Bankinter SA

MAD:BKT

Earnings Call Transcript 2021-Q2

[David López Finistrosa, Director of Investor Relations]

Good morning, and welcome to Bankinter First Half 2021 Earnings Call. Our CFO, Jacobo Diaz, will now explain in detail the performance of the quarter. Thank you.

[Jacobo Diaz Garcia, Chief Financial Officer]

Good morning, everybody, and welcome to this Bankinter's Earnings Presentation for the Second Quarter of 2021. The related financial statements were posted on the website of the CNMV a few minutes ago before market opens. All related documents can also be found at this time on the corporate website. Let me emphasize at the beginning that we have closed a first half with very positive results, a strong commercial performance reflected in volume growth and off- and on-balance sheet growth and transmitted with a strong growth rate in our preprovisioning profit. We consider this a remarkable performance despite a continued challenging environment during most of the first part of the year with lockdowns and restriction of mobility that continue to impact in our main business and geographies. Here are some highlights of our achievements in the first half of 2021. First of all, of course, during this quarter, it need to be highlighted the successful completion of the Línea Directa spin-off from the Bankinter Group, a very attractive operation for our shareholders and a very positive market welcome to the new [indiscernible] company. The financial impacts on the transaction has been reflected in the group's P&L account this quarter. Second, we've been successful in keeping positive growth rates in the balance sheet, in our loan portfolio with a strong mortgage production in all geographies as well as in retail deposits, and specifically, in this year in our asset management activity showing a strong recovery. As a result of this, both our net interest and fee income were able to push relevant rates of growth. Third, the resilient net interest income quarter-after-quarter is supported by continued volume growth as well as a recovered customer activity with individuals and corporates at the last part of the quarter. That resulted in an increase of our operating income by 6%. For the second quarter has also been good with continued cost control and has allowed preprovisioning profit of the group to grow strongly over 7%. Finally, asset quality that continued to show stable NPLs year-to-date with an increased coverage in provisions after last year extraordinaries. And finally, our solvency merger in terms of CET1 fully loaded ratio that maintains record levels above 12%. This is a comparison of our main financial indicator as of June 2020 and 2019. We think that these are a good comparison to provide a much better indicator about the performance of our bank. Group loans total book grew by 5% to EUR 67 billion, thanks to the strong corporate demand in 2020 and the mortgage loan book growth in this first half of the year as well as the corporate loan book in this second part of the quarter, while Consumer Finance continued mostly stagnant. Growth over the first half of 2019 is 13% up. Gross operating income at EUR 915 million grew by 6% with respect to last year and by 14% from 2019, showing a strong resilience in incomes coming mostly from the recurrent businesses. And despite the seasonal cost increase, we believe operating costs remained under control. Thus, our preprovisioning profit posted an improved growth rate over 7% and astonishing 18% since 2019. NPL ratio remained very low in line with all our asset quality indicators, NPL at 2.35%, dropped by 16 basis points from a year ago and 37 basis points from the first half of 2019. Coverage ratio after the recorded extraordinary provision of large year stands at a comfortable 62%. Group's net profit after the LDA spin-off reached a record of EUR 1,140 million. Like-for-like, that is excluding this transaction, net profit would be EUR 245 million, growing by 124% from a year ago when extraordinary provision took place for all banks. And similar, minus 3% to that of 2019 if we exclude the EUR 57 million extraordinary badwill from the EVO Banco transaction in that year. Our CET1 fully loaded capital ratio remained almost flat, 12.2%, despite the 50% reserve of dividends, standing at comfortably 44 basis points above last year and well above our long-term guidance of 11.5%. Return on equity reflects the improved performance from last December and stands at 9.5%, maintain ahead of that of our domestic competitors and above our cost of capital. We will now kick off the usual agenda of our presentation. First, our results, then risk management to end with a brief review of the different businesses in the period. Here is the group P&L account for the first half 2021. As I mentioned, the accounting for Línea Directa recurring contribution until the month of April is at the bottom of the P&L, net of taxes, under discontinued operation. And there we include the extraordinary capital gain of EUR 896 million net of taxes and expenses of the transaction. Thus, since May onwards, as they become an independent company, Bankinter will only get dividends coming from our 17.4% remaining stake accounted in the dividends line. Once more, the group's income statement continued to show a positive trend in all revenue lines. Group's net interest income maintains its growth trend after a positive seasonality and adjusted by the number of days in the quarter. There is a clear reflection of our lending growth and client margin resilience. It is up by over 4% from June 2020. Positive market environment and a clear pickup in our commercial activities supports our fee income. It grew close to 9% with respect to the previous year, in part due to the seasonality of the second quarter of every year. Other operating income and expenses at EUR 10.4 million were EUR 4 million higher than a year ago to another good quarter in trading income and despite the annual increase of regulatory charges from resolution fund booked in this second quarter. Total gross operating income at EUR 915 million went up by 6% from 2020. The quality of income growth remains very high with increased contribution from Portugal, EVO and Avant Money as we will see later in this presentation. Group operating costs remained under control in Spain and Portugal. Thus, the groups' total cost grew by over 4% with respect to June 2020 mainly due to the personnel expenses that went up by over 8%. Please bear in mind or I remind you of the EUR 17 million regularization in first half of 2020. And in the other hand, general and administrative expenses remained controlled with a small decrease. This positive income and cost performance allowed preprovisioning profit to increase by over 7% from June 2020, what we think is a remarkable growth rate. Loan loss and other provisions are down 47% from first half 2020. Here, let me remind you of the EUR 193 million extraordinary provisions booked