Bankinter SA

MAD:BKT

Earnings Call Transcript 2018-Q1

[Gloria Hernández García]

Revenues grew by 9% with respect to the same quarter last year. Nonperforming assets returned to levels prior to our acquisition of Bankinter Portugal. Net income continued on a positive trend, growing by 15% from a year earlier, a very sound capital ratio. And finally, a record ROE at 13.3%. Bankinter Portugal's contribution to first quarter net income was EUR 19 million, 5x more than a year ago. This reaffirms the strength of our business plan for Bankinter Portugal. I'll now go over Bankinter Group's financial results, credit risk and liquidity management, and I'll finish with a quick overview of our strategic business lines. Our first quarter income statement shows very positive trends in net interest income, up 9.1% from the same quarter last year. Despite seasonal downturns, quarter-on-quarter net interest income also grew by 1%. I informed you that we have restated last year's NII to account for the contribution from Portugal's extraordinary net interest income after IFRS9 was implemented. We will do the same for the remaining quarters in the year.Fee income performance was also very positive when compared to the same quarter last year, although it was 1% lower than in the previous quarter. This was due to usual fourth quarter seasonality as well as a negative impact of holy week on this item in the P&L account.Our insurance business, especially Linea Directa, is in very good shape as indicated by a 17% growth in other operating income item. It does not make sense to compare it to the previous quarter because of the contribution in December to the deposit guarantee fund. Trading gains were at all-time lows, in line with previous quarters, reaching a record high of EUR 500 million. Our gross operating income saw a 10% quarter-on-quarter increase and also climbed 9% year-on-year.Concerning operating expenses. Out of the total group 8% increase, Linea Directa led the rise with a 15% year-on-year supported by our growing income contribution, up by 14%. Banking costs showed a more moderate trend, up 6% within our full year expectations due to our ongoing strategic investment plans and some regulatory matters. Despite this growth, our pre-provision profit this quarter grew by almost 10% from a year ago and 16% with respect to the last quarter. Credit and other provisions continued this downward trend, driven by improved cost of risk at 20 basis points at the end of the quarter and fallen by 38% year-on-year. Finally, our net income this quarter grew by 15% from a year ago and by more than 20% from the previous quarter. The graph on the right-hand side shows the positive trend in net income over the last 5 quarters.In terms of volumes, the total loan book remained stable this quarter. This was despite year-end seasonality, the increase in expected loss provisions due to IFRS9 implementation and the overall decline in lending across Spanish banks, which was down 1.6% year-on-year as of February this year.In the last 12 months, Bankinter continued to be the exception to other banks with a 3.3% loan book growth rate. Customer retail funds grew by 1.3% in the quarter and 4% in the last 12 months. This is a significant rate, twice the sector average. Bankinter Portugal's deposits have been virtually flat since last March, but grew by 6% this quarter.Despite persistently negative Euribor rates, net interest income continued on a positive trend, growing by more than 9% from a year ago and almost 1% in the quarter. Bankinter Portugal's contribution to quarterly net interest income was EUR 23 million, a 38% increase, fulfilling its business plan. In Bankinter Spain alone, net interest income grew by 7.6% with respect to the same quarter the previous year. The extraordinary net interest income in Portugal due to NPL recoveries in its corporate loan portfolio acquired from Barclays amounted to EUR 7 million in the quarter, up from last quarter's EUR 6.5 million and EUR 4 million in the first quarter of 2017. Quarter-on-quarter, net interest income also remained resilient despite positive fourth quarter seasonality. All these confirms us -- confirms our yearly guidance for net interest income at a low single digit. As regards customer margin, the graph on the right shows that, despite another year of record-low interest rate, it increased to 1.94%, up 5 basis points in the year and 13 basis points from the same quarter in 2017. This indicates a very resilient quarterly trend throughout the year. Year-on-year, credit yield improved by 3 basis points on the back of resilient credit spreads. Quarter-on-quarter, it rose by 4 basis point. Meanwhile, cost of liabilities decreased by 10 basis points year-on-year and by 1 basis point quarter-on-quarter. At the end of March, it stood at 8 basis points. Our time deposit back book continued to shrink in size and cost. It now represents only 17% of total retail deposits, and its price stands at 19 basis points. Going forward, we expect our lending yields to continue to be fairly stable. We also believe the cost of retail deposits will remain very low with some improvement in wholesale funding cost throughout this year. All in all, our best forecast is that our customer margin should remain resilient in the coming quarters.The total ALCO portfolio amounted to EUR 6.2 billion with an average yield of 2.7%, duration of 2.9 years and an average maturity close to 8 years. 