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Good day, and welcome to GRENKE AG Q2 2022 Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Anke Linnartz. Please go ahead.
Good morning, ladies and gentlemen. Welcome to our earnings call. I'm Anke Linnartz, head of IR at GRENKE, and with me today are our CEO, Michael Bucker; and our CFO, Dr. Sebastian Hirsch.
We will start off with the presentations by Michael Bucker and Dr. Sebastian Hirsch and are going to have a Q&A session right after the presentations. I stop here and I pass the call on to Mr. Bucker.
Yes. Thank you. Welcome, ladies and gentlemen. We are very pleased for joining us today. Some of you attended our Capital Markets update in Frankfurt just about 3 months ago. At that time, we presented our strategic focus and growth targets to you in detail. And that's the center of the strategy stands our ambition to double our leasing new business and net profit by '24 compared to the '21 financial year.
And we also explained how we intend to achieve these goals. To name 3 of our focus topics, firstly, global growth in both our existing and new markets. Secondly, expanding our product portfolio in areas such as medical technology and green economy. And thirdly, opening up new reseller channels in these new product segments. And I'm happy to say we are delivering.
The solid results for the second quarter, which we will present to you in a moment, confirm we have taken the right course. The results of the second quarter, we are also very pleased with the overall development of the first half year. Leasing, ladies and gentlemen, has taken center stage. The reason is clear. Interest rates, along with inflation, are exploding. Prices and costs for energy materials and intermediate products are rising across the board. And for most companies, and especially for small- and medium-sized enterprises, it's a question of how to employ capital as carefully and efficiently as possible.
And right now, with regard to inflation and the current environment, leasing is, without a doubt, the most sensible solution for small and medium-sized enterprises for financing their investments. Especially in terms of macroeconomic uncertainty, leasing is the opportunity to make investments with predictable installments while customers preserve their liquidity. And although all lessors can benefit in this environment, we benefit even more because we are the international market leader in small ticket leasing.
GRENKE is a specialist for small volume leasing contracts. Our average volume is only about EUR 8,000. And typically, the investments we finance reach up to around EUR 25,000. But of course, we find almost everything indispensable in today's everyday business environment, from photocopiers to laptops to mobile phones and other items such as medical technology and e-bikes, and as well as an ever-growing number of objects that accelerates the transformation to an eco-friendly economy. We are also right in line with the current trends emerging in these areas.
And there are no limits in our customers' needs. In Finland, for example, we finance electric snow mobiles and transportable huts for watching the northern lights. Our diverse object portfolio allows for a broad risk diversification and, at the same time, serves as a foundation for the strong resilience of our business model to the current global uncertainties.
The small ticket segment, ladies and gentlemen, it's not only a particularly robust segment, but also extremely profitable. GRENKE has a robust business model that offers sustainable potential. And despite the fact that we are in a really challenging environment, we managed to increase our leasing new business now 3 quarters in a row. And after a successful first quarter, we also achieved a very solid result in the second quarter. We are right on target.
In Q2 '22, our net profit was EUR 20.9 million. This was an increase of 14.6% compared to the same quarter of the previous year. Because our contracts have an average term of 4 years, some of this profit, of course, has resulted from contracts we have concluded in the past. The new contracts from the second quarter as a basis for our future profit growth. In Q2 '22, our leasing new business reached EUR 587 million, which was almost 50% above the same quarter last year.
All in all, in the first half of '22, GRENKE generated leasing new business totaling EUR 1.1 billion, along with net profit of EUR 41.5 million. And we are also able to increase our equity ratio to over 20%, exactly 20.2% at the end of the second quarter. In addition to these figures, the second quarter was distinguished by 2 positive events. First, we acquired the 2 franchise companies located in the USA and Singapore. And second, we are able to resume our cooperation with NRW Bank, the Bank of North-Rhine Westphalia after break to the coronavirus. Within this framework of a global loan of EUR 20 million, we are offering favorable lease financings to medium-sized companies in North-Rhine Westphalia.