in the first half of 2020. Without this effect, the provisions remained very much stable. After the sharp decrease in provision, pretax profits from the banking activities stands at EUR 288 million or 4.6x that of 2020. The net results coming from Línea Directa brings an additional EUR 10 million to the group in the month of April, bringing the LDA contribution to the group during the first 4 months of 2021 amounted to EUR 40 million. And after-taxes group net profit from the ordinary activity was EUR 245 million or 2.2x that of June 2020. This is the amount available to be paid out by 50% approximately as dividends for the year 2021. And in this quarter, we have booked close to EUR 900 million in the revaluation of the bank's 17.4% remaining stake in Línea Directa net of taxes only by 1.5% approx and of EUR 1.6 million of transaction expenses. And in this, total net group reached a historic record of EUR 1,140 million. All in all, after closing a very positive first half of the year in income volume -- in incomes, volumes, cost and in recurring cost of risk, we continue to feel optimistic about full year 2021. Due to the overall uncertainty of the evolution of credit risk, we are now confident to maintain the guidance of cost of risk for the rest of the year within a lower range of 40 to 50 basis points. I will come back to this later. Here, we present the P&L -- the quarterly P&L, which shows the usual second quarter charge of the resolution fund in other income and expenses. On the first quarter comparison, we can see a very positive growth pattern in net interest income and fee income, up 5% and 4%, respectively, while operating cost increased only by 3% in the same period. Preprovisioning profit decreased by only due to the resolution fund charges in the quarter. After EUR 11 million higher credit risk provisions, profit before taxes of banking activity has been only 21% down with respect to the first quarter of 2020 (sic) [ 2021 ]. From the same quarter last year, net interest income shows a 7.5% increase and 11.7% increase in fees. Adding trading income and the increased regulatory charges bring total income for the period up by 5.3% from the same period a year ago. Thanks to a 2% increase in operating cost, the preprovision profit increased by 8.4% from the same quarter last year. Moving into balance sheet growth. The group's loan book grew by 5.2% from a year ago, bringing over EUR 3.3 billion in new loans in the year to reach almost EUR 67 billion. Growth in this first half of EUR 2.5 billion comes mostly from our overall mortgage business that now includes EVO Banco in Spain, also Portugal, and of course, Ireland. At the same time and as expected, loan demand in corporates and SMEs were negative, impacted by the end of the government programs for providing liquidity to the economy and were able to grow their loan book only at the end of the second quarter. Second quarters always see a jump in lending from increased activity in corporates. In this 2021, it occurred after the end of the lockdown with a good growth in the May-June period to reduce the gap from December '20. On the other hand, consumer loan books start a very contained recovery mainly in personal loan to existing customers of the bank. In Spain, lending growth were able to maintain the pattern from previous year. It grew by 4% year-on-year, well over the 1% contraction for the sector with data as of May '21. In Portugal, lending is up by 6% from a year ago with close to EUR 600 million from last December, slightly ahead of our business plan for the year. EVO was also able to grow their loan book by EUR 600 million year-on-year, thanks to a strong mortgage production that we will come back later again. And retail deposits continued to perform strongly in all geographies, 11.5% year-on-year and EUR 7.1 billion to EUR 68.6 billion, up 11% in Spain during the year while the market only grew by 4.9%. In Portugal, deposits grew strongly in the year or EUR 7 -- or EUR 878 million in December. They have grown a remarkable 19% year-on-year to reach EUR 5.5 billion. Next slide. Net interest income continued to show resilience as we have anticipated. It grew by 7.5% over the same quarter a year ago and over 5% from last quarter. We also include pre-COVID second quarter of 2019 for comparative purposes, showing the 13% increase in Bankinter and 3x more in EVO. This is mainly due to being able to grow loan book every year while maintaining customer margin almost flat, as we will see in a minute. In Portugal, net interest income grew by 7% with respect to the same period in 2020 and by 0.8% in respect of previous quarter. This growth trend in Portugal in net interest income is a consequence of our business plan with yearly loan book growth in all of our 3 different loan books, mortgage, corporate and consumer. Group's customer margin improved by 2 basis points from last quarter and 1 basis point from same quarter last year. This stable trend is due to an almost flat credit yield, only 1 basis point reduction in the year and still 3 bps reduction in the cost of deposits. After 2 quarters with the cost of deposit at all-time lows, we believe stable credit yields are the key to our customer margin resilience going forward. We continue to suffer from a negative repricing of the mortgage loan book, although getting to an end by the third quarter, probably the fourth quarter. And on the other hand, we are starting to see some asset mix improvement in corporate lending with more weight in working capital facilities than in the long-term loan book with higher yields. Moving into ALCO portfolio. The group's ALCO portfolio remained with almost no change in the quarter. Its size decreased only by EUR 0.3 billion to [ EUR 8.6 billion ]. Its proportion between different portfolio is 75% sits under amortized cost with no impact in capital ratio and the rest in fair value. Spanish government bonds continued to represent 55% of total and 24% are other sovereigns, mainly Italy and Portugal. The portfolio's metrics improved in the quarter to average maturity 8.7 years, average duration of 4.7 years and the average yield remains at 1.6%. After some volatility in bond markets, unrealized gains on the portfolio amount to approximately EUR 530 million, down from last quarter. Only 20% of them sits on the fair value portfolio with a small impact in capital as we will see later. Over the next few years, maturities of the portfolio are minimal, except EUR 1 billion in 2023. Fee income. Fee income performed very well in the quarter and slightly ahead of our guidance for the full year. Quarterly fees were EUR 5 million over the previous quarter and continued to show growth of 4% and 12% over the same quarter last year. This quarter, all fees from our customer business show growth, including payment and collections, recovery from previous slowdown in activity. At the same time, assets under management enjoy another very good quarter and