Alpha Bank S.A. (ALPHA) Earnings Call Transcript

Ladies and gentlemen, thank you for standing by. I'm Myrtle, your Chorus Call operator. Welcome, and thank you for joining the Alpha Services and Holdings conference call to present and discuss the first half 2021 financial results. [Operator Instructions] The conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Alpha Services and Holdings management. Gentlemen, you may now proceed.

Good afternoon, everyone, and good morning to those dialing in from the U.S. Welcome to Alpha Bank's Second Quarter Earnings Conference Call. This is Vassilios Psaltis, Alpha Bank's CEO. And I'm joined by Lazaros Papagaryfallou, our CFO; and Dimitrios Kostopoulos, our Head of IR. Starting from Page 4, on the economic front, domestic economic activity is expected to bounce back from the second quarter of this year onwards, with real GDP projected to grow more than 5% in 2021, supported by high frequency data, which shows that tourist arrivals exceeded expectations and economic sentiment improved in the second quarter. In particular, in the first week of August, the number of international tourist arrivals to Athens International Airport reached over 70% of the amount recorded in the corresponding period in 2019, pointing to a recovery in tourism in 2021, as we expected. Additionally, total passenger traffic from the Athens International Airport grew by 371% year-on-year in the second quarter, while, in July, it increased by 108% on an annual basis. More specifically, based on anecdotal estimations by business insiders, international tourist arrivals in July reached 65% of 2019 levels, while thus far, August data suggest arrivals will be over 80% of 2019 levels. Subject to no further adverse developments in respect to the pandemic, wildfires or anything else, tourism revenues this year might settle up to more than 50% of 2019 levels. And mind you, 2019, we had EUR 18.2 billion in revenues, whilst in 2020, revenues reached only 24% of those levels. As a consequence, September and October will be the crucial months for Greek tourism and whether 2021 revenues, as a whole could, exceed 50% of those recorded in 2019. Additionally, the economic sentiment indicator also improved slightly in the first 7 months to 2021 compared to the corresponding period of last year, further supporting the expected growth from the second quarter onwards. Retail trade continued its upward trend for the second consecutive month, increasing by 15% year-on-year in May. Similarly, the manufacturing production index has remained on an upward trajectory from November 2020 onwards, significantly improved the operating conditions across the Greek manufacturing sector. Finally, despite the heavy toll of the pandemic on economic activity, house prices in the construction sector remained resilient in the first quarter of this year. Specifically, house prices continue to rise by 3.2% year-on-year, more rapidly against the fourth quarter of last year, with private building activity also increasing sharply in the first 5 months of 2021 by 53%. Lastly, as you will remember from our first quarter results and strategy update, Greece is the largest relative recipient of the [ EU Reference ] in Europe that are aimed at supporting Greece and its transition to sustainability, digitization and modernization. There has been notable progress on enabling the fund flow in the last few months. On the 17th of June, Greece became 1 of the first 5 countries to receive EU Commission's formal approval of its RRF plan, code named Greece 2.0. As a result, Greece has also been 1 of the first 5 countries to receive a prefinancing of EUR 4 billion on the 9th of August. Following the approval of the plan, the Greek government has launched the first 12 projects amounting to EUR 1.9 billion, the largest of which are focusing on the construction of a highway section, upgrading local urban infrastructure and the digitization of the land registry. The Greek government anticipates that it will receive an additional EUR 2.6 billion of subsidies in the third and the fourth quarter this year and is expected to launch additional projects. Greek banks are currently in discussions with the government to set up the legal framework for our RRF lending, which we expect to be completed in the fourth quarter. With regards to the process of bank engagement, we expect that the banks will be invited to sign framework cooperation agreements on the basis of RRF business plans to enable the planning of disbursements in the satisfaction of eligibility criteria as they will be specified. Alpha Bank's capital increase, which was concluded successfully in July 2021, position us to be one of the key banking pillars that will unlock RRF funds for customers. Having seen the progress made during the summer months, both at the institution and at the Alpha Bank level, our confidence in our ability to deploy this capital to work has further increased. Now moving to Slide 5. The decisive reduction of NPEs remains a key priority of our business plan. With Galaxy now completed and our servicing partner, CEPAL, fully operational, we have switched focus on preparing and delivering the next leg of inorganic and organic NPE reduction. This consists of a series of transactions, both under the Hellenic Asset Protection Scheme and non-HAPS transactions spanning over this year and next year. We are working confidently towards delivering the first set of transactions by year-end, with a total envelope of EUR 7 billion. That makes 85% of the EUR 8.1 billion perimeter expected to be effectively delivered within 2021. Market conditions permitting, this would lead the group to an NPE ratio of circa 