Bankinter SA

MAD:BKT

Earnings Call Transcript 2020-Q3

[David López Finistrosa, Director of Investor Relations]

Good morning, everyone, and welcome to Bankinter third quarter results presentation. Our CFO, Jacobo Díaz, takes now the floor to explain the figures in more detail, and we will follow-up with a Q&A afterwards. Thank you.

[Jacobo Díaz Garcia]

Good morning, everyone. This is Jacobo. How are you? Welcome to this presentation of Bankinter's earnings for the 9 months ended September 30, 2020. As usual, the related financial statements were posted on the website on the CNMV a few minutes ago before market opens. All related documents can also be found at this time on the Bankinter corporate website.Let me start by pointing out that we ended the third quarter with a continued strong commercial performance reflected in pre-provisioning profit growth considering the special circumstances of the year and their impact on all our businesses and geographies. We are here to present our quarterly results, but first, let me start, as we did in previous ones, sharing some thoughts about the pandemic and how it is impacting our business at Bankinter.We at Bankinter, we are committed to ensure that jobs and sanitary conditions of all our Spanish, Portuguese, Luxembourg and Irish [ stops ] will be preserved. We continue to believe that we have a clear differentiation in credit quality from the market and that we are making an appropriate use of all government facilities to provide liquidity, funding and services to our customers. This is the main reason to prioritize adequate levels of capital and coverage of NPLs.Finally, and more important, and once again, we want to remind everyone that we see capital insolvency as the key to ensure a proper performance in difficult times. We think it is relevant to understand how regulator sets minimum capital requirements from bank. And this is always done taking into consideration a combination of relevant variables: credit quality, profitability, efficiency, governance and overall business model.This is precisely why Bankinter has a [indiscernible] of 1.2%, the sixth lowest out of 109 banks in Europe. Even more on a stressed situation, and it was reflected in the last stress test performed by EBA, the capital depletion of Bankinter was set at 114 basis points, the second lowest in the universe, well below the European average close to 400 basis points.Having said that, I will review our businesses' activity in the quarter and during the first 9 months of the year as well as I try to provide some guidance about potential future evolutions. Our main achievements were, we showed again, resilient quarter-on-quarter performance supported by our customer activity, resulting in increasing operating income by 5%. We maintain continued growth in the loan portfolio and retail deposits and also in assets under management. [ Therefore ] net interest and fee income, the main contributors to incomes, together with a tight cost control has allowed pre-provisioning profit to grow by 7% in the period.We present a strengthened solvency, NPL coverage and liquidity ratios with reduced NPLs year-on-year. Indeed, our CET1 ratio reaches almost 12%, 40 basis points over a year ago and 22 basis points over the previous quarter. Capital ratio stands at 14.3%, still not considering the last AT1 issuance that will bring 45 basis points in addition.Please note that in this quarter, we have updated the extraordinary provision booked in the previous quarter related to macro scenario impact on credit risk models. In this quarter, Bank of Spain has changed their estimates for GDP growth and employment, et cetera, over the next 3 years, and we have adapted our models to this a slightly more complex scenario published by our central bank. Thus, we have registered an additional charge for this topic of EUR 51 million in this quarter to be added to the EUR 192 million anticipated in Q2.Despite this increase in our extraordinary provisions, we are not going to change our guidance for total group cost of risk at year-end, between 65 and 70 basis points, an approximately equal split between the extraordinary impact, 35 basis points, from a recurrent cost of risk, around 35 basis points.As usual, let's start with a brief comparison of the first 9 months of 2020, and those last year in some key financial indicators. Group's total loan book grew by 6.7% to EUR 63.3 billion, thanks to the strong corporate and SME demand and a stable mortgage loan book, while Consumer Finance continued to show some contraction. Gross operating income at EUR 1,296 million at the end of the period. It grew by 5% with respect to the first 9 months last year, showing again a strong resilience in very difficult times.After a continued cost control, pre-provisioning profit showed a solid growth of 7% in one of the most difficult years ever. NPL ratio shows resilience in asset quality despite the difficult economic situation during the year at 2.51%. It dropped by 22 basis points from a year ago. Coverage ratio after the recorded extraordinary provision stands at 62%, 11 percentage points over last year or a 21% increase. Group's net profit stands at EUR 220 million, a 51% decrease from a year ago.Our CET1 fully loaded CET1 capital ratio also improved 40 basis points to 12%. Despite the unprecedented extraordinary provisioning, it stands comfortably above our guidance. And our return on equity reflects the exceptional situation, and it stands at 7.1%. Without this extraordinary provision, it will be at 10.9%, well above the cost of capital.Now we have our usual agenda for a quarterly presentation. First, we will go through the results, then risk management and we will end with the business developments. Moving on to our income statement. As a reminder, the acquisition of EVO and Avantcard took place on June 2019, thus their contribution to the group's income statement in the first 9 months is very different each year. For comparison purposes, we have restated the 9 months income without EVO and Avantcard.For the first 9 months of 2020, the contribution of EVO and Avantcard brings an additional EUR 64 million in net interest income and fee income as well as EUR 68 million expenses and EUR 11 million in provisions. This compares with EUR 26 million, EUR 31 million and EUR 5 million, respectively, for the first 9 months of 2019.Here are the group's comparative P&L account for the first 9 months of 2020 with the new accounting of Línea Directa at the bottom and the like-for-like comparison on the right columns. Our income standing continued to reveal positive trends in core lines of revenue, net interest income and fee income. Like in the first half, other operating income and expenses without Línea Directa contribution show a small contribution of EUR 11 million, mainly coming from the trading.Group's net interest income maintains a very positive trend despite the negative environment for interest rates in the quarter, and this is based on lending growth and improved asset mix. It is up by [ 8% ] or EUR 68 million more than 2019 with a 3.3% increase since last quarter or EUR 10 million, more or less. This would be 4% and 3.4%, respectively, without the additional EUR 34 million coming from EVO and Avantcard.The seasonal commercial activity during the summer, very weak in August and weak until mid-September, did not help our fee income but was somehow offset by the steady growth in assets under management and the continued increased activity in our broker online and market-related