Bankinter SA

MAD:BKT

Earnings Call Analysis

Bankinter Reports Solid Growth in 2023

Bankinter Group has showcased a robust performance, marking a strong third quarter in 2023. The bank's net profit reached 685 million EUR, a significant 59% year-on-year increase, with strong ROE and ROTE of 17% and 18%, respectively. The group's loan book rose to 75 billion EUR, with a 3% growth since the previous year, and customer deposits rose similarly by 3% to 78 billion EUR. Off-balance sheet assets grew by 17% to 42 billion EUR. Gross operating income surged by 32% to 2 billion EUR. Pre-provisioning profit climbed by 51% to 1.3 billion EUR, with a fine-tuned full-year growth guidance of low to mid-single digits. Net interest income significantly jumped by 54%, and fee income nudged up by almost 2%. The bank expects NII growth guidance to hit the high range of 40-45%, and the cost of risk should maintain at 40 basis points.

Bankinter Sees Solid Growth Amidst Economic Headwinds

Bankinter is pushing against the tides of economic turmoil with remarkable resilience. The bank's total loan book expanded to EUR 75 billion, marking a 3% increase from the previous year, a feat particularly impressive given the contraction in Spain's mortgage demand. This growth, powered by advances in corporate, consumer, and mortgage businesses across different geographies, notably positions Bankinter ahead of its sector peers, who are experiencing a decline in their loan books.

Deposits and Managed Assets Heighten Bank's Stability

Deposit inflows continued to shore up Bankinter's financial stability, with customer deposits swelling by 3% to EUR 78 billion. Aligned with this, the bank's management of off-balance sheet customer assets saw a tremendous 17% surge, reaching EUR 42 billion. These indicators reflect the customers' trust in Bankinter, setting a solid foundation for its operational sustainability.

Earnings Soar as Interest Income and Service Fees Climb

Bankinter's earnings narrative has been one of impressive growth, as gross operating income jumped by 32% to EUR 2 billion. The net interest income, a significant earnings driver, soared by 54%, due in part to a proactive loan book repricing strategy. Additionally, service fees have seen a nearly 2% increment, indicating strong commercial activity, especially in mutual funds. Despite a hyperinflationary backdrop, the bank successfully managed operating costs, contributing to a 51% increase in pre-provisioning profit to EUR 1.3 billion.

Bankinter Maintains Robust Financial Health

The nonperforming loan (NPL) ratio displayed marginal improvement, while profit before taxes surged by 67% compared to the previous year, to just over EUR 1 billion. This robust performance is complemented by a CET1 fully loaded capital ratio of 12.5%. The group also reported a net profit increase of 59% to EUR 685 million—even before the year-end—which represents a new all-time record for the bank.

Geographical Diversification Fuels Income Growth

Bankinter's international diversification strategy is bearing fruit, with its various geographical segments delivering strong contributions to the total operating income. Notably, Portugal added EUR 231 million, Avant Money in Ireland contributed EUR 71 million, and EVO in Spain supplied EUR 51 million, growing by 22% and 71% from last year, respectively. This geographical spread of income sources is pivotal for the bank as it navigates the fluctuating market conditions.

Cautious Expense Management Amid Rising Profits

Despite an increase in gross income, Bankinter has consistently emphasized cost control. The bank's overall expenses have increased by 7%, which is notably moderate given the current economic challenges. This controlled approach to expense management, coupled with a diligent focus on maintaining customer margin, has propelled the pre-tax profit upward, as evidenced by the 67% increase from the prior year, solidifying the bank's financial standing.

Forward-Looking Guidance: A Positive Outlook

These strong performance indicators have allayed fears and laid the groundwork for an optimistic outlook for the remainder of the year. Bankinter anticipates continued growth in net interest income, which has grown by 4% in the last quarter and 43% from the previous year. With this upward trajectory in income, the bank expects to revise its guidance for the year positively, sharpening focus on customer margin and commercial activity.

Earnings Call Transcript 2023-Q3

[David Lopez, executive]

Good morning, and welcome to Bankinter Third Quarter 2023 Earnings Call. As usual, our CFO, Jacobo Diaz, will brief you on the details of our figures, and we will follow up with a Q&A session afterwards. Thank you.

[Jacobo Díaz, executive]

Hello. Good morning, everybody, and welcome to this presentation of Bankinter's earnings for the third quarter of 2023. The related financial statements were posted on the website of the CNMV a few minutes ago before market opens. All related documents can also be found at this time on the Bankinter corporate website.

After closing the first 9 months of the year, we can reaffirm with much more clarity the outstanding performance of the Bankinter Group during the period. Despite the summer seasonality, Bankinter has been able to post another strong quarter in its P&L, as we will see in a minute, and in volume growth in and off balance sheet that allowed us to maintain in the hopes of closing 2023 with record figures. The strong commercial performance of our banking activity and our natural ambition to grow, make us believe and predict growth in both balance sheet size at year-end and record figures in our operating income and pre-provisioning profit.

To secure this view, here are some of our main highlights of the first 9 months. The group's net profit closed at EUR 685 million, showing a solid 59% increase from a year ago. Return on equity reached 17% and ROTE at 18%, resuming the very strong performance in all our business lines and geographies. Continued income growth supported by the new higher-for-longer rate environment and by customer activity reflected in differential volume growth in every balance sheet item, loan book and deposits as well as in of balance sheet products. This is expected to continue in the following quarters to reaffirm Bankinter as the outlier in our domestic banking sector, and with improved asset quality and solvency in the quarter, as you will see in a minute.

