Bankinter SA
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Bankinter SA
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Good morning, and welcome to Bankinter Third Quarter Earnings Presentation. As usual, our CFO, Jacobo Diaz, will start with our remarks on the figures. And we will follow up with a Q&A session afterwards. Thank you.
Good morning, and welcome to this presentation of Bankinter's earnings for the third quarter of 2022. As always, the related financial statements were posted on the website of the CNMV a few minutes ago. All related documents can also be found at this time on the Bankinter corporate website.
The Bankinter Group again has been able to close a very strong quarter, and therefore, a very good performance in the 9 months ended September 30 and clearly ahead of our plans at the beginning of the year. 2022 so far has been one of the most complex of recent years with continued macroeconomic uncertainties caused by the difficult geopolitical situation that provoke, among other things, a hyperinflationary environment across all countries and the need of central banks to raise rates more and faster than anyone could predict only a few months ago. All these had different effects and scenarios that impacts our business in a major way, some of them positive and some negative that we will analyze during this presentation.
What we can see very clear is that the group's commercial performance remained strong during 1 more quarter despite the summer seasonality, as is reflected in balance sheet growth as well as in our operating income and pre-provisioning profit figures. Our main highlights of the first 9 months have been a group net profit closed at EUR 430 million, showing a 21% increase or EUR 75 million more than a year ago, more than compensating EUR 40 million Linea Directa spin-off regular contribution in 2021. Return on equity keeps at 11.6%, quite an improvement over 2020 and 2021 performance. Interest rates as well as volumes contributed to solid growth of our net interest income, supported by a strong customer activity that keeps growth in loans and deposits. This is the main contributor of the operating income growth of 7% year-on-year.
Thanks to this growth, income efficiency remains low and under control as of September, bringing pre-provisioning profit to EUR 863 million, an improved 8% growth over September 2020. We maintain asset quality and solvency indicator, flat NPLs and coverage of provisions from December '21 and CET1 ratio at comfortable levels above our long-term guidance of 11.5%.
Here is a brief comparison of our first 9 months on our key financial indicators. Group's total loan book continued to grow by 10% to reach EUR 73 billion, thanks to maintained corporate, consumer finance and mortgage demand, where we had a slowdown in Spain mortgage production more than offset by other geographies and EVO Banco. Gross operating income at EUR 1.5 billion grew by 7% with respect to September '21, showing the strong resilience in the incomes coming from the business, net interest income and fees. After a new trend of cost increase due to the strong operating behavior, we have been able to improve the already good efficiency, allowing PPP to improve the rate of growth to 8% year-on-year from 6% the previous quarter.
NPL ratio shows improvement in line with asset quality indicator and loan growth despite the complex economic situation. It dropped again by 0.3 percentage points to a low of 2.10% in September. Coverage ratio keep increasing year-on-year to 65%, and profit before taxes on a like-for-like comparison. That means only the banking activity before the extraordinary, discounted operations in 2021 went up by 36% over last year to EUR 602 million. Group net profit reached EUR 430 million, a 21% increase from a year ago. Again, not taking into consideration the extraordinaries of the Linea Directa spin-off.
Capital ratio came at 11.90%, very comfortably above our long-term guidance of 11.5% despite market valuation adjustments again in this quarter. The return on equity maintained 11.6% of relevant improvement from previous year and clearly ahead of the cost of capital for the industry.
So following the agenda, first, our 9 months and third quarter results, then risk management to end with a review of the different businesses. Our income statement is starting to show different trends in the main lines of revenue, net interest income and fee income. On one hand, net interest income now shows a very positive trend mainly due to volume increase and the accelerated yield repricing of our loan book. This is reflected in the quarterly client margin improvement, as we will see later.
NII is up a strong 12% from the first 9 months of 2021. On the other hand, fee income shows some slowdown of the growth rate to 2.2% with respect to the previous year due to the extraordinary fees of EUR 45 million booked in the third quarter last year and a continued reduction in the asset under management balances during 2022. Other operating income and expenses became almost negligible, as we will disclose in the next slides, due to a combination of EUR 73 million in trading income and dividends and EUR 74 million of negative regulatory or cost charges. Other expenses were compensated by the income from the equity method.
Thus, total gross operating income, basically the addition of NII plus fees, went to EUR 1.5 million, up 7% from 2021. At the same time, the quality of income remain very high geographically with an increased contribution from Portugal of EUR 133 million; in Ireland, Avant Money contribution of EUR 58 million; in Spain, EVO contribution of EUR 30 million from last year; and finally, the Luxembourg contribution of EUR 14 million additional.
Group's total cost grew by 5% in the first 9 months, mainly from personnel expenses up due to the accrual of performance incentives in this strong operating income year. At the same time, general expenses went up by 4.9% showing a good control in overall expenses in the current inflationary environment. Despite the start of this inflationary cost increase and thanks to the relevant growth in our income, the group keeps improving its efficiency ratio. The increased income above the cost performance allow pre-provisioning profit to improve the rate of growth to 8% from a year ago, showing a strong upward trend.