69% of the portfolio consists of Spanish government bonds. We should expect a steady downward trend in its contribution to our net interest income in 2018. Unrealized capital gains increased to more than EUR 600 million, with maturities well spread out for the coming years. Fee income, up 9% year-on-year, experienced growth due to increased operations and customer loyalty. Quarter-on-quarter, fee income was affected by negative seasonality in the first quarter and the holy week holidays. Bankinter Portugal's contribution to quarterly group fee income is close to EUR 10 million, growing by 22% in the last 12 months and 6% from the previous quarter. The graph shows the main contributors to net fee income. As in previous quarters, the largest contributor continued to be fees from assets under management, followed by payment and collection fees and equity brokerage and custody fees. Today, fee income represents 22% of total group operating income. The positive performance during the first quarter inclines us to maintain the guidance of mid- to high-single digit growth for this year, provided that the market environment stabilizes. This item mainly reflects revenues from our insurer, Linea Directa, up 14% year-on-year and now accounts for 21% of the group's total operating income. Later, we will further analyze how our insurance company has performed in the quarter.All in all, we posted a record of EUR 500 million in gross operating income, north of 9% with respect to the same quarter last year and 10% more than the previous quarter. The customer business represents over 88% of operating income and has grown by 12%, demonstrating the improved quality and recurrence of our earnings. On the right-hand side, the contribution of the group's total operating income is broken down. The main contributor is net interest income with 54%, followed by fee income with 22% and other income from customer business at 20%. Lastly, noncustomer-related income from trading and institutional activities remain at all-time lows at 4% of total income.Our increase in operating expenses indicate positive sales trends in Línea Directa and our consumer finance business for which higher marketing and sales force expenses are necessary. In Línea Directa, since March of the last year, over 169 people have been hired mainly in sales, and costs are up by 12% from the last quarter. Bankinter Spain's operating costs remain more stable quarter-on-quarter. They grew by 3% and mainly in general expenses due to regulatory matters and our strategic investment interest formation and processes reengineering. Bankinter Portugal's operating expenses fell by 4% in the quarter, but rose slightly year-on-year according to plan.Our cost-to-income ratio in banking dropped to 46.9%. This includes the integration costs relating to our business in Portugal, which is a less efficient franchise. In 2018, [ the euros ] continued to widen. In the last 12 months, the increase in revenues more than doubles the growth in expenses, thus we will pursue our plans to invest in IT, efficiency gains and customer acquisition projects. This means costs can grow but in a controlled manner and always below income growth in order to maintain cost to income at around 46%. Therefore, a reasonable guidance for the group's operating cost for the year could be a mid-single-digit increase.Cost of risk has continued to fall steadily since 2012. In this first quarter, we hit a new low for this relevant indicator at 20 basis points. Compared to previous quarters, we adjusted previous cost of risk calculations for reclassified provisions in Portugal after the implementation of IFRS9. And accordingly, our cost of risk is down by 38% from the same quarter last year. I'll remind you that in the last quarter of last year, we reclassified some of our credit impairments as legal provisions for which the last quarter's impairments fell by EUR 17 million. The newly reclassified provision will be shown in other provisions with a run rate larger than before. Nevertheless, with the impact of the new IFRS9 standards, we now believe, as a guidance for the next cycle, that a midterm cost of risk will be closer to 30 rather than 40 basis points.Lastly, our annualized return on equity for the quarter exceeded [ 15% ], beating all our peers in Spain. We believe this upward trend will continue throughout the year, allowing us to meet our short-term targets. It is important to point out our recently upgraded BBB+ senior rating and AA- covered bond rating in Standard & Poor's and our Aa1 covered bond rating in Moody's.I will now provide you with the group's main solvency and risk management indicators, including credit and liquidity risk. Asset quality continued on a positive trend. Nonperforming loans decreased, again, with only EUR 11 million in net new and non-perform loans this quarters and a 10% decrease in early delinquency balances. Bankinter Portugal also reduced its NPL balance by 11% year-on-year and by 6% quarter-on-quarter. Our NPL ratio decreased by 12% in the last year, and now it stands at 3.4%. Bankinter Spain's ratio fell to 3.05%, less than half the average, 7.8%, in the Spanish banking system as of February this year. Bankinter Portugal's NPL ratio also fell to 6.84% at the end of March 2018, well below the Portuguese banking system average. NPL