Société Générale Société anonyme (GLE) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the First Quarter 2023 Financial Results Presentation for Société Générale Conference Call. I now hand over to Mr. Frédéric Oudéa, Chief Executive Officer. Please go ahead, sir.

Thank you very much. Good morning to all of you. Thanks for attending this conference call. As usual, Claire Dumas, our CFO, and myself will go through as briefly as possible in our presentation. And then all our management team will answer your questions. As you remember this, if I may say, nice discipline to try to speak at least to start with 2 questions per people to let everyone asking a question. Let's go through the presentation, so -- and start with the first slide, where you have actually a summary of this very dynamic first quarter as now foreclosed to 3 years in a row, we are presenting a very strong set of quarterly results, above expectations. It is based on a robust business performance, solid business revenues in particular and of course, with even higher figure, if you take into account the IFRS 17 adjustment, it's an equivalent of [ EUR 300 million ] in terms of the reduction of revenues versus the previous way to report. And apart from French Networks, we have across the board, very good performances in particular, regarding Boursorama, ALD, International Retail as well as Global Banking and Investor Solutions. Regarding the French Networks, we will go through the detail. As you have seen with all the large players in this market, there are specificities in the French market. And it means that we will have temporarily for this year till the beginning of next year a decrease of net interest margin but with a rebound in 2024. And so we are confident with the trajectory of our French retail business. At group level, you can see also the strong and disciplined monitoring of our costs. This is not something also which is just raised to this quarter, permanent efforts. Cost of risk is very low, as you have seen, while we maintain a very prudent provision. We will go through the details. And overall, we present a very -- the robust balance sheet in all the dimensions, credit quality, capital level and liquidity ratios. You might have seen that we can confirm the approval by the European Central Bank of our share buyback, the EUR 440 million share buyback, which is part of the 2022 distribution. I just would like to highlight that beyond these results, there is, of course, further very important milestones in our strategic projects, which have been completed or are about to be completed in the very coming few days. Regarding our French Networks, the merger and the creation of our new SG Bank, we had a very first successful IT migration in March. The second one, which will complete the job in terms of the creation of the new bank will take this weekend actually on the 13th and 14th of May and will allow then all the teams and the management to concentrate on the implementation of the new business model and of course, the extraction of the synergy, both in terms of retail -- of revenues, sorry, and in terms of costs. Regarding Boursorama, we are exactly in line with the trajectory we have presented within the first quarter of 2023, per breakeven while still conquering a strong number of new clients, close to 300,000 in the first quarter. Third, we have scheduled an extraordinary general meeting for ALD on the 22nd of May for the closing of the acquisition of LeasePlan and eventually regarding Bernstein, we signed the acquisition agreement. So very busy, but I would say, successful quarter also from a strategic point of view. Now I turn the floor to Claire who will enter into more details in the figures.

