Bankinter SA

MAD:BKT

Earnings Call Transcript 2021-Q3

[David López Finistrosa, Director of Investor Relations]

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

[Jacobo Diaz Garcia, Chief Financial Officer]

Good morning and welcome to Bankinter's earning presentation for the third quarter of 2021.The related financial statements were posted on the website of the CNMV a few minutes ago, before market opens. All documents can also be found at this time on our corporate website.Let me start, as usual, emphasizing the main achievements that we have obtained during the first 9 months of 2021, with the continued strong commercial performance driving volume growth in most balance sheet and off-balance-sheet items. That brings consistent growth in our pre-provisioning profit. We consider this a remarkable performance in a continued challenging environment, with interest rates at the bottom and an incipient recovery post COVID that still needs to push more positively in all our business and geographies.These are more specifically some of the achievements. We've been able to maintain positive growth in our loan portfolio despite the contraction of the corporate loan book in the quarter, thanks to a continued strong mortgage production now in all geographies. Also retail deposits continue to post growth, thanks to the strong customer acquisition in the year and, remarkably, a stunning growth rate in our assets under management that confirms a powerful recovery pattern since lows of 2020. The resilience shown in our net interest income and increased growth rate of our fee income, thanks to a recovered customer activity and some one-off, resulted in an increase of our operating income by close to 10%, well above our guidance at the beginning of the year. As I just mentioned, an extraordinary success fee income from an investment banking deal of EUR 45 million has been booked in the quarter. And at the same time, for the same amount, a front-loaded provision for future litigation expenses has been also booked, allowing 2021 -- sorry, 2022 impairments to go down.The quarter has been also good in cost control despite the increase in personnel expenses due to the half year variable pay, and this has allowed pre-provision profit of the group to grow strongly by 15% year-on-year. Finally, our asset quality continued to show stable NPLs year-to-date with an increased coverage in provision after last year's extraordinaries. And our solvency measured in CET1 fully loaded ratio maintains comfortable levels above 12%.If we start with the main summary. This is the comparison of our key financial indicators as of September '21 over the first 9 months of 2020; and 2019, the last pre-COVID year, as we've shown in previous presentation.Group's total loan book grew 4% to EUR 66 billion, thanks to the strong mortgage production everywhere that more than offset the reduction close to EUR 1 billion in the large corporate loan book in the quarter. At the same time, consumer finance has started to recover in all geographies. Loan growth from September 2019 is 11% high.Gross operating income at EUR 1,423 million grew by 10% with respect to last year and by 15% from 2019, showing growing resilience in incomes coming from our recurring business. Despite some extraordinary cost increase from commercial bonuses, we firmly believe operating costs remain under control, making pre-provisioning profit trend to improve growth rate to 15% over 2020 and 23% since 2019.NPL ratio remained very low, in line with all our asset quality indicators, at 2.40%. It dropped by 11 basis points from a year ago and with a small increase since June in consumer finance. Coverage ratio after the extraordinary provisions of last year remains at a comfortable 63%.Group's net profit reached a record of EUR 1,251 million. Like-for-like, that is excluding the LDA transaction, net profit would be EUR 355 million, growing by 61% from a year ago and minus 20% below of 2019, with full Línea Directa contribution and a EUR 57 million extraordinary badwill from the EVO Banco acquisition. Excluding this badwill will be a 3% increase.Our CET1 fully loaded ratio remained almost unchanged at 12.3% despite the 50% dividend payout. It stands comfortably 28 basis points above last year and well above our long-term guidance of 11.5% Our return on equity adjusted by the extraordinary fee income reflects the improved performance of the year and stands at 9.4%, 232 basis points ahead of last year and again above cost of capital.We now move into our usual agenda with the first 9-month results; and then risk management; and as usual, a review of the different business in the period.So moving to our income statement. The group's income statement continued to show strong growth in all revenue lines.Net interest income maintained its growth trend despite the quarter negative seasonality in corporate business. It is up by 3% from September 2020. The positive market environment and an increased commercial activity supports our fee income. It grew, excluding the one-off or the extraordinary fees from Investment Banking, by close to 11% with respect to the previous year, in a major way thanks to the growth in assets under management in the quarter and through the year, favored by zero-interest rate environment. Other operating income and expenses at EUR 25 million were EUR 14 million higher than a year ago due to good trading income year-to-date.Total gross operating income at EUR 1,423 million went up by almost 10% from 2020. The diversification of this income remained very high, with increased contribution from Portugal, EVO and Avant Money, as we will see later. Group operating costs went up below income growth as we have been anticipating in all our previous presentation. We believe they will remain under control both in Spain and Portugal. The group's total cost grew by 3.8% with respect to September 2020, below the rate as of June '21. General and administrative expenses remain controlled through the year with a minimal increase. This positive income and cost performance brings pre-provision profit to increase by 15% from September 2020, what we think is a remarkable growth and above our best plan for the year.Loan loss and other provisions went down 34% from 2020 due to the EUR 243 million extraordinary provisions booked in 2020. Without this effect, the provision for NPL increased in line with our review forecast of cost of risk for the year. Also other provisions grew due to the front loaded of litigation expense in the quarter.After taxes, group net profit excluding Línea Directa spinoff were EUR 355 million or 61% up from September last year and 20% down from 2019, with a full contribution of Línea Directa and the EUR 57 million badwill from the EVO acquisition. Adding these, total net profit reached an historic EUR 1,251 million. We think this is a very positive 9 months. We continue to feel optimistic about 2021 full year.On the quarterly comparison, we can see resilience here on net interest income flat year-on-year and with a seasonal reduction in the quarter; and a very