Loan loss and other provisions are down 27% from 2021. Cost of risk allowances of EUR 173 million are down 8% from 2021, maintained below our guidance of cost of risk for the year and other provisions of EUR 75 million in the period are more than 52% below last year, again, within our guidance for this type of provisions. After the expected reduction in provisions, profit before tax stands at EUR 602 million or 36% above 2021. The EUR 159 million increase of our PBT more than tripled last year pretax profits coming from Linea Directa recurring activity of EUR 40 million. After taxes, the group posted a net profit of EUR 430 million, 21% above last year, again, excluding the extraordinaries from Linea Directa spin-off.
On a quarterly comparison also, we can compare the different evolution of the lines of income. While net interest income posted growth of 16% quarter-on-quarter and 27% year-on-year, fee income is falling by 5% quarter-on-quarter and by 16% year-on-year due to the extraordinaries of 2021. Operating income grew by 20% over the previous quarter and by 9% year-on-year after a remarkable performance that allowed operating costs to increase by 3% quarter-on-quarter and by 6% over the same quarter last year. Thanks to this good proportion, pre-provisioning profit grew by 35% quarter-on-quarter and 11% year-on-year.
After lower credit risk provisions, profit before taxes of banking activity grew 43% in the quarter and 47% with respect to the same quarter of 2021. And finally, quarterly net profit came at EUR 159 million, up 36% from previous one and 44% -- or EUR 45 million -- EUR 49 million from the same quarter 2021 on a like-for-like basis.
Moving into the balance sheet. The group's total loan book grew by 10.3% from a year ago, bringing EUR 6.8 billion in loan growth to reach almost EUR 73 billion. Growth in the quarter, as always happens in third quarter, was only EUR 0.5 billion, coming mainly from our mortgage business of EUR 0.6 billion up. This is including EVO Banco in Spain, Portugal and Ireland's solid performance. Our Consumer Finance business grew by EUR 0.2 billion and the Corporate Banking where loan demand was stagnant during this summer season showed a small decrease by EUR 0.2 million.
Despite this summer season in Spain, lending growth maintained the patterns from previous quarter. Total loan book grew by 6.7% year-on-year, well over the 1.8% for the sector as of August '22, bringing market share increases in both household and corporate loans. In Portugal, lending is up by 13% with an additional EUR 786 million from last December or 11%, in line with our business plan for the year. And retail deposits continued to perform strongly in all geographies at 10.4% year-on-year growth or EUR 7 billion, reaching EUR 76.3 billion of total retail deposits.
Moving on to the NII. Net interest income now has started to show a very positive trend due to the steepness of the interest rate curve and the impact on the yield repricing in our loan books. Mortgages in a small proportion, [ 2 or 3/12 ] more or less, but in particularly in the corporate loan book. Also, the TLTROs increased our contribution from the very stable EUR 12 million in previous quarter to EUR 22 million in this one. All this, together with loan book growth, has made net interest income to grow almost 16% over previous quarter and 27% from the same quarter a year ago.
In Portugal, NII grew by 17% with respect to previous quarter and by 40% respective to the same quarter. The contribution of Avant Money to our net interest income continued to grow. It contributed by EUR 21 million to the group's NII this quarter versus EUR 13 million in the same quarter last year. Same happens with EVO. The NII contribution has been EUR 10 million this quarter versus EUR 7 million a year ago, which is 47% increase. So this important improvement in our net interest income during the quarter is mainly driven by an improvement in our customer margin, together with the loan book growth in the year.
Customer margin improved by 15 basis points from last quarter, thanks to 21 basis points increase in credit yields and 6 basis points increase in cost of deposit, marking the second quarter of '22, the starting point of the customer margin expansion. Cost of deposits increased by 6 basis points in the quarter, has only to do with the wholesale and currency funding since the customer deposit cost continues at minimum and with no signs of change for the moment.
For next quarter, we will continue to see a positive repricing of yields on the mortgage book and on the corporate loan book with 12-month reference rate. All this together with the increase in mortgage fixed rates and growing corporate and consumer lending activity at higher rates makes clear to us a very positive trend of the net interest income going forward.
In this new slide, we have shared information about the TLTROs. So the TLTRO, the total [ tech ] remain at EUR 14.2 billion. And as you see, they will start amortizing by EUR 2.5 billion in December and then following a calendar shown in the left chart until the final amortization on June '24. Let me remind you that we have been accounting or registering the TLTRO income at a blended or accrued rate, always trying to maintain a conservative approach to avoid any step-down in '23 and '24. Therefore, during this third quarter, we took an even more conservative approach adopting the TLTRO's income to the forward yield curve shown in the chart after ECB rate hike expectation. Thus, the impact of TLTRO's income in our NII has been reduced accordingly and will be 0 after first quarter '23. But at the same time, the net margin contribution will be incrementally positive with the new interest earned in the redeposit of the funds at the ECB account.