Thank you, Frédéric. So as Frédéric highlighted, the group delivered in the first quarter, a robust operating performance with an underlying gross operating income at EUR 2.5 billion in Q1. This performance has been notably first driven by overall solid revenues, which are slightly down at group level, but up 0.3% for the businesses at constant exchange rate and perimeter and compared to a very high Q1 last year. They are even 16% higher than Q1 2021 on a pro forma basis under IFRS. At the same time, underlying costs remained under control with an increase of 1.3%. Overall, the underlying cost income ratio excluding SRF posted in Q1 is at 60.5%. Moving on to the next slide, 6. The cost of risk remained low across businesses in Q1. At group level, it stands on an average at 13 basis points. Once again, it illustrates the quality of our assets and our strict and prudent risk management policy. We still do not see any material deterioration of our portfolio. The NPL ratio is stable at 2.8% at the end of March, and the gross coverage rate is still around 49%. On the back of the low quarterly level and given the quality of our credit portfolio, we now expect the cost of risk to be below 30 basis points. Let's turn to the next page, Slide 7. As illustrated on the chart on the left-hand side and in line with Frédéric comments, defaults remained low in the first quarter in absolute terms at EUR 206 million or 14 basis points. It's also true in relative terms compared to previous year, both in nominal terms and in basis points despite the faster environment. At the same time, we maintained a prudent provisioning policy in the quarter by keeping stable the fractionary provisions of stage 1 and 2 assets in Q1. At the end of March, the total outstanding in Stage 1 and 2 provisions is stable and remains close to EUR 3.8 billion. Let's have a look on our corporate portfolio, which accounts for around 34% of the group's total exposure actuals. As you can see on Slide 8, it's highly diversified in terms of sectoral exposure, the concentration risk is low, in line with our risk management policy. This is particularly true for sectors that have focused attention in [ recent ] weeks. For instance, the exposure to U.S. regional banks is very low with a total exposure at [ USD 100 million. ] Similarly, the exposure to commercial real estate is limited to 1.9% of the group's EaD out of the total exposure at default of 3.2% on the corporate real estate sector. The commercial real estate portfolio is down. It's diversified in terms of asset classes and geographies, mainly geared towards Western Europe at 79% and largely in France. It's also managed from a risk perspective. In particular, the actual LTV of this portfolio stands at around 50% on the back of prudent underlying policy based on a maximum LTV of 65% at origination. The exposure to offices or assets in the U.S. are both limited. Around 50% of the exposure is with investment-grade counterparties and the Stage 3 exposure is around 1.3%. On leveraged finance, as disclosed the last quarter, we have always maintained a cautious approach and applied strict risk management. In line with this approach, the exposure on LBO is low and remains limited at around EUR 5 billion, which represents around 0.4% of the total groups' exposure at default. Finally, on the Russian offshore portfolio, the exposure further decreased by EUR 200 million in Q1 to reach EUR 1.6 billion at the end of March, thanks to a continued flow of repayments. We have adjusted downwards the net exposure at risk, which is now estimated below EUR 0.5 billion. It's largely covered by a stock of provision of around EUR 0.4 billion. Let's now turn to capital, Slide 9. At the end of March, the group crossed a very solid core Tier 1 ratio of 13.5%, which is 410 basis points above the MDA. The fully loaded ratio increased by 10 basis points in Q1 compared to Q4 last year. This increase in Q4 is -- this increase is a direct result of a solid earning capital generation of 14 basis points in Q1, spot provisions for distribution. The impact of the regulatory adjustment on the model is limited to 4 basis points this quarter. Last, the other item has a net negative impact of 1 basis point. It notably includes a positive impact of 8 basis points linked to the implementation of IFRS 17 and IFRS 9 on the interest activities and on the contrary, a negative impact linked to the deduction of treasury shares in line with EBA guidelines. For the capital ratio, they are all comfortably above requirements. Moving on to liquidity, Slide 10. As illustrated in the chart on Slide 10, the standard balance sheet of the group is very solid with an excess of long-term resources, high deposit base and liquidity reserves and a limited reliance on short-term funding. In Q1, the robustness of the liquidity profile has even been further strengthened with the rise of the liquidity reserve, which represents almost 30% of our steady balance sheet and an increase by 0.7% of the deposit base at EUR 598 billion. The deposit base of the group is down, highly diversified and granular. It's largely composed of deposits in our retail activities for more than 60% and other business-driven deposit made by corporates, which with the group has a very close long-term relationship. It's also important to note that more than 60% of the deposits made by individuals are insured. Overall, the loan-to-deposit ratio stands at 84% at group level. Last is to remind that in line with our policy, assets in dollars are fully funded by resources in dollars. We have actually excess resources in dollars, which are deposited at the sale. We indeed benefit from highly diversified and stable resources in USD with very limited reliance on money market fund. Let's now have a look on the liquidity reserve and the MREL ratio, Slide 11. As illustrated in the chart, the liquidity reserves are very high and has steadily increased over the last quarter. They represent around 2.5x the amount of short-term and long-term wholesale debt maturing within the next 12 months. They are largely composed of excess cash deposited at central banks, mostly at the [ ECB and FED ] On