positive growth pattern in fee income, up 55% and 32% in respect to last year and previous quarter. With operating costs increasing only by 2%, 3%, pre-provisioning profit showed increases of 31% and 22% in respect to the same quarter last year and the previous one. After credit risk and other provision and taxes, net income ex Línea Directa spinoff has been EUR 110 million, 15% up in respect to previous quarter and almost flat from the third quarter of 2020.The group's loan book, in the following slide, grew by 4.3% from a year ago, bringing over EUR 2.7 billion in net new loans to reach EUR 66 billion. Growth in the period comes mostly from our mortgage business that now includes both Bankinter and EVO Banco in Spain, Portugal and Ireland. At the same time, as expected, loan demand in corporates were negative, impacted by the end of the government programs for corporate and excess liquidity elsewhere that lead some of the large corporates to reduce their credit outstanding during the quarter. After the second quarter jump in lending from working capital activity in corporates, in this quarter, the reduction is only concentrated in large corporates and in short-term lines of credit. On the other hand, consumer loan book grew by 5%, mainly in personal loans to existing customers of the bank.In Spain, despite lending growth slowing down from the pattern in previous year, it continued to grow by 2.6% year-on-year, still gaining market share since the sector contracts by more than 1% with latest data of August. In Portugal, lending is up by 5% from a year ago, to reach EUR 6.8 billion and slightly below our business [indiscernible]. EVO was also able to grow their loan book by EUR 600 million year-on-year, thanks to strong mortgage production that we will review later.Retail deposits continued to perform strongly in all geographies, up 10.4% year-on-year, EUR 6.5 billion new, to EUR 69 billion. More important, close to 75% of this growth comes from new customers of the bank. Deposits were up by 9.7% in Spain as of August, while the market only grew by 4.6%. In Portugal deposits continued to grow strongly in the year. They have grown a remarkable 19% year-on-year to reach EUR 5.6 billion.Moving into NII. Net interest income continued to show the positive trend as we have anticipated. It grew by 3% over the same period a year ago; and 11% from the same period in 2019, in the last pre-COVID year and with Línea Directa. EVO Banco standalone shows a 5% increase in line with its business plan. All this is mainly due to being able to grow loan book every year while maintain customer margin resilience, as we will see in a minute.The contribution of EVO and Avant Money to our net interest income stands at almost EUR 20 million for EVO and EUR 40 million for Avant Money versus '19 and EUR 38 million the same period last year. In Portugal, net interest income also grew by 4% with respect to 2020. The growth trend in Portugal in net interest income is a consequence of the yearly loan book growth in all our books, mortgage, corporate and consumer finance.Group's customer margin decreased by 7 basis points from previous quarter, when extraordinary contribution from the ICO loan was catch-up EUR 7 million. Like-for-like, that is excluding this effect, the reduction in the quarter is only 3 basis point from the previous one. A stable trend on credit yields has been maintained despite this extraordinary and the reduction of the loan book in the quarter. At the same time, increasing our deposits at the ECB increase the [ wholesale cost ]. Customer cost of deposits remained flat at 3 basis points.After 3 quarters with the cost of deposits at all-time lows, we believe maintaining stable credit yields is key to customer margin resilience going forward. We continue to suffer from a negative repricing of the mortgage loan book. However, we expect total loan book to recover its growth pattern. It is also to be mentioned the negative impact of EUR 2.5 million in the quarter from the cost of the last Tier 2 issue in June '21.Moving into the ALCO portfolio. It remained without change. It size decreased by EUR 0.2 billion to EUR 8.4 billion. Its proportion between portfolio type is 75% under amortized cost, with no impact in capital ratio; and 25% of fair value. Spanish government bonds continue to represent 56% of total. And 23% are other sovereigns, mainly Italy and Portugal. The portfolio's metric improved in the quarter to average maturity of 8.9 years, with an average duration of 4.5 years and an average yield of 1.6%.After another quarter, unrealized gains of the portfolio amount to approximately EUR 540 million. Only 20% of them are the fair value portfolio, with a very small impact in capital. Over the next few years, maturity of the portfolio are minimal, except for 2023 where EUR 1 billion will amortize or renew.Fee income continued to perform very well and ahead of our guidance of the year. In the quarter, fees were EUR 43 million over the previous quarter due to an extraordinary success fee on the sale of one of our venture capital funds, promoted by our Investment Banking team, of a similar amount. Excluding this, fees maintained their growth rate in a negative seasonal quarter, thanks to our commercial activity during the summer. They grew by 23% over the same period last year and 32% from the previous quarter. This quarter, all recurrent fees from our customer business showed growth, including payment and collections recovering from previous slowdown in activity. At the same time, assets under management continued to enjoy another very good quarter and is reflected in this strong performance.The largest contributor to our fees, with EUR 143 million, is assets management fees, up 26% year-on-year. And increased commercial activity brings this figure to record levels at the end of the quarter, as well as fees. The second contributor to fees is payment and collections from corporates and individuals. Performance has been clearly recovering after the impact of the slowdown in an economic activity. And since this environment started to change in the second half of this year, this has made fees to grow by 12% from September last year.Third is fees from bond and equity trading, together with customer fees, growing 22% to EUR 84 million in the period. And other relevant fees like FX business with customers went up 6% back -- on the back of the strong international trading and third-party mutual fund subscription. The risk-related transactions fees and life insurance and pension fund [ sales ] bring their fees up 12%. Finally, fees from Investment Banking and other fees are up 15% and 43%, respectively.In other operating income and expenses, main components are EUR 79 million of trading income plus dividends. That compares very well from last year due to a good trading activity, plus EUR 9 million more from Línea Directa dividends, the last one announced, in the third quarter. A 14% increase in regulatory charges or EUR 7 million more, together with other small [ miscellaneous ] impacts such -- lower operating fees from ICO loans