Bankinter SA

MAD:BKT

Earnings Call Transcript 2018-Q3

[David López Finistrosa, Director of Investor Relations]

Good morning, everyone, and thank you for joining us for our third quarter results presentation. As usual, Gloria Hernandez will guide you through the main quarter highlights now. Thank you.

[Gloria Hernández Gracia]

Thank you, David. Good morning, and welcome to our 2018 results presentation for third quarter and the first 9 months of the year. The related financial statements were posted on the website of the CNMV a few minutes ago prior to market opening. All related documents can also be found at this time on the Bankinter corporate website.Here is a summary of the main indicators from the last 9 months compared with the same period last year. Our loan book growth maintained its growth rate increased showing resilience in the last quarter despite the domestic market still shrinking. Our gross operating income continued to grow at a steady pace even though the third quarter had some negative seasonality due to the summer term. Our NPL ratio continued its downward trend, decreasing by almost 52 basis points in the last 12 months to 3.2%. Net profit amounted to EUR 404 million, a 7% increase from a year ago. Finally, our CET1 fully loaded capital ratio stood at the 11.7%, slightly above our guidance. And our ROE remained at 13%, which was also an improvement of 66 basis points on last year.As usual, we will first look at our performance in the first 9 months and the third quarter alone, then review our quality of assets, to end with a summary of the performance of our various strategic business lines.Looking at our 9-month income statement. I would like to remind you again that we have restated 2017 figures for net interest income and loan loss provisions to make them homogenous with 2018 figures since IFRS 9 accounting was implemented, which impacted Portugal's NPL recoveries. This led to a transfer of EUR 24.7 million from NII to positive impairments.Looking now line by line. We can see a continued positive trend in earnings. Our net interest income grew by almost 7% with respect to the first 9 months of 2017 and our net fee income was up by more than 6%. Regarding net interest income, it is worth mentioning that in the first 9 months, extraordinary revenues from recovered NPLs in Portugal amounted to only EUR 11.9 million, similar to the EUR 12.5 million booked last year in the same period. In the third quarter, NII showed a very stable evolution growing by only 1% despite 1 more business day. No more NII tailwinds are expected going forward and headwinds will be depending on volume growth and margin pressure for the coming quarters.Nevertheless, we continue to see a mid- to low single-digit guidance for the full year thanks to the increase in lending and our resilient customer margin. Fee income grew by over 6% after a quarter of negative seasonality. But it is still in line with our high single-digit target for the end of the year.Other operating income grew by 17% with respect to the same period last year mainly due to the solid performance of our insurance -- insurer LDA. Quarter-on-quarter, it grew by 30% due to the absence of SRM or FGD payments in the quarter. Our gains on financial transactions continue to be very low, contributing only EUR 40 million to earnings, 19% less than in the previous year. In total, our gross operating income amounted to EUR 1,472 million, up 7.5% from 2017 and with better quality as the weight from extraordinary revenues decreased. Our operating costs grew, driven by Linea Directa, like in the first half of the year to maintain the solid sales growth.Some slowdown occurred quarter-on-quarter down 1% at group level mainly in personnel expenses. In view of this tight control, we maintain our mid-single-digit guidance for the end of the year. Despite the cost increase, our positive income performance allowed our 9 months operating profit to grow by more than 8% with respect to 2017. Loan loss provisions and other contingencies amounted to EUR 168 million, up 13% from a year ago.Legal contingencies amounted to EUR 111 million. That is EUR 95 million more than the same period last year. Nevertheless, after a strong effort to enhance our provision buffer in the first half of this year, this last quarter reflects a more normalized run rate in our coverage for multicurrency contingencies. In addition, a [ revolution ] of impairments for NPLs and the increase in the sale prices of foreclosed assets resulted in a reduction of our loan loss provisions. As a result, the cost of risk in our banking operations has continued to hit record lows.Ultimately, our 9-month net profit rise by 7.3% with respect to 2017 and it continues to be well in line with our targets for the full year. The graph on the right reveals our net profit record over the first 9 months in the last 3 years. We can see year-on-year improvements despite the extraordinary impacts of bad will from our acquisition in Portugal in the first 9 months of 2016, which was the previous record.Now we will have a look at the quarterly income statement. If we compare our performance in this quarter with the same quarter last year, we can see overall that the top part of the account referring to income has performed in line with our expectations at the beginning of the year. Our net interest income growing by over 6% remained resilient despite an interest rate environment that showed no signs of change. Our fee income also stayed solid undeterred by market turbulences and the consequent negative impact in volume growth.The line of other income and expenses continued to reflect the very positive performance of our insurer, Linea Directa. With all these, we had a gross operating income that grew by close to 6% with respect to the same quarter last year, on the back of recovering business as our gains from financial transactions continued to contribute very little. At the bottom part of the account, costs grew by 6.7% reducing the growth rate from the first half 2018. This figure was down 1% from the previous quarter. On the other hand total provisioning including legal contingencies and the