Bankinter SA

MAD:BKT

Earnings Call Transcript 2020-Q2

[David López Finistrosa, Director of Investor Relations]

Good morning, everyone, and welcome to the second quarter Bankinter earnings call. Our CFO, Jacobo Díaz, will now comment on our financial results. Thank you.

[Jacobo Díaz Garcia]

Good morning, and welcome to this presentation of Bankinter's earnings for the first half of 2020. Let me start by saying a few words to wish you, all of you, your families and your colleagues' safe and early return to normality.I would like to point out that we ended the first half of the year with a solid commercial performance and provision in profit, considering these special circumstances and the impact on our businesses in all geographies, Spain, Portugal, Ireland and Luxembourg.Having said that, I will review our business activities during this first half and will try to provide some guidance about potential risk in the future. Our main achievements were, we achieved resilient quarter-on-quarter performance, supported by our customer activity, resulting in increasing pre-provisioning profit, even excluding EVO and Avantcard transaction executed 1st of June of last year. We achieved continued growth in the loan portfolio in retail deposits and in assets under management. Therefore, net interest and fee income, the main contributors to gross operating income, and a very strong cost control has allowed pre-provisioning profit to grow by 10%. We achieved a strengthened solvency, NPL coverage and liquidity ratios with limited recurring NPLs. Indeed, our CET1 ratio reached 11.8%, the same figure that we had before the EVO transaction 1 year ago as well as higher capital ratio that will reach 14.5% once consider the AT1 transaction executed the first week of July. Please note that in this quarter, we have recorded an extraordinary one-off provisioning related to macro scenario potential impact on credit risk that anticipates the full year effort following IFRS 9 indications about provision reconnection when macro scenario changes. Now offering full transparency in this complex exercise and based on Central Bank's recent macroeconomic estimations to register upfront these expected impact like we did in 2012. Therefore, we do not expect additional charges for this topic.I can anticipate that our guidance for cost will be between 60 and 70 basis points in the higher range of what we anticipated last quarter, approximately 30 bps coming from this extraordinary impact and 40 bps from our current cost of risk.As usual, let's start with a brief comparison on first half key financial indicators. Group's total loan book grew by 7% to EUR 64 billion, thanks to the strong corporate and SME demand. Gross operating income reached EUR 863 million in the period. It grew by 8% with respect to the first half last year, showing strong resilience in difficult times.After a rigorous cost control, pre-provisioning profit shows a remarkable growth of 10% in 1 of the most difficult quarters ever. This is a new record high. And let me share with you that this figure is more than double the 1 that we obtained in 2010 when we had -- we faced the previous crisis.NPL ratio shows improvement in recurrent assets quality despite the lockdown at record low of 2.50%. It dropped by 21 basis points from 2.71% year ago. The extraordinary provision recorded for the adjustment of IRB credit risk models to the new macro scenario amounted to EUR 192 million in the period, EUR 177 million of them in this second quarter. After this nonrecurrent provision, group's net profit stands at EUR 109 million, a 65% decrease from a year ago.Bear in mind that in June '19, we recorded the extraordinary income from the bad will of the EVA transaction. Our CET1 -- fully loaded CET1 capital ratio also improved 25 basis points to 11.8%. Despite the unprecedented sanitary and economic conditions, it stands comfortable above our guidance. Our return on equity reflects the exceptional situation, and it stands at 7.6%. Without the extraordinary provision, it will be at 10.5%, well above the cost of capital and once more an outlier in the sector.After ending the first half of 2020 in an unprecedented difficult environment, we should keep pre-provisioning profit ahead of last year by year. And thanks to our continued commercial activity that is driving force of this revenue growth, together with a deep exercise of cost control that will last at least for the rest of the year. Our guidance, once again, for the year in terms of cost of risk stays below 70 basis points in the high end of the 60 to 70 basis points range as already shared with you in the first Q results. This is including recurrent cost of risk at the normalized levels of 40 bps.Moving on to our income statement. And as a reminder, the contribution of Linea Directa Aseguradora to the group's income statement, it's recorded as discontinued operations at the bottom of the account in accordance with IFRS accounting standards. Here are the group's comparative P&L accounts for the first half of 2020 with a new accounting for LDA and the like-for-like comparison on the right.In the first half of 2020, our income statement continued to reveal positive trends in core lines of revenues, net interest income and fee income, like in the first quarter other operating income expenses without LDA contribution showed a small contribution of EUR 7 million versus EUR 14 million last year. Group's net interest income remains resilient despite a more negative environment in second quarter. This is thanks to our solid growth in lending and positive asset mix growth in corporate loans higher than mortgage lending. It is up by over 10%, EUR 56 million more than 2019.The reduction of commercial activity during the lockdown did not help our fee income but was more than offset by the restoration of assets under management volume and the continued increased activity in our broker online and ordinary buy and sell market activities. Therefore, fee income finished the quarter growing at 5.5% with respect to the previous year and almost 4% in a like-for-like comparison.Other operating income and expenses decreased by EUR 7.5 million or 52% from a year ago due to the main 2 factors: low trading income in the first quarter due to high market volatility and the increased contribution to the single resolution fund in the quarter of around EUR 40 million. Adding all of the above, total gross operating income reached EUR 863 million, up by 7.6% from 2019.Group operating costs continued under extraordinary control, both in Spain and Portugal, reaching extraordinarily good efficiency levels. Cost from the EVO and Avantcard operations were not comparable year-on-year since they are EUR 45 million in additional operating expenses in