production in 2020, weighted on the other income, expenses negative EUR 9 million difference in the period.Moving to next slide. The gross operating income for the period stood at EUR 1,423 million, an increase of 10% from a year ago; and more relevant to us, 15% from the same quarter in pre-COVID 2019. Quarterly comparison is less relevant. It went up by 13% from the previous quarter due to the regulatory charges booked last quarter and an extraordinary fee income in this one. In Portugal, gross operating income grew by 12% in the year. And quarterly grew by 4.7% from last quarter, and 5.9% from the same quarter of last year, following again a very positive trend of recurring business in our Portuguese franchise.Moving into costs. Group operating costs in the period totaled EUR 624 million. They are up 4% from previous year and only EUR 5 million up or 2% more from the second quarter. Operating cost from EVO shows a good performance that is expected to continue. They were reduced to EUR 40 million, down 7% from a year ago and 13% down from the same quarter last year. In Portugal, costs are EUR 3 million up or 5% over the last year with -- the last year, first 9 months, while income continued to grow by 12%. That means that the efficiency stands at 56%, again showing a strong performance and a continued positive trend.Group personnel expenses are up 6.6% over the same period last year due to the one-off increase of commercial staff variable pay of the strong first half 2021 paid in August. General and administrative expenses remain under control, almost flat from last year.Efficiency continued to improve in the group. Cost-to-income dropped 250 percent of -- points from September '20 to 43.9%, and 360 points from 2 years ago. We plan to keep the long-term cost-to-income below 43%. To do so, we need to improve efficiency in our different new businesses and geographies. In Portugal, efficiency stands at 56% from 60% a year ago. And in Ireland, Avant Money efficiency is at 59%, coming from much larger figures. And finally, EVO is improving but still in negative efficiency. Our efficient operations in Spain and standalone runs at 39.9% efficiency ratio. And excluding the extraordinary income, it will be 41.2%. And at the group level, it would be 45.3%, improving figures from last year once again.With all of this, quarterly pre-provisioning profit showed almost EUR 800 million, [ a stunning ] 15% increase from 2020; and more relevant, more than 23% ahead of 2019, prior to COVID-19 crisis, with a full contribution of Línea Directa.Moving into cost of risk. The recurrent cost of risk in the quarter finished EUR 64 million or 35 basis points of total credit exposure, similar to that of the first quarter and probably showing a peak in the second quarter from the upward trend started in the third quarter 2020. However, total cost of risk, including the 2020 extraordinary provision, remained well below last year. The increase in cost of risk has to do mostly to the consumer finance loan book and the stage 2 increases in volumes, while the rest remained almost stable in personal lending, mortgage and large and mid corporates. We expect this good behavior to remain stable in the last quarter of the year.It is still early to anticipate what will be the impact in cost of risk when a pickup in consumption should start, but we are somehow optimistic after almost all the mortgage and consumption or consumer finance moratorium has matured. And 38% of the ICO liquidity lines for corporate and SME has been extended, as well as the government guarantees protecting them. In Portugal, the use of moratoriums have been larger than in Spain, where it is up 15% of the total portfolio or EUR 1 billion. And maturity [ had occurred ] at September 30 and includes SME lending as well as mortgages. We will see this month how it's evolving, but we are optimistic based on the quality of our customers. As we see things today, after a good year, so far, we expect our cost of risk to be at the low end of our guidance for the full year. That is around 40 basis points.On the other provisions, mainly for future litigation expenses, a continued downward trend can be expected in the range of 10%, 20% reduction every year. This is part for the extraordinary front loading that occurred this quarter, thanks to the extraordinary fee income book in the same quarter. This front loading, together with a downward trend in this provisioning, will produce a quite positive effect in the run rate of 2022.After provisions of the LDA spinoff result, group net income stands at EUR 1,251 million, a new record figure. Without the extraordinary profit from Línea Directa transaction, net income would be EUR 335 million, still -- EUR 355 million, still up 1.6x from EUR 20 million (sic) [ EUR 220 million ] a year ago, when we took the decision of front-loading EUR 244 million of extraordinary provisions related to the macroeconomic scenarios; and still below the 2019 first 9 months. Bear in mind that net income in 2019 includes EUR 57 million extraordinary badwill coming from the transaction of EVO. Without this, net income is down only by 8% since the last pre-COVID year.Moving into return on equity. Return on equity stands at 9.4 million -- sorry, 9.4%, with the 4-month contribution of Línea Directa and excluding the extraordinary from the spinoff. Should we include the full LDA contribution, return on equity should be above 29%. After closing 9 months, we expect, by year-end 2021, to stand return on equity around 9.4%, 9.5%, in line with our target to return to double digits by 2023. Excluding [ tangibles ], this figure will be close to 10%.I will now go over our credit risk, liquidity and solvency management section.So moving into NPLs. Nonperforming loans continue their stable trend with total NPLs at EUR 1.77 billion, up by EUR 33 million from June '21 mainly due to consumer finance, and only EUR 6 million up from a year ago with a bigger loan book. NPLs grew by EUR 82 million in the year. Of this growth, EUR 70 million came from our consumer finance business in Spain. The rest of the business in Spain, like mortgages, corporate, SMEs and real estate developers, came only with around EUR 20 million overall. Portugal NPLs came down EUR 13 million in the year. Once more, the growth in consumer finance NPLs was somehow offset by reduction in other businesses segments, corporates, mortgages and affluent banking.The group's NPL ratio continues at -- continues bottoming at 2.40% and 11 basis points lower from a year ago. It decreases 3 basis points from last December mainly due to some growth in total risk exposure. In Spain, NPLs stands at 2.53%, which is 4 basis points below last year and only 11 basis points up from December. This ratio continues to be way down from the sector average at 4.39%. In Portugal, the NPL ratio declined to 1.84%, 42 basis points down from a year ago. As shown in the chart on the right, the group's NPL ratio in Spain went slightly up on -- 2.32% for households, including consumer finance at 7.9% and also 5 basis points.Total provision for