Bankinter SA

MAD:BKT

Earnings Call Transcript 2020-Q1

[David López Finistrosa, Director of Investor Relations]

Good morning. Welcome to Bankinter First Quarter Call Results Presentation. We hope this call finds you all well. As usual, our CFO, Jacobo Díaz, will now go through the presentation. Thank you.

[Jacobo Díaz Garcia]

Good morning, and welcome to this very special presentation of Bankinter's earnings for the first quarter of 2020. Let me start by saying a few words to wish you -- all of you watching this webcast, your families and your colleagues, a safe and early return to normality after this extraordinary sanitary circumstances is over.I would like to point out that we ended the first quarter with a solid performance considering these special circumstances. Nevertheless, as we are here to present our first quarter results, let me share some comments about COVID and its impact on Bankinter.First, we have implemented our contingency plans and all our services have been operating normally, providing teleworking for all services as where possible, including contact centers, relationship managers, et cetera, without any single IT disruption or contingency. We have put in place a crisis committee since beginning of March that meets every morning and is chaired by our CEO where all the bank's executive members report on continuity and action plans for close contact with clients and commercial activity.As banking is considered an essential service according to law, we have been providing services through our branch network, accommodating opening hours as necessary. All our ATMs have been working without any single disruption at all. In parallel with government measures, Bankinter has put in place additional private moratoriums and offer products and services to ensure that our clients and suppliers can get through this period of uncertainty with enough liquidity.Our NPL position at the end of 2019 is actually key to identify customers eligible for government and private assistance. Therefore, we believe we are in a good position to provide better alternatives to our customers, mitigate future risk and implement regulatory accounting flexibility.The risk and financial profile of our retail and corporate customers will be a key factor to ensure a better outcome once this nightmare is over. In this matter, we believe we have a relevant differentiation in the market. We at Bankinter are committed to ensuring that the Spanish, Portuguese and Irish economies recover as soon as possible. We are reemphasizing our commitment to preserving jobs during this crisis as one of our main targets.Having said that, I will review our achievements during this quarter and we'll try to provide some guidance about potential risk in the future. Even if focus on the remaining of the year, our main achievements this quarter were resilient quarter-on-quarter performance, supported by our customer activity, resulting in a double-digit ROE, which is still differential in our country. Continued growth in the net interest and fee income, the main contributor to gross operating income, as the strong cost control has allowed pre-provisioning profit to grow. Keeping adequate solvency and liquidity with reduced NPLs, improved liquidity and capital ratios at expected levels, all despite a much more challenging environment with increased provisioning in addition to digitalization investment and a much lower contribution from extraordinary earnings in Portugal coming from the acquisition.Let's start, as always, with a brief comparison of first quarter key financial indicators. Group's total loan book grew by 9% to EUR 61.1 billion while domestic lending continued to shrink, showing almost no impact after the lockdown on 14th of March. Gross operating income reached EUR 436 million in the quarter. It grew by around 8% with respect to the first quarter last year. NPL ratio jumped to 2.58%. NPLs performed as expected. They dropped by 29 basis points from 2.87 a year ago. Group's net profit reached EUR 130 million, a 10% decrease from a year ago. Without the acquisition of EVO and Avantcard in the second quarter of 2019, this would have decreased by 8% from last year. Our CET1 fully loaded capital ratio is 11.5. Despite the recent market turmoil, it still stands comfortably within our guidance. Our return on equity stands at 10.2% with the normal evolution of every first quarter plus our intense provisioning in the quarter.After ending the first quarter of 2020 in an unprecedented difficult environment, we should keep pre-provisioning profit ahead of last year by year-end, thanks to our continued commercial activity that was driving -- that was a driving force of this quarter's revenue growth, together with the new and deep exercise of cost control that will last for the rest of the year. The future evolution of provisions for nonperformance after the lockdown, depending on its severity and length and how the government's measures to try to contain the economic slowdown will impact the economy, we'll have the key in order to post a reasonable net profit for the full year, which as you will understand, is now very difficult to anticipate.The group's differential return on equity in the last 5 years remain in the double-digit. It now stands at 10.2 after this first quarter. The group's return on equity always decreases in the first quarter of every year due to the capitalization of last year's earnings, when combined with increasing provisioning efforts and the full integration of EVO and Avantcard, would reach a lower figure, although still above cost of equity. The group's return on tangible equity stands at 10.9%, down from last year following the deconsolidation of LDA from our balance sheet and the extraordinary provision in the first quarter.Moving on to our income statement. It should be noted first that due to shareholders' recent Annual General Meeting approval of the spin-off of 82% of Linea Directa, still pending of regulatory authorization, the contribution of LDA to the group's consolidated income statement should be recorded as discontinued operations in accordance with IFRS accounting standards. Therefore, income and cost should be deducted from the consolidated P&L lines and the net contribution from LDA should be recorded at the bottom of the income statement. For comparison purposes, we have been restated 2019 income statement using this accounting rule.In the first quarter of 2020, our income statement revealed positive trend in core lines of revenue, interest income and fee income. Other income, now without Linea Directa contribution, showed a small decrease due to a bad quarter in trading income. All that brings total operating income growth to close to 8%, within our guidance for the year despite the difficult environment in the last weeks of the quarter.Here are