activities. Therefore, fee income finished the period growing by 3.5% with respect to the previous year, with a decrease of EUR 6 million from the previous quarter and remaining flat from same quarter last year.Total gross operating income reached EUR 1.296 billion, up by 4.6% from 2019. Without EVO and Avantcard, income still grew by 1.5% and the quality remains very high as the weight from extraordinary income from income -- Portugal was reduced EUR 2.9 million. Group operating costs continue under control. In both Spain and Portugal, the group maintained very good efficiency level. Costs from the EVO and Avantcard operations are not comparable year-on-year since they are EUR 68 million in additional operating expenses in the first 9 months versus EUR 31 million last year. In total, they grew only by 2.1% year-on-year and only EUR 12 million from the previous year.On a like-for-like basis, the group costs clearly fell by 2% with respect to the same period in the past year. This positive income and cost performance one more quarter allowed pre-provisioning profit to increase by almost 7% from a year ago and 1% from last quarter. Like-for-like growth is up 4.3% so far this year and down 4% from the same quarter a year ago.Loan loss and other provisions are up 35%. I remind you of the contributors of 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 is the expected rise in cost of risk from Consumer Finance business. And finally, the provisions for other contingencies, litigation, et cetera, with a sustained run rate so far in the year.After provisions, profit from the recurrent banking activity stands at EUR 397 million, only 7.6% below 2019. As mentioned earlier, we have decided to adjust last quarter extraordinary credit risk provision to the new macroeconomic scenario of Bank of Spain. And we have record of top-up provision of EUR 51 million in the quarter that brings our total extraordinary credit risk provision to EUR 244 million. After this extraordinary provisioning and also taking into consideration last year one-off bad will arising from the EVO and Avantcard integration, pretax profits of the banking activity stands at EUR 153 million, a reduction of 68% from the same period last year. Like-for-like reduction is 63%.Pretax profits coming from [indiscernible] brings an additional EUR 133 million to the group in this first 9 months or 23% more. This shows an improved performance of insurance business from the good first half, and we will analyze this later on. After taxes, the group posted a net profit of EUR 220 million, a decrease of EUR 51 million from a year ago. Like-for-like, this decrease would be of 45% approximately.Despite a continued difficult situation in the quarter, it is important to highlight that the banking recurrent business, after closing the first 9 months of the year, continues in line with our plans and those of the beginning of the year in income, in volumes, in cost and including the slightly increased recurrent cost of risk. However, the necessary anticipation of the future macroeconomic scenarios had impacted from provisioning and dragged down net profit. Group's pre-provisioning profit growing close to 7%, clearly indicates recurrent growth in all our activities.Here we present then the quarterly P&L, which shows improvement in incomes, also increasing costs and a strong reduction in recurrent provisions from the previous quarter, plus the profit of recurrent banking activity, grew by 43%. From the same quarter last year, net interest income shows 4.1% increase, almost flat in fees and a much lower trading income, brings total incomes down by 1%. Thanks to a 3.1% decrease in operating costs, the pre-provisioning profit increased by 1% from last year's third quarter. After provisioning, quarterly comparison are not relevant due to the impact of the extraordinary macro scenario provision this year.The profit before taxes of Línea Directa shows a 33% increase over the previous quarter and a 48% over the same quarter in 2019, showing the strong evolution of this business during the pandemia, thanks to the reduced combined ratio as well that we will see later on. Finally, the EUR 111 million net profit of the quarter recovered a normalized trend after an extraordinary second quarter and only 18% below that of 2019 record year.Let's move on. The group's loan book grew by 6.7% from a year ago, bringing in over EUR 4 billion in new loans in the last 12 months. This growth comes from our business in Spain, Portugal and in EVO and Avantcard during this period, showing a relevant impact from the government program for restoring the economy, namely the ICO liquidity lines of credit. Third quarters always see flattish lending growth, with low activity in August in corporate loans, even this year with the government programs for liquidity through ICO as well as in mortgage lending to individuals that we will see later in the presentation.On the other hand, consumer loan book continued to fall on purpose during the quarter with more stricter requirements in the new production and lower consumer finance demand in general. In net terms, this third quarter loan book remained almost stable in all geographies. In Spain, the majority came from corporate loans with a state guarantee as we will see later.In Spain, lending somehow reduced growth rates from the previous quarter. In commercial banking to individuals, it grew by almost 2% year-on-year, well over the minus 1.2% of the sector as of August '20, bringing the market share of household lending over 4%. Corporate loan book had started to reduce growth rate in this quarter after the strong growth in the second quarter. Loan growth has been 12% year-on-year or EUR 2.8 billion with a large corporate lending adding EUR 1.3 billion, mid-corporate EUR 0.9 billion and SMEs, EUR 0.6 billion, mainly with the ICO guarantee credit lines.In Portugal, lending is up by 8% from a year ago with an additional EUR 344 million, slightly short of our business plan for the year. Retail deposits continued to perform strongly in all geographies, up close to 10% year-on-year or 4 -- sorry, or EUR 5.5 billion to EUR 62.6 billion. They were up by 10.2% in the spend from a year ago, while the market grew by 6.8% bringing Bankinter once again market share on the banking deposit to increase -- to reach 3.7% with the last available data. In Portugal, deposits grew by 3.4% in the year or EUR 155 million. Net interest income continued to show resilience. It grew by 4% over the same quarter a year ago and over 3% from last quarter or EUR 10 million, more or less. Like-for-like, growth rates are similar.The contribution of EVO and Avantcard to our net interest income has been growing every quarter. This one, it contributes with EUR 57 million to the group net interest income versus EUR 23 million last year. In Portugal, net interest income also grew by 10% with respect to the same period in 2019 and over 3% in respect to the previous quarter with a very small impact from extraordinary recoveries in the quarter.Net interest income quarterly evolution is driven mainly by the loan book growth and by somehow stable customer margin shown in the chart on the right. It decreased by only 1 basis points from last quarter. And the 17 basis points decrease year-on-year is almost exclusively due to the reduction in consumer finance yields together with the desired reduction of the loan book in Spain for credit risk reasons. Also, it should be noted that we have started to see some increase in corporate yields that are able to offset the increasingly negative impact from repricing our mortgage-backed book at much lower 12 months Euribor rates.After a year with the cost of deposit at all-time lows, we believe that stable credit yields are the key to our customer margin to remain resilient in the coming quarters. We continue with the positive repricing of yields on the mortgage loan book front versus back book yields and also better asset mix with more growth in corporate lending than in rest of our loan book.Here, we also show that 9 basis points pressure the bank's net interest margin during 1 year to 143%, still above most of our peers. Thanks to margin and volume trends in loans and deposits together with a stable contribute current rate of our ALCO portfolio, we now guide for an increase in the group's net interest income by mid-single-digit at year-end, the same guidance we had at the beginning of the year.Moving to the next slide. The composition of our ALCO portfolio changed very little in the quarter, its size stable at EUR 8.7 billion. It's proportion between different portfolios continue to improve today. 