Moving to the ALCO portfolio. The ALCO portfolio showed some increase in the period of EUR 500 million approx to a total of EUR 10.8 billion. As of the end of September, most of the portfolio sits under amortized cost with no impact in capital ratio and only EUR 1.6 billion remains in the fair value portfolio. Its composition remains unchanged with the Spanish government bonds being 52% of total, other sovereigns 26% and the rest mainly corporate bonds. Other features of the portfolio improved in the quarter with now an average maturity of 8.5 years, average duration of 5.4% and an average yield of at 1.6. After another quarter with volatile bond markets, the small portion of our fair value portfolio will impact negatively on CET1 ratio, similar to the previous one, as we will see in the capital section later.
Moving into fee income. Fee income performed in line with our guidance during the period despite seasonality and lower assets under management fees. Gross fee income was EUR 8 million below the previous quarter, but it continued to show growth of 12% over the same quarter last year, excluding the EUR 45 million extraordinary contribution from Investment Banking. Fee income, main contributor continues to be fees from assets under management despite lower volume due to a very negative market effect in the year. But despite this, we're able to show some growth.
Other fees more related to corporate activity continued to grow strongly and were enough to post growth of total fees by 2% over a year ago, 14% excluding last year extraordinaries. Asset management fees, 33% of total fee, still grows by 4%. The continued commercial activity during all the period helped to offset the market volatility by keeping net inflows in positive. But the strong market effect north of EUR 6 billion make our assets under management to end EUR 1.7 billion below those at the end of the first 9 months of '21.
The second contributor to fees payment and collections from corporate and individuals, activity during the summer has remained strong, and they have been growing by 30% over 2021. Stable insurance and pension fund sales bring fees up 9%, and we expect this line to improve considering our new bancassurance agreement with Liberty Insurance and their business plan in the future.
In other operating income and expenses, here, we disclosed the main components, EUR 73 million of trading income and dividends, showing a small decrease of 7%. Other financial income from equity model, EUR 31 million, an increase of EUR 7 million, thanks to BK Vida, good evolution. The largest negative is EUR 74 million in regulatory charges, showing a 24% increase in the single resolution fund contribution this year. And finally, other expenses totaling EUR 30 million or EUR 12 million more than a year ago, mainly due to growth in prescription fees in our Consumer Finance business.
Moving into cost. Gross operating income for the first period stood at EUR 1.5 billion, an increase of almost 7% from a year ago, although quarterly comparison is not relevant since the flu contribution is only in the second quarter. We can see growth over the previous quarter, a 9% increase over the third quarter of 2021. Portugal and Ireland and EVO have been increasing their contribution to the group's operating income. The first grew by 16%, the second 37%, and the third, EVO, by 42%, following their business plan to become profitable of as soon as possible.
Moving into cost. Group operating costs in the first 9 months totaled EUR 655 million, are up 4.9%, EUR 7 million and 3% from previous quarter. Operating costs from EVO were up only by 2.6% and Avant Money by 24% or growing by EUR 6 million from a year ago when, at the same time, incomes are growing at 37%. In Portugal, costs are up 5%, while the same period of revenues grew by 16%. That means that all these businesses are improving their efficiency.
Personnel expenses are up 4.9% due to the accrual of performance incentives for the first 9 months. General and administrative expenses plus amortizations also grew by 4.9% and are somehow under control, considering the actual hyperinflationary environment. Thus, our efficiency continues to improve quarter-on-quarter and year-on-year. The bank interest stand-alone ratio stands at 41.8% and the group's cost to income as of September dropped 270 basis points to 45.3% on a 12-month rolling average.
We continue to improve our operation efficiency in Portugal, now with cost to income ratio at 50% and in Avant Money at 53%. EVO's negative efficiency is improving very much, trying to get breakeven sooner than expected. With this positive evolution in income and cost, pre-provisioning profit for the first 9 months show EUR 863 million or up 8% from 2021 and 24% from 2020, a very strong performance, thanks to our customer business and geographies.
Cost of risk in the quarter finished at 35 basis points of total credit exposure, bringing the year-to-date cost of risk at 32 basis points, a 5 basis point decrease from previous year. First 9 months cost of risk ended with EUR 186 million, EUR 14 million less than a year ago due to the asset quality stabilization with an increased exposure. We continue to see no evidence of any negative impact in asset quality indicators after the end of the moratoria to individuals in Spain and Portugal and ICO loans grace periods, as we will see in a bit.
We expect this good behavior to continue during the last quarter of the year. We see cost of risk remaining around 35 basis points at year-end. Provisions for litigations continue to fall as predicted by a reduction of just over 50%. We think that for the full 2022, we will keep a similar downward trend to be maintained at 10, 15 basis points of total risk, 13 basis points in this quarter.