results of asset sales rise by 3% or EUR 1.6 million over the same quarter last year.With regard to the cost of risk, even if we adjusted for the EUR 8 million in reclassified provisions in the quarter, it remained very contained and as we will see in further detail under the asset quality section. Lastly, both our pretax profit and our net profit outperformed the same quarter last year by more than 5%. The group's loan book continued to grow by EUR 2.6 billion or 5% year-on-year.In Spain, where the sector has shrunk by 1.7%, as of August 2018, we added a net EUR 2 billion in new lending in 12 months. In Portugal, loan book increased by 12%, which is over EUR 600 million in the same period. It is worth mentioning that our mortgages book increased in the last 9 months by EUR 300 million in net terms, unlike other listed banks in Spain. As for our retail deposits, they have grown by close to EUR 5 billion or 11% in 12 months, clearly outperforming the sector in Spain.Now we will go into the analysis of the P&L. You have some problems with the slides? No. Concerning net interest income, despite the unfavorable interest rate environment, it grew in Spain for another quarter. While Portugal contributed EUR 1 million less due to fewer extraordinary revenues from recover NPLs. Further on, we will analyze our recover net interest income figures in Portugal which continued on a very positive trend.Our buoyant net interest income performance was also due to the resilience in our customer margin, 10 basis points higher than the same quarter last year and very stable in the quarter. The yield on loans has maintained in the last few years -- last few quarters, sorry, while our cost of funds has gradually reduced to its current level at 6 basis points.With regard to our ALCO portfolio, its size and composition hasn't really changed with respect to last June, its contribution to the group's net interest income remain low but stable. Unrealized gains remained close to EUR 370 million with a small impact due to a new quarter of high market volatility. Nevertheless, an important portion is in the amortized cost portfolio that has no impact on the capital ratio.The other portion related to the available for sale portfolio reduced our CET1 ratio in the period by 10 basis points. This was more than offset by the 22 basis points of the internal capital generation. The second income line that continued to perform well is our fee income, up by more than 6% year-on-year and representing 23% of our gross operating income. Fees in the third quarter are affected by summer seasonality nothing different than any other year.The largest contributor continued to be asset management, it is driven by our solid private banking franchise although fees from mutual funds have been negatively affected by the market turbulences in the quarter, as well as by MiFID 2 regulations reducing its rate of growth from plus 12% in Q2 to plus 7% in Q3. In this sense, we have estimated a EUR 6 million to EUR 7 million impact on fees as a result of adapting to MiFID 2 during this year. The rest of the fee income lines improved their performance in the quarter with respect to the previous one.Payment and collection fees grew by over 9% and insurance fees grew by 7% and finally fees on [ these ] transactions by 4.4%. Lastly, fees from product and services more related to the market performance such as brokerage and custody as well as FX differences were also negatively impacted by the increase in volatility showing flat growth rates year-on-year.If the market stabilizes in the last quarter we can maintain our mid-to-high single digit guidance on fees for all 2018. Otherwise, the growth in fees will moderate somewhat in the last quarter placing the year's guidance closer to mid-single digits.In other operating income and expenses the strong contribution from LDA's insurance margin up by over 13% was maintained for 1 more quarter driven by sustained growth in premiums and policies. This quarter saw no negative impact from regulatory charges but on the other hand other income from fees on new mortgages and corporate loans continued to grow. Therefore we managed to reduce the year-on-year negative impact on charges by 36%. As a result, this line increased by over 17% in the first 9 months of the year.Overall, gross operating income for the group grew by 5.6% from a year ago and almost 7% considering only the strict customer business revenues. The graph to your right shows a contribution of our different revenue sources to those operating income. 55% of our total income was net interest income. Fees and commissions contributed 23%. With 19% from other revenues where LDA's insurance margin is included. And only 3% from gains on financial transactions. This maintains a good diversification to counter the persisting extremely low interest rate environment.In relation to operating costs, we present in the [ revalued ] banking costs and LDA costs as these performance continues to be very dissimilar. Whilst Linea Directa's costs grew by mid-double digits as in the previous quarter, banking costs grew more restraintly filing in the quarter by EUR 2 million in Spain and growing by less than EUR 1 million in Portugal with respect to the previous quarter.Moderate cost growth along with good revenue performance allowed our doors to remain open and our cost to income ratio to continue improving. Regarding our cost of risk as mentioned earlier, or EUR 8 million in provisions reclassified from insolvency to legal provisions together with a positive NPL performance had a positive impact on it.Our cumulative cost of risk as of September totaled EUR 57 million, 57% less than a year ago. This has allowed us to be more conservative when recording provisions for future legal contingencies. The group's cost of risk for the last 12 months stands at 11 basis points.Finally, our ROE remained at 15% growing by 66 basis points year-on-year, thanks to our good performance in banking as well as insurance. Bankinter continues to deliver best in class ROEs amongst its peers and clearly above its cost of [indiscernible] -- I think we have a problem, so I will stop here.

