Bankinter SA
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Bankinter SA
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Good morning, and welcome to Bankinter Full Year '18 Results Presentation. Gloria Hernández, our CFO, will guide you through the main highlights of the figures. We will follow with the Q&A session as usual. Thank you.
Thank you, David. Good morning, and welcome to Bankinter's result presentation for the fourth quarter and full year of 2018. The related financial statements were posted on the website of the CNMV a few minutes ago prior to market opening. All related documents can also be found at this time on the Bankinter corporate website. As usual, I will start with a summary of the main financial indicators from the last 12 months compared with the previous year. Our loan book grew in the last quarter and throughout the year at a robust rate despite a shrinking domestic market. Our gross operating income showed a steady growth in both the quarter and the year. Our NPL ratio continued on a downward trend. It decreased by 55 basis points in the year to 2.9%, a record low since 2010. Consequently, net profit reached EUR 526 million, a 6% increase from a year ago and a new record in Bankinter's 53-year history. Meanwhile, our CET1 fully loaded capital ratio stood at 11.75%, comfortably above or guidance. Finally, our ROE reached an outstanding 13.2% and improved by 55 basis points in the year.Looking back on the lowest point of the crisis in 2012, the group's net profit has shown a stunning cumulative annual growth rate of 27%, owing to its successful business strategy implemented since 2011.Let's have a look at our financial performance in the year and the fourth quarter alone, then we can review our quality of assets at year-end to finish with a summary of the performance of the group's various strategic business lines.The 2018 income statement shows a positive trend in almost all of our sources of revenue. Net interest income increased by almost 6%. Net fee income was up by more than 6%, and other operating income grew by close to 13% in the year. Once more, due to the IFRS 9 implementation, most extraordinary revenues from recovered NPLs in Portugal, recorded as NII in 2017, are now being accounted for under NPL provisions. This has had an significant positive impact on this line. We have written the figures from 2017, so both years can be comparable.EUR 15 million in extraordinary amounts were booked under NII in 2018 versus EUR 19 million in 2017. Still, our net interest income showed noteworthy resilience due to increased lending and effective management of our assets mix and customer margin. After a quarter of positive seasonality and remarkable commercial activity despite market turbulences, fee income grew by 6.2% in the last 12 months. We finished the year in line with our corrected mid-single-digit guidance for the full year.Other operating income grew by 13% compared to last year due to the performance of our insurer, LDA, which offset the negative impact of the ever-increasing regulatory expenses included in this line from SRM, DGF, taxes on deposits, CNMV and so on. Gains on financial transactions remain low, adding only EUR 53 million to earnings, 14% less than in the previous year. In total, our gross operating income amounted to EUR 1.94 billion for the year, up 6.4% from 2017. This was with better quality as the weight from extraordinary revenues decreased further.Our operating cost were up by slightly over 6%, mainly driven by Línea Directa. In the group, main cost increases were in personnel expenses. By tightly controlling general expenses, we managed to end the year close to our mid-single-digit guidance.Despite growing costs, our income performance allowed full year pre-provision profit to increase by 6.5% with respect to 2017. Loan loss provisions and other provisions increased by 6.6% in the year, owing to our efforts to a strengthened coverage for legal contingencies. At the same time, the cost of risk of our banking operations continued to drop to record lows. Finally, full year net profit grew by 6.3% in the year to EUR 526 million, continuing our trend of increased earnings initiated in 2012. Compared with 2013, our net profit has almost tripled.Now we'll have a look at just the fourth quarter income statement. If we compare our performance with the same quarter last year, the top part of the account referring to income performed well in line with our expectations at the beginning of the year. Our net interest income remained resilient, despite an interest rate environment that shows no signs of change. In the last quarter of the year always with positive seasonality, it also improved by close to 2% from the previous quarter.Our fee income also stayed solid. It increased by 6.2%, undeterred by increasing market volatility and a slowdown in volume growth. However, this was not enough to offset the positive seasonality