top of that, we had around EUR 56 billion of HQLA assets eligible to the LCR ratio. They are mostly composed of highly rated sovereign debts, which are hedged against interest rate risk with FAS. Overall, the LCR remains at a very high level and has further increased since the end of 2022 from 141% to 171% at a level well above our minimum steering flow. Regarding the MREL ratio, which is another important aspect for European banks and depositors, it stands at 34.3% in terms of RWA with a total outstanding of EUR 124 billion of eligible debts. As for the other ratios, it's well above requirements with notably AT1 and Tier 2 buckets comfortably above minimum requested levels. Last, note that the [ vanilla ] long-term 2023 funding program is well advanced above 70%. I will not comment Slide 12. Let's now look at the business performance in the French Networks and Private Banking, Slide 14. On the credit side, total loans outstanding is flat in Q1 versus last year. We still make trends between retail and corporate. With corporate, the activity remains constructive. Loans, excluding PGE are up plus 4.5% versus last year, driven by both medium and long-term credit and treasury loans. On state-granted loans, we continue to have normal repayment and the amount has gone down from around EUR 18 million at the end of 2023 -- 2020 to EUR 12 billion currently. Regarding loans to individuals, we have maintained a voluntary selective approach in production to limit the impact of the usual rate, which is translating into a decrease in production on a yearly basis. Despite this drop in production, home loan outstandings are stable on a yearly basis. On the deposit side, total outstanding is up 1% compared versus last year. The deposit base is diversified and solid with both households and corporates, which has, for the latter started to shift part of the [ 5 ] deposits to term deposits or to interest bearing on our off-balance sheet products. On savings, we experienced overall resilient AUM. Life insurance outstanding are flat with gross inflows amounting to EUR 3.3 billion. Private banking assets under management, excluding the former business was up 2% with net inflows of EUR 2.5 billion. Finally, Premia P&C were up 7% in the quarter and personal protection continues to rise 3% versus last year. Moving on to both Boursorama, Slide 15. Boursorama has reinforced leading position in France in the online banking with 297,000 new clients during the quarter to reach a total of 4.9 million clients at the end of March, which represents a 34% increase compared to last year. It's composed of high-quality client base, which actively use Boursorama on tracking basis and as primary bank for more than 50% of them. With regards to customer relation, it's important to highlight that Boursorama is #1 in customer satisfaction with a higher net promoter score of plus 36%. On client monetization, Boursorama continues to make strong progress in line with the evolution of its client base. Loan outstanding are up by 7% versus Q1 last year. Deposits and financial savings increased significantly by 39% to EUR 51 billion. Additionally, we still observe dynamic day-to-day banking operations with a 48% growth in payments and withdraw versus last year. This strong growth in outstandings is starting to bear fruit on the financial front in line with our expectations. Indeed, as mentioned on Slide 16, Boursorama's breakeven in Q1, while maintaining a solid new client acquisition rhythm. This is firstly due to a strong increase in revenues in Q1, which has been multiplied by 1.6x compared to last year, excluding new clients onboarding costs. Boursorama fully benefits from its enlarged client base and fast-growing deposits and savings base in a positive rate environment. At the same time, the acquisition cost per client and the cost to serve have continued to decrease consistently with the high scalability of the model. Administration, the number of employees have increased by less than 50 in total since January 2022, while at the same time, Boursorama gained more than 1.8 million new clients. Let's now proceed on the French retail banking net interest margin update, Slide 17. As indicated last quarter, 2023 will be a year of transition with a temporary decrease in net interest margins before the rebound expected in 2024. First, the net interest margin will be negatively impacted in 2023 by the end of the benefit of the TLTRO, with a negative impact of about minus EUR 300 million compared to last year. It will also suffer from the specificities of the French market. Hence, depending on the lira rate devolution, regulated savings could weigh up to around EUR 400 million this year as we have a sensitivity of around minus EUR 50 million for each plus 25 basis point rate increase. In addition, the usury rate has impacted and continues to impact loan production in terms of both volume and margin effects. At the same time, we will not benefit from positive rate on deposits before 2024 due to a short-term hedging policy of the net interest margin put in place until early 2022, in an environment of negative or very low interest rate. Based on forward rates at the end of March 2023 and an assumption of the 3 months [ Euribor of free 3 quarter ] in Q3, the net interest margin is expected to be down by around minus 15% to minus 20% in 2023 versus 2022, therefore mechanically rebounded in 2024 at a level compared to 2022 with the extension of the hedges and further improved in 2025. Note that this projection is paid on assumptions on the balance sheet, which are consistent with the current economic environment, i.e, first the -- slight erosion of loans and deposit outstanding despite an expected GDP growth. And second, they continue to achieve toward interest-bearing products of part of the deposit base. Let's now come back to the quarterly numbers, Slide 18. In terms of P&L, the French retail banking activity generated a net profit of EUR 138 million in Q1, despite the pressure on the NIM, which will apply at -- which will last until mid-2024. The total revenues, excluding PEL/CEL, are down 9.5% versus last year. Regarding costs, they remained