this is reflected in the strong performance. The largest contributor to our fees with EUR 92 million is always asset management fees, which are up 23% year-over-year. The very strong commercial activity brings this topic to record levels at the end of the quarter fueling these fees. The second contributor is fees from the bond and equity trading in our broker line together with custody fees growing by 18% to EUR 59 million in the period. And now we got in third position payments and collections from corporates and individuals, performance has been clearly recovered after being impacted by the slowdown in economy. This environment started to change at the end of the quarter and has made fees to grow by 8% from last year. Other relevant fees are FX with customers that it went up 5%. Risk-related transactions went up 17% and more stable life insurance and pension funds that brings fees up by 8%. In other operating income and expenses in the next slide, you can see the main components of this miscellaneous, EUR 59 million of trading income plus dividends, that compares very well from last year due to another quarter with good trading activity, plus EUR 4 million from the new first dividend from Línea Directa announced in the quarter. The 14% increase in regulatory charges or EUR 7 million more this year together with other small miscellaneous impacts such as lower opening fees from ICO loans production from last year weighed on the other income expenses, negative EUR 9 million in the period. Gross operating income for the second quarter stood at EUR 450 million, an increase of 5% from a year ago, and more important, 13% from the same quarter in the pre-COVID 2019. Quarterly comparison is less relevant. It went down by 3% from last year due to the regulatory charges booked in the quarter. In Portugal, gross operating income grew by 15% in the year and quarterly grew by 3.4 -- sorry, 3.8% from last quarter and 21% from the same quarter last year following very positive recurring business in our Portuguese branches and operations. Moving into cost. Group operating cost in the quarter totaled EUR 209 million. They are up by only 2% from the same quarter the previous year and up EUR 6.6 million or 3% from the first quarter. Operating costs from EVO shows a good performance that is expected to continue. They were reduced to EUR 12 million, down 14% from a year ago and 20% down from previous quarter. In Portugal, costs are up 4% over last year first half while income grew by 15%, meaning an efficiency improvement to 56% cost-to-income ratio. Group personnel expenses are up 4% and over the same quarter last year. Remember, again, the EUR 17 million one-off adjustment of the variable pay in the first quarter of 2020. General and administrative expenses are under control, decreasing by close to 1% over last year. Efficiency continued to improve in the group. Cost-to-income dropped 870 percentage points from December '20 to 46.4% and 150 percentage points from a year ago. We plan to keep the long-term cost-to-income below 43%. To do so, we need to improve efficiency in our different new businesses and geographies. In Portugal, now efficiency stands at 56% from 62% a year ago. And in Ireland, Avant Money efficiency is at 58%. And EVO, of course, improving, but still in negative efficiency. I want to remind you that our Spanish business stand-alone runs at a 40.6% efficiency ratio. With all this, quarterly preprovisioning profit showed EUR 241 million, up 8% from 2020 and almost 18% above the 2019 figure. I guess this is a very remarkable performance. Cost of risk, if we move into the cost of risk section. In the quarter, it finished at 40 basis points of total credit exposures with an increase of only 10 basis points from December and a decrease of 3 basis points from the same quarter last year recurrent cost of risk. Since 3Q '20, it follows a contained upward trend. Although total cost of risk remained almost flat year-on-year, there has been some increase from our Consumer Finance loan book while the rest remained almost stable: in personal lending, mortgages and large and mid-corporates. We expect this good behavior in the first 2 quarters to be slightly worse in the rest of the year as we have seen some Stage 2 anticipated migration during the first half of the year, particularly in the small- and medium-sized enterprises. The increase in the quarter of 5 basis points took place only in Spain and mostly related to Consumer Finance and to, as mentioned, the transition to Stage 2 positions. It is early to anticipate what will be the impact of the pickup in consumption during the summer season, but we are somehow optimistic after the majority of the mortgage and consumption moratorium book has matured and the ICO liquidity lines for SMEs has been extended as well as the government guarantees on them. As we see things today, after a good first half and with the expected increase in cost of risk pushed to the second half, we have reviewed again our guidance of the cost of risk for the full year, now between 40 and 50 basis points from the original 60 basis points at the beginning of the year and from the range of 50 to 60 that we shared with you at the end of the first quarter. After provisions and the LDA spin-off, the group's net income stayed at EUR 1,140 million, a record and unparalleled figure. Without the extraordinary profit from Línea Directa transactions, net income would be of EUR 245 million, still up 124% from EUR 109 million a year ago and below EUR 309 million in 2019 first half. If we exclude the EUR 57 million of the badwill that we have in that year, net income is only down by 2.7%. With all this, at the end of June, group's return on equity stands at 9.5%, still with a 4-month contribution of Línea Directa and excluding the extraordinaries from the accounting of the transaction. After closing the first half, we expect by year-end 2021 to reach a return on equity between 8% and 9%, in line with our target to return to double-digit return on equity without Línea Directa as soon as in 2023. I will now go over our credit risk, liquidity and solvency management. Nonperforming loans continued their stable trend with total NPLs at EUR 1.73 billion, down by [ EUR 30 million ] from June '20, mainly due to the annual NPL sales in Consumer Finance. NPLs grew EUR 49 million in the year. Of this growth, EUR 50 million came from our Consumer Finance business. Other business in Spain, like mortgages and corporate, just came up by only EUR 9 million. Portuguese NPLs, in fact, came down EUR 10 million in the year. Once more, the growth in Consumer Finance and SME's NPLs was somehow offset by reduction in other business segments like corporate, mortgage and affluent banking. The group's NPL ratio continued to trend down to 2.34%, lowest point since 2008 and 16 basis points lower from a year ago. It decreased 3 basis points from last year, mainly due to some growth in total risk exposure. In