Bankinter SA
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Bankinter SA
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Good morning, everyone, and welcome to Bankinter Full Year's 2020 Results Presentation. Our CFO, Jacobo Díaz, will now comment the figures in detail, and we will follow up with a Q&A session afterwards. Thank you.
Good morning, and welcome to this presentation of Bankinter's earnings for the fourth quarter and the full year 2020. 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.Let me start by pointing out that we ended the year 2020 with a strong performance reflected in pre-provisioning profit growth, considering the very special circumstances of the year and their impact on all our businesses and geographies.Now I will review our business activities in the quarter and the full year, as usual. And at the end of the presentation, I will provide some guidance of our future evolution in 2021.To start, let me highlight some of our main achievements in 2020. We continue to show resilient quarter-on-quarter performance supported by our strong customer activity, resulting in increasing operating income by almost 4%. We maintained continued growth in the bank's balance sheet, in our loan portfolio, in retail deposits, in assets under management. Therefore, net interest and fee income, the main contributors to income, were able to grow despite the difficult environment. All this, together with a tight cost control, has allowed pre-provisioning profit to grow 4.5% in the mid-single-digit range of our guidance.We continue to strengthen solvency, NPL coverage and liquidity with flat NPLs year-on-year. Indeed, our CET1 fully loaded ratio reaches record levels over 12%. In this last quarter of the year, there has been no extraordinary items of size, excluding the annual contribution to the guarantee fund as well as other taxes on deposits booked in the quarter.As usual, let's start with a brief comparison of the full year 2020 and 2019 in our key financial indicators. Group's total loan book grew by almost 7% to EUR 64.4 billion, thanks to the strong corporate and SME demand and a moderate mortgage loan book growth, while Consumer Finance continue to show contraction.Gross operating income at EUR 1,709 million grew by close to 4% with respect to last year, showing a strong resilience in income coming from the business in very difficult times. After our recurrent cost control that makes cost growth below income growth, pre-provisioning profit posted solid growth of 4.5% in probably one of the most difficult years ever. NPL ratio shows improvement in our asset quality despite the difficult economic situation during the year at 2.37%. It dropped by 14 basis points from a year ago. Coverage ratio, after the recorded EUR 242 million of extraordinary provision, stands at 61%, a 27% increase over last year.Group's net profit stands at EUR 317 million, a 42% decrease from a year ago. Our CET1 capital ratio also improved by 67 basis points to 12.3%. It stands comfortably above our guidance of 11.5%. Our return on equity reflects the exceptional situations and shows at 7%, most probably clearly ahead of our domestic competitors. Without such extraordinary provisioning, it will be at 10.8% and continue above our cost of capital. Finally, the tangible book value per share at EUR 5.24 grew by 7% in the year.Let's follow the usual agenda for quarterly presentations. First off, our fourth quarter and full year results, then risk management during the period, to end with a review of the business developments in the year.Here are the group's comparative P&L accounts for the full year 2020 with a new accounting for LDA at the bottom as discontinued operations. We think at this point in time that 2021 will be the last year of Línea Directa contribution to the group as such, although we don't know exactly when in the year. Once they will become an independent company, Bankinter will still get dividends from its remaining participation.Now our income statement reveals very positive trends in the 2 main lines of revenue, net interest income and fee income. Group's net interest income maintains a very positive trend despite the increasing negative environment for interest rates in the year. This is due to our lending growth and client margin resilience. It is up by 6.8% or EUR 79 million more than in 2019 with a 1.8% increase since last quarter. These rates will be 4% and 1.6%, respectively, without EVO and Avantcard. The progressive recovery of commercial activity up to the summer and the much better market environment did support our fee income growth. Therefore, fee income finished by the -- finished the year growing by 3.7% with respect to the previous one, with an increase of 21% from the previous quarter and 4.2% from the same quarter last year.Other operating income and expenses of a negative EUR 34.7 million were much lower than a year ago due to the many factors: lower trading income in the year of EUR 17 million and the usual increased contribution to the single resolution fund, guarantee fund and other regulatory charges in the year around EUR 20 million additional or an increase of 21%.Thus, total gross operating income reached EUR 1,709 million, up by 3.6% from 2019. Without EVO and Avantcard, income still grew by close to 2%, and the quality of such growth in income remains very high, as the weight from extraordinary income coming from Portugal was reduced to EUR 3.5 million, at almost EUR 2 million lower than last year.Group operating costs continue under control in both Spain ex-EVO and Portugal. Thus, the group was still able to improve their efficiency level. Costs from the EVO and Avantcard operations are not comparable year-on-year since they are for 12 months in 2020 and only 7 months last year. In total, they grew only by 2.7% year-on-year, only EUR 22 million more. On a like-for-like basis, the group costs remained almost flat with respect to the previous year. This positive income and cost performance through the year allow pre-provisioning profit to increase by 4.5% from a year ago. Like-for-like growth is up by almost 3% from a year ago.Loan loss and other provisions are up 37% from 2019. Let me remind you of the only contributors to this increase. One is Portugal due to the anticipated normalization of cost of risk from the finishing of extraordinary recoveries of previously provisioned loans