Banca IFIS SpA

F:0I6

Thank you, Madam, and good afternoon, everybody. Welcome to our summer conference call, where we present the first half 2026 results. As usual, I will give a brief presentation and then take your questions. I'm joined today by our Chairman, Ernesto Furstenberg Fassio, who is listening in; and by my team, the CFO, Roberto Ferrari; and the Investor Relations representative, Martino Da Rio, who will assist me in taking your questions. I will take you right away to Page 4 and dive into the presentation, financial performance.

We posted first half 2026 net profit of roughly EUR 8 million. So we're clearly profit, and this includes roughly EUR 84 million of provisions that I will now set out to detail. Out of this EUR 84 million of provisions recorded in the first half of 2026, EUR 73 million were recorded in the second quarter. Around EUR 30 million reflected the findings of the on-site inspection conducted by the Bank of Italy.

And the guidance communicated on July -- on June 25 also included roughly EUR 40 million additional expected provisions in illimity, of which EUR 4 million are already booked in the second quarter and the remaining will be booked in the second half of the year following the definitive update of the reports of the non-core NPL special purpose vehicles and given the expected defaults of the B-ilty portfolio. Capital, CET1 ratio of 13.4% at June 30, excluding, as always, the earnings of the semester, providing a solid buffer for a bank of our scale, well above the current requirements by Bank of Italy, which are at 9.9%, including 1% Pillar 2 guidance.

We remain, of course, focused on capital management, and I will come back on it, and we'll closely monitor capital ratios throughout the integration, the de-risking and the NPL portfolio deconsolidation process that we will discuss. We have a new MREL requirement effective from the 31st of March 2026. It's set at 13.13% of TREA, including the CBR, and set at 4.67% of the LRE, fully met through CET1 capital, as you can see, and broadly unchanged compared to the previous requirement.

There's an increase of 1 basis point I underline that the previous requirement was before the illimity acquisition. So it's not my place, obviously, to comment on decisions by the Central Bank, but we find the substantially unvaried number encouraging. Proactive de-risking and integration is going on in 2026, laying the foundations for stronger profitability and value creation from 2027 onwards. Page 5, the path towards long-term value creation, what did we do in these last months.

So we're fully on track with the integration of IFIS and illimity. We're laying the foundations to deliver confirmed EUR 75 million of annual cost and revenue synergies in '27 and onwards. Illimity completed the disposal of Hype, of ARECneprix, and of Abilio, significantly simplifying the Group's operating structure and balance sheet. And we also completed the renegotiation of illimity's IT contracts as a key part of the integration process.

A new long-term agreement strengthens this partnership with Finomnia, Fibonacci and delivers, as we discussed, significant recurring cost savings. As part of this agreement, Finomnia will acquire full ownership of altermAInd Banking, while Banca IFIS and Finomnia will continue their strategic partnership through a company focused on AI. We started the competitive process for the deconsolidation of our NPL business. This is progressing in line with our expected time line.

I can report strong interest from a broad range of potential counterparties, including domestic and international investors, specialized NPL operators, financial institutions and private equity firms. We are on a clear strategic direction. We're proactively reshaping the business model towards a well-rounded SME banking specialist ensuring proactive alignment with the regulatory environment through the disposal of the NPL business and the risk profile of the Group.

The illimity acquisition and the Furstenberg division mark concrete milestones of this long-term transformation focused on sustainable value creation that will be fully articulated in the new business plan that we will start to think of at the end of the year. Cost of funding reduction and the consequent margin development are on track, notwithstanding a moderate increase in base rates. Page 6, a bit of details on the execution of some of the transactions I mentioned.

So we secured the cost synergy run rate from 2027 onwards of EUR 50 million. EUR 30 million operating cost reduction secured, completed the IT contract renegotiation, as I mentioned. And also we streamlined the illimity cost base through centralized procurement and efficiency measures. And we can now report that we have a 650 FTE reduction already completed, both through the early retirement program at Banca IFIS and illimity, which is fully subscribed, and to further work for streamlining delivered through the disposals of the 2 non-core subsidiaries and the voluntary exits at illimity, which has proceeded ahead of plans.

We have EUR 35 million revenue synergies activated. We believe that is now totally in reach, revamping illimity's core SME business across structured finance factoring and turnaround. We are currently moving the factoring contracts onto the IFIS platform. New lending origination has been aligned with our risk standards and the integration is progressing in line with the plan. Organizationally, the control functions, initiatives on culture, risk culture, especially is all going as we planned.