So moving on, this is a brief comparison against last year's first 9 months in our key financial indicators. Group's total loan book grew in the year to EUR 75 billion, up 3% from September '22, helped by the positive evolution in other geographies in their Corporate, Consumer and Mortgage businesses and despite the lower mortgage production in Spain. Customer deposits at EUR 78 billion continued to grow by 3% and, at the same time, off-balance sheet customer assets managed of EUR 42 billion grew by 17%.

Gross operating income at EUR 2 billion keeps growing by 32% with respect to September '22, showing the strong performance in the net interest income that, together with a recovery fee income and particularly in this quarter with no other expenses from regulatory charges supports the strong growth. Pre-provisioning profit reaches EUR 1.3 billion, a growth rate of 51% year-on-year. After the sequential cost increase in the quarter, we keep operating expenses under our guidance for the full year and controlled growth.

NPL ratio shows 3 basis points improvement since last quarter with a stable asset quality indicator. It is up 9 basis points from a year ago due to the loan growth to 2.19% at the end of September. Coverage ratio rests still at 66%. Profit before taxes went up by a remarkable 67% over last year to just over EUR 1 billion. Group's net profit stands at EUR 685 million, a 59% increase from a year ago. And CET1 fully loaded capital ratio is up to 12.5%, an increase in the quarter due to the higher return earnings and lower loan growth, and is up 59 basis points from September '22.

Return on equity reflects this improved performance and shows a best-in-class 17%, clearly ahead of that of previous years and the new cost of capital applied for the sector. ROTE reached 18.2%. We will follow the usual agenda with our first 9 months and third quarter results, then risk management to end up with a review of the different business lines and geographies.

So we're moving to the P&L. The group net interest income maintained a strong upward trend, thanks to the continued loan book repricing ahead of the increase of customer deposits. But in Bankinter, it's relevant to highlight that the net interest income growth is not only coming from interest rate. In our case and different from the rest of the sector, it also reflects the loan book resilience and deposit growth, together with very good client margin management. This is why it's up 54% to EUR 1.6 billion from the first 9 months of last year.

As I have already mentioned, fee income has to recovered. Growth trend to EUR 459 million, almost 2% up from last year and supported by our commercial activity in mutual funds and despite a small recovery of the average fee, together with the support of most of our corporate banking fees, which are growing at double digit. Other income and expenses are EUR 93 million lower than a year ago, that means more negative, due to the extraordinary banking tax paid in the first quarter of this year of EUR 77 million and also due to lower dividends from Linea Directa.

Total gross operating income at EUR 2 billion went up by 32% from '22, but more relevant with a strong contribution from our different geographies. Contribution from Portugal of EUR 231 million; from Avant Money in Ireland and EVO in Spain at EUR 71 million and EUR 51 million, growing by 22% and 71% from last year, respectively. Group operating costs at EUR 700 million remained under our guidance and control. In Portugal, costs are contained, growing by EUR 4.5 million or 7%. Costs from Avant Money were up by EUR 1.4 million or only just 4%. And in EVO, they went up EUR 5 million or 2%.

The group total cost grew by [ 7% ] in the first month, again, from personnel expenses that went up by 7% due to our salaries, annual review and performance incentive during the first half. On the other hand, general expenses went up by 6%, showing good control in overall expense in this hyperinflationary environment. This continued trend of increasing incomes above the cost increase has made our PPP to reach EUR 1.3 billion, growing 51% from a year ago.

Loan loss provisions and other provisions are up 16% or EUR 41 million. Cost of risk allowances of EUR 238 million are up 28%. Control and below our guidance of cost of risk for the year and provisions of EUR 64 million, which are down 14% from the EUR 75 million of last year. After provisions, profit before taxes stands at EUR 1 billion or 67% above the results of last year. The EUR 402 million increases in our PBT includes EUR 77 million of the banking tax paid. Our profits always came mainly from recurrent customer activity, with a small and stable contribution from ALCO, TLTROs and any other capital market activity.

In our view, this reflects our success in the objective of diversification of sources of revenue, coming only from customer business and in different geographies. After a 29.5% tax rate, the group posted net profit of EUR 685 million, a new all-time record of any year and achieved at 3 quarters of the year. We believe this set of results shows a very strong performance, and they are clearly above our initial expectations for the year in customer margin and in commercial activity. This strong trend in income despite the necessary caution in cost and the future evolution of credit risk will be reflected in an upward fine-tune of our guidance for the year later on the presentation.

In a quarterly comparison, we can see the very positive evolution of NII, which keeps growing 4% in the quarter and 43% versus last year. Also fee income is up 3% in the quarter and close to 5% year-on-year, mainly due to some improvement in average fees in mutual funds and sustained evolution of activity and corporate fees.

All in all, operating income shows growth of close to 10% quarter-on-quarter and 31% year-on-year on the same third quarter. Seasonal operating cost increased by 6% quarter-on-quarter and by close to 9% over the same quarter last year. All these results in a provisioning profit that increases by a strong 12% on the quarter and by 46% year-on-year. Finally, quarterly net profit came at EUR 267 million, up 14% from previous quarter and $808 million or 68% above the same quarter.

So moving into the balance sheet. The group's total loan book grew by 2.8% from a year ago, bringing in EUR 2 billion in net loan growth to reach EUR 74.9 billion. In the quarter, it grew by EUR 0.3 billion despite the contraction in mortgage demand in Spain, but more than offset by loan growth in other geographies and in EVO Banco. In Spain, with lower demand in mortgages in Bankinter and in EVO.