Our profit before taxes of the banking activity reaches EUR 602 million, growing 36% over a year ago and almost 4x of 2020. Group net income of the recurrent business for the first 9 months reached EUR 430 million, up 21% from a year ago, including the recurring contribution from Linea Directa and almost 2x from that reported of the first half of 2020, including EUR 105 million from Linea Directa in that year.
Regarding return on equity, we maintain a stunning 11.6%. That clearly outperforms that on years '21 and 2020, including the recurring contribution of Linea Directa. We expect this trend to continue towards achieving the highs of 2019 return on equity soon and improve them. Excluding our small intangibles, the group's ROTE is at 12.3%.
We will move into the management of risk, liquidity and solvency. Nonperforming loans continued our small downward trend despite the difficult and unknown economic cycle. Total NPLs went down by EUR 55 million from September '21. This include EUR 90 million approx annual NPL sale in Consumer Finance and Portugal. With respect to last December NPLs, we are just up EUR 19 million out of a total of EUR 1.7 billion. Growth in NPLs in the year came up EUR 19 million, mainly from our Consumer Finance business in Spain. The group's NPL is reduced again to 2.10%, the lowest point since 2008, and 30 basis points lower from a year ago, mainly due to stable NPLs figures while increasing the loan book and the sale of NPLs in a business like Consumer Finance and Portugal.
In Spain, NPLs stands at 2.3%, 20 basis points below a year and flattish from last December. This ratio continues to be weigh down from the industry average of 3.85%, which is data from July. In Portugal, the NPL ratio remained at 1.3% with only EUR 110 million of NPLs. As shown in the chart on the right, the NPL ratio spend went down to 2-point -- sorry, to 1.8 for households and for corporates came down 20 basis points to 2.7%.
The total provision for nonperforming assets keeps increasing to EUR 1.2 billion, 2% increase. And though this had an impact on our provision coverage, which now reaches 65%, up 4% from a year ago for points. The coverage for foreclosed assets were also improved to 55%, a 7% increase and clearly above the average discount on our sold assets. As you see here, the group's foreclosed assets portfolio has come down by 25% from a year ago or EUR 47 million. The portfolio now accounts for only EUR 137 million. Asset sales in the period amount to EUR 54 million. We sell almost all our repossessed assets through our commercial network with an average discount of 39%, clearly below their provision coverage of 45%.
Moving into capital. Capital ratio stands at [ 11.90 ] basis points. This is 5% more than a quarter ago. Since last December, our return earnings brings an increase of 55 basis points taking into consideration the accrual of dividends of 50% of payout. Capital consumption of risk-weighted assets has been 27 basis points to the growth in the loan book, and other small items plus the IRB deficit reduction brings a positive 14 basis points in the entire period. All these bring our CET1 ratio before market adjustment to 12.46, almost 12.5.
This valuation adjustment in December has been 57 negative basis points, and this is due to the ALCO and the investment portfolio impacted by market volatility. Our ALCO portfolio during this quarter contributes with negative 5 basis points, and the impact in the insurance portfolio from Linea Directa participation accounts for minus 15 basis points in this quarter. Taking all this into consideration, our CET1 ratio stands at 11.90%, well ahead our minimum requirements, one of the lowest in Europe.
Total capital ratio remained at 15.2%, very comfortable level. Leverage ratio at 4.24, increasing from the last quarter. And finally, the 21.3% ratio for MREL, which remained well ahead of the 18.7% requirement of 2022.
Moving to the next slide. Increases in customer deposit keeps our funding up in negative territory from minus EUR 3.9 billion a year ago to minus EUR 4.5 billion commercial gap as of September. This negative gap in Spain more than offsets the gaps coming from other countries, both having higher lending growth than deposits. Loan-to-deposit ratio remains record levels of 94.2% from 94 while keep growing our loan book above the market average, but at the same time with consistent growth in deposits over the last few years.
Let's move on into the following section. Let's review the main business lines. The corporate loan book in Spain and Portugal grew by 11.5% year-on-year. That is over EUR 3.2 billion net growth in 12 months. This increased 11.1% in Spain, while the sector now grows at 3.3 data from August. This growth started in the first quarter of the year and was increased strongly during the second, mainly in working capital facilities, funding or financing the pickup internal demand and probably some anticipation of financial needs ahead of an interest rate increase.
In Spain, in this third quarter, loan book decreased by EUR 0.2 billion to EUR 28.4 million. Despite this impact, we keep increasing our market share to 5.9% from 5.5% a year ago. So loan growth from December '21 has been different depending on the segments, 20% -- sorry, 12% in large corporates, 3% in mid-corporates and just 0.7% in SMEs. Total ICO loans with the state guarantee as of September '22 were at EUR 6.1 million. Only 40% of them had extended maturity or grace period, and our ICO loan portfolio showed only 2.9% NPLs ratio and additional about 7% of them became Stage 2.
