ALBKF - Alpha Services and Holdings S.A. (ALBKY) Q4 2022 Earnings Call Transcript
2023-03-15 16:10:10 ET
Alpha Services and Holdings S.A. (ALBKY)
Q4 2022 Results Conference Call
March 15, 2023 06:00 AM ET
Company Participants
Vassilios Psaltis - Chief Executive Officer
Lazaros Papagaryfallou - Chief Financial Officer
Iason Kepaptsoglou - Head of Investor Relations
Conference Call Participants
Creelan-Sandford Benjie - Jefferies
Alevizos Alevizakos - Axia Ventures
Boulougouris Alexandros - Wood & Co
David Daniel - Autonomous Research
Memisoglu Osman - Ambrosia Capital
Presentation
Operator
Ladies and gentlemen, thank you for standing by. I am Galle, your Chorus Call operator. Welcome and thank you for joining the Alpha Services and Holdings Conference Call to Present and Discuss the Full Year 2022 Financial Results. All participants will be in listen-only mode and the conference is being recorded. The presentation will be followed by a question-and-answer session. [Operator Instructions]
At this time, I would like to turn the conference over to Alpha Services and Holdings management. Gentlemen, you may now proceed.
Vassilios Psaltis
Welcome, everyone, to Alpha Bank's fourth quarter results call for 2022. This is Vassilios Psaltis, Alpha Bank CEO. And I'm joined today by Lazaros Papagaryfallou, our CFO; and Iason Kepaptsoglou, our Head of IR, to update you on our fourth quarter results.
Now let's turn to Slide 4, please, to start with a brief update on the macro. Greece has recorded strong economic growth in 2022 or 4.9% even for inflationary pressures weigh on economic activity and uncertainty was elevated. As you can depict in the left-hand slide on the top end, the solid growth performance was underpinned in part by growth in private consumption, 7.8% on the back of continued employment gains and the fiscal measures adopted to shield households against rising energy costs, but also due to sizable growth in investments, which grew by 11.7%.
Greece was on the back of revival of foreign direct investments, which in 2022 amounted to €7.2 billion that made 3.5% of our GDP. The outlook for 2023 remains quite positive while risks appear more balanced compared to last autumn. However, headwinds remain and uncertainty continues to be elevated. Going forward, growth dynamics are expected to moderate in 2023, with the energy crisis taking install in domestic economic activity and especially consumption assorting energy and food prices erode the household purchasing power.
As seen in the left-hand side slide, real GDP growth is expected to remain relatively resilient, a bit higher than 2%, supported mainly by investment. The increased contribution of investment on the future growth mix is expected to be supported by the strong upward dynamics in FDIs by the implementation of the RRF and the public investment program and by the approach towards investment grade after the marked improvement in debt sustainability and sovereign risk compression.
Underpinned by the continued employment gains and the expected over-performance of tourism, private consumption and exports of services are expected to continue supporting economic growth in 2023 for to a lesser extent compared to previous years as domestic and external demand is expected to weaken on the back of the adverse effect of the energy crisis on the household disposable income.
Labor market conditions continued to improve in 2022 with the unemployment rate falling to 12.4% on average, while headline inflation has already passed its peak standing up 9.3% in 2022 as depicted in the right-hand side graph. Well, for energy prices gradually eased within the last quarter of 2022. Core inflation remains high due to the pass-through of higher entry costs to other products and services.
Food price inflation is expected to prove more persistence given the lag pass-through of high energy cost on food production. The combination of the resilient labor market with rising core inflation provides degrees of freedom for a further tightening of the monetary policy in the short run with policy rates peaking later in the year at a slightly higher level than previously expected.
The cumulative impact of past monetary tightening is starting to weigh also on lending activity. However, the further tightening of monetary policy and increase in borrowing costs are not expected to weigh substantially on public rate dynamics in the short term, taking into account the favorable debt profile marked by constant and low interest rates and high average maturities.
Now let's turn to Slide 5 to look at the financial performance for the year. In 2022, we have made substantial progress towards the key objectives of our plan. Our balance sheet has been restored with NPEs dropping to a single-digit ratio level, and as a result, cost of risk rebasing to healthier levels.
On the top line, our franchise strength and policy decisions have allowed us to offset the headwinds from NPE disposals with net interest income turning a quarter already in the second quarter of the year, whilst our balance sheet positioning and commercial decisions have allowed us to benefit meaningfully from higher rates in the second half of the year.
We continue to make progress on the cost front, where our transformation program and the streamlining of our platform have allowed us to reduce our cost base despite increasing inflationary pressures. Our regulatory capital has increased steadily throughout the year, allowing us to deliver on the guidance that we gave you a year earlier despite market headwinds and getting us closer to our management target that we expect to reach during 2023.
