Banca IFIS S.p.A. (IF) Earnings Call Transcript

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Banca IFIS 9 Months 2026 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Raffaele Zingone, Chief Executive Officer of Banca IFIS. Please go ahead, sir.

Thank you. Good afternoon, everyone, and thank you for joining us. It's a privilege to join you today for my first conference call as a CEO. But before we begin, I would like to thank the controlling shareholder for this confidence and support. Joining me today are Fabiana, our General Manager; Roberto Ferrari, our Chief Financial Officer; and Martin Oreo, our Head of Investor Relations. 2026 is a year of transformation for Banca Itis. We are addressing important challenges directly and taking the actions necessary to reinforce the group for the future. The third quarter of 2026 marks an important step in Banca IFIS's transformation journey. During the quarter, we took several decisive actions to simplify the group, strengthen our risk profile and accelerate our transition towards a focused SME banking specialist. At the same time, our core commercial banking franchise remained resilient, our liquidity position remains strong and the integration of Liberty continues according to plan. In addition to the third quarter 2026 results, Today, I would like to discuss 3 main topics. The first one, the disposal of the NPL business, the second, the remediation program and the third, the integration of [indiscernible]. These initiatives are laying the foundation for improved profitability and value creation from 2027 onwards. Let me start with our financial results at Page 4. In the first 9 months of 2026, the group reported a net loss of approximately EUR 67 million. This result is mainly driven by one-off adjustments linked to our strategic transformation. In particular, EUR 72 million for the NPL business valuation under IFRS 5 requirement. [indiscernible] has been qualified as held for sale under IFRS 5, reflecting the advanced pad of the disposal process. Accordingly, the business is measured at lower of carry value and fair value less cost to sell. Excluding these items, profit from ordinary operations was positive at EUR 5 million. The second adjustment regard inspection findings and accelerated remediation actions through write-offs, disposal and collections. Importantly, the underlying commercial banking franchise remains resilient. In fact, in the first 9 months of 2026, Commercial Banking revenues were broadly stable year-on-year despite a challenging macroeconomic and interest rate environment. At the same time, we continue to demonstrate strong pricing discipline, maintaining average spread of more than 330 basis points above base rates in both factoring and leasing. Commercial activity also remained robust with approximately $400 million of new structured finance origination across IPs and Liberty, of which EUR 250 million is, 23% year-on-year growth in production in lending to SMEs and product customers and EUR 400 million of new salary back lending production CQS, in the first 9 months of the year. These results highlight the strength of our commercial franchise and provide a solid foundation for further growth in the structured finance and consumer finance market. Expanded commercial offering through the integration of limited expertise in tractor finance, turnaround finance and asset-based financing. The CET1 ratio of 12.8% already incorporates the NPL valuation adjustment for IFRS 5 but excludes any future capital benefit from expected disposal of the NPL business. The Head of Banking Supervision of Bank of Italy, speaking at the conference hosted by University of Catolica in Minas in October say that the implementation of calendar provisioning for exposures that defaulted before April 2019 is expected to be gradual and to take into account specific factors of individual institutions. These exposures represent the majority, around 80% of our NPL portfolio. Our strategic target remains unchanged, and we continue to progress the disposal process of the NPL business as planned. At the same time, [indiscernible] is confirmed, we'll provide additional flexibility and optionality, reducing execution pressure. We are positively transforming Makis into a more focused, simpler and more resilient banking group. Our objective is clear. We want to strengthen our position as a leading as a net banking specialist. Over the next month, we'll be focused on 5 strategic priorities: the potential disposal of the NPL business, the execution of remediation program, the completion of the limit integration further optimization of asset quality and risk profile; and finally, the definition of the next phase of growth and value creation beyond 2026. All these initiatives are being executed while maintaining strong capital over liquidity and prudent risk management. Now let me update you on the NPL disposal at Page 6. The banking offer selected for the next phase of the tender process, including the first intimation of NPL business values that are overall broadly in line with the carrying value. Selected bidders are actively engaged in due diligence with strong commitment to the [indiscernible]. MPS Cash collection reached EUR 280 million in 9 months -- in the first 9 months of 2026. -- remain very strong with recovery performance consistently above internal expectations. During the advanced stage of the process and our expectation to receive banking offers by year-end, the NPL business has been classified as held for sale under IFRS 5. Under IFRS 5 controls assets as for sale must be measured at the lower of carry value and fair value. As a result, we recognized a EUR 72 million one-off adjustment reflecting the difference between the business carrying value and the market valuation indication emerging from the nonbinding offer received during the process. No value has been attributed to the component that remains subject to negotiation such as potential earnout