acquired from Barclays. Another is the expected rise in cost of risk from the Consumer Finance business; and finally, the provisions for other contingencies, litigation, et cetera. After these increasing provisions, profits for the recurrent banking activity stands at EUR 473 million, only 13% below 2019.As we have announced in previous quarter, we booked an extraordinary credit risk provision to fulfill the macroeconomic scenario of Bank of Spain on IFRS 9 models, thus, recording EUR 242 million in the year that we do not expect to repeat in 2021. After this extraordinary provision and also taking into consideration last year one-off badwill arising from the EVO and Avantcard integration, pretax profits of the banking activity stands at EUR 231 million, a reduction of 62% from last year. Like-for-like reduction will be 56%.Pretax profits coming from LDA brings an additional EUR 180 million to the group in the year or an increase of 26% from 2019. This shows a very strong performance of the insurance business in the year that we will analyze later on the presentation. After taxes, the group posted a net profit of EUR 317 million, a decrease of 42% from a year ago. Like-for-like, without EVO and Avantcard, net profit should be EUR 455 million and a decrease of 38%. Group's provisioning profit growing at a close to 4.5% clearly indicates the resilient growth in all our customer activities and geographies.Let's move on. The group loans book grew by 6.6% from a year ago, bringing in over EUR 4 billion in new loans to -- you got the slide now -- to reach EUR 64.4 billion. This growth comes mostly from our business in Spain during this period, EUR 3 billion approximately and mainly in corporates and SME showing a relevant impact from the government programs for restoring the economy, namely the ICO liquidity lines of credit. 7% is the annual cumulative rate of growth for the last 5 years, clearly outperforming the sector.In net terms, this fourth quarter look -- sorry, this quarter loan book grew by over EUR 1 billion in Spain and the rest in other geographies, mainly in credit, mortgages, working capital facilities and loans. In Spain, lending growth rates improved from the previous quarter. It grew by 6.1% year-on-year, well over the minus 2.4% of the sector as of November 2020, bringing market share increases in both household and corporate loan books. For corporates, loan growth has been 9.8% year-on-year or EUR 2.4 billion. This growth was different in customers with ICO loans, plus 37%, and those without ICO lines, a decrease of 3%. Also, by segment, growth was more balanced. Large corporates having EUR 0.9 billion, mid-corporates EUR 0.8 billion and SME is only EUR 0.6 billion, all with ICO guarantee lines. On the right side, retail deposits continue to perform strongly in all geographies, up 12.4% year-on-year or EUR 7.2 billion to EUR 65 billion.Moving into net interest income. NII continued to show very good resilience. It grew by 3.5% over the same quarter a year ago and by 1.8% from last quarter. This is mainly due to being able to reduce by 30% the year interest expenses, cost of deposits and debt, while keeping growing the interest earned, thanks to volume growth and asset yield resilience. The like-for-like growth rates are similar, since the contribution of EVO and Avantcard to our net interest income continued to be small, although growing every quarter. They contribute with over EUR 19 million to the group NII this quarter versus EUR 17 million the previous one.In Portugal, NII also grew by a strong -- by 11%, quite strong figure, with respect to the same quarter in 2019 and by 1% in respect to the previous quarter, with a small impact from extraordinary coverage in the quarter. The 7% annual cumulative rate of growth for the last 5 years in net interest income is mainly driven by loan book growth, together with keeping resilient the customer margin.Customer margin improved by 4 basis points from last quarter, thanks to yield, 4 basis points increase on the back of ICO loans pricing. The 13 basis points decrease year-on-year is almost exclusively due to the reduction in Consumer Finance yields, together with the important reduction in the U.S. dollar LIBOR reference rate funding and yields in our international business. Cost of deposits helped with an additional 1 basis point improvement in the year.After a year with the cost of deposits at all-time lows, we believe that stable credit yields are the key to our customer margin to remain resilient in the coming quarters. We continue with the positive repricing of yields on the mortgage loan book front versus back books and also asset mix with more corporate lending weight than in the rest of the loan book.The composition of our ALCO portfolio changed very little in the year. Its size increased by [ EUR 0.8 billion ] to EUR 8.5 billion. Its proportion between different portfolios improved. Today, 75% of the portfolio remains under amortized cost with no impact in capital ratio and 25% in fair value. Still, Spanish government bonds represent 55% of total, together with 22% of sovereigns, mainly Italy and Portugal. The portfolio's average maturity is 8 years with an average duration of 4.4 years, and its average yield stands at 1.5%.After a much better end of the year in bond markets, we have seen growth in the unrealized gains of the portfolio. Now they amount approximately to EUR 700 million, up from last year, 80% correspond to the amortized portfolio and 20% to the fair value portfolio. Over the next few years, maturities of the portfolio are well spread out and not relevant in every year, as you can see in the right-hand side.Fee income. Fee income performed in line with our guidance for the full year and after a fourth quarter with the seasonal increase in activity levels. Thanks to this, last quarter fee income was EUR 24 million above the previous quarter, and it continued to show growth of 4% over the same quarter last year. For the full year, it reaches EUR 497 million for the full year, 4.5% increase over 2019. The largest contributor to fee income with EUR 157 million continued to be asset management fees, 25% of total fees charged and up by 2% in the year.Commercial activity recovered after the lockdown and the second summer wave also helped by markets and our banking AUMs that recovered levels pre-COVID crisis during the last quarter. The second