nonperforming loans after the extra provisioning built in 2020, it stands at EUR 1.20 billion, up EUR 1 million from last year and 6.5% since December. All these had a relevant impact on our provisions coverage, which now it stand at 63%.The group's -- next slide. The group's foreclosed assets portfolio is 27% smaller than a year ago. It decreased by EUR 68 million from the previous year. This small portfolio now amounts to EUR 184 million. Total sales in the period amounted to EUR 67 million or 30% of the stock of the beginning of the year. We sell our repossessed assets with an average discount sale at 38%, actually below the provision coverage at 41%. The coverage stands at 52%, 11% increased and clearly above the average discounts.Moving into capital. Our CET1 ratio finished the quarter flat at 12.25%, an increase of 5 basis points from last quarter and only 5 basis points below December '20. Since then, our retained earnings contributed with a total increase of 51 basis points taking into consideration the Línea Directa spinoff. Capital consumption of risk-weight assets from the business has been 29 basis points negative. Valuation adjustments also bring 8 basis points negative due to markets volatility in our portfolio. The IRB deficit and implementation of new regulatory parameters took 17 basis points negative across the year. And finally, the insurance participation and other small items decreased by 1 basis point.With all these, total capital ratio went to 15.7%, at a comfortable level over the minimum regulatory requirement. Leverage ratio stands at 5.2%. Finally, the 22.2% ratio of risk-weight assets for MREL remain well ahead on the requirement for 2022. This very comfortable situation has been reflected in the 2021 EBA stress test results, where once again Bankinter ranked third among European banks in capital depletion for 2023 and first within our domestic peers.Moving into liquidity. Our funding gap continues to be negative since 2020. That's from EUR 0.7 billion a year ago to a negative of EUR 3.9 billion commercial gap. The negative gap in Spain more than offset the one coming from Portugal and Ireland, having higher lending than deposits. As a result, loan-to-deposit ratio at record levels of 94% from 101% a year ago.As of the TLTROs, just a reminder: Of our total take of EUR 14.2 billion that we account, the interest earn at 3-year average of 85 basis points approximately rather than a full rate of 1%. And we maintain a total confidence of meeting the growth requirement for the period.Let's review the performance of our business lines.The corporate and SME loan book in Spain and Portugal decreased by 11 -- by 1% year-on-year and a very -- and in a very difficult quarter for corporate loan demand. It decreased by 1.7% in Spain, while the sector is contracting their loan book by 2.5% year-on-year. This will make corporate loan book for banks of -- or for banks in Spain to shrink against this year after an exceptional 2020 with a plus EUR 100 million of ICO facilities. It will also produce increased market share for Bankinter in the corporate world.Despite the quarterly reduction, like every year, to EUR 27.6 billion, our corporate loan book have increased market share to 5.5% from 5.4% a year ago and 5.2% 2 years ago. The Spain loan book evolution has been mainly impacted by the reduction of EUR 1.6 billion in large corporate due to their extra liquidity. That has not been able to offset by the small growth in mid-corporates and SMEs. In Portugal, where we continue to grow our market share in corporate lending year after year, it is now over 2%. This trend has been maintained since the start of our corporate loan book in 2016, from less than EUR 400 million to reach over EUR 2 billion on September '21.Now, as in every quarter, a quick review of the 3 most relevant sources of income in the corporate segment. International trade and supply chain finance continued to grow its activity, mainly in short-term working capital financing. For example, standby letters of credit increased their outstanding 43% from a year ago. Transactional business with corporate continue their steady recovery from a stagnant 2020 year, with payments and collections going up by 9% year-to-date and in particular, in the third quarter, bringing their operating income up 14% to EUR 91 million. Finally, Investment Banking has closed another quarter with a very good performance in revenues coming from corporate products. The corporate operating income year-to-date is growing 18%.Moving into the next slide, ICO financed, the ICO funds for corporate and SME as of September, outstanding amount of EUR 6.4 billion from a total committed of EUR 8.7 million (sic) [ EUR 8.7 billion ]. From this total, 8 -- 38% have been asking for extension, either the maturity or the grace period. All moratoriums for mortgages and consumer finance, they have almost come to an end, and only EUR 47 million are outstanding as of September. Remember that they did represent almost 2% of the loan book. Since January '21, we have signed EUR 116 million of new moratoriums related to tourism and transportation sector, also outstanding. NPLs on the amortized ones have been close to 3.5%. And for the EUR 163 million outstanding, NPL stands at a very low rate.In Portugal, where moratoriums were more relevant and include the corporate loans as well, they represent approximately 15% of total portfolio as of October 8. Outstanding were EUR 70 million in mortgage moratorium and EUR 175 million in corporate guarantees. All of them have matured in September, and the experience so far is very positive. We still need to wait 90 days.Next slide. In wealth management, customer assets continued to grow due to a strong commercial activity together with an increased customer acquisition. Adding both businesses Private and Personal Banking, assets under management grew by 21% to EUR 63.3 billion. The strong commercial activity, measured by net new money in the period, shows a total EUR 4.2 billion increase. It's split between EUR 2.2 billion in Private Banking and EUR 2 billion in Personal Banking.Moving into our activity in retail banking. They're very strong, another quarter. Customer acquisition in Spain continued to grow by over 40% from that -- a year ago. [ In product ], salary account balances maintained growth of 23%. Mortgage origination in the period of EUR 3.8 billion represent an increase of 1.7x for the first 9 months of 2020 and even more of 1.2x -- the production was EUR 4.3 billion. Sorry for the mistake.Bankinter holds a bigger market share in the front than in the back book despite of a better quality of loans, where 68% of mortgages were fixed rate and their average loan-to-value is at 63%. In Spain, our market share in new mortgages during the last 12 months, including Bankinter and EVO, is at 9.3%. Those are total mortgage book keep growing and reached EUR 30.6 billion, an increase of 8.4%, while the rest of the market only grew by 0.7%.Our asset management business improved its growth trend in all these 3 categories: mutual funds, 25%; pension