13% by the end of this year. In more detail, Project Cosmos, a EUR 3.5 billion HAPS securitization is fairly advanced in terms of preparation, with significant activity planned for the next 6 months, including the receipt of a preliminary rating and the submission for HAPS guarantee, which locks in the overall cost. Our plan is to have SRB approval by year-end. In parallel, Project Orbit and Sky, the first one being an unsecured portfolio sale, the latter is a Cyprus secured portfolio sale, are expected to launch imminently and bids should be received during the fourth quarter. Having said that, we also have our eyes focused on the 2022 transaction pipeline, with preparatory actions already underway for the remaining EUR 1.1 billion in [ perimeter ]. We expect to be in a position of delivering solid progress in the first quarter of next year for the majority of this envelope. On Slide 6. In line with our strategy, we have continued to make progress in maximizing the value of our business and enhancing our franchise through strategic partnerships with top-tier international players. Following on from the bancassurance agreement with Generali, we have recently announced the signing of a binding MOU with Nexi, the European leader in payments acceptance, to form a long-term partnership in payment solutions and merchant acquirers, and to the key value drivers for these transactions will set it apart from other precedents in the market. First, this is a partnership, with Alpha Bank retaining an initial 49% stake in the business. Payment solutions is one of the highest growth areas globally, and we expect this business to capitalize on its market-leading stages, the quality of the partners and the superior technological capacity of Nexi, to continue to deliver solid growth and profitability. Remaining in the business for the long term gives us exposure to the upside potential embedded in the sector. Second, in terms of value, we have agreed a base valuation of EUR 307 million, which lies at the higher end of current trading multiples and transaction precedents. As we are selling 51% of the business, we expect the record to record again also for the 49% stake we will retain plus enjoying the full capital benefit of the value of the business, which is projected at circa 60 basis points of total CAD. Third, we're highly incentivized to make this a profitable venture through an important earn-out structure of up to EUR 60 million enterprise value in the next 4 years. We expect this upside to be attainable and we'll try to capture it. Finally, we have consciously struck the balance between upfront consideration and long-term profitability through the terms of a referral agreement with Nexi. A significant part of the value of this partnership will thus come in the form of fee income on the back of merchant revenues procured by Alpha Bank. This is very similar to what we have agreed with Generali and ideally through the strong distribution capacity of our channels. We anticipate total fees around EUR 200 million over the course of the agreement. Moving on to Slide 7. We have also initiated Project Skyline, where we aim to form an alliance with an international partner to capitalize on the growth prospects of the Greek real estate markets. Via our listed subsidiary, Alpha Astika Akinita, we will create a large-scale real estate investment platform focusing mostly on commercial real estate. The vehicle will establish a long-term servicing agreement with our in-house real estate management unit, creating new revenue streams for the bank. The deal is expected to be capital accretive, and signing should be expected in early next year. We have also undertaken several of the announced actions aimed at optimizing our balance sheet to deliver further capital relief and business model simplification. The sale of our subsidiary in Albania is progressing well, with interest exceeding our initial expectations. The transaction is now in an advanced phase, with binding offers expected in the last quarter of this year. Similarly, the sale of our U.K. subsidiary is expected to launch in the fourth quarter of this year, with signing in the first half of next year. We also wanted to take an opportunity to provide you with a few more details on our EUR 2 billion synthetic securitization of SME and corporate loans, which we code named, Project Aurora. Strong investor interest has been expressed in Phase 1, with several nonbinding offers received. Phase 2 of investor engagement is now commencing. The transaction is expected to be concluded within this year. On Slide 8, we highlight that our performance during the first half shows that we won't be able to comfortably meet our full year guidance on profitability, asset quality and capital adequacy. Trends continue to evolve in line with our expectations on all fronts. And as I mentioned earlier, we're now looking for a 13% NPE ratio by year-end versus the 18% we had guided when we announced Project Tomorrow. In the following quarters, we'll see the completion of critical milestones in our plan, unlocking the path to double-digit returns with growing capital buffers. Lastly, on capital. I have to note the outstanding performance Alpha Bank registered in this year's stress test, posting the highest estimated ending fully loaded core equity Tier 1 among Greek systemic banks under the baseline and adverse scenario of 17.3% and 8.3%, respectively, while 2023 fully loaded leverage ratio in the adverse scenario came at 6.1% at the top range of EU banks and best-in-class among Greek peers. And with that, I turn the floor to Lazaros Papagaryfallou for a closer look in our financial performance in the second quarter.