Ladies and gentlemen, let's now take a look at the geographical distribution of our business. Although the numbers by region vary, we recorded growth in the second quarter in all of the regions we operate. As explained at the Capital Markets update, we have divided the most -- more than 30 countries where we operate into 3 clusters. In our established core markets, we achieved considerable growth of around 43% in the last quarter. These core markets, including Germany and France, contributed the largest volume amounting to around EUR 430 million. At approximately EUR 140 million, the volume contribution of our hidden stars was significantly lower. But at over 57%, their growth was still higher compared to the same quarter last year.
Then our absolute growth champions are our future core markets, which include Canada and Australia. We have been operating these markets for only a short term, so we are starting from a low level. Nevertheless, the growth rates in these countries, which top over 70% are promising. Ladies and gentlemen, perhaps GRENKE's most important asset, apart from our employees, of course, is its resellers. Our dense global network of specialist resellers gives us access to our hundreds of thousands of customers. Through the decades of GRENKE's existence, this long-term partnership have continued to evolve and grow.
The coronavirus causing a temporary hiccup. Here, we had also seen the lows by the end of last year, and have since returned to a growth curve. Our number of resellers today is almost back to pre-COVID levels with a nearly unchanged constant customer base at the same time. Following this consolidation, we are now moving to expand our reseller network and thus broaden our growth base. For example, we have started to target resellers who specialize in segments embracing future megatrends. Included here, above all, our products supporting the green transformation.
And now ladies and gentlemen, I would like to hand over to Sebastian, our CFO, Dr. Sebastian Hirsch.
Yes. Thank you, Michael, and also a warm welcome from my side. The first 2 quarters are already behind us, and we can safely say today that we are fully in line with our planning and our guidance, not only for 2022, but also for the years to come. Our new business is growing. Our profitability in absolute numbers is on the rise. Our profit is up and our cash flow is fully in line with our planning, as we decided to bring down overall liquidity to a level of EUR 500 million. But we will see that later.
Interest and inflation are rather an opportunity for us as we already largely priced increased interest rates into conditions. We all know that adjustments of conditions are a longer process. This is not only true for us, it's also true for our competitors. And it seems that this time is more difficult for some of them. Inflation in raw materials is not an issue for us. However, we see extensions in rents, which reflects supply bottlenecks. Leasing, as Michael mentioned, is currently, objectively, the most sensible solutions for small, medium enterprises for their small investments.
But let me now first talk about the development of Contribution Margin 1 and Contribution Margin 2. In comparison with the second quarter of the previous year, we have to take in account the overall view of 2021. Because the second quarter was still characterized by the pandemic and we focused on new leasing business with high margins, lower volume and the average ticket size was below EUR 7,500 per contract. Starting with Q4 last year, we accelerated new business with a clear focus on volume and more number of new contracts. And that acceleration was at the right time.
With rising new business, average ticket size came up as planned to EUR 8,000 in Q1 2022 and maintained above this threshold in Q2 '22. This small ticket approach is as important as it was in the past. So roughly 95% of our contracts in new business in 2022 is less than EUR 25,000 per contract. At the same time, we had to deal with a very dynamic interest development and rising interest rates at the market, which brings us to the migration in our leasing rates to pass it through, which I will explain you on the next slide. Overall, we are satisfied with the absolute volume development of our CM2. The increase of the CM2 in absolute terms gives us confidence for future earnings.
On this slide, you can see 2 things. And first, on the left-hand, CM2 in Q1 2021 was well above our target level of 17%, which was due to the different sales approach I mentioned where we focused on even smaller tickets and a very low risk profile in our leasing box. So a normalization of the margin to our target level of 17% during the year 2022 seems fair.
Now let's switch to the right side and compare CM2 margin Q2 2022 to our target level of 17% in the middle of that chart. What you can see here is the impact of higher interest rate, which led to decrease in margin by 350 basis points. And we're already able to pass on 2/3 of these higher interest rates through to our customers by adopting our contractual conditions. Usually, it takes roughly a quarter to amend conditions in our leasing contracts. Our target is to increase margins step by step in order to deliver on our 17% target level. And let me tell you that I'm pretty confident that we will get there.