the group's comparative P&L accounts for March 2020 on the left and restated 2019 comparison on the right with the new ADL accounting. This is not an exact like-for-like comparison since we did not have EVO and Avantcard last year on the first quarter, only after the integration of EVO Avantcard on June 1. Thus, we provide, in the far right, first quarter of 2020 without EVO Avantcard to be a like-for-like comparison. Numbers will be fully comparable for the following quarters. For this one, EVO Avantcard account for an additional EUR 23 million in net interest and fee income as well as increases of EUR 23 million in expenses, and finally, an increase of EUR 4 million in impairments and other provisions.The total group's net interest income is up by a solid 14%. Net fee income rose by 7.5%. Other operating income and expenses only accounted for EUR 5.5 million after detracting the contribution from LDA from both years. It is down by EUR 14 million or 71% year-on-year mainly due to lower trading income in the quarter as a consequence of the very high market volatility in the markets. As we will see later, trading income should be considered net of dividends received in the quarter since over EUR 10 million of the EUR 14 million of dividend paid actually correspond to trading gains that must be recorded as dividends. A specific chart will explain this later on the presentation.Group net interest income remained strong despite the negative environment, thanks to our solid growth in lending and a positive asset mix. It is up by 14% in the year or a seasonal 0.5% decrease since last quarter, only EUR 1.5 million less. This would be close to 7% and minus 1%, respectively, without the EUR 20 million coming from EVO and Avantcard. Fee income finishes the quarter growing at 7.5% with respect to the previous year. It is also up by 5% from the same quarter last year without EVO and Avantcard. Other operating income and expenses decreased by EUR 14 million or 71 from a year page -- from a year ago due to one main factor. Trading income amounted to only EUR 2 million in the quarter due to high market volatility. It compares poorly with an average of EUR 15 million, EUR 16 million per quarter in a normalized environment.Total gross operating income reached EUR 436 million, up by 8.2% from 2019. Without EVO and Avantcard, income grew by 2.4%. And quality remains very high as the weight from extraordinary bad quarter in trading income fell by more than EUR 10 million, EUR 12 million versus a normalized one.Group operating costs were under extraordinary control despite costs from the new EVO and Avantcard operations, EUR 23 million in operating expenses in the quarter. In total, they grew by 5.6% year-on-year and decreased by EUR 29 million or 13% from the previous quarter. On a like-for-like basis, the group's first quarter cost clearly fell by almost 8% with respect to the previous year due to extraordinary cost control plans implemented.This positive income and cost performance allow pre-provisioning profit to increase by 10.3% from a year ago and by 29% from last quarter. Like-for-like growth is up by an extraordinary 10.4% so far this year and by 22% from last quarter.Loan loss and other provisions are up by 95% from Q1 2019 or 87% without EVO. There are few major contributors to this increase: One is Portugal due to the anticipated normalization of cost of risk from the finishing of extraordinary recoveries of previously provisioned loans acquired from Barclays, second are the new operations of EVO and Avantcard, the last one is also the expected rise in cost of risk from the consumer business under a stricter NPL accounting criteria for 2020. The other and most important one is EUR 17 million in NPL provisions anticipated for future evolution of NPLs this year. Provisions for all contingencies stayed at a normal run rate. After all these, profit before taxes for the banking activity stands at EUR 140 million, 17% below that in 2019. This would be minus 15 without the integration of EVO and Avantcard.As I mentioned earlier, after shareholders approved at the last AGM the future spin-off of 82% of Linea Directa, new accounting standards put the net contribution for LDA on one single line, bringing an additional EUR 29.1 million to the group in the first quarter or 9% more than in the first quarter of 2019. This shows a very good performance of insurance business as we will see later.The group posted a net profit of EUR 130 million. It's a decrease of 10% from a year ago. Like-for-like, this decrease will be only 8%.Despite this difficult situation, this quarter carried out almost in line with our plans at the beginning of the year. However, in the last 2 weeks, the impact -- 2 weeks of March, the impact, particularly from the provisioning, dragged down net profit. In our view, pre-provisioning profit clearly indicates recurrent growth in all our activities despite an increasingly difficult environment, which we are nonetheless prepared to face.The group's loan book grew by 9.4% from a year ago, bringing over EUR 5.3 billion in new loans in 12 months, with no significant impact from the shutdown after 14th of March to the end of the quarter.In Spain, lending continued previous trend this quarter. It grew by 6% while the sector continues to contract. Our growth was limited to EUR 529 million mainly because some large corporate credit lines were drawn after 14th of March but left on liquidity as consumer and mortgage lending remained almost flat in the quarter. Since then, the new ICO COVID lines with government guarantees have been put in place.In Portugal, lending is up by 12% from a year ago with an additional EUR 67 million in the quarter, slightly short of our business plan for this year. Retail deposits continued to perform strongly in both geographies at close to 15% year-on-year growth. Without the EUR 3.1 billion coming from the acquisition of EVO, we're still up by 9% in Spain from a year ago, while the market grew 4. Together with Portugal and EVO, the group's customer deposit grew by EUR 7.7 billion to almost EUR 59.3 billion with deposit costs under control.Net interest income continued to show strong resilience. It grew by more than 14% over a year ago but stayed almost flat from last quarter. Like-for-like growth amounted to 7% from last year. Since the integration of EVO and Avantcard last June, their contribution to our net interest income has been growing every quarter. They contributed EUR 20 million to the group's NII this quarter.Net interest income in Spain ex-EVO continues to perform strongly. Growth was 6.8% with respect to the same quarter last year and only 1% or EUR 3 million less than the previous quarter. In Portugal, net interest income also grew by 14% with respect to the same quarter in 2019 and almost 5% in respect to the previous