Last but not least, we have delivered €400 million of profits and growing recurring earnings by close to 30%, delivering earnings per share of €0.18 and growing our tangible book value by 4%, both are a testament to our commitment to value creation for our shareholders.
On Slide 6, allow me to draw your attention to some highlights from our segmental performance. Note that we have changed the reporting of our segments to better align disclosure with the actual organization operational structure resulting from the implementation of our transformation program.
Starting with Greece, wholesale has been front and center in terms of growth, contributing €361 million to group normalized profits on the back of sustainable and profitable growth of its loan book. Our retail business continues on its reposition in Germany, with profits up meaningfully year-on-year despite the persistent lack of demand for loans.
And last but not least, our wealth management unit has had a challenging year, with market turbulence, solid growth in assets under management, but still meaningful growth in recurring profits for the year on the back of the balance sheet management. Overall, our segments increased have delivered a return on tangible equity of 17%, while taking up close to 3/4 of the risk-weighted assets of the group.
Our international business has seen an inflection point and is now growing into its, especially in Romania that have seen double-digit growth in loans and deposits with a step up in new originations of wholesale, mortgage and small business loans. We expect returns for these segments to continue in 2023 and progress towards aligning with the group's ambition.
We continue to have a negative impact from the stock of non-performing loans and assets, but as Lasaros will explain later, that following stock should translate into a smaller drag on group profitability. Lastly in our new reporting, we have tried to allocate the vast majority of capital and P&L items to the various segments, leaving a relatively small behind.
Turning now to the next slide, you can see a summary of our guidance for 2023. Lazaros will walk you through this in some more detail later, but I would like to draw your attention on a couple of points. First and foremost, we are seeing a notable acceleration in our earnings capacity. Profits on a recurring basis grew by 30% in 2022, and we expect a further 25% growth in 2023.
Above and beyond the exogenous benefit of higher rates, this is also the result of the hard work that we have done, investing in the transformation of our business, ensuring that we allocate capital to maximize value and repositioning our operating model for the years ahead.
Secondly, we are cautious of the challenges that lie ahead. Whilst we are constructive on the outlook, our commercial policies ensure that we position our balance sheet in a sustainable manner. That is embedded among other things, in our pass-through assumption for interest rates, our loan growth estimates and our conservative stance on provisioning, and it translates into the guidance that we are providing.
Last but not least, and I want to be absolutely clear on this, we're currently focused on maximizing the value that we add to all of our shareholders. Financial projections might not paint the whole picture but the continuous improvement in profitability and growth in our tangible book value are testament to that.
And with that, before I pass the floor on to Lazaros, I would like to inform you that in the second quarter of this year, we intend to host an Investor Day to update you on the progress on our strategy, the direction of our business and the various segments as well as provide you with our financial projections for the coming years.
We will share more detail with you closer to that date. Lazaros, the floor is yours.
Lazaros Papagaryfallou
Good afternoon, everyone. This is Lazaros Papagaryfallou, Alpha Bank's CFO. Let's now take a closer look at this quarter's numbers.
Turning to Slide 9. This year, we have returned to profit following the clean half of 2021 and have reported a positive bottom line of circa €400 million and €63 million for the last quarter. Excluding the impact from transactions and the various one-offs, profits were up 29% year-on-year on a normalized basis. Core pre-provision income was up by 6% in the year on the back of efficiency gains, while pre-provision income increased by 36%, helped by higher trading gains and other income.
On the next slide, our NPE ratio has fallen by 530 basis points in the year and 20 basis points in the last quarter to 7.8% with transactions earlier in the year, but also meaningful organic reduction. The group's NPE coverage stood at 41% at year-end with annual move affected by transactions. Our tangible book value is on an upward trajectory, up by 4% in 2022 to €5.8 billion. While on capital adequacy our fully loaded common equity Tier 1 increased by 8%, allowing us reached a ratio of 12.5% at the end of 2022, accounting for the pending risk-weighted asset relief from transactions.
Now turning to Slide 11 to look at the underlying profit and loss trends. Net interest income was flat year-on-year at €1.3 billion, but that was driven by a 60% reduction in lower quality accruals from non-performing exposures, meaning that our core recurring net interest income was actually up by 15%. Fees and commissions proved quite resilient, flat year-on-year at €396 million as 9% growth in the continuing business offset the impact from the sale of the merchant acquiring business.
With carrying operating expenses continue to trend lower, down 3% year-on-year, demonstrating the improvement in efficiency and the cost of risk came in at 76 basis points, excluding transactions, reflecting benign asset quality flows and a cleaner balance sheet. Performing loans on the next slide grew by 10% in the year with business loans in Greece being the driving force and a meaningful uptick in the contribution of our international business.