the first half versus only EUR 7 million last year.On a like-for-like basis, the group's first half cost clearly fell by over 4% with respect to the same period last year. This positive income and cost performance, despite the difficult environment, allowed pre-provisioning profit to increase by 9.8%. Like-for-like growth is up by 9% so far this year and by 7.8% from the same quarter a year ago. Loan loss and other provisions are up 54% from first half 2019. There are few major contributors to this increase. One is Portugal; due to the anticipated normalization of cost of risk from the finishing of the extraordinary recoveries of previously provisioned loans acquired from Barclays. Another one is the expected rising cost of risk from the consumer finance business under a more difficult environment.Finally, provisions from other contingency litigation maintain a normal run and conservative rate. As I mentioned earlier, we have decided to adjust our credit risk IRB models to the current macroeconomic central scenario of Bank of Spain, also Bank of Portugal and Ireland for each country, thus recording a one-off provision of EUR 177 million in this quarter.After this year extraordinary item and also taking in consideration last year one-off bad will arising from the EVO and Avantcard integration, pretax profits of the banking activity stands at EUR 62 million. The pretax profits coming from LDA brings an additional EUR 79 million to the group in this first half or 12% more than in the first half of 2019. This shows an improved performance of the insurance business as we will see later on.After taxes, the group posted a net profit of EUR 109 million, a decrease of 65% from a year ago. Despite this difficult situation in the quarter, carving the full macroeconomic impact in 1 single quarter, it is important to highlight that the banking recurrent business after closing the first half of the year continues in line with our plans at the beginning of the year in all incomes, volumes, costs and including the slight increase of recurring cost of risk of the business. However, the necessary anticipation of the future economic scenarios had impacted from provisioning and dragged down net profits this quarter.In our view, group's provision profit growing at over 10% clearly indicates this recurrent growth in all activities, and we aim to keep this trend to the end of the year. Here is the quarterly P&L, which also shows a strong improvement from second quarter last year in all the income lines and a 4% increase in cost, taking into account the EVO and Avantcard costs from the additional 5 months over last year.All in all, pre-provisioning profit quarterly increased by 9.3% from last year's second quarter. After provisioning and first quarter comparison are not relevant due to the impact of the single resolution fund and the extraordinary macro scenario provision in this quarter.The group's loan book grew by 7.4% from a year ago, bringing in over EUR 4.4 billion in new loans in the last 12 months. This is growth coming from the new business in Spain, Portugal, EVO and Avantcard during this period with no significant impact from the lockdown during the quarter, thanks to the government programs for restoring the economy, liquidity lines of credit and mortgage, and consumer moratoriums for individuals.In net terms, this second quarter loan book grew by EUR 2.5 billion in all the geographies. In Spain, the majority came with a state guarantee in the form of ICO credit lines as we will see later.Here lending improved growth -- previous trend this quarter, it grew by almost 7%, well over the 2.3% of the sector as of May '20. Banking sector loan book has stated to grow this quarter after many years of deleveraging. Loan growth has been EUR 2.4 billion with some large corporate new liquidity lines and mainly the ICO guarantee lines provided for corporates and SMEs, split in 1/3 approximately between large companies, mid companies and SMEs with a small with a small -- with a total of EUR 3.9 billion signed as of June '20.In Portugal, lending is by up 19% from a year ago with an additional EUR 215 million in the quarter, slightly short of our business plan for this year. Retail deposits continued to perform strongly in all geography at over 10% year-on-year or EUR 5.6 billion to EUR 61.5 billion. Net interest income continued to show resilience. It grew by more than 6% over the same quarter a year ago and stay almost flat from last quarter, reduced by 1% or EUR 4 million. Like-for-like growth was 4.3% from last year.Since the integration of EVO and Avantcard in June 2019, their contribution to our net interest income has been growing every quarter. They contributed with EUR 38 million to the group's net interest income this first half.In Portugal, net interest income also grew by 6% with respect to the same quarter in 2019. Net interest income quarterly evolution is driven mainly by the loan book growth and by our customer margins shown in the chart on the right. The yield decreases in the quarter is mainly due to the important reduction of the U.S. dollar LIBOR reference rate in our international business and the reduction in consumer finance yields, together with a desired reduction of the loan book in this business in Spain.After now almost a year with the cost of deposit at all-time lows, we believe our customer margin to remain resilient in the coming quarters. Here, we also showed a net interest margin of 1.48% with a drop of 7 basis points from a year ago. Thanks to margin and volume growth trends in deposit and loans, together with a stable contribution from the carry trade of our ALCO portfolio and after the completion of the first half of the year, we still see an increase in the group net interest income by mid-single-digit by the end of the year.The composition of our ALCO portfolio changed very little in this quarter. It size slightly increased to up to EUR 8.7 billion after the full integration of EVO. Its proportion between different portfolios has also improved. Today, 68% of the portfolio remains under amortized cost with no impact in capital ratio and 32% in fair value. After a much better quarter in bond and equity markets, we can see the improvements since March of the unrealized gains on the portfolio. Now they amount approximately EUR 410 million, some EUR 200 million more than in March.Over the next few years, maturities of the portfolio are well spread out and not relevant in every year as you can see in the right-hand side chart.Let's move on. Fee income performed extremely well in the second quarter even under a reduction in activity levels due to the 3 months' lockdown. Last quarter, fee income was only EUR 2 million below the EUR 123 million of fees posted in the first quarter