72% of the portfolio remains under amortized cost with no impact on capital ratio and 28% in fair value. Still, Spanish government bonds represent 55% of total together with 22% of other sovereigns, mainly Italy and Portugal. The portfolio's average maturity is 8.1 years with an average life of 4.4, and the average yield stands at 1.6%. After better quarters in bond and equity markets, we can see improvement in the unrealized gains on the portfolio. Now they amount approximately EUR 580 million, a similar level of last December.Moving into fees. Fee income performed in line with the third quarter last year, even under a reduction in activity levels due to the pandemic situation during the summer. Third quarter has always negative seasonality every year. Despite this, last quarter fee income was only EUR 5 million below the previous quarter and it continued to show growth for the first 9 months of 3.5% year-on-year. Fee income from our recurrent business continued to grow, except payment and collections fees as we have anticipated in previous quarter due to the slowdown of activity in the economy and fees from working capital financing included in other fees down 18%.On the other hand, assets under management volumes recovered previous levels, and this is reflected in the 3% improvement from the first 9 months last year. Total fees still account for 28% of our gross operating income. The largest contributor to fee income continues to be asset management fees, being 25% of total fees charged up by 3% with respect to a year ago. We can confirm that commercial activity has recovered after the lockdown, and by September, our private and personal banking assets under management recovered levels pre COVID-19 crisis.The second largest contributor to fee income by 18% is payment and collections, including credit cards from corporates and individuals. Their performance has clearly been impacted by the slowdown in the summer season, but it only posted a 4% decrease year-on-year on the back of our increasing online banking activities. Also, a more stable market situation has shown positive impact on fees from bond and equity trading, both in our broker online as well as in other platforms with a strong growth rate of 26% from the same period a year ago.Other relevant fees such as FX business with customers went up 22% from a year ago on the back of international mutual fund activity. More stable life insurance and pension sales are also up in the year by 3% and finally, risk related transactions and other fees from investment banking are also up 14% and 12%, respectively, showing, again, a strong commercial activity in a very difficult environment.We believe the effects of the economic crisis provided by the pandemic will continue to be noticed in our fee income in the last quarter of the year, although we don't know to what extent and in which business lines. Thus, we will continue to pursue growth in business volumes and value-added advisory products to our customers, and assuming the certain degree of market stability, we should be able to maintain our guidance for fee income growth by low single-digit by year-end.In other operating income and expenses, here, you can see the 2 main components of the 69% reduction during the period. First one, the EUR 50 million approach of trading income plus dividends this year were reduced by EUR 12 million from last year due to the lower trading volumes in the period and a 34% increase in regulatory charges or EUR 13 million more contribution to the single resolution fund.Next slide, gross operating income for the first 9 months stood at EUR 1,296 million, an increase of 4.6% from a year ago. Quarterly operating income of EUR 433 million grew by 1.4% from the previous one and 1% down from the same quarter last year, all with a very small contribution from results from financial transactions or what in Spanish we call [Foreign Language]. In Portugal, gross operating income grew by 11% from last year and grew by 19% from last quarter. Therefore, we can see the strong improvement of recurrent business in our Portugal franchise.All in all, the group's operating income grew above our mid- to low single-digit guidance for the year. Assuming some kind of economic recovery in the last quarter of the year, we believe revenues will grow at least at the same pace for the full year 2020. The chart on the right shows the breakdown of the contribution to operating income now without Línea Directa. Net interest income represents 71%; fees, 28%; and finally, other income, which not come from customers' activity, only account for 1%.Group operating costs totaled EUR 208 million in the quarter. They are up 1.7% from previous quarter and down by 3% from last year same quarter. Total operating costs for the first 9 months are up from the previous year by 2%. And like-for-like, that is excluding EUR 43 million coming from EVO and EUR 25 million from Avantcard, recurrent costs would have been reduced by 2%, minus 1% in Spain and minus 8% in Portugal.Personnel expenses are down 4% year-on-year, mainly due to the EUR 14 million one-off adjustment of the variable pay balances and long-term incentives to senior management recorded in the first quarter. General and administrative expenses are under control despite growing by 6.7% over last year, but considering the incorporation of EVO and Avantcard, without this will be reduced by 3% on a like-for-like basis. All this cost reduction more than offset the increased amortization expenses from investing in our banking platform in digital product services developments in recent years.Again, keeping all operating expenses and investment programs under control, we expect to finish the year within our guidance of low single-digit cost growth. Thanks to all these efforts, our recurrent banking efficiency continue to improve. The group cost-to-income dropped 100 basis points from December '19 and 100 -- sorry, 500 basis points from December '19 and 100 basis points from a year ago to 48.1%. We aim to keep the long-term banking cost-to-income ratio below 45% as we always try to improve efficiency in all our acquired business. We continue to do so in Portugal, now with efficiency below 59% and in Avantcard at 58%, EVO still in negative efficiency. Our Spanish business runs at 41.5% efficiency ratio.Now we show how resilient has been our group's pre-provisioning profit compared with the previous year. In these