largest contributor to fee income with EUR 111 million is payments and collections, which includes credit cards. This performance has been clearly impacted by the slowdown and the post-summer season, and it has been limited to a 6% decrease for the year on the back of our increasing home online banking activity and some improvement in the international trade finance. As mentioned, a much more stable market situation has provided positive impact on fees from bonds and equity trading in our broker online, growing at 22% in the year to EUR 98 million.In other operating income and expenses, here, you can see the main components of this line during the year. The EUR 68 million of trading income plus dividends this year were reduced by almost EUR 9 million from last year due to the lower trading volumes, and the 21% increase in regulatory charges or EUR 20 million weighted on the other expenses for the year, totaling EUR 115 million, 2.2x the charges 5 years ago.Gross operating income for the full year stood at EUR 1,709 million, an increase of 3.6% from a year ago. Quarterly operating income of EUR 413 million grew by less than 1% from the same quarter last year, keeping high quality since the contribution from financial transactions are always small. The 5 years annual cumulative growth rate of 7% is unparalleled in our domestic sector. All in all, the group's operating income coming from customer activity grew 5% in the year, at the upper end of our low to mid-single-digit guidance for 2020.Group operating costs totaled EUR 829 million in the year. They are up 2.7% from the previous year. Total operating costs on a like-for-like basis, that is excluding EUR 62 million from EVO and EUR 33 million from Avantcard, would have been down by 2% from last year. Thanks to our income growth in the year, growing our operating expenses by 2.7% means keeping our investment programs and marketing activities in place without having a negative impact in our group's efficiency, as we will see here.Our recurring banking efficiency continued to improve. The group cost-to-income dropped 40 basis points from December last year to 48.5%. We aim to keep the long-term banking cost-to-income below 45% as well. We try to improve efficiency in all our acquired businesses. We continued to do so in Portugal now with efficiency at 60% and in Avantcard at 57%. EVO is still negative efficiency. Our Spanish business runs at 43% efficiency ratio.Now let's look at recurrent cost of risk. Total recurrent cost of risk in the year finished at 32 basis points of total credit exposure, reduced by 2 basis points from the 9-month period and only 29 basis points in the last quarter, a very good trend and only 9 basis points over last year. The increase in cost of risk in our banking activity in Spain was again related only to the consumer finance loan book plus the small SMEs loan book, the commercial banking loan book and mortgages and personal loans as well as the large and mid-corporate loan book did not have significant impact during the year despite the difficult economic conditions.Regarding nonrecurring cost of risk and the extraordinary front-loaded provision booked in the year of EUR 242 million to adopt Bank of Spain macroeconomic scenario to our internal IRB models for credit risk after the release of a macroeconomic scenario by most central bank, we do not expect any additional provision. This extraordinary provision together with EUR 229 million booked in the year as recurrent cost of risk brings the total cost of risk at 67 basis points, just below our guidance for the full year. As we see things today, 2021 cost of risk will show an increase of recurrent cost of risk that will be more than offset by the inexistence of extraordinary provisions related to macroeconomic scenario. And all this should bring total cost of risk at the end of the year down from 2020.After this extraordinary one-off provisioning, group's net income stands at EUR 317 million, down 42% from a year ago. However, we expect this trend to be reverted in this year once extraordinary impact finished and the expected recovery takes place in the economy to provoke asset quality to somehow normalize in the future.All the above has impacted on group's return on equity that now stands at 7.03% after this strong provisioning. Excluding the impact of the extraordinary provisioning, return on equity will reach 10.79%, still above our cost of capital and different -- differential from peers. We still see group's return on equity as an outlier in our domestic market. And we expect return on equity to recover, fueled by the growth of our domestic recurrent business and some normalization of provisioning, also improved Portuguese operation and the future developments of the integration of EVO and Avantcard starting to bear its fruits.In this chart -- yes, we're there. In this chart, we see the evolution of our tangible book value per share over the last 5 years with a solid annual cumulative growth of 6%, probably second-to-none performance in our domestic banking sector.I will now grow -- sorry, I will now go over our management of credit risk, liquidity and solvency. Nonperforming loans finished their downward trend in 2018. But despite this difficult year, we have been able to show a very stable number. Total NPLs went down by EUR 7 million from the last quarter, mainly because of the annual NPL sale in Consumer Finance. Year-on-year, total NPLs remained almost flat at EUR 1.69 billion.Total group NPLs in 2020 grew by only EUR 4 million. Of this growth, EUR 17 million came from SMEs, EUR 15 million from mid-corporates. Portugal NPLs came down EUR 7 million, offsetting Avantcard and Ireland with EUR 5 million up, and EVO and Spain only EUR 2 million up in the year.Finally, Consumer Finance NPLs grew by EUR 44 million after the EUR 95 million NPL sale in the last quarter. All of the rest business segments, large corporates, mortgage, affluent banking came with a EUR 22 million reduction in the period.The group NPL ratio came down to 2.37%, lowest point since 20 -- 2008 and 19 basis points or 7% lower from a year ago. It decreases 5.5% from last quarter due to EUR 92 million (sic) [ EUR 95 million ] sale of NPL in consumer finance and EUR 35 million net interest and EUR 111 million write-offs of the quarter. Sorry, I mentioned EUR 92 million, it's EUR 95 million of sales.In Spain, at 2.42% NPL ratio, 