Our loan book is built with defensive characteristics capturing the investment thrive the country, taking advantage of available tools such as the RRF and the development law, in projects of choice with infrastructure, utilities, hospitality, green transition and digital transformation as an example.
Originating fees as the advisory partner of choice for our corporate customers, ensuring that we have proper conservative structuring and ultimately producing returns above our 15% threshold for returns on risk-adjusted capital, the last quarter of the year show a marked slowdown in net credit expansion as well as a notably negative FX effect on our dollar shipping book. Disbursements reached €2.3 billion in the quarter, but were offset by meaningful repayments as cash rich corporates opted to close certain facilities given improving sentiment on the outlook.
Whilst the downwards adjustment in energy prices resulted in repayments of working capital facilities for this segment. Echoing the comments made earlier by Vassilios, I would note that the slowdown in GDP growth, higher rates, the electorate calendar and the aforementioned repayments are likely going to continue to weigh on low growth in the near term, and this is reflected in our guidance for 2023. However, the underpinning of loan growth remained solid for the medium term, given the continuing investment drive in the country, and this is reflected in the strong pipeline that we have on disbursements.
Turning now to deposit gathering on Slide 13. The group's deposit base increased by €3.3 billion year-on-year or 7% to €50.2 billion. In Q4, group deposits were flattish as inflows from households and international deposits were mostly offset by outflows from businesses, reflecting the significant increase in loan repayments witnessed in the fourth quarter.
In the last quarter of 2022, we also started to witness a change in our mix of deposits with time deposits trending up by 1 percentage point in the quarter as depicted on the right-hand chart, representing 14% of the domestic base. This trend is in line with sector trends and is anticipated to continue in the coming quarters, with time deposits expected to reach more than 40% of the deposit base by year-end. And with that, let's look at the evolution of net interest income in more detail on the next slide.
Net interest income continued to be rebased in the fourth quarter, reaching €398 million, up by 17.4% versus the third quarter, driven by higher rates and income from bonds. More specifically, higher interest rates increased interest income from performing loans by €68 million and on non-performing exposure by €4 million, whereas higher rates and bond balances had a positive impact of €11 million in the fourth quarter.
On the other hand, deposit pricing had a negative impact of €13 million, while funding costs increased interest expense by €10 million, mainly on the back of MREL issuances. On a yearly basis, net interest income reached €1.3 billion, down by 3.8% year-on-year, reflecting the €200 million impact from the reduction of non-performing assets.
On the next slide, you can see a breakdown of our net interest income in some more detail on the left. Following the reduction in non-performing exposures, the respective interest income now accounts for less than 10% of our top line. The contribution of performing loans and bonds has been on an upward trajectory throughout the year. Given our cash and TLTRO position, the net benefit from the ECB has not changed materially from the previous quarter. Following the change in the TLTRO modalities, we do not expect to have a positive contribution going forward.
As a result, last month, we proceeded with a €2 billion repayment and expect to use the March window for a similar amount, leaving circa €4 billion for later this year. Recent repayments are enabled by strong cash buffers. On the right-hand side, we show the evolution of loan yields and deposit costs.
Given that our loan book is predominantly floating rate, we have been enjoying a meaningful pickup in yields. Note that as we have highlighted before, there is a circa €4 million four-month lag in repricing. On the deposit side, the pickup in costs began in late fourth quarter. Although we have not been leading the range and is evolving quite well we have begun to see a conversion of deposits to term accounts.
Roughly half of new production is for one-year time deposits, while 30% of new production is placed with products under six months. Our deposit base is predominantly composed by a sticky affluence retail, and we have been diligent in ensuring that we remunerate longer maturities and higher balances, while incentivizing the use of our asset management business for capital accumulation.
On the back of high inflation and high rates, we should expect very different behavioral patterns among the different deposit cohorts as the more affluent base has more flexibility to adjust the cost of living without diluting the savings or saving rates. What we actually observed so far is that there is appetite from those savers in capitalizing on longer-term mutual funds that offer high returns than deposits.
Having said that, we do expect the cost of deposits to increase significantly during the year as the stock rolls into more current pricing and more deposits compared to time. The process has accelerated in the early part of 2023 as the system is converging with the EU average. Eventually, this year, we expect close to 45% of the stock to be in time deposits with a pass-through above 50%.
Moving on to fees on Slide 16. This quarter's headline net fee and commission income was up by 5.4% to €97.9 million, excluding the impact from the deconsolidation of the merchant acquiring business, fees increased by 4%, driven by business credit related and asset management fees. On a yearly basis, the headline number was flat, while excluding the deconsolidation of merchant acquiring business and other one-offs, fees were actually up by 9.1%, with growth in all categories but asset management that saw a lower performance fee given subdued market trends in 2022. The €374 million base we show here is a clean number from which we expect to grow going forward.