of the last quarter of the year, particularly in all the collateral business of the corporate banking. Quarter-on-quarter, growth stood close to 9%. Other income and expenses continued to show the very positive performance of our insurer Línea Directa on the one hand, and much higher operating expenses due to regulatory charges on the other hand. A quarter-on-quarter comparison would be irrelevant because of the impact of DGF charges.With all this, gross operating income grew close to 3% with respect to the same quarter last year. This was on the back of recurring business as our gains on financial transactions continued to contribute very little.At the bottom part of the account, on the one hand, personnel expenses grew by 10% over the same quarter last year due to the added workforce year-on-year. On the other hand, general and administrative expenses were clearly under control, falling with respect to the same quarter last year and the previous quarter. This lifts total operating cost within our guidance for the year and reaffirms the group's efficiency.Total provisioning and asset sales were down by 11.5% over the same quarter last year and by almost 8% over the previous quarter of 2018. We continue to enhance our provision buffer for legal contingencies. By December, this line in the account showed an increase of EUR 90 million in the year to EUR 144 million. Cost of risk remain very contained, even if we adjust it for EUR 9 million in reclassified provisions in the quarter as we will see in further detail in the asset quality section. Lastly, our pretax profit and net profit outperformed the same quarter last year.The group's loan book grew by 4.1% year-on-year. In Spain, we added EUR 1.6 billion in net new lending, even though our EUR 1 billion loan in the suppliers payment facility was repaid in late November. Nonetheless, the sector has shrunk by 1.9% as of November 2018, clearly penalized by recent NPL sales in most banks.In Portugal, our loan book increased by 12%. That confirms our demanding business plan for this country. In Spain, our mortgage loan book netted almost EUR 600 million in the year unlike other listed banks, whose mortgage loan book continue to shrink. Retail deposits across both geographies grew by a remarkable 9%, clearly outperforming the sector growth in Spain.Now we'll look at P&L. Concerning yearly net interest income, it has shown a strong resilience despite unfavorable interest rate environment. This positive trend was due to the loan book growth over the last years and our strong customer margin. The NII grew in Spain for another quarter. Growth was more than 5% with respect to the same quarter last year.In Portugal, NII also grew compared to the previous quarter but not year-on-year due to a decline in extraordinary NPLs recoveries. This aside, Portugal's recurring NII also grew by more than 11% quarter-on-quarter. Further on, we will split and analyze this positive trend in recurring net interest income in Portugal. Based on all these trends, our yearly NII guidance for 2019 is low single digit for both the group and our banking business in Spain.Our customer margin remained very stable quarter-on-quarter. It stood at 1.93% by the end of the year, improving by 3 basis points, mainly thanks to the increase in yields. Still, it increased by 8 basis points year-on-year due to gradual loan yield recoveries up by 2 basis points and fall in deposit cost down by 6 basis points. After this, we expect our customer margin to remain resilient in the coming quarters.ALCO portfolio's size and composition have barely changed with respect to last September. Its contribution to net interest income is low and stable. Unrealized gains were close to EUR 330 million. During the quarter, market turbulences had a negative impact on the portfolio value. Nevertheless, a 40% portion is in the amortized cost portfolio, which has no impact on the capital ratio. The other 60% portion related to the fair value portfolio has reduced our CET1 ratio by 10 basis points in the period. This has been more than offset by the internal capital generation of the quarter.The second line -- sorry, the second income line in size, our fee income, continued to perform well. It went up by more than 6% year-on-year and accounted for 23% of our gross operating income. Fees in the year were negatively affected by a difficult market environment, but this was partially offset by our positive business performance and a very good fourth quarter, no different to any other year.The largest contributor, as usual, was asset management fees. Despite being deeply impacted by market turmoil, it finally showed 1% growth in a very difficult year. The second largest contributor was fees from collateral business with corporates and SMEs. It showed a solid 9% growth rate, which allowed us to offset more volatile sources of fee income.Brokerage, custody, life insurance, risk transactions and other