14 basis points below December '19 and almost half of the sector average at 4.57% as of October '20. In Portugal, the NPL ratio declined to 2.14% or only EUR 150 million of total NPLs. As shown in the chart on the right, at year-end 2020, the group's NPL ratio went down to 2.2% for households, including Consumer Finance at 6.4%, and decreases to 2.7% for corporates and SMEs, including small SMEs at 7.4%.Here, we bring again a breakdown of the bank's total credit portfolio as of December '20 and the current NPLs and NPLs ratio by business segment. We compare this with January 2018 when IFRS 9 starts to be implemented at right after the transparency stress test of the EBA. 42% of the loan book is in residential mortgages and personal loans to the bank's individual customers with NPLs ratio of 2.2%. It was 2.71% back in 2018. This distribution shows our strength in quality of the loan book with the small changes over the years. Overweighting affluent mortgage lending and in large corporate lending continues as in 2018, when Bankinter showed the lowest capital deflation in Spain in the EBA stress test, just 114 basis points versus an average of 395 basis points from the EBA 48 participant banks.Total provisioning for nonperforming assets increased consequently after the extra provision to EUR 1 billion, a EUR 206 million increase from last year. This had a relevant impact on our provisions coverage, which now stands at 61% over last year or 25% higher. Coverage for foreclosed assets were also improved to 49%, a 9% increase and above the average discount of our sold assets.The group's foreclosed asset portfolio is 22% smaller than a year ago. It decreased by EUR 64 million from the previous year. This small portfolio now amounts to EUR 227 million, coming from EUR 531 million 5 years ago. Total sales in the year amounted to EUR 98 million or 34% of the stock at the beginning of the year. We sell most of our repossessed assets through our commercial network with an average discount on sale stable at 37%, clearly below to the provisioning coverage.Let's move into capital. Our CET1 ratio finished the year reaching 12.29%, an increase of 32 basis points from last quarter and 67 basis points from a year ago, due to lower dividend payout together with a lower capital consumption of the loan growth included in the government guarantee scheme and regulatory flexibility in this quarter related to software deduction. Since December 2019, our retained earnings bring an increase of 80 basis points, underpinned by the cancellation of the first 2 quarters dividend, but not the third one, to adapt to the maximum payout allowed. This exceptional increase helps to offset some of the negative impacts in the period, such as the increase in insurance equity.The capital consumption of risk-weighted assets growth of the year has been 25 basis points due to the help of the state guarantee on lending growth. Also, the reduction of the IRB shortfall brings 33 basis points positive in the year, more than compensate the extra positioning. Total capital ratio improved to 15%, thanks also to the July AT1 issuance now being accounted. It stands very comfortable above minimum regulatory requirements. Leverage ratio also improved to 5.2%. Finally, as of December '20, we had a ratio of 21.6% of our risk-weighted assets in MREL requirement fully completed. After closing a difficult year and despite the more complex environment, we reached record levels above 12% in CET1 ratio.Relevant increases in our customer deposits has bring our funding gap to negative for the first time probably in our 55-year history. This happens mainly in Spain from over EUR 8 billion 5 years ago to positive EUR 1.3 billion gap that more than offset the gap coming from Portugal, still having higher lending than deposits.Our wholesale funding maturities continued well balanced with only EUR 200 million due to this year, EUR 1 billion in 2022 and 0 for 2023. Thus, we continue comfortably positioned for the coming years with an increased EUR 20.7 billion in liquid assets and the additional capacity to issue over EUR 3.5 billion in covered bonds. As of TLTROs -- as of the TLTROs and after the last auctions in September, total stake stands now just below EUR 13 billion, and we account the interest earned at this 3-year average at 70 basis points during 4Q '20.Regarding AT1, just reminder that we issued EUR 350 million perpetual bond issue with a 6-year call and a quarterly coupon of 6.25%. And we portend to call the EUR 200 million previous one on May '21.Now let's review the performance of our main business lines and their contribution to the group's P&L. Here, you can see the improvement in the income diversification over the last 5 years and excluding the contribution from Línea Directa, very balanced between corporates and commercial banking, with 16% coming from Consumer Finance despite the loan reduction. 7% represent Portugal and 3% coming from EVO Banco. We -- you could see that on the right side we have the business line of the investment banking activity that supports activity both in retail banking and corporate banking, but we want to have a different space for them just to clarify that it's a new business line providing new strong diversification.The corporate and SME loan book in Spain and Portugal grew by 11% last year or over EUR 3 billion. It increased by 11.5% in Spain, while the sector grew at 8.1% year-on-year since last November. Thus, we have increased our market share to 5.2% from 5% a year ago. All this growth has started during the second quarter, boosted by the government-guaranteed ICO lines, and the entire sector has made a wide use of them. After the summer, there has been a slowdown in corporate loan demand, only improved by December pickup.As a recap, we have signed over EUR 6.6 billion of government-guaranteed ICO lines with our customers, providing more than EUR 8.5 billion in financing to our customer, 50% in loans and the rest in other types of financing. Customers were mainly large SMEs, small SMEs and large corporates. We will review our production in a separate slide.The most important sources of income for the corporate banking going forward, still international -- still our international trade and supply chain that continues to show loan book growth, transactional business turnover with corporate customers that went slightly down from the period