quarter with no more impact from extraordinary recoveries in the quarter.Net interest income evolution is driven by the loan book resilience and our solid customer margin management, shown in the chart on the right. It increased by 1 basis point from last year and remained flat from last quarter. This stability is because asset yields rose by 2 basis points and 1 basis point, respectively, in each period while deposit costs only rose by 1 basis point in both periods. The yearly yield increase is due to a better asset mix which offset the negative impact from repricing our mortgage back book. The quarterly 1 basis point hike on yields was offset by the 1 basis point jump in the cost of deposit, now at 6 basis points as of March 2020.As many quarters -- sorry, after many quarters with the cost of deposit at all-time lows, we believe our customer margin will remain resilient in the coming quarters if we continue to reprice asset yields positively given the trend between our mortgage front and back books yields and the continued improved asset mix in our total loan book. Based on margin and volume growth trends in deposits and loans, together with a stable contribution from the current trade of our ALCO portfolio expected for the rest of the year and after the first few weeks of the economic shutdown, we still expect to increase the group's net interest income by low to mid-single-digit by the end of this very difficult 2020.The composition of our ALCO portfolio changed slightly in this quarter. Its size remained at EUR 7.9 billion after the EUR 2 billion approx increase due to integration of EVO. Today, 50% of the portfolio remains under amortized cost. 52% of it is in Spanish government bonds. The entire portfolio's average maturity is at 8.7 years with an average of -- life of 4.5 years. Its average yield stands at 1.74, probably above those of our peers.After a very difficult quarter in bond and equity markets, we -- what have changed since December 2019 are the unrealized gains on the total portfolio. They now amount to approximately EUR 200 million, some EUR 400 million less than in December. Half of them correspond to the fair value portfolio and impact the capital ratio. As we will see later, this temporary valuation detracts 51 basis points from the CET1 ratio in the quarter. More importantly, most of the unrealized gain of the ALCO portfolio as of today, close to EUR 200 million are in the amortized cost portfolio. Therefore, they were not included into our capital ratio.Despite this unexpected situation that will certainly impact future fee income, the EUR 123 million of fees posted in the first quarter continued to show growth. Fee income from our recurring business continued to grow in addition to assets under management. This reflects an improvement from the first quarter last year of 7.5% and 5% on a like-for-like basis, and in respect to the previous quarter, a drop of 7% or EUR 10 million less. It's a reasonable seasonality difference. As a result, it now accounts for 28% of gross operating income, a new record.The largest contributor to fee income continues to be asset management fees at 31% of total fees, still up by 8% with respect to a year ago. The new market situation will have an impact on these fees going forward. However, it is probably too early to forecast what they will be at the end of the year. We can confirm that commercial activity somehow recovered after the end of March and that our private and personal banking teams will do their best to be close to our customers in this very difficult year, giving them the best advice and information they can offer about their investments.Some operations saw a strong positive impact from recent market condition. On the one hand, brokerage and custody ended the quarter growing by 20%. And on the other hand, FX business with customers is up 34% from a year ago. We believe the effects of the economic slowdown will be noticed in fee income in the second quarter, although we don't know to what extent. We will continue to drive business volume and value-added products for the rest of the year. And assuming the recovery is quick, we will try to make fee income grow, probably not in mid-single-digit as we anticipated at the beginning of the year. As of today, we see a low single-digit growth by the end of the year.In other operating income and expenses, here, you can see the various lines broken down by their contribution to other operating income without Linea Directa's insurance margin in both years. The EUR 5.5 million this year is lower trading income in respect to previous quarter, a EUR 13.7 million reduction from a recurrent EUR 12 million, EUR 15 million quarterly run rate in this activity.You can also see 2 effects on trading income: A positive EUR 10 million in dividends paid out of the total EUR 14 million in dividend and a negative EUR 8 million in trading losses as dividends in the trading book need to be recorded on this specific line. This is most likely a one-off occurrence and will not be repeated in future quarters.Gross operating income for the quarter stood at EUR 436 million, an increase of over 8% from a year ago and 2.4% on a like-for-like basis. Quarterly operating income grew close to 7% from the last quarter due to the contribution made to the deposit guarantee fund, but with almost no contribution from trading.On -- in all, the group's operating income grew well above our mid-single-digit guidance in the first quarter. Assuming economic recovery will start after the second quarter, we believe revenues will continue to grow throughout 2020.The chart on the right shows the new contribution to operating income in the quarter, with net interest income at 71% and fees at 28%. Other income only accounts for 1%, but will account for 3%, 4% when trading income gets back to normal.The group operating costs totaled EUR 189 million in the quarter. They are up 5.6% from previous year. Without the EUR 23 million coming from EVO and Avantcard and from now also LDA's expenses, recurrent costs would have decreased by 7.6% from last year, 7% in Spain and 6% in Portugal.Total operating costs are remarkably down from the previous quarter by more than 13% with EVO and by more than 10% without EVO. Like-for-like, personnel expenses fell by about 15% or minus 8 with EVO from last quarter and last year due to the lower-than-expected variable incentives and other HR-related expenses.General and administrative expenses dropped by over 7% and 5%, respectively. This cost reduction more than offset the increased amortization expenses from investing in banking business platforms and in product and services development in recent years.By keeping all operating expenses and investment programs under tight control, we expect to finish the year within a new guidance of low single-digit cost growth. Thanks