On to costs now, Slide 17. Our recurring operating expenses were up this quarter by 11% due to seasonally higher marketing IT expenses, employee retention plans as well as higher depreciation of technology intangibles. Since in certain cases, we have shortened their useful life. On a yearly basis, continued focus on cost efficiency resulted in a 3% reduction in recurring costs despite inflationary pressures, partly benefiting from the deconsolidation of the merchant acquiring business or a 2% reduction adjusted for the aforementioned impact. Moreover, our total OpEx base declined by 18% year-on-year, driven by lower non-recurring expenses versus 2021. Our headline cost income ratio stood at 50% in the quarter and 46% for the domestic business.
Let's now turn to asset quality on Slide 18. On the right-hand side of the slide, you can see further information on our cost of risk evolution. The underlying cost of risk came in at 71 basis points in the fourth quarter with 16 basis points for servicing fees and 6 basis points for securitization expenses. That brings the overall cost of risk to 93 basis points for the quarter and 76 basis points for the full year. Note that as of the end of the year, we had €155 million of management overlays in order to account for the uncertainty in the current macroeconomic environment.
Our coverage ratio improved slightly in the quarter to 41%. NPE formation increase was close to zero with a reduction in inflows and flat outflows and we're yet to witness any signs of deterioration in the portfolio. Targeted campaigns launched during 2022 to contain inflows alongside intensified collection efforts and new modification products should bear fruits during 2023, not least in a strong pipeline of cures, and we expect to see a further organic NP reduction in 2023.
And with that, let's move on to the next slide. The graphic structure of our NPE book and outcome of our NPE reduction strategy is what will drive the reduction of non-performing exposures going forward and concurrently underpin the outlook for cost of risk. Our book has a large percentage of loans with paying customers with non-performing exposures under 90 days past due, making up 47% of the total. We are confident on the circa €0.9 billion pipeline of cures that should mature in 2023, driving an organic reduction in problematic exposures. At the same time, repayments and liquidations from the other non-performing exposures have a good recovery potential, given the large stock of mortgages within that group.
On Slide 20, following the quantum leap of the previous quarter, our NPE ratio has fallen further by 20 basis points to 7.8% on account of growth in our loan book. By year-end, we expect the NPE ratio to fall below 7%. Let's now briefly look at the evolution of our fully loaded capital position on the next page.
As before, it is probably best to look at the movements in capital in three separate buckets. Our organic capital generation was strong as profitability has recovered, allowing us to build our capital base more than offsetting the recurring impact from DTC amortization. We continue to fund growth through internal means. Our capital ratios are also proving resilient. As there was effectively no impact from fair value through other comprehensive income this quarter due to the low sensitivity of our book to shifts in the yield curve, while on an annual basis, the negative impact came in at just 16 basis points.
And then last year on transactions, there was effectively no impact this quarter and just 11 basis points for the year, as we have been able to fund the cost of non-performing exposure disposals through internal resources. Our reported fully loaded common equity Tier 1 stood at 11.9% at the end of the quarter, up by 15 basis points versus Q3, whilst pro forma for the anticipated RWA relief from transactions, our fully loaded common equity Tier 1 stands at 12.5% and is up 33 basis points versus the comparable Q3 number.
On the next slide, you can see that our capital ratios are well ahead of regulatory requirements, whilst the €400 million AT1 issuance that was completed earlier this year, enhances the strength of our balance sheet, further aligning us with our better rated European peers. It provides additional capacity to be deployed in an accretive way for stakeholders, allowing the group to fully benefit from future balance sheet growth, while proactively supporting our engagement with the regulator in delivering our plans towards our shareholders.
Slide 23, please. During 2022, we have upsized our guidance twice mainly on the back of the changing macro environment and the resulting monetary policy response. I'm happy to report that we have been able to navigate the challenging environment, delivering on our main promises whilst ensuring that we create the right springboard for a further improvement in our ability to generate value for our shareholders.
And with that, let's move to Page 24 to talk about the future. We will unfold our plans for the next three years in the upcoming Investor Day. So for today, we will limit ourselves to the outlook for 2023. Obviously, the dominant theme in discussions is the outlook for net interest income, where we expect mid-single-digit growth from 2022 levels. I have mentioned the main components during the presentation, but allow me to summarize.
It is important to remember that we carry some luggage from 2022. As you can see from the presentation, we made close to €80 million from our net position at the ECB and the quarterly run rate in 2023 is zero following the change in ECB modalities. We have also been very active on the wholesale markets, raising MREL, especially in the quarter -- the last quarter of the year. So this will create a drag on net interest income. Lastly, we have been managing our portfolio of non-performing exposures down and expect to consolidate the held-for-sale portfolios during 2023. So that will lead to lower accruals from non-performing exposures.