under control and well below inflation. The decrease by 2% on a reported basis compared to last year and are flat on an underlying basis. But -- last but not least, the cost of risk remains low at 14 basis points. Overall, the underlying RONE income to 7.5% in Q1. On International Retail Banking, Slide 19 commercial dynamics continue to be well oriented across regions. In Europe, loans outstandings are up 8% and deposits increased by 2% on a yearly basis. On deposits, total outstanding strongly increased by almost 7% compared to December last year. In Africa, the economic environment has further improved, which has contributed to maintaining good momentum across geographies. Overall, loans and deposits both grew by 5% versus Q1 last year. Driven by the solid commercial performance fees, revenues increased by nearly 7% compared to last year at constant exchange rate and perimeter. This results from both strong growth in Africa with a 15% increase in revenue and a continued solid performance in Europe with a 19% rise in Romania and a still high net interest margin in Czech Republic. Overall, our international division crossed once again, a very satisfactory performance this quarter with an underlying ROE at 18%. On Insurance and Financial Services, Slide 20. The performance remained strong with an underlying ROE at 28%. And in France, the commercial trends update. Life Insurance gross inflows amounted to EUR 3.6 billion in Q1, notably thanks to a dynamic trend in France with a 2% rise versus Q1 last year. Total life insurance outstanding stand at EUR 133 billion at the end of the quarter, with a further increase in unit-linked at 37%. Our protection premium continued to increase plus 4% versus Q1 last year, driven by a continued increase in penetration rates and still very good dynamics in P&C Premia, which are up by 7% versus Q1 last year. Overall, revenue generated by the insurance division rise by 51% in Q1 under the new IFRS 17 norm, which is applied for the first time this quarter. In addition to the solid commercial performance, this strong increase also results from the volatile effects linked to IFRS 17 that had [ up ] due to the mark-to-market of certain contracts to restate the Q1 2022 revenue base by around minus EUR 40 million before reversing it in Q2. It's an illustration of the volatility of revenues that IFRS 17 could generate going forward. For Financial Services, revenues increased by 26% in Q1, thanks to a 30% rise for ALD, which benefited also a solid growth of the funding fees by more than 3% and it continues a strong contribution of used car sales and positive impact of depreciation adjustments. Slide 21, IBFS delivered another strong quarter with an underlying revenue of 22.7%. Revenues increased by 15% at constant exchange rate in perimeter versus Q1 last year, allowing for positive despite the impact of the preparation costs borne by ALD for the acquisition of LeasePlan. Moreover as for the rest of the group, cost of risk remained low in Q1 at 27 basis points. Turning to GMRA. Total revenues are slightly down by minus 1.7%, Slide 22. Starting with Global Markets. It was once again an excellent quarter with total revenues exceeding EUR 1.7 billion, a level comparable to the record Q1 last year. It is now almost a third consecutive year of strong performance, the 11th quarter in a row precisely. It further demonstrates the soundness of our setup and risk management, the strength of our franchisees and our ability to navigate different environments. In detail, for fixed income, this is an outstanding performance with a plus -- with EUR 890 million in provision, up by 16% versus Q1 last year and 54% in comparison to Q4. The fixed platform keeps benefiting from the conducing rate and ForEx environment. Equity activities performed quite well in Q1 despite the context of lower volumes and volatility. Revenues are down 18% on a yearly basis compared with a record high in Q1 last year. If we compare to Q4, they are up 29%. Security Services was up 12%, benefiting notably from the revaluation of our holding Euroclear. On Financing and Advisory, Slide 23. Revenues are up 5% versus Q1 last year at EUR 827 million. Global Banking & Advisory realized once again an excellent performance in Q1 with revenues close to historical highs. Momentum remains strong in asset finance across all asset cases, especially in aircraft industries. The performance was so robust investment banking with a rebound in revenues, notably driven by DCM and TMT Finance. Last, the level of activity was very good in Asset Backed Products and Natural Resources with a slight decrease in revenues compared to a very high Q1 last year. We notably benefited from continued solid growth in renewables. In Transaction Banking performance continued to be excellent with a 51% increase in revenues compared to last year, thanks to a steady commercial growth in a positive interest rate environment. Overall, Slide 24, GB delivered once again an excellent quarter. Revenues are stable in comparison to a very high Q1 last year and costs remain under control. They are down by nearly 6% on a reported basis and slightly up by 1.7% on an underlying basis, excluding SRF. This translates into a competitive underlying C/I ratio, excluding SRF of 53.7%. In terms of profitability, GB delivered an outstanding quarter with an underlying RONE up by nearly 4 percentage points compared to last year at 24.7% in Q1 and above 27% excluding SRF. On the Corporate Center, Slide 25, revenues are impacted by the unwinding of the hedges on the TLTRO following the decision made last year by ECB. The total impact is expected to be around EUR 300 million in 2023, out of which EUR 100 million in Q1. In addition, the implementation of IFRS 17 impacts both revenues and costs by around EUR 70 million in Q1. Regarding operating expenses, as usual, includes the transformation charges for a total amount of EUR 182 million, largely related to costs linked to the merger of the French Networks. All in all, net contribution to the groups' net result is negative by around minus EUR 400 million in Q1. I will now let the floor to Frédéric Oudéa for his conclusion.