Thank you, Vassilios, and good afternoon to everyone. With regards to second quarter 2021 performance, I will now provide a summary of the key financial trends, looking at Slide 10 of the presentation. This quarter, we have closed the Galaxy transaction and booked the resulting EUR 2.1 billion net impact, leading to a reported loss after tax of EUR 2.3 billion in the first half. With the consolidation of Galaxy and net of the retained senior note, loan balances have decreased by EUR 1.9 billion, with a partial impact on net interest income. All of the above are in line with the bank's estimates and capital plan. Leaving Galaxy aside, our core preprovision income generation decreased by 4.5% this quarter, reaching EUR 226 million. The recognition of Galaxy and lower retrospective TLTRO III benefit versus the first quarter are the main drivers. On an adjusted basis, pro forma core preprovision income increased by 3% on a quarterly basis. Reported preprovision income stood at EUR 243 million versus EUR 137 million in the previous quarter as EUR 160.1 million of restructuring costs and other one-off charges related with the bank transformation impacted the previous quarter's results. Trading income amounted to a loss of EUR 2.2 billion due to the recognition of Galaxy. On an adjusted basis, as shown here, it stood at EUR 30.4 million on lower GGB transaction activity. Impairment losses significantly de-escalated in the second quarter to EUR 125 million versus EUR 391 million in the previous quarter, driving total cost of risk ratio 1.3%, with underlying cost of risk, excluding impairment losses allocated to portfolio transactions, down to 0.9%, better than our financial year 2021 guidance. Regarding year-to-date performance, on a normalized basis, first half profit after tax stands at EUR 213 million, confirming that the bank is on course to meet its near-term target to deliver a 5% return on tangible book value in 2021. Now turning on Slide 11. In terms of new credit, we continue to step up and support our customers as we disbursed a further EUR 1.2 billion of new loans in Greece this quarter, bringing the total to EUR 2.3 billion, addressing credit demand mainly from businesses. Net credit expansion, namely disbursements minus repayments, was positive again this quarter and stands at EUR 0.4 billion for the first half, reflecting credit demand from businesses. As highlighted in the bottom right chart at the group level, our year-to-date performing loans expansion is well ahead of our year-end target, and we expect momentum to hold in the second half of the year. Lending spreads on performing exposures saw some pressure in the quarter, also affected by specific corporate repayments. In line with our budget and our business plan, we expect some further pressure on loan spreads during the second half, especially on business lending to the tune of 5 to 8 basis points. Spreads of our new production, however, remained resilient and at very satisfactory levels, which, together with a positive mix of net credit expansion, should support the profitability of our loan book. Beyond the RRF projects that are expected to materialize from September onwards, it's worth highlighting that the bank is currently in the process of underwriting significant projects not related to RRF and has already announced 2. The first is in the energy sector with Public Power Corporation's green bond loan. The second is in the Greek hospitality sector and relates to the financing of the Blackstone-managed Hotel Investment Partners investment program concerning 5 hotels in key Greek resort locations. Current short-term pipeline includes projects beyond these 2 in the energy, hospitality and infrastructure sectors and for now amounts to a total size, which exceed EUR 900 million. On deposit gathering on Slide 12. The group's deposit base expanded by EUR 1.4 billion in the quarter, comprising more than 70% of the bank's total funding sources. At the end of the second quarter, domestic deposits stood at the highest postcrisis level, reflecting inflows from core deposits that now account for 79% of domestic deposits. The continued shift of the product mix reduces an overall positive impact on the bank's interest expense. On a year-on-year basis, our group deposit base has expanded by EUR 4.1 billion or 10.2%. Liquidity drawn from ECB remained stable Q-on-Q at EUR 12.9 billion, reflecting the full utilization of our TLTRO III borrowing allowance or 18% of our total assets. Benefiting from the low-cost liquidity drawn from the ECB, the bank's blended funding cost remained in negative territory in the second quarter at minus 7 basis points and continue to support net interest income. Finally, the group's loan-to-deposit ratio materially improved to 83%, enabling the bank to address the credit demand expected under the utilization of RRF funds. The group's liquidity coverage ratio surged to 164%, far exceeding the regulatory threshold. Let's now see the drivers of our net interest income performance during the second quarter in more detail, on the next slide. Net interest income in the second quarter stood at EUR 371 million, down by 7.2% Q-on-Q or EUR 28.6 million. This quarter, the bank recognized an additional EUR 6.9 million one-off retrospective benefit for the second half of 2022 as a result of the accrual of minus 1% for the total amount of ECB borrowing of the respective period versus a higher amount of EUR 24.7 million that we booked in the first quarter of 2021, as we illustrate on the chart. The underlying performance of net interest income was flattish on the back of 3 main drivers: one, to a lesser extent, we had a lower contribution from performing loans by EUR 0.4 million, mainly on the back of lower spreads or specific corporate repayments and repricing as discussed previously; two, we had an EUR 8.1 million impact from the recognition of the Galaxy perimeter, with a further EUR 1.3 million driven by lower average nonperforming loan balances due to the increased provisioning; and three, we had a negative effect from bonds and other of EUR 2.9 million, reflecting GGB's recycling and lower one-off items. On the liability side, there was no impact from deposits as continued repricing offset the increase in balances, whereas funding net interest income had a positive contribution of EUR 1.8 million has increased ECB borrowing offset the fully phased cost of the Tier 2 issued in March. Turning to Slide 14. We show the main drivers of our fee income generation. On a quarterly basis, net fee and commission income surged to EUR 105.4 million, up by 25.1% Q-on-Q. Excluding a EUR 10 million fee from AXA related to the signing of a new bancassurance agreement with Generali, it would still leave underlying fee income up by 13%. Asset Management had a better quarter on the back of a sustained growth in AUMs, primarily nonmoney market funds that were up by EUR 0.8 billion. The bank has already accomplished almost one quarter of its 2024 target of a EUR 3.5 billion growth in related AUMs. Revenues from cards and payments increased with transaction volumes surpassing 2019 levels on increased penetration of noncash transactions. Business credit-related fees were also up on higher activity. On a yearly basis, fee income generation picked up by 14% or EUR 23 million, supported by increased fees from business lending, increased commission income from mutual funds stemming from AUMs and accretive mix evolution and credit cards and payments due to increased volume of transactions. The aforementioned EUR 10 million fee income from AXA compensated a decline in other fees