funds, 16%; and patrimony services, 20%. Or EUR 7.4 billion in new off-balance-sheet managed funds. In mutual funds, net new money in the period has been very strong; and together with a positive market effect, brings the total to EUR 29.2 billion, 25% up, to a new record. All this commercial activity in Spain is fueled by strong customer acquisition, growing over 30% year-on-year [ and 8% ] in active clients.Let's move to Portuguese operation. Portugal have grown their book by 5% to EUR 6.8 billion. And retail funds grew, at EUR 5.6 billion, or 19% up from a year ago. Growth in loan book was balanced between Corporate Banking, up 5%; and retail banking, also up 5%. Like in Spain, off-balance-sheet strong commercial -- strong performance reached EUR 4.2 billion in outstanding, 20% increased from last year. As of the income statement, operating income grew by 12% with very little contribution from extraordinary recoveries. Costs showed a contained growth of 5%, in line with cost control; plans for improving efficiency now at 56% from 60% last year. All of the above brings PPP up by a strong 21% over September 2020.Finally, after EUR 10 million of more normalized loan losses provision, including a positive impact of EUR 3.3 million from extraordinary recoveries, Portugal profit before taxes reached EUR 40 million, a remarkable 24% increase.Moving into the consumer finance business. Bank -- consumer finance in Spain and Portugal and Ireland, including the mortgage production, reached a total loan book of EUR 3.3 billion from last December, 15% up from a year ago and helped by the mortgage origination in Ireland and despite a contraction in credit card outstanding in Spain.The breakdown of the total loan book by geography is now EUR 772 million coming from Ireland, Avant Money, growing 44% from last year; and almost EUR 300 million coming from Portugal, growing 16%. The rest is Spain, where the loan book grew by 5%, mainly in personal loans, despite a reduction of EUR 83 million in revolving credit cards. The breakdown of the loan book by product is on the right-hand pie. Personal loans represent 55% of total, growing by 13%. Transactor credit cards, mainly in Spain and with Bankinter clients, represent 24% or EUR 800 million, with a 9% growth. What we call open-market revolving credit cards is now only 15% of the total book and less than EUR 500 million in outstanding, after a decrease of 16% in the year. Also the new home mortgages in Ireland reached EUR 300 million and represent now 9% of loan total book.Total new credit origination in 12 months, mainly in personal loans in Spain and Irish mortgage, represent close to EUR 1 billion. And total number of customers grew by 4%. In Spain, credit card business represent less than 40% of the total EUR 2.2 billion of total loan book, and 53% of them are revolving ones. The rest of the cards are payable at their end of the month, with a much better risk profile.NPL ratio stand at 7.5% from 8.2% a year ago, or EUR 247 million in [ LPS ]. We continue to see good opportunities in this profitable business, where we feel comfortable with the degree of control of asset quality indicators and, with a very high efficiency of the business, cost-to-income ratios below 20%.Let's move to Ireland, under the new name of Avant Money. This activity has been able to increase the loan book by EUR 237 million year-on-year and at the same time maintaining very good asset quality, with NPLs below 0.5% and cost of risk 1.4%, with coverage provision of [ 400% ]. We aim to reach the first EUR 1 billion in mortgage disbursed by early 2022; and to keep growing, as the market allows us to do, from 3% actual market share, coming from 0, to whatever is possible in the future.Moving into EVO. During the first months, EVO has been in a positive development of its new business plan, with some expected slowdown in credit card business, but with all the focus on recurrent, increasing mortgage underwriting, has been keeping up their commercial activity strong throughout period. New mortgages granted from December were a record of EUR 546 million. This is 2.3x the origination of last year, making the loan book to jump to EUR 1.7 billion. Subsequently, net interest margin from customer activity continued growing by 20% year-on-year. Personal loans and credit cards came down EUR 55 million and today represent only 3% of the total book.As for liabilities, EVO has EUR 3.6 billion in retail deposits, up by 10% from last year; and [ 282 million ] in off-balance-sheet funds, up 12%. As for asset quality, NPLs remains at 1% and are only EUR 17 million, with a coverage of 60%. And cost of risk stands at only 13 basis points of [ 1.6 million ] year-over-year, okay?Before our summary, let me highlight [indiscernible] ESG strategic plan or figures that we want to share with you. Here we shared some of the actions and targets, including the plan that has been recently approved by our Board of Directors, okay?And then let's go into the summary. I think we have performed again a strong commercial quarter, commercial activity reflected in volume growth with increased pre-provisioning profit. In accordance with a complex environment, we continue, with our costs under control, to be able to support PPP. We continue to manage to increase coverage for potential risk arising from any future credit quality deterioration, mainly in stage 2 migration from consumers and small, mid-customers -- corporates; and strong solvency and liquidity levels.We expect growth in all geographies: Portugal, in all commercial, corporate and consumer loans. In Ireland, we do expect increasing production in mortgages and in personal loans and in credit cards, as well as the recovery of the country and the opening of the economy. EVO Banco, we expect growth in mortgage production and personal loans. And for Spain, we expect corporate book to recover from the impact of ICO financing in this fourth quarter and with an increased activity in corporate demand during 2022; as well as continued loan growth in mortgage, of course, and in other non-mortgage retail lending, as consumer finance.Thus, our guidance for the end of the year continues to be, net interest income, a low single-digit growth despite the difficult environment. The increase in activity and stable markets will bring fee income growth above double-digit level, excluding this EUR 45 million one-off. The increase in activity -- the operating income in -- growth mid-single digit, improving 2020 by mid-single digit. Group cost will end up flattish once again, meaning growth below income growth or slightly up from 0 due to better-than-expected performance in income. And we expect pre-provision profit to remain resilient and improve the growth of 2020. And finally, cost of risk, as I did mention before, after a very benign first part of the year and with a comfortable loan book going forward, we will end the year at a very low end of the previous range in the guidance. That is around 40 basis points.And I think that's it for the presentation. We got all the time required for your questions.