sources of fee income also improved remarkably from the previous year, thus attesting to the soundness of our business model.Lastly, FX differences were negatively affected by market volatility. They only increased by 2%. Launch indications, new product placement and other miscellaneous marketing fees grew at close to 14% year-on-year due to higher turnover. In view of this fee income performance, we are inclined to give a guidance to repeating mid-single-digit growth for 2019, provided that the market environment remains stable throughout the year.In other operating income and expenses, the contribution from LDA's insurance margin increased by over 10%. This is slightly lower than in previous quarters due to a stronger market competition in premiums and some quarterly one-offs related to the Baremo. This quarter bore a negative impact again from regulatory charges, namely the DGF payment in December, always growing year-on-year. However, this was somehow offset by increased income from arrangement fees on new mortgage and corporate loans. As a result, this income line increased by close to 13% year-on-year. All in all, our gross operating income was up by 6.4% from a year ago and increased by 7% from last year in customer business revenues alone.In the graph, we show the contribution to gross operating income from our other sources of revenue. This indicates good diversification to counter the ongoing extremely low interest rate environment and a very small contribution from noncustomer-related operations. If we compare the current distribution with 2013, the contribution to NII from customers grew by 10 percentage points and from fee income by 2 percentage points. The contribution from other income dropped by 1 percentage point due to higher regulatory expenses. And finally, noncustomer operations show its contribution decreased to 3%.Now we'll review operating cost. In total, operating cost reached EUR 1 billion: 70% related to banking, while the rest resulted from the insurance. There were also some differences in growth rates. While Línea Directa's costs grew by well over 13% in the year, banking cost grew at a more restrained rate by 4% with respect to the previous year. For 2019, a low-single-digit increase in the group's cost could be a reasonable guidance, with the aim of keeping expenses below income growth and improving efficiency. Despite this increase in expenses, our efficiency ratio continued to improve during the year, standing at 46.8% for banking operations in December.In relation to the cost of risk, during the quarter, it continued to fall due, in part, to the EUR 9 million reclassification from credit risk to legal provisions as we did in previous quarters. All in all, yearly cost of risk hit the lowest point at 11 basis points. On a like-for-like comparison, that is excluding reclassification in both years, real cost of risk ended this year at 19 basis points, reduced by 13% from last year. Looking to 2019, however, we expect cost of risk to be more in line with this rate throughout the cycle of around 30 to 35 basis points.Finally, our ROE exceeded 13%. It grew 55 basis points year-on-year, thanks to our continued strong performance in banking and insurance. Bankinter continues to post one of the best ROEs among its European peers. It is clearly above the bank's cost of equity. Our aim is still to improve ROE and total return to shareholders.Let's now go over our management of credit risk, liquidity risk and capital. Nonperforming loans fell again, this time by 12% year-on-year across the group and by 50% in Portugal after the year-end sale of a EUR 128 million NPL portfolio in October.Our group NPL ratio is below 3% for the first time since 2010. And in Portugal, it now stands at 3.5% from 7.4% a year ago. NPA provisions amounted to EUR 1.04 billion, down 5% from December 2017. Our coverage increased by 11% in the year with the new IFRS 9 and stands at a level similar to our peers. Coverage for foreclosed assets is well above the average discount on sold assets, as we will see in a minute.Let's review our foreclosed asset portfolio, which has shrunk by 15% since 2017 to only EUR 348 million. We sold most of these assets throughout our commercial network. Total sales in the year amounted to 36% of this stock at the beginning of the year. And the average discount on sales is well below our provision coverage rate, with a positive impact on earnings.Our fully loaded capital ratio was 11.75% at the end of the year, 29 basis points more than in December 2017 and 5 basis points more than in September 2018. Compared with December 2017, the negative impacts of loan growth in Spain and Portugal by 44 and 11 basis points, respectively, were more than offset by our organic capital generation. On the other hand, the negative valuation adjustment of 40 basis points, mainly from the ALCO portfolio, were also offset by the positive impact of the first implementation