Our profit and loss statement overall is absolutely in line with our planning. Driven by a softer contribution of new business to our portfolio in the recent years, our net interest income came slightly down as we recorded fewer lease receivables. At the same time, cost for settlement of claims and risk provisions have dropped significantly. We saw a 29.1% decrease of settlement of claims and risk provisioning to roughly EUR 60 million. And this is a result of the good and stable payment behavior by our customers. And the corresponding loss ratio was only 1.3% compared to 1.9% in the first half of 2021.
Earnings before taxes came in at EUR 55.6 million and with a tax rate of 25.4%. We have a net profit of EUR 41.5 million. And here, we'd like to explain cost/income ratio again because we are often talking about new business earnings contribution margin. But in addition to that important KPIs, also the cost and operational leverage have always been important for us, and it is important for us, especially looking into the future. We want to keep the leadership in managing small tickets efficiently and will manage our cost income ratio from a long-term run down to a lower level, below 45%. This is what we aim for. As already pointed out on the occasion of the Capital Markets Day, I would like to remind you of how we measure the operating leverage and the cost income ratio for our operating business. To get more transparency regarding the cost-income ratio and the cost structure, we are focusing on the operating cost based on the IFRS P&L. So there is no extraordinary impact of costs, et cetera, included.
And for the income, we are taking the elements of the operating income also in accordance to the IFRS P&L, but it's adjusted by the risk provisions and settlement of claims. So the cost/income ratio does not include any risk provisioning or any other earnings. Our target level for the cost/income ratio is below 52% for the full year 2022. In the first half of the year, cost/income ratio stood at 53.3%. The current level is mainly attributable to the temporary reduction of net interest income based on our more respective portfolio management during the crisis. And to higher costs, especially in personnel costs as we decided that our employee compensation model should better fit with appropriate market conditions.
Also, consulting costs are higher in the first half of the year, and they should continue to come down during the next half year because we are continuing to process all of our findings and are making progress. In addition, our own employees are increasingly taking on all tasks relating to our internal control system. As announced, we are in a transition here.
Let me ensure you that we have our risks under control. Performance here is very strong. Hardly any real defaults and very stable incoming payments. We have no interest rate risk due to the funding and at matched maturities in the portfolio. This is unchanged. Now what do we have here on that chart? We see the development of settlement of claims and risk provisioning as of end of June 2022 compared to end of December 2021. We provide a few to the balance sheet perspective and its risk provisioning on the leasing receivables by stages under IFRS 9.
Let me summarize the major points for you. the risk provisioning in Stage 1 increased slightly, and that's driven by the growth in new business. That's normal and just a volume issue because of the expected credit loss we have to show for each leasing contract. The risk provisioning in Stage 2 went down as receivables moved on to Stage 3, that's a normal common process. Please note, the outflows to Stage 3 are bigger than what moves on from Stage 1 simply as a result of lower business volume of superior periods and because of the strong payment behavior and the strong performance in our existing portfolio in 2022 so far.
And finally, Stage 3. Stage 3 was up by roughly EUR 60 million, which is based on a conservative risk approach due to the current economic climate. Our loss rate in the first half decreased to 1.3% compared to 1.6% at full year 2021. All in all, we are well covered with the risk provisioning level for the moment and with our best guess for the existing portfolio also looking forward.
As some of you may know, and you watched a segment on the Capital Markets update, we shared also that slide with you. That's our ambition for growth in new business, leasing receivables and CM2. Today, I talk in accordance to our P&L, which is always looking backward about the decrease of leasing receivables in the previous periods as a base for the interest income. And that was also the base for the interest income on the first half of 2022. And you would like to have a look in our balance sheet, then you see that our leasing receivables are rising.