On the positive side, we continue to grow our asset base, and this will be accretive to our top line. But as we illustrated on the slide here, the impact from higher rates will be the highest driver of our top line for 2023. Our guidance is based on the assumption that 3M Euribor averaged 2.8% during the year. But given repricing lags for our loans, the average Euribor in our books will be closer to 2.2%. We expect the stock of time deposits to account for 45% of the total by the end of 2023. Pass-through on time deposits is expected to reach just north of 50%, and we do expect some spread erosion on loans, probably north of 20 basis points. On cost income, we are aiming for below 49%.
And once you have put all the numbers in your models, you will figure out that this translates into a reduction in costs year-on-year. Here, we should note that on top of the guidance on recurring costs, we do expect to crystallize a few one-offs, mainly as a result of the Voluntary Separation Scheme that we launched earlier this year. The benefit that will crystallize in 2023 and full in 2024 will be just north of €20 million, while the payback stands at just over 2.7 years.
On cost of risk, our guidance of circa 85 basis points is based on conservative assumptions for inflows given the inherent macroeconomic uncertainties as well as the cost of management actions for the year. Taken all together, this should translate in a 25% growth in normalized earnings per share and a return above 9%, leading our tangible book value per share to €2.6, up 6% year-on-year. And last but most certainly not least, Slide 25 on capital projections. Firstly, as we have highlighted before, we expect to add circa 60 basis points inorganically through two synthetic securitizations in the first half of the year.
Secondly, our sustainable organic profitability is expected to at more than 170 basis points, including the combined impact of DTAs and DTCs. Thirdly, growth in our loan portfolio is expected to consume 90 basis points of capital in the form of RWAs. The improvement in the quality of our balance sheet, increasing levels of sustainable profitability and increasing capital levels that are above our targets underpin an altered intention to pay a dividend in 2024 out of 2023 profits subject to meeting, of course, our financial targets and, of course, securing regulatory approval.
For the avoidance of any doubt, our strategy is to run with prudent capital buffers over and above our minimum capital requirements, and we aim to operate at all times with a common equity Tier 1 ratio above 13% and total capital above 17%. This implies a buffer of circa 330 basis points versus our end point common equity Tier 1 requirement as we aim to fully optimize our capital structure in due course to support our business strategy. In 2023, we will end up above those target levels. This is a result of our expectations for capital generation, improve the capital policy until we are able to optimize our capital structure as well as realistic assumptions from the restart of dividend payments.
And with that, let's now open the floor to questions.
Question-and-Answer Session
Operator
[Operator Instructions] The first question comes from the line of Creelan-Sandford Benjie with Jefferies. Please go ahead.
Benjie Creelan-Sandford
It's Benjie here at Jefferies. Two questions from me, please. The first one was just on the guidance for 2023 in terms of cost of risk and the NPE ratio. I'm just wondering in the context of the 85 bps cost of risk guide, does that envisage that coverage levels will increase through this year? Or do you feel sort of comfortable with the current levels of coverage? And I guess, on top of the 85 bps cost of risk, should we expect anything further below the line in terms of charges on further NPA disposals, et cetera?
The second question was on fee income. I mean the momentum this quarter was quite strong. There's good trends coming through in asset management than in credit fees. I was wondering, if you could just maybe discuss a little bit more about the expected trend for fee income in 2023, particularly around the credit fees, just in light of the guidance for a slowdown in lending volumes this year versus 2022?
Lazaros Papagaryfallou
This is Lazaros. Indeed, the cost of risk guidance of 85 basis points is another conservative assumption on the back of the guidance we have given for NPE flows for which we do expect a further organic deleveraging by approximately €400 million to drive the NPE ratio below 7% in the year. This is a function of lower inflows that we have witnessed Q-on-Q during the last period, a trend which continues in the first quarter of 2023.
Similarly, we do implement strategies on the stock of NPEs having introduced new products since early 2022, especially on the non-performing loan stock, and I have referred to that on previous occasions, DPOs and restructurings, driving loan to values at lower levels with a view to manage conclusively the stock down to the desired levels.
The cash coverage at 41%, which is a starting point that was reported as of year-end 2022 is a function of the composition of our Stage 3 loans, especially if you take into account that a very good part of that is below 90 days. And a good part of that, the bulk relates to mortgage loans where we expect significant volume of curings. So we have given also guidance about the level of curings expected in 2023 at €0.9 billion, a function of the restructurings that have happened so far.
Taking all that into account, the cash coverage levels are expected to increase in 2023, in line with our strategies we implement for Stage 3 loans. There was another question about a potential tail coming from NPE transactions. You have witnessed in 2022, a significant reduction of those below the line impairment charges for transactions. In 2023, we do expect a much smaller amount to the tune of €30 million or so for NPA transactions.