of IFRS 9.During the quarter, the ratio remained very stable. Capital consumption due to risk-weighted assets growth was 18 basis points, totally offset by organic capital generation of around 19 basis points. The increase in the ratio was due to a lower capital consumption from the insurance business. Both our total capital ratio and our leverage ratio remained fairly stable with respect to previous quarters and well within our guidance.Balance sheet increases in both loans and deposits ultimately led to a better funding up, now at EUR 4 billion. In Portugal, it has also been decreasing. Thus, our loan-to-deposit ratio strengthened once again and reached its highest level in years, thanks to increase in retail deposits. The maturity structure of our wholesale funding remained the same, with amounts that can be easily assumed over the next 2 years. In 2019, we are likely to issue a EUR 1 billion covered bond to start offsetting the maturity of the ECB TLTRO funding starting in June 2010. Additionally, we may launch a smaller, around EUR 500 million, preferred or nonpreferred senior bond issuance to fulfill MREL requirements for the year.Now we'll go over the performance of our main strategic business lines. Firstly, we'll look at the most significant contributors to income from our customer business in the past year. Corporate banking and commercial banking jointly accounted for 58% of recurring income in almost equal proportions. Insurance contributed by a very significant 22% followed by consumer lending with 11%. Bankinter's Portugal contribution now stands at 6%. Lastly, our noncustomer business, trading, ALCO and others, contributed only 3% to our total operating income.This pie chart allows us to compare the changes in the business contribution from 2013, showing a remarkable increase in source diversification and the success in all our new contributors. The largest contributor to operating income is corporate and SME banking. It remains on the same growth trend from 2010. Its loan book now amounts to EUR 24 billion, up by more than 4.4% year-on-year. In Spain, while the sector continued to shrink probably due to the impact of the large sale of NPLs, Bankinter grew by more than 3%. Thus, we continue to be an outlier on this front that is crucial for income growth. In Portugal, we were still a very small market -- we have a very small market share. Its loan book grew by 42% to EUR 1.3 billion.Now we'll look at our corporate loan book for Spain. Half our corporate loan book represents loans to large-size enterprises. It declined by 2% in the year due to the leveraging and disintermediation in this segment. The rest is almost split by loans to medium-size enterprises 27%, with a strong 9% increase in the year on small and medium enterprises. The remaining 23%, that show 7% growth year-on-year. This improved asset mix preserves our average asset yield despite increasing competition in all 3 segments. Market share in new production continues to be above our natural 1%, thus gaining market share in corporate banking.Our corporate relationship business, again, showed significant growth, particularly in international trade finance, now representing 27% of the segment's gross operating income. This business is clearly on an upward trend and its quarterly -- as its quarterly performance shows. Moreover, last year, almost half of this business' revenues came from fees. Similar trends are taking place in our collateral business with corporate customers where the fees and net interest income from related services increased double digits with respect to 2017.In our investment banking activities, thanks to their new products and services, both loan book and fees increased by 16% in the year. At the same time, pipeline transactions increased by 40% with respect the year before.In relation to private banking, net new money obtained in the last 12 months reached EUR 3.1 billion, an 11% increase from a year ago. Nevertheless, our managed wealth grew by only 2% due to a large negative market effect of around EUR 2.5 billion in the period caused by market turmoil. More significantly, now we are collecting value-added fee income on EUR 15 billion or 42% of all our managed assets, 2.9x the size 5 years ago.In personal banking, assets under management also grew by 2% year-on-year with EUR 1.4 billion in net new money during the year, affected by a negative market effect of EUR 1 billion. Our delegated and advised assets, including mutual funds, represent now 28% of total managed assets.In commercial banking, the year performed really well in our 2 main products. Payroll account balances grew by 22% and new mortgages production in the year, despite the uncertainty created by the Supreme Court around the stamp duty, went up by 11% from the same period last year with 30% fixed rates. Our market share in new mortgages stands at 5.8% as of October 2018.Our balance sheet funds continue to grow