Spain, NPL at 2.44% is 10 basis points below last year and only 2 basis points up from December. This ratio continues to be way down from the sector average at 4.53.In Portugal, NPL ratio declined to EUR 189 million or only EUR 140 million of total NPLs. As shown in the chart of the right, the group's NPL ratio went down to 2.3% for households and maintained stable for corporates. Total provision for nonperforming loans after the extra provision build in 2020 is EUR 1.19 billion, up 5% from last year and 3% in December. All this had a relevant impact on our provisions coverage, which now stands at 62% from 59% last year. And the coverage for foreclosed assets were also improved to 50%, a 9.4% increase and clearly above the average discount of our sold assets. The group's foreclosed asset portfolio is 20% smaller than a year ago, decreased by EUR 52 million from the previous year and now accounts for EUR 207 million. Our fully loaded CET1 ratio finished the quarter at 12.20%, a small decrease of 8 basis points from last quarter and 45 basis points higher from a year ago. Since December, our retained earnings brings an increase of 38 basis points, taking into consideration accrual dividends at 50% of earnings and the positive contribution from the Línea Directa spin-off of 5 basis points. Capital consumption of risk-weighted assets from the business has been very strong, 31 basis points due to the loan growth book that we mentioned in this second quarter, mainly since the May -- the month of May. Valuation adjustments brings a negative 7 basis points due to market volatility in our ALCO portfolio, and insurance increases by 6 basis points after the impact of Línea Directa spin-off. Also, the implementation of the new IRB parameters in our models took another 14 basis points negative in the entire year for a total of 9 basis points negative impact in the quarter. Total capital ratio stands at 15.6%, very comfortable level; and leverage ratio at 5.1%. MREL ratio at 22.1%, quite above 18.7% requirement for 2022. Funding gap. The funding gap continues to be negative from EUR 1 billion a year ago to a negative EUR 2.5 billion of commercial gap. The increased negative gap in spain more than offset the one coming from Portugal and Ireland. And as a result, loan-to-deposit ratio at record levels of 95.7% from 101% a year ago. Now let's review some performance of business lines. Here, you can see the diversification of our income sources. No major changes. We have a good balance between the main contributors, Corporate and Commercial Banking, together represent close to 60%. And now 13% is coming from our Consumer Finance subsidiary. Then you see Investment Banking with 9%; Portugal, 8%; Ireland business -- Irish business, 3%; and EVO Banco with 1%. Moving on. The corporate and SME loan book in Spain and Portugal grew over 2% year-on-year in a very difficult start of the year for corporate loan demand. It increased by 1.4% in Spain while the sector is now again contracting their loan book by 2.3% year-over-year. This will make corporate loan book for banks in Spain to shrink again this year after an exceptional 2020 with EUR 100 billion in government guarantee ICO financing. The first quarter loan book reduction, like every year, has recovered -- was recovered with EUR 0.9 billion, a 3% growth in the quarter, to reach EUR 29 billion loan book. Thanks to this seasonal pickup, we have increased our market share to 5.2% from 5% a year ago. Spain loan growth over June last year by business segment has been EUR 424 million in mid-corporates, EUR 217 million in SMEs and a reduction of EUR 293 million in large corporation due to their extra liquidity position. In Portugal, where we have been growing our market share in corporate lending year-after-year, it now stands at over 2%. This trend continues since our corporate loan book went up 7% in the year and 5% in the quarter, reaching EUR 2 billion at the end of June. Let's move into sources of income of the corporate segment. International trade and supply chain finance continued to grow its balance sheet. Its loan book mainly in short-term working capital financing grew by 3.5% from last year to EUR 6.2 billion with almost no NPLs. Transactional business with corporates finally recovered on the last part of the quarter from a very stagnant situation. Payments and collection end up 1% and 3%, respectively, from last year, generating EUR 40 million in income in the first half. And finally, Investment Banking that has closed another first half of the year with a very good performance in revenues. Investment Banking, loan book of EUR 3.9 billion has grown 10% in December with a new net production of EUR 811 million. Here, we see the -- what's the situation of the ICO financing. We show again Bankinter's participation in the ICO financing for corporate and SME as of June '21. Total ICO loans with the state guarantee disbursed were EUR 6.6 billion. All these loans have been granted mainly in medium and small corporates and the rest to large corporates. Total limits of EUR 8.8 billion of ICO loans have been signed with Bankinter customers. From this total, 38% have been asking for restructuring of the loan in maturities or a grace period, also extending the guarantee and improving rate conditions. On moratoriums for mortgages and consumer individuals, they have almost come to an end and are at EUR 123 million as of June. Remember that they have never represented more than 2% of the loan book in Spain. And since January, we have signed EUR 132 million of new moratoriums only related to the tourism and transportation sectors. NPLs, the unamortized one, has been 2.9%. And for the EUR 255 million current ones, NPL stands at a very low rate. I think this is a remarkable performance compared to industry benchmarks. Moratoriums in Consumer Finance are negligible both in Spain, Ireland and Portugal. In Portugal, where moratoriums were more relevant and include corporate loans as well, they represent 12% of total portfolio from larger figures some quarters ago, EUR 512 million in mortgages and EUR 365 million in corporates, all of them maturing in September. In wealth management, customer assets continued to grow due to strong commercial activity with a positive market effect. Adding both business Private and Personal banking, assets under management increased by circa EUR 12.7 billion in patrimony under management in 12 months, EUR 8 billion in Private Banking and EUR 4.7 million in Personal Banking. The strong commercial activity measured by net new money in the first half shows a total EUR 6.7 billion increase split EUR 4.2 billion in Private Banking and EUR 2.5 billion in Personal Banking. Market effect has also been benign in the period, thanks to recovery of the market. Activity in our commercial retail banking during the first half has been very strong. In fact, customer acquisition in Spain grew by 49% from that of a year ago. Salary account