very difficult circumstances, we have been able to post a solid 6.8% increase in pre-provisioning profit. We think this shows a remarkable operating performance.So let's move into credit -- into cost of risk. Let's focus first on the recurrent business. And it started its way up this year only due to the increased provision in our consumer finance activity because, as expected, other NPLs coming from personal lending, mortgages, corporate and even SMEs are still not significantly affected by the downturn in the economic cycle. The good behavior in the first half has been extended to the third quarter as well. However, the consumer finance of risk continues to grow, and now it stands at 440 basis points.Total recurrent cost of risk in the first 9 months stands just below 34 basis points of total credit exposure. Reduced by 6 basis points from the previous quarter, a very good trend and up 11 basis points over last year as expected. The increase in cost of risk in our banking activity in Spain was again related only to the consumer finance loan book. Thus the small SMEs loan book, the commercial banking loan book on mortgages and personal loans as well as the large and mid-corporate loan book did not have any significant impact during the first 9 months of the year despite the very difficult economic conditions.Probably, it is still too early to anticipate what will be the impact of the liquidity lines guaranteed by state for SMEs and corporate and the use of the public and private moratoriums for individuals. We expect all of these measures will make recurring cost of risk to remain under control, at least for the rest of the year.Despite this distressed global situation, we strongly believe in the quality of our loan book in our different businesses and geographies, thus we are convinced to maintain the guidance around 35 basis points for recurrent cost of risk at year-end. On the other hand, provisions for litigations, while some over our FX mortgage portfolio slightly falling, other miscellaneous legal provisions are growing, offsetting any possible reduction, thus we think it will remain similar for the full year.Regarding nonrecurrent cost of risk and the extraordinary front-loaded provision booked in the second quarter, EUR 177 million, and EUR 15 million in the first quarter to adapt Bank of Spain macroeconomic scenario to all our internal IRB models of current risk management. After the recent release of the new macroeconomic scenario by most central banks, Spain, Portugal and Ireland, which basically delayed the economic recovery for 2021 and 2022 in terms of GDP and unemployment, this has made us record an additional provision of EUR 51 million in Spain in this quarter.This, together with EUR 192.5 million booked in the first half, will make the total nonrecurring cost of risk at just 35 basis points for the full year. As we see things today, cost of risk will show an equal split between 35 basis points from the increased extraordinary provision and 35 basis points from the reduced recurrent cost of risk. All this will bring total cost of risk at the year on close to 70 basis points of total exposure. After this strong provisioning, group net income stands at EUR 220 million, down 50% of a year ago. However, we expect some improvement in the coming quarters, once extraordinary impacts finishes and as low recovery takes place in the economy and asset quality normalized. All the above has impacted our group's return on equity that now stands at 7.1%. After this strong provision in the year, excluding the impact of extraordinary provisions, return on equity will reach 10.9%, still above our cost of capital and differential from peers. We will see return on equity to recover fueled by the growth of recurring business and some normalization of NPL provisioning in Spain, improved Portuguese recurring operation and the future developments of the efforts on integration of EVO and Avantcard.I will go now over our management of credit risk, liquidity and solvency. Moving into the nonperforming loans. Nonperforming loans changed their long-standing downward trend in December '19 and in this difficult year, started to show some increase also at a very low rate. Total NPAs -- NPLs remain almost flat from last quarter, mainly because NPLs did not grow in consumer finance. Year-on-year, total NPLs are down by 2% or EUR 37 million [ less ] to EUR 1,762 million. Total group NPLs in 2020 grew by only EUR 80 million or less than 4.8%. Of this growth, EUR 18 million, come from SMEs, EUR 11 million from mid corporates and large corporates reduced by EUR 11 million as well. Portuguese NPLs came down EUR 4 million and EVO brought EUR 1 million.Finally, consumer finance grew by EUR 104 million, as expected. All of the rest, mortgage, affluent banking, et cetera, came with a EUR 39 million reduction in the period. The group NPLs ratio stand at 2.51%, same level as the year-end 2019 and 22 basis points or 8% lower from a year ago. It remains almost flat from last quarter due to flat NPLs net entries in the period to the EUR 26 million gross entries and EUR 28 million write-offs.In Spain, at 2.57%, 1 basis point over December and almost half of the sector average at 4.72% as of July. In Portugal, NPL ratio declined to 2.26%. As shown in the chart to the right and as of September '20, the group's NPL ratio went down to 2.27% for households, including consumer finance at 8.2% and increases a bit to 2.83% for corporates and SME, including small SMEs at 7.1%.Here, we bring again a breakdown of the bank total credit portfolio as of September '20 and the current NPLs and NPLs ratio by business segment. We compare this with January 2018 when IFRS 9 start to be implemented and right after the transparency stress test of the EBA. Here you can see 41% of the loan book is in residential mortgages and personal loans to the bank's individual customers with NPL ratio of 2.52%. It was 2.71% back in 2018, of which consumer finance now represent 4% of total loan book, up from 3% in 2018 and with an NPLs ratio of 8.6%.Corporate banking loan book represents 46% of the total loan book, similar to what it was 2018 but with much better NPLs ratio today at 2.70%. Of this book, large corporates represent 24% of total with an NPLs ratio of 0.65%; medium corporates, now called SMEs, 11% of total NPLs ratio at 3.53%; and finally, small SMEs with 8% of total book with 7.56% NPL ratio better than the 9.1% back in 2018.Portugal now represents 10% of total portfolio and improved NPL ratio to 2.26% from over 7.5% back in 2018. And finally, EVO still represents only 2% of total loan book with 1.41% of NPL ratio. This almost unchanged distribution against the previous period shows our strength in the quality of the loan book with a small changes over the year. [indiscernible] affluent mortgages lending and in large corporate lending continues as in 2018 when Bankinter showed the lowest capital depletion, as I mentioned in the beginning.Moving on, total provision for irregular assets increased consequently after the extra provisioning to a comfortable level of EUR 1.1 million, EUR 172 million increase from last year. This had a relevant impact on our provision coverage. We now stand at 62%, 3 percentage points over the previous quarter and 11 percentage points over the last year. Coverage for foreclosed assets were maintained at 46%, still above the average discount.The group's foreclosed asset portfolio is 19% smaller than a year ago. It decreased by EUR 57 million from the previous year. This