the level of deposits liabilities, where we could be where we should be. So here again, I would say you would assume a substantial lower. And then the extraordinary, the outstanding ones, what we had, because of the reason I gave. So we’re back to a more and more normal situation and prohibitive pricing, which of course supported the NII ins or has ended.
Olga Veselova
Yes. Thank you. So on Russia, it’s useful color. Thank you for answering about [indiscernible] in Hungary. I also asked about some [indiscernible] in the Czech Republic. So, when and if it will go down. Do you have the sensitivity to falling benchmark in the Czech Republic? Or again, it will all depend so much on the structural balance sheet and behavior of competitors by that time?
Hannes Mosenbacher
Yes. In terms of sensitivity, I mean, if I look back to historic levels, then I would say there is still 20%, 30%, but this is a guessing as we never had this huge change in rates in such a short period of time, but there is still room for adjustment or so, I mean, we have already 25% of within the last year, 25% of the retail deposits. Deposits on the current accounts of retail had already been shifted to the term deposits and savings. So here the question is given the high inflation what is the liquidity preference of customers what they want to keep on there. But I think there is some more room to go there. And in the corporate part of the liabilities, I think a large part has happened already.
Olga Veselova
Thank you.
Operator
Thank you. And we take our next question from Mehmet Sevim with JPMorgan. Please go ahead.
Mehmet Sevim
Good afternoon. Thanks very much. I have a few remaining questions. Couple on the set fundraise and the requirements. And firstly, are you able to provide any color on the increasing stripe [ph] requirement and what’s causing this in particular given you mentioned the draft of number that is coming for next year? And on the increase of the CET1 target to 14% per year end next year, given this is higher than the upcoming increase in the regulatory requirements. It is simply to create more buffer given the experience that you saw this year, or is there any other reason behind it? And is that particularly related to Russia? And two more.
One on the increase, sorry on the decrease of RWAs in Russia, given the deposit optimization you mentioned. Is this now complete? Or should we expect any further decrease there? And finally, on loan growth in Russia, you obviously delivered that very strong, very significant 25% decline year-to-date. But in the presentation, you mentioned that the portfolio from here should remain broadly stable going forward. So does this mean that you restart lending in Russia at this stage? Thanks very much. That’s all.
Johann Strobl
Coming back to your first question, why highest rep requirement? I pause here for moments not to get cynical. I also asked myself why at all. But nevertheless, what I sense from the ECP is it’s the overall increased uncertainties what banks and what we face. It’s difficult to say what of this increase would then be or have to be allocated from the Russian exposure, difficult to say. We can only find out in a later point in time, maybe there is some element in it as well. So, it’s a combination probably from our Russia exposure and some other concerns about inflation, energy and all the topics Hannes addressed before.
When talking about the increase guidance, I think I tried to explain that by end of 2023 if you add up all the various elements together, this is around 100 basis points. So the 21 from this rep and the 50 plus then the 50 from the OCI. And then from the various countries, the 26 the counter cyclical buffer. So, if you add this up all, this is 100 basis point. So to bring the management buffer back to the level what we had before this changes is the main issue, nothing else. So if we talk about CET1 requirements, currently, we have 10.5 after some small counter cyclical buffers increases and this will go to 11.5 by the end of next year. So, this basically is the adjustment. So no change in the management buffer what we have.
Yes. Is it the right point in time for central banks to increase the capital requirements when the broader part of the world is talking about the recession? This I will leave up to your judgment. Yes. I think in Russia, you mentioned, the RWA decrease deposits optimization. So, I think we are — I think that people would say that the fast money this is now optimized and I think we are there. Does it mean that the RWA will not fluctuate even with deposit volume as we have now. Now, I cannot exclude it, you know that the risk weights of the Russian Central Bank, the Russian severance are very high. So it depends on other areas as well where we can place this money. There might be even a situation that one could consider having here and there some loan increases even in the Russian books might be more favorable than the short term depositing some rubles. So we’re not back to a strong lending, rather stable, also the short term loans have been repaid. So also the paying back is less and less. And of course, some loans have to be rolled over also, but no restart of lending. Thank you.
Mehmet Sevim
Great. Thanks very much. Appreciate it.