balances in Spain continued to grow. They are up 24% from a year ago, totaling over EUR 14 billion. Mortgage origination of the period of EUR 3 billion outperformed every year first half and represents an increase of 1.7x from the first half of 2020, and even more relevant, 1.6x more than the last record in the first half 2019. Bankinter holds a good market share in the front and in back book despite better quality of loans, where 72% of mortgages were fixed rate and their average loan-to-value ratio is at 62%. In Spain, our market share in new mortgage during the last 12 months is at 7.5%. Both -- our total mortgage back book keep growing and reached EUR 30 billion, an increase of 7.8% in Spain, while the rest of the market only grew by 0.1%. The loan-to-value of the total back book stands at a comfortable 54%. Our Asset Management business maintained its growth trend in the 3 categories: mutual funds, 22% up year-on-year; pension fund, 16%; and patrimony service, 21%. In mutual funds, net new money in the first half has grown by EUR 4.8 billion. That, together with the positive market effects, bring the total to EUR 27.7 billion, a new record. Bankinter Consumer Finance includes, as you know, business in Spain, Portugal and Ireland and is including also the recent mortgage production in this country. At the end of June, total loan book remained slightly up from last December and 9% up from a year ago to a total of EUR 3.1 billion. Of them, 59% are personal loans and 41% credit card lending. The breakdown of the total loan book by geography includes EUR 600 million coming from Ireland Avant Money, growing at 39% from last year; and EUR 275 million from Bankinter Portugal, which grows 22%. The rest is Spain where the loan book grew by only 1%, mainly in personal loans to Bankinter customers despite the reduction of EUR 48 million in revolving credit card outstanding. Here, you see the breakdown of the loan book by product. Personal loans represent 55%, growing 9%. Transactor credit cards mainly with Bankinter clients represent 23% of total or EUR 700 million with 10% growth. Open market revolving credit cards is now 16% of total loan book and less than EUR 500 million in outstanding after a decrease of 19% of just the year. Also, the new home mortgages in Ireland reached EUR 145 million and represents now 5% of the total loan book. Total new credit origination, mainly in personal loans and Irish mortgage, represents EUR 626 million. And total number of customers grew by 3% to 1,784 million. In Spain, credit card business represents 40% of the EUR 2.1 billion and 60% are revolving, 24% of the total. The rest of the cards are payable at the end of the month with a much better risk profile that financed those customers. We continue to see good prospects for this business and feel very comfortable with the asset quality indicators of this riskier business. NPL ratio stands in June as 7.4% from 7.2% a year ago or EUR 227 million in total NPLs and cost of risk at 3.6% lower than the 5.3% in June 2020. This is a pure digital business with efficiency ratios of 21% in Portugal and less than 20% in Spain that represents to improve in the 3 geographies as soon as the economies start to recover. Continue with Ireland. They have started to underwrite mortgages under the commercial name of Avant Money. This new activity has been able to increase the loan book by EUR 125 million year-to-date and has made possible to maintain a very good asset quality ratio with NPLs very low at 0.7% and cost of risk extremely low at 1.55% with a coverage provision of 400%. Portugal loan book grew by 6% to EUR 6.8 billion. Retail funds, EUR 5.5 billion, up 19%, up -- the loan book was again -- the growth in the loan book was again in corporates, 7%, as well as in retail with 5%. Off-balance sheet reached EUR 3.9 billion, a 14% increase. As the income statement, operating income grew by 15%. Cost stayed quite contained with a 4% growth in line with the plans of efficiency. And efficiency ratio, as I mentioned before, at 56% from 62% last year. All the above brings preprovisioning profit up very strong 33% -- sorry, 33% over June 2021. Finally, after EUR 7 million of normalized loan loss provisions, including a positive impact of EUR 2.6 million of extraordinary recovery, Portugal profit before taxes reached EUR 26 million, a remarkable 50% increase from last year. Moving to EVO. EVO has been very much focused towards a significant increase in mortgage lending that has been reflected in a strong commercial activity. New mortgages granted from December were a record of EUR 376 million. This is 2.5x the origination of last year first half, making the mortgage loan book to jump EUR 1.5 billion. Subsequently, net interest margin from customer activity jumped also 20% from June '20. Customer margin stands at 1.03, NPL at 1.06, only EUR 17 million in NPLs with a coverage of 61%. Cost of risk is only 14 basis points. And then we're coming to an end. Just to recap, our main achievements in the quarter, we believe, are, first of all, a very strong commercial activity reflected in volume growth with an increased preprovisioning profit growth. In a very complex, still, environment, we continue with our efforts in cost to remain under control to be able to support preprovisioning profit growth. And we think we still have very strong solvency and liquidity levels with record liquidity levels and keeping a comfortable buffer from regulatory requirements ahead of the next EBA stress test. For the future, we also expect growth in all geographies: Portugal in both Commercial and Corporate Banking, Ireland to keep growing in mortgages and also recovering the Consumer Finance as well, in EVO in mortgage production and customer acquisition. We expect for Spain corporate loan book to recover from the impact of ICO financing, thanks to increased activity and corporate demand after the summer as well as continued loan growth in mortgage lending and in other nonmortgage retail lending. So at the end of the year, net interest income for the group, we show at least low single-digit growth despite difficult interest rate environment. The increase in activity and more stable markets will make fee income to continue to grow in the range of mid-single digit. And we do expect group's operating income to grow in mid-single digit. Cost should remain flattish in 2020 (sic) [ 2021 ], meaning more willingness to grow if incomes do the same or a slightly higher if the bank -- if the expected performance is better than expected with the objective of preprovisioning profit to remain resilient and improve the growth of 2020. And finally, cost of risk after a very benign first half and with a very comfortable loan book with no need of additional provisions ahead of a slow recovery scenario will range, as I did mention before, between 40 and 50 basis points at the end of the year. And now I am very happy to take your questions. Thank you very much.