We now look at the rest of the year in a simplified group structure. The non-core subsidiaries has been spun off. The IT service perimeter has been streamlined. I'm speaking about executed transactions. So these are beyond binding offers. These are now closed transactions. Therefore, we can state with confidence that the synergies on costs and on revenues are activated. Page 7. A little focus on these transactions.

So on IT, we completed this IT agreement and realigned the altermAInd partnership structure that was originally 52% Finomia and 48% illimity. Finomia Group will acquire 100% of altermAInd Banking, focused on selected IT banking services and a digital banking platform tried to accelerate the digital transformation of third-party financial institutions that's their business. The long-term service agreement with Banca IFIS has been correspondingly amended with annual payments significantly reduced to achieve those cost synergies. We remain partners with Finomia Group.

We're making a joint investment in altermAInd, 52% Finomia and 48% illimity, company focused on AI. We will leverage the altermAInd platforms and know-how to develop AI-driven banking solutions with a specialized technological partner, we believe that it's certainly advantageous to speed up our capabilities in this area. Disposal of ARECneprix, we completed it. We sold it for EUR 30 million. It generated 10 basis points on our CET1 ratio.

Transaction enhances the operational efficiency through a strategic partnership with a leading servicing platform. It's being integrated, as you know, in a much larger company with long-term servicing agreements in place to ensure continuity of the management of our NPL portfolios that we will continue to tactically unwind as opportunities arise. Disposal of Abilio, we sold Abilio, which was 82% owned by illimity and 18% by COIMA to Servizilegali.net, specialized operator, long-standing experience in the judicial disposal sector.

They will be certainly able to valorize this company and relaunch their business. This disposal does not include the real estate agency, Quimmo which following this transaction will be owned by Quimmo majority stake of 60%, the natural owner, we think, to lead the next phase of their development. We remain with 40%, and we'll revisit this file once this development has taken shape. Page 8, deconsolidation of the NPL business, surely an area of interest. You will remember, we announced at the start of the year, the activation of a study phase in which we were going to explore strategic options. We then announced to the market the decision to deconsolidate.

Now we can report that the profile -- the process is underway. We are offering the leading integrated platform for small-tickets NPL investment and servicing, supported by a disciplined investment approach and definitely a strong track record, unparalleled technology, processes, pricing capabilities, unparalleled data, and unparalleled capacity to valorize the data. Strategic rationale is, of course, for us the deconsolidation. Therefore, given the regulatory outlook, improve capital efficiency and also secure the best long-term value-creating solution, not just for IFIS, but also for the NPL business.

We believe that the development of this business long-term is better placed in an ownership structure where you don't have the regulatory headwind that is clear at present and that in the next years will only increase. Timetable on the right of Page 8. June and July, high-level teasers and were prepared and the NDAs were signed. So we got those quite numerous bidders joining us of very high-level players, domestic and international. We expect non-binding offers in the second half of the year.

We will immediately make them the due diligence available, and we expect the binding offers towards the end of the year, always in the second half, but towards the end of the year, hopefully getting us to sign and close in the first half of 2027. So a proactive strategic action in response to the new calendar provisioning situation. Page 9, the results of the quarter. EUR 190 million revenues and minus EUR 23.5 million net results in the quarter. But as I mentioned, in the semester, a net positive result. This is obviously on the back of the provisions.

Just to explain the Q-on-Q evolution, the first quarter of 2026 includes a positive contribution from the turnaround business, which was in illimity by the successful early repayment of an exposure to a mid-corporate. It was a very good transaction for us. You could consider it a one-off, but I would encourage you to consider this partly recurring. It is typical of the turnaround business that these exits happen periodically.

That's the way it works. It doesn't happen every quarter, so you can't really smooth it, but I think we will see more of these kinds of results in the future coming out of that business as the good transactions mature. Second quarter of 2026 includes the EUR 30 million of provisioning arising from the internal review performed following Bank of Italy's on-site inspection as well as the first tranche of provisions due to updated recovery expectations on certain non-core assets, which we discussed also on June 25.

The EUR 4.2 million loss or gain on disposal of investments, in our case, gain is the net result of the disposal of ARECneprix and Abilio. Page 10, asset quality. Gross NPE ratio of 7.4%, net NPE ratio 4.9%. So first, a few words on what you see here as an increase and then an outlook. So the NPEs increased by roughly EUR 152 million, mainly driven by reclassifications following the assessment based on the Bank of Italy inspection and higher b-ilty non-performing exposures.