[David López Finistrosa, Director of Investor Relations]

Apologies for this technical issue, we continue now this [ management ]. Thank you.

[Gloria Hernández Gracia]

So now let's go over our management of credit risk, liquidity risk and capital. Our non-performing loans continued to fall by close to 10% a year. In Spain, our NPL ratio is below 3%. And in Portugal, it's already below 6% from 7.4% at the year-end.After the announced sale of EUR 360 million NPLs and write down assets in Portugal, signed in October, our pro forma NPL ratio for Portugal will be below 3.5%. In the next quarter's financial statements we will post the positive impacts of this sale.NPA's provisions amounted to EUR 1.15 billion up 6% from December due in part in the -- to the first implementation of IFRS 9. Our provision coverage continued to be at level similar to our peers and from NPL coverage including generic provisions levels are appropriate for us and 6% higher than a year ago.As for foreclosed assets, coverage is well above the average discount price and the unsold assets and we will see in a -- as we will see in a minute. Before let's review our foreclosed asset portfolio, which has shrunk by 22% since December 2017. We sold all these assets through our commercial network. Total sales in the last 9 months amounted to EUR 111 million, 27% of the stock at the beginning of the year. The average discount price is around 32% well below our provision coverage rate with a positive impact on earnings.Our fully loaded capital ratio was 11.7% at the end of September, 15 basis points more than in June, and 24 basis points over December 2017. The increase since June stem from a stable loan book during the quarter and a small drop in unrealized gains in our fair value portfolio, which has increased the cumulative negative impact by an additional 10 basis points. This was more than offset by our organic capital generation of 22 basis points in the quarter.Compared with December this last year, the ratio improved by 24 basis points because all the negative impacts were more than offset by the organic capital generation and the IFRS 9 first implementation impact. Finally, both our capital -- total capital ratio and our leverage ratio remained fairly stable with respect to previous quarters.Balance sheet increases in both loans and deposits ultimately led to a lower commercial gap, which is the difference between our customer loans and deposits. It is now at EUR 3.7 billion. In Portugal, it is also improving. Thus our loan to deposit ratio improved once again reaching its lowest level in recent years, thanks to the strong increase in retail deposits.The maturity structure of our wholesale funding remained the same with maturities that can be easily rolled over in the next 2 years. We do not expect any future issues at the moment since our liquidity buffer is still very high and continues improving. Any future issues would be in modest amounts and always in line with any MREL requirements we're given.Now we'll look at our more significant customer business income contributors in the past 9 months. Corporate banking and commercial banking provided jointly 56% of our recurring income in almost equal measure. Our insurance business contributed a very relevant 22%, followed by our consumer lending business with 10% and Bankinter Portugal now at 6%. Lastly, our noncustomer business trading, ALCO and others, continue to contribute with only 5% to our total income.The largest contributor to gross operating income is corporate banking, and this remains on the same growth trend from 2010. Its loan book now amounts to EUR 23.7 billion, up by 7% year-on-year. In Spain, where we have grown by more than 5% in the last 12 months, the sector continues to shrink at the rate of 4.5% from August last year to August this year. Thus we continue to be an outlier in this main driver for income growth.In Portugal, with a much more modest base, the corporate loan book is growing by 45% year-on-year. Slightly over half of our corporate loan book represents loans to large size enterprises, which accounted for 41% of year-end growth. The rest is a split by loans to medium size enterprises with 35% of the growth. And by small and medium enterprises with the remaining 24% of the year-on-year growth. Our improved asset mix lets us preserve our average asset yield despite increasing competition in all 3 segments.Now we will focus on our business in Spain. Our corporate relationship business continue to show a significant growth rate in fees and interest income in international trade finance, which now represents 26% of the segment's income. A similar trend is taking place in our collateral business with corporate customers, where the fees and net interest income from related service increased by double digits with respect to the first 9 months of 2017.Corporate banking continues to develop growth and services that increase customer stickiness with high value-added and long-lasting relationship. Managed wealth in private banking grew by 