Operator
Thank you. And we take our next question from Simon Nellis with Citibank. Please go ahead.
Simon Nellis
Thanks. Thanks very much for the opportunity. Just back on the new capital targets. Actually, I think you mentioned that you’d still be looking to hold at least 13% for Tier 1, excluding Russia, before you pay out any dividends. Did I understand that correctly? And I guess when you look at that 13%, is that including losses on subordinated instruments? Or is that is the 13.3% that you reported this quarter and the targeted ratio on that level?
Johann Strobl
At the target ratio without Russia is this 13%. I mean, this is a steering target with some fluctuation. So if we would lose of that without compensation, then for a quarter or maybe two, it might be that we are below the 13. But what you’re seeing now is there is a good chance that we would remain even in such a negative circumstances above the 13. And yes, the 13 is then guiding idea for dividends as well. But as you said, we then have to consider also this up 13.
Simon Nellis
Yes. I guess also with that 13.3% actually assuming that you don’t pay out dividends, right? So including the accrued dividends, it’s actually below 13%. Just wondering if you had that 13.3% ratio at the end of the year?
Johann Strobl
You’re right that this 13.3% assumes that in such a case, we do not pay the accrued dividend as we would be substantially loss making. Yes.
Simon Nellis
I guess the message is you want to kind of show what 30% to Russia?
Johann Strobl
Yes. It would give us some room also for dividend, you’re right. But its too early to talk now about the dividend at this point in time. But you fully got it, yeah.
Simon Nellis
Okay. And just one last thing on the subordinated debt, subordinated instruments. You said it was 30 basis points, that would suggest that there’s around €300 million. Is that right? I thought it was supposed to be close to €700 million?
Johann Strobl
That’s right, 300. We’re looking around €340 something. Yes, €340.
Simon Nellis
Thanks very much. Very helpful.
Johann Strobl
Welcome.
Operator
Thank you. And we take our next question from Johannes Thormann with HSBC. Please go ahead.
Johannes Thormann
Good afternoon, everybody. Three questions for me left, please. First of all on the and thanks for the indication of your Czech windfall tax payment of €30 million, which is probably less than 2% of what the government wants to collect. Do you expect that the overall Czech banking system will be still meeting the government obligations of a final €33 billion Czech Koruna in 2023, or will there be any shortfall or is there a risk that your payment increases? Secondly, on your risk guidance, this year’s 100 bps surely include some management overlays, whereas next year’s gains of 90 bps excluding overlays. Could you share a bit of the underlying assumptions which drives the difference? And last but not least, as we’ve talked a lot about Russia, but not about the other countries? What is in your view your best performing countries this quarter, and probably which one has been a bit weaker than you would have expected? Thank you.
Johann Strobl
I mean, next questions are probably the most difficult one and the way you framed it, it’s painful, I have to tell you. It’s very painful. It’s like someone in the government independent of what banks are doing, dates and number and then we think twice or three times. So what I hope is so let me start with the €30 million. This is the best guess what we do. So, what we can do, given our may be cautious, budgeted profit for the next couple of years, especially the next year and the base and the adjustments to the base that way we have understood. We still think or we hope that the government is once again listening to the banking system. And well, at least there is some hope for me that if they consider all our arguments then they would understand it’s better to not to tax their banks, but use them as the growth factor of their for the country.
And I think I don’t know if politicians care in these days so much, but I think over the last many, many years, the capital markets, the market condition, which were provided by the Czech government supported very well, the development of the country. Let’s see. So it’s a guess. It’s not still there. And for sure, I do not hope that the 30 more will be requested. I hope less. And this is based on the latest draft what we have seen. So it’s a best guess calculus and therefore, I would not expect more on this.
Hannes Mosenbacher
Well, let me talk also about the risk cost and risk cost guidance, when it comes to the 100 basis points risk cost guidance including the one other overlay booking. Well, when talking about 2022, of course, if you look at our overlays, we have heavily allocated towards these overlays because of the war in Ukraine. Also the effect to Russia because of the sanction environment. And I think this is just pretty straightforward why we have done this. So this was for 2022. And then I was sharing the details what is stage three and what is coming from the overlays. And what was our rationale also of course, including the energy prices and inflations. Well, then looking ahead in 2023, what is our motivations to guide up to 90 basis points at this point in time. We must not forget this heavy inflation, this energy situation, nowadays, economics, talking about stagflation or at least recession.