So the bottom is probably behind us. Leasing receivables are rising. May you remember, I promised that at the beginning of the year. And here on the chart, the dark line divides the bars in 2 existing portfolio below and some new business above that line. This is based on our planning. The first light blue boxes below the line represents what we already recorded in 2022, the leasing receivables of our existing portfolio because of the new business in 2022. So we delivered our targets here.
Meanwhile, the overall portfolio is building up, and that's the basis for our future earnings, which is initially expressed in our CM2. And we are managing today more than 1 million running leasing contracts, a benchmark that we have historically broken for the first time. A new dimension for us. And even this strong number of running contracts delivered a strong cash inflow from payments by lessees of EUR 1.15 billion over the first half of the year. And I'm pleased to say that we have turned our liquidity into new business, as indicated earlier this year.
However, despite new business growth, we maintain a strong cash position of about EUR 0.5 billion, and we feel that is the right level for us to run the company on the current balance sheet volume. And to manage our liquidity overall, in line with our new business, our funding pillars we have in place are quite important for us.
So moving to our funding mix. Here, we continue our well-diversified strategy, which we see as a substantial competitive benefit. S&P only recently confirmed our rating with BBB+. We have 3 debt pillars, as you know, which are unsecured funding, retail customer deposits of our GRENKE Bank as well our asset-based financing. The relative importance of each of these pillars is quite stable, looking over the last quarters. So there's not really a fluctuation expected also not from the future. Senior unsecured was roughly 40%, the most important one, but also the GRENKE Bank part of funding was roughly 20% is and will be important for the future. And last but not least, our very strong and comfortable equity was 21%.
And again, maturities continue to be matched to our underlying leasing contract base, giving us a high level of comfort and shielding us from the fluctuations of the economy and interest rate fluctuations with respect to our existing portfolio. And last but not least, Michael mentioned that we took over the shares of the U.S. and Singapore. We are also on the best way to take over the other franchise companies. Due diligence process is remaining is currently running. We are well in progress there, and we stick to our goal to finalize the acquisition by the end of this year.
With it, back to Michael.
Yes. Let me take this opportunity once again to give you our ambitious outlook for the future. Of course, we need to adapt to the changing environment. Supply chain bottlenecks are still affecting our economy. However, this is not really an issue for us. For example, our leasing products allow our customers to extend their existing rents until the new equipment arrives. And we have to align with the challenges of the increasing interest rates, Sebastian mentioned it.
In Q2, for example, most of the increase in interest rates, we have priced in already. However, as you all know, this isn't a permanent process. We need to increase our conditions further and keep adjusting to the market situation. As we have already communicated, our target by '24 is to double both leasing new business and net profit compared to '21 financial year. In the case of the net profit target, this excludes the gain from the sale of our viafintech shares. We remain firmly committed to our ambition despite the uncertainty surrounding the current global macroeconomic situation.
The strategic measures to achieve our targets include expanding our reseller portfolio even beyond pre-corona levels, and broadening our product portfolio, particularly by adding green economy objects. At the same time, we will pay full attention to cost to ensure we maintain consistently high profitability in the long term despite this growth. And we also reaffirm our guidance from the current financial year following our performance in the first half year, which was in line with our forecast. Overall, we are within the range of our expectations.
Ladies and gentlemen, as you can see, GRENKE is on course, on course for further growth. And to sum it up, even with all the challenges in our macroeconomic environment, GRENKE is and will remain the #1 in small ticket leasing. And this makes GRENKE one of the most important financial service providers of investments for small- and medium-sized enterprises. We finance the backbone of the economies we are operating in.
Thank you for your attention. Back to Anke Linnartz.
Yes. Thank you for your presentations. We are now ready to enter our Q&A session. [Operator Instructions] And with that, the first question is from Marius Fuhrberg, Warburg Research.