9% year-on-year in spite of the negative market effect. The net new money obtained since December represented a 31% increase from the same period a year ago. More significantly we're collecting value-added fee income already on EUR 16 billion or 43% for all our managed assets.In personal banking, managed assets grew by 7% year-on-year, with EUR 900 million in net new money during the first 9 months of this year. Our delegated and advised assets grew at 40% rate and our mutual funds grew by 11%. In commercial banking the first 9 months of the year performed very well in our 2 main retail products, payroll account balances up 21% and new mortgages up 14% from the same period last year.This increased our market share in new mortgages to 6.3% as of July 2018. Balance sheet funds both in Spain and Portugal continue to see double-digit growth year-on-year mainly in mutual funds, pension funds and wealth management. Then MiFID 2 requirement of creating clean classes in some mutual funds has had a minor impact on our fee income. Nonetheless, our experience in offering third-party funds to our customer makes us a clear winner of the new regulation.Finally, our mix of funds continue to improve with more value-added products. This helped to sustain our average fee.Now we will review the 9-month figures for Linea Directa, which has continued performing very well year-to-date. New policies grew by 8% in the period and premiums increased at 7.3% with respect to the same period last year. In motor insurance, premiums grew at 5 -- 6% sorry, more than doubling the sector average. In home insurance, due to the cross-selling the growth rate reached 13% almost 4x the sector average.LDAs combined ratio continued to outperform the market, standing well below 90%, its ratio slightly improved in the quarter and in the year, the claims ratio was reduced from the very low level showed in the last quarters. Furthermore, its suspense ratio at 21% went unchanged quarter-on-quarter and is slightly higher than a year ago due to the strong growth in policies.Moreover, LDA's first 19,000 health insurance policies sold under the Vivaz brand did not have a negative impact on the group's combined ratio so far.Lastly, if we look at the 9-month P&L, its net profit increased by 11%, thanks to growth in premiums, with technical insurance result growing also by 11% despite rise in operating cost and a reduction in its investable income. These results help us maintain both LDA's high Solvency II ratio of 214% and it's high ROE of close to 40%.In consumer finance, lending continue growing along with our number of customers, which exceeded 1,200,000. Credit quality ratios still maintain acceptable levels, with NPLs ratio just over 8% and cost of risk of 3.2%. Risk-adjusted return at 9% continue to be appealing, particularly if we remember that more than 40% of our business is conducted with Bankinter customers in the form of credit cards and personal loans with a much better risk quality and somewhat lower spreads.Portugal's consumer business makes up already 7% of our total portfolio of EUR 1.8 billion and the newly acquired Avantcard in Ireland will represent from the closing date an additional 18%, improving the geographical diversification of our total consumer finance loans book -- loan book.Lastly like every quarter, I'll now go over the main figures from Bankinter Portugal. Balance sheet growth is in line with our expectations. Portugal's loan book increased by a very remarkable 12% with a high concentration in loans to corporates that grew by 45%. In commercial banking both mortgages and consumer lending grew by 5%. Retail deposits rise by 8% slightly reducing the liquidity gap of the Portuguese business.Balance sheet funds. Mostly unit linked and mutual funds grew at a sound 17% in the first 9 months of 2018. And as far as earnings, a strong growth in all income lines, over 20%, and a better cost control can be appreciated. Recovered NPLs allowed a release of credit provisions of around EUR 18 million, 54% more than a year ago. As a result, Portugal earned a pretax profit of EUR 43.5 million in 9 months, 75% more than in the same period last year.To better analyze the current business growth in Portugal, here we have a quarterly break down of its performance in recurring net interest income and fee income, which are up by more than 30% and 20%, respectively, in relation with the same quarter last year. On the other hand, its costs saw more contained growth at the year-on-year rate of 5%. As a result of this, its pretax profit more volatile due to NPA recoveries, it's likely to amply surpass last year's figure despite fewer extraordinary recoveries in 2018.And finally, on this last slide, you have a brief recap of what we have seen already highlighting our 9-month profit growth, our high ROE and a stable capital ratio and our increased recurring income from customer business.Thank you very much. I can now answer any questions you may have through the webcast tool. And I again apologize for the technical problems.