despite a very difficult market environment that had a big impact on the last quarter's figures. Total assets increased in the year, thanks to a 14% growth in pension funds and an 8% growth in other assets managed such as Atom, [ Eliat 2 ] and V Student, or vehicles for private banking customers. Our mix of funds continued to increase with more value-added funds, which helped drive fees.Now we will review the full year results for our -- from our subsidiary, Línea Directa, which performed exceptionally well, reaching our market share in motor insurance of 7.4% and 2.9% in home insurance. New policies and premiums continue to increase, especially in home insurance, where the growth was almost 4x the sector average due to ongoing cross-selling. LDA's combined ratio at 87.3% also outperformed the market. Its claim ratio further dropped year-on-year outdoing most competitors. And its expense ratio stood at 20%, increasing slightly but maintaining a level well below the sector average. Furthermore, the sale of Vivaz first 33,000 health insurance policies had no negative impact on its combined ratio and a small impact on expenses.Lastly, if we look at the full year P&L for insurance, net profit increased by 5% from last year, thanks to the increase in premiums with a technical insurance result growing at 5% despite rising operating cost and lower financial revenues. This resilient P&L performance helps maintain ROE high at 38% with a high solvency ratio of 209%. Here, you can see a recap of the main figures of our new record year for Línea Directa. In consumer finance, our loan book kept growing. Our number of customers reached 1.3 million. Our loan front book grew by 46% in the year while maintaining very acceptable credit quality ratios: NPLs at 8.4% and cost of risk of 2.9%.The risk adjusted return at 9.2% continued to be favorable, particularly if we consider that almost 40% of our current business is in the form of credit cards and personal loans with Bankinter customers, which have a much better risk profile and somewhat lower spreads. Portugal's consumer business made up already 7% of our total portfolio of EUR 2 billion, and the newly acquired Avantcard in Ireland will represent approximately an additional 16% on the closing date. It will also improve the geographical diversification of consumer finance loan book.Lastly, it is now a pleasure to go over Bankinter Portugal's main figures, since they have closed out an excellent and very promising year. Balance sheet growth has exceeded our expectations. Portugal's loan book increased by a remarkable 12%. It has high concentration in new loans to corporates, which grew by 42%. In commercial banking, both new mortgages and consumer lending grew by 5%. Customer deposits went up a solid 17% in the year, while balance sheet funds, mostly unit-linked and mutual funds, grew at 6% in 2018.As for earnings, it's showed well over double-digit growth in all income lines. Growth was over 24% in fees and 13% in net interest income. This brought a 14% increase in operating income from 2017. At the same time, strong cost control led to a stunning increase of 73% in the pre-provision profit. Recovered NPLs and the sale of an NPLs portfolio freed up provisions, which more than doubled the previous year. As a result, Portugal earned a pretax profit of EUR 60 million in 2018, 92% more than in the previous year.Recurring business trends in Portugal improved. Here, we can see its quarterly performance in recurrent net interest income and fee income, up by more than 11% and 25% with respect to the same quarter last year. On the other hand, its cost show more contain growth dropping from the same quarter last year by 9% and by 7% over previous quarter. This pretax profit, still volatile due to NPL recoveries, was clearly showing a major step-up on last year, despite fewer extraordinary recoveries in 2018.And finally, in this last slide, we show a brief recap of what we have been analyzing to highlight our earnings growth or high and growing ROE and capital ratios and our increased recurrent income from our customer business, with a steady reduction in our NPL and NPA ratios.Lastly, before I take your questions, I would like to announce that this will be my last results presentation. As you may have read in the press, I have decided to retire from the bank after today. I'm not going to another company. I'm simply stepping down from the frontline of management after a long and very intense professional career. I think the time has come for me to rest a bit and dedicate time to my family and my hobbies. It was truly a pleasure to work for this great company, that is Bankinter, and share its success with you over the past few years. I will be succeeded by Jacobo Diaz as Chief Financial Officer. Jacobo held this post 10 years ago, so I am leaving you in very good hands.And now, I will be happy to take any questions you wish to ask. Thank you very much.