Thank you very much, Claire. Let me just conclude by saying beyond, of course, the strong first quarter and having in mind the -- our management change in 2 weeks' time. We again, are implementing successfully our renewed business model, the creation of this new bank on the French retail market, branded Société Générale with a remarkably well managed merger process with this last milestone in -- during the weekend. Boursorama, which is reaching 5 million clients figure and which will be a differentiating asset for the coming years. And of course, with the acquisition of this plan, the creation of a leading global player in a sustainable mobility, which in my view will be an opportunity for a sustainable and profitable growth for the coming 10 to 15 years. Let me say, of course, there is still hard work remaining in the coming years to extract the value of all these projects. But of course, with these milestones about to be completed in the coming days. The execution risk is certainly, in my view, significantly reduced. And I just would like to share my conviction that these new developments will definitely help us to meet our objectives in terms of sustainable profitability. Eventually, let me just say that I'm happy and proud that the management transition process went very smoothly and has allowed Slawomir Krupa as successor and his team to get ready takeover in the best condition and without, of course, losing any moment. So now we are ready to answer your questions, again the floor is yours.

[Operator Instructions] The first question is from Delphine Lee of JPMorgan.

Yes. So my first question is on French retail. Just to understand a little bit of performance. Just to understand, I mean, why do you think SocGen is -- performance in French retail seem to be weaker than peers BNP and [Cred Ag ]. That's the first question. And the second one, French Retail as well is -- so there is this bounce back in '24, which is driven by the hedge maturing. Could you give us a bit more color on sort of the structural hedges and how much should we expect in coming years? Any kind of color around these impacts would be very helpful to forecast French Retail NII? And then just a very quick -- just a clarification on capital. So in terms of [indiscernible] that we've taken 4 basis points this quarter. I mean, -- how much more is there -- I think there's still TRIM, which was some memory around 40 basis points. If you just can remind us of the coming capital impacts?

Delphine, I will let in a minute Claire to comment on the hedging policy and the capital perspective. Sebastien will say a word on the commercial performance there. I think I don't understand very well your comments on the weaker performances. Of course, the big impact here is on the net interest margin. But what I've seen personally and maybe I'm wrong, but when I look at the communication of [Credit Agricole] both in terms of their regional banks, and [LCL ] when I look at [the picture ] [ Banque Populaire and Caisse d'Epargne ] I saw personally a decrease between 14% and 30% of the net interest margin. And so it seems to me that our 18% decline is pretty much in line with the third quarter, but as you said, [indiscernible] higher. But I think we are very much in line with the big players on this market. So from that perspective, I don't think we are very, very dissimilar. So that's on the commercial performance. And then Claire will elaborate on the 2 other aspects. On the commercial performance. What we can say is regarding fees, which is probably the best proxy to assess the commercial performance, fee-based activities were solid in Q1 compared to last year, both on service and financial fees and insurance fees. So that's point number one, and that's obviously important because we were during Q1 in the context of preparing the finalization of the merger between Société Générale could know, which is always something which could have been distracted the teams from the commercial performance. And clearly, that was not the case. Regarding the credit production, you know, the situation in the French market. So we -- commercially, we speak -- commercially speaking we have taken a decision to reduce significantly our credit production for our home loans because we wanted to protect as much as possible our margin in the French market, where the usually wait is clearly something which constrains our business on a day-to-day basis. And regarding the other segment, production -- credit production is down compared to last year for, I would say, the same reasons as far as consumer credit is concerned. And because of our selective approach in terms of corporate credits, again, in order to protect our margins for the future. Claire, on the other effects of the Delphine's questions.