versus the first half of 2020, which have benefited by EUR 11.8 million of fees received from the amendment of collateral agreements on derivative transaction last year. The observed pickup in commercial activity, the growth in asset management, along with the recently announced business development initiatives that strengthen our franchise positioning, allow us to be confident that we are on track to make our fee income generation target of circa EUR 0.4 billion for the year. On the OpEx side, on Slide 15, recurring operating expenses on a group level for CEPAL consolidation, increased slightly year-on-year as savings from HR initiatives are temporarily offset by an increase in non-staff costs, mainly due to higher IT and transaction-related items, with the latter linked to higher revenue generation. Looking on each line separately. Personnel expenses on a pro forma basis for the impact of CEPAL standalone personnel costs, before the carve-out of the bank's NPL units, decreased by EUR 9.1 million year-on-year, reflecting the voluntary separation scheme in our Cyprus operations that was completed in the fourth quarter of 2020 as well as the impact from HR initiatives in Greece. Going forward, the reduction in headcount by 820 FTEs from the disposal of CEPAL that took place in mid-June 2021, will further reduce group staff costs. General expenses were higher on a pro forma basis by EUR 12.3 million year-on-year in the first half, mainly reflecting increased expenses from the pick up in activity in our cards business and higher IT costs. Finally, the depreciation charge stood at EUR 4.2 million higher year-on-year, again, on a pro forma basis, due to an increase in intangible assets linked to high investments as part of the group's transformation. As depicted in the top right chart, NPA management costs constitute more than 15% of our recurring cost base. And in the medium term, we aim for a sharp decrease in line with the reduction of our NPE and REO portfolio and the reduction in associated servicing fees, which are expected to decline by 6% by 2024. Our strategic plan also targets a decline in the core operations cost base to a significantly lesser degree, supported by the voluntary separation scheme to be implemented in our Greek operations by year-end 2021. Moving on to the next page. Quarterly NPE formation in Greece remained flat as entries only slightly deteriorated due to higher inflows from expired moratoria, fully offset by higher curings and repayments and increased management actions. This flattish NPE formation performance in the first half is better than initially expected, making us optimistic for the remaining of the year and also compared with our business plan expectations for formation of EUR 0.6 billion. On the right-hand side of the slide, you can see further information on our cost of risk evolution. The overall cost of risk over net loans stood at 1.3%, out of which 0.4% relates to exposures expected to be sold or under securitization and portfolio sales. Underlying cost of risk, on the other hand, remains consistently below the 1% levels and better than our 1.2% full year guidance. Finally, in the bottom right graph, you will see that post-Galaxy, our group NPE ratio has decreased significantly from 43% down to 26%, whereas our NPE cash coverage increased from 49% to 54%, or 105%, including collateral. Moving on to Slide 17. We expect to reduce our NPE volume by another 45% this year at group level by reducing gross NPEs from EUR 11.4 billion in June 2021, after the closing of Galaxy, to approximately EUR 5 billion by year-end. This will allow us to reach an NPE ratio of 13%, which is 5 percentage points better than what we expected at the time of our business plan announcement. This is effectively driven by the acceleration of Project Sky, the sale of an NPE portfolio in Cyprus, where the front loading of the prep work, including transaction structure will allow us to launch imminently and receive offers within the fourth quarter of the year. Projects Cosmos and Orbit are progressing according to plan, with HAPS submission for Cosmos expected in October and binding offers for Orbit targeted for the fourth quarter of the year. We reiterate our guidance with regards to the total loss budget of EUR 1.6 billion, out of which more than EUR 0.6 billion has already been incurred in the last 3 quarters. As we have discussed in the previous slide, organic formation this year has come in better than expected, leaving some room to potentially outperform our year-end target. This will be a function of the second half asset quality trends and successful progress on our transactions. Above developments continue to underpin our confidence in meeting our medium-term goal of reaching a single-digit group NPE and NPL ratio well within 2022, while converging to the EU average level by 2024, which, in turn, will lead to the full normalization of our cost of risk. At the same time, we have had a notable improvement in the group's NPE coverage ratio from 47% in December 2020 to 54% in June 2021, whilst maintaining our robust capital position. On Page 18, you can see the quarterly evolution of our capital. Post the share capital increase, it stood at EUR 6.7 billion, resulting in a capital adequacy ratio of 17.4%, down by 90 basis points versus March 2021. The total capital ratio was negatively affected by Galaxy and CEPAL to the tune of 285 basis points, in line with the bank's guidance, whereas the share capital increase impacted capital positively by 220 basis points. Organic capital generation stood at 2 basis points in this quarter. The buffer over the regulatory total capital ratio of 14%, therefore, stands at EUR 1.3 billion. The respective fully loaded total capital ratio stood at 15.4% and the fully loaded common equity Tier 1 at 12.7%. On the right part of the waterfall, we note that we expect internal capital measures to enhance capital ratios in the next quarters by 1.5 percentage points, which will more than offset the anticipated negative impact from the upcoming NPE transactions. The impact of both internal capital measures and upcoming NPE transactions will be fully reported by the end of the first half 2022. In the bottom right chart, we show the expected evolution of our capital ratios during each year until 2024, according to our business plan presented in May. The timing of internal capital measures, the loss budget accrual and RWA relief from NPE transactions will likely lead to a reduction in capital ratios in our [ term master plan ] with total capital ratio always above our management target levels of 16.5%. Lastly, turning on Page 19. The bank completed successfully the ECB's stress tests, registering an outstanding performance, posting the highest estimated ending fully loaded common equity Tier 1 ratio for year-end 2023 among Greek systemic banks, under the baseline and adverse scenarios of 17.3% and 8.3%, respectively, and a 10.2% fully loaded ratio in the adverse scenario when taking into account the share capital increase. The capital depletion, excluding IFRS 9, improved to 6.3 percentage points when comparing to iterations of the stress test, while the fully loaded leverage ratio in the adverse scenario came in at 6.9% at the top range of EU banks and best-in-class among Greek peers. Finally, looking at the bottom right-hand side of the slide, I would like to highlight that the bank's capital generation for the 3-year period was 2.7%, absorbing the impact of IFRS 9 phasing resulting in a 2023 common equity Tier 1 transitional ratio of 17.4%. And now let's open the floor to questions.