[David López Finistrosa, Director of Investor Relations]

Thank you, Gloria, once again. Let's just start with the Q&A, since probably we have received a very large amount of questions on the mortgage topic, we probably will start with that one. What is your view on the latest Supreme Court ruling? And obviously what are the impacts for new production? And what would be the impacts for Bankinter specifically? Thank you.

[Gloria Hernández Gracia]

Well, before entering into this topic very, very current in these days in the news, I will -- I would like to comment on the litigation risk in general and particularly on the multicurrency risk, the situation of this contingency has changed little in the quarter. We have continued to build our buffer according to our methodology. This methodology was approved by the ACV as well by our external auditors. And that means a run rate of approximately EUR 20 million to EUR 25 million per quarter. So this is what I have to say concerning the multi-currency question. Then on the stamp duty on mortgages. First, I would like to say that at this point the new criterion is not definitive yet. So we have to wait and see what happens on the 5th of November. So far, what I can say is that banks have always abided by current relations that have been endorsed by the Constitutional Court as well as the Supreme Court itself for more than 20 years. If there was a change of criterion, logically we would apply the new one from that moment. In our opinion, it is not appropriate, has no sense to apply any type of retroactivity in so far as it is a modification of a tax regulation. This has been endorsed by the Supreme Court itself in a recent sentence of 13, June in a case, related with another tax. Many one-sided reports have reinterpreted the facts of the initial ruling and we must understand that it is not a mortgage-related cost imposed by banks on their customers that now must be returned. This is not the case now. It is a mortgage stamp duty that was transferred to the autonomous regions and that until now should be paid by borrowers according to the course, criteria in the past [ 20 ] years. Banks have always followed the law, and we never decided that customers should pay this tax, which only the government collects. We do not have anything to return nor should we be -- should we be subjected to any clients. We only abide by the law. So in terms of the impact, what I can say is that, we consider that the new sentence, if it is finally consider jurisprudential, will enter into force from its publication on the -- in the official bulletin, and we hope that no retroactivity applies at all. In this sense, we think that as usual financial impact reports were released too early and have not taken into account the fact that the real impact whatsoever is can be distributed during the life of the mortgage. On the other hand, estimating something like this is very complicated, even for banks. Therefore reported figures about the sector on Bankinter are not all at all grounded in reality. In certain assumptions, these figures are not only lower than those that have been reported. So this is what I have to say. Well, a new -- an additional comment concerning the new mortgage production. Well, we continue business as usual in new market production. We have continued signing mortgages according to the calendar previously agreed with our clients. From last Friday, Bankinter is assuming the payment of the tax, maintaining the financial conditions previously agreed with the client. In those cases, where we have the client have -- has received a binding offer from Bankinter. In these cases, the client endorses a specific clause indicating that if the court finally decides in favor of the bank, the client will allow us to charge the amount of the tax in his or her account. In the new mortgages, those with no binding offer, we are also assuming the stamp duty with the same clause, with no changes in our current, public, commercial offer, but the question here is that we are not admitting any exceptions to the conditions established in the commercial offer, which is the normal case as of today, and this is something, this is everything.