Some indicators of the strong commercial activity incorporates during the first 9 months are the loan production, 40% up from a year ago; income from corporate transactional volumes, which is related to working capital facilities, 41% up; and then the corporate activity is probably -- which is very high, very strong, is international banking, which is growing by 44% from a year ago to EUR 179 million. That's 27% up -- sorry, 27% of the total corporate banking income.
Moving into Wealth Management. Net new patrimony from our customers keep growing on a continued commercial activity, adding both patrimonial services, private and personal banking. Assets under management grew by 7% in the year. The strong commercial activity during the year more than offset the negative market effect in the customer's patrimony in this difficult environment. Total assets from customers in both segments at EUR 81.6 billion as of September, which is down by 1.1% from June '22 or a small 1% decrease.
Moving to retail. The activity into retail banking has remained strong. Salary account balances continued to grow. They are up 15% from a year ago, totaling EUR 16.6 billion. Mortgage origination in the period of EUR 5.1 billion was 19% above of the last year despite the slowdown in Spain that was more than offset by the increased contribution of Ireland, of Portugal and of EVO. In Spain, our market share in new mortgages remain at 6.9% at August '22, coming down from last year as a result of the increase in the rates in our fixed rate mortgages, but with more profitability and with better quality since only 43% of mortgage granted last month were fixed versus 66% a year ago at a much higher rate with an average loan to value in the mid-60s. Despite this change in behavior in Spain, total mortgage back book keeps growing at 9% and reached EUR 33.4 billion. And in Bankinter Spain, we remain growing at 1.6%, while the rest of the market now grows at 1.3.
Moving into asset management business. This business suffered from market volatility, particularly in third-party funds while we keep growing year-on-year in our own mutual funds, those we manage in our assets under management company. Pension funds and [indiscernible] also suffered from the markets impacting the asset valuation. And despite another difficult quarter of the year, assets under management from customers added to EUR 35.6 billion, only EUR 1.8 billion less than a year ago. In the case of our own managed mutual funds, net new money in the first 9 months has been positive and able to offset the huge negative market effect, bringing the total mutual funds managed to EUR 10.6 billion, only EUR 400 million below '21.
Moving into Portugal. Loan book grew by 13% to EUR 7.7 billion. Retail funds grew at EUR 6.3 billion, 12% more. The growth in the loan book was in both corporates, up 18%, and in retail, 11% up. Balance sheet at EUR 3.8 billion remained almost flat from June '21 and down 9% year-on-year. As of the income statement, operating income from the business grew by 16% and cost shows a 5% increase in line with our plans for improving efficiency. All of the above brings pre-provisioning profit up by a strong 30% of June '21. Portugal profit before taxes was EUR 54 million, 33% increase from last year. And there shows an efficiency ratio of 50.4%. Just bear in mind that it was 100% in 2016, not too far ago.
Moving on to Consumer Finance. Consumer Finance at the end of the quarter totaled EUR 5.2 billion, 56% up from a year ago, and with a new production of EUR 2.5 billion in the period or 141% over the same period last year. More than half of this growth is due to the Irish mortgage production. Without this specialized loan book, total loan book grew by 21% to EUR 3.7 billion. Geographically, the total loan book includes EUR 2.1 billion from Ireland Avant Money, growing by EUR 1.4 billion in the first 9 months. Out of them, EUR 1.2 billion is new mortgages and EUR 374 million from Bankinter Portugal, growing EUR 83 million in the period. And the rest, EUR 2.6 billion is Spain, where the loan book grew by EUR 400 million in the first 9 months.
Today, loan book has changed very much its risk profile with now personal loans representing 47%, almost 50%, growing 33%. Household mortgages in Ireland now represents 28% of the total loan book, growing by almost 5x and a market share of close to 10% in the new drawdowns in Ireland. Transactor credit cards outstanding represents 16% of total with 10% growth and revolving credit cards now less than 7.8% of total, down by 8% in the year. We continue to feel very comfortable with asset quality. NPL ratios of September stands at 4.2% from 7.5% in 2021, provision coverage at 93% and cost of risk at 2.4%, much below 3.7% a year ago.
Moving into Avant Money. It is remarkable that since they have started the household mortgage lending business in 2020, they have been able to reach 8.5% of the new mortgage production in the first half of '22, just 1 year after the launch. During these first months of the year, the new production came at EUR 1.2 billion, and this new activity, together with the recovery of the Consumer Finance where personal loans have grown by EUR 109 million or 40% in the period and credit card outstanding growing at 18%, all of this has made the loan book to increase by almost 2.7x in a year and, at the same time, improve their very good asset quality ratio now at 0.4 NPLs with a very low cost of risk of 0.9.
And finally, EVO. At EVO, the new mortgage granted from December were EUR 727 million. This is 33% more than the origination of last year first 9 months, making total loan book to grow to EUR 2.4 billion, up 47%. Subsequently, net interest margin jumped by 34%. Consumer and personal loans came slightly up to EUR 86 million, growing 31% from a year ago and represents 3.4%. As for liabilities, EVO has EUR 3.8 billion in retail deposits, up 4%, and EUR 246 million in off-balance sheet funds, which includes investment funds of EUR 134 million.