mechanism or elements lead to deferred payment structures. Final transaction economics will be assessed upon receipt of buying an offer expected by the December 2026. We can now update you regarding our mediation program at Page 7. Following the inspection findings, we immediately launched a comprehensive remediation plan remain fully committed to implementing all required actions within the agreed time line. Our formal response and relation plan would be submitted to the Bank of Italy by the end of current month. The review of capital requirements SAC is expected to be completed by December. We have already recognized valuation adjustments, and we have already reclassified exposure where [indiscernible]. For the NPL business, we recognized a EUR 72 million adjustment measure lower of carrying value and fair value less cost to sell. Now I would like to update you on the integration of limited Page 8. Integration continues successfully and remains fully on track. In the coming weeks, we will complete the process of merging Limited into Bank Avis. In particular, the testing phases have been successfully completed, and we are preparing to complete the technology migration within the first 2 weeks of December. Allow me to publicly thank all my colleagues at the [indiscernible] and Macaitis, were working on this fundamental chapter of our history that we are enabling the bank to operate strong and effectively in the market. We have already secured EUR 50 million of annual cost synergies. In addition, we see up EUR 55 million potential revenue synergies from cross-selling product expansion and the repositioning of our SME franchise. As part of ongoing strategic transformation, we are reviewing our cost structure to ensure full alignment with the bank's future operating model. Following the NPL disposal, we see a clear opportunity to optimize our cost base. Building a borate operating platform will be an important pillar of the next business plan. We also expect to recognize approximately EUR 75 million of DTA benefit during the fourth quarter. Let me now comment on asset quality at Page 9. NPE balances increased during the year following loan reclassification and portfolio reviews. We have already launched a comprehensive derisking program, and this program includes targeted NPL disposals -- we want to materially reduce NPE exposure and restore asset quality metrics through a inspection levels. The first actions are already underway. Looking ahead, we believe the group has several value creation opportunities. an updated business plan we presented 1 ski strategic milestone and be completed, including the SREP process at the NPL disposal process. However, the main base drivers are already here today. We are building a business mix for more focus on SME. We see significant growth potential in structural finance by supporting private equity transactions. CarRentals, a large and growing market with approximately EUR 15 million of annual financing volumes and in turnaround finance through a more integrated offering that includes factoring alongside medium- and long-term financing. We see growth opportunities in consumer finance where we can leverage both our extensive distribution network and our deep expertise in NPL recovery to stranded underwriting capabilities. Wealth Management represents another clear growth opportunity by leveraging the Customer brand and our relationship with 200,000 retail banking clients, and Italian entrepreneur, thanks to our extension coverage on SMEs and corporate business, we see significant potential to increase assets and management and recurring fee income. At the same time, we expect to capture significant synergies from the Lime transaction with approximately EUR 50 million of cost synergies and EUR 25 million of revenue synergies. We are also focused on continuing our derisking action, including targeted NPL disposal with the objective of restoring the BB ratio to preinspection levels. Together, these initiatives are expected to support stronger profitability and sustainable value from 2027, 2028 and beyond. Turning to funding on Page 11. We maintain a strong liquidity position and a diversified funding profile. Upcoming bond maturities can be addressed through EUR 300 million securitization backed by capital in assets. We take funding through Rendimax and secure funding with institutional counterparties. Our content balance sheet capacity remains around EUR 2.2 billion. Overall, we are comfortable with our liquidity position and refinancing profile. Finally, let me conclude with our capital position on Page 12. Our CET1 ratio stood at 12.8% at the end of September. As mentioned earlier, this ratio already due the impact of the NPL valuation adjustment. Importantly, it does not include any potential capital benefits that could arise from future disposal of the NPL portfolio. We expect the updated RAP requirements to be communicated by year-end. To conclude, we know there is still work ahead of us, and we are not underestimating the complexity of the journey. We have had to take difficult decisions recognize significant adjustment and address important challenges. We are approaching all these tasks with transparency, discipline and a strong sense of responsibility. At the same time, we have a clear plan. We have already taken meaningful action and we remain fully committed to executing the transformation of the group. Our target is not simply to resolve the current issue, but to build a stronger simpler and more [indiscernible] for the years ahead. We know that today, some of your questions remain open. Over the coming months, we expect to have greater visibility on a number of important topics, and we look forward to discussing them with you. Most importantly, we have to have the opportunity to meet you and to meet mainly for you in person and share the next phase of Banca IFIS journey. Thank you for your continued attention and support. Now we are happy to take your questions.