Now as far as fee income is concerned, we have explained how the consolidation of merchant acquiring business has contributed towards a reduction of fees and commissions. But taking everything else in background, 2022 was positive by 9% in other respects, and that was driven predominantly by business credit-related fees on the bank of significant net credit growth in wholesale. We have witnessed a good increase in bancassurance and card payment fees.
The year was quite strong in these business lines. On the other hand, we have witnessed a drop in asset management fees for 2022 as there has been turbulence in the markets, especially in the first two quarters of the year, and this has impacted our performance in wealth management fees. Now going forward, we do expect an increase of the fee base out of a starting point of €374 million, which should be your starting point in the absence of the merchant acquiring business.
And this will be predominantly driven by asset management, where we have introduced two products, and we do expect to see a growth in AUMs, bancassurance as well as cards and payments. In loan and business credit-related fees since we expect some smaller expansion, especially in certain segments, which have procured in 2022 significant fees, for example, project finance, we do expect a reduction.
So overall, it's going to be a positive number an increase on the €374 million base contribute towards our bottom line targets communicated earlier.
Operator
The next question is from the line of from Alevizos Alevizakos with Axia Ventures. Please go ahead.
AlevizosAlevizakos
Thank you very much for the presentation. Well done for the results. I've got a couple of questions. The first question is regarding the costs for 2023. I would like to know what would be the key moving parts for the cost base going into this year. And how it will move, if you can give perhaps an absolute number or a year-on-year increase? That's question number one.
And then question number two, I could see like the profitability of the Greek operations and it's super like at 17%, whereas you can see internationally and specifically Romania appears to be lagging somewhat. At the same time, when you look at the headcount, I realized that it is increasing. So I was wondering what are your longer-term aspirations for Romania? And how much do you think you can grow the portfolio there above the €3 billion currently?
Lazaros Papagaryfallou
Thank you, Al. I will take the first question and Vassilios the second. When it comes to costs in 2022, we have guided for a reduction of the costs down to €960 million. We ended up with a recurring cost base of €975 million, managing to reduce recurring OpEx despite inflationary pressures that have showed up intensively, especially during the second half of the year. So I think on the delivery of 2022, a reduction in recurring OpEx despite those inflationary pressures and a relatively small miss compared to the initial guidance by 1% is positively taken given also the cost income driven down to 54% on a group basis.
Now for 2023, the first item to note is the successful completion of our new Voluntary Separation Scheme, releasing 500 colleagues from the Greek operations, an initiative that will bring €20 million of benefits, cost benefits in 2023 and 2024. And I remind you that this further release of employees comes for a platform, which is the lightest in the Greek market, given last -- given the initiatives that we've taken in the last few years. In terms of other drivers in 2023 beyond the Voluntary Separation Scheme, we do expect to see the full phasing of the merchant acquiring business, say, phasing into our OpEx.
We do expect to see a positive impact from the completion of the non-core sales in Cyprus portfolio Sky as well as in Greece portfolio, Skyline, which is the largest REO trade in the group market. If you look at the components of OpEx staff costs are expected to slightly increase by circa 1% as the reduction of staff costs in Greece because of the Voluntary Separation Scheme that we have already implemented, will be counterbalanced by some inflationary-driven salary increases in Greece and SEE.
However, as I said, the Sky transaction is expected to create save with this, savings of approximately €6.4 million due to the Voluntary Separation Scheme implemented in our operations and the carve-out of our NPE unit to the services. General expenses are expected to decrease considerably by almost 10%, driven by transactions from fields that is the IO trade in Greece and Sky in Cyprus.
Depreciation is expected to rise in 2023, slightly to reflect higher investments in transformation projects as well as the increase of mainframe capacity. Taking all that into consideration, we do expect to see the cost income below 49% on a group basis or even lower if you take into account the single resolution fund costs. That would bring the cost income on a pro forma basis at mid-40s level. And if you bake that into your models, you will come up with a somewhat lower OpEx absolute number for 2023 versus 2022.
Vassilios Psaltis
Al, this is Vassilios. I'll take up your question on Romania. Perhaps there's a matter of introduction for those that may not be that familiar with our presence in Romania. Alpha Bank, we're the first foreign bank to set foot back in '93. And we have been in the third position in the market when the Greek crisis erupted.
So from that point onwards and when we entered into a restructuring actually, we were not allowed to grow any more our balance sheet. So you appreciate that tied up with the crisis led into a position of shrinkage of that presence, and it ended up when we were able to grow it back again in 2020 in the seventh position. So at that moment, we made -- we took stock of where we stood.