The first is worth roughly EUR 112 million; the second roughly EUR 25 million. I remind you that, of course, b-ilty is assisted by public guarantees for about 80% and the rest, EUR 15 million is other portfolio dynamics. We also classified another piece of the pharma book, which is in run-off using even more stringent criteria based on the evolution of the market, if you will, and the practice that we are observing in the market. The total book is now worth roughly EUR 100 million. So that's always decreasing.

As you remember, we exited the business in the last year, it was reduced to less than 5% of what it was. And I looking forward, can report we are in ongoing discussions for the sale of roughly EUR 60 million to EUR 80 million. Actually, I would estimate this a bit higher, probably closer to EUR 90 million all in all, of generated NPLs. So we are managing these ratios downwards towards the year.

Page 11, capital ratios are up at 13.39% very minor variations due to the calendar provisioning and some intangible asset reduction. And then we have an effect of RWA increase due to, I would say, very healthy development in Banca IFIS, significant increase in RWAs due to business development, partly offset by a lower RWA in illimity as we restructure the business. And in illimity, you have now a mixed bag of things that are looking to increase, which are commercially what we like, and stuff that we are allowing to run off.

Page 13, I want to focus a few slides on the quality of our Commercial Banking business, future of the group, right? If we look at quarterly revenues in aggregate, right? You can see Commercial and Corporate Banking revenues at EUR 87 million. That was EUR 81 million in the first quarter, EUR 83 million in the second quarter of last year. It reflects solid commercial momentum, which I will show later, continued pricing discipline and the good seasonality in structured finance.

We have EUR 48 million of NPL revenues was EUR 47 million in the first quarter and EUR 76 million last year, exceptionally positive, reflecting lower purchasing activity ahead of the portfolio deconsolidation. That makes sense, I would say, and a strategic shift towards forward-flow agreements. Also, a slightly lower use of recognition of model revenues in the light of the upcoming disposal. So, a prudence in revenue recognition that you can see in those numbers.

Non-core G&S revenues at EUR 21 million, benefiting from strong performance of the proprietary finance portfolio. The NPL business, a bit of deep dive. We remain on Page 14, registering very solid cash collection. The models have been consistently outperformed. We focus, as we mentioned, forward-flow agreements. We now have, with the most prestigious consumer finance players and one of the largest banks in the country, 2 of the largest banks in the country, actually, forward flow agreements in place. That leads to the acquisition of low-vintage portfolios aligned by what we think is a market trend, which is the move by major originators towards earlier disposals, right? With a priority on assets offering a quicker resolution.

We increased the use of extrajudicial recovery, and we continue to dispose of tail portfolios. I remind you that we took EUR 12 billion of gross book value of the books -- gross book values between 2023 and the first half of '26. Thereby, we are lowering portfolio vintage, and we're significantly decreasing the complexity in the book because all this gross book value with very limited net book value, I remind you, these are tails, right? They don't have a lot of balance sheet weight in terms of net book value, but they give a lot of complexity. In all these transactions, we book moderate, but we book small gains on the transactions.

So we tend to sell at or slightly above the book value. We registered small decreases in net book value and large decreases in gross book value, EUR 94 million cash recovery in the quarter, EUR 98 million last quarter. Roughly, the bank continues to deliver between EUR 350 million and EUR 400 million cash recovery on these portfolios reliably, consistently and out of the small tickets portfolio. Page 15, interest margin evolution. This is the Commercial Banking interest income. I mentioned the strength and the quality of the business.

We are now seeing, as we mentioned a few times that we were expecting, right? The overall margins increase as the base rates increased and as the prices increased, average gross interest income in Commercial Banking reached 4.8% in the second quarter of '26. Cost of funding has remained flat at 3%, notwithstanding the base rate increase. So it's a net result of very sizable reductions in the spread, and the spread that we pay, obviously, on the funding and the base rate.

So what happens, you see it on the right, plus 20 basis points base rate, aggregate interest income, plus 20 basis points, aggregate cost of funding stable, net effect on the margin, 20 basis points. So we now reached 1.8% again, which we last saw in the first quarter of 2025. Page 16, costs. EUR 180 million. We increased EUR 10 million Q-on-Q. I wouldn't read too much in it. The first quarter benefited from the release of EUR 3 million previously accrued costs that did not materialize.