and continue to show growth for the first half of close to 6% year-on-year.Fee income from our recurrent business continued to grow, except fees from working capital financing, including the other fee sections, down 32%. On the other hand, assets under management volumes recovered previous levels. And this is reflected in the 2% improvement from the first half last year. Fee income still accounts for 28% of our gross operating income.The largest contributor to fee income continues to be asset management fees at 24% of total fees, still up by 2% with respect to a year ago. We can confirm that commercial activity recovered after the end of March and our private and personal banking assets under management recovered level pre-COVID 19.The second largest contributor to fee income at 18% is payment and collections, including credit cards from corporates and individuals. Their performance has been impacted by the situation, but continues to post a 1% increase on the back of our increasing online banking activity. Some fees continued to show a strong positive impact from market conditions such as brokerage that ended the quarter growing by 35%.Another example is FX business with customers, which is also up 30% from a year ago. Going forward, they should continue to improve while markets remain positive for the rest of the year.Life insurance sales, risk-related transactions and fees from activities like structured finance are also improving from still small base. They are up 5%, 11% and 51%, respectively. We believe the effects of the economic slowdown will continue to be noticed in fee income in the second half of the year, although we don't know to what extent. Thus we will pursue to drive business volumes and value-added products to our customers and assuming the certain degree of recovery, we can maintain our guidance of fee income growth by low single-digit growth by the end of the year.In other operating income and expenses, here you can see the various components broken down by their contribution without LDA insurance margin in both years. The EUR 6.9 million this year were reduced from the EUR 14.4 million last year, mainly due to lower trading income in the first quarter, a EUR 12.8 million reduction from a year ago and also to the recurrent and increased yearly regulatory charges, a 34% increase in the contribution to the single resolution fund in the second quarter.Gross operating income for the first half stood at EUR 863 million, an increase of 7.6% from a year ago. Quarterly operating income of EUR 427 million grew over to 7% from the same quarter last year and by 4% from the previous ones, all with a very small contribution from noncustomer business. All in all, the group's operating income grew clearly above our mid-single-digit guidance for the year.Assuming some economic recovery in the next 2 quarters, we believe revenues will continue to grow at the same path throughout 2020.The chart on the right shows the contribution to operating income in the first half with net interest income at 71% and fees at 28% and other income only accounts for 1%.Group operating costs totaled EUR 205 million in the quarter. They are up 4.7% from previous quarter last year, 8% from first quarter 2020. Total operating costs for the first half are up from the previous year by less than 6%. Like-for-like or excluding EUR 28 million coming from EVO and EUR 17 million from Avantcard, recurrent costs would have been reduced by over 3% from last year.General and administrative expenses were under control, considering the ones from EVO and Avantcard and grew only 7% over last year and 2% with respect to previous quarter. Again, keeping all operating expenses and investment programs under tight control, we expect to finish the year with a guidance of low single-digit cost growth. Thanks to all these efforts and the end of the EVO and Avantcard integration expenses, our recurrent banking efficiency will continue to improve. The group's cost to income dropped 520 basis points from December '19 and 110 from a year ago to 47.9%. We aim to keep the long-term banking cost-to-income ratio with a range -- within a range of 40% to 45% as we always try to improve efficiency in all our acquired businesses. For example, we continued to do so in Portugal with now an efficiency ratio at 62%. And in Spain, we are at a record low. We are -- efficiency ratio at 40.5%.Now we can see in this graph how resilient has been our group's pre-provisioning profit compared with the last year. All in all and in these very difficult circumstances, we have been able to post a strong 9.8 -- sorry, 9.8% increase in pre-provisioning profit. We think this shows a remarkable operating performance.Let's move on. And now let's look at the recurrent cost of risk. It started its way up last quarter, mainly due to the increased provisioning in consumer finance in Spain because as expected, other NPLs coming from mortgages, corporates and even SMEs were not significantly affected by the new situation after March 14. Somehow this good behavior has been extended to the second quarter as well. However, the consumer finance cost of risk continues to grow for another quarter. The increase in cost of risk in our recurrent banking activity in Spain was again related to consumer finance loan book and the small SMEs loan book since -- as of June 30, there had been no relevant impact in the commercial banking loan book on mortgages and personal loans as well as in the large and mid-corporate loan book.We expect these trends to remain unchanged during the second half of the year. And although it is probably too early to anticipate what will be the impact of the liquidity lines guaranteed by the state for SMEs and corporates in addition to the public and private moratorium in place, we expect all of this will help the current cost of risk to remain under control for the rest of the year.Despite this unprecedented global situation, we strongly believe in the quality of our loan book and our credit policies and procedures in our different businesses and in all geographies. Thus, we are able to maintain the guidance of 40 basis points for recurrent cost of risk at year-end.On the other hand, provisions for litigations, some over our FX mortgages, portfolio slightly falling and other miscellaneous legal provisions still growing will remain flat or slightly up during this year.Regarding cost of risk, today, with a much better view of the consequences from the economic shutdown in different sectors of the economy and a complete knowledge of the government stimulus measures and the new macroeconomic scenarios forecasted by central banks, Spain and Portugal, shown in the right-hand -- in the left -- sorry, on the left-hand of your chart, the bank has adopted the