[David López Finistrosa, Director of Investor Relations]

Thank you, Jacobo. We probably had a follow-up -- some follow-up questions already. We -- you had just mentioned you have probably answered many of those. But nevertheless, let's refrain. Can you do just a very quick recap on the outlook for the main P&L lines for the end of the year? And also just quick confirmation on the changes of the guidance that we have already commented on.

[Jacobo Diaz Garcia, Chief Financial Officer]

Sorry. I did -- I have my microphone off. I will come back again. Net interest income for the group will show at least low single-digit growth despite the difficult interest environment, interest rate environment. Fee income, we continue to grow -- or to expect growth in the range of mid-single digit. Group's operating income, we expect in the mid-single digit like in 2020. Group's cost, we expect to keep them flattish or slightly higher if the performance is better than expected. And preprovisioning profit, we expect to remain resilient and improve the growth that we saw in 2020. And cost of risk at 40 to 50 basis points. And I think that your question is, which are the main changes, and I basically will focus on the cost of risk. Cost of risk guidance has been changing across the year. We started in January sharing with you our expectation of a figure around 60 basis points in the first quarter, in April. I'm trying to be so prudent because it's still too early with this current macro scenario. We shared with you a guidance of a range between 50 and 60 basis points. Today, in July, we reduced our guidance for the year, again, in the range of 40 to 50 basis points. And this is only based on the reality that we are seeing today in the institution where the cost of risk is much better than expected. And even if we do expect a slight deterioration in months ahead due to just prudent activity, this is the reason why we think it will be in 40 -- somewhere between 40 to 50 basis points.

[David López Finistrosa, Director of Investor Relations]

Thank you. Very clear. Any visibility for 2022? You know I had to make this answer.

[Jacobo Diaz Garcia, Chief Financial Officer]

I know it is -- as far as the impact of the cost of risk is delaying or lagging, we should say that 2022 should be even better than 2021. The most diluted is the impact of this crisis, the better impact will have on NPLs. As we shared with you, NPLs are not growing as we were expecting. They have grown just EUR 50 million in the year. In opposite, what we're trying to be prudent is increasing the Stage 2 positions that, as you've seen, they have increased by around EUR 500 million in the year, and these are the main catalysts of the cost of risk of this year.

[David López Finistrosa, Director of Investor Relations]

Thank you. Moving now on loan growth. We had a few questions on what are the main drivers of the performance in the quarter?

[Jacobo Diaz Garcia, Chief Financial Officer]

Okay. So yes, the loan book has grown in all the geographies and in all the business even from an annual comparison, but also from a quarterly comparison. That means that we have grown in this quarter the book of the group by EUR 2.2 billion, which is 3.5%. From an annual perspective, we have grown 5%, which is EUR 3.3 billion. And since December, we have grown EUR 2.5 billion, which is almost 4%. We have grown in all geographies. In Spain, this quarter, we've grown almost EUR 1.8 billion, 3%. We have grown in Portugal, 2%; in Ireland, 17%; in EVO, 12%, et cetera, et cetera, even in Consumer Finance. So the perception is that this quarter has been extremely good. There is no reason why we should change our perspective in the future. The businesses where we've been putting more focus are, as you know, mortgages. Mortgages have presented a new production record high in this quarter with very good performance in Spain, in Ireland, in EVO and in Portugal. We have a new production of more than EUR 3 billion for the first time ever, and the quarter has been a new record. In Consumer Finance, what we've seen is there is a slight recovery in this business. And I'm sure that in this third quarter, especially in Ireland, we will see much better activity. This is basically because the lockdown has been longer than, for example, in other countries. So we do expect positive news in this quarter. And the use of credit cards is also a reality. And this is something that you see just in the fees, the level of fees of payment and collection is clearly increasing. In loans, of course, in Consumer Finance loans are growing. And as I did mention, there is a strong focus in Bankinter clients, which have much better risk profile and this is the reason why the book is growing. And let me end up with corporates. Corporates, we have perceived in Spain since the end of the lockdown -- or since the end of the state of alarm in Spain in mid-May that there is a recovery in transaction activity and in working capital funds. So international business has also improved during the last part of the second quarter. And that also, we've seen that these ICO lines have extended their maturity and the grace period and has supported the level of the loan book.

[David López Finistrosa, Director of Investor Relations]

Okay. We had a few follow-ups on -- specifically on the corporate book. What are your expectations in terms of the -- reaching the target for TLTRO, the benchmark, that we have by the end of this year? And also your expectations in terms of next-generation funds for loan growth in the corporate book?

[Jacobo Diaz Garcia, Chief Financial Officer]

Okay. In terms of complying with the TLTRO program, as of today, we are largely compliant. So this is not a concern as of today. So there is a prospect that we -- of course, we will meet the requirements of this TLTRO program without any concern. Related to the next-generation EU funds, we know they have been -- or they are very close to release the very small amount of these funds. We are optimistic about larger release of funds in the second part of the year, although we think this will happen at the end of the year. So I guess that in the fourth quarter, we will get -- we will have a much better idea or probably a much better sense of what will be the impact. We are optimistic because the funds are there and we know that the funds will come. But in terms of timing, we have more uncertainty, and we do expect some signals probably at the fourth quarter of this year.

[David López Finistrosa, Director of Investor Relations]

Very clear. Thank you. To finish off with the corporate book, can you put some color on the extensions on the ICO loans?