small portfolio now amounts to EUR 251 million. Total sales in the year amount to EUR 65 million or 22% of the stock at the beginning of 2020. We sell most of our repossessed assets through our commercial network with an average discount sales of 37%, close to the provision coverage.Let's move into capital. Our fully loaded CET1 ratio stood at 11.97% or 12% at the end of the first 9 months, increased by 22 basis points from last quarter and 40 basis points from 1 year ago, including the EVO and Avantcard transactions that deducted 22 basis points. Since December, our retained earnings bring an increase of 49 basis points, underpinned by the cancellation of the two first quarter's dividend. This increase helps to offset some of the negative impacts in the period, such as increasing insurance equity or new intangible accounting. The impact on risk weight assets growth of the year has been minus 12% points due to flat lending growth in the quarter. Also, the reduction in the IRB shortfall of 32 basis points year-to-date and 6 basis points in the quarter more than compensate the extra provisioning. Total capital ratio, leverage ratio remained mostly stable at 14.3% and 4.64%, respectively, and this is without taking into consideration our last AT1 issuance in July to replace the existing one, still pending of approval. After, this capital ratio will improve to 14.75%, very comfortably above minimum regulatory requirements.Finally, as of September, we had a ratio of 22% of risk-weighted assets in MREL requirement. And after closing the first 9 months of the year and despite the new, more complex environment, we almost reached 12% in our CET1 ratio. Nonetheless, we are able to reiterate our long-term guidance of CET1 ratio of 11.5%. The continued increase in our customer deposits has helped to reduce to 0 our funding gap, and I'm just already talking about liquidity.We are in all-time lows from over EUR 10 billion 5 years ago to a positive EUR 0.7 billion and other gap is only coming from Portugal, still having higher growth in lending [ toning ] deposits. As a result, loan-to-deposit ratio reached record level of 98.7% from 102% a year ago, owing to consistent growth in retail deposits in the last few years. Our LCR -- LCR ratio stands at almost 200%. Our wholesale funding maturity are well balanced with only [ 8% million ] due to this year and 0 next year, excluding the EUR 200 million AT1 due in May 2021 and recently been refinanced. Thus, we are very comfortably positioned for the coming years with an increased EUR 20.3 billion in liquidity assets and the capacity to issue [ EUR 2.3 billion ] income.Corporate and SME loan book in Spain and Portugal grew by over 12% from last year and almost EUR 3 billion. It increased by 15% in Spain, while the sector had started to grow at 7.6% year-on-year since last August. All this growth started last quarter boosted by the government guarantee ICO lines and the entire sector has made a wide use of them, has been slowed down after the summer.As of September '20, we have signed over EUR 7 billion of government guarantee ICO lines with our customer, mainly with large SMEs, then small SMEs and lastly, large corporates. We will review our production in a separate slide. In Portugal, where we have been growing our market share in corporate lending, it now stands at 2.1% or 46 basis points up a year ago. This trend will continue as our front book market share continues to be above of the back book and growing.Corporate loan book went up by 16% in 1 year, reaching EUR 1.9 billion as of September '20 on a continued effort to increase our presence in the mid-corporate market. Other important sources of income for the corporate banking today and going forward are the international trade and supply chain finance continue to show loan book growth.Operating income grew by 5% from a year ago to EUR 130 million, and over 51% of this revenue came from fees rather than interest. The transactional business turned over with corporate customers, including commercial credit, tax and social security payments went down below double-digit in the period to lower activity, as we mentioned, due to the pandemia, and investment banking generated EUR 57 million in operating income, a 19% increase from the same period last year. Out of them, EUR 17 million are fee income with a growth of 24%.Moving on. Some indicators of the credit quality of the corporate loan book in Spain and Portugal. The corporate loan book granted to nonfinancial enterprises amount to EUR 28 billion at the end of September. From this total lending, EUR 10.6 billion are granted to large corporates, those with yearly turnover of over EUR 50 million and more than 250 employees; EUR 6.8 billion loans granted medium sized enterprise, those with a turnover between -- sorry, between EUR 5 million and EUR 50 million, and we can call them SMEs type A.These 2 largest loan book represents over 62% of the total corporate loan book. Only 18% or EUR 5.1 billion of land's total corporate loan book are loans to small enterprises, with turnover between EUR 1 million and EUR 5 million, or SMEs type B that we call. And the rest is split between EUR 2.5 million of property and housing-related financing excluding developers; and EUR 1.9 billion of international trade finance with our corporate customers; and finally, EUR 1 billion lending to public sector corporates. Out of the SME loan book with European definition, below EUR 50 million turnover of EUR 12 million, we can see a relevant difference in NPL behavior between small and larger SMEs. We see ratios of -- that were 7.1% and 3.8%, respectively. These 2 segments were the main beneficiary of the ICO liquidity lines. They account to 23% and 29% of their respective portfolios as of September with a state guarantee for close to 75%. In addition, these 2 segments have today 42% real guarantee on its loan outstandings. Bankinter has always enjoyed a high-quality loan book relative to peers. And today, we feel comfortable with the current asset mix. It has shown no significant changes over the last 10 years, preserving the strong asset quality standards for each segment of corporates and always obtaining yields according to our risk reward models.Moving on, this slide we show Bankinter spent participation in the government guarantee ICO lines. So ICO loans granted and this versus as of September were close to EUR 5 billion. All of these loans have been granted mainly in medium and small corporates and the rest to large corporate. The average state guarantee of the total loan book is close to 75% and the maturities over 3 years. A total of EUR 7.2 billion of ICO loans have been signed with Bankinter, well above our market share with an additional amount of the [ launch ] on the last tranches where we got EUR 1.5 billion additional loans to be signed until the end of the year.And on moratoriums, for mortgages and consumer financed to individuals, amounts are reducing and represent a very small part of our loan portfolio, EUR 546 million and EUR 14 million, respectively. That represents only 2% market share on the mortgage book and less than 1% in the consumer book.Moving on in private and personal banking. Customer assets recovered from the bad beginning of the year due to the difficult behavior and the negative market effect. Now in both businesses, assets under management shows increase of EUR 3.8 billion in the net new money, split EUR 1.5 billion in private banking and EUR 1.3 billion in personal banking. Total assets from customers in