Yes, the two questions. The first one, the hedging policy. So I will try to explain. The group has taken hedges until early 2022, which we calibrated in financial conditions related to a negative interest rate environment. This hedging will mature until first part of 2024. After their maturity, we come back to a likely more -- well suited to the current interest rate environment with a hedging policy suited to a positive and growing interest rate environment, which enables us to recover the capability to capture the growth of interest rates with -- on the French market, which is maybe a more long-term market than some others, a replacement of our formal long-term position, maybe slower that a capability to capture growth, which explains that by 2024, we anticipate that we will come back to the level of 2022 and an upward trend going forward. Regarding capital. So in 2023, we still anticipate a 35 basis point impact related to regulatory topics. We have guided, if I remember well, on a 40 basis point where you have [ 4 ] impact, I'm sorry -- you have 4 this quarter, still 35 basis points to come. For the rest of the 2023 impact, we confirm the impact of the LeasePlan acquisition for which we have guided on around 40 basis points impact. And where we had guided for around 10 basis points impact, which remain relevant.

The next question is from Tarik El Mejjad of Bank of America.

Just 2 questions, please. First on ALD and the auto leasing. So what's your view on the used car resale value given that the new production cars from the OEMs are actually prices are reducing. I mean we heard about Tesla, but this trend, especially in EV. So maybe you can tell us what's your view on the used car value, I mean, when the used car value is high becomes similar to a new car and the impacts on that? And maybe to address that, you can give us a split of EV and the rest of your fleet? And the second question is on the French Networks mergers. I understand there is a second IT migration this weekend. So what will happen after that, if it all goes well, so what you have in terms of decommissioning the old systems, departures of staff and so on and how quickly then the cost savings will start to feed in? And just one clarification. I mean, Claire, you mentioned the moving parts for the capital. I didn't get the last 10 basis points, was it for what actually?

That was in acquisition, Tarik. Tarik, I will turn to for your first question on ALD and then on the merger process.

Tarik. First, regarding the price cuts, actually, the move from Tesla was not truly followed by the other manufacturers. Tesla had a quite volatile pricing strategy the past few months. So it's very significant increase last year to pass the increase of raw materials and disruption in the supply chain. But the recent reductions still maintained the prices higher than pre-COVID. And it's fair to say that the other OEMs do not have the same type of margins as Tesla, so they cannot really afford to enter in price wars. So they have -- now rather registered. EV cars represent today [ 30% ] of our total funded fleet and that lies 1.5%. Regarding your question -- more general question on the evolution of used car prices, it's fair to say that we are benefiting from a very high -- exceptionally high in car sales -- secondary car sales prices and end markets. We expect this to only gradually normalize over the next 12 months? For many reasons, one is that actually, we do see a rather inflation on the asset value and increase in prices of new cars. Second, there has been a quite significant shortage of new car deliveries over the last 3 years, more than 20 million vehicles in Europe. So this should continue to result in shortage of used cars, and this will benefit to ALD. And last is that the demand for EV cars is actually picking up. It's quite strong, pushed also by regulation. So this should also support prices of EV cars and in particular, used cars because that's a more affordable way for people for a large partial population to buy EV cars. So overall, yes, we expect normalization, but it would be gradual over the next 12 months.

As you said, so this weekend, the second IT migration will take place. And it will put an end to the main milestones of the merger between the legal merger, which took place at January 1, 2023 and the 2 ways of IT migration, the first one in March and last one this coming weekend. So what that mean, it means that all the milestones, which are the trigger of the cost synergies will have been completed after this weekend. And so completely speaking, the traditional IT system will be decommissioned later during the year 2023. And the merger of branches would start at the end of the month, this month on the ground. And with [ old ] job cuts associated with these mergers on the ground, with the objective, which has been secured to extract 30% of the cost synergies before year-end and 80% before the end of 2024. So we are totally in line, both in terms of time line and in terms of numbers, with the targets we presented to you in 2021.

The next question is from Amit Goel of Barclays.