provisions amounted to EUR 1.1 billion, up 16% from December due, in part, to the implementation of IFRS9 in the quarter. This brings our total coverage ratio to 53% and 40% for specific NPLs. All foreclosed asset coverage has also increased to 46% from 44% a year ago. All minimal problematic assets portfolio and its level of coverage make us feel comfortable going forward. The foreclosed assets portfolio, including Bankinter Portugal, shrunk in net terms by 22% from a year ago and 44% of the total gross in provincial properties with 29% in commercial properties and 27% [indiscernible]. All in all, total NPAs are EUR 2.39 billion are now below the corresponding amount in March 2016 before [ deposition ] of our Portuguese franchise. This quarter foreclosed as the sales amounted to around 9% of the portfolio by the end of December. Our [indiscernible] discount rate was 35%, well below our average coverage rate of 43% for sold foreclosed assets. Moving on to solvency, retained earnings in the period, along with the stability for loan book and the impact of [indiscernible] reserves allowed for CET1 to grow this quarter by a total of 54 basis points.Our 12% fully loaded ratio is at the top of our guidance between 11% and 11.5%. I'll remind you that due to the IFRS9 implementation, the capital ratio will see some volatility in the coming quarters. Our total capital ratio reached 14.8% as of March this year, up from 12.7% a year ago. Finally, our leverage ratio remain stable at 5.4%. And now liquidity. Our total -- our -- sorry, our loan-to-deposit ratio has remained stable since last year. This quarter, absent growth in our loan book and increasing customer funds led the ratio to rise by 170 basis points. Our Portuguese franchises liquidity gap is now stable at a very modest level of around EUR 900 million. Despite absorbing this amount, the group's total liquidity gap remained stable during the year. The maturity profile of our wholesale financing remained unchanged with no concentrations in any of the coming years. There are no further maturities for this year. As regards to new issues, the current plan is to issue around EUR 500 million of wholesale financing in MREL eligible instruments subject to market conditions. Bankinter's liquidity buffer on EUR 10.5 billion is quite substantial and has increased over the years. Additionally, our covered bond issuance capacity is large enough. Let's now have a quick look at our main customer business indicators for the quarter. The contribution of total income from our business segments remained well diversified and balanced. Our main contributors continue to be corporate and SME banking, closely followed by retail and commercial banking. Our third major contributor to total income is Línea Directa. For the first time, Bankinter Consumer Finance contributed 10%, followed by Bankinter Portugal, which contributed 7% to total income. Lastly, non-related business such as corporate centers, trading and capital markets and ALCO management accounted for another 7% of the group's total operating income.Bankinter continue to be an outlier to Spanish banks in terms of corporate and SME lending. We grew by 5% year-on-year, while this sector had reduced its loan book by 3.6% as of February this year. 73% of our growth came from mid-corporate and SMEs. Only 27% came from large corporates that represent 52% of our corporate loan book. Quarter-on-quarter, our loan book remained almost flat. This indicates a mixed behavior. While our loan book in Portugal grew by 5%, in Spain, it decreased by over $250 million due to the usual [ year-end window ] that I've seen and incremental provisioning due to IFRS9 implementation. Looking ahead, we are confident we will maintain balanced growth in the coming quarters of this year on top of our current business performance and our increased market share in new lending.Our enterprises business model focuses on offering value-added products and services to our corporate customers. One of our main sources of income in corporate banking is international trade business, which now represents 25% of our operating income in this segment. Approximately half of this comes as -- comes in as fee income. Other sources of fee income include of our -- of balance sheet business such as standby letter of credits and bid and performance bonds, which reached an outstanding amount of EUR 3.2 billion and grew by 8% from a year earlier. Moreover, we have our traditional collateral business in international payment and collections, which amounted to EUR 15 billion and grew by 15% (sic) [ 13% ]; and finally, working capital lending, which grew by 16%. All of these is thanks to increasing customer loyalty and our improved customer acquisition. Private banking continued to perform extremely well in the quarter, with net new money growing 50% more than in the same period last year. Despite the negative market effect in the quarter amounting to EUR 400 million, customer assets in private banking grew by 2% to EUR 35.8 billion or 19% from the first quarter of 2017. What is much more remarkable, 78% of this growth relates to advisory products that represent 43% of total assets. In personal banking, assets under management grew by EUR 1.8 billion in the last 12 months or 9%. Since December, despite a negative market effect of EUR 100 million, customer assets grew slightly below EUR 400 million. Discretionary management and investment funds now account for 31% of the total customer assets, growing by 44% over the same period of the previous year.In our retail banking, growth continued in our better-known products. We ended the quarter with more than EUR 7 billion in payroll accounts, up 21% from a year ago. This product is also performing very well in Portugal. Commercial operations were also very intense in mortgage lending, where new origination recovered double-digit growth, pushing our market share up to 5.3%. 