Client acquisition has been over 39,000 in the period for a total of 711,000 customers. Management ratios, NPL ratio stands at EUR 0.58, and cost of risk, just EUR 2.3 million. In P&L terms, the EUR 30 million operating income is still not enough to cover the EUR 41 million of operating expenses in the period. Thanks to a very low cost of risk, it shows losses of only EUR 14 million.
So here, we bring some new indicators of our [ 3D CG ] plan, strategic and transversal plan with specific actions and targets to be developed. I presume of measures taken in relation to the bank is ESG environmental performance in the quarter are in the environment dimension, after ending the climate stress test performed by the ECB ahead of the average Spanish banks, we are now involved in our decarbonization strategy. In the social dimension. So mergers have been taken to improve in digital accessibility for the web or mobile apps. And also within the social dimension, new programs of financial education have been implemented. On the governance dimension, we continue to follow the good governance growth with one of the highest percentage of women in the Board of Directors, 45.5% as well as independent members 40 -- sorry, 54.5%.
Okay. We're coming to an end. A brief recap. High-quality set of management ratio, return on equity, 11.6%; efficiency, 45.3%; NPLs, 2.1%. Very strong commercial activity with a remarkable growth in loan and deposits over the previous year, maintained a comfortable asset quality and solvency indicators, very strong buffer from regulatory requirements and foreign financial performance that more than offset previous Linea Directa income.
So after finishing or closing a very successful first 9 months in commercial activity, income performance and asset quality and in view of an increasing complexity in the macro scenario going forward, I will try to provide to all of you our revised guidance for the full year 2022. And if you don't mind, we will keep the 2023 guidance for the last and final '22 quarter. So therefore, first of all, loan growth. I think we remain -- the loan growth will remain high until the end of the year in all geographies, while the mortgage lending slowdown in Spain, particularly in fixed rate, will most probably be translated to other markets, Ireland, Portugal, EVO Banco in Spain.
In Bankinter Spain, we expect for the rest of 2022 that the corporate loan book and the consumer finance activity will end the year with this current growth. More difficult will be to predict how 2023 will look like on these 2 businesses. We prefer to wait until next quarter to provide you a better guidance on those. What is clear to us is that with the new and steep interest rate curve, net interest income will show solid growth, thanks to the loan book repricing. This will make our NII income to grow by double digit more than the previous mid-single-digit guidance that we have for this year.
The increased activity with corporates and individuals will continue to support fee income. Then assuming stable markets for the remaining of the year of mutual funds, we believe all this should provide support to keep fee income ahead of last year and even grow by low to mid-single digit, slightly below that what we predicted at the beginning of the year. Taking in consideration the EUR 45 million extraordinary fees of last year, fee income maintains a very strong performance anyway. Now it's clear that the group gross growth, although with some upward pressure from inflation, we remain under control and under income growth for the rest of the year, improving the group actual or current efficiency levels.
Pre-provision profit will grow approaching double digit. And cost of risk. cost of risk is expected to continue under control. We expect to be in the entire year, again, around our guidance of 35 basis points while keeping a very strong prudent approach to unexpected or adverse events in the last quarter as economic slowdown and inflation pressures might impact the real economy.
And now I'll be happy to take your questions. Thank you.
Thank you, again, Jacobo. Let's probably start with the -- you can't just comment on the changes to the 2022 guidance, just the changes. You just went through the guidance on any P&L.
So the changes are on the net interest income that we have increased our guidance to a double-digit growth from a single-digit growth. And we have reduced a little bit our guidance on fees from a mid-single digit to a low to mid-single digit.
Excellent. Thank you. We have plenty of questions on NII, as you would expect, given the performance in the quarter. So let's get on it. NII growth. Could you break down the NII growth in the quarter? Are there any one-offs?
Okay. First of all, there is no one-off, no single extraordinary items in the NII. So in the quarter, the growth in NII is concentrated in the growth in income of the corporate loan book, the growth in income of the mortgages and the growth in income from the TLTRO programs. So the largest impact comes from the corporate loan book.
So the corporate loan book -- just bear in mind that there is a large component of the corporate loan book, which is a variable-rate-related. Around 65% of our loan book is linked to variable rates. Bear in mind that since the first period of this quarter, Euribor rates were close to 1%, 0.91%. And today, we are at 2.6%. There has been a very sharp increase during the month of August. The month of August has started at 1% and ended up almost a 2-point something. And therefore, the book -- the corporate banking book repriced much, much faster either because their variable rates that repriced immediately or either because there are working capital facilities with short-term of 30 days, 60 days, 90 days. And therefore, the repricing has been very, very strong.