to this effort, at the end of the year when Avantcard integration expenses, our recurrent banking efficiency improved once more.The group's cost-to-income dropped 980 basis points from December and 110 basis points from a year ago to 43.3%, even with the integration of EVO and Avantcard. We aim to keep the long-term banking cost-to-income ratio within 42% to 45% range as we improve efficiency in all our acquired businesses as we continue to do so in Portugal. Thus, we can see a very resilient pre-provisioning profit for the group over the last quarters, with the usual quarterly volatility only due to regulatory annual payments, single resolution fund and guarantee deposit fund.Let's move on and let's talk about the cost of risk. Cost of risk start its way up, mainly due to the provisioning in Spain to anticipate future NPLs of around EUR 17 million approximately in provisions in the quarter because, as expected, NPLs were not significantly affected by the new situation of borrowers before March 30.With this in mind, cost of risk grew to 43 basis points of total credit risk, increasing by 20 basis points from the previous quarter. This new run rate for cost of risk and the impact from the economic shutdown and government stimulus measure make cost of risk for the year very difficult to forecast. Today, we are anticipating between 50 and 70 basis points by the end of the year, depending on how long and how severe the crisis is.In the chart on the right, we provide the 3 main components of the group first quarter cost of risk. You can see how Portugal felt an important impact with an anticipated much lower contribution from extraordinary recoveries in NPLs of over EUR 12 million in the quarter and without any additional increase in cost of risk this year.Next, the consumer finance activity. The consumer finance cost of risk increased by EUR 10.6 million in 1 quarter due to the new and stricter accounting standards for NPLs. The most significant impact of EUR 22 million came from Spain where recurrent cost of risk only grew by EUR 5 million. The rest accounts for generic provisions for the rest of the year. This small increase in cost of risk in recurrent banking activity in Spain was related only to corporate banking since, as of March 30, there had been no impact in the commercial banking loan book on mortgages and personal loans.We expect this trend to worsen during the second quarter. And although it's probably too early to anticipate the impact of the liquidity lines guaranteed by the state, amounted to EUR 100 billion for SMEs and corporates in addition to the public and private moratorium in place, we are recognizing additional provision of EUR 17 million for future impacts. Although in an unprecedented global situation, we strongly believe that -- in the quality of our loan book and in our credit policies and procedures in all our different business lines and geographies.In 2012, all this prevented our cost of risk from going over an all-time high of 95 basis points or 67 basis points excluding real estate back book provision. Therefore, with all covenants and reserves, we firmly believe that total cost of risk, which includes credit-related provision and cost of selling foreclosed assets, will remain between 50 and 70 basis points by the end of 2020. On the other hand, the year's provisions for litigation, some over our FX mortgages portfolio and other miscellaneous provisions, should fall slightly, owing to the economic shutdown and their impact in recognizing customer demand.As always, I will now go over our management of credit risk, liquidity and solvency. Here we go. Last month, nonperforming loans changed their long-standing downward trend and started to rise, although at a very low rate. They rose by less than EUR 70 million from last quarter mainly because NPLs grew in Corporate Banking by EUR 40 million. They grew by EUR 22 million in SMEs, EUR 12 million for mid-corporates and EUR 7 million for large corporates. Also, consumer finance NPLs grew by EUR 26 million as expected.The group's NPL ratio now stands at 2.58% from 2.51% at year-end, a 7 basis point decline due to the small increase in NPLs and total loan book growth in the period. In Spain, it is still at half the sector average at 4.8% as of January prior to the COVID-19 first impact. In Portugal, the NPL ratio stood at a normal 2.43%, down from 3.3% a year ago. As shown in the chart on the right, as of March 30, the group's NPL ratio was 2.24% for households, including consumer finance at 6.5%, and stays at 3.03 for corporates and SMEs.Total NPL provisions at EUR 855 million increased from December 2019. This had almost no impact on our provisions coverage which stood at 49%, at similar level to that of our peers. Coverage for foreclosed assets went slightly down after last year's sales at 45%, but maintain clearly above the average discount on sold assets.The group's foreclosed assets portfolio is 17% smaller than a year ago. It decreased by EUR 55 million as in the previous year. This small portfolio now amounts for EUR 274 million.Let's move into capital. Our fully loaded CET1 ratio stood at 11.47% at the end of the quarter. Since December 2019, our return earnings bring an increase of 39 basis points, underpinned by the retention of the full result of the first quarter. This increase almost offset all the negative impacts in the quarter. The small negative impact of risk-weighted assets in a flat quarter of 1 basis point, supported by recent and already mentioned implementation of new IRB models in the corporate banking world, and a 1 basis point resulted from other small items.The largest negative impact in the quarter correspond to value adjustments only coming from the fair value ALCO portfolio reduction of unrealized gains. This bring additional 51 basis points reduction from the December ratio. As of April 20, that means some days ago, 10 basis points have already been recovered in this portfolio.Total capital ratio and leverage ratio remained most stable at 13.8% and 4.6% from previous quarter and within our guidance. After the first quarter and in view of the current situation, we'd reiterate our guidance of a CET ratio in a range of 11.5% for 2020.In terms of liquidity, the loan-to-deposit ratio is now at a new -- at a record low of 100.5%, owing to consistently strong growth in retail deposits in the last few years and the integration of EVO Group.On the wholesale funding maturities, all our wholesale funding maturities are well balanced with only EUR 800 million due this year and 0 next year. This does not include the 20 100 million (sic) [ EUR 200 million ] from the EUR 81 million issued during May 2021. Thus, we are still very comfortably positioned for the coming years with an estimated EUR 13.6 billion in liquid assets and the capacity to issue over EUR 6.2 