Thanks to a resilient corporate and consumer finance demand, loan book increased by 0.7% year-on-year in a sector that is now clearly showing contraction in their loan book by minus 3.2% as of August. That's bringing market share increases for Bankinter in both household and corporate loans. Although long-term financing is still contracting, the contribution from working capital, Supply chain finance and other international trade activity, together with a still small content from next-generation EU funds, is providing resilience in our Corporate Banking loan book.

In Portugal, lending is up by 13% from a year ago, with an additional EUR 735 million or is up 9% from last December, in line with their business plan for the year. On the right, the retail deposits continued to perform well in Spain and Portugal, growing at 2.6% year-on-year or close to EUR 2 billion to EUR 78.3 billion. They were up by 1.3% in Spain from a year ago, while the market now is largely contracting by minus 2.2%, bringing again market share on domestic deposit close to 4.1%, with the last available data. In Portugal, deposits grew by 14% in the period or EUR 912 million, also grew 16% year-on-year to reach EUR 7.3 billion.

Now let's talk about NII. NII maintained a strong trend following the interest rate path of the ECB and the loan book growth. NII grew by 2% -- by 5%, sorry, over the last quarter and by 54% from the same period last year. This is due to the continued repricing of our corporate loan book and the steady repricing of our mortgage book at a higher rate. And at the same time, keeping deposits cost under controlled growth as we expect it will continue in the following quarters. Also, consumer loan book growth, retail deposits balance growth helped the NII bring positive evolution.

In Portugal, NII in the period grew by EUR 96 million to EUR 184 million more than 2x the NII in first 9 months of last year and by 5% in respect to the previous quarter. The contribution of Avant Money to our NII was EUR 68 million in the period versus EUR 57 million the same 9 months last year, or 21% growth. In EVO Banco, net interest income contribution has been EUR 49 million versus EUR 26 million last year or 86% of growth. This solid trend in our NII has been driven in a relevant matter by the continued improvement in the customer margin.

We see on the right, the customer margin improved again 4 basis points from last quarter, thanks to the 39 basis points increase in credit yields to 4.12, and 35-point increase in customer deposits, making another quarter of customer margin expansion and somewhat reaching a plateau in customer margin since first quarter of '23. The customer deposits increased from 74 basis points to 1.09 at the end of the quarter. And the ongoing transfer to term deposits and treasury accounts continue steady by slower and with no relevant signs of change in pattern going forward.

The 94 basis points customer margin increase year-on-year represent our good management of the spread between the positive repricing of your variable rates in loan book supported by the increase in lending rates in the new production of Mortgages, Corporate Lending and Consumer Finance. And at the same time, the contained cost of customer deposits in the rate sensitive one segments. For another quarter, we continue to show positive customer spread delta. This, together with a higher-for-longer interest rate environment make us believe that the positive trend of NII will continue in the following quarters.

Talking about the ALCO portfolio, it shows a EUR 0.3 billion increase in the quarter to EUR 11.4 billion. 84% of the portfolio remains under amortized cost with no impact in capital ratio, and the rest in fair value. After another quarter in volatile bond markets, unrealized gains before taxes sustained in the fair value portfolio were reduced to EUR 87 million, with a very small impact in our CET1 capital ratio. The portfolio's characteristics remained stable in the quarter with an average maturity of 8.5 years, average duration of 4.1 and yield at 2.2%.

The ALCO portfolio remains at comfortable levels of around 10.6% of total loop assets and 2.2x the equity of the group. The distribution by sovereign risk continues to be at 76% of the portfolio, and the maturity breakdown very stable with no concentrations over EUR 1 billion until 2028.

Moving into fees. The fees -- the fee income improved -- improves its performance in this quarter despite a lower average fee in AUMs. On the other hand, fees continued to be supported by good corporate activity. Gross fees received are up by 2.6% in the period and net fees by 2%. We believe that in the second half, fee income will show a better comparison, particularly in investment funds that will start to compare better from the previous year second half.

Fees from asset management were 24% of total fees and still decreased by 4% due to the lower average fees. A strong commercial activity during the period reflected in volumes has not been able to offset the 5 basis points reduction of average fees from September '22. Fees from payments and collections performance have continued, still strong, and they have been growing by 12%, mainly in Corporate Banking to reach EUR 135 million.

With positive trend in client trading and custody, make fees grow by 5% to EUR 89 million in the period. And risk-related transactions are up by 9% or EUR 71 million, also a reflection of the corporate activity. Quarterly fees shows a positive trend towards achieving our guidance for the year. Other income and expenses, main components are EUR 58 million of trading income and dividends, with a decrease of 21% due mainly to the lack of LDI, Línea Directa, dividend in the year. Other income from equity method at EUR 25 million, a decrease of EUR 7 million. And on the negative side, EUR 143 million in regulatory charges, showing a 92% increase due to the impact of the new banking tax and despite a small decrease in the single resolution fund.

Therefore, gross operating income for the first 9 months grow. They reached to EUR 2.005 billion, which is 32% higher than a year ago. The quarterly comparison is positive due to the absence of any banking tax, resolution fund or guarantee fund in this quarter. Year-on-year, third quarter view, we can see a 31% growth over the same quarter in 2022. Portugal and Ireland and EVO have been increasing their contribution to the group's operating income, the first by 73% from last year and the second grew by 22%; continued the improved trend of business in both countries; and the third, EVO grew by 71%, improving their business plan to become breakeven at the end of this year.

Group operating costs in the period totaled EUR 700 million, they are under control and in the guidance of 6.8% from previous year. Operating costs for EVO were up 12%, while income are growing by 86% and Avant Money costs are only 4% up. In Portugal, costs are 7% up over last year, while revenues grew by 73%, clearly improving their efficiency. Our efficiency continues to strongly improve quarter-on-quarter. The group's cost-to-income of 12 months ended at September '23 is down to 37.4%. This year, we continue improving efficiency in all our businesses and geographies, approaching our objective of keeping group's cost to income in the very low 40s over the next few years.