[Operator Instructions] First question is from Manuela Meroni in Sanpaolo.

PentinLet me take this opportunity to wish you every success in your new role as CEO of the group. I've questions and 1 clarification. The first question is on the NPL business. How is the NPL business consolidation process progressing? And in light of the binding and nonbinding offers that you have received so far, what is the common equity Tier 1 and P&L impact that you expect from the disposal and you expect the nonbinding offer to be confirmed. The second question is on the dividend. Can you tell us something about the 2026 dividend, in particular, can you -- are you confident that you are able to pay the 2026 dividend, even assuming the full capital impact from the NPL disposal and potentially the higher SREP? And finally, a clarification on what you said about the possible postponement of the calendar provisioning requirements. -- how could this affect the transaction?

Thank you, and thank you for your support. For the first, the process is progressing according to plan. The selected bidders are currently conducting due diligence and their engagement remains stronger. The bidders involved our high experienced investors with a deep understanding of both the business and the underlying portfolios. Following the receipt of nonmining offers in September, we recognized EUR 72 million NPL as valuation adjustment aligned with IFRS requirements, but the NPL disposal is expected to release approximately EUR 2 billion of RWAs with an estimated positive impact of more than 2% -- around 2% of CET1 excluding any potential capital loss. And the final transaction economics will be set upon receipt of mining offers expected by mid-December 2026. What I can say is that our current CET1 ratio of 12.8% already included the valuation adjustment and does not reflect any potential capital benefit from the disposal. For the second question, it's too early to comment on the 2026 dividend. We feel need visibility on the 2 key factors the final outcome of the NPL disposal, obviously, and the updated of SREP requirements. Once the new track is received, we will assess our capital position again, regulatory request to maintain a buffer of at least 100 bps above capital requirements before considering dividend distribution. And our current focus is on completing the disposal process and receiving the updates rep. We will then reassess our dividend policy and capital allocation framework.

Next question is from Davide Giuliano, Equita.

I joined my colleague in wishing you good luck. The first one is on the cost of funding in light of the recent events. I was wondering in any changes in funding costs or funding mix or customer behavior, I mean, primarily on the deposit side and how do you plan to refinance the bonds maturing in the coming months? And the second one is on the NPL business. If the disposal of the NPL business does not materialize -- what impact do you expect on capital in the medium term? And in particular, are there any issues or impact from the application of calendar provisioning.

Thank you very much. Thank you for your meeting and Roberto, if you will all join.

Thank you, operator. Thank you, Doug, for asking. So in terms of cost of funding, it's important to say that also at the end of October, we have EUR 2.2 billion unencumbered capacity. So we are quite stable. We see stability in terms of customer deposits. Actually, we are increasing a bit we lost, but I would say, not materially on the corporate side, I would say not materially. So we substitute the corporate side as we lost through the customer deposit growth. Yes, we have bond maturities that we have a redemption in December and January. We are working -- actually, we are completing a securitization on our capital fee assets. that should give us around EUR 350 million counter margin capacity unencumbered counter margin capacity that we can use in repo, we can use through -- so actually, we are in a position to substitute our bonds that are maturing. On the second question, actually, clearly, we have a strong focus in completing the disposal of the NPL business. If we don't complete it, actually, we have an impact by the end of 2028 on calendar provisioning, where we have an increase of EUR 200 million calendar provisioning reduction. Clearly, this tactic assumption -- so anyway, we are working. We have many levers to reduce through cash flow through disposal, the impact of calendar provisioning by the end of 2028. I hope actually it was clear in my answer, David.

Next question is a follow-up from Manuela Meroni, Intesa Sanpaolo.