[David López Finistrosa, Director of Investor Relations]

Thank you, Jacobo. As usual, we have a few questions already. And we will try to group them through the different topics, in the interest of time.Probably -- you just have a recap on the guidance or through the different lines of the P&L. Probably do -- you just can highlight what -- if any change from previous quarter for the guidance on the different lines.

[Jacobo Diaz Garcia, Chief Financial Officer]

So the -- what we have changed in the guidance is we have increased our guidance in fees from a high single digit into a double digit. And we have -- also be a little bit more accurate in the cost of risk guidance. We did provide a guidance of a range of 40 to 50 basis points, and what we are saying today is that we will be at the lower range. That is at more or less 40 basis points. Definitely we are perceiving that the behavior of the cost of risk is better than expected, basically.

[David López Finistrosa, Director of Investor Relations]

Very clear. And we have some questions also regarding our loan growth. You can probably add some color to the what happened in the last quarter; and also your expectations for the next quarter and next year, if any.

[Jacobo Diaz Garcia, Chief Financial Officer]

Okay, yes. Loan growth, I mean, year-on-year, the growth has been very positive in all geographies and in all businesses. So as I did mention in the session, we grew EUR 2.7 billion in the year, which is 4.3%. And all the geographies have grown quite strongly. Specifically during this quarter, loan growth has been a reduction of 1%, more or less, in the book. This is only concentrated in the Corporate Banking loan book in Spain. Portugal has increased in the quarter. Ireland has increased in the quarter. EVO Banco has increased in the quarter. Consumer finance businesses have increased in the quarter as well. Of course, the mortgage book has increased in the quarter, so basically there is a focus on the corporate loan book. And the reason is, of course, seasonality. Every year, we have a negative seasonality this quarter. And this year has not been an exception, but in addition we believe that the excess liquidity that -- our deposits in the overall balance of the banks have implied that some very large corporations have decided to reduce the level of limits that they need. And this is the only reason.

[David López Finistrosa, Director of Investor Relations]

Thank you. Just to finish off because we have a couple of additional questions about the guidance we just mentioned in the previous question: Can you just confirm the guidance for fees and cost of risk?

[Jacobo Diaz Garcia, Chief Financial Officer]

Okay, I will repeat. What I did mention is that we did change the guidance in fees. It was previously at one-, single-digit growth; and now it's a double-digit growth, okay? So we were somewhere between 5% to 9% increase in our guidance before and now we believe we are more close to the 10% increase. And the second thing, we've changed the cost of risk guidance. We are under a range of 40 to 50 basis points guidance. And what we did mention was that our guidance now is focused on the lower range of this range, which is 40 basis points. This is our guidance. I hope this is clear now.