both segments amount to EUR 63.3 billion, up EUR 62 billion from a year ago or 2.1%. The recovered commercial activity measured by new money in the period ended September shows a EUR 2.8 billion increase, equal split between private banking and personal banking of 7% growth.Despite negative market effects of EUR 3.9 billion in total, during the first 9 months, our Luxembourg unit continued to play an important role in an advisory and product offering for our customers, looking to further diversify their [indiscernible] money. Activity in our commercial banking during the first 9 months has been strong and show in the 2 main retail products. Salary account balances continue to grow. They are up 23% from a year ago, totaling over EUR 12 billion. Most important, as a main difference with many other payers, in Bankinter, we have not changed any of the terms and condition on our salary account since the last 8 years. Also, the new mortgage origination, although logically below that of last year, is only 7% down and above 2 years ago, showing a very strong resilience in this core business. Of the new origination of mortgage, 60% were fixed rate and in average, the loan-to-value is 61%. Our market share in new mortgages is now at 6%, 6.3% in the 12 months ending in July. As a result, the total mortgage back book maintained growth and reached EUR 27 billion in Spain grew by 1.4%, while the rest of the market continues to shrink by 1%. The loan-to-value of the total back book stands at a very healthy 55%.Now let's go -- let's look at Portugal. Loan book grew by 8%. Retail funds grew at EUR 4.7 billion, reduced 1% from last year. Growth in loan book was in both mid corporates, up 16% as well as in retail lending growth at 5%. Off-balance sheet of EUR 3.5 billion shows a 2% decrease from the first month of last year. As for the income statement, operating income from the business grew 11%. Costs show, again, 8% reduction, and we have a pre-provisioning profit up with a very strong of 60% or EUR 16 million.However, after the EUR 6 million normalized loan losses provision with a very small impact of extraordinary recoveries, here, I remind you that last year, we had EUR 25 million of positive cost of risk from recovery and the EUR 3 million extraordinary provisions from the macro scenario in Portugal, profit before taxes stands at EUR 33 million. Today, for years since the acquisition, Bankinter Portugal show an efficiency ratio below 60% and has become the fifth region in operating income contribution to the group, which closed at close to 8%.Consumer finance. Consumer finance, which include our business in Spain, Portugal and Ireland under the Avantcard brand. At the end of September 2020, total loan book was EUR 2.9 billion, 4% up. The growth comps have EUR 457 million from Ireland, Avantcard growing by EUR 25 million in the year; EUR 237 million from Bankinter Portugal, growing EUR 41 million; and EUR 2.2 billion in Spain, where the loan book only grew EUR 39 million and exclusively in personal loans since revolving credit card outstanding went down EUR 151 million in the year. New credit origination, mainly in personal loans went down on purpose by 21%. As mentioned, early EUR 151 million reduction in revolving credit cards bring the total outstanding under EUR 557 million or 21% less. Total number of customers grew by 5% to 1.7 million. And despite this, the consumer finance loan book, it is expected to shrink in all geographies by double-digit by year-end.In Spain, credit card business represents 42% of the EUR 2.183 billion of total customer finance outstanding and revolving credit cards only 25% of them. The rest are payable at the end of the month, even though they are mainly granted to existing Bankinter customers with a much better risk profile than pure consumer finance customers.The new unstructured accounting standards for NPLs implemented in 2020, we transfer NPLs write-offs for sale after 12 months with full provision and the new extra provision for macro adjustment for IRB models increased cost of risk for the year, but after a very good third quarter, NPLs stood at 8.2%. Provision coverage reached 96% and cost of risk climbed to 4.4%. All this brought the risk-adjusted return to the business to 6.7%.Finally, let's look at Línea Directa. For the first 9 months, Línea Directa continued to perform strongly despite continued pressures on premiums. Total insured risk increased by 1.4%, keeping increase Línea Directa's market share in Spain. Issued premiums grew only by 0.6%, which, apart from a small increase versus the previous quarter suggests continued price competition and weak demand, particularly in motor insurance. Nonetheless, Línea Directa's growth in motor premiums continues to outperform the industry.In home insurance, it grew by 8.6%, which is 3.5x the market growth as of August. In health insurance, Vivaz sold more new policies. Total policies closed the quarter over 80,000, 39% increase. This is in line with the business plan. The combined ratio improved again to a stunning 83.3%, more than 400 basis points less from last September -- from last September. Despite lagging premium growth, it continued to improve in the quarter due to the reduction of 260 basis points in claim costs after the traffic slowed down during and after the lock down. The cost ratio remained flat at 21.4%.Línea Directa's combined ratio clearly below 85% is at its lows in recent years. Línea Directa expects to maintain this level for the full year. Having one of the lowest, if not the lowest combined ratio in the industry represents a strong competitive advantage that will allow Línea Directa to outgrow its competitors in the coming years despite the new market conditions. If we look at its income statement, net profit went up 22%, improving the results obtained during the first half. This is due to the -- sorry, to the 7% decrease in claim cost, combined with a 2% increase in net earned premiums.These revenue trends from operations resulted in a technical insurance result of EUR 110 million in the first 9 months, a 36% increase. This better earnings performance improved the already very high-return on equity to 35%, and because of the absence of dividend distributions, company Solvency II ratio has increased to 264%.Okay. Let's move into the conclusion. A quick recap. We have shared with you a consistent delivery of recurring income from our customer activity despite the impact of new economic scenario with increased pre-provisioning profit. We have, in anticipation of a more difficult environment for income, we are doing a strong effort in cost to remain very efficient and to be able to support pre-provisioning profit going forward. And also, a strong effort in increasing the coverage for potential risk to try to anticipate the impact of the new macroeconomic scenario in consumers' behavior and the small and mid-corporates demand, and improve an appropriate solvency levels with a stable asset quality, improved liquidity, solid capital ratio and a strong buffer for regulatory purposes.And finally, here are some figures that we have already mentioned in the presentation. So in summary, I will review the guidance. So we have for the net interest income growth in the range of mid-single digit, some fee income growth of low single-digit at best, group operating income in the low to mid single-digit range, group cost below gross operating income growth and the cost of risk in the range of 65 to 70 basis points. And now are we'll be happy to take your questions.