And I think we have been favored with a very benign credit cycle up to now. And we also jointly have experienced the one out of surprise candidates suddenly being on the screens popping up are reporting the one other problem. So, the 90 basis points would go mainly for experienced Stage 3. And what is very important just to re-emphasize this 90 basis points would be before any release of overlays. And of course, if this 90 basis points are materializing, we also of course could then make use of the one or other overlays what we have allocated up to this moment. Hopefully, this helped you in reading all 90 basis points. Thanks for the question.
Johannes Thormann
Thank you.
Johann Strobl
Now, coming to your third question. The way I understood the first part is like asking parents, which of your kids do you love most. And I can say I love all of them. Though they did a great job. I think when — and of course, looking in the future, I think, okay, I mean, Ukraine is at war. So difficult. The adjustments in Russia difficult or so from a strong capital base. And within the other areas, I think the introduction of the Euro will bring some changes to Croatia. But if I take this away, then I think, yes, all the countries did very well this year. And as explained that he’s very happy with the quality of the risk portfolio — of the loan portfolio. So, I think the starting point of all the countries is good. You have seen that in the rate cycle, some had been favored more than the others. But overall they are in very good condition and looking forward to master also one or the other difficulties. Also when you talk to them, they all say, we are aware something is coming. But when we look at our customers in our books, we still don’t see it. So it’s okay, the starting point. Thank you for your question.
Johannes Thormann
Thank you for your answer.
Operator
Thank you. And we take our next question from Hugo Cruz of KBW. Please go ahead.
Hugo Cruz
Hi, thank you very much for the time. Questions about capital and cost of risk in MREL. On capital, I noticed your guiding for Q4 for some headwinds for model updates. I was just wondering if I suspect that’s not really pro-cyclicality. So genuine model update. So are your models now fully compliant with the EBA guidelines? Or will they be fully compliant by year end? Or will it be any further headwinds to come next year? Then, on the increasing the capital requirements, is it fair to assume that if you solve the Russian issue, those capital, whether sell it or consolidated. Could we see a decline in those capital requirements that are coming?
And then third question of capital, your guidance for Q4 FX headwinds due to the Ruble at 68. I think the Ruble is currently stronger. So what would that mean for your capital ratio if the FX stays this level? Then the question on the cost of risk guidance for next year. Can you split that how much is that cost of risk guidance Ex-Russia, Ukraine and Belarus? And I understand you assume a technical recession in Central Europe. But you still have positive GDP growth year-on-year. So can you give some sensitivity if the GDP growth actually goes negative, for example, to minus 1%? And then finally, you gave guidance on MREL issuance in slide 14? Should we expect a negative impact on your NII? So the increase in funding costs from MREL. Can you give some guidance here, how much will be the impact on NII? That’s it. Thank you.
Hannes Mosenbacher
You gave us quite a big list of questions. And initially, I thought that the first question will go to our CEO when you started that you have a question on guidelines. But then you change gears and talking about model updates. I think let me tell you two things. The one very short answer. Some adjustments still have to be done in 2023 when it comes to the regulatory approval, the final regulatory approvals. And then the other thing is that you anyway have continuous model updates. But to a very, very large extent, one could say that here we already done. Of course, as you also know, you constantly have to review and rebuild your models each year. Our FY rating model will be subject to such a review for the next year. And as we indicated also here on page 24 when it comes to FY corporate rating models, this update of remodeling, we would assess at the time being within other of somewhere around €600 million. So this is towards your first questions.