[Operator Instructions] The first question comes from the line of Floriani, Jonas with Axia Ventures.

Well done on the execution on the plan. So my first question -- I think all of my questions, they relate to some comments you made during the presentation. The first question relates to the outlook on disbursements following the comments by Lazaros. I remember that during the period of the share capital increase, we discussed a lot about the growth opportunities in Greece and also how Alpha was preparing itself to start disbursing as soon as possible, especially also to benefit from the RRF boost. I know it hasn't been long yet, but following Lazaros' comments, could you update us -- or linking the comments that you made on the call, where that links in relation to your expectations for the full year? If you include these projects that you mentioned there, I was just wondering if your expectation for total disbursements in 2021 and also expectation for the increase in the net loan book has changed or improved over the last 2 or 3 months? So my second question then relates to the NPE dynamics. I see that on Slide 18, you're mentioning or you're showing the entries and exits of NPEs, including the breakdown of the moratoria loans. I was just curious to understand on the entry side, what has been the driver of those new NPEs? Are these coming from new defaults? Or are these re-defaults exposures? And also in terms of your moratoria loans, your expectation for the year is EUR 0.8 billion, and you have now EUR 0.3 billion in the first half. So have you changed your expectation for the second half? Or it's fair to assume that this EUR 0.5 billion is -- it's coming now in the coming quarters? And then my final question probably relates to the previous one. I was curious to understand if you already have seen some tangible signs in terms of the new insolvency law in Greece. If there's anything that is already reflected in the numbers or maybe on the discussions you have with CEPAL, how that is affecting collections or the relationship with the borrowers in these early months? And I'll leave it there.