due to lower activity and investment banking that generated EUR 76 million in operating income, a 6% increase from last year. Out of them, EUR 17 million are fee income with a growth of 24% over the past year.Let's look now at some indicators of the credit quality of our corporate loan book in Spain and Portugal. The corporate loan book granted to nonfinancial enterprises amount to EUR 28.4 billion at the end of December. From this total lending, EUR 10.6 billion are granted to large corporates, those with yearly turnover over EUR 50 million and more than 250 employees. EUR 7 billion loans granted to medium-sized enterprises, those with a turnover of EUR 5 million to EUR 50 million. We call them SMEs type A with 2 larger loan books represent over 62% of the total corporate book. Only 18% or EUR 5.2 billion of the bank's total corporate loan book are loans to small enterprises, with a turnover of EUR 1 million to EUR 5 million or what we call SMEs type B. And the rest is split between EUR 2.5 billion of property and housing-related financing, EUR 1.9 billion in international trade finance and EUR 1 billion lending to public sector, corporates and others.Out of the SMEs loan book, with European definition below EUR 50 million turnover, of EUR 12.2 billion, we can see a relevant difference in NPL behavior between small and large SMEs. As December '20, NPL ratios were 7.4% and 3.5%, respectively. These 2 segments were the main beneficiaries of the ICO lines accounting 35% and 29% of the respective portfolios as of December with a state guarantee for close to 75%. In addition, these 2 segments have, today, 42% real guarantee.We have always enjoy a high-quality loan book relative to peers. And today, we feel comfortable with the current asset mix. It has shown no significant changes over the last 10 years, preserving the strong asset quality standard for each segment or corporates and always obtaining yields according to our risk rewards.Moving on. We show Bankinter Spain participation in the government guarantee ICO lines for corporates and SMEs. Total ICO loans were over EUR 6.6 billion. All these loans have been granted mainly in medium and small corporates and the rest to large corporates. The average maturity are over 3 years, and the cost of the guarantee is 40 basis points approx, and the average yield at 1.89%. A total of EUR 8.6 billion of ICO loans have been signed by Bankinter, market share of 7.3% on the facility, well above our natural market share.And on moratoriums for mortgages and consumer finance to individuals, these amounts are reduced and represent a very small part of our loan portfolio, EUR 546 million and less than EUR 10 million, respectively, and represent only less than 2% of the mortgage book and less than 0.1% of a portfolio book in consumer.Moving on in private and personal banking. Customer assets increased from last year despite the difficult behavior and the small negative market effect. Now in both business, assets under management shows increases of EUR 4.8 billion in a net new patrimony, split EUR 2.6 billion in private banking and EUR 2.2 billion in personal banking.Moving on. Activity in our commercial banking during the year has been strong,, particularly in our 2 main products. Salary account balances continued to grow. They're up 22% from a year ago, totaling over 12.7%. Since September, we have lowered the requirement to access the salary accounts benefit to be able to increase the number of customers that can take full advantage of it in a very well received marketing campaign.The new mortgage origination at EUR 2.9 billion finally ended below that of last year but only by 3%, recovering from the second quarter when the lockdown had an important impact in origination. Bankinter still holds larger market share in the front that in the back book of the new mortgages, 62% were fixed rate and its average loan-to-value ratio is 60%. Our market share in new mortgages is now over 6% in the 12 months ending in October. As a result, the total mortgage back book maintained growth and reached EUR 28.6 billion and Spain growing by 1.7%, while the rest of market continues to shrink by 1.5% as of November '20. The loan-to-value of the total back book stands at 55%.Now let's look at our standalone business in Portugal. Loan book grew by 7% to EUR 6.6 billion and retail funds at EUR 4.8 billion, up 6% from a year ago. Growth in loan book was in both corporates, up 12% as well as in retail lending, up 4% year-on-year. Our balance sheet of EUR 3.6 billion shows a 2% increase from last year.As of the income statement, operating income from the business grew by 13%. Cost shows, again, a 3% reduction, in line with cost control plans. All of the above brings pre-provisioning profit up by a very strong 50%. However, after the EUR 9 million normalized loan losses with a very small impact of EUR 6.5 million from extraordinary recoveries, here, I remind you that last year, we have EUR 29 million positive cost of risk from these recoveries. Therefore, Portugal profit before taxes post EUR 45 million, 31% below that of last year. Today, 4 years since the acquisition of Portugal, our operations there show an efficiency ratio close to 60% and has become the fifth region in operating income contribution to the group, with close to 8% contribution.Bankinter Consumer Finance includes our Consumer Finance business in Spain, Portugal and Ireland under Avantcard. That, by the way, has been renamed to Avant Money. At the end of the year 2020, total loan book was EUR 2.9 billion, flat from a year ago.Let's see now where growth has come from last year. Total loan book includes almost EUR 500 million from Avantcard, growing by EUR 28 million in the year. We have [ EUR 215 million ] from Portugal, growing EUR 39 million in the year. And we have EUR 2.1 billion in Spain, where the loan book only contracted by EUR 68 million in the year and with a very different behavior between personal loans growing by EUR 50 million and credit card down EUR 120 million. That is EUR 114 million of them in revolving cards.New credit origination, mainly in personal loans, went down on purpose by 25%. As mentioned earlier, EUR 114 million reduction in revolving credit cards bring the total outstanding under EUR 556 million or 17% less than a year ago. Total number of customers grew by 3% to 1.74 million. In Spain, credit card business represents 