Some remaining model updates need still to be done in 2023. And I was also flagging what the update beyond the EBA guidelines in our model landscape will cause as a uplift in periods for 2023, to be expected. Let me also take since I’m now talking the number four of your questions when it comes to the cost of risk in 2023, excluding Russia and Ukraine. What happens if GDP is more negative? Well, as I said, these around 90 basis points what we have guided, would split up half-half more or less, Russia or Ukraine and the remaining RBI group. And, of course, if GDP gets more negative, we have two or three things to be considered enter sensitivity. Let me just look if we can see this year in my chat, not yet. But otherwise, John would follow up. But what happens in the more negative outlook when it comes to GDP is two things. The one is that of course, in our macro models, you would see another uplift. We also would like to state that we believe that we already in our macro models. We have seen some up uplift dynamic. I think this is the one thing what we must consider. And the other thing is, of course, that you could see the one item more Stage 3 impact, but the exact sensitivity if we see another one basis, one percentage points of macro titration what these may mean macro what is John could also then provide in the aftermath of the call. Having said all this, there are also some questions remaining.
Johann Strobl
Hannes, thank you for leaving some questions for me as well. I will start with the one what might be the capital requirement without Russia? This is difficult, as it was never so clear attached to our Russian activities. But some of my colleagues here, they always do a back of the envelope calculation and peer group analysis and whatsoever. And they say, maybe at least 30 basis points or less should be expected. But yes, that’s poor guessing and no one never knows. But I think there would be good reasons to reduce that. To your third questions, guidance of 14 CET1 ratio at year end at €68. Ruble rate of course, if its — if the Ruble would be stronger that that’s what I understood from your question, then the 14 would be higher, maybe 25 basis points, something like that. So 14.3 I would guess. And yes, I was also less optimistic or less outspoken on the NII development of next year.
And you spotted one point very well. I think you have seen that the funding costs what we have experienced with the last three benchmarks were significantly higher than what we have seen over the past many years. And this probably is going to continue. We would need, we did. I think from the Emerald perspective, one might say, from the funding perspective, there was some pre-funding, but we at least would need another two to three benchmarks in various formats next year. And depending on the overall market supply and demand. But I think MREL is an ongoing topic for a while, unfortunately. Thank you for your questions.
Operator
Thank you. And we take our next question from Riccardo Rovere with Mediobanca. Please go ahead.
Riccardo Rovere
Thanks and good afternoon everybody. Couple of follow up, if I may. Again, on the loan book in Russia, if I remember correctly, in previous calls, you stated that the duration of the book is not that much. So the book should naturally wind down over time. Now after minus 25 in local currency naturally should keep going down if you are not doing any new lending. So I wonder how — it’s not clear to me how the book can stay as it is. So, if you could just clarify a little bit this. The second question I have is — sorry to get back. Is not clear to me what kind of, an example, GDP assumptions you are plugging into the 90 basis point guidance, and it’s not 100% clear to me also what kind of use of the overlays you have is plugged into the 90 basis points for 2023. And the third question I have, sorry, maybe this is a stupid question, but please. When it comes to capital, which is generated in Russia, you cannot pay it — let’s say, if you say, if you generate €100 million profit and 40 come out of Russia, you cannot pay dividends out of the 40. But received will, but when it comes to the capital of the bank of the group, of RBI group, you can still count on that against the consolidated capital requirements. And if that is the case, could you please tell us a rough idea, what is the core Tier 1 or the Tier 1 capital in Russia? Thanks.
Johann Strobl
Yes. Riccardo to your question, I think what one has to be aware that the loan book, always have a compensation. And you’re right, only if you do not roll over anything, then, of course, some repayments will always happen and will be due, and then you do not — the loan book will further shrink. Will this be significantly? And I think we have yes, look in six months reducing book by 25%. This is a big achievement. So, I’m not so optimistic that this can go on further. What I wanted to stress is partly it’s also about RWA optimization, and it can be that the one or the other loan is more favorable than having it in a highly rated, in a high risk weighted liquidity parking with someone. So here this is — to some extent, it’s also about RWA optimization. I think the second question, the third question, before I hand over to Hannes is the capital generated in Russia and not having the opportunity to distribute dividends from Russia to the head office.
So, yes, if the loan book is stable, and there is no influence, they’re just printing money then yes, the CET1 in Russia will increase. I don’t know if I fully got your question on group level also to CET1 ratio will increase. Here I agree and that this will go maybe even above 15 maybe. We will see. Of course, this, the CET1 in — the Russian capital cannot be optimized. So yes, there is no, it’s mainly CET1. But yes, Russia will be over capitalized. But as long as we cannot assume that their high geopolitical risk is reduced. This is a cautious way not to bring us into a difficult situation then that capital will drop below 13 or so. So this is the group perspective and the rational perspective is similar. The simple words on the local requirements the CET1 issue will increase and decrease and increase the audits. That’s at the end of the day, it’s more than well capitalized entity. But maybe I missed the point of your question.