And we realized that we had a presence, we still have access to a significant customer franchise, which was appreciated by stakeholders as we witnessed in our frequent visits there, and also it had talent. And on top of that, it had excess capital. So what we have decided to do because we firmly believe that this bank can create value again for our shareholders is to give it a bit more time to allow it to invest in order to get into a position to deliver that value. In 2022, I think there are a few ways of looking at the situation.
The first is the one that you picture. So if you take of that, it still delivers a high cost to income. But in our mind, this is because we have set up a platform, which is ready to onboard much more assets than the ones that we currently have.
And 2022 has been a turning year because we have been able to show double-digit growth of loans and deposits attracts more customers, deliver better business for our existing customers and grow faster than the market, a market, which has a good number of characteristics and in particularly the Tier 1 banks to which we are now closer to are able to deliver return on tangible equity, which are similar to the ones that we are delivering to in Greece.
So from that point of view, I think Romania is an upside -- has significant upside potential to contribute to our numbers, and more to that, we will be able to deliver when we discuss at Investor Day.
Operator
The next question is from the line of Boulougouris Alexandros with Wood & Co.
Boulougouris Alexandros
Congratulation on the good results. Two questions in mind, and regarding income securities on the pickup in the fourth quarter as you show on Page 15, €51 million. Is this the run rate you assume in the plan for 2023? Or do we expect even high number as the portfolio gradually results to higher rates? That's my first question.
And my second is regarding the repayments from corporation, we saw a rise, as you already mentioned, in the fourth quarter. Maybe if you could give a color on the trends in the first quarter regarding payments and maybe a bit on the loan growth, the single digit? What is the level of growth you expect from corporate and what is a level on retail, I guess, retail is marginal, but just a color would be interesting?
Vassilios Psaltis
I will take the first, Alex, on securities. You should expect to see higher income accruing in our 2023 accounts, and that is driven by both price and volume. You would expect to see €150 million more in interest income in terms out of the security portfolio.
Lazaros Papagaryfallou
But just to clarify, that's on a year-on-year basis, obviously, right? If you were referring to the Q4 number, we don't expect to group €500 million.
Boulougouris Alexandros
€150 million incremental compared to the full year of 2022?
Lazaros Papagaryfallou
Correct.
Vassilios Psaltis
Alex, this is Vassilios. As far as your second quarter is concerned, let's detail a bit on the reasons why we have seen this acceleration in the fourth quarter. And practically for that, there are two reasons to look at. The first is that 2022 has been a real particular year as far as the sourcing cycle is concerned of energy companies. The significant hiking of their -- of energy has led to a massive increase in working capital needs that they had.
This is something that the Greek banking system along with their own profitability has been able to procure and sustain throughout the year. But as in the fourth quarter, we have seen a significant deceleration of those energy costs practically correspondingly, the associated working capital and margin needs that they had has gone significantly down. And from that point of view, they have been commensurately quick on their feet to repay those working capital -- that working capital. That is the first reason.
The second reason is that 2022 has been a strong year, not just for banks but also for a good number of other sectors. I've just mentioned the energy companies, but there were more of that that have a mass profitability and most importantly, in liquidity as they have been --as they could monetize the profit. Among those, I would highlight the shipping sector along with the hospitality sector.
So these sectors, which also have leveraged on themselves, it was only natural to start thinking of reducing their exposures by with deposits that we're having. Now this, because as you alluded also to that, if this trend continues into the first quarter, I would consider this as a one-off phenomenon in the sense -- one-off in the sense that people do take stock of where they stand and do make their adjustments.
Now from a calendar point of view, I think a good number of that has happened in the fourth quarter. However, it continues, obviously, into the first couple of months of the first quarter. But this is -- if you would want, this is a one-off step change for that. And we do expect from that onwards to gradually revert back to the mean of repayments that we had seen.
I would also add that another point that has allowed them to be quite flexible in taking that decision is that there is -- they consider the Greek market as being very liquid and ready to help them leverage back when they feel a need to do so. And just as a quick note, because you asked also for that where actually the loan growth comes from, I mean, needless to say that practically, it all comes from the business side.
Operator
The next question is from the line of David Daniel with Autonomous Research. Please go ahead.
Daniel David
Congratulation on the results. Just a couple of questions. Can you just maybe talk about your MREL issuance plan this year and what the -- how much you're planning and kind of what you're thinking about at the moment? Just got a quick question on your held-to-maturity portfolio. Could you give us an indication of the fair value of that portfolio? And also on your deposit base, could you give us an indication of the size of the insured deposit base?
Vassilios Psaltis
Can you repeat your first question, please because it was unclear.
Daniel David
Sorry. I was just asking about your MREL issuance plans in terms of 2023, whether you might look to cut the market this year and potentially by how much?