As you can see, Portugal efficiency ratio stands at low 31%; Avant Money, 46%; and EVO has already come out to the negative territory, bringing efficiency ratio to 90%. And the Spanish business's stand-alone, keeps improving efficiency to 31.6%, excluding the banking tax. With all this, the pre-provisioning profit reaches EUR 1.3 billion, 51%. And again, a very strong performance, multiplying by 1.6x '21 figures.

Moving to the cost of risk. The cost risk in the quarter finished at 36% of -- 36 basis points of total credit exposure, 1 basis point up from the previous quarter, small impacted only by consumer finance. Cost of risk ended at 30 basis points or EUR 238 million, 6 basis points higher than a year ago and only 1 basis point over 2021, clearly showing asset quality stabilization despite increased exposure.

We continue to see no evidence of negative impact in asset quality indicators in Spain, Portugal and Ireland, and only consumer finance is suffering from cost of risk increasing, but more than offset by reduction in mortgages and large company indicators. We expect this stable behavior to continue for the last quarter of the year. All this have made us maintain the cost of risk guidance at 40 basis points at year-end. And our provisions for litigations, as you could see, they continue to fall.

Our profit before taxes reached EUR 1 billion, growing 67%, more than 2.3 what we reached in 2021. And group net income in the period reached EUR 685 million, as we mentioned, including the EUR 77 million of the banking tax. Net income is close to 2x the ones reported in 2021. At the end of September, the return on equity stands at 17.1%. With this strong trend, we expect return on equity to remain above mid-teens in the near future and clearly above the cost of capital. Excluding intangibles, the ROTE is at 18.12 (sic) [ 18.2 ] points or comparing to the 12% of a year ago. The tangible book value plus dividends went up by 12% in the first 9 months to EUR 5.88 per share.

I will now go over the management of credit risk, liquidity and solvency. Nonperforming loans coming from minimum levels last year showed a small increase almost exclusively in the Consumer Finance outstandings. They went up by EUR 121 million or 7% from September '22, and 6% or EUR 98 million with respect to last December, to a total of EUR 1.83 billion.

In the quarter, NPLs were down EUR 20 million. The only growth came from Consumer Finance, EUR 27 million in Spain and Portugal, Outside of this, all the rest of the business in Spain decreases in NPLs since June. The NPL ratio of the group is down to 2.19%. In Spain, NPLs stands at 2.5%, which is 20 basis points up from a year ago and remains clearly below the sector average at 3.50%. Portugal NPL ratio stand at 1.3%.

As shown in the chart in the right, the NPL ratio in Spain remained almost stable at 1.9% for Households comparig to last year, and has increased 30 basis points from Corporate to 3% from September '22. Total provision for nonperforming assets keeps increasing to EUR 1.2 billion, 9% increase. And of this, positive impact on our provision coverage, which is now at 66%, 2 points up from a year ago. Coverage for foreclosed assets were also improved to 59%.

Moving into capital. Our CET1 ratio stands at 12.48% since December. Our return earnings brought an increase of 97 basis points, taking into consideration dividends at 50%. Capital consumption of risk-weighted assets for the business, impacts a negative 15% -- sorry, 15 basis points. And intangibles and other small adjustments impact an additional 10 basis points. All of this brings our CET1 ratio to 12.58% before valuation adjustments and the new banking tax.

Valuation adjustments reached only 1 basis point positive impact coming from an improvement in valuation of our participation in Línea Directa, together with the ALCO portfolio at market prices. In total, 8 basis points in the quarter. And finally, the banking tax that deducts 11 basis points. Taking this into consideration, the ratio closes at 12.48%. Total capital ratio jumped to 16.4% and the leverage ratio to 5.0%.

The increase -- moving to liquidity. The increase in customer deposits keeps improving our funding gap, it was minus EUR 2.2 billion in December, now it's minus EUR 4 billion, approaching the commercial gap of last year. This negative gap in Spain, more deposits than loans, is enough to offset the gaps coming from Portugal and Ireland of having higher lending time deposits. As a result, loan-to-deposit ratio reaches again comfortable levels of 95%, thanks to consistent growth in deposits since last March, and the wholesale funding maturities are well spread through the coming years without any stress.

After the EUR 2.8 billion September amortization of the TLTROs, the balance stands at only EUR 1.3 billion that will mature in March '24. That is almost a negligible impact. High liquid assets and total liquid assets stand at EUR 20 billion and EUR 26 billion, respectively. Our issuance capacity at EUR 5 billion, and the LCR ratio average in the last 12 months stands at 201%. Very, very comfortable levels. The LCR for September after the last repayment of the TLTRO finished at 190%.

Let's review the performance of the main business lines. I will try to go quicker in this section. The corporate loan book in Spain and Portugal showed growth of 1.6% year-on-year. It remained positive by 0.7% in Spain, while the sector in shrinking by minus 4.4%. This behavior shows the typical seasonality of the third quarters in Spain, with continued support of working capital needs like supply chain, finance and international trade. In Spain, in this quarter, loan book increased by EUR 200 million. Again, our market share jumped to 6.2% from 5.8%. And new production in the year to date has been close to EUR 8 billion, which is much higher.

ICO loans with state guarantees stands at EUR 4.8 billion, mostly granted to medium and corporates. As of September, the NPL ratio stands at 6%. Another activity indicators of the corporate segment in this quarter are International Banking. Its loan book grew by 6%, and Supply Chain Finance growing by EUR 475 million.