All right. Jonas, thank you for the questions. Coming to your first question on net credit expansion. We have been quite careful to analyze disbursements and repayments in a manner that can illustrate the development of the net credit expansion rather just talking about gross disbursements. And you have seen that in the first half of the year, the net credit expansion in the performing book amounted to EUR 0.4 billion level, out of which EUR 0.6 billion is businesses, whereas there was a small deleveraging from household lending. That is a higher run rate than the one we have incorporated in our budget and in the business plan that we have presented in May. You may recall, in May -- and that you can see on the lower right part of Page 11, where we benchmark the credit expansion vis-a-vis the targets that we have portrayed in our business plan. You will see that the run rate is higher than the one that we have showed back in May as we have not been expecting really RRF to kick in, in the second quarter of the year. It has not started yet. I mean the disbursements from our EU partners came to Greece late in the summer and new projects -- new RRF projects should expect to affect our numbers in a tangible manner from 2022 onwards. So all that was expected. On the other hand, as we see a lot of traction in the corporate market, we have already seen demand for very good projects at very good returns on allocated capital, in tourism, energy, infrastructure. We have already announced a couple of projects, which are good [ and larger ] projects based on our risk appetite, and we have a pipeline currently in these sectors that I have said, in the short term, could procure an additional EUR 900 million of new disbursements in good projects. So momentum is building up in the second half of the year, not necessarily related to RRF, but mainly to corporate lending. And as RRF conditions mature and the infrastructure gets in place, we expect obviously much more traction from 2022 onwards as per the business plan projections. Now on your second question, with regards to the NPE dynamics. I said that we're quite optimistic on the organic formation for the year. We have provided a budget of EUR 0.6 billion. And what we see currently is a better run rate. When it comes to new defaults, we have seen EUR 400 million of ex-moratoria defaulting within the first half of the year and also the last quarter of 2022, out of the EUR 0.8 billion projection that we have for this particular universe. So almost 50% of what we have projected has defaulted in the last 3 quarters. However, what we have also seen is a significant performance with regards to curings, repayments that has effectively counterbalanced fully any entries in the first half of the year. And this has been better than what we had in the budget. Now if you ask me whether we are changing our guidance of EUR 0.6 billion formation for the year, as I said, we are optimistic. We want to see some more data points with regards to certain restructurings that we have offered to the clients, including the bridge program and some step-up facilities. We want to see how they perform prior to amending the target towards a lower level for the year, but it is likely that this will be the case. And your last question had to do with insolvency law. I understand that you are referring to the out-of-court settlement in the platform that has been introduced by the government. We have seen the first applications flowing into the system in July. No processing has taken place in August, so traction will start in September. So in a nutshell, it hasn't moved the needle in any respect, nor the numbers and the volumes that we have seen to date make us believe that there is some sort of deterioration in payment culture or behavior.

The next question comes from the line Sevim, Mehmet with JPMorgan.