[David López Finistrosa, Director of Investor Relations]

Perfect. Me too. Okay, moving on to the NII now and the P&L, can you just comment on the performance in the last quarter?

[Jacobo Diaz Garcia, Chief Financial Officer]

Yes. During the last quarter, we had, I would say, a couple of issues. The first one, I would say, is that -- I did mention we have an issue of Tier 2 bonds in late June, so in this quarter, we have a new cost that we didn't have in the past. And this was around EUR 2.5 million. Bear in mind that, in the second quarter of this year, we recorded an extraordinary increase of around EUR 7 million due to the ICO extensions. This is -- remember that we have ICO extension in the second half of the -- in the second quarter of the year. And that implied an increase of EUR 7 million of upfront -- yes, upfront income, as well that we have upfront fees paid to the ICO, okay? So this is in terms of comparison [ and other ] issue. The -- as I did mention, there's a 2 -- Tier 2 issue which is new. Then we have the repricing of the Euribor that again has been negative. Comparison to last year is around EUR 8 million year-on-year; and quarter-on-quarter is an additional EUR 3 million, more or less. Of course, there is a repricing of the LIBOR as well for all positions in FX. And as well as I did mention the reduction of the volume of the corporate loan book. That means that the mix has changed. And then we have -- not only we have less income, but also we have more costs because we have more liquidity at the ECB account. That means an -- extraordinary costs.So I think these are the main 3 topics that might be weighting on the negative side, but I want also to mention that there are positive things. We have more -- a portfolio of mortgages at fixed rate. We have, of course, much more volume. As you've seen, we've been producing, originating EUR 4.3 billion in the year versus EUR 2.5 billion in the year; and also that we have increase in pricing of vehicle facilities since last quarter. So the overall is a negative effect in this quarter, but year-on-year is a positive. So I think this is more or less a summary of the quarter.

[David López Finistrosa, Director of Investor Relations]

Very clear. What can we expect going forward?

[Jacobo Diaz Garcia, Chief Financial Officer]

We do expect similar things in terms of mortgages. That means that the book will continue to grow, while the repricing effect will continue to be negative. We expect next quarter to also be negative, probably with less amount deducting for the net interest income, but still repricing will be negative. We do expect growth in consumer finance. That is the positive. We do expect growth in all geographies because Ireland is performing extremely well. Portugal is performing extremely well. EVO is performing extremely well, and as I did mention, consumer finance is also performing well and recovering. The main uncertainty comes from the Corporate Banking book that, as you know, since the ICO facilities grew, the overall book in the system grew by almost EUR 50 billion. And now there is some contention due to the excess liquidity. We expect at least to repeat or slightly increase the net interest income of this quarter in the following quarter.The fourth quarter tend to have positive seasonality. That means that they tend to be a lot of focus at the end of the year, which is December. It tends to be a very strong month. And we will see. We, hopefully, will see some good reaction. And of course, we do have expectation regarding the NextGenerationEU funds that we do expect someday to be a reality. And we believe the impact will be not very high or not very large in this quarter but at least to see if this is going to be a reality or not.

[David López Finistrosa, Director of Investor Relations]

All right, what about the customer margin trends?

[Jacobo Diaz Garcia, Chief Financial Officer]

Similar answer. Since the portfolio of mortgages keeps growing, we do expect the repricing of these mortgage. Therefore, there is some pressure to reduce a little bit, but consumer finance is recovering fast, so we expect some sort of compensation. Again the uncertainty will come from the contribution of the Corporate Banking business that we expect to recover in this quarter, but obviously there is a lot of uncertainty due to the positive recovery of the economy. That means that it's a good news. And if there is a negative impact on the net interest income, we will see a very positive [ income ] in the fees. And of course, more transactional business will bring us much more fees and a recovery in the working capital funding and facilities. That will be a good news as well.

[David López Finistrosa, Director of Investor Relations]

Fair enough. Okay, 2 more questions on the NII to finish off that topic. Can you talk about the sensitivity to Euribor rates going up, also if we have any change on our ALCO strategy?

[Jacobo Diaz Garcia, Chief Financial Officer]

I will start with the second one. Basically there is no changes in the ALCO strategy. For the time being, the amount of the portfolio is not expected to change. And as you see, the maturities are expected in 2023, so nothing will change in the ALCO portfolio. Regarding the sensitivity, of course, improving interest rates is very positive for us. Of course, if the increase is as larger as -- it will be more positive. So that means that a small increase in Euribor will drive a small increase in net interest income. And a very -- larger, whatever increase of interest rates above 0 will be an excellent [ new ] and, of course, at least a double-digit increase in our net interest income.

[David López Finistrosa, Director of Investor Relations]

Thank you. Very clear. Moving on to fees now: We have more interest this quarter on our fee income line. Can you explain the -- how does this one-off fee work? And also on the same topic, if there is any other recurring fees associated with this type of funds or any other future income that we can expect from this product.