Thank you, Gloria. As usual, in the interest of time, we will address the questions grouped by topics. Let's just start with loan growth in the quarter. Can you explain the mix? What happened there in between the public lending and private sector lending? And then what shall we expect for 2019?
Okay. Thank you, David. Well, first of all, I have to explain that in the last quarter, a loan, a singular loan, around EUR 900 million, came to maturity. This loan came from the suppliers facility approved by the government in 2012, and this was the reason why the public sector investment or public sector assets have come down in the quarter. Apart from this, the total loan book grew in the year EUR 2.2 billion, in -- mainly in corporate lending where the growth was around EUR 1.1 billion. Of this amount, around EUR 600 million corresponds to Spain, where the loan book grew by 3%, despite this maturity of EUR 900 million that I have mentioned before. So the performance was really very good in Spain, this year. And in Bankinter Portugal, where the growth was, in absolute terms, EUR 400 million, but in relative terms, it grew by 42% year-on-year, which is a really stunning rate. The rest of the growth came from consumer finance. The loan book grew by around EUR 500 million in the year. That means around 34%. And finally, the mortgage loan book, that grew by EUR 600 million, both in Spain and in Portugal. So the year has been really good in terms of volumes.
Okay. Moving now onto the P&L. Let's pick up broadly on NII guidance. We did already mention that, but we're getting some questions whether you are including the EVO transaction on these figures or not. Can you clarify that and explain on the guidance for the year?
Okay. Well, we are not including EVO figures in all the guidance that we are giving today because the transaction is -- well, continue to be in process of closing. We expect the closing will take place during this first quarter, but this is something that doesn't depend on us. So if this is include -- if the closing is at the end of this quarter, we will probably change, in this following quarter, the guides just to include EVO. So taking this into account, so not including EVO here, the guidance for NII for the next year -- for this year is low single-digit growth. Why we have this guidance? First of all, because we consider that the trends that we have been observing this year will continue -- in the last year, sorry, will continue this year. Growth in volumes, we are -- we have been very good in this area, and we are planning to continue in the same trend. The positive loan book asset mix both because of the change in the type of loans from mortgages and corporates to more consumer lending, which is good for the yields and, at the same time, the positive repricing in mortgages next year because of the slight increase in the 1-year in Euribor. These trends will continue. At the same time, we are waiting for a very stable customer margin. This year, the customer margin has improved because of this, well, certain improvement in yield on the loans -- on the loan portfolio and additional reduction in the liabilities or the retail customer funds. This -- in 2019, the reduction in retail funds will be, I think, almost nothing. And the stability in the customer margin will come from the stability in the assets yield, okay? So taking all this into account and taking also into account the fact that we don't believe that the ECB is going to change its monetary policy, taking into account the situation in Europe, we are considering that the best guidance for us is a low single digit for the NII.
Perfect, thank you. We move now to fee income. Again, you can do just a quick recap on what are your expectations for 2019. And also related to that, you can add any color to what happened to the off-balance sheet in the quarter.