28% of new mortgages were fixed rate.Total off-balance sheet funds continued to perform robustly. They grew by 1% with respect to December and by 9% from a year ago, reaching EUR 27 billion. Most assets under management are invested in mutual funds, which saw a 2% increase in the quarter to EUR 20.4 billion. Overall, growth continues to be concentrated in equity funds, long-term fixed rate funds and guaranteed funds. Money market funds fell by an additional 26%. Third party funds accounted for close to 55% of the total, in part, due to the significant growth in profile funds. This reveals our better vantage point over most of our peers after the new MiFID 2 measures have been implemented.And now our usual review of our franchise in Portugal. Bankinter Portugal's contribution has been exceeding our expectations. Commercial operations are according to plan. Corporate lending and mortgages have grown. Total loan book grows by 7% in a year, with a 19% increase in corporate lending. Customer funds increased in the quarter, although persistently falling prices led to a year-on-year decline in deposits. Still, the liquidity gap of this business is stable under EUR 1 billion. The 19% year-on-year increase in its off-balance sheet business, such as customer asset management, is also indicative of the franchise's sound performance. For the first time, we are showing Bankinter Portugal's P&L account compared to the previous year. EUR 19 million in profit before taxes for the quarter is more than 5x the figure of March last year. Net interest margin grew by 38% and fees by 22% in a full comparison, while operating expenses stayed at EUR 22 million with 5% growth. This quarter, only EUR 7 million in revenues resulted from nonrecurrent credit loan recoveries versus EUR 4 million in the first quarter of last year. Finally, cost of risk is positive due to the new IFRS9 accounting standards.These 4 graphs in this page fully compare the quarterly changes in different components of Bankinter Portugal's P&L account. Recurrent NII and fees are in upward trends, operating costs are mostly in control, and profits before taxes are growing with some hikes due to extraordinary recoveries. Now Bankinter Consumer Finance. Consumer Finance maintained robust growth, having attracted 82,000 new customers in the first quarter to reach 1.1 million, an increase of 23% with respect to March last year. Lending balances increased by 43% year-on-year to EUR 1.6 billion. Cost of risk and NPL ratio performed according to plan, remaining at 7.5% and with a coverage rate of 118%. All in all, risk-adjusted returns continue to be above 10%. In the quarter, Bankinter Consumer Finance launched its bankintercard in Portugal, where we expect to grow by EUR 60 million in the year.Now a brief review of the quarter in Línea Directa. Línea Directa continue to be one of the most consistent and profitable direct insurance companies in Spain. The first quarter showed similar trends to previous quarters. Sales and premiums continue to grow by high single digits, close to 8%. Total insured customers reached almost 2.9 million. Even though both of its business lines performed very well, the results from home insurance were particularly satisfactory as premiums grew by almost 4x the industry average. Motor insurance business was more affected by increased competition in the market and renewed pressure on prices. Its new health insurance arm, Vivaz, performed according to plan, with more than 8,000 risks insured at the end of March. We are expecting it to experience a strong growth for the year. Cross-selling to existing motor insurance customers is the main entry point, and over 60% of customers are new to this health insurance product.The positive impact of the Baremo allowed for a reduction in our combined ratio. This is difficult to maintain going forward because, sooner or later, claims cost will increase. Nevertheless, Línea Directa continued to maintain a positive gap with the sector in this significant ratio. Finally, here is Linea Directa's stand-alone P&L in accordance with insurance accounting regulations. Its underwriting result continued to show the strength of its business, growing by 13% from the first quarter last year. At the same time, intensified commercial operations led to increases in operating expenses, mainly in terms of marketing and sales force. Financial income continues to fall by 8% year-on-year, owing to the ultra-low interest rate environment and represented a minor contribution to the total income. All in all, LDA's net income climbed by 7% to EUR 28 million. It reached an outstanding ROE of 36%, while maintaining a Solvency II ratio at 223%.In this last slide, you have a brief recap of Bankinter Group's main figures for this quarter. That is all on my part. Thank you for your attention. I will now take any questions you may have.