[David López Finistrosa, Director of Investor Relations]

Thank you, Gloria, very clear. We move on now, another topic. We had some questions on the balance sheet, where you can explain what the behavior of the loan growth was in the quarter and what shall we expect for next quarter?

[Gloria Hernández Gracia]

Okay. Well the quarter was -- as always, has a negative seasonality. So the loan book has remained flat quarter-on-quarter but continues to grow year-on-year by 5%, while the industry, I remember this is figure, the industry continue to shrink by 1.7%, as of August. So we continue to be an outlier in this question. The growth continue in the quarter. The growth came from consumer lending Portugal, both business, both businesses continue to grow, in the case of consumer lending by almost EUR 100 million in the quarter. That means 6% quarter-on-quarter. And in the case of Portugal particularly in corporate lending, growing also on the quarter. In terms of year-on-year the main drivers for the loan book growth continue to be corporate lending, growing as I mentioned by 5%. In Spain, the growth was 6% year-on-year. In Portugal, 45% year-on-year, which is a stunning rate. In the mortgage loan book, we also observe growth in net terms that it's again very dissimilar performance with respect to the industry. And we continue to have a very strong market share in new mortgages, 6.3%. I don't know if you want me to...

[David López Finistrosa, Director of Investor Relations]

Thank you. We move now on the P&L. We get some questions from the fee incurred in the quarter. Also, what's your view on the AUM business on all the remaining fee income business towards year-end? Thank you.

[Gloria Hernández Gracia]

Okay. Well, on the quarter -- quarter-over-quarter, the fees grew by over 4%. While year-on-year, this growth was 6.2%. The market turbulences that has persisted in the last quarter had an negative impact on our income fees. In the part of this income fees that are more related to the market, that means that asset under management fees as well as equity trading and FX differences. But these products have shown certain resilience because of -- despite the market turbulences. For example, in the case of equity trading and FX differences, they were able to remain flat over the same period last year. So we will depend now on the situation of the market in the following quarter. If the market stabilizes, we will maintain our guidance, and we will see again growth in asset under management fees as well as in the rest of our products and services. But if the market continues in the current situation of turmoil, we will have to reduce our guidance to mid-single digit from high to mid-single digit.

[David López Finistrosa, Director of Investor Relations]

Thank you. Moving on to costs and expenses now. What's your outlook for costs in both banking and insurance businesses?