The remaining EUR 7 million are a bit due to seasonality. In the proprietary finance business, there were dividend withholding tax effects, tolling tax that unfortunately translates into the cost line. So it blurs it a bit, but that's where it came from. The cost linked to NPL recovery, notwithstanding the excellent cash collection is in line with previous quarter and personnel is roughly flat. Focusing on commercial activity, factoring EUR 3.4 billion turnover in the second quarter, nice growth relative to the first quarter with a very strong focus on profitability, average spread at 3.4% on top of the base rate, well above market average.

Net revenues over average customer loans, 5.7% and loan loss provisions that obviously, you see them high there on the slide, they include EUR 17 million of the precautionary provisions following the Bank of Italy inspections. Those EUR 17 million are part of the EUR 30 million that we mentioned. Page 18. How is this business made? You can see on the left-hand side that we have 21% market share in active clients, and 6% share in turnover in the country. What does it mean? It means that we serve the SMEs. So we don't pursue large accounts with huge turnover and very moderate spreads of the largest firms in the country.

We pursue SMEs and help them with a very useful, I think, tool to manage their liquidity. And on the right-hand side, you can see how the revenues are skewed towards small companies between EUR 10 million and EUR 50 million. They now make up 70% of the overall revenues that we make in factoring. So therefore, risk fragmentation, therefore, a very good risk return profile because we finance the SMEs, but we risk in factoring, as you know, the large corporates that they serve. So very good risk-return profile.

Page 19, leasing, EUR 179 million new business underwritten. Second quarter was strong. We remain true to our mantra. You can see here that we reached net revenues over average customer loans of 4.1% today in the stock. So this is different from any other leasing business that you will see in large universal banks, which will typically include real estate leasing. It will typically include nautical leasing. So it will include very long-term contracts with a significant risk component in it. What we have here is mostly operational, mostly instrumental, mostly equipment and automotive, once again, risk fragmentation, higher margins.

And on a very significant part of the portfolio, I believe it is 80%. We have remarketing agreements in place when we underwrite. So in case the asset becomes ours, we know the price at which we will sell it when we underwrite the loan for sure. Therefore, risk very, very well managed in that portfolio. Page 20, Corporate Banking and Lending, EUR 433 million new business underwritten in the quarter, very solid result. Structured finance, roughly 30 to 40 transactions annually with an average deal size of about EUR 12 million. So you can see that there, too, we fragment the risk.

We have a conservative leverage profile. It doesn't usually go over 3x. There's a component of state-guaranteed lending. There's a component of the pharmacy business. And then there's Cap.Ital.Fin. Cap.Ital.Fin., which in the second quarter of the year, underwrote EUR 160 million of salary loans. So that's become one of the larger salary loan businesses, consumer credit business in the country today, and it has 0 legacy issues, meaning that we started the relaunch of this company when the regulatory environment was clear.

So we have 0 issues with the way the contracts were underwritten in the past in much of the market, which today leads to some -- obviously, some need to adjust certain portfolios in certain other players. Page 21, credit, we keep seeing no signs of widespread macro-credit risk materializing in the commercial business. Therefore, you have also a bit of forward-looking feeling on how things are going. You can see that the provisions obviously in Q2, they were very significant, but they were due to extraordinary items like, for instance, the recognition of the future provisions in illimity.

But if you look at the quality of the book, this is Banca IFIS payment days flat, Stage 2 loans going down. In the third quarter of 2025, we had 9%. Today, we have 7% rating migrations roughly balanced, probability of default slightly increasing, and that's mostly in the MCC book where, as you know, we have government guarantees. I have finished the slides that I want to present, and I will now take your questions on anything that might require some further clarification. Thank you for your attention thus far.

Yes. Thanks, Manuela. Very clear. So I'll take them in the order in which you asked them. Timing of provisions. So based on the revised guidance that we gave for '26 at the end of June, the expected provisions were increased by approximately EUR 70 million versus the original forecast, right? And hence, the revision of the guidance. So of this increase, around EUR 34 million was already recognized in the second quarter, that EUR 30 million from Bank of Italy and EUR 4 million illimity. So we -- the remainder is EUR 36 million of that increase that we expect to take in the second half of the year.