Bank of Spain central scenario in all our internal rating-based models for credit risk management, which provided for the recording of an extraordinary provision of EUR 177 million booked in full in this second quarter of the year. This, together with the EUR 15 million that were booked in the first quarter makes total cost of risk at the high end of our guidance of 70 basis points for the full year. Thus today, we are anticipating some 28, 30 basis points that, together with the expected 40 basis points of recurrent cost of risk, will bring total cost of risk close to 7 basis points of total exposure within our initial guidance given in the first quarter.Pretax profits for the banking activity is as shown in the chart. However, we expect improvement in the coming quarters once excluding extraordinary impacts. All the above has impacted our group's return on equity that now stands at 7.6% after this strong provision in the first half. Excluding the impact of the extraordinary group's provisions, return on equity will reach 10.5%, still above our cost of capital and differential from peers. We are fully committed to bring group's return on equity back to double-digit levels based on the growth of recurrent business and normalization of NPL provision.I will now go over our management of credit risk, liquidity and solvency. Last quarter, nonperforming loans changed their long-standing downward trend and started to show some increase, although at a very low rate. Total NPLs rose by less than EUR 14 million from last quarter, mainly because NPLs grew in consumer finance. Still, year-on-year, total NPLs are down by almost 1% or EUR 15 million less to EUR 1.764 billion. Total group NPLs grew in the semester by EUR 83 million or less than 5%. Of this growth, EUR 27 million came from SMEs, EUR 17 million from mid-corporates and EUR 5 million from Portugal and EUR 1 million from EVO.Finally, Consumer Finance NPLs grew by EUR 68 million or 82% of the total as expected. All of the rest, mortgages, large corporates, affluent banking, et cetera, came with negative growth in the period. The group's NPL ratio now stands at 2.5% from 2.51% at year-end and 2.71% a year ago. It also drops 8 basis points from last year due to the increase in loan book and almost flat NPL net entries in the period after the sale of EUR 15 million NPLs in May.In Spain, at 2.54%, it is almost at half of the sector average at 4.8% as of April, now after the COVID-19 impact. In Portugal, the NPL ratio remained stable at 2.38%. As shown in the chart, as of June '20, the group's NPL ratio was 2.37% for households, including consumer finance at 7.6%, and stays at 2.74% for corporates, including small SMEs at 7.7%.Let me share this chart with you. Here, we bring a breakdown of the bank's total credit portfolio as of June '20 and the current NPLs and NPLs ratio by business segment. We compared this with January 2018 when IFRS 9 started to be implemented and right after the transparency stress test of the EVO. 41% of the loan book is in residential mortgage and personal loans to the bank's individual customers with NPS ratio of 2.37%. It was 2.71% back in 2018, of which customer finance now represents 4% of total, up from 3% in 2018, and with similar NPL ratio of around 7.6%. Corporate banking loan book represent 46% of loan book similar to what it was in 2018, but with much better NPLs ratio today at 2.74%. Of this book, large corporates represent 25% of total with NPLs ratio of 0.64%, medium corporates that we call large SMES, 11% of total and NPLs ratio of 3.55%.And finally, small SMES, with 8% of total book and NPLs ratio of 7.7% better than the 9.1% back in 2018.Portugal increased the book to 10% of total portfolio and improved NPLs ratio to 2.38% from 7% back in 2018. And finally, EVO Banco represents only 2% of the total loan book with NPLs ratio of 1.45%. We think that this chart, this table, this distribution shows our strength in the quality of the loan book and also the small changes over the years.Our overweighting affluent mortgage lending and in large corporate lending continues as in 2018, when Bankinter showed the lowest capital deflation in Spain in the ECB EBA 2018 stress test. Just a reminder, we had 114 capital depletion versus an average of 395 basis points from the EBA 48 participant banks. Total NPL provisions decreased consequently after the extra provisioning to a comfortable level at EUR 1,001.034 million, EUR 198 million increase from last year. This had a relevant impact on our provisions coverage, which now stands at 59%, 10 points over the previous quarter. Coverage for foreclosed assets went slightly up at 46%, maintained clearly above the average discount on sold assets. The group foreclosed assets portfolio is 18% smaller than a year ago. It decreased by EUR 54 million. This small portfolio now amounts for EUR 259 million.Let's talk about solvency. Our fully loaded CET1 ratio stood at 11.75% at the end of the first half, increased by 28 basis points from last quarter and 25 basis points from a year ago. After the EVO and Avantcard transaction that deducted 23 basis points, it was bringing our ratio to pre-transaction levels as we committed.Since December 2019, our retained earnings bring an increase of 32 basis points, underpinned by the cancellation of the first 2 quarters dividend. This increase helps to offset some of the negative impacts in the period such as the value adjustments from our ALCO portfolio, now at half of the impact of the first quarter or other miscellaneous impacts such as the increase in insurance equity or intangibles accounting. The impact of risk-weighted assets growth of 23 basis points, EUR 800 million approximately from the new ICO financing has been more than offset by the reduction of the IRB shortfall of 27 basis points after the extra provision in the quarter.The other positive impact in the quarter comes from the new regulatory changes, the CRR quick fix, which are mainly or mostly related to the SME supporting factor that add 23 basis points.Total capital ratio and leverage ratio remained modestly stable at 14.1% and 4.6%, respectively. And taking into consideration our last week, EUR 350 million AT1 issuance to replace the existing one of EUR 200 million, capital ratio will improve to 14.5%, a very comfortable level above minimum regulatory requirements.As of June, we have EUR 1.4 billion in capital in excess of the new 7.675% minimum SREP requirement. After closing the first half of the year and despite the new more complex environment, we'll reiterate our guidance of CET1 ratio above of 11.5% for 2020.The continued increases in customer deposits in all business had helped to narrow our funding gap in Spain to all-time lows from over EUR 10 billion 5 years ago to