[Jacobo Diaz Garcia, Chief Financial Officer]

Okay. So the way it works, basically this is an investment fund which normally has 3 time of -- 3 types of fees. It has distribution fees which is at the initial moment. It has a management fee that is during the life of that fund. And there is a success fee depending on the return brought to the participants of the fund. The one-off that we have seen this quarter is the success fee that we have achieved due to the extraordinary performance of this fund for our clients. So there is nothing special. There is nothing new. There was -- this was a fund that was created in 2017. It has invested in 33 solar infrastructures and renewables infrastructures. There was an offer to purchase those assets, and that's what happened during this summer. And therefore, it was executed, the figures, to find out if there was an -- a success fee. And this is a result of the success fee. So there is no major complexity on this.We do have more vehicles. I would say most of the vehicles do have a success fee under their agreements, although it is obviously very uncertain that there will be an occasion to find a company or a bid for those assets and then materialize an unrealized gain but that we have -- all the Investment Banking vehicles tends to have this structure of fees. And of course, it's very uncertain if this is something that might be repeated in the future. Hopefully, we might achieve that those extraordinary income can become regular income, but I guess this is very complex.

[David López Finistrosa, Director of Investor Relations]

Thank you. Moving on to costs now. Looking at the inflation growth out there, what are your expectations in terms of expense growth for the next few years -- for the next few quarters?

[Jacobo Diaz Garcia, Chief Financial Officer]

Okay, yes. We do not expect any impact in 2021 regarding this inflation. In following years, there is not -- there are not so many contracts related to inflation. At least for those that are included in the concept of general and administrative expenses, there are not so many, basically potentially rentals and some limited number of contracts. That means that probably inflation might cause an increase somewhere between 0% and 1% of costs in the following year just for this reason.

[David López Finistrosa, Director of Investor Relations]

Thank you. Now regarding other provisions, how shall we think about other provisions going forward for '22 and '23 [ you want ] after this EUR 45 million front loading we just made in the quarter?

[Jacobo Diaz Garcia, Chief Financial Officer]

Yes. I think, as I did mention, the other provisions, we do expect to figure out a reduction, in the overall year, of 10% to 20% in following years. That means that we have this year already -- excluding this extraordinary provision, we are -- already demonstrated that we are reducing 10% to 20%. The effort next year will be again 10% to 20% reduction in the year, and the following year, we do expect as well a 10% to 20% reduction. That means that we might in 2 -- in 3 years time, it's more or less reduce by 50% this charge.

[David López Finistrosa, Director of Investor Relations]

Perfect. Thank you. Cost of risk: Can you provide some color on the expected trends for the next few quarters and also for '22?

[Jacobo Diaz Garcia, Chief Financial Officer]

Okay. So we had a very -- I would say, a better-than-expected year in cost of risk. As you know, we started the year with a cost of risk expectation higher than the ones that we have today. Today, our guidance is in the lower range of 40 to 50 and basically focused -- more focused on 40s. You know that, next year and the second quarter, there will be the end of the payment holidays. And therefore, there will be a good moment to find out which is the reality, but as of today, all the moratoria has been very positive impact. So they have come to an end, the moratoria, in Spain. And results are very positive, like the ones that we've shared. Portuguese operations have just finished their moratoria, so we are very closely monitoring the impact in these first days of October; as of today, similar feelings that in Spain that is positive. Therefore, maybe cost of risk should be similar or a little bit lower in the coming years -- in the coming quarters. And of course, we are not mentioning that the extraordinary provision that we built last year based on the macro scenarios that we have last year has not been used yet. So we do expect good figures on cost of risk for -- in the following quarters.

[David López Finistrosa, Director of Investor Relations]

Thank you. More specific in this quarter, what is driving NPLs up?

[Jacobo Diaz Garcia, Chief Financial Officer]

[indiscernible] -- sorry. I was talking to myself. Yes, I did mention, in this quarter, the NPLs have increased basically in the consumer finance business. And we have some small stage 2 reclassifications, but the focus on NPLs in this quarter and in the whole year is basically on consumer finance. But I want to again share with you that last year, by November, we did a sale of the portfolio. And that will bring a reduction of NPLs in this business. This is something that we try to do every year; and this year, hopefully, will not be an exception.

[David López Finistrosa, Director of Investor Relations]

Thank you. There's also one -- specific questions about whether we are still benefiting from the provision releases in Portugal.

[Jacobo Diaz Garcia, Chief Financial Officer]

I think there's a very little amount of EUR 2 million to EUR 3 million of releases this year [ or the overall year ], but that's it. I mean it's almost irrelevant.

[David López Finistrosa, Director of Investor Relations]

Okay. Ending with the capital: We have questions from analysts regarding the capital ratio being above obviously 12%, our long-term targets, guidance; whether we are considering any extraordinary dividends, buybacks or any other remuneration upgrade.

[Jacobo Diaz Garcia, Chief Financial Officer]

No, we are not expecting any buyback. We want to grow organically with the level of capital that we have, and therefore we will keep these levels of capital. And of course, we will keep our dividend policy of 50% payout, yes, in the coming quarters.

[David López Finistrosa, Director of Investor Relations]

And also on capital, whether you have any comments on regulatory impacts or any expected headwinds going forward.

[Jacobo Diaz Garcia, Chief Financial Officer]

Not for the time being. We are waiting for more information or news regarding Basel IV implications, but as of today, we do not have enough clarity to be able to share with you any thoughts. We need -- unfortunately, we need to wait a little bit more. And once we got some figures, don't worry. We will try to share them with you.

[David López Finistrosa, Director of Investor Relations]

Excellent. Thank you, Jacobo.That's all from us now. Please feel free to contact our investor relations team for any further questions you might have. Many thanks, and goodbye.