Riccardo Rovere
My question was mostly the profits generated in Russia that you cannot touch, whatever the capital, and you will continue to accumulate capital in Russia and it will continue to go up, I understand, but you still cannot touch it. But that capital will be part of the capital of the group. So if your common equity Tier 1 ratio target is 13, 13.5, or 14, whatever, that number will be measured against that common equity Tier 1 capital in millions of Euros. That includes the profits generated from Russia. So, I get it right. Profits are not taken out, just because you can touch it.
Johann Strobl
That’s right. That’s right. And that’s right. And the 14 indeed, is the total group, but this is a target. But if Russia contributes substantially more, because of a good profit development, because the strong Ruble whatever, then the reported ratio will be substantially higher than the 14 on group level, including Russia. But this does not change. Whatever it is, it will not change our tools during approach, which means that the rest of the group, at least without Russia have to achieve the 13.
Riccardo Rovere
Yes, okay. Thanks. And on the risk of guidance.
Hannes Mosenbacher
Riccardo, let me also try to enter your GDP, the risk cost question you have flagged. So, what we use for 90 basis points guidance for 2023, you could find on page 68 of our Q3 report, where we transparently show what GDP assumptions and unemployment assumptions we take. Those two are the most important ingredients next to the interest rate levels we use. You will see that we also have a base case and upside case and a downside case. So we really practice numbers in our machines and then adjust maybe here and there, the outcome when it comes to risk cost a little bit but this is the main ingredients. So this is what we have done when coming up with this 90 basis points.
What we understood from our talks, with you, with the community, that for you, it’s easier if we have a cross number, meaning that is 90 basis points is a cross number. Because if we have to use overlays, we will be in any way transparently report and show how much of the overlays have been used for. And if you allow me there was another questions beforehand when it comes to the sensitivity asset. We always have this base case upside case and downside case and if the more pessimistic GDP scenario would materialize what we have shown on page 72 of our Q3 report, then this would mean that risk costs might go up in Stage 1, Stage 2 by another €200 million. Hopefully this helps colleagues.
Riccardo Rovere
Right. So just for me to understand, the 90 basis does not assume the use of your overlays.
Johann Strobl
Indeed Riccardo.
Riccardo Rovere
Okay. Now it’s clear. Thanks. Thanks a lot.
Operator
Thank you. We’ll take our next question from Krishnendra Dubey with Barclays. Please go ahead.
Krishnendra Dubey
Hi. Thanks for taking my question. And thanks for the slide number 18 where you provide the inflation and the energy details price it is. So related to that I had a question. So what are your inflation assumptions for 2023? And what does that lead to the cost guidance for like 2023? What that’s important? What is that you’re making in? The second question I have is regarding the profitability of business ex-Russia and Belarus. In nine months, you have generated 82 million of net profit and generating 18% ROE, what’s your outlook for that business for 2023 given that we have, like currently we do see inverted rate curves where we could have rate cuts in some geographies in 2023? Yes. Those are two questions.
Johann Strobl
Well, thank you that you recognized the sensitivity scenario what we have shared with you and that you appreciated. Well, what we have assumed for this scenario, we assume an inflation of 12% and we were assuming a staff expense increase for the affected industries around about 10%. But of course, you have besides that inflation and wage increases, you also have to consider what is the uplift when it comes to material costs and as I said, for those companies acting in European and CE, we were assuming an inflation for material costs of around 100% price increase. So again, to sum up, inflation was 12%. The staff cost we assumed to increase by 10% in our sensitivity scenarios, and at the same time, we tried to simulate what the cost inflation for material costs would mean, in the case they will double. This was the scenario we deployed.