billion in cover bonds. Just as a reminder, so far in 2020, we have issued EUR 750 million in MREL eligible senior and unpreferred debt at a cost below 100 basis points.Now let's review the performance of our business lines and their contribution to the group's operating income. As we plan to deconsolidate Linea Directa from the group this year, we are slightly changing how we present our different business and segments in the Bankinter Group.First, we are going to look at our core banking business in Spain and Portugal together as a new Iberian banking with its own corporate, SME, private, personal and retail banking segments. Second, we will present the consumer finance business of our wholly owned subsidiary, Bankinter Consumer Finance, which includes Spain, Portugal and the Ireland operation of Avantcard. And third, we will present the new EVO Banco digital bank that only operates in Spain with a single branch. And fourth, we will present performance of our insurance company, Linea Directa.Okay. Let's start with Bankinter. The corporate and SME banking loan book in Spain and Portugal grew by over 8% from last year. It increased by 7% in Spain while the sector had shrunk by 1.8% as of February 20 and declined by 12% in Portugal. This recurrent corporate lending growth is key in order for collateral and transactional business with corporates to grow, now a very important source of fee income for the bank. The breakdown of our corporate loan book in Spain shows no major change. Thus, we continue to improve the asset mix of our loan book without major changes in asset quality standards and preserving yields despite greater competition.The 3 drivers of income in our corporate banking are international trade and supply chain finance, domestic transactional business with our customer and our new investment banking unit for mid-corporates. International trade and supply chain finance continues to lead corporate loan book growth. It grew by 14% from last year to EUR 5.6 billion. It has become the most important source of income for our large corporate segment where accounts for over 30% of total income. International business operating income grew by 15% from a year ago to EUR 45 million. More importantly, 52% of its revenues came from fees rather than interest. Transactional business turnover with corporate customers, including commercial credit, tax and social security payments, et cetera, generated EUR 33 million in operating income in the quarter, up by 12% from a year ago. Only the fees generated by this very sticky business grew by 13% from last year. Investment banking brought additional revenues to corporate operating income. Since last year, new loan origination increased by 13% and the total loan book by 24.In private and personal banking, customer wealth suffered from the negative market effect in the last weeks of the quarter. It decreased by a total of EUR 6.8 billion, EUR 5.1 billion correspond to private banking and EUR 1.7 billion to personal banking customers, by end of the quarter. Total wealth from customers in both segments amounted to EUR 58.5 billion, down from EUR 60 billion a year ago or 4%. The commercial activity measured by net new money in the quarter ended with a EUR 1 billion increase split between private and personal banking. Our Luxembourg unit has been playing a very important role in our advisory and product offering for our customers looking to further diversify their wealth in the future.Our overall performance in commercial banking during the quarter was strong in terms of our main retail products. Salary account balances continued to grow. They are up 23% from 2 years ago, totaling EUR 10.7 billion. New mortgage originations set a new record in recent quarters at EUR 647 million in the quarter, climbing from -- 13% from the first quarter 2 years ago. Of the new origination, 60% of mortgages were fixed rate. Our market share in new mortgages jumped to 6.7% in the last 12 months from January 2020, which is last data -- last sector data available. As a result, the total mortgage back book maintained its growth to EUR 27 billion, including the Spanish and Portuguese markets. The loan-to-value of the total portfolio stands at strong 56%.Off-balance sheet funds were the weakest part of the business in this volatile environment. They decreased to EUR 27.2 billion from EUR 30.4 billion at December 2019, which is almost the same amount in total off-balance sheet funds a year ago. Year-on-year, mutual funds grew by a mere EUR 0.1 billion, while pension funds declined by EUR 0.2 billion and other managed assets with private banking customers also declined by over EUR 0.6 million, all impacted by the market valuation of portfolios.As for our differential mix of funds, 60% are managed by third parties with better behavior in the quarter and 40% are own managed. Average fees on own funds managed stood at 68 basis points, only down 3 basis points from December.Now let's move to consumer finance. This chapter, consumer finance activity, now include our consumer finance business in Spain, Portugal and Ireland under the Avantcard brand. At the end of March 2020, our total loan book of EUR 2.9 billion remained almost flat in the year, including the EUR 476 million from Avantcard. New credit origination in Spain, mainly in personal loans, was offset by the reduction in revolving cards balance -- current balance of under EUR 600 million or 12% less than a year ago.Total number of customers grew by 9% to 1.7 million. Yearly, new lending slowed down from above 20% last year to 9%. And this is -- includes 0.5 -- sorry, EUR 0.4 million in inorganic growth from Avantcard. The consumer finance loan book totaled EUR 2.9 billion and now, for the rest of the year, it is expected to shrink by double-digit by year-end.Total credit card business represent 44% or EUR 1.2 billion of total consumer credit cards. Cards payable only at the end of the month account for 15% -- sorry, 50, 5-0 percent, of total. They are mainly granted to existing Bankinter customers which -- with a much better risk profile than pure consumer finance customers.Already anticipated stricter accounting standards in 2020 for NPLs accelerating full provision, improved credit quality ratios and increased cost of risk for the year. As of March, NPL stood at 5.6%, provision coverage reached 111% and cost of risk climbed to 4.1%. All this brought the risk-adjusted return of the business to 7.7%.A quick look at our stand-alone business in Portugal in the next slide. Here we are. A quick look to Portugal. Balance sheet grew by 12% in loans and 6% in retail funds over a year ago. Growth in loan book was mainly in mid-corporates, up 27%, as well as in retail mortgages, growing at 8% year-on-year. Off-balance sheet declined due to market effect in the first quarter.As of the income