[David López Finistrosa, Director of Investor Relations]

Thank you, Jacobo. As usual, we will try to group the questions to try to reduce the time for the Q&A. Okay. Let's start with volume growth.Can you elaborate on the performance of the corporate book in this quarter? And also what do you expect for next quarters?

[Jacobo Díaz Garcia]

Okay. Thank you. Sorry, I repeat -- I will repeat because I have my mute on. I was mentioning that we had achieved during the first half of the year a very high-volume in corporate loans due to the ICO lines. In fact, we achieved even above our targeted figures for the entire year, so we do expect a much more stable volumes for the rest of the year. In this third quarter, we signed an additional EUR 1.2 billion of ICO lines. And in the fourth quarter, we still have some volumes to sign from these state guarantee lines.So there might be some stabilization or potentially a slight growth at the end of the year, but the [ stationality ] of the third quarter is normal. It tends to be a very stable quarter. And the fourth quarter tends to be more intense in volume growth. However, as I mentioned, we've made a very strong effort in the first half of the year to allocate those ICO lines. So we do not expect any large increase in the last quarter, I would say, stable or slightly growth.

[David López Finistrosa, Director of Investor Relations]

Okay. And the same question for consumer book.

[Jacobo Díaz Garcia]

Okay, as we mentioned, we do expect the shrink in the consumer book. This is something we're doing in purpose because we are more strict on the credit quality of new clients coming into the business. And in additional, the demand, of course, the demand is lower than in previous periods.So the loan book -- the book of the consumer finance, we expect a double-digit decrease from now into the following quarters. We have already mentioned there is a decrease of EUR 150 million in revolving cards that will stay for the rest of the year, for sure. And that the only growth that we foresee is in personal loans, not in credit card volumes. Having said that, of course, the situation, the environment has a very correlated impact on those volumes. However, as of today, we expect some decrease in these volumes.

[David López Finistrosa, Director of Investor Relations]

Thank you. Moving on to payment holidays. Can you update us on the moratoriums?

[Jacobo Díaz Garcia]

Yes. As we shared during the presentation, the percentage of the portfolio that accounts for moratoria has been reduced by half. In June, we were at 4%. And today, we are at 2% of the book. In consumer, it is below 1%.So the level of moratoria is going down, although we expect that at this level, I don't think we will increase anymore. In fact, they should be going down little by little in the following months.

[David López Finistrosa, Director of Investor Relations]

Okay. In moratoriums, have you seen any changes in Portugal?

[Jacobo Díaz Garcia]

In Portugal, no, the moratoria is pretty similar. We still have around 15% of our book is on moratoria. It's around EUR 1 billion. We have around EUR 600 million in mortgages, which is 14% of the book in mortgages, 18% in corporates and around 15% in consumer. This is more or less the figures, which are pretty similar. In Portugal, a little bit lower, but pretty similar. And we have EUR 145 million in state guarantee programs.

[David López Finistrosa, Director of Investor Relations]

Now moving on to the P&L. Can you confirm guidance for NII? And any comments for the next few quarters on the impact of Euribor rates?

[Jacobo Díaz Garcia]

Okay. So the guidance of NII, as I mentioned before, is a mid- single-digit growth for the end of the year. It is very difficult to provide a good guidance for 2021. Now for net interest income, it's still a little bit early. We know that we have a new production in mortgages with a much more share of fixed rate mortgages. That's something we will -- it's improving the front book yield versus the back book yield.We know that the TLTROs will provide some support to the growth in the following quarters, but as well, we know that Euribor will slowly impact the book, as it will be repricing the 12 months average Euribor. It is negative even more every month. So the whole book will be impacted in the future. And I say that the corporate book has 50% is on fixed rates. So that provides you a very good support. Anything related to the corporate business is much more protected from the Euribor reduction.

[David López Finistrosa, Director of Investor Relations]

Okay. Moving now on to fees. Again, analysts and investors are asking about the guidance that we have for fees. And what is your reading on the specific quarterly performance?

[Jacobo Díaz Garcia]

Okay. On fees, again, we have a low single-digit growth guidance for the year. I think the quarter was a very good quarter, honestly, because the only topic that has present a negative impact is the payment and collections. And within payment and collection is the credit card activity. And as you know, because of the reduction in mobility over this summer, the number of transactions with credit cards have been negative, of course. And that is the only impact that we perceive in fees.Because apart from that, we have demonstrated a strong capacity to compensate this decline. We have assets under management going up, brokerage fees going up, FX fees going up, endorsement fees going up, insurance going up. So we have plenty of different business lines that provides -- investment banking going up. So international commerce is going up. So we have presented a very good quarter in terms of fees, but there's nothing we can do about these credit card activity and payments and collection activity, which also companies have had lowest activity, and therefore, the payments have been slightly smaller than the year before.But a proof of that, if we exclude that, I think the bank has presented a very strong commercial activity even during this quarter in summer in Spain.

[David López Finistrosa, Director of Investor Relations]

Moving on to asset quality. Have we -- can you confirm we have already updated our macro assumptions?

[Jacobo Díaz Garcia]

Yes. Yes, we did update the macro scenario from Bank of Spain. I remind you that Bank of Spain presented in June some figures related to 2020, 2021 and 2022 forecast of GDP and much more unemployment figures. And that in the first week of June, it updated those figures. So those figures presented an improvement of the 2020 reduction in GDP. It used to be 11.6%, and now it's minus 10.5%.However, the speed of the recovery that is presented today is lower than the one presented in June. So I think that we had the obligation to update those figures, and that's exactly what we did. And these are the figures that we went up from the scenario one.