Vassilios Psaltis
Yes. I will start with MREL issuance. You have seen that in the last few months, we have been quite active in terms of wholesale funding with two issuances of, one issuance in AT1, and there was also a private placement as well as an asset liability management exercise. So, a very busy period for us in wholesale funding showing that we have the ability to tap the right windows and implement our strategy, going forward, we are committed to complying of course, with our MREL targets.
So you should expect to see us regularly in the markets with one or two issuances of MREL in a year. However, because of the latest activity, which has been quite intense, we do not really expect in the short term to tap the markets for MREL. Most probably, there could be an initiative in the second half of the year. Coming to AT1, again, we have issued €400 million. We have space with another €350 million. This is not part of our plans for this year.
We do plan to tap the full capacity for AT1 until the end of the planning horizon, which is 2025. Now with regards to our securities and I need to draw some lines here. The portfolio has been and is part of our overall banking book strategy with regards to capital, liquidity and interest rate risk. We have crystallized significant gains up to the end of 2021 out of the securities book and with very muted investments in 2021.
The portfolio has somewhat built up in 2022 with more than 90% of the risk in the hold maturity, which has minimum capital volatility. 85% of HQLA Level 1 assets, so high-quality liquid assets of Level 1, which are currently below 50% in and the annual run rate as of the fourth quarter is €200 million and will increase further in 2023 up to 290 or so with new investments.
Now the interest rate risk shops on the banking book, that is the relevant metric for the banking book, including derivative hedges as reported in our half year report, which is available on our website. With regards to economic value of equity, we are all within the plus/minus 50% EV to common equity one limits. And I do not expect to see material different numbers into our next submission.
Daniel David
And just with regard to that EV number, I can say it's quite strongly positive. So am I right to assume that the repricing of assets overshadows the fair value revaluation of held to maturity assets? And then finally, the last point was just on the insured deposit base. Do you disclose the percentage of deposits that you insured?
Lazaros Papagaryfallou
Insured deposits are of 70%.
Operator
The next question is from the line of Memisoglu Osman with Ambrosia Capital.
Memisoglu Osman
Just a couple of modeling questions, if I may. What's the outlook for trading income, particularly given the request that you've done in Q4, what should we expect for '23 for that line? And also on OpEx, you mentioned the benefits from the upcoming transactions. I just wanted to ask what time frame are you including -- have been included in your budget regarding the completion of these transactions?
Vassilios Psaltis
Osman, on the very simple question on trading income, the view hasn't changed in terms of declines activity-driven trading income. We still expect to generate anything between €50 million and €70 million per year. In terms of the timing on the completion of transaction, I'll pass the floor to Lazaros.
Lazaros Papagaryfallou
There are two transactions which drive the OpEx numbers, Sky, the NPE portfolio in Cyprus and Skyline, the REO portfolio in Greece. The Sky portfolio is expected to complete in the first half of 2023, whereas the Skyline portfolio is completed in two stages, one by mid-2023, the second stage by end 2023. So there is a stage closing as we're talking about a very large number of real estate assets and formalities are required behind the transfer to the buyer.
Operator
The next question is from the line of [indiscernible]. Please go ahead.
Unidentified Analyst
I've got a couple of follow-ups on the securities book. First, if you can give us the ratio of that book and if you can split back between the GGBs and the rest of the book, that will be useful. Then if you -- if I understand correctly, you were asking to basically look at the securities book, including the hedges, you hedge that interest rate risk. Can you give us the level though from your hedges considerable between the two different parts, again, the GGBs and the non-GGBs part?
And lastly, do you say in the presentation that there's been no -- basically no losses on the GGBs on Slide 38 between September and December. What's been the -- can you give us any color on the rest of the book outside the GGBs because in the amortized got like 5.5 GGB and then GGBs?
Iason Kepaptsoglou
Iason here. I'll take most of the questions. Probably we're going to have to follow up with some of the data. The modified duration of the held-to-maturity portfolio currently stands at 3.7 years. And from MOE, there's not a meaningful differentiation between the various geographies in the book. Happy to follow up with that, if you want, same goes with regards to the hedges.
But with regards to the evolution of the, let's call it, mark-to-market for the GGB book or the book overall, actually, is improved in Q4. And obviously, a natural consequence of the drop in yields that we have seen lately means that the situation has improved further more recently. If you want more details, we can dig through the numbers, feel free to conduct IR and we'll reach out.
Operator
[Operator Instructions] Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to management for any closing comments. Thank you.
Vassilios Psaltis
Well, thank you very much for participating in our full year '22 results call. We're looking forward to welcoming you in our first quarter results in May. And in the meantime, you will be hearing from us the exact day for our Investor Day.
Thank you very much.
Operator
Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for calling, and have a pleasant evening.
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Alpha Services and Holdings S.A. (ALBKY) Q4 2022 Earnings Call Transcript