only EUR 1 billion now and only coming from Portugal we'll still having higher growth in lending than in deposits. As a result, loan-to-deposit ratio reached record levels of 101% from 102.5% a year ago, owing to consistent growth in retail deposits in the last few years. Our wholesale funding maturities are well balanced with only EUR 800 million due to this year and 0 next year, excluding the EUR 200 million, EUR 81 million due in late 2021, and recently, that has been refinanced. Thus, we are very comfortably positioned for the coming years with an increase of EUR 16.9 billion in liquid assets and the capacity to issue over EUR 2.6 billion in corporate bonds.On the first week of July, we have closed the issuance of EUR 350 million perpetual AT1 bonds with a 6-year call and a coupon of 6.25% quarterly.Now let's review the performance of our business lines and our respective contribution to the group's P&L. The corporate and SME loan book in Spain and Portugal grew by over 18% from last year or EUR 4.4 billion. It has -- it increased by 17% in Spain, while the sector had started to grow at 8% year-on-year since last May. All this growth started in the quarter boosted by the government-guaranteed ICO lines in place, and the entire sector has made a wide use of them.As of June '20, we have signed EUR 3.9 billion of government lines with our customers, mainly with large SMEs than small SMEs and largely large corporates. We will review our production in a separate slide.International trade and supply chains finance continues to lead loan book growth. It grew by 12% from last year to EUR 5.96 million. It has become the most important source of income from our large corporate segment where today accounts to over -- for over 30% of total income. International business operation income grew by 9% from a year ago to EUR 90 million. More importantly, over 50% of its revenues came from fees rather than interest.Transactional business turned over with corporate customers, including commercial, credit, tax and social security payments, et cetera, went down in the first half due to the lower activities. Still, it generated EUR 40 million in fee income in the period, 3% up from a year ago. We expect the fees generated by this business to grew more by the end of the year.Investment banking brought additional revenues to corporate operating income. In the first half, it generated EUR 35 million in operating income, an 11% increase from the same period last year.In these times of uncertainty in how the credit quality will perform in the coming quarters, it seems very relevant to have a deeper look at our corporate loan book in Spain and Portugal. Almost 50% of the group's total loan book is granted to nonfinancial enterprises. This amounts to EUR 28.3 billion at the end of June '20. From this total lending, EUR 11.1 billion are granted to large corporates, those with yearly turnover over EUR 50 million and more than 250 employees. Then we have EUR 7.3 billion loans granted to medium-sized enterprises, those with a turnover of EUR 5 million to EUR 50 million. We can call them SMEs Type A. These 2 largest loan books represent over 65% of the total loan book. Only 16% of EUR 4.6 billion of the bank's total corporate loan book are loans to small enterprises with a turnover between EUR 2 million and EUR 5 million, or SMEs Type B. And the rest is a split between EUR 2.3 billion of property and housing-related financing, not including developers, EUR 1.7 billion in international trading finance with our corporate customer and EUR 1.4 billion lending to public sector corporates.Bankinter has always enjoyed a high-quality loan book relative to peers in our country. And today, we continue to feel very comfortable with the asset mix of our loan book. It has shown no significant changes over the last 10 years, preserving the strong asset quality standard for each segment of corporates and always obtaining yields according to our risk required models, despite greater competition during all these years in the market.In the following slide, we show Bankinter Spain participation in the government guarantee ICO lines for corporates and SMEs as of June '20 to total loans granted and disbursed as of June adds to EUR 3.9 billion. All these loans have been granted mainly in medium and small corporates and the rest to large corporates. Those, the average state guarantee of the total book is over 77%, a total of EUR 6.6 billion guarantees have been assigned to Bankinter by ICO and represent a market share of close to 6% of the total facility with an increase to 7.1% on the last tranche of loans to be signed until the end of September. Our moratoriums for mortgage and consumer finance to individuals amounts are still small, EUR 922 million and EUR 55 million, respectively, and represent only 4% and 3% of our portfolios.In private and personal banking, customer wealth has recovered from the very difficult behavior and the negative market effect of last quarter. It now shows increases of EUR 2 billion in net new money, split EUR 1 billion in private banking and EUR 1 billion in personal banking. Total wealth from customers in both segments amounted to 60.7% -- EUR 60.7 billion -- up EUR 61 billion -- up from EUR 61.2 billion a year ago or 2.5%. The recovered commercial activity merger by new money in the quarter ended with EUR 4.2 billion increase split EUR 3 billion in private banking and EUR 1.2 million in personal banking.Activity in our commercial banking during the first half has been maintained somehow strong in our 2 main retail products. Salary account balances continued to grow. They're up 20% from a year ago, totaling EUR 11.4 billion. New mortgage origination, although locally -- logically below last year by 13% is flat from 2 years ago, showing a very strong resilience in this business where Bankinter holds larger market share in the front book than in the back book. On the new origination, 55% of mortgages were fixed rate and its loan-to-value ratio is at 60%. Our market share in new mortgages is now 6.2% in the 12 months ended in April '20. As a result, the total mortgage back book maintained growth and reached EUR 27 billion in Spain, growing by 3.2%, while the rest of the market continues to shrink by 1.2%. The loan to value of the total back book stands at 55%.Now let's look at our stand-alone business in Portugal. Loan book grew by 10% to EUR 6.4 billion and retail funds at EUR 4.6 billion, reduced by 2% from a year ago. As of the income statement, operating income from the business grew by over 11% with only EUR 2 million of extraordinary from recoveries in the period. Costs show again a 6% reduction, in line with cost control plans ahead of a difficult second part of the year. All of the above brings