[David López Finistrosa]

Thank you, Gloria, for all the detailed explanation. Let's start, for example, with volumes growth. We haven't seen much of that in the quarter, can you comment on your expectations for the next few quarters? Loan volumes.

[Gloria Hernández García]

Okay. Thank you, David. Well, as you have seen in the presentation, in the quarter, the group balance sheet has remained flat -- almost flat, but we posted 2.4% annual growth. Looking at the loan book, well, the industry has continued to shrink by 1.6%. And we have been able to grow by 3.3%, with respect to the same quarter last year. It's the third time that, in the quarter, the loan book was stable. But this is normal due to the last quarter seasonality and window dressing and to one factor. Because the figure that we post is the net -- the investment, the net loan book. So that -- it is affected by the increase in the provisions due to the IFRS9 implementation. And this impact has been around 133 -- EUR 135 million in the quarter. That is the main reason for the loan book to maintain this stability. We expect in this sense that the rest of the year will be positive in terms of growth and will be able to get our guidance. Year-on-year, growth continued to come from corporate and customer lending. In fact, corporate lending grew by 5%. This is an organic growth, as you know very well. In Spain, the growth was 4.3%, while the average of the sector continued to go down by 3.6%. So the gap with the industry is widening. And in Bankinter Portugal, it grew to EUR 1 billion, up 19%, which is a really very good rate year-on-year. Our consumer finance loan book continued to grow, in this case, 7% quarter-on-quarter, but 43% year-on-year. In terms of the mortgage book, here, the book has remained stable in the period. But the new lending is growing by 10% in the last 12 months so -- and more than -- almost EUR 600 million in the quarter. Finally, customer deposits grow by 4% in the last 12 months, so we continue gaining market share. In Portugal, however, deposits remain stable year-on-year. But in the last quarter, we have experienced a growth in this part of the balance sheet. And finally, off-balance sheet items that amount now to EUR 27 million are growing. And particularly, interesting to comment the increase in mutual funds, 2% in the quarter but 15% in the year.

[David López Finistrosa]

Thank you, Gloria. On the credit yields, are we seeing any news there or any difference from previous quarters?

[Gloria Hernández García]

Well, what we have appreciated in the last quarter is that margins have improved a little bit. And this is the result of a positive asset mix because volumes are stable in the quarter. So we have better credit yields because of this reason. The new production in companies lending is a little bit higher than the back book. The mortgages rate are better than the back book because some of them, 30% of them, are fixed rate mortgages, so the new production is at a better spread. And finally, we are growing in consumption financing -- in consumer financing, which is at better rates than the nonconsumer financing, so this is the main reason. So we are saying that these trends will maintain stable in the next quarters, and we consider that the customer margin will be very stable also, very resilient around the current figure, 1.94%, 1.95% or something like that.

[David López Finistrosa]

Okay. Moving now onto the P&L. We've been asked whether you can confirm the guidance on NII and fee income for the year.

[Gloria Hernández García]

Yes. Our guidance for NII continue to be low single digits for the year. And our guidance for net fee income is mid- to high single digits, based on the performance of this first quarter.

[David López Finistrosa]

Perfect. Any impact from TLTROs or any changes there on the NII expected? We were already accruing for the 40 basis points as a reminder.

[Gloria Hernández García]

Well, we -- the numbers now are very close to the previous one. From 12% to 15% of net interest income is coming from [ current rate ] so no changes in this.

[David López Finistrosa]

Okay. Moving now onto cost. Could you please put some color on the cost trends here in the quarter? And also, what shall we expect going forward in the next few quarters?

[Gloria Hernández García]