statement, operating income from the business grew by over 13% with no extraordinaries at all in the quarter. Costs show a 6% reduction, in line with cost-controlled plans ahead of the second part of the year, bringing pre-provisioning profit up by a very healthy 65% or EUR 5 million more than in the first quarter of 2019. However, after the loan losses and provisions now normalized without any impact for extraordinary recoveries as was the case last year, the profit before taxes of EUR 11 million was half of last year first quarter. We expect this decrease -- this should slow down over the next quarter once the recoveries from NPLs were reduced also last year quarter-after-quarter.Let's talk about -- quickly about EVO. This quarter, EVO Banco performed in line with business plan, basically around more -- EUR 3 million better, with a small impact in the last 2 weeks of March on mortgage origination and credit card activity. EVO Banco's balance sheet has EUR 963 million in net loans, up 5.7% in the quarter. EUR 893 million correspond to home mortgage, growing at a net 7.3% in the quarter or EUR 77 million in new mortgages granted from December 2019. Client acquisition has been over 50,000 new customers in the period for a total of 494,000 customers as of March 2020, an 11% increase.As for management ratios, customer margin stood at 1.49; NPL, 1.57, with EUR 15 million in NPLs; and provision coverage of 63%. After it was restructured, EVO Banco's new customer and lending growth has been robust, even though it has not yet turned a profit. Its business plan is to become profitable after making necessary investment in new products and services, which is not expected to breakeven until 2022.Finally, let's move to Linea Directa. Linea Directa continued to perform strongly for another quarter despite pressures continued on premiums. Despite this, total insured risk, the old number of policies, increased by 3%, increasing Linea Directa's market share. Issued premiums grew by 2%, which suggests strong price competition and some lag in demand at the end of the quarter, particularly in motor insurance.Nonetheless, LDA's growth in motor premiums almost doubled the industry's average. In home insurance, it grew by 10%, which is twice the market growth rate. In health insurance, Vivaz sold more new policies. Total policies closed at 73,000, a 74% increase from a year ago. This is fully in line with Vivaz business plan for 2020.Linea Directa's combined ratio improved by 120 basis points to 86.7%. It is still well below that of the sector. Despite lagging premium growth, it improved in the quarter due to the reduction in claim cost and in the cost ratio after being adjusted in view to the lockdown on 14th of March. Its claims ratio went down to 67.2% from 68.1% from last quarter. The cost ratio fell because of decreasing acquisition cost and marketing at the end of the quarter. Linea Directa's combined ratio of less than 87% is expected to be close to 85% by year-end. And being one of the lowest in the industry represent a strong competitive advantage that will allow Linea Directa to outgrow its competitors in the coming years.If we now look at its income statement, net profit went up by 9% from last year. This was due to 2% cost increase, clearly below the 4% increase in net earned premiums. These revenue trends from operation and strong cost control resulted in a technical insurance result of $29 million in the quarter, a 12% increase. This better earnings performance sustained a very high return on equity of 33%, while increasing the company's solvency ratio at 220%. Once the net profit is consolidated in the group, there was an impact last year of EUR 4.4 million from amortizing intangibles stemming from when Linea Directa was acquired in 2009. This brought Linea Directa's total net contribution to the group to EUR 22.6 million last year.Last, here we have included a list of specific actions and products put together by the commercial management of the bank for families and individuals as well as mid-corporates and SMEs to help them to offset the impact of the lockdown in their jobs and in their businesses. So far, the response of our customers has been very positive from a prevention point of view, but still small in numbers of individuals and growing in the SME segment, probably the most impacted by exceptional situation. Obviously, we expect this to increase over the following days and weeks.Okay. Let me just finish with a brief recap of what we saw during this a little bit longer than usual conversation. So we've shared with you a consistent delivery of recurrent income from our customer activity since the impact of the lockdown was limited to the last 2 weeks. We have shared -- in an increasingly more difficult environment, we have made a strong effort in cost management to support pre-provisioning profit going forward; an increase in cost of risk apart from the accounting effects in Portugal to anticipate potential impact on consumer behavior and loss of small and mid-corporate businesses; and profitability expressed by a still solid double-digit return on equity, appropriate solvency levels with stable asset quality, improved liquidity, strong capital ratios and solid buffer for regulatory requirements; and EVO and Avantcard integrated with no major impact on our P&L performance, quality of assets and capital structure.Okay. So here are some figures. Some -- with this very difficult scenario in front of us, we can anticipate that the net interest -- income growth for the range of mid- to low single digits at the end of the year, some fee income growth of low single-digit until the end of the year, group operating income in the low to mid-single-digit range, group cost well below gross operating income growth and cost of risk increased in the range of 50 and 70 basis points.As I mentioned in my introduction, we at Bankinter are putting all our efforts and commitments to ensure that the Spanish economy recovers as soon or as quick as possible. We also maintain a high level of energy and optimism to obtain a positive outcome out of this crisis as we have done in the past with a higher level of differentiation versus our competitors.And let me end with a few words of recognition. I want to thank all Bankinter staff in every country or subsidiary, in special those at the forefront at the branch network, for their commitment and energy in this crucial moment. Of course as well, all the people working in technology, operations, human resources, et cetera, et cetera, et cetera. Our talented people are the main asset of the bank and rest assured that the level of dedication and commitment these days is extremely high and well above expectations.Now I am happy to take any questions you may have, of course, with a huge disclaimer about the uncertainty of the environment.