pre-provisioning profit up by a very strong 60%, over EUR 9 million more. However, after the EUR 5 million normalized loan loss provisions with a very small impact of extraordinary recoveries -- bear in mind here, I remind you that last year, we had EUR 19 million positive cost of risk from this recovery -- and the EUR 3 million extraordinary provisions from the macro scenario adjournment, Portugal profit before taxes at EUR 17 million was half of the last year. Portugal shows an efficiency ratio of 62%. Bankinter Consumer Finance now includes our consumer finance business in Spain, Portugal and Ireland under Avantcard. At the end of June 2020, total loan book was EUR 2.8 billion, including EUR 445 million from Avantcard and EUR 225 million for Portugal, and it's limited down during the year, still up 8% from a year ago. New credit origination, mainly in personal loans, went down by 16%. Also, the reduction in the revolving cards outstanding bring the total under EUR 600 million or 17% less. Total credit card business represents 44% or EUR 1.2 billion of total consumer credit cards and cards payable only at the end of the month account for less than 50% of the total. They are mainly granted to existing Bankinter customers with a much better risk profile than pure consumer finance customers. The new and stricter accounting standards in 2020 for NPLs, which transfers them to write-offs for sale after 12 months with full provision on the new extra macro -- the new extra provision for macro adjournment in IRB models increased cost of risk for the first half of the year. As of June, NPLs stood at 7.2%, provision coverage reached 107, and cost of risk climbed to 4.9%.All this brought the risk-adjusted return of the business to 6.6%.During the -- moving into EVO. During the first half, EVO Banco performed slightly above its business plan, EUR 6.5 million more, despite the impact in the quarter of mortgage origination and credit card activity. EVO Banco's balance sheet has EUR 1.4 billion in net loans, up EUR 7.4 million. EUR 957 million correspond to home mortgages growing at 15% in the period or EUR 125 million. New mortgages granted from December were EUR 156 million. Personal loans and credit cards amounted to EUR 65 million, down EUR 30 million. As of liabilities, EVO has EUR 3.3 billion in retail deposits and EUR 252 million in off balance sheet funds.Client acquisition has been over 36,000 new customers in the period for a total of 508,000 customers as of June 2020, a 6% increase. As for management ratio, customer margin is 2.145%, NPL ratio, 1.5% with provision coverage at 62%.Finally, let's look at Linea Directa's contribution in the first half. Linea Directa continued to perform strongly for another quarter, despite continued pressures on premiums. Total insured risk, the old number of policies increased by 1.5%, keeping increased Linea Directa's market share in Spain. Issued premiums remained almost flat, grew only about 0.1%, which suggests a strong price competition and lagging demand during the lockdown in the quarter, particularly in motor insurance. Nonetheless, LDA growth in motor premiums continues to double the industry's average. In home insurance, it grew by 8.6%, which is almost 5x the market growth. In health insurance, Vivaz sold more new policies. Total policies close to -- closed the quarter in [ 75,051 ]%.Linea Directa's combined ratio improved by 100 basis points to 85.7% from last quarter. Despite lagging premium growth, it improved in the quarter due to the reduction of 270 basis points in claim costs after being adjusted in view traffic slowdown during the lockdown to 64.5% from 67.2% from last quarter. The cost ratio increased to 21% because of acquisition cost and marketing of the quarter.Linea Directa's combined ratio of 85% is at its lows for recent years and expect to maintain this low level by the year-end. Having one of the lowest combined ratio in the industry represents a strong competitive advantage that will allow Linea Directa to outgrow its competitors in the coming year. If we look now at its income statement, net profit went up by 12%. This is due to the 3% claim cost reduction in addition to the 3% increase in net earned premiums. These revenue trends from operation and some cost control resulted in a technical insurance of EUR 62 million in the first half, 23% more. This better earnings performance sustained a very high return on equity of 34% and despite the absence of the dividend distribution while increasing the company's solvency ratio to 238.Okay. Let me finish with a brief recap of what we saw in the first half of 2020. We saw a consistent delivery of recovery income from a customer activity, despite the impact of lockdown. In anticipation of a continued difficult environment, we made an effort in cost management to remain very efficient and support pre-provisioning profit going forward, an increase in cost of risk apart from the recurrent one and the accounting effects in Portugal to anticipate the potential impact of the new macro scenario and appropriate solvency levels with a stable asset quality, improved liquidity, strong capital ratio and a solid buffer for regulatory requirements. EVO Banco and Avantcard continues its integration plan with a major impact on our P&L performance, quality of asset and capital structure.Finally, here are some figures. Solid balance sheet growth, 7% up, 10% lending and 10% in deposits. growth of recurrent core banking businesses with a strong 8%, growth of operating income, fueled by 10% in net interest income and 6% in fee income. A combination of this strong volume growth and good cost control supports outstanding 10% increase in pre-provisioning profit. Cost to income improved to 47.9%. Cost of risk increased up to the guidance, moving to the guidance of the 7 bps for the whole year and capital improves to 11.8% of the CET1 ratio.In sum, after closing the first half of 2020 and with a continued difficult scenario, we can now envision the following guidance: net interest income growth in the range of mid-single digit. Some fee income growth of low single digit. Group's operating income in the low to mid-single-digit range. Group's cost below gross operating income growth, cost of risk increased in the range of 60 to 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, and we have done in the past with a higher level of differentiation versus our competitors.As I mentioned in the last presentation, I also want to thank all Bankinter staff. In special, those at the forefront of the branch network for their commitment and energy in this crucial moment. This is the main asset of the bank, and rest assured that the level of dedication is extremely above expectations.Now I'm happy to take some questions.