Moving into Wealth Management. Customer assets keep growing in a good year with strong customer acquisition at double-digit in patrimonial banking. The addition of patrimonial and retail banking AUMs has increased by EUR 9.5 billion in the year. Total assets under management from both segments have reached the relevant size of [ EUR 99.4 billion ] or 10% growth year-on-year, 9% in retail banking and more relevant 12% in patrimonial banking. Here we go. The strong commercial activity during the first 9 months, measured by net new money, shows a total growth to EUR 4.3 billion, split EUR 2.4 billion in patrimonial and EUR 1.9 billion in retail.

Moving to the Asset Management business. We have increased balances since the beginning of the year in all the different categories. Total fund managed grew by EUR 4.4 billion or 12%, and EUR 6.0 billion from a year ago. And by categories of assets, own managed funds grew by 16%, third-party funds by 19%. Total mutual funds managed by the group reached EUR 41.6 million (sic) [ EUR 41.6 billion ], which is a new record.

In Retail Banking during the quarter, the slowing down in salary account balances continued. Salary accounts balances reduced or have lower volume due to the transformation to term deposits, as you can see, and other intermediation accounts. Despite this new salary accounts, an increase of 4%, which means that we still -- which have very strong commercial activity. And we have closed the quarter with almost 500,000 accounts, where we keep over EUR 13 billion in this very sticky product. More than 50% of all Bankinter customers hold a salary account with us.

Mortgage origination in the period recovered and reached EUR 4.3 billion, a similar level in '21. This is thanks to the increased contribution from Ireland and Portugal in this strategic business. In Spain, our market share in new mortgages origination in the last 12 months,was at 5.7%. Despite this year a reduction in front book and the increase of early amortization, the mortgage back book keeps growing and it reaches EUR 34.5 billion, thanks to increases in Portugal, in Ireland and in EVO. The small decreases in Spain, when the rest of the market increases, its contraction of the loan book by 3.3% with the latest data. Makes our back book market share to grow again by 3 basis points.

Moving on to Portugal. The total loan book grew by 13% to EUR 8.7 billion and the retail deposit at EUR 7.3 billion, up 16% from a year ago. Growth in loan book was in both corporates, up 12%; as in retail land in 13%. Off-balance sheet at EUR 3.9 billion remained almost flat, but growing 4% from September '23. As you see, the income statement, the operating income from the business grew by a strong 73% and cost shows a 7% increase in line with our plans and with a big step-up for improving efficiency. All of the above brings PPP to a new record of EUR 159 million almost 2.4x what they reached one year ago.

Now after 7 years since the acquisition, when efficiency ratio was 100%, Portugal shows an efficiency ratio of 31%. Finally, after EUR 23 million of loan provisions, Portugal profit before taxes reached EUR 136 million, a stunning 154% increase. NPL in Portugal stands at 1.3%.

Moving to Consumer Finance. The Consumer Finance group reached a new record of EUR 6.4 billion in the loan book, which is 25% up from a year ago, and were EUR 1.9 billion. Our Average mortgages growing at 33%. The loan book new production in the period was 1.9%, minus 23% from last year, due to a lower mortgage production in Ireland, while Spain and Portugal were up by less than 2%. Geographically, the total loan book has EUR 2.8 billion in Ireland, through Avant Money, growing by 29% in the year. And EUR 453 million in Portugal, growing by 21%. And the rest is Spain with EUR 3.2 billion, growing as well by 22%.

The graph in the right shows the breakdown by type of financing. As you see, the personal loan represent 48%, growing by 27%. Transactor credit cards represents 16%, with 19% growth. Revolving cards, less than 7% and reduced by 3%. And household mortgages in Ireland, which reached EUR 1.9 billion, 30% of the total book and growing by 33%.

We continue to feel very comfortable with current asset quality indicators. NPL ratio at September '23 stands at 5.1% from 4.2%. Regarding Avant Money, it is remarkable that since they have the mortgage lending business in late 2020, they have been able to reach over 10% of the new mortgage drawdowns in the country. Plans are to keep growing the current mortgage book together with the Consumer Finance book today at EUR 0.8 billion, which are up by 20% comparing to last year.

During this period, mortgage draw downs came at EUR 0.5 billion, slightly above target. This activity, together with the recovery of the Consumer Finance activity, mainly in personal loans, has made the total loan book to increase to EUR 2.8 billion, and at the same time, maintained a very good asset equity ratio with 0.4% in NPLs.

At EVO Banco, during the first 9 months of the year, they have increased mortgage origination and the new personal loans activity with a relevant operating income increase. At the same time, while keeping operating costs and cost of risk somehow under control has made possible an enormous progress in the objective of improving efficiency from the very high levels of 200%. New mortgages granted from December were almost EUR 700 million, which is 7% less than the origination of '22, but making a total loan book to grow to EUR 2.3 billion, up 30%. NII margin jumped by 86%.

Client acquisition has been over a 34,000 clients in the period. And NPL ratio stands at 0.46%, only in EUR 15 million in NPLs. In P&L terms, for the first time since the acquisition, the EUR 51 million in operating income is enough to cover the EUR 46 million of operating expenses in the period, bringing PPP to positive.

Okay. So coming to an end. I'll try to be as quick as possible to have time for your questions. So to recap before we finish. I think we are presenting a first-in-class of management ratios, return on equity of 17%, efficiency below 32%, NPLs at 2.2%. We've shared in a very strong commercial activity with you with you, differential loan and deposits growth and continued market share gains over the period. Our resilient and comfortable asset quality and solvency indicators, keeping one of the strongest buffers from regulatory requirements. And in short a great financial performance, devoted to business growth and increase diversification of our footprint.