So firstly, on the CM1, is the 1.2 percentage points that we observed in the CM2 due to the interest rate that you cannot pass through, it is selling 1.2 percent also through to CM1? Also, we assume that the CM1 increases, again also by this gap once you are able to close it. The second question would be, could you add a little on the expansion on rents? Is this phenomenon that you observed just recently and to what extent? Because in the past, we have learned that especially extension in rents are quite profitable for you. So overall, we should have quite some positive effect also on the Tier 1, I guess. And the third one is with regards to your loss rate, you had 1.3% in Q2 now, which is below your guidance of 1.4% to 1.7%, but keeping in mind the more challenging economic environment and also the rather bad outlook for H2. Would you assume that you experienced a higher loss rate in H2?
I hope I got the question right, Mr. Fuhrberg. First, the CM1 at the end of the day, is not the main trigger for our business. CM2 is quite more important to look into the overall profitability. But that's right, the migration in conditions is at first a CM1 issue, and we will see there's a slight increase of CM1 over the next quarters when the interest rate will be stable. Otherwise, we will always have the temporary impact I mentioned before. But at the same, we have also to take into account that CM1 and the expected credit loss, which is part of CM2, should be in a stable level. So the CM2 increase and also the CM2 decrease, we see now is not only CM1.
The second question was because of the extensions of our leasing contracts. We see now that, of course, let's say, a recent phenomenon because of the bottlenecks. So it's not able or it's not possible to get new investments just in time. And so it's quite normal that more leasing contracts will go in retention. Otherwise, also ESG is maybe driving that set. Customers, clients, small, medium enterprises would like to use objects longer. At the end of the day, it's a good development for us because we are able to manage it. On the one hand, it brings us extra earnings because during the contractual time which was settled, we have a full amortization on our leasing contract. So that's an extra earning and it's part of CM2. It's not a CM1 issue, it's a CM2 issue because the prognosis for that aftersales for the extension for the extra earnings of that are part of our CM2. And it's still early to say if that will reflect or that we have to reflect in our future CM2 level because that's quite young.
And we are looking quite good to that monthly wise and then maybe we can adjust our prognosis, but it's too early to do that now. And in terms of the loss rate, at one point, 3% is quite low. The portfolio quality is very, very high. Because over the last 2 years, there's more medium enterprises which are settling contracts with us are very strong small medium enterprise. Very healthy. So the overall performance is quite good because they are going in to invest in objects. They would like to use the object. We are not giving them liquidity. So the overall risk profile is better than in, let's say, a normal environment. And we assume that may the loss rate could be a bit higher because of rising volume because we have to take into account the expected credit loss. We have to take into account macroeconomic parameters in our risk model.
Looking into our figures, we can't see there anything -- any changes. The portfolio is quite stable and also the macroeconomic parameters we put in to our conservative model, we can't see that today. So it's a diverse portfolio, it's like a shield against the things they make to come.
I would like to add, if you like, I think we have a different situation through the crisis before. This crisis we have here is also caused by the gas crisis in Russia and the industry is here affected, not so much our customers. And that was in the COVID crisis. That was at our customers in Italy, the restaurants in France and the hotels and warehouse. So it's -- for us, it's the complete opposite of the COVID situation at the moment, and we experienced over the past years. So the small- and medium-sized companies at the moment are not in the middle of the crisis and they had not to close down their business. Everyone is going to holidays. Everyone is going to France, to Italy and the restaurants are open. So that's good for us and good for our business at the moment. This crisis -- we adopted -- I think we adopted a lot in the COVID crisis. We managed it. And this, while we are content, we will handle this situation even better.
Okay. One follow-up, if I may, on the extension. Could you quantify this a little bit further. So how -- what is the percentage of contracts that are running into extension right now compared to like 1 or 2 years ago?
When we compare that to the last year, the first half of the year, we have now roughly 20% more leasing contracts in expansion and compared to the level of 2019, it's roughly 40%. So we're talking about roughly 50,000 contracts are in expansion at the moment.
Thank you. Then we'd like to move on to Ms. Sun from Deutsche Bank.