[David López Finistrosa, Director of Investor Relations]

Thank you, Jacobo, for the effort. We had a few follow-ups. We have already broadly explained some of these questions, but probably just you could elaborate a little bit more in some of these topics. Let's just start with the cost of risk. We had a few questions there regarding the rationale of the front-loading of provisions that we had seen in the quarter. The cost of risk of the quarter.

[Jacobo Díaz Garcia]

Yes. I think we explained quite clear. We have considered the central scenario of the Bank of Spain forecast impact, economic -- macroeconomic impact for the next years, '20, '21 and '22. We decided to make an upfront provision, one-off provision and anticipate the effort for the entire year. This amounts for EUR 177 million in the quarter. And this is approximately 20 to 30 basis points for the entire year. We are not planning to add more provisions to this concept. We have a recurrent cost of risk of 40 basis points, that was a similar figure that we had in our plan. And it's exactly -- so the addition of both are within the range of guidance that we provided last quarter. And today, we want to clarify that guidance, and we come up with 60 to 70 basis points guidance for the entire year. So I hope this clarifies.

[David López Finistrosa, Director of Investor Relations]

Very good. Very clear. Any views for 2021 in terms of cost of risk?

[Jacobo Díaz Garcia]

I think it's still too early to have any view. Bear in mind that all these moratorium programs and ICO lines will still go on at least for -- we have new trends that goes up to the 30th of September. So I think this year is still -- maybe still too early to see potential impact, which is clear is that Bankinter as well as the regulators and governments are putting all the efforts to mitigate as much the impact of this pandemia. So what we are currently viewing is that the cost of risk, as I mentioned, is stable at 40 bps that we are currently considering. And for the time being, as of today, we have no need to change that guidance because this is what the reality is telling us. In the future, I think it's still a little bit too early.

[David López Finistrosa, Director of Investor Relations]

To finish off with the asset quality topic, what do you expect in terms of nonperforming loans for the next few quarters?

[Jacobo Díaz Garcia]

I think nonperforming loans will be paid pretty similar to what we've seen in the previous quarter. As I mentioned, I think we have only a focus on the consumer finance business, which is the one that is probably suffering the most. And apart from that, we are in a good shape in everything related to our retail customers, anything related to the mortgage lending or the mortgage portfolio, the medium-sized corporations, the large corporations, I think from the NPLs, we do not see or would not foresee any major change. Let me share with you that the delinquencies levels as of today are even below the 1st of January. So we do not perceive any major changes in the coming quarters.

[David López Finistrosa, Director of Investor Relations]

Now we move into volumes. What do you expect in terms of loan book growth for the second half of this year? And more specifically, you can comment on the corporate lending and consumer book.

[Jacobo Díaz Garcia]

Okay. So in the corporate lending, as we mentioned, there are new tranches of ICO lines that will mature by -- that will end up the program on the 30th of September. So I would expect that in the corporate world, the third quarter, we will still see an additional increase. In fact, if we are able to meet all the expectations in terms of the tranches that we have been assigned or allocated, the total volumes might reach to even EUR 8 billion for the total ICO lines. So as you can imagine, those figures will maybe increase since the EUR 3.9 billion that we have registered in the first half. Volumes in consumer finance, as we recorded in the past quarters, in revolving cards, we're still expecting a reduction. Obviously, the impact in consumer in the second quarter has been relevant, and we see that in the credit card world, we expect a reduction or a stabilization. In the personal loans, we might see an increase in the following quarters due to the recovery of consumption in Spain after the lockdown.

[David López Finistrosa, Director of Investor Relations]

Okay. In terms of moratorium, what should we expect there going forward? And what is the percentage that you should expect to see on our mortgage and consumer books as moratorium?

[Jacobo Díaz Garcia]

As I mentioned, we have around 4% in our mortgage book in moratoriums and 3% in our Consumer Finance. We do not expect an increase as we see the demand today is not as it was in April. So we do not expect any major change in moratoriums. In fact, some royal decree moratoriums will start to redeem soon. And as far as we know, there is a minimum level of renewals or requests for new moratoriums. So private bank -- private moratoriums will start renewal in next month or the end of July, beginning of August because it was a 4-month moratoria. But because of the type of client that we have here in Bankinter, we -- honestly, we do not expect a renewal of moratoria. Currently, the demand is very low and the renewals, we do expect really low levels.

[David López Finistrosa, Director of Investor Relations]

Okay. Now we move into the P&L. Can you just comment on the outlook for the NII?

[Jacobo Díaz Garcia]

Okay. I think NII has behaved extraordinarily well in these first 2 quarters. We do expect to keep good levels of NII in the following quarters. I think we -- as we mentioned before, new production of mortgages will start recover again. Just bear in mind that the front book of the mortgages brings much better returns than the back book, and that's something that will fuel the net interest income. Of course, all this new corporate lending will bring more growth in terms of volume and with stable margins. So we will expect an increase in net interest margin. So we do -- and obviously, we have all these TLTRO III programs, et cetera, that will add more strength to the net interest income in the second half of the year. So that -- I think those reasons will support the growth of the net interest income and also the cost of deposits, even if there's not too much room, but they're still under a slowly but surely reduction, even with the wholesale issues that are much with a lower cost than in the past.

[David López Finistrosa, Director of Investor Relations]

Okay. Now that you mentioned, how much is the total TLTRO intake as of June?

[Jacobo Díaz Garcia]

Sorry, the total?

[David López Finistrosa, Director of Investor Relations]

TLTRO.

[Jacobo Díaz Garcia]

EUR 10 billion.

[David López Finistrosa, Director of Investor Relations]

Guidance of fee income, please?

[Jacobo Díaz Garcia]

Of fee income. Fee income, as you can expect, there's always a strong correlation with what happen in the markets, but we are able to compensate with transactional activity. So we expect markets to behave similar to what we've seen this quarter, at least to stay stable. That means that assets under management fees should remain stable and will provide similar returns. So transactional activity will recover in these following quarters. So we do expect, as I mentioned, a low to mid-single-digit growth in fees. Brokerage activity was a good source of revenues in this quarter, and we might see, again, a good quarter of this type of fees.