This outstanding performance was once reflected on the results of the last stress test performed by the EBA and ECB, which were made public after our results presentations in July. Bankinter continue as one of the best European banks in capital depletion in the adverse scenario. Again, well ahead of our peers, ranking #5 in all European bank universe. We keep intact the ambition to grow market shares in all our businesses and geographies. And all of these will be reflected in our guidance for the year-end '23 as follows.

Once again, we expect growth in all geographies. In Bankinter Spain, we expect for the last quarter of the year that corporate loan demand and consumer finance demand, together with other non-mortgage retail lending, to be able to more than offset the slowdown in mortgage lending in the year. In Portugal, in retail and corporate loans and deposits with very good prospects for the new consumer joint venture with the Sonae Group in Portugal. In Ireland, will grow again in mortgages with our new direct channel production and impaired loans for consumer finance.

And at the end, EVO Banco in Spain will keep the customer acquisition and resilient mortgage production. And all of this will make possible that we will finish the year growing at low to mid-single digit, making us, again, differential from other peers in our country.

Now in NII, we expect -- we increased our guidance in AI for the rest of the year to the high range in the 40% to 45%. We believe this -- we do expect to be in the higher range of that figure, close to 45%. Depending on the final interest rate, of course, and thanks to the continued impact of the positive repricing of the mortgage and corporate variable loan book. With this repricing, of course, we'll expect that we'll have at least 10 more months to go. With the interest rate curve clearly above what we expected at the beginning of the year and only 1 quarter ago, NII will stand more positively than previously anticipated.

We expect fee income to meet our guidance of low to mid-single digit. The resilient activity in corporates and individuals, together with more stable financial markets and higher volumes in mutual fund, should provide support to this figure. Group cost has been under control and will remain clearly under income growth, providing extraordinary efficiency improvements in the year. And finally, regarding cost of risk, as we mentioned before, we will continue to see stability in asset quality, benefiting from the quality of our existing loan book, together with the additional help of the government guarantee attached to most of the ICO financing provided to SMEs. All of this reports our confidence that cost of risk should be maintained at 40 basis points.

And I think that's it, and I will be happy to answer your questions. Thank you.

[David Lopez, executive]

Thank you, Jacobo. Very much in detail, as usual. We had a follow-up questions. Obviously, some of them are in NII, as you would expect. But let's start with a more generic view of what you could elaborate on how is competition for deposits and also lending, specifically on the mortgage market.

[Jacobo Díaz, executive]

Thank you, David. I think competition for lending -- I mean, the Spanish market is a very competitive market. And competition is there and will be there forever. Of course, it's not easy to grow in a market that has a negative trend. But I think once again, it's where we are demonstrating our ambition for growth. And we are always capturing -- bringing on board new clients, new clients or the type of clients that we like, medium to high income, wealth, sophisticated, high financial culture, and this is the type of clients that will still bringing on board. And that makes very positive in our expected growth, either in lending, either in deposits.

We are -- I would say that there is still no interest in major remuneration of deposits. Every -- the liquidity in the system still very strong, and therefore, we don't see many pressures on that side.

[David Lopez, executive]

Thank you. Moving now to the P&L. We have just updated our NII guidance again for the remainder of the year. If you could elaborate on what are the deposit beta or loan growth assumptions behind our guidance.

[Jacobo Díaz, executive]

Okay. So as you've seen, the beta of the deposit is lower than expected. For the time being, it is clearly below 20%. And we expect that at the end of the year, that should be the bridge for the entire year. I mean much lower than expected at the beginning of the year. This third quarter, we've seen an increase, which is lower than it happened in the second quarter. So we see the speed of increases going down, and that makes us very positive.

And in terms of growth, again, we keep our guidance on low to mid-single digit. We demonstrated that, as of today, we're growing at 3%. We do expect a good Q4. You know that Q4 in our case has a stronger seasonality. And again, we are expecting to put in place our JV with Sonae in Portugal, and that will bring a new business in this fourth quarter. So we are very optimistic about what we should expect for NII in the Q4.

[David Lopez, executive]

Thank you. Any hints or any feelings about how it could progress NII into 2024?

[Jacobo Díaz, executive]

Okay. So as you know, we will provide guidance in the next results presentation. But obviously, we think that we're going to live in high rate environment for longer than expected. And this, I think, is a positive interpretation of what we're going to face in 2024. We're seeing also that the client margin is quite resilient at the levels where we are. And there is no reason why we should think that those levels can be resilient in the next year. So from the NII perspective, I think we have good expectations for the time being for 2023 -- 2024, sorry.

[David Lopez, executive]

Very clear. Thank you. Regarding customer spread, how do you see the next few quarters evolving?

[Jacobo Díaz, executive]

So again, as I just mentioned, in an environment with higher interest rates, and we think this is going to stay for longer than expected, we think that we can deal with good client margin in the following quarters. I think we have reached levels of deposit beta lower than expected. The speed of increase is lower than expected as well. There is still many, many months of repricing of our mortgage portfolio, at least 10 months. So our perspective are good for the next quarters.

[David Lopez, executive]

Thank you. In terms of volumes of the deposits, where do you see the term deposit percentage of our total deposits going to?

[Jacobo Díaz, executive]

Okay. So as you can see in the figures that we've shared this morning, we have reached around 25% in terms of the deposit share compared to total deposits. We do not expect much more increase in that. I think we have reached a good level. Bear in mind that we have sophisticated lines, and there is a fast appreciation in terms of how much term deposit we can offer to our sensitive clients to interest rates. I think we have reached a good level already, and I don't think there is much more percentage to reach in the coming months or in the coming quarters. I think the majority of our sensitive clients have already been or moved or switched into a term deposit versus a salaried account.