Okay. Well, first of all, I would like to highlight the extraordinary performance in the quarter that has to do with positive seasonality, but at the same time, with some nonrecurring fees from new products, from private banking that we launched in the quarter. Looking at the year, at the end of the year, we have posted 6.2% growth for the whole year, which is in line with the corrected guidance that we give last year, mid-single digit. This was due to, on the one hand, a very intense commercial activity with a positive impact in fees coming from payment on collections, insurance and risk-related products. All of them grew at mid- to high single digits. And this allowed us to compensate for the small growth in assets under management fees. As you know very well, the very negative market situation had a negative impact in the last 2 quarters. That subtracted around EUR 1.2 billion from the fund's value. And this gave place to an increase of around 0.5% in this line. Finally, equity trading, custody, FX differences also due, although at a very modest rate, so they were -- these lines were able to offset the market turbulences that persisted in the quarter. The growth in Portugal in this income line was also very good, 24% for the year, and the pattern very similar to the Spanish -- to the Spain one. Finally, the guidance for next -- for this year will be closer to mid-single digit, very similar to this year, but assuming a stable market environment throughout the year. If this is not the case, we will have to revisit the guidance.
Okay. To finish off the questions on the incomes, what is the outlook for LDA in 2019?
Well, you have seen that the last quarter has not been so good as the previous ones. And this has to do with 2 factors. One, conjunctural factor, and that has to do with the market price pressures. Competitors, particularly in motor insurance, have increased their pressure on prices, and this has created some problems to increase the number of sales in this sector. But even though, we have been able to outperform them doubling the number of policies sold. The second factor has been one-off that is not going to be repeated next quarters and has to do with the fact that we have to actualize or to structuralize the Baremo according to the price increases to the inflation rate. At the beginning of the year, the actualization of this figure was 0.25% because this was the increased plan for the pensions in Spain. But as this increase in pensions was reviewed and was increased to around 2%, we have had to review also the Baremos, so that has implied around EUR 2 million more in expenses in the period. That has impacted the results of this -- of the company in the last quarter. The year has been extraordinary despite this and we have reached a new record for the company with 3 million risks. We have continued to reduce the average cost of claims with a very good management of this line, and we have reduced the fraud. And despite some increase in frequency, the claims ratio have remained very stable at 66%, maintaining its positive gap with the sector average. We think that this will continue in the following quarters. From the expense side, well, here, we have seen an increase in cost due to customer -- the need to increase customer acquisition cost and labor force to promote sales. And at the same time, due to the launch of the new business line that obviously has an impact on cost ratio. But anyway, the cost ratio continue to maintain a positive gap with the sector average. This, again, will continue in the following year because we need to continue investing. Finally, the combined ratio improved 87.3%. We are planning maintenance or perhaps a slight worsening of this ratio, but always maintaining a positive gap with the rest of our competitors. So well, I don't know. The ROE will continue to be a very outstanding ratio, and we will maintain our Solvency II ratio.
Okay. Again, a few questions on cost of risk. What would you expect for 2019 in terms of credit risk and also other provisions and whether there is any updates on litigation cost?
Well, first of all, in terms of cost of risk, you have seen during the last few quarters that we have being reclassifying provisions from impairment to legal provision. This have to do with the requirements of our external auditors to classify it as legal provisions the impairments that we have -- or the provisions that we have accumulated in that, for example, in multicurrency loans. This, we expect not to occur next year. If this were the case, what is going to happen is that cost of risk this -- in 2019 will increase a little bit, mainly because of the consumer finance activity, which, as you know very well, is a riskier activity than the normal banking activity. In fact, this year, when looking at the figures of the NPLs, what has been happening is that the banking NPLs have been reducing a lot more than EUR 200 million, but it has been compensated -- partially compensated by an increase in NPLs coming from the consumer finance. This is something that is perfectly anticipated by ourselves and in line with our plans. For next year, I insist the cost of risk will increase because of this consumer activity and because of we are not planning any reclassifications. In any case, the increase will be very low, and we will maintain our guidance of a through-the-cycle cost of risk of around 30 or 35 basis points.
Okay. Regarding other provisions more specifically, can you update us there?