Okay. First of all, we confirm our guidance in this line of the P&L and the guidance is mid-single-digit range. So this is the first point. The second point here is that when looking at the cost -- group cost in the quarter, the figure is not good. Really, it's a very high figure. But this conceals a different and a symmetrical performance of our banking business, growing at 6%, so in line with our guidance and the insurance business growing at 15%, which is in line with our guidance also. Banking cost in Spain grew by only 3% on the quarter. That means EUR 4.8 million, which is really a very small amount and by EUR 10 million in the year, 6.8%. In Portugal, cost grew by 4.9% in the year, almost 5%. But in the quarter, cost went down by 3%. Going now to the explanation for these increases in cost in the banking activities. Some of the -- of these increases relates to new staff to meet the growing commercial activity in Bankinter Consumer Finance. The people hired in Consumer Finance has increased by 13.5% in the period. And we are also hiring more people in the banks, the [ Ital ] team. Additionally, we have had to invest in some regulatory matters such as IFRS9, MiFID 2, data protection regulation. All of these new regulations are also demanding new expenses to adapt our systems. Moreover, cost increases were also due to investment in our new IT platform and the reengineering of our processes to be more efficient. It's clear that most of these expenses are going to be incurred over time because they can be activated, but some of them are expenses of the period. In the case of Linea Directa, costs were up by 15% year-on-year, as I mentioned before. And this is due to customer-acquisition costs, including marketing as well as the increase in sales force. In fact, 169 people were hired in the period. In any case, banking efficiency has improved by 100 basis points in 12 months. We are now in 46.9%, including the less efficient franchise of -- in Portugal. And finally, what is for us very relevant or very important is to keep jobs open far enough to allow that cost-to-income ratio is maintained at 46% level. That's the reason why we, I insist, maintain the mid-single-digit range for this line.

[David López Finistrosa]

Okay. On cost of risk, we get questions on how sustainable is this level that we have seen in the quarter? You commented already on that.

[Gloria Hernández García]

Yes. We had guidance for medium to long term of around 40 basis points. Nowadays, and once having analyzed the impact of the first application of IFRS9 and the impact of these new standards on new lending, we are closer to 30 than to 40 basis points as a guidance for long term, okay? And concerning the last performance of this indicator, I have to mention here that impairments have been very positively impacted by 2 reclassifications. One of them took place last year in December and consisted of reclassifying some provisions from impairment losses to legal provisions. As you remember, it was EUR 17 million. And this reclassification is the reason why, in the last quarter of last year, the cost of risk is so low. So the comparison with the last quarter is not worthwhile because of this reclassification that took place in the last quarter. The second impact is being observed this year and has to do with the impact of IFRS9 in the extraordinary recoveries in Portugal that some of them has -- have been reclassified as provisions, when previously, they were recognized as NII. So this has been done in all the series of last year. And we will now -- can compare, on a homogenous basis, this year with last year. But in any case, the figure of last year is different from the one that we made public last year because of this reclassification. And taking all these into account, we are now in 20 basis points, which is 38% less than a year ago.

[David López Finistrosa]

Okay, perfect. Just a quick one on TLTRO-2, whether you expect any changes on the size of the EUR 6.5 billion that we are holding or any plans to repaying that earlier?

[Gloria Hernández García]

Well, no change at all. We -- this will mature between 2020 and 2021. What I can tell you is that we have a liquid assets cushion, about EUR 10.5 billion. So we don't anticipate any problem to buy back -- to pay back these facilities when they come to maturity. Apart from this, I remember you -- that we deposit back in the ECB around EUR 5 billion of this amount. So the net amount that we owe to the ECB is EUR 1.5 billion. So with a cushion of EUR 10.5 billion, no problem to pay back this.

[David López Finistrosa]

Very clear. We have a few questions from capital on the ratio of 12% that we have now, and how much of that CET1 ratio is now made of unrealized gains? And also, we got questions on whether we have a target for capital now that we have reached that 12% figure.

[Gloria Hernández García]

Okay. Well, in the presentation, we show the fully loaded ratio breakdown between retained earnings that contributed with 23 basis points, the IFRS9 implementation that added 42 basis points. This is a net impact between the increase in provisions that subtracted 10 basis points from that ratio and the reclassification of the available-for-sale portfolio that added 52 basis points. So the net been 42 basis points. And finally, the risk-weighted assets consumption that took away 5 basis points. These are the main explanations for the increase in the ratio to 12%. Our guidance continue to be 11% to 11.5%. But you have to take into account that, due to IFRS9 standards, capital ratio is going to be more volatile now than it was -- it used to be in the past. So the fact that, at this quarter, the level is at 12%, doesn't mean that it will continue at this level in the following quarters -- in the coming quarters. It could be around 11.5% and 12%, more or less. Looking at the unrealized gains. In the presentation, you have the total amount of the unrealized gains is -- in the ALCO portfolio is around EUR 600 million, half of them being in the amortized cost portfolio. As you know very well, the unrealized gains in the amortized cost portfolio are not taken into account in that ratio. So this EUR 300 million have -- are not been -- are not included in the 12% ratio. This is my first comment. The second comment is that the part -- or the unrealized gains that are in the ratio are around 70 basis points, more or less. And clearly are -- they are unrealized gains. This amount will be gradually absorbed through the NII in the future. So this is something that always happens. So no news -- nothing news in the -- in this aspect. So this is more or less the...