42% of the EUR 2.1 billion of total Consumer Finance outstanding, and revolving credit cards only 26% of total. The rest are payable at the end of the month, even though they are mainly granted to existing Bankinter customers with a much better risk profile than pure Consumer Finance customers.Although the new stricter accounting standard for NPLs implemented in 2020 and the extraordinary provision for macro adjustments of IRB model increased cost of risk in the year, in the fourth quarter, Consumer Finance have executed their annual sale of NPLs portfolio for an amount of EUR 95 million with very low impact in the P&L account. This has bring NPLs ratio as of December to 6.1% from 8.2% in the previous quarter. Provision coverage, again, reached over 100%. Cost of risk climbed to 5.1%, although this brought the risk-adjusted return to business to 5.7%.Also to be mentioned, at the end of September, they have started to lend mortgages in Ireland under the commercial name of Avant Money that I'd just mentioned. And plans are to increase production in 2021 and try to maintain the very good asset quality going forward.Moving on, getting close to the end. During the first full year of EVO Banco, they performed according to its business plan despite the impact of a slowdown in credit card activity. But the implementation of the new mortgage origination has helped to recover commercial activity. New mortgage granted from December 2019 were EUR 395 million. Personal loan and credit cards amounted to EUR 60 million, down from the beginning of the year. As per management ratio, customer margin stood at 1.23%, NPL at 1.35% with EUR 16.7 million in NPL. I think we can say that EVO's -- EVO Banco's customer acquisition and mortgage lending robust growth are good prospect for the future evolution towards a turnaround in its P&L account over the next 2 years, in line with existing business plan.And finally, let's look at Línea Directa's contribution in the year, most probably the last year within the group. It continued to perform strongly despite the strong pressures on premiums in the new environment. Total insured risk increased by 1.7% in the year, increasing Línea Directa's market share in Spain. And issued premiums grew by only 0.8%, which, apart from a small increase versus the previous quarter, suggests continued price competition and weak demand, particularly in motor insurance. Nonetheless, Línea Directa's growth in motor premiums continued to outperform the industry's average with a small reduction of 0.9%, while the sector reduces almost by 2%.In home insurance, it grew by 8%, while the sector grew by 2.7%, which is over 3x market growth. And in health insurance, Vivaz total policies closed to 80 -- closed the year with 89,000 policies, a 29% increase from a year ago, and this is in line with its business plan.LDA's combined ratio improved to an outstanding 83.4%. This is 450 basis points less from last year. So despite lagging premium growth, it continued to improve in the quarter during the reduction of 30 basis points in the claim cost after the traffic slowdown during and after the lockdown. The cost ratio jumped somehow to 21.8% because of the continued acquisition and marketing costs in the quarter. LDA's combined ratio, way below 85%, is at its lows in many years. And Línea Directa is expected to maintain this level below 85% this year. Having one of the lowest combined ratios in the industry represents a strong competitive advantage that will allow Línea Directa to outgrow its competitors in the coming years despite the new more difficult market conditions.If we look now at its income statement, net profit went up by 26% from last year, improving the results obtained during the first half. This is due to minus 9 -- minus 7% claim cost reduction, combined with a 3% increase in net earned premiums. These revenue trends from operations resulted in a technical insurance result of EUR 146 million, 41% up. Return on equity, 35%; solvency, 276%, well above industry standards.And let me finish with a recap. We have a strong growth in recurring income from our customer activity despite the impact of the difficult economic scenario with increased pre-provisioning profit. In accordance with this difficult environment, we have done a strong effort recurrent cost to remain almost flat to be able to support pre-provisioning profit going forward. We've made also a strong effort in increasing the coverage for potential risk, and we have improved solvency and coverage level. These are the main figures. I will not go through them again.But after closing a very difficult 2020 and in view of a complex scenario and a slow recovery for this 2021, we should be able to achieve that we consider our guidance for this year. So we expect for 2021 growth, loan growth in all geographies. Portugal, either in commercial and corporate banking, we expect growth. Ireland, either in Consumer Finance and a new mortgage business, we expect proper growth. EVO Banco in mortgage, we expect growth in line with the fourth quarter as well. Spain, we expect, again, a good momentum of growth in mortgages and personal loans. However, in Spain, we expect in 2021 that corporate loans will be impacted by less activity in corporate demand after ICO financing. So this is the only, let's say, uncertain part of the expectations in loan growth. Apart from that, we expect a good growth for next year.Net interest income growth, we expect a positive low single-digit despite the negative interest rates in Euribor 12 months that will impact mostly in the first 2 quarters. In an increased activity scenario and stable markets, fee income growth we expect in the range of the mid-single-digit positive; and group's operating income in mid-single digit, exactly similar to 2020.We expect group costs to remain flattish. We'll make plenty of efforts to make this happen. And pre-provisioning profit should be remained resilient and maintain the growth of 2020, at least. Again, positive jaws are expected for 2021. And the total cost of risk will show a double-digit trend down, thanks to the absence of additional provisions for macroeconomic scenario to a level of 60 basis points, probably more or less, at the year-end. This is our best guidance that we can provide you right now.And we have some time more than the previous results presentation to take your questions. Thank you very much.