So I would say more or less that out of the EUR 55 million of increase in this quarter, I would say that around EUR 25 million, EUR 30 million comes from the corporate banking book, EUR 15 million to EUR 20 million comes from the mortgage book and EUR 10 million comes from the TLTRO as you've seen in the slide. But basically, there is -- in the quarter, these are the impacts, which is quite rate-related and TLTRO-related. But comparing year-on-year, there is a very strong growth, I remind you, of 10% of the loan book that has grown.
Thank you. What is the outlook for the coming quarters given the repricing trend that we are seeing?
Okay. This is the reason why we have updated or increased our guidance. We do expect that the corporate loan book reprices faster than the mortgage book. But bear in mind that the mortgage book is repricing also with very high levels of income, increasing our client margin. This is something that takes, as you know, maybe 18 months, maybe 24 months until the full book is fully repriced. Once again, we come from Euribor rates that used to be at minus 50, and we are living with Euribor rates which are at 2.5% or 250. That means almost 300 basis points repricing impact that we will see in the next 18 to 24 months. So therefore, there is a positive trend.
Regarding the trend in TLTRO, I think we've -- I had to explain a little bit in the presentation. So basically, what you see is that we have -- we were using the accrued recording of the cost of the TLTRO. We have been as much as prudent as we tend to be in other topics. So we do expect that potential income, additional income comes basically from the remuneration of the amount at the ECB account, while the income from the TLTRO itself, now it has to an end.
Okay. On the TLTRO topic, what is your view on the outcome for TLTRO and excess deposit remuneration that could be announced by the ECB in coming weeks? The TLTRO and excess deposit remuneration, the conditionality that might be changed by the ECB, what is your view there?
We -- I mean, of course, we don't have an opinion. I don't think that changing the rules might be -- in the middle of the game may be a good idea. I think that changing the rules of the game will oblige bank to make, I would say, non-forecasted business decision. There might be decisions to use the extra liquidity into new projects. So I think it's too early to know or to understand what the ECB is thinking about this. But -- which is -- I don't think it's a good idea is to change the rules in the middle of the game. I think that TLTRO has been a very good program to incentivize funding and liquidity in the real economy. I think that was the main goal. I think that goal has been achieved. And I think that's been a very good program.
It's been a very useful tool, has helped to maintain the flow of resources into the banking sector to the real economy. And I think any change will affect certainty and credibility of the tool. And I don't think that this might be a good idea.
Thank you. What are we expecting from the TLTRO contribution in coming quarters?
Okay. As I did mention, the TLTRO that used to be an income is not an income anymore since we have used the expected ECB rates that we have shared with you our own expectations. So therefore, from that side, there is no additional contribution. However, the contribution will come now from those resources allocated at the ECB rates.
Thank you. Given that we are using that ECB terminal rate deposit facility rate at [ 2 25 ], are we using that rate also to forecast '23 and '24's NII? Is that your base case scenario?
Interest rates are changing with the expect -- ECB rates are changing. I don't know with a lot of every week. So it's difficult to predict what will be the figure for the coming quarters. Of course, this is the rate that we think they can be a reality. But honestly, we haven't been able to forecast properly rates in the past quarters. So I wouldn't be so sure that this can be the rates in the future. They might be higher, but we don't know.
Okay. And any updates on our rate sensitivity given that we are also already seen an increase on our NII Q3 on Q1 of 25%?
I think that we -- I think the rate sensitivity is clear that we mentioned that every 100 basis points should be around 10% to 15% increase in NII in the following 12 months. So this is a rule that is still applying properly. And I think there is no change in the rate sensitivity. You know that our mortgage book has 70% of variable rates. You know that our corporate banking book is around 60% to 65% variable rates. So these are the figures.
Thank you. We also have a question on how much -- what percentage of the ALCO portfolio and also the fixed rate mortgages are swapped to floating rates.
Yes, I did mention that it was not a very relevant amount. It was around less than 5% of the total book. So it's not -- yes, it's around EUR 2 billion, EUR 2.5 billion.
Any targets in terms of ALCO portfolio size?
No. You know that we have a reference, which is around 2x our equity. Just bear in mind that our equity is around EUR 5 billion, so we are now at 10.8. So I mean potential increases. Again, as I mentioned in the past, should be very, very small.
Thank you. Also, we had a question on how much of the balance sheet has repriced already at current rates?
We mentioned that regarding the mortgage book, I would say that probably [ 2/12 ] or [ 3/12 ] of the book has been already repriced. But bear in mind, with the rates of July and the rates of August, now August has been a very strong month in Euribor increase of rates of around 150 basis points. So the repricing of the following 12 months is going to be again quite high. And regarding the corporate loan book, I would say that probably half of the book has already repriced as it repriced much faster than the mortgage book.
Okay. In terms of customer deposits, can you explain what are we seeing in the quarter? What are you expecting in terms of deposit beta customers moving towards turn deposits, et cetera?
For the time being, there is no signal our deposit remuneration. The current ECB rates is still at 0.75, which is still a very low level. So for the time being, no news on this side.