Krishnendra Dubey
I was asking more for 2023 as well, I think what is the thing that you are assuming, because on the slide, you give us the CPI forecast for a few years, which is based on research as well as your belief that could happen. So I was just thinking more in terms of 2023, because how I look at, how I was looking at it, because I was looking at the consensus number and it is pretty much flat. The customers pretty much flat to 2022. So I was looking for a little bit more forward guidance actually?
Hannes Mosenbacher
But I think this was what we have done in this scenario analysis, you take some macro parameters like the inflation, which we have increased to 12%. I know that the Europe guidance around about is round 10%. But we thought well, let take the 12% inflation, we also use for these scenarios, and this is very important. This is not a guidance, this is just telling and sharing with you what is our thinking, or what is our sensitivity if these macro parameters if I have shared with you, would materialize. So if inflation would go to 12%, if staff expenses would increase by 10%, if the input material cost would more or less than double to all the different industries, then the impact is a drop in P&L of 63%. And this what you also have to consider is this was in this scenario analyze that it materialized over the next two years. So I think this is very important that this is just taking some external macro parameters and then try to deploy those external macro parameters consistently and ask yourself who would be impacted which magnitude. And this is what we have shared with you, because a P&L would drop for the rate ends industries, in this scenario around about 60% and then calculating what would the updated EBITDA and leverage and then look for, and therefore you get the simulated rating. And this is what we have done.
So for me, this is very important that the understanding is, hey, this is a scenario. What we have shared with you is the community. But this is not our base case, just to build on what we have discussed in London, when we talked about our gas shock scenario. And I was asked well, but is it still isolated to a gas shock, why shouldn’t we considered more about talking and energy vulnerability. And this is the main purpose. And for me, if you want to have my reading, I think it has two very, very important conclusions. The one is yes, we would see maybe increase goes without saying, but since we start with this very strong portfolio, the our top lay increase is more pronounced than the risk costs inflation. And the other thing what we have shared with you is how our rental portfolio would be impacted. And again, if you look at this slide, you can see that in many of our countries, we already have seen the strong interest rate increase and nevertheless we have a substantial part of our portfolio in the very low DTI bucket. Hopefully, I was capable to answer, otherwise John would follow up in giving more details on all thinking.
Johann Strobl
And to your other question, profitability ex-Russia and what I understood your question is also referring more to 2023 then to the current year. The detailed guidance we will give you in our next call. So at this point in time, just a few remarks. So from my further guessing about the future, I think one can assume relatively stable core revenues with the one or the other. Maybe not repeated general or very good development in one or the other elements of the fee income we will see. On the other hand, we have a strong Q3 already. And this is the base, of course, in NII for the next coming quarters. You rightfully touched the inflation rate topic and we talked about wage pressure already this year. And when we look then on the inflation rate for next year, then a couple of countries where inflation is still above 10% probably like the Czech, like Hungary, like Slovakia, and in the mid digit, like the smaller countries where we are in Bosnia, Albania, Kosovo, Croatia, Romania. I pass 10%, probably. So this is one of our bigger countries. So how does this impact the overall OpEx? Yes, there will be pressure. On the other hand, some relief should come from the integration costs. So the integration of the Equa Bank in Chez and Crédit Agricole Srbija in Serbia, to a large extent should be consumed already this year. And if you then expect also starting synergies next year. So then, at least some relief should come if you compare 2022 to 2023 more as I said in our next call. Thank you.
Krishnendra Dubey
Can just kind of squeeze one more question. I just had on NII sensitivity, I think it would be a very brief answer that Hannes can give. So what Euro rate sensitivity? Can you guide as to how much benefit the NII would have from the higher Euro rates? Thank you.
Hannes Mosenbacher
Yes. This is just the Euro rates you said. Okay. Here you have to be aware that that from the Euro, we will mainly benefit in Slovakia. As there we have a retail portfolio and to a much lower extent in some countries in South Eastern Europe where there are some deposits as well. And well, 50 to something I would assume as the first guess. Let see how competition develops. Maybe a little bit more, hopefully.
Krishnendra Dubey
Thanks a lot for taking my question.
Hannes Mosenbacher
Thank you.
Operator
Thank you for your questions. [Operator Instructions]. We do have a follow up question
from Alan Webborn with Societe Generale. Please go ahead.