Thank you, Jacobo, for that detailed explanation, and thank you for advancing the guidance for '21.Let's just start probably with the top 2 topics we have seen in our screens today, Línea Directa, as you would expect, and capital. On Línea Directa, we have many questions regarding any updates, any feedback on the spin-off of Línea Directa.
Yes. Thank you. Regarding Línea Directa, I think the news are that we have finally submitted the application for the Línea Directa spin-off to the regulators. So I think this is a positive new. I -- it is difficult to say exactly the proper timing of the final execution of the spin-off, but I think this is the first good step to move forward the transaction.Of course, we have a very close relationship and communication with regulators, and we will try to execute the transaction as soon as possible. But of course, we need to respect the processes and the timings. And it's difficult for us to provide you a good timing for these transactions. But at least, and as I mentioned, I think the good news is that we finally submitted the application for this spin-off.
Okay. How much capital do we expect to -- or how much do we expect to impact in capital, the spin-off of Línea Directa?
Yes. I think this is very similar to what we shared 1 year ago. It will be somewhere between 5 to 10 basis points, depend exactly on the final timing of the transaction, positive, of course, sorry, 5 to 10 basis points positive.
Okay. And since we are in the Línea Directa topic, what did you -- what are your views for '21 on the insurance business?
I think that we have seen in 2020 is probably extraordinary reduced cost of claims. And for 2021, I think we expect higher levels of claims cost. However, I think 2021 will be better than a normalized year like 2019. So we expect a lot of competition. We expect price competition. We expect a good combined ratio for Línea Directa as well in 2021. But as I mentioned, results in 2021 is difficult to have -- to be similar to 2020 because it have been exceptional of the reduced level of claim cost. But it will be definitely better than in 2019.
Okay. Moving on to capital. We have some questions regarding the dividend that we are planning to pay for 2020.
Yes. For 2020, the limitation of the 15% payout is the one that we will apply. Therefore, the expectations for dividends are exactly this 15% of the results once deducted the cost of the AT1 coupons that are around EUR 19 million.
Okay. As a reminder, the -- we have paid dividends during 2020, but that was obviously against the net income of 2019, okay? What are your plans for '21 in terms of dividends also?
So in 2021, of course, we need to wait what the ECB recommendations will be, but we want to come back to our 50% payout dividend policy as soon as possible. And we will respect whatever recommendation the ECB makes on financial institutions here in Spain.
Okay. Two more on capital. What are your plans to allocate capital given that we are above 12% CET1 currently?
Yes. In a normalized situation, our guidance is 11.5%. So as you know, we have much higher levels today just to go through these moments. This, what you call excess capital, of course, we will dedicate it to organic growth. As I did mention in my guidance, we have good expectations in growth in all geographies, Spain, Portugal and Ireland. And in segments, as I mentioned, in mortgages in Ireland, mortgages in Portugal, mortgages in Spain, we have a recovery of the Consumer Finance business as well, so there is plenty of room to allocate that capital in the future.
Okay. Last one on capital. Any regulatory impact left?
Not that we are aware. The only impact, the recent -- the more recent impact was the software deductions that we have recognized in the fourth quarter, which is around 18 positive basis points in capital.
Okay. Moving on to loan growth now. You have been commenting our willingness to grow on different business. Can you be any more specific? Or what do you expect to see more growth in '21 or more demand coming from?
Yes. As I mentioned, we expect -- we have -- we expect to follow some momentum of the activity that we have in the fourth quarter. We have a great momentum in EVO Banco, for example, in the mortgage world. We have a good momentum also in mortgages in the Spanish market in the fourth quarter. We are launching the mortgage business in Ireland, and I'm sure it's going to be a good success. So those business will drive growth in 2021. Of course, Consumer Finance business will start the recovery, correlated with growth in consumption and a more certain world that we all expect in 2021.
Okay. Do we expect to see any more loan growth coming from ICO loans?
I think the demand is going to be some sort of stable, but it will depend on the recovery of the Spanish economy. Of course, I did not mention the increase in the EU program, next-generation EU program that we expect some funds in Spain, probably in the second half of 2021. This could also boost some of our corporate loan book portfolio.
Okay. Moving on to the P&L now, net interest income. How much TLTRO -- can you just repeat how much TLTRO are we currently outstanding? And what are your plans regarding the balance of TLTRO?
So up to today, we have almost EUR 13 billion in TLTROs. As you know, there is a potential additional 5% that we can request. And of course, we will consider it seriously, and this amount is around EUR 1.2 billion or EUR 1.3 billion of additional TLTROs that we are strongly considering to go for them.
Okay. Are we expecting to see any changes on the rate accrual in '21?
In the TLTROs?
Yes, yes.
Yes. The last quarter, the fourth quarter of 2020, the accrual figure was around 70 basis points. And we expect that for 2021, the accrual rate will be closer to 85%, 87% -- sorry, 85, 87 basis points in the accrual of the TLTROs.
Okay. Thank you. Also on the NII, what sort of impacts are you expecting from the ALCO portfolio in '21 on the NII?