So this will arrive within 2026. You saw that in the second quarter, we had EUR 73 million provisions, EUR 30 million of those were Bank of Italy. And whilst this process is still ongoing, we decided to reflect these adjustments already in the second quarter results, right? In line with our approach to risk given that they had become rather certain. The remaining EUR 4 million we recorded in the second quarter are illimity SPVs, as I said, and the EUR 36 million that remain, they are the best -- EUR 36 million increase, I should say.

They are the current best estimate based on the information we have today on the illimity portfolio. So this reflects substantially updated recovery assumptions, right, both in terms of timing and in terms of quantity based on the preliminary indications that we received from the external services. And it also includes some expected defaults in the b-ilty portfolio based on the performance we observed during the first half of the year, right? And as I mentioned, all this is going to come in the third and fourth quarter, a little bit in the third and a little bit in the fourth. That's what you should expect.

Due diligence, why wasn't it captured in the due diligence? So that was carried out in the second half of the year on the basis of the numbers at June 2025. So the additional provisions we shared with the market reflect the incorporation of new information, right? An updated assumption. We have -- since the due diligence was concluded, we have received updated recovery reports from external services. We have observed a deterioration in the expected recoveries for other portfolios. We recorded, as I mentioned, in b-ilty higher-than-expected default trends.

And this was simply not visible at the time of the due diligence. And therefore, it required a new reassessment, right, of the risk portfolio. So the most significant component are the SPVs managed by external services. The -- obviously, the cash recoveries for these assets depend on judicial processes, insolvency processes, restructurings. So timing and expected recoveries can evolve, obviously, over time.

We have not yet received the formal report, but the preliminary expectations indicate lower recoveries, and these arrived just in the last month, right? Mostly in the month of June, actually, both lower recoveries and then longer periods, as I mentioned. Overall, I would like to add that the additional provisions represent our best expectation of illimity's portfolio's risk and the expected recoveries based on the most recent information available at today, right, and the prudent assessment of the underlying credit dynamics.

You asked about the total remaining size of the illimity NPL book. That is roughly EUR 900 million today, EUR 930 million. That excludes b-ilty. B-ilty is in run-off, but it's not in this number. Roughly EUR 750 million of that is held in SPVs. And if you go back in time, I'll give you another number since the first half of '24, right? The aggregate de-risking in these portfolios has been roughly EUR 250 million, right, of cumulative write-downs. Outlook on the loan-loss provisions.

Well, as you know, we don't like to give guidance on individual line items, right? We give a guidance on the net profit, but not on individual line items of the P&L, but to try to help you a bit. So loan-loss provisions in the first half, you know, we will add roughly EUR 36 million of the remainder of the increase. And you can add to that normal run-rate without the expectation of any surprises. So I think you can work out a reasonable number on the basis of those elements, right? If you just take the provisions of the first half that you find in the presentation, you add EUR 36 million and you add a bit more and you end up roughly where you want to be.

Finally, dividends. Yes, a question came up last time as well. We will decide on the 2026 dividend towards the end of the year when we have the definitive results of the Bank of Italy inspection and also some visibility on the economics of the NPL transaction. So, no decision today, no guidance today, but dividends are and will continue to be a key component of our equity story, and we remain committed to delivering an attractive level of remuneration to our shareholders, which we believe our balance sheet will permit in the years to come. I think I got them all.

Yes. Well, that's naturally up to the regulator will speak for them, but we expect to receive the draft findings before the end of September, hopefully, at the start, but I would say, before the end. As is customary in these reviews, Simonetta, the process involves that you get an initial report that's followed by an opportunity for the bank to provide its observations and supporting evidence before the final report is then issued, right? So as a result, the overall process is likely to extend into September, October and won't close formally before the next couple of months.

I can't comment further on the point. We will need to wait until we receive their report. Let me just add that our approach here has been to remain objective and forward-looking and prudent, and very much compliant with the regulator, acting proactively on what we know, and we will wait until the rest arrives in written form.

Yes. I want to say this very clearly. The Board did not decide to dispose of the NPL business on the basis of specific expectations from the Central Bank, okay? So, in fact, there is currently no regulatory indication or request or specific deadline from the Bank of Italy to dispose of this business. The key strategic consideration reflects long-term effects of the calendar provisioning framework, yes. So, as we assess long-term economics and strategic value of our businesses, we have to take into account a fully phased-in regulatory regime, right? As we look forward.