[David López Finistrosa]

Okay. On -- moving on to different businesses now. We have questions on how strong or how the performance going forward would be in Línea Directa and Bankinter Portugal, given the past quarter.

[Gloria Hernández García]

Okay. In Línea Directa, we saw a very positive, very satisfactory quarter, showing a solid performance, despite the growing price pressures in -- especially in motor insurance from some of our main competitors. But we continue to outperform the industry, more than doubling the peers' average growth in policies and premiums. We continue to be very efficient in customer acquisition and very flexible in rate changes. So in this sense, the -- our expectations continue to be that the year is going to be a very positive one. In the quarter, the average cost of claim continue to reduce because almost no high severity claims was produced. And we have 2 provisions, a much lower amount on less severe claims because of the new [ RMO ] requirements. This is the main reason why the claims ratio improved. This is the main reason also behind the fact that the combined ratio is still -- is 80 basis points better than a year ago. Although, during the quarter, it has worsened a little bit because the cost ratio worsened. And this worsening was higher than the improvement of the claims ratio. The technical result shows a [ 15% ] growth over the first quarter last year. So the performance, in terms of the P&L, is also very, very good. And finally, we still expect 36% or around 36% ROE during the year. Concerning Portugal, here, the business plan is ahead of our expectations in this quarter so in positive results, in terms of balance sheet and off-balance sheet, that both of them grew above planned. Particularly good increase in off-balance sheet, assets under management and unit links. But also very remarkable, the growth in corporate lending, 19% as well as in retail lending mortgages of 5%. Customer deposits have been stable in the year because we -- our main target here was to reduce the cost, and the cost was reduced, in fact, by 33% in the last 12 months. So this has been a target for us. Finally, in terms of the income statement, you have seen that the -- all the recurrent components of the P&L continue to grow according to plans. 22% growth year-on-year in the fee income, 28% year-on-year on the recurrent NII. So all of them -- of the revenues lines performing very well and the operating expenses under control. We have a very good quarter when compared with the last one of the last year. And efficiency has improved a lot when compared with the first quarter of 2017, and we expect these trends to continue. The only uncertainty here is a nonrecurrent NII, which has to do with the recoveries -- extraordinary recoveries from the purchase portfolio to Barclays because this figure is going to be lower than the figure of last year. And at the same time, part of this figure, approximately 2/3 of this, is going to be reflected as less provisions and not as more NII This is going to be -- this is going to do more difficult to comparison, but we try to give you some light every quarter just to be sure that you understand the differences between this year and last year.

[David López Finistrosa]

Okay. And last few questions. We also got a couple of questions on litigation. Whether you have any comments on the latest Supreme Court rulings that we have seen affecting this sector. And also, what sort of impact shall we expect for Bankinter?

[Gloria Hernández García]

Okay, thank you. Well, as you know very well, litigation risk has become a source of costs for the banking industry. In general, for Spanish banks is -- are not an exception to that. We have a preferred stock, litigation mortgage floors, mortgage expenses, et cetera. Bankinter is exposed, to a much lesser extent, to customer claims, but we have seen a number of lawsuits in the last few years. Given our customer excellent profile, as you know, they were mainly related to Lehman Brother bonds, interest rate hedges or FX-denominated mortgages. Latest court rulings by the Spanish Supreme Court made it clear that banks are not always liable for any products sold in the past. Thank God. On the products that we are concerned, courts' decision are very much based on case-by-case basis and how transparent was the selling process to clients. In short, similarly to previous years, we will continue provisioning adequately for future litigation risk based on the numbers of lawsuits that we may get and the success rate on those issues. This process or this methodology that we use to calculate the provisioning is in line with our external auditors and the regulator.

[David López Finistrosa]

Okay, thank you. And the very last question, do we expect any changes on our dividend policy?

[Gloria Hernández García]

Not. Clearly not.

[David López Finistrosa]

[indiscernible] Well, thank you. That was all for us. As usual, the IR team is at your disposal for any further questions. Thank you. Bye-bye.

[Gloria Hernández García]

Okay. Thank you, David.