[Gloria Hernández Gracia]

Well, as we have mentioned in previous statements, cost will be in line with our guidance at the beginning of the year of mid-single-digit range. In fact in the quarter, costs were reduced by 1%. And considering the year-on-year performance, the growth is now 6.7%. This high rate is very -- or implies a very dissimilar performance. On the one hand, our banking business performance, where costs grew by only 4%, sorry, in line with the guidance and our LDA or insurance business, where costs grew by 15%. And this is related to the strong growth of sales in the first 9 months of this year. In the case of the banking activities, the growth is related to our growing Bankinter consumer finance operations. We need to spend some money in marketing and sales forces -- sales force, sorry, and we are also investing in our group's digital and transformational projects, which include also processes reengineering, which in some cases, these expenses are activated, but in other cases, are costs of the period. Apart from this, I remember the question of regulations, we, during the year, has had a lot of new regulations coming into force, IFRS 9, MiFID 2, data protection regulation, and all these new regulations demand new expenses. We have estimated that more than 30% of our IT development budget this year is devoted to all this -- to this question of adapting our systems to the new requirements. So well, we hope that the next year this can change and we can save money from this issue.

[David López Finistrosa, Director of Investor Relations]

Thank you, Gloria. On cost of risk now, what shall you expect for year-end, and whether we have any impact from the portfolio sale we announced last summer? You can comment on that.

[Gloria Hernández Gracia]

Well, we – well, this year is a year of cost of risk reduction for several things. First of all, the NPL's performance which has been very good both in Spain and Portugal. The result of foreclosed assets, we are selling assets at prices above our provisions and thus we are earning money in this point. And finally, because of some reclassifications from this line in the P&L to the other provisions or the legal provisioning line, as I have mentioned, this quarter and the last one. Taking all this into account, the cost of risk has continued decreasing and we are now in 11 basis points on a yearly measure. If we take this reclassification out of the figure, the cost of risk will be 20 basis points or annually 23 basis points. That means that this is below our guidance of 30 to 40 show that we are positive in this indicator. But in the medium term, we maintain our guidance in -- around 30%. And concerning the sale of the NPLs in Portugal, although, the transaction will be reflected in their next quarter statements, we can now say that the impact is going to affect the NPL's ratio of Portugal that will be 3.5% [ pro memory ] more or less. And this will impact also the capital ratio of the group in a very narrow, very low level 4 basis points more or less of impact is our current estimation.

[David López Finistrosa, Director of Investor Relations]

Regarding the capital whether you can comment on the result of the quarter, a little positive and negatives that we have in the quarter?

[Gloria Hernández Gracia]

Okay. In the quarter, the ratio rise by 15 basis points. First of all, retail earnings, the run rate, the usual run rate of 22 basis points, the risk-weighted assets, as a result of the negative seasonality of this quarter, this third quarter of the year, risk-weighted assets contributed positively to the ratio by 6 basis points. The market turmoil affected our available for sale unrealized gains, and that means that this subtracted 10 basis points from the ratio. And finally, other small items such as [ IRV ] deficit and the insurance consumption of capital subtracted 3 basis points.

[David López Finistrosa, Director of Investor Relations]

Okay. And very clear. Regarding Linea Directa now, what shall we expect from premium growth towards year end?

[Gloria Hernández Gracia]

Well, we continue to outperform the industry; doubling our peers' average growth in premiums and in customers. Concerning the next quarter, although the situation in motor insurance is every day more difficult because the price pressures are growing. We will forecast to continue outperforming the sector, I don't know if at the same rate or not, but in any case, we will outperform the sector in the following quarter.

[David López Finistrosa, Director of Investor Relations]

Okay. And the last final questions are on M&A, whether we have any updates on the EVO deal or any further appetite for M&As or consolidation in Ireland.

[Gloria Hernández Gracia]

Well, first of all concerning the EVO update, no, nothing new to say. We have -- we are now dealing with the regulators in terms of the authorization. We have presented the first draft of the application and we will expect to present the definitive application in the following weeks. They have 60 days to decide. So taking this into account, we expect to have the answer during the first quarter next year. And well, we have no -- after the acquisition of EVO we have no appetite for further transaction, although as we always mention, we continue to scan the market for any opportunity that may arise.

[David López Finistrosa, Director of Investor Relations]

Again, thank you, Gloria. As -- you can find some EVO transaction highlights on the -- at the end of the presentation, today's presentation. Okay, that was all from us today. Please address any further questions to the Investor Relations team. And goodbye for now. Thank you.