So calendar provisioning progressively increases capital absorption, and it will, therefore, influence negatively, the risk-return profile of the NPL investments. So it's a disciplined and objective approach. It's proactive. We evaluate all strategic options, right? Try to ensure proactive and full regulatory alignment, but there is no specific indication from the regulator in any shape or form.

Yes, Lorenzo, very clear. So on the disposal, well, the process is progressing in line with our expected time line. And I won't hide we are quite encouraged by the high level of interest that we received. So, we're currently engaged with a broad range, I would say, of potential counterparties, including, as I mentioned, right? Domestic and international investors, specialized players, financial institutions, holding companies, actually, private equity firms, the largest names you can imagine globally. Process will remain competitive.

We expect to receive non-binding offers by the end of September following binding offers before the year-end. It's a bit early to comment on valuation or transaction structure for that matter. I would just say that this interest we received reflected the strength of the franchise and the quality of the servicing platform. We think it is a unique opportunity to enter the market in Italy really as a key player. So, we remain focused on achieving the best possible outcome for all the stakeholders, ensuring also business continuity and a smooth transition.

And that includes, by the way, employees, clients, the servicing partners, the counterparties. We think, as I mentioned, that a different ownership setup in the long term will be beneficial for the companies as well, right? The servicing and the investing companies. This is as much as we know today, but I will keep the market informed as new information arises that we are able to share. I would stop at this. Then in terms of contribution, it remained broadly stable in the first quarter. It's largely in line with our expectation.

So it reflects, I would say, deliberate and disciplined approach to new portfolio acquisitions. We've been rather rigorous in pricing also lately. We've seen a few auctions where we saw some behavior we found not entirely rational. And then given also the context that we are in, we decided to keep our discipline. We think it's consistent with how you should manage operations in the light of an upcoming M&A transaction. So we are prioritizing cash recovery, as you saw, in operational efficiency while maintaining the selectivity that I mentioned.

And also in the light of the possible deconsolidation where we recognized lower mobile revenues based on future recovery expectations that has historically been a part of the business. It's typical of amortized cost accounting. So you also see prudence in revenue recognition in the light of the transaction that's coming up, right? So altogether, expect the NPL business to continue performing for the remaining quarters, roughly as you've seen it in the first 2 quarters. Yes. It's just a matter of, I would say, responsible housekeeping before the transaction arises. I hope I was specific enough, Lorenzo.

Yes, you're correct. So first of all, with respect to the inspection, the inspection was on Banca IFIS, not on illimity. So you don't need to assume any impact of the inspection on illimity. And secondly, on illimity, we think that the current values really reflect the latest available information taken into account in the most prudent way. Also months ahead, as you might have noticed, we've shared with the market this perception we have of these portfolios. Back to IFIS. With respect to the inspection, we cannot speak for the regulator. So we really need to wait until we receive their final report.

And I really don't have a lot to add, right? With respect to the impact of the deconsolidation, I think in your question, you asked if that was inside the numbers and inside the guidance. No, it's not, right? It's really too early to quantify potential effects or effects on capital, which should be highly beneficial as these will ultimately depend on the structure that's selected, the perimeter, the execution terms.

So, we will remain as transparent as possible in the next couple of months as information becomes available, both on the inspection and on the transaction. We will share it with the market when we can. This is as much as I can say, Lorenzo, at present.

I will turn the -- thanks for your questions. I will turn the first one over to the CFO, which will -- who will address cost of funding. And then I'll take the second one on the Tier 2.

Okay. Thank you for asking, Gerda. Our sensitivity in terms of net interest income is around EUR 10 million positive impact for 50-basis-point increase in a 12-month horizon.

Is that adequate? Was that your question?

Yes. Actually, it incorporates the deposit beta. You have to remember, actually, that mainly we have time deposits more than current accounts. And in our model, actually a 50-basis-point increase in rates, clearly risk-free rates means around EUR 10 million increase in net interest income.

If you're trying to model cost of funding looking forward, keep in mind that a very relevant effect there is that previous term deposits, which were taken in when the rate scenario was much higher at 4%, 5%, they are maturing in this quarter, so regardless of the base rate, they are being substituted with much cheaper new term deposits at around 2.5% to 3%, okay? So the cost of funding reduction on the retail side still has legs. Also getting to bonds, some more expensive bonds will expire, right, in the next year.