I have a couple of questions, please. Vassilios you mentioned that there are several RRF-related investment projects kind of in the pipeline. And you also mentioned that EUR 900 million figure for the total size. Can I please confirm that this is the loan disbursements figure that you expect for Alpha Bank specifically from these projects? And what would be the time line here for these loans to be disbursed? That will be my first question. My second question is on the repayments. So thanks very much for the detailed data that you're providing on the performing loan movements. And there, I can see that the repayments are actually quite high at EUR 1 billion. There's a slight pickup quarter-to-quarter. Was this business as usual? Or would you -- should we take this as a run rate going forward? So let's say EUR 3 billion to EUR 4 billion of repayments each year for the coming several years? And my final question is on NPA management costs. Your full year guidance would imply a pickup in those costs in the second half. But given that Galaxy is now out of the books, wouldn't you expect that some relief in there in the second half? Or is there something else that is still keeping the costs related to NPAs high in the second half?

Coming to your first question about the disbursements. Yes, the EUR 900 million short-term pipeline that I have referred to on corporate loans has to do with disbursements. I have not given any guidance on repayments for the year. So in order to set the record straight, in terms of guidance, you should have in your numbers, I think, the year-end target that we present on Page 11 as the balance for performing loans. That was the number we put in May, and that is the guidance we're giving. We may end up higher at the end of the year. But currently, we give no other guidance than the one presented in our plan and reiterated in Page 11. So on your second question on retail disbursements. The second quarter of the year has been much better than the first quarter of the year in terms of loan disbursements. Actually, the run rate in the second quarter has doubled compared to the first quarter and make us believe that this is more representative of what we're going to see happening in the coming quarters. Still, the trajectory of disbursements and repayments as such, but most probably, the number we have put for household performing loans of EUR 10.8 billion at the end of the year is representative of new disbursement and repayments in the second half of the year. But the demand is picking up definitely, especially in auto loans, we definitely see positive trends, and that goes also for housing loans.

And I had one more question on NPA.

Yes. Yes. Yes, Mehmet, yes. When it comes to NPA management costs, unfortunately or fortunately, there is a lot of noise coming out of CEPAL consolidation and the consolidation within the year. I mean, remember, we have acquired CEPAL and consolidated its P&L in our group P&L in the second half of 2020. We are consolidating CEPAL until 18th of June 2021. And subsequently, we are divesting CEPAL. Therefore, all that is creating some noise. And I have tried to present, on Page 15, some pro forma numbers so that we take the noise out of it. But when it comes to NPA management costs, you may recall in our business plan presentation, that, that was a big driver of cost reduction until 2024. And real traction there is happening from 2022 onwards. That was also presented back in May, where we have started counting from 2022 onwards in terms of cost reduction. We should not expect to see a material reduction in 2021. In the contrary, this noise has increased some of the costs, however, in alignment with the full guidance that we have given for EUR 173 million for 2021 and presented back in May. After the Galaxy deconsolidation, which happens -- or which happened, obviously, and the sale of additional EUR 8.1 billion, which is happening in the coming quarters, we are going to observe a very significant decrease of NPE servicing costs. Same goes with REOs. REOs cost money, taxes and other servicing fees, and we have planned REO transactions, including the Skyline transaction. So all that is decreasing NPA management costs to a good extent. So more traction on that line from 2022 onwards as per the planned projection.

Okay. That's all very clear. Maybe just one follow-up, if I may, on Project Skyline. Could you please walk me through the expected impact coming from there? I mean you presented earlier that the main benefit will come from RWA release. But is there any equity impact in there that you would expect from the sale of the 51% at least of the portfolio as well?

Indeed, there are a few benefits. The first has to do with an RWA release as we will be disposing assets, which are risk-weighted by almost 100% in our balance sheet. And we will also experience a reduction in costs vis-a-vis carrying these assets in our balance sheet. But no equity cost is projected in this respect.

The next question comes from the line of Memisoglu, Osman with Ambrosia Capital.

Just following up on the NPE formation, potentially being too conservative. And tagging along maybe the cost of risk angle to it as well, which also seems to be trending much better than your 1.2% guidance for the underlying bit. When would you consider revising them? Maybe along with Q3? Or are you looking to wait a bit longer? That's my first question. And then on the cost bit, I appreciate the NPA angle later on. But in the shorter term, I see, quarter-on-quarter, there was a pickup in general expenses. If you could give us a bit color on that? Should we expect that level to be sustained for the rest of the year?