Three questions, if I may. The first one is -- the first two is on the cost. And can you give us some more color on the change of your compensation schemes to your employees? Just to help us understand better how the staff costs will evolve in the future and in the following quarters and for next year. And the second question is on the consulting cost. You said it was a little bit high in the first half of the year. Can you give us a quantified number, how much was in the H1 and how much do you expect for H2? And the third question is on the Q3 performance. So we have already July and a couple of days in August. Could you provide us the first insight of Q3 performance, both in terms of new business and also the customer payment behavior. Thank you.
Okay. Thank you, Ms. Sun. I will take the question. At first, yes, we changed a bit our remuneration system and the overall compensation system because over the last years, the variable part was quite high. And looking to the market, it was no longer the best way to get new employees -- to cover our existing employees because of the high variable compensation we had. And that's why we decided to reduce variable compensation and to pay more fixed compensation. So you can see that also when you look to our key figures, what is the part of variable compensation overall of staff costs in the past and today. And that is the main change between the two in the past, roughly 25% to 30%, if I'm right, was variable.
And today, we came to a level of, let's say, 10% to 15%, it depends a bit on sales, variable compensation of sales is much higher than for the headquarter staffing. And that will also affect a bit our industry direct costs because not the same level of cost, it's now part of the initial direct cost and that will have an impact for that year of EUR 5 million to EUR 8 million less IDCs and that you will see also in a lower income of new business. But it's only temporary because that is part of the leasing receivables. And so now the industry direct costs are lower, and the starting point of leasing receivables are lower.
At the end of the day, the interest rate -- the initial interest rate of the leasing receivables is higher. So that will come back over a duration of 2 years. So it's only temporary from the P&L perspective, but it was quite important to staying at the market and to getting the right people and to covering the base of people we need for the things we would like to achieve over the next years.
And the consulting costs there, I can give you a bit of flavor. It was roughly EUR 60 million consulting and auditing costs in the first half of 2022 compared to the first half of the last year, it was EUR 20 million. And for the second half of the year, the cost should come down in minimum by EUR 3 million.
And Q3 performance, all we can see is going on. I mentioned we confirmed our goals and our guidance for '22. So it's positively ongoing also in Q3, and we expect no change in the payment behavior. Our business model is the financing of assets for day-to-day operations of small to medium-sized companies. And that makes us resilient and no change in that.
I have a follow-up question. I apologize for that. So just going back to the remuneration plan for the employees. So you said that you increased the fixed cost proportion of the remuneration plan. Can you give us a proxy of the annual wage inflation that you expected for the following years?
Yes, that's like a balance. The overall costs are merely on the same level and the variable portion will come down, and you will see that, and the fixed portion will come up.
Then Johannes Thormann from HSBC, please.
Three questions from my side as well. First of all, when do you expect income and net interest margin to grow again? Is this a question of quarters or years? And secondly, we've seen now 2 quarters of FX effects in your financial results. Will this be a continued feature in the next results as well or do you expect the reversals or what should we put in model for this? And last but not least, as you call them your future core markets, your franchise units, the way you're talking about the takeover. First of all, the performance, because we have seen increased losses in Q2, is this what has been driven -- driving these losses? And second, in terms of the takeover, how do you want to pay for this? Will it be in shares? Will you issue new debt? Or can you pay it out of your existing cash?
Yes. Thanks, Mr. Thormann. So when we look to interest margin, and I think you mentioned the P&L, then we should see rising interest income over the next quarters. It depends directly to the leasing receivables I mentioned. And there, the bottom is behind us and should be the same for, say, interest income. And you see that also in our P&L when you -- when we look only to the quarters, the interest income in Q2 was slightly higher than the interest income in Q1 2022.