[Jacobo Diaz Garcia, Chief Financial Officer]

Yes. Regarding the ICO loans that you know we have a limit of EUR 8.8 billion and disbursed around 75%, which is EUR 6.6 billion. We have extended either the term of the loan or either the grace period for around 38% of those amounted figures, okay? I believe this is not a very high figure. There are benchmarks that we know that the average in the industry might be above 50%. So we feel very comfortable with the level that we have achieved of additional extensions. Let me remind you that the grace period now comes to a 2-year period. And the first maturities of that we will see in probably the second quarter of next year. And the terms of the loans have been extended up to 8 years as the largest.

[David López Finistrosa, Director of Investor Relations]

Thank you. Moving now on to revenues. We had a few follow-ups on the NII performance in the quarter. If you can go through the moving parts in the quarter?

[Jacobo Diaz Garcia, Chief Financial Officer]

Yes. In this quarter, we have several impacts. The first of them, which is the contrary of what we see in the first quarter, is the number of days. So this quarter has a larger number of days than the first one. So this is the first contributor. Then we have a larger production in mortgages that, as we have shared with you, has been a new record high. These mortgages have been largely at a fixed rate and that provides another additional boost that help us to compensate the repricing or the negative repricing of the variable rate mortgage portfolio. Also, as we did mention, we have a higher level of credits and short-term funding to our Corporate Banking business. That means that we have a much better mix in Corporate Banking that we used to have in previous quarter and a very good rate. In addition, we have -- we are continuing to recover the cost of deposits from an institutional client or largest corporations. And again, this is an additional figure. And due to the extension of the ICO, we also have new income of the updating of the prices of the loans that have been extended. Those elements provides a much better profile of the net interest income in this period. TLTRO from an annual perspective is providing probably EUR 20 million more in the total '21 compared to the total '22. So this is more or less the main topics that are contributing to the growth in this quarter.

[David López Finistrosa, Director of Investor Relations]

Okay. Can you quantify the impact on the NII, specifically on the extensions of the ICO loans. And also flipping the coin, whether there is any impact also on the fee income?

[Jacobo Diaz Garcia, Chief Financial Officer]

Yes, of course. The cost of the new extensions have been around EUR 7 million, which are in fees payable or payable fees, around EUR 7 million. And the exact same figure is recorded as higher net interest income. Of course, we have updated all these costs that we have reflected, all these cuts in our clients' position and this has generate an impact of a positive EUR 7 million. And of course, positions of these extended ICO transactions have been updated for the future as well as of the cost.

[David López Finistrosa, Director of Investor Relations]

Excellent. A few more questions on revenues here. Can you confirm by how much increased the contribution to the single resolution fund this year?

[Jacobo Diaz Garcia, Chief Financial Officer]

For the group, it's been around EUR 41 million, EUR 42 million in this quarter, which is, again, around EUR 6 million more than a year ago.

[David López Finistrosa, Director of Investor Relations]

Thank you. Can you confirm if we are already accounting for the dividend of Línea Directa in Q2?

[Jacobo Diaz Garcia, Chief Financial Officer]

Yes. We have recorded in the dividends line around EUR 4.6 million in dividend. Yesterday, Línea Directa published their first time results and mentioned that the payout of this dividend has been 90%. So this is a good news.

[David López Finistrosa, Director of Investor Relations]

Thank you. Moving now on to asset quality. We had a couple of questions regarding the -- if we have any updates on the moratoriums in Portugal.

[Jacobo Diaz Garcia, Chief Financial Officer]

Yes. I mean moratoria in Portugal are improving. We have, as of today, around EUR 200 million less than we have at the beginning. Today, only 11% of the mortgage portfolio is under moratoria. It used to be close to 15%. We are today, as I did mention, at EUR 512 million of mortgages under moratoria. And in the corporate loan book, it has EUR 365 million under moratoria. The total accounts for below EUR 900 million while the original value was almost EUR 1.05 billion. That means that it has been reduced somewhere around EUR 150 million and EUR 200 million in this period.

[David López Finistrosa, Director of Investor Relations]

Perfect. Regarding credit provisions, whether you can explain why are they going up in the quarter, quarter-on-quarter, obviously?

[Jacobo Diaz Garcia, Chief Financial Officer]

Yes. From an NPL point perspective, NPLs are growing due to Consumer Finance. But from a Stage 2 performance, which is how to be prudent in case things are deteriorating in the future, we are trying to put more focus on the corporate world. Therefore, around -- I mean the majority of the cost of risk, I mean, there is a large proportion of corporates, I would say around, I don't know, 50% are corporate cost of risk and around 40% of Consumer Finance cost of risks. But basically, the amount of Stage 2 positions are focused on the corporate world.

[David López Finistrosa, Director of Investor Relations]

Okay. What would be the outlook in terms of peak of NPLs for the end of this year? And also, yes, related to that, the cost of risk trend for the second half?

[Jacobo Diaz Garcia, Chief Financial Officer]

Again, we are in a various uncertain macro scenario. It's very difficult for us. We want to -- we prefer to be prudent. And if we had a EUR 50 million increase in the first part of the year, I would believe that the NPLs growth in the second part of the year somewhere between EUR 50 million and EUR 100 million. This is our best guess right now. But I think it's still too early to know which is a good figure for that. That's why we wanted to reduce the cost of risk guidance that we shared with you to 40 to 50 basis points. And that's why we think that the third quarter and the fourth quarter should have a higher cost of risk because the level of uncertainty is still very high and we prefer to be prudent.

[David López Finistrosa, Director of Investor Relations]

Thank you. In terms of other provisions and litigation, what can we expect from the next following quarters?