[David Lopez, executive]

Okay. And to finish off on the deposits topic. What deposit beta are we in and what are we seeing for next quarter?

[Jacobo Díaz, executive]

So again, as I mentioned, we have deposit beta below 20% and it is something that should stay or should not grow much. We have been observing that the speed of increase of the remuneration is slowing down. So we should expect not much higher level of beta for the next quarters.

[David Lopez, executive]

Okay. And moving to the asset side, what kind of deposit -- asset beta are we seeing there? How -- what part or how much of the loan book has already repriced to the current run rates in 12 months?

[Jacobo Díaz, executive]

Yes, as I did mention, there are still around -- if rates stay stable, there are still around 10 more months of reprice of the mortgage book. So there is a good positive momentum in terms of NII growth. And that will support client margin at similar levels that -- where we are today. So we are still positive for coming quarters.

[David Lopez, executive]

Great. Thank you. Regarding the ALCO portfolio, do we expect any further increases in size?

[Jacobo Díaz, executive]

No, we do not expect major changes. I think the ALCO portfolio has the mission of managed interest rate risk in the balance sheet. So we are not playing with the size just to try to obtain more NII in the future. There is, as you know, a limit of the size of this portfolio. We are in the range where we want to be. So there is no expected increase in volumes.

[David Lopez, executive]

Okay. And in terms of trading gains that we have seen a decrease in this quarter, what sort of normalized run rates are we expect in the -- going forward?

[Jacobo Díaz, executive]

This activity, as you know, is very volatile and might have some seasonality depending on the conditions of the market. It's difficult to say -- to mention a figure. So I think about 10% to 15% could be a normalized range. But again, this is a complete bet, financial markets are not very predictable.

[David Lopez, executive]

Understood. Moving now onto fees. What drove the quarter-on-quarter increase? And what can we expect for year-end? Normally, the seasonality of the fourth quarter is very good. Thank you.

[Jacobo Díaz, executive]

Yes. I mean, fees are behaving good. We do expect to continue this trend. Basically, the comparison is improving versus last year. We have record high levels of assets under management and that brings new fees. But we also keep performing very well in everything related to our client's activity, wither in corporate or in retail. So payment and collections still behaving very well, and our brokerage activities also performing very well.

The comparison in terms of investment fund or mutual fund will improve since the average fee is stabilized, and then we'll start comparing better, better after -- in the next -- in the coming quarters and the volume's still growing up. So we do expect better comparison in the coming quarters. We also have activity from investment banking and from our international trade that brings a lot of activity with high value for clients, and that deserve a good fee. So we are positive on fees, and we do expect to meet our guidance of the year for fees.

[David Lopez, executive]

Thank you. Now that we have repaid most of our TLTRO funding, can we give any updates on our funding plans?

[Jacobo Díaz, executive]

We do not expect any issue in the short term definitely not in this year. And for the next year, I don't know, and depending on the level of growth, but we should expect probably a little bit lower level of volumes, but somewhere between EUR 0.5 billion and EUR 1 billion would be probably the wholesale funding expectations for next year.

[David Lopez, executive]

Thank you. Do we have any updates regarding the contribution to deposit guarantee funds in Q4, both in Q4 and also in 2024?

[Jacobo Díaz, executive]

I mean that's a difficult question, but we do expect similar figures in guarantee fund from last year in this year, in 2023, which is absolutely true is that in 2024, we expect a strong reduction in these contributions. It's very difficult to tell you exact figure, but definitely, it's going to be a strong reduction in the 2024 figures. And of course, this is excellent news.

[David Lopez, executive]

Thank you. This one is clear to me. Moving on to expenses. What are the main drivers behind the cost growth in the quarter, especially in the personal expenses?

[Jacobo Díaz, executive]

Yes, definitely, there is -- the major contributor this quarter is the variable incentives. As you know, Bankinter has always had a variable retribution schemes across employees. And therefore, as you can imagine, the outstanding performance of Bankinter this year needs increase the incentive variable provision. So this is exactly what happens. So there is no increase in the overall staff of -- in terms of people, et cetera. So -- and I would say that the performance, the financial performance of the group keeps improving. I would expect that probably in one more quarter, we might see these figures at the same level.

[David Lopez, executive]

Thank you. Moving on to asset quality. In terms of NPL evolution, what shall we expect? And also why did it go down in the quarter?

[Jacobo Díaz, executive]

We do -- as I mentioned, we do keep our guidance, which is at 40 basis points. The reason for the reduction in Spain in NPLs was the sale of our portfolio of around EUR 120 million. That is the main reason. Anyway, as I mentioned, the behavior of the NPL in bank has been very, very good. There is no issues or no indicators that make us concerned in terms of credit risk, neither in the mortgage book, neither in Portugal, neither in Ireland, et cetera. And just only there, as I mentioned, the Consumer Finance activity is the one that increases their NPLs.

[David Lopez, executive]

Okay. So we're looking to maintain our guidance then? We confirm our guidance.

[Jacobo Díaz, executive]

Yes, absolutely. As I mentioned, 40 basis points is our guidance for the year, and we hope to beat it.

[David Lopez, executive]

Do you see any specific risks or any asset quality risk in any of the portfolios, such as Consumer Finance or any other?

[Jacobo Díaz, executive]

No, no. As I did mention, we don't have any indicator that make us concerned in any other activity.

[David Lopez, executive]

Thank you. Regarding the other provisions and litigation and all, what shall we expect in coming quarters given the recent performance?