The interest income, the net interest income, that depends a bit on interest development. And so from a year-over-year perspective, it's not that easy to say that year, may there will be an increase in the next year. But quarter-wise, we should see an increase over the next quarters. The FX effect that, that's right. You have to look always to the holistic, let's say, P&L also to the comprehensive income. It's a bit more technical because on the one hand, we have some impacts on FX on our P&L directly in our other incomes or other expenses. But you will also see some impact because of FX in the comprehensive income. So at the end of the day, the impact on that quarter was more or less neutral. It depends is it part of the balance sheet, is it part of hedging. So the line in the P&L or comprehensive income is quite different.
And we have, at the moment, high differences between the valuation. Everything on the balance sheet, let's say, like the leasing receivables and so on, the FX impact, is with the FX at end of June. So you take the currency at the end of June. When you always look to derivates to forwards, you have to take note the CASA rate, you will go for the forward rate. And the difference between forwards and overnight rates is quite high at the moment that we will always see in our P&L. But again, please take also in account the comprehensive income. There's a huge portion of roughly EUR 5.5 million linked to FX.
Future core market, I think you mentioned, is a noncontrolling interest and there are all franchise units included. Not only the future core markets, Canada, Australia and the U.S. Also other franchise units are there. And looking to that, yes, the loss increased a bit in Q2, but it's not a main impact. In some cases, we have also to adjust because of macroeconomic environment, the expected credit loss, and also the risk provisioning also for factoring business, but not that hard. So the future core markets develop very well and especially there, the development of new business is quite important to rising the dealers, the number of dealers to rising, the number of clients and number of contracts and take over your work on that. And at the end of the day, we are able to pay that in cash. So that's always an opportunity and may, if there are other opportunities important, then we will think about if have the amount to pay, but we are able to pay that in cash.
Two follow-ups. So most likely, you will pay it in cash. And secondly, the net interest margin, which has been now -- and over the last years, should this recover next year if you say it takes a bit longer or would you say a recovery of net interest margin is currently impossible?
I think that should recover next year because with rising interest rates with, let's say, also a more efficient management of liquidity, I think that could be the case. But again, it depends a bit on the time like in funding. When we go, let's say, tomorrow for a new bond, then we have to pay high interest rates. We are now in passing through conditions. So at the end of the day, it's a very good question, but it's not that easy to meet the prognosis quite on the right quarter. So I think next year, we should see a higher net interest income in the margin depends on the overall developments in contribution margin one and in what has to be to pay for our funding.
And there's also a question, what is going on the inflation side and on the interest rate side. So -- and we see now, in America, inflation is going down a little bit, and this will help us. When this situation stops a little bit and goes the other way around, then you will see also the recovery in our margin.
Okay. So next question comes from Tobias Lukesch, Kepler Cheuvreux.
Also 3 questions from my side, please. Firstly, touching on the NII effect again. Since you decreased the deposit amount quite a lot in Q2, I was wondering if there is a kind of into Q3 effect based on that, i.e., that the interest expense might be lowered going forward? Secondly, on the new business development in Q3, I think that was just asked before, but I didn't catch that. Maybe you can give us a bit of flavor how this developed so far over the last 1.5 months. And lastly, on the risk modeling, you also referred to with regards to your franchise companies. I was wondering, have you done any adverse stress test for your model? If so, what would be the assumptions and what kind of loss rate, what do you expect in, let's say, less favorable environment as the banks are indicating with some 1% or 2% GDP decline basically? Yes, what would be that outcome of your portfolio?
Yes. Thank you, Mr. Lukesch. First, the decrease of the positive was like planned because we would like to bring down our liquidity position overall, and the most of the liquidity was hold by GRENKE Bank. And so that was planned to decrease deposits in line with our overall volume development, with leasing receivables and also with the cash flows. Of course, yes, the interest expenses are lower looking to the deposit business, but we will always find a good mix between our several pillars that was important for us in the first half of that year to go back to the capital market with the bond. It's also important for us to being present in our ABCP programs and also the deposit business is really important.