[David López Finistrosa, Director of Investor Relations]

Okay. Would you highlight anything extraordinary in the quarter in fee income?

[Jacobo Díaz Garcia]

I would say that the behavior of the assets under management and the brokerage activity, I think it's been an impressive quarter in terms of commercial activity. In order to recover the assets under management volumes that we had pre-COVID, we are currently in similar levels to pre-COVID. We have been maintaining the average fee of these investment funds and couple with an extraordinary boost of the activity in our broker online. I think this is -- I would highlight those topics. And those topics, both topics have an impact also in the FX fees. And I think that honestly, it has been an extraordinary quarter in terms of fees. And I believe it might be -- it will be sustainable in the following quarters.

[David López Finistrosa, Director of Investor Relations]

Thank you. To finish off with the impacts on the P&L litigation. We are getting questions on what's behind the growth in other provisions? And also if we are still provisioning for FX mortgages?

[Jacobo Díaz Garcia]

Okay. So just a quick reminder. The increase, if I'm not wrong, in the first half of the year compared with the past year, it's EUR 5 million up in the other provisions. So the difference is mainly just bear in mind that in other provisions, there is not only legal provision or tax provisions or litigation provision, we also have provisions related to credit risk of endorsements and these type of things. And therefore, there is a comparison effect from Portugal as well in this side. So the increase comes from a comparison effect where Portugal did not provision last year and now it has to provision.Regarding the question of the FX mortgage, as we anticipate, the FX mortgage effect is slightly going down. So we manage or we anticipate a slight reduction of 10% by the year, and this is exactly what we are facing. So from that perspective, there are no news.

[David López Finistrosa, Director of Investor Relations]

Thank you. Can you just go through the movements in the quarter? And more specifically what is the behind the regulatory changes?

[Jacobo Díaz Garcia]

The regulatory changes, as I mentioned, the CRR quick fix is basically the SME support factor, the one that provides, I would say, almost 100% of this improvement. Okay. Things that -- I think, which is relevant as well to share with you, first of all, as I mentioned, is the recovery of the unrealized gains of the ALCO portfolio that has recovered around 25 basis points. I think it's relevant to mention the IRB deduction, which, of course, is related to the extra effort that we've done in this quarter to the one-off provisions of EUR 177 million. So therefore, the IRB deficit is much lower, and that has provided 27 additional points. And another mention is the insurance deduction of 17 basis points. This is due to the nondistribution of dividends from Linea Directa. Therefore, the deduction of the participation of Linea Directa is higher, and this is due to the retention of dividends of Linea Directa in the same way as Bankinter.

[David López Finistrosa, Director of Investor Relations]

Okay. Any idea of how much regulatory changes are left for coming quarters?

[Jacobo Díaz Garcia]

Yes. The main, which is left is the one related to deduction of the Servired, which is currently under consultation. And as of today, it is too early to provide you some guidance on this topic because the methodology is not closed yet. Once we got a better understanding of the final regulation, of course, we will share with you the potential impact that it will be positive, but we don't know how much positive.

[David López Finistrosa, Director of Investor Relations]

Can you confirm the guidance for CET1?

[Jacobo Díaz Garcia]

As you know, our guidance for CET1 is 11.5%. We will expect to stay above this 11.5% for the coming quarters. And however, I would like to remind that the minimum requirement of the CET1 is now at 7.675% and that we have an excess versus this minimum requirement of EUR 1.4 billion in CET1.

[David López Finistrosa, Director of Investor Relations]

Okay. To finish off, any updates on our dividend policy?

[Jacobo Díaz Garcia]

No news. As you know that we are expecting any new recommendation from the ECB, and we hope that there will be some news in the coming weeks. Once we got the new recommendations from the ECB, therefore, we could provide you with more guidance about dividends.

[David López Finistrosa, Director of Investor Relations]

Okay. Now moving on to Linea Directa. We have a few questions about the -- if there is any updates on the spin-off. And obviously, also on the business evolution, combined ratios and so on?

[Jacobo Díaz Garcia]

Okay. Regarding the spin-off, as you know, we are quite determined to execute this transaction. So we will do the transaction once we have all the authorizations in place. As you can imagine, this pandemia and the lockdown has disturbed all the process, all the procedures. But we are pushing the execution of this transaction as much as we can. This is a mandate from the Annual General Meeting and from the Board of Directors. Therefore, we will execute this transaction in the terms that has been mandated.Regarding the business, I will highlight the combined ratio. The combined ratio is at minimum levels. It's quite differential from other businesses. I think the performance of the Linea Directa's business has been once again very, very good. Bear in mind that they have -- Linea Directa has an unparalleled operating performance business with a strong diversified position in the Spanish non-life insurance and with a unique growth prospects. So the growth that we've seen this quarter, I believe it will be similar in coming quarters. Return on equity, 34%, and solvency ratio of 238%. I think there are very great references in the industry. The quarter, as you can imagine, has been good for one thing and bad for other things. It's been extremely good in terms of claims cost. And it has been not so good in terms of new production. However, we maintain excellent levels of return and excellent levels of provisioning. And once again, I think Linea Directa is a best-in-class company in the industry.

[David López Finistrosa, Director of Investor Relations]

Thank you, Jacobo. That's it from us today. Thanks, again, for joining us, everyone. And obviously, the Investor Relations team is now available to deal with any further questions. Goodbye.

[Jacobo Díaz Garcia]

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

[David López Finistrosa, Director of Investor Relations]

Thank you.