Alan Webborn
Hi. Thanks for taking my call again. The cap on mortgage rates that you refer to in Hungary and the €15 million cost. Is that going to come in 2023 or in Q4 of 2022? In addition to which I think they’ve also put a rate cap on SME lending. Is that going to cost you a similar amount next year? If you have anything you can tell us on that that would be helpful. So secondly, I think we may have touched on this before, but how do you feel about the sort of the main mortgage markets in your region? I mean, a mortgage is something that you’re still trying to push at the moment. Do you think you can keep outstanding stable? Or do you think when rates are high, you’re likely to see a contraction in lending volumes over the next three year until rates start to come down? That was the second question. And just finally, in terms of the changes to sort of TLTRO. Would you expect to see any impact from that next year? Thank you.
Johann Strobl
Thank you for your questions. My understanding is that as we know the impact, we will have to book the mortgage rate cap and the SME still in Q4 based on the assumption so that it reaches still, so the cap for the mortgages reaches still mid 2023. So this is, this 8 million impact from that, what was the first guess maybe it’s 10 we will see. This will be booked in Q4. And also the SME cap will be booked in Q4. If this will be everything we will over run but from the current measures. That’s it. So everything in Q4, not in next year in 2023.
Alan Webborn
Sorry. And so the €15 million that you refer to on slide 18, does that include both the mortgage cap and the SME cap?
Johann Strobl
That was the, I am now struggling.
Alan Webborn
On slide 18, you suggest that the 15 million —
Johann Strobl
Yes. So the mortgages to be precise on their mortgages. So the number I delivered was the total number four had been booked already and eight will come in Q4. So this is the part on the mortgages. And then the SME is as I guess this 10 to 12, also to come in Q4 in Hungary. Mortgages at this rate level — the minimum we have to do to stay in the mortgage business. So we cannot fully stop. This is what we some years ago learned the hard way. If you totally stop in some markets, then you out for long. That’s more important in those markets where you have a strong brokerage community that’s less important than others, but it will — the demand will slow down anyhow. And as you have seen there is the question with floating rates for mortgages which then are kept. So the mortgage is not an attractive product at the moment. And so, we will be careful what we offer. We cannot fully use it the way we want usually and the normal times offered to our customers.
So as far as the TLTRO is confirmed or is concerned, of course, we would look at it from an opportunity cost perspective for the NII. And that would then be €30 million in our case. And then of course is the question will be use the repayment window we’re undecided on that, but we’re discussing it. Thank you.
Alan Webborn
Okay. Thanks.
Operator
Thank you. And we take another follow up question from Andrea Vercellone with BNP Exane. Please go ahead.
Andrea Vercellone
Just a quick one on Croatia. Will you have any release of RWAs with Croatia joining the Euro next year or it’s negligible if any?
Johann Strobl
No. I don’t expect any release in RWAs from the Euro. I’m looking at Hannes. He is somehow confirming my guessing, but he will be more precise than I’m.
Hannes Mosenbacher
The main argumentation, Andrea, would be that Croatia anyway already followed very much our ECB regulations up to now in both a recognized country when it comes to the year. And that is the reason why because of the introduction of the Euro we will not see any RWA release. But with the one on a sub portfolio, we may switch into an IRB. And here we could see some smallish releases. Thanks for the question.
Andrea Vercellone
Thank you.
Operator
Thank you. And we have a next question from Mate Nemes with UBS. Please go ahead.
Mate Nemes
Hi, good afternoon and thanks for the presentation. Just a quick one on group corporates and markets and apologies if this has been discussed. I missed a small board. The NII growth quarter-on-quarter was 15% quite steep. And the total asset of growth, I think was only 5%. Can you just give us some color on what has happened there? Has there been some mix shift in the business? Or is that genuinely the rate impact to kicking in? Thank you.
Johann Strobl
Let me start with indeed there had been some adjustments in the structure. But the liability matching was of course, to a small extent supportive as well. As I said not too much. I am looking to my notes if I can figure out the margin was rather negative. So give me a few moments and I will come back.
Mate Nemes
That’s perfect. We can also take that offline.
Operator
Thank you. And as there are no further questions at this time we will now conclude today conference call. Thank you for our participation.
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