[David López Finistrosa, Director of Investor Relations]

Thank you, Jacobo. We appreciate it. The first question is probably a more generic outlook on our loan book for 2020. What do we expect there?

[Jacobo Díaz Garcia]

Yes. Thank you. Loan growth -- in the corporate banking, we expect to maintain some strong level of loan growth because we are very active in those ICO COVID-19 lines with government guarantees. So we expect that the corporate banking world would still have a strong growth over those. Probably the second quarter will be very intense of growth. We expect the mortgage and consumer business to clearly slowdown over this second quarter. Mortgages, we hope that maybe the second half of the year we'll see a some sort of recovery. But the overall year, we definitely expect a positive growth.

[David López Finistrosa, Director of Investor Relations]

And now more specifically, can you update us on ICO funds requests that we have received already and also moratorium requests so far?

[Jacobo Díaz Garcia]

Okay. Regarding the ICO funds, so we have been allocated with around 1 -- in the first tranche, around EUR 1 billion of guarantees from the ICO. And we will approx EUR 1 billion, that's around EUR 1.2 billion in terms of funding. And there is a second line that we will also apply for and that we have already got the authorization. And it will be around EUR 1.2 billion of guarantees, that is around EUR 1.5 billion of funding, okay? So overall, we will meet those most -- EUR 2.7 billion of ICO COVID-19 lines to provide to our clients.In terms of moratorium, so we have, as you know, we have public moratorium and we have private moratorium. Due to the profile of our clients, the public moratorium is quite small. There are not too many people that meet the requirement set for this government moratorium. However, we have our Bankinter moratorium program in futures. In that case, we have some demand for this moratoria. Overall, amount of clients is not too high. It's around 1,500 clients applying for this moratorium. And the overall volume, as you can imagine, is not very high.

[David López Finistrosa, Director of Investor Relations]

Also on the loan book, have you seen any interim credit lines in -- for corporates in the last few weeks? Have you seen any pattern change there?

[Jacobo Díaz Garcia]

Okay. Basically, what we've noticed in the last 2 weeks of March, we definitely noticed some demand in the lines, in the large corporations world. And the use of those lines were 100% left on cash balance positions. So it was more like a cushion or a prevention, that credit risk situation.

[David López Finistrosa, Director of Investor Relations]

We move now to the P&L. Any updates on the guidance for NII in the year?

[Jacobo Díaz Garcia]

Okay. As I mentioned, we expect net interest income to end the year in the range of a mid- to low single-digit, okay? So we expect resilience in the client margin. We expect growth in the loan book. As you may notice, the Euribor 12 months is behaving better than expected. Of course, we do have ALCO portfolio contribution. We do have tiering programs. So we have a front book of mortgages with a better yield than the back book. So I think we still have a strong momentum on net interest margin that I'm sure that we can keep across the year.

[David López Finistrosa, Director of Investor Relations]

Okay. Can you more specifically comment on any impact that you see or foresee for the NII this year such as the consumer loan book as you mentioned earlier?

[Jacobo Díaz Garcia]

Okay. As I did mention earlier, the only negative impact that we may see in the future is the contribution of consumer finance net interest income. As you know, we have repriced of -- the pricing of the revolving cards, and that is one situation where the yield of those -- that business is a little bit lower than it used to be. And apart from that, obviously there is -- we do not expect any growth in this activity. In fact, we do expect a sort of decrease in the activity in consumer finance. But as I mentioned, I think this effect will be most uncompensated by the other topics that I just mentioned. The overall expectation is to finish in a positive and -- net interest income, and despite this small reduction in the consumer finance contribution to NII.

[David López Finistrosa, Director of Investor Relations]

Great. Do we expect any tailwinds coming from the new TLTRO IIIs? Or any changes from the ALCO book strategy?

[Jacobo Díaz Garcia]

Okay. Yes, we will -- what we will -- are doing and what we'll continue to do is we'll substitute -- the TLTRO II positions will be amortized and will be replaced by the new TLTRO III conditions that, as you know, are more beneficial than they used to be. So we will at least match the current amortization that we have in place. And we do not yet if we will use more capabilities or more volumes in TLTRO III. There is an opportunity to do so. And of course, we are considering it, but there is no decision made yet.

[David López Finistrosa, Director of Investor Relations]

We now move on the -- there are some questions from the trading income and dividends lines in the quarter. You can just rephrase there.

[Jacobo Díaz Garcia]

Yes. I think, at the end of the day, it is more than -- more an accounting issue than a trading issue. Basically, these are trading activities that need to play with some -- with the stocks to make some hedge positions. And once you have that stock, if it's a dividend announced, you need to record that dividend in a different line in the P&L, in the dividend line, okay? So it's more an accounting issue more than a trading issue. I mean those figures reported in the dividend line are basically trading activity, but obviously, we cannot merge both lines.

[David López Finistrosa, Director of Investor Relations]

Okay. To finish off with the income lines, are we seeing any pressures on deals or anything different in the second quarter as of April?

[Jacobo Díaz Garcia]

Nothing apart from what I've mentioned of the reduction of the contribution of the consumer finance business because, in fact, as I mentioned, the second quarter, you will see much more activity in the corporate banking book from the ICO COVID lines.

[David López Finistrosa, Director of Investor Relations]

We move now to expenses. Can you just explain the performance in the quarter? And also, what shall we expect going forward from these lines?

[Jacobo Díaz Garcia]

Okay. In the expenses line, as I mentioned, we have the contribution of EVO and Avantcard, which was not in the previous year. So that -- there is a positive contribution. When we do the like-for-like comparison of both quarters, you will notice there is a reduction in cost. This is basically because we are putting in place some plans to rationalize cost. Obviously, when everybody is at home, you can imagine that there's many, many costs that are not needed. So we have a possibility to reduce cost. And this is what we are trying to put in place.We need to be more efficient. We are more efficient right now and we will continue to do so. There is no specific magic on this. It's basically, we review every single cost in the bank and we're trying to make an extraordinary effort to reduce any single topic that we can reduce and -- which might not be or which might not have a potential return on income. If there is no return on income, there is no expense.