And as I mentioned in my presentation, when we only not look to the whole balance sheet and we only look to the debt, GRENKE Bank is roughly 25% of our debt funding, and that is, from our perspective, a good portion to manage our funding. The interest rate in management in Q3 compared to Q2, it's more or less stable. So it was, in Q3, not that dynamic. And so we see a more or less stable environment and the interest rates are not that volatile as it was in the first half of the year, and it gives us also a flavor to parting through our conditions, as we mentioned, and having a minimum a stable development on our contribution margin in the best case when it will be stable going forward a better contribution margin in Q2. But it depends a bit on volume. We are now going into the summer break in some countries. And as always, and you are aware of that, Q3 is a bit special because of the volume. And in some countries, the summer break is longer and that, we will see presenting our new business figures for Q3.
And as a risk model for franchisees that it's more or less the same structure and base model as we have for the other countries. And it's not an extra model for franchisees. We are looking to what is about the leasing receivables or may the factoring receivables. So -- and when they are in different countries, and we have also to reflect the different countries, the country risk on the one hand and also the macroeconomic environment of each country. At the moment, we are quite conservative on our risk models across regions. And if I should expect a loss rate? Of course, the 1.3%, as I mentioned, is a bit low. From a long-term run, we would like to meet the 1.5% in a balanced scenario where we have the balance between volume and risk development. On the other hand, we think that, that is a good level to having a right risk premium to earn money and also to managing the risk at the end of the day.
Very clear. But would you show a kind of adverse stress outcome for your loss ratio? And maybe also point to -- probably to the countries where you see potentially the highest risk, right?
Yes. But we can also look at that from a global perspective, when we look to our portfolio, to the volume at the moment. And if we stress our risk provisioning, then I can't assume at the moment that we will see a loss rate higher than 2.0%.
Perfect. Then the next question comes from Philipp Häßler from Pareto please.
I have 3 questions as well, please. The first one is a follow-up. Did I understand you correctly that due to the change in the compensation program, the profit from new business is negatively impacted because it was down, although new business was up in Q2? Maybe you could elaborate on this. Then the profit from disposals were positive in Q2 after many, many quarters of small losses. Maybe you could comment also on this and give an outlook for the next quarter. And last but not least, the ECB lifted the negative interest rates. If I remember correctly, you were negatively impacted from this. Maybe you could also comment on this and give an outlook for the next quarters.
Yes, I will take the questions. Thank you, Mr. Häßler. At first assets right, that compensation as a first time a negative impact on profit of new business because of the lower IVC's and when you compare that line in our P&L to the losses and you will see that it's roughly EUR 3 million. And as I mentioned before, over the whole year, it's between EUR 5 million to EUR 8 million. It depends a bit on the performance and the measurement of performance for the variable compensation at the end of the day. The profit from disposals, quite positive because of more extensions we see. So we have more extensions in leasing receivables at the moment and that bring us that good result.
From a long run, it's not easy to say that is a long-term trend. We will see that higher number of contracts running in an extension from a long-term run. It's not that easy to say. But we believe from a year-over-year perspective that the result there should be positive that year and not change and switch into negative. And the last point, also quite right. The short-term lift from ECB, quite important. In the first half of the year, we paid negative interest rates on our bank accounts of roughly EUR 1.6 million and that is an impact for the second half of the year on minimum for the last 5 months of that year. We will not see in the other interest income there that negative impact was over the last years inside. On the one hand, we had a lower volume of liquidity. That's why the EUR 1.6 million compared to EUR 2.2 million in the last year is a bit lower, but from a midterm run, we will not have to pay longer negative interest.
That's another positive impact because of the ECB and the situation there. You see, some of our competitors who are banks, they were able to refinance over the ECB under now 0.5% minus. And this will also stop. So we see that the banks could make money and to make good offers there to their customers. Because of this topic, you will see the ECB will also stop this for our position at the market also really good.
Okay. [Operator Instructions] Okay. Thank you very much. This concludes our call for today. If questions spring to your mind after the session, please drop us a line or give us a call. And just to remind you, our new business figures are due on October 5. Have a great day, and best luck. You may disconnect now. Thank you and goodbye.