Thank you. In terms of loan demand, what are your bills there? What are we seeing, any slowdown in the mortgage book, in the new production?
As I mentioned, the mortgage demand in Spain has been slowing down since we were the first to increase rates in our mortgage commercial offer. So therefore, the demand was lower than previous quarter. We are applying the same policy of increasing rates in different geographies and different businesses. So potentially, there will be a reduction in the demand of mortgages in all the geographies during a period until the rest of the competition adapts to new high prices or new high rates in the fixed rate mortgages. So we do expect this is just some months of a slowdown in the demand. For the rest of the business, we have no change or we don't have a different vision on the level of growth in the corporate book or in the consumer finance book. It's just on the mortgage demand just based on the increase -- on the sharp increase of interest rates.
Okay. Also, we've been asked whether we had any targets for loan growth in Ireland and Portugal and also whether we can analyze or put some color to the new production of mortgages in Ireland.
So again, as we are increasing rates in all the geographies, we do expect lower rates of growth in all these geographies regarding the mortgage business. Regarding the rest of the business, we are still with the similar assumptions of growth of the activity. We see that corporate activity is still strong and the consumer finance activity is still strong. So there is no reason why we should change our views on those business.
Thank you. Can you explain what is the guidance for cost growth expenses?
As you know, we have the mantra that the increase of cost is always below the increase of income. So this is our main guidance. And as you can imagine, we are under the same inflationary pressures than anybody else. But we do our best to keep under control our cost. I think the figure that we're seeing today of plus 5% shouldn't change until the end of the year, not so -- if it change, it will be minimum changes. And this is -- I think this is our view for the coming months. We don't know yet for 2023. It's still a little bit soon to really understand the impacts on other topics based on inflation. But for the time being, the current levels of growth should be similar at the end of the year.
Thank you. On credit quality, are we seeing any signs of deterioration? Also, any reasons to explain the growth in Stage 2? And what are your expectations for cost of risk going forward?
Yes. We haven't seen any single indicators that make us concerned about credit risk. This is a reality. And we've shared with you the ICO volumes and the ICO NPLs and the ICO Stage 2. So nothing has changed since last quarter, and we do not have any new indicator. Regarding the Stage 2, this is something that we changed in the second quarter of the year. And I did mention that we changed some parameters of our internal models that makes more restricted the harder -- the minimum of harder level to become Stage 2. So the volume of Stage 2 has increased but not the cost of risk related to this change. So it's just change in the model. It's not a change in the delinquency levels or the NPL levels.
Thank you. In terms of risk-weighted assets, can you explain the decline in the quarter despite the loan growth?
Yes. Normally, every quarter, every -- this is a seasonal effect. We do have a reduction in some -- in the mix of the growth of the loan book. So the third quarter in Spain normally has a negative seasonality. In this quarter, we have really grown a little bit, but basically in products like mortgages with a much lower consumption than others. So we have declined in some products that have a higher consumption like corporate banking and being compensated with others, which -- with low capital consumption. So this is the only unique effect.
Thank you. Any news or any -- about the new tax on banks and any estimates from potential impacts.
No. For the time being, we're still waiting for a detailed tax that can provide us more views on how this tax will be implemented. So unfortunately, and sorry for this, but I cannot share with you more information because we don't have the detail of this new tax.
Okay. Any comments on the Linea Directa stake?
No. No comments. We're fine with Linea Directa.
And also very much on the news this days. Any comments on the new mortgage proposal refinancing for households? Any impact estimates?
No, we are happy to support any client with potential difficulties. We have always support our clients in trying to meet their commitments. Anyway, I think this measure will have a limited impact in our business as the level of -- the type of clients of our institution is different with -- tends to have a medium to high net income and large wealth. So we don't think that our clients could be in the position of meeting this criteria, even though any client that might need the support or may need to change because of interest rates. Of course, we are very prudent in our credit policies, credit risk policies, and we will review everything in order to make sure that our clients meet their commitments without problems.
A couple of more questions on asset quality. Can you comment on the NPLs on the ICO loan book and also whether we have any changes on the COVID reserves overlays, I guess.
Okay. Regarding the ICO loan, we still have an NPL of 2.9%, which is very, very stable, and similar levels of Stage 2, around 7% to 8%. So nothing has changed there. And even the behavior of that part of the book that had grace period, the figures are exactly similar to the entire loan book. So no changes. And regarding the overlay provision, no news. Similar level. Nothing has changed even with the new macro scenario.
Okay. Two final questions, promise. Is the collected agreement being reviewed for banks?
No. As far as I know, nothing has been signed or we have no news on that yet.
Last question. Do we reiterate the EUR 550 million net profit for 2023, including the new tax impact?
I think this is a commitment, and we are sticking to that commitment for next year.
Excellent. Thank you, Jacobo. Thank you, everyone, for joining us today. Obviously, the Investor Relations team is at your disposal for any further information.
Thank you very much, and hope to see you soon. Bye-bye. Take care.