[David López Finistrosa, Director of Investor Relations]

Okay. More specifically in the consumer and SME book. What are we seeing there in terms of asset quality?

[Jacobo Díaz Garcia]

I think we shared a slide where you can see exactly the composition of the corporate book, where you do see the presence of the SME book. And I think we mentioned that the concept of corporate book and even SME book is quite differential with other companies. We have a large corporate book. We have what we call SMEs type A and SMEs type B. And we have the small SMEs proportion of a total exposure of 8%, as you see in your screen, which is exactly the same that the one we got in 2018. And the NPL ratio today is even better than the one we have in 2018.So from that perspective, I think we are quite comfortable with the SME book that we have today, with the overall SME book, and same thing for consumer. We have new operations in Ireland. We have new operations also in Portugal. And you see that the overall exposure is at 4% compared with the 3% we used to have. NPL ratio is up at 8.6%. But just bear in mind that we -- every year, we used to have a sale of different parts of the portfolio. And this year, we have not executed that sale of the portfolio. Therefore, we could see from now until the end of the year, a reduction of the NPL ratio of the consumer business.

[David López Finistrosa, Director of Investor Relations]

Can you confirm the cost of risk? Do you expect for 2020? And any views beyond that, welcome.

[Jacobo Díaz Garcia]

I mean I confirm that we expect same guidance that we provided since the beginning in March, somewhere close to or below 70 basis points. We have just mentioned today that the range of the guidance is between 65 and 70 basis points. And the things that have changed is that the reality tells us that the cost of risk is much lower than expected.So today, we are at 34 basis points cost of risk for the recurrent cost of risk and that we have increased a little bit our macro scenario impact for the IRB models, and now it's at 35 basis points for the overall year. So in total, the figure should be below 70 basis points. And this is something that we'll reiterate because the reality today is that the cost of risk today -- as of today is much lower than expected.

[David López Finistrosa, Director of Investor Relations]

Moving on to litigation costs and other provisions. What are your views there? Any updates going forward?

[Jacobo Díaz Garcia]

I think for litigation costs, there is we -- the FX mortgage keeps a slight reduction quarter-on-quarter. We still have some -- litigations, I would say, are business as usual. And in this quarter, and it was public, we had a fine for the [indiscernible], which in English, I think, is the rate equivalent -- the annual equivalent rate that was published of around EUR 5 million and that we recorded in this quarter. But apart from that, there is nothing special, no news. And the level of demand, as I mentioned, is slightly going down.

[David López Finistrosa, Director of Investor Relations]

And what is your view going forward?

[Jacobo Díaz Garcia]

Again, I think we will see some sort of stabilization or a slight reduction on this topic. As you can understand, the level of uncertainty today is quite high.

[David López Finistrosa, Director of Investor Relations]

Okay. On capital, we're getting questions on whether you can confirm if we had accrued dividends this quarter already.

[Jacobo Díaz Garcia]

Yes, what we have done this quarter is we have accrued a similar dividend policy that we used to have. So we have accrued from the third quarter results 50% of their results. So we have retained as capital 50% of the result and we have accrued 50% of the result of this quarter, just for the case that the ECB will allow banks after the 1st of January to distribute dividends.

[David López Finistrosa, Director of Investor Relations]

Can you elaborate on what drove [indiscernible] assets down in the quarter?

[Jacobo Díaz Garcia]

Yes, I think what it -- during this quarter, as I mentioned, we had a more stable book in corporate and changing the mix of that book. So we have a ICO guarantee lines that have very little consumption of capital, and we have more mortgages and have less consumer finance volumes, okay? So therefore, the consumption of the portfolio in this quarter has been smaller than in other different periods.

[David López Finistrosa, Director of Investor Relations]

Okay. Are there any remaining regulatory impacts pending?

[Jacobo Díaz Garcia]

There is only one remaining impact, which is the deduction of the software impact that should be due in the fourth quarter of this year, and the impact should be around 10 basis points of improvement.

[David López Finistrosa, Director of Investor Relations]

And finally on capital, can you confirm the capital target?

[Jacobo Díaz Garcia]

Capital target, our guidance still at 11.5%. But I think that under these uncertain times, I think we might be around these figures that we are presenting today, somewhere in the 11.5% and 12%, I think it should be figures what we feel comfortable.

[David López Finistrosa, Director of Investor Relations]

Línea Directa. Any updates on the spin-off plans?

[Jacobo Díaz Garcia]

No additional update apart from the determination of execution of this transaction as soon as we can.

[David López Finistrosa, Director of Investor Relations]

Okay. Combined ratio. Shall we expect similar levels for year-end?

[Jacobo Díaz Garcia]

Combined ratio should be around 83%, 85% for the rest of the year.

[David López Finistrosa, Director of Investor Relations]

Okay. Last 2 final questions. What are business plans in Ireland?

[Jacobo Díaz Garcia]

Business plans in Ireland are to continue developing the Consumer Finance business. And as you know, we have just started to a new business, new business related to mortgages in Ireland, which is very, very new. We are in a pilot phase. And I hope that in the near future, I can share with you new figures and any updates on the expansion of this new business.

[David López Finistrosa, Director of Investor Relations]

Okay. Final, final. Any comments on M&A?

[Jacobo Díaz Garcia]

Basically, no comments. I think we like to be independent, and this is the way we will continue to be in the short -- at least in the short future. But I can assure you that there's no willingness to do any transactions. We're very happy the way we are.

[David López Finistrosa, Director of Investor Relations]

Thank you, Jacobo. Thank you, everyone, for joining us today. That's all from us now. Obviously, the Investor Relations team is at your disposal to address any further questions you might have. Take care and goodbye.

[Jacobo Díaz Garcia]

Thank you all, and keep safe. Hope to see you soon. Thank you. Bye-bye. Have a nice day.