So there too, regardless of the spreads, you will see some stuff disappearing, for instance, Banca IFIS Tier 2, right, that is currently very inefficient, frankly, okay? So there are base rate effects and the sensitivity that Roberto explained to you, which is around EUR 10 million for a 50 basis points move, right? And there are -- that's on aggregate interest margin, right? So that's overall. It's not just on the deposits, right? So aggregate effect on the overall interest margin is EUR 10 million.

And then you have these replacement effects, which are, in fact, I think, more powerful given what's going on, right? Then on Tier 2, once again, I need to be very careful. I can't speak for the regulator. Normally, in line with regulatory practice, when an inspection is underway, no authorizations are given, right? So we would need to look at the conclusion of the inspection and then hopefully, an authorization for the call on Tier 2. So both the timing and the actual decision is not up to us, right? But we see a possibility of getting the authorization in time to call it.

Yes. Thanks. So thank you for the first question, a question on a subject we'd like to explore the potential and the development of our business as we move forward. So we mentioned we are going to increasingly focus on SME lending done in the way that I just presented, right? So where there is margin, right? It allows us to build on our capabilities, which is small-tickets financing, deepening relationships with SMEs, high-quality SMEs.

So we expect, first of all, a growing contribution from factoring, structured finance, and also consumer finance, which are all well-established components of the business model, and we think they offer clear opportunities for profitable growth. They are complementary to each other. And together, they provide also a diversified base, right? For future earnings generation. Contrary to many other specialized finance players, we have a diversified type of business mix.

Factoring, especially, as you know, is a very distinctive area of expertise for us. So we can continue to leverage that also the operational and the risk management know-how, which is extremely specific. Structured finance allows us to serve more sophisticated client needs and consumer finance adds another source of recurring business with great risk return expectations. And these are the engines, right? I want to remind you that between 2021 and 2026, we've actually built one of the larger salary-backed loan businesses in Italy in Cap.Ital.fin.

Today, we are on a rate of over EUR 400 million of annual underwriting. As I mentioned, no legacy issues, 100% compliant to today's environment. We believe this business has legs because this distribution system that is today allowing us to underwrite EUR 400 million of high-quality salary loans could very easily be leveraged for personal loans and other products. So, that's what's probably going to happen in the next years. And the combination of these things, we think in presence of space on the capital side after the consolidation of the NPL business, right? Gives us, we think, a very solid outlook and future.

Over the long term, because this will take a bit more, we expect a commission contribution from the Farbanca division, so not primarily net interest income, but mostly commission income in the Wealth Management business. This may not be the main driver in the near term, right, in the next couple of months, but it does represent an additional level of diversification and value creation in the medium term also with the investment banking activities that is placed in the Farbanca division. CET1 at 13.5%, yes, I confirm.

We'd like to hover around 14%. We had some loan growth this quarter. But once again, we have to see at the end of the year what happens with the deconsolidation because that might really significantly positively alter the capital situation of the group. So take 14% as our target, we might end up at around 13.5% at the year-end, but then we have the NPL effect, right, the divestment effect, we hope. Asset quality, where does it come from? You rightly point out that there's also a little bit more outside of the one-offs.

So it's mainly attributable, sorry, to a limited number of specific exposures. It's not a broad-based deterioration. So we have EUR 10 million related to b-ilty, right, which we mentioned, EUR 10 million associated with illimity credits, right, legacy illimity NPLs and roughly EUR 7 million linked to 2 specific factoring positions, one in the furniture business and one in the yacht manufacturing sector. So, with the whole rest spread across a large number of smaller positions, broadly consistent with the trends that I showed you in the presentation. So I hope to have given you the backup for that.

Yes, Simonetta, I don't have the backup for that right now. I'm looking at Martino is telling me it's 1 or 2 large positions where we have an issue with the final debtor. So we're going to take this question and maybe feed that back to you in the next call or at the earliest occasion. It's according to Martino, 1 or 2 large factoring positions.

One I mentioned the yacht, one I mentioned the furniture, but you are right to point out that there is the Bank of Italy aspect well. There's one thing I need to check is whether the loan-loss provisions that you see there don't actually include the pharma business. If that was the case, the difference is explained, okay? Let us check that, please. I'd rather not say something that's inexact in an earnings call, okay?

Very well, thank you. There are no closing remarks. So I thank everybody for their time and attention. I wish everybody a nice summer holiday, and I look forward to the next opportunity to meet and to discuss the bank. Thank you.

Thank you.