[Jacobo Diaz Garcia, Chief Financial Officer]

Yes. Litigations costs are, as you know, mainly from the FX mortgage book. These provisions are, as we do see since 2 years ago, it's a slight decrease, somewhere between 10% and 20% year-after-year. So this mortgage FX litigation risk is slowly reducing. Although it is the majority of the provision, and therefore, volumes are not -- I mean they go down very slowly. We do have their revolving issue litigation and we do have the mortgage expenses litigations. That is still uncertain for the end of the year. We should expect anyway a slight reduction. In total year, it should be lower than the previous year, somewhere between 10% and 20%. But again, the path of reduction will be slow.

[David López Finistrosa, Director of Investor Relations]

Okay. We move to capital now. First question, well, related to the spin-off of Línea Directa, whether you can confirm if we had booked any positive mark-to-market of the Línea Directa stake and also the total impact of the spin-off?

[Jacobo Diaz Garcia, Chief Financial Officer]

Yes. The total impact in basis points of the spin-off is 5 basis points. And yes, there is a revaluation of the Línea Directa since, as you know, the accounting value at the spin-off date was around EUR 250 million. Today, this value is somewhere around EUR 330 million, EUR 340 million, and therefore, the reserve revaluation that is shared under the insurance and others bucket that we have put in our slide. I remind you that also the increase in the valuation of this stake increased the risk-weighted assets. So there is a net effect between the unrealized gains, which have increased and the higher risk-weighted assets coming from the consumption of this participation.

[David López Finistrosa, Director of Investor Relations]

Okay. We had a question about what are the main drivers of the risk-weighted assets in the quarter? And also if any other moving parts that you want to highlight?

[Jacobo Diaz Garcia, Chief Financial Officer]

Okay. So in the quarter, mainly we have the retained earnings and the 5 basis points Línea Directa contribution spin-off. As we did mention, the ALCO portfolio has been deteriorated. And in your bucket, you will see 4 basis points negative impact. The IRB is basically stable -- the IRB deficit, sorry, and new regulations. And we have the insurance and other, we have a positive effect, which is exactly what I did just mention about the revaluation of the stake of Línea Directa, slightly compensated with higher consumption of this stake. And in the quarter, we have also the consumption, the risk-weighted asset consumption of the growth of the loan book, which has been extremely high. There is -- in combination with this higher consumption in this quarter of the book, and as I did mention also, there is strong Corporate Banking growth there with a higher consumption than, for example, the mortgage book. There is also an increase in the counter-party risk and the market risk, which should be -- I mean a one-off impact due to the new articles in the [ BRDD ], which doesn't really make a huge difference.

[David López Finistrosa, Director of Investor Relations]

Thank you. Regarding dividends, 2 questions. How much dividend accrual are we doing? And also what are your expectations, your views on dividend payments?

[Jacobo Diaz Garcia, Chief Financial Officer]

Dividend accrual is at 50%, 5-0 percent. We've been doing this since the first quarter. So we have a total accrual of 50% for the half -- the first half of the year. Regarding the distribution of dividends, I do believe that tomorrow there will be public information about dividends. And we -- of course, whatever will be allowed, this is something that we will do and we will respect. So we will need to wait until tomorrow. Although as you can imagine, we are optimistic about the possibility of distributing dividends.

[David López Finistrosa, Director of Investor Relations]

Thank you. Can you remind us of what's our capital target?

[Jacobo Diaz Garcia, Chief Financial Officer]

We normally provide a guidance, a CET1 ratio of 11.5%. We know that today why we are higher due to the current environment situation. And today, we are -- we were at 12.3%. Today, we are at 12.2%. Both figures are extremely high for us due to our risk profile. We are very comfortable with these levels. we think we will be navigating with figures above 12% for the coming quarters until the environment comes back to a total normalization.

[David López Finistrosa, Director of Investor Relations]

Okay. And 2 last questions, promise. Private Banking, what are your growth expectations for the second half?

[Jacobo Diaz Garcia, Chief Financial Officer]

If -- for Private Banking, if markets volatility respect us and there are no major surprises or no major uncertainty regarding markets, we do still view a positive second half of the year. We think with all our growth is based on commercial activity, it's on commercial onboarding of new clients, and there is no reason why this should change in the second part of the year. We have reached a very good performance. We are acquiring a good number of new clients. And we are able to switch a lot of account balances resources into value products like mutual funds, investment funds, even stocks, et cetera, or discretionary portfolios, unit links. So we have a good set of products adapted for the Private Banking activity, which are successful, and there is no reason why we should change -- sorry, why we should see any change in this perspective.

[David López Finistrosa, Director of Investor Relations]

Thank you. And last one, any thoughts on the 2023 targets after this first half?

[Jacobo Diaz Garcia, Chief Financial Officer]

Our only thought is to comply with our commitment of reaching in 2023 or 2019 net income figure of EUR 550 million. We think this is an achievable target. It's not going to be easy, of course, but I think we are fully committed, the entire organization, to reach this target. There is -- the efficiency ratio, I think it's key to reach this target. And I think that we are delivering good results in efficiency ratio that will provide preprovisioning profit growth to be able to reach that figure. We've seen that like Portugal is improving very well efficiency ratio. We've seen Spain, which is performing very, very well. We see a good trend in EVO, and we see good trends in Ireland. So as far as we meet a good efficiency ratio, that we commit to around 43% by 2023, I'm sure that we will meet that target. And rest assured, that we will do everything to reach that 2023 public commitment.

[David López Finistrosa, Director of Investor Relations]

Excellent. Thank you, Jacobo. Thank you, everyone, for joining us today. That was all from us. Feel free, obviously, as usual, to contact the Investor Relations team for any further questions. Many thanks, and goodbye.

[Jacobo Diaz Garcia, Chief Financial Officer]

Thank you very much, all of you. We are open to any questions since now in our usual format. And thanks to the IR team of Bankinter, Alfonso and David, that have once again performed an outstanding job. Thank you very much, and keep safe. Bye-bye. See you in October.