Yes. Just a couple of follow-up. The first 1 is on the timing. So when do you expect to disclose the key terms of the NPL transaction? And the second question is if you can provide an update on the recovery plans of limited NPL securitization exposure and how much of the EUR 30 million in write-downs you announced in June 2026. Are you going to book in the fourth quarter? And how many has already been booked in the 9 months? . And if you can yes, before I also ask about some comment on the potential postponement of the calendar provisioning, if you can add something, it would be helpful.

I'll start from this last question. The Head of Banking Supervision at Bank of Italy said that the implementation of Calendar provisioning for exposure that entered before before April 2019 is expected to be gradual and to take into account specific factors of individual institutions. Exposures that entered before, before 2019 represents the majority, as you know, of our NPL portfolio, around 80%. And at this stage, we, together with other NPL players are waiting official guidance from the competent authorities on calendar provision. Does not change our strategy and does not alter our commitment to the transaction. And the NPL disposal process is progressing as planned. and our objective remains unchanged. And the temporary exemption is confirmed, simply gives us greater flexibility and optionality in the execution of the transaction. And the first question is about the transaction, but we expect to receive the binding offers by mid-December. And once the transaction terms are agreed and finalized, we will promptly disclose the key features of the transaction to the market. This is the stage of the situation. And about [indiscernible] NPL securitization exposures and the NPL securitization portfolio remains a key focus area. We are already working on the disposal of selected and limited NPL portfolios, particularly those with higher sensitivity to calendar provisioning. We expect these actions to continue over the coming quarters. And regarding the approximately EUR 40 million of expected write-downs communicated on 26th of June, around 50% of total has already been recognized. And we expect the remaining impact to be recognized in the fourth quarter of 2026, once the final SPV work cap report become available.

Next question is from Davide Giuliano with Equita. Next question is from Simonetta Chiriotti, Mediobanca.

Sorry, but we lost the question of Davide from Equita [indiscernible]. Could you repeat, please, Davide your question.

Next question is from Simonetta Chiriotti, Mediobanca.

Okay. So my question is about the application of the IFRS 5 -- so the adjustment amount can be viewed as an indication of the expected disposal value? And the application of these of this charge removes the need to recognize the EUR 157 million charge requested by the Bank of Italy.

Okay. I can answer on that. Clearly, it is in line with the nonbinding offer. So we do expect actually the binding offer by half of December, as we said, -- and at the moment, also considering the interest of our bidders and [indiscernible] they are doing, we have no expectation to divert substantially from the nonbinding offer. We already recognized around EUR 72 million adjustment to our book value on the 2 legal entities. So clearly, if we go through as we expect the disposal, we don't need any further adjustment by Bank of Italy by the request of Bank of Italy. Then if we don't sell, that is not our expectation we need to work with Bank of Italy. And so it is very difficult to say now if we further adjustment. But clearly, we will contract to Bank of Italy request.

Next question is from Irene Rossetto, Banca Akros.

I have a few questions. How do you assess the sustainability and profitability of the group's earnings following the disposal of the NPL business. Then how do you plan to redeploy the liquidity generated by the transaction to offset the earnings contribution that will be lost and then would the additional provision generate any tax share that the capital level what capital trajectory should the investor expect going forward? And what management action could you take if a capital shortfall were to emerge in the coming quarters? And finally, [indiscernible].

We ask to limit questions to 2 only. Thank you.

Okay Okay. The pace of growth following the NPL disposal will depend on the group's capital and liquidity position after the transaction as well as the outcome of the SREP review. And that said, we have a clear strategic direction and well identified value creation levers. First, we will continue to invest in our specialized banking franchise. In SME banking, we hold a leading position in factoring, leasing and structured finance while in 1 management, we apply the same relationship-driven and advisory approach to support entrepreneurs and prime banking customers. Furthermore, our long-standing expertise in small ticket consumer credit NPL recovery can support the growth of our fast-growing consumer finance business by leveraging the underwriting and risk management capabilities developed over many years in distressed credit. This combination provides revenue diversification attractive profitability and resilience across economic cycles. Second, we will capture the benefits of the limited integration as I said before, including EUR 50 million of secured cost synergies and EUR 25 million of revenue synergy. And enhanced Banca its offering in structured finance, turnaround finance and asset-based financing of unlimited team. And as we move forward with our transformation, we are reviewing our cost structure to ensure it reflects the bank's future operating model. Following the NPL disposal, we believe there is a scope to further optimize our cost structure, and this would be an important focus of the next business plan. Third, we will complete the risking of the balance sheet through the disposal of the NPL business and additional actions on selected NPL Limited portfolios more impacted by client provisioning. And the NPLs already represents a limited share of group profitability today and its disposal will improve the quality, recurrent and capital efficiency of our revenues. About the second question in the credit trajectory. We expect the capital trajectory to be supported by 3 main drivers. The disposal of NPL business should reduce RWAs by around EUR 2 billion, corresponding to a potential positive impact of more than 2% of CET1 excluding any potential capital loss in addition to what it has been already accounted in the third quarter 2026. The group continues to generate capital organically through retained earnings and further derisking actions, including the disposal of selective NPL portfolios of limit particularly those subject to calendar provisioning. These actions will further strengthen the bank's risk profile. Overall, we expect the capital position to improve over time.