[David López Finistrosa, Director of Investor Relations]

Moving further down, other provisions. Are we taking all these provisions in the quarter because of the multicurrency loans? Any outlook there? Any new litigation that you have seen?

[Jacobo Díaz Garcia]

Okay. In the other provisions lines, I must mention that there is no -- not only a litigation provision in that line. There is also credit risk provisions for guarantees and for undisposed lines, okay? So the comparison, I think -- and I'm talking by heart of EUR 7 million comparison in that line year versus year, most -- and half of it come from Portugal because Portugal released around EUR 3 million to EUR 4 million of credit risk last year from those guarantees or disposable lines, okay? The remaining effort, I must say that the FX effort has been 10% lower than the first quarter of last year. And the remaining effort in litigation risk is more due to BAU, business as usual litigation cost, which I remind you, they might be legal and -- or they might be tax, et cetera, but just BAU.

[David López Finistrosa, Director of Investor Relations]

Okay. We're also getting questions. Are we seeing any litigation on credit cards?

[Jacobo Díaz Garcia]

No, no, no. In credit cards, for the time being, there is no litigation at all. In fact, as you know, and due to the lockdown of the economy, it might be a period of a reduction of the expected number of demands that we might receive in any type of litigation.

[David López Finistrosa, Director of Investor Relations]

Okay. We move now to asset quality. What are the expected impacts from the COVID-19 for the year? What is your outlook for this year?

[Jacobo Díaz Garcia]

Okay. As I mentioned before, we ended up the quarter with 43 basis points cost of risk. And there is an increase in this first quarter due to an extra provisioning of EUR 17 million. We expect the cost of risk to keep growing over the following quarters and we expect at the end of the year to be somewhere between 50 and 70 basis points, okay?This is with the information that we have today. As you can imagine, it is very difficult to provide you an accurate figure on this because the number of predictions that we hear everyday is quite dispersed. And please bear in mind that in terms of recording cost of risk, we need to consider all these accounting flexibility provided by the authorities in terms of all this moratoria and also the flexibility in terms of the forward-looking of the models. We do not focus on what's going to happen in 2020. We need to focus also in what happen in 2021 or even 2022 in order to be accurate with those models. So I hope you understand that this is not an easy exercise and we are providing you the best estimate that we can share with you as of today. It might change in the future. We don't know yet. But as I mentioned, it is not clear yet what will be the economic or the macro circumstances in 2 months' time or 3 months' time. And of course, the implementation of the accounting flexibility even if moratoria, even in the stage 1 or stage 2 or even in the implementation of the impacts in the models, it is not clear yet.

[David López Finistrosa, Director of Investor Relations]

Specifically on the quarter, did we anticipate any provisions? Can you work that through?

[Jacobo Díaz Garcia]

In this first quarter?

[David López Finistrosa, Director of Investor Relations]

Yes, in this quarter.

[Jacobo Díaz Garcia]

We did anticipate EUR 17 million.

[David López Finistrosa, Director of Investor Relations]

;Moving into capital now. What impacts did you see there? And if you can update us on your guidance for CET1.

[Jacobo Díaz Garcia]

Okay. Our guidance is still at 11.1%. And this is a figure where we will stay in the future. Yes, I just want to clarify that in the results of the first quarter and the results of the second quarter will be not distributed. So all these results of the first half of the year will be retained in capital, for capital purposes.After that, we will see -- as it's recommended, we will wait until October. And there will be a new review of this dividend policy and we will see, but at least for the first half of the year, all the income will be retained. And in fact, in terms of guidance, I think we will -- should be somewhere between 11.5% and probably more.Just a quick reminder. If we expect to grow in ICO COVID lines, these are, in average, with a 70% guarantee from the government. So the consumption of these lines will be much lower than other types of funding. So we might expect a lower consumption in the future.

[David López Finistrosa, Director of Investor Relations]

Okay. Last, on capital, can we expect any further benefits from model updates this year?

[Jacobo Díaz Garcia]

On model updates, we do not expect any short-term benefits from new model updates.

[David López Finistrosa, Director of Investor Relations]

Okay. Lastly, on Linea Directa, any updates on the spin-off calendar and the plans there? And also, what we expect about the business and the combined ratio evolution?

[Jacobo Díaz Garcia]

In the -- trying to answering -- to answer the second one, as I mentioned, I think the combined ratio would be quite strong, I mean, positive in the following quarters. We think it may be somewhere around 85% at the end of the year. Results of Linea Directa are being very strong in this quarter and there is no reason why we should think that anything will change in the following quarters. We -- respecting the mandate of their calendar. So I just want to make sure that we received a mandate from our Board and our shareholders to proceed with the spin-off of Linea Directa, and this is something that we will go ahead and it is something that will happen.In terms of the calendar, as you can imagine, we were targeting -- or we are targeting the last quarter of this year. Obviously, due to the circumstances, these dates may be delayed, not -- we don't know exactly how long, but it could be the first quarter of the following year. But rest assured that we are fully dedicated to this transaction and we will try to execute it as soon as it's possible.

[David López Finistrosa, Director of Investor Relations]

Thank you, Jacobo. That was it for us. Thank you, everyone, for your questions. And obviously, for any further questions or doubts, you can contact our Investor Relations team.Take care, and goodbye.

[Jacobo Díaz Garcia]

Thank you very much, and keep safe. Bye-bye.