Two questions. One, just coming back on Slide 17 and the short-term hedging policy. I just wanted to really understand also how you think about that kind of short-term hedging a bit better because clearly, it's had quite a negative impact on the net interest income for this year. I mean, how do you think about it going forward? So for example, if we are potentially towards the end of ECB rate hikes, would you look to put some other kind of swaps in place? Or how do you think about that? And within that, in terms of trajectory from [ '23 to '24 ] just provide some of the moving parts and assumptions that you've made to get to the rebound. And then I had a second question just on the LCR ratio placed at a very strong level. I'm just kind of curious why you've chosen to increase it to this kind of order of magnitude because clearly, there's a cost involved. And so I just wondering whether you can bring that down -- is there any kind of constraints or other factors that maybe we're not thinking about?

Amit, I will leave Claire answering your question on the hedging, let me just again come back to you. First of all, what I've seen with other players is similar impact. So of course, I can comment on the hedging policy, but I'm not so sure that we are that different. You will have to check with them. As we've said, we had a policy in a very different environment to hedge our net interest margin in the short term in the horizon of around 3 years. But we have started to adapt, of course, mid-2022 with a very different perspective in terms of interest rate environment as well as dynamic of the balance sheet. So we have started to adjust and it's pretty clear that there will be -- probably further adjustment, taking into account also that on the regulatory side, there might be more, if you wish, standardization, normalization of that, as you know, for example, for the horizon of the net interest margin for 1 year. So it is likely, again -- certainly I will deal that, that there will be an adjustment of the horizon. And of course, factoring, as I said, a very different dynamic in terms of volumes, which would mean probably in terms of quantity of hedging instruments less. And then if I may just say a very practical thing to say is that whatever is the policy, if you put an hedge, which is a swap whatever or an instrument, which received fixed rate and peripheral gain it will be very different in 2023, end of 2023. And of course, in 2021 because we will, of course, benefit from the increase of the fixed rate side. And except if you have a scenario where rates do not stop increasing, but the market anticipate on the contrary, a decrease financial impact would be very different. So as we've said, we are taking into account all the parameters in terms of volumes and hedging policies that we have started to adjust, but we feel comfortable with this kind of guideline for 2024. And let's not forget the decrease comes from the -- comes from the loan origination and the TLTRO, which is a series of impact, negative impact, of course, which will not be further replicated going forward. LCR, perhaps Claire?

Yes. So the sharp increase in LCR. It's related first to an increase of deposit collection. We gave in the slides the level of deposits and the increase over the time. Second, we have achieved more than 70% of our long-term funding program, exactly 73%, which also contributes to the high level of LCR. And at the same time, the business distributions slightly decreased. So all this being together -- put together leads to 171% LCR ratio. So the capability is embedded in the financial performance of the group.

The next question is from Flora Bocahut of Jefferies.

I think, first of all, Frédéric's its your last call with us. So using this opportunity, of course, to wish you all the best for the future. And then in terms of questions, I'm afraid I'm going to come back to French NII. And the 2 questions are on '23, one on '24. So for 2023, thank you for providing us with the guidance. If I understand it correctly, I think you're basically telling us that the run rate we have seen in Q1 NII is going to be sustained for the rest of this year. But the one thing I don't understand there is that on delivery arm, I guess we can expect it will increase further, probably by another 100 basis points in August, so further burden to come versus the Q1 run rate. And then on the TLTRO drag, you haven't fully repaid it yet. I think you still have EUR 47 billion of TLTRO in Q1. So how should I think here about the moving parts this year for NII to be still the same for the rest of the year as it was in Q1? And then for '24, thank you again for the slide 17. You provide us with clear moving part for '23 versus '22, but not for '24. So what gives you the confidence beyond the volume growth, beyond the hedge roll-off in '24 that you can grow the NII in particular. Did you consider that the ECB could cut rates? And also, did you consider a lower rate on [Livret ] in '24?