The first question about liquidity. Clearly, the transaction will generate important liquidity. We will use and redeploy this liquidity in our core business, so to fund the growth of factoring, leasing, structure finance, corporate finance, where we see attractive yield and net growth opportunities. We will also use a part of that, not the main part, but a part of that to increase our financial portfolio, where we have good carry. And also, actually, we will use it to reduce the highest or higher cost of funding sources that we have. So the impact will be positive reduction in our cost of funding in terms of liquidity impact. The second question was on the tax impact, and we are working on a share deal -- and the 2 legal entities are under a participation exemption on rural. So we don't have a tax shield on those negotiations on those deals. I hope everything is clear.

Ms. Rossetto you can keep going with 2 more questions at time.

Yes. If I may, I have the last question on the potential increase in the SREP requirement. And my question is what do you consider to be the minimum capital level at which the bank can operate.

Okay. We will state our capital requirement when they will become official through Bank of Italy after 90 days by the end of the year. So we don't give the number now. We always stated as a public statement when we have the official final requirements. In terms of CET1 ratio, clearly, our target is to stay above 13.5% also through the completion of the disposal.

Next question is from Lorenzo Giacometti, Intermonte.

I have just 2. So the first 1 is on the basically EUR 70 million of the DTA reversal that you're going -- that you're guiding for. Is there any risk of it like slipping into 2027. And the second 1 is on the -- basically related also to the NPL business. And I mean excluding it, excluding the NPL business, what is your NII sensitivity to 100 basis points shift parallel shift in rates. And yes, that's it.

Okay. I'll get the first one. Yes, the 70 -- around 70 million DTAs, we do expect actually to acquire them at the end of the year through the integration of limit in Banca IFIS that I remember is planned for the seventh of December. And yes, this depends on our trajectory of our future profitability. We are working on our business plan. We think we will state our business plan by early by next year. So we do expect to have our DTA by the end of 2026. I confirm your sentence.

Lorenzo, please could you replay your second question because we lost the line for a moment.

Yes, absolutely. And I was asking, excluding the NPL business, what is your NII sensitivity to a 100 basis points parallel shift in the rates.

Okay. Thank you. On the theoretical basis, 100 bps on a 12-month period, moving interest rates would have an estimated impact of around EUR 20 million on net interest income, excluding the NPL business. However, this should be viewed with caution in the current macro environment. If rates increased further because of elevated energy prices rather than a stronger economy, the negative effects on trade demand and asset quality could outweigh the direct benefit to net income through weaker lending volumes and/or potentially higher defaults. For this reason, we do not consider a simple rate sensitivity analysis, particularly meaningful in the current environment. Roberto, if you want to integrate my [indiscernible].

Okay. Very clear.

Next question is from Davide Giuliano, Equita.

Again, I hope you can hear me now. Sorry, I had some sorry. I had just a quick follow-up actually on the environment you were talking about the impact of the current environment also on the sensitivity. And I was wondering, are you experiencing increased competitive pressure from traditional banks? And what trend do you expect for the business over the next month. And just a quick comment on the asset quality. If you see what are you seeing in terms of asset quality after the summer.

Yes. In terms of sensitivity, actually, we confirm what we said earlier. We have a EUR 20 million increase in net interest income in an horizon of 12 months for 100 basis point increase in rates. And so we expect next year a positive impact on that. The second on the environment and the competitive.