Oh, sorry. I have forgotten. Well, regarding other provisions, we have continued increasing the cushion for legal and fiscal provisions as you know very well because we have been explaining it to you during the whole year. For 2019, we will continue in the same trend but probably at a lesser -- with a lesser amount. We are planning that perhaps we will be able to provision around 80% or 90% of the amounts provisioned this past year. So the situation continues because as you follow by the press, the courts continue -- I don't know how to say this in English, doing sentences against banks, and this creates the need, according to our methodology, to continue provisioning. You know that Bankinter is a very prudent bank and we prefer to have a big cushion just in case that things evolve in a manner that is bad for us.
Okay. In terms of capital, can you explain what happened in the quarter? And also, your expectations again for next year, your guidance? Thank you.
Okay. Well, the trend in the quarter has been more or less the same as the last few quarters. On the one hand, the retail earnings increased our capital -- organic capital in this quarter by 19 basis points. But at the same time, as we continue growing in our loan portfolio, the risk-weighted assets increased or implied a consumption of this organic capital. But as usual, the consumption is below the creation of capital. In this quarter, the consumption of capital because of the growth in the loan book has been 18 basis points, 4 basis points coming from Portugal. Apart from this, in the last few quarters, we have been suffering from the market turbulences. That fact has implied that we have had shown value adjustment in our portfolio, in our ALCO portfolio, with an impact in capital ratio of around 10 basis points in the quarter. Good news are coming from insurance business, where the dividends paid by the company, both LDA as well as our joint venture with Mapfre, has paid dividends. And this has improved our capital ratio by 9 basis points. And finally, I know that the rest of factors, higher [ risk or file ] and others, have also increased our capital ratio by 5 basis points. So in total, the capital ratio in the quarter has improved by 5 basis points.
Thank you. Also still on capital, can we expect any impacts coming from TRIM or IFRS 16?
Well, really a very small impact coming from not for TRIM but for IFRS 16, around 4 basis points is more or less the estimation that we have up to date.
Okay. Last question in capital. Do we have any official communication regarding our MREL levels?
Well, we have an official communication of the draft of the requirement. It's a little bit complicated to understand. But it's a kind of guideline on what will be our next MREL. We need liabilities -- well, we need -- we have a difference between the liabilities, the eligible liabilities required, and the eligible liabilities that we have of around EUR 450 million, which is a really very small amount. That's why we are planning to issue a senior preferred or nonpreferred, it will depend on the market conditions, senior bond next -- this year to cover this requirement. So as you can see and compared with other peers in the market, our needs are really very, very low and very easy to be fulfilled by Bankinter.
Okay. Our last question on the list, what your expectations are regarding TLTRO extension? And how it will impact our funding plan, if any?
Well, I personally think that the TLTRO is not going to be large is my personal view. Because I think that this convey a message that are very negative to the market. If the ECB decides to prolong the TLTRO-2, I think that markets will react very, very bad because this means that the economic situation continue to be really, really bad. Another thing is that they offer the possibility to Italian banks to have a new LTRO, or how can we say this, a long-term facility for them just to be used to cancel the TLTRO, but this is another thing. Concerning Bankinter, well, we will have no problem to repay the TLTRO facilities. As you know, we have EUR 6.5 billion in the 2 facilities, but we have at the same time excess liquidity of around EUR 6 billion, and more than -- well, EUR 11 billion on assets, liquid assets and EUR 6 billion, around EUR 6 billion of a covered bond issuance capacity. So no problem to repay this. Apart from this, our regulatory ratios are well above the limits, 144% in the LCR and 118% in the net stable financial requirement. So we are well above the regulatory limits. That means that with some covered bond issuance, we are planning EUR 1 billion covered bond issuance for this year, we will be able to anticipate the TLTRO maturity and to maintaining our regulatory ratios at a very good level.
Okay. Thank you very much. That was all from us today. Thank you, everyone, for joining. And a very special thank you to you, Gloria, today. For any further questions, please contact Investor Relations team as usual. Goodbye.
Thank you, David. Thank you to everybody. Bye.