Flora, first of all, thank you very much for your kind words, and I will say a few words in conclusion. I will let Claire to complement. Perhaps can I say we have factored the further increase of [Livret] in 2023. We have not factored specific increase in terms of volumes in kind of -- if I may say, progressive erosion deleveraging that ECB wants to implement, so that there's no specific element, but then the other parameters play a role, including the hedging instruments and the way they evolve and mature. So if I may, again, I think we were the only one to give a guidance, but I think that, yes, we think it's a reasonable one. And the TLTRO, whatever the reimbursement, the benefit in terms of the, if I may say, the subsidy, which we are coming from the level of rates, which we're supposed to get -- actually, we were supposed to get hot money and which has disappeared and which is different. Whatever, if I may say, here, we have money that we pay at a normal rate. So I think the benefit is disappearing and we have factored the disappearance of EUR 300 million of what was positive in [ 2022 ]. So I think that dynamic of 2023 is pretty clear. And then 2024, I will [like to say] we have taken the forward rate end of March. So yes, there is a slight decrease, which is in this forward curve but which is relatively limited, if you look at it, which I think has not -- is not fundamentally impacting different. I'm turning to Claire, if I'm not wrong, it's more stable probably for the [ 2024 ] year. And we've no specific stronger volume assumption, as I said, in an environment of deleveraging. So here, it's more the benefit of the change in the hedging policy that I've already commented in a very different dynamic. In practice, the volume will be lower. The gap that we have to hedge practically speaking, and as I said, also the horizon, which has already started to change because we will probably aligning with the regulation, which is emerging on this topic. So if I may, with these assumptions, I think we feel pretty confident on the trend for 2024.

The next question is from Guillaume Tiberghien of BNP Paribas Exane.

I've got a couple of questions. One is on French retail. And actually, I know you're not going to commit to 2025 now. But the question is whether there is any reason why the rebound in '25 would not be of a roughly similar magnitude as the revenue rebound in 2024 if we consider that you reinvest your hedges at 3 years and that the repricing of the loan portfolio will be taking place over 8 years and therefore it takes of the same magnitude? The second question relates to Basel IV. Claire, in your headwinds to capital, you didn't list Basel IV, but can you reconfirm 100 bps day 1 and 20 bps after day 1? Or can you refine a little bit and hopefully down that guidance? And the last question maybe is in Global Banking and Advisory, it's down 5% year-on-year. I know the base is quite high, but your loan book is down as well. And given that you're a little bit capital tight, do -- is it fair to assume that you're going to have to constrain the growth in global banking and advisory in order to protect the capital?

Guillaume, if I may, we are not committing on 2025 beyond what we said. As for the improvement, I think let's wait, but we are confident on this. Second, on Basel IV, what -- yes, you are definitely right with the figures and we just say it's probably a conservative assumption. And third, beyond passing the floor to Slawomir because Slawomir will be the one in charge. I just would like to highlight, I mean, clearly and to a certain extent, as I said in the figures, in some markets, like France, the dynamic of loans will be relatively limited for the coming quarters because its what the ECB wants to have. So let's say, it's more difficult to borrow 3% or 4%, and 1% for mortgage or same thing for consumer credit. So there is also beyond the strategy that Slawomir will recommend. There is also a fact that the environment is probably less dynamic for risk-weighted asset development. Slawomir?

On GLBA specifically on GoBank specifically, you said it, it's a slight decrease of a peak -- on a historical peak, and it's not indicative of anything else than slower demand in the end and some minor FX impact. And so it is not indicative of any change in our strategy at this point in time, which I can remind you was to have a very moderate growth of the allocation of the RWA to this business.

The next question is from Jon Peace of Credit Suisse.

Let me also say thank you and good luck in your next endeavors to Frédéric. So my first question, please, is on Global Markets. Given the good results again this quarter, does that old range of revenues, EUR 4.7 billion to EUR 5.3 billion still stand, especially with the Bernstein deal coming up? And secondly, on the cost of risk, I heard your comments around Q2 quality still being very good. Are you seeing any pickup in provisioning in any areas? I think one of your peers mentioned consumer finance, very small SMEs, which are starting to see early signs of deterioration.

Hello, Jon, again, and thank you also for your kind words. I will turn to Slawomir on the global market. On consumer credit, there is no specific iteration. Let me highlight that we have, as you know, a specific franchise, mainly with very limited revolving credit with floating rates, more amortizing loans and car loans, so nothing specific to report on this front. Slawomir, on the Global Markets.

So at the risk of being boring, the range we gave remains solid, and we started the year, remember, there's always seasonality in the global market revenues. We started it -- clearly towards the top of the range, but the range remains valid but it does not account for Bernstein revenues, which we will take into account at a later stage.