[Jacobo Díaz, executive]

I think we've always provided a guidance that we have a yearly reduction of around 10% to 20% every year. And I would say that this is the expectation for this year and for the following year.

[David Lopez, executive]

Thank you. Moving now to capital. Any impact -- sorry, any thoughts on increasing capital distribution given the current 12.5% CET1 ratio?

[Jacobo Díaz, executive]

For the time being, we are keeping our payout ratio at 50%. And as you know, we will deploy our excess capital in growth. This is our main priority. And as I mentioned, in Q4, we expect growth activity in Consumer Finance and Corporate Banking and in any geographies. So we would see probably a reduction in our capital ratio by the end of the year due to this growth. So the answer is, for the time being, 2023, there is no intention to do anything else in terms of distribution of capital. We would see in 2024, the level of growth, the level of capital, et cetera. And who knows if in 2024, we will do something different. But for the time being, in 2023, we will not change our dividend policy.

[David Lopez, executive]

Thank you. Still on capital. Do you see any regulatory headwinds or any impacts from any M&A that we have pending going forward in the next few quarters?

[Jacobo Díaz, executive]

No. From the regulatory perspective, there's nothing in the horizon. You mentioned M&A, and again, I remind you that we have a JV with Portuguese, a very strong Portuguese group. Then in the following quarter, we will start to bring in our balance sheet and it potentially will reduce by 20 basis points our CET1 ratio because of the new activity and the growth in volumes. So this is, I would say, the only part -- but this is a good news, this is not a bad news. It is not a regulatory thing. It's a positive thing.

[David Lopez, executive]

Very clear. Thank you. Still on capital on the quarter. Can you explain what is behind the minus 10 basis points that we have accounted for intangible and others?

[Jacobo Díaz, executive]

Yes, of course, it's just IT investments. There is no major issue there. The majority is IT investments.

[David Lopez, executive]

Regarding overlay provision that we still have on balance sheet. What are the news there? Did we use any of that in this quarter?

[Jacobo Díaz, executive]

No. In this quarter, we haven't done anything with the overlay. It is still at the same figure as we ended in June.

[David Lopez, executive]

Thank you. Regarding our -- now some more specific, more generic questions on the impact from the Next Generation funds, what are we seeing any movements between now and year-end? And what you expect for '24?

[Jacobo Díaz, executive]

Yes, we see more activity in the Next Generation EU funds. We've seen that we have a book that reaches EUR 350 million, which is 50% more than a year ago. So we see -- obviously, we see more activity there. It's difficult for me to provide you some expectations or guidance on this. But basically, I would say that this is a good news. This is something which is improving the speed and the momentum. So I would say that I'm positive on this. Definitely, I'm positive on this.

[David Lopez, executive]

Thank you. Regarding Ireland, on the mortgage book there, what are we seeing? What sort of volumes are we expecting this remaining of the year and going forward?

[Jacobo Díaz, executive]

I think volumes are good in Ireland. You know that the new production in Ireland this year has been lower than the previous year just because we have raised prices, the first one in the industry. This is, I would say, the only reason why our new production is lower than a year ago. But we do expect a good end of the year. Again, we have -- even if we have increased prices, again, not too long ago. But we do expect a good production for the last quarter. And i would think that this year, we have reached almost EUR 500 million of new production. I would say that we will be able to reach EUR 700 million to EUR 800 million of new production of mortgages by the end of the year. And EUR 1 billion the following year, which is the figure that we expect at least to reach in 2024.

[David Lopez, executive]

Okay. We have a few late coming questions. Any thoughts on the changes on the MRR by the ECB in Q4 or '24?

[Jacobo Díaz, executive]

I have no news on that. So apologies, but I can't give you more insights on this topic.

[David Lopez, executive]

Okay. Can we be any more specific on the JV with Sonae, size of the business, expectations in terms of profitability or anything?

[Jacobo Díaz, executive]

It is still too early. I think -- I mean, the opportunity -- we have the opportunity to reach around 1 million customers in Portugal to do many things, starting with consumer finance. But this is the beginning of the relationship. So I cannot provide you more info apart from the initial activity will deduct around 20 basis points from our ratio by the end of the year. And then we will start with a book of loans, and we will see how it will grow. But basically, there is a very strong expectations on this business.

[David Lopez, executive]

Okay. We have time for a couple of more questions. How are you seeing early amortization of the mortgage book evolving in the last quarter?

[Jacobo Díaz, executive]

I would say that the last quarter has been better than the previous one, but I wouldn't say this is a change in the trend. Because you know that in Spain, there is a lot of seasonality during the third quarter. In average for the year, we have early amortization of EUR 400 million per quarter. And I would expect this fourth quarter also to be probably in the similar levels.

But definitely, I expect 2024 to have lower early amortizations. And this is basically because at least there is one reprice of the full book once, and that means that all the clients that wanted to change the level of the monthly installment and repay part of the mortgage have already done it. So I would expect that in 2024, the figure of early amortization will be definitely lower than in 2023.

[David Lopez, executive]

Thank you. And last question. Any thoughts about the digital euro preparation phase that was just announced yesterday? Any risk and opportunities there?

[Jacobo Díaz, executive]

Yes, there is no major news that I can share with you. I think the Euro Digital is something that is -- was approved yesterday. I think it's an alternative way of payment for individuals. There is many, many things to be decided and to be tangibilize. So it's still in a very early stage, I would say. So I cannot provide you more information than that, I'm afraid. Thank you.

[David Lopez, executive]

Okay. That is all from us. Obviously, for any remaining questions, you can talk our Investor Relations team. Many thanks for joining us today, and goodbye.