We expect a very low reduction of their contribution, but it shouldn't be a reasonable -- I mean, it's very short [indiscernible], one single-digit reduction in the contribution of the ALCO portfolio to NII.
Okay. And finally, on the NII, any color on the fourth quarter performance?
I think the fourth quarter has performed very well. We are compensating the starting repricing of the mortgage book with Euribor, and we are compensating it with mortgages, with a large proportion of fixed rate mortgages. We have good volumes in ICO lines for -- in corporates. We have improving pricing also in the loan book. And of course, we are reducing the cost of liabilities once again from clients. And the TLTROs, the TLTROs in this quarter have contributed with a marginal EUR 2 million in this quarter. So I think the last quarter NII has behaved quite well in terms of volumes and in terms of client margin resilience.
Thank you. Fee income now. Again, can you give us some color on the performance of the quarter? And what are your views for '21?
I think the quarter has been outstanding. I think we got an excellent behavior of the assets under management business, where we have more than recovered the levels of the pre-COVID moment. And we have ended up with almost 2 -- more than EUR 2 billion of additional assets under management, keeping a good average fee.Also, the brokerage business has been very good again in this last quarter. We have been -- good activity in the investment banking world and international business and also in the insurance business. So I think it's been very positive from a commercial activity. All levels of activity have been growing during the quarter since October up to December, which has been a great, great month.
Okay. Thank you. Expenses now. We have seen expenses going up in the quarter. So we have some questions whether this is related to IT investments. And also, what shall we expect in the future quarters? What shall we expect a run rate for next few quarters?
Okay. So in terms of cost, personnel costs have been similar to what they were last year, so there is no major issues. Of course, there is some [ stationality ] due to incentives remuneration. But there is no major aspect to mention.In terms of the last quarter, we still have increasing levels of amortization, and this is due to IT investments, of course. And we have also probably a little bit more of expenses due to our marketing campaigns that we have put in place in the last quarter in Spain, in EVO and in Portugal. So there is no one-offs, just more concentration in the fourth Q, for example, in terms of marketing. And of course, the IT investments are still at good path.
Thank you. Moving now to asset quality, cost of risk. How do you see IFRS 9 [ status ] performing in '21? Where do you expect to see growth, if any at all?
Of course, we expect NPLs to finish 2021 above EUR 2 billion. We expect probably an NPL ratio to reach 3% probably at the end of 2021. But for the time being, I must say that -- and this is something reflected in the stage 2 levels, which is -- which are very stable. We are reaching levels of delinquency, which are really, really low. And that means that there is no reason why we should increase stage 2 volumes. For 2021, we do expect an increase of, as I mentioned, stage 2 in NPLs. But for the time being, we still have very low levels of delinquencies.
That's right. We have a question specific on whether we have seen any signs of asset quality deterioration in consumer or SMEs.
We have not seen anything different what we've seen in the past quarters. So we keep the similar for the time being. We have the similar trends.
Okay. And can you update us on the moratoria levels for both Spain and Portugal?
Yes. In terms of moratoria in Spain, we have EUR 636 million -- yes, EUR 636 million. As we mentioned, EUR 550 million, just rounding figures, are in mortgages. The rest are -- I mean, Consumer Finance is almost negligible, and there's other very small lines of transportation, which accounts with a very low figure. So the overall in moratoria in Spain is below 1% the total portfolio and in mortgages is below 2%.In Portugal, we have EUR 1 billion of amount in moratoria, which accounts for more or less 15% of the portfolio. And in mortgages, we have EUR 600 million, which accounts for 14% of the portfolio.
Thank you. Moving now on to other provisions. We are getting some questions regarding how much of the provisions that we booked in the quarter are to do with litigation. And also, obviously, what do you expect to see in '21?
Yes. Yes, in the quarter is -- around EUR 50 million are related to litigations. There is a lot of [ stationality ] at the end of the year. Normally, there is some [ stationality ].
Just as a reminder, this is to do with FX mortgages, right? The…
I mean, the FX mortgages is there, although at the end of the year, it's been still, as we mentioned, slowing down. Just as we mentioned, the peak was in 2019. 2020 has been a reduction. There has been a reduction in FX mortgages. And next year, we will also expect downward trend similar to what we've seen this year.
Okay. Thank you. We have some questions on your views on consolidation in Spain.
If you're asking me about consolidation of Bankinter, there's nothing to say there because we do not expect any consolidation where Bankinter can be involved.In the context of other potential consolidations, the only thing that we can say is that we believe that, for us, it's a good opportunity to grow because there is a -- there's an expectation of reduction of number of branches and there is an expectation of number of relationship managers. And for us, which -- we are a bank with a good quality of services. We have more capability to attract people to our business model. So we are positive and optimistic about client growth for 2021. And of course, of these volumes that I've just mentioned are supported by the opportunity that consolidation in Spain can bring us.
Okay. And also on an international basis, what are your expectations on our international business model going forward?
I think Portugal is behaving excellent. We have a 2% market share. So there is plenty of room to grow with a very good credit quality. And as we shown in the presentation, with 50% of pre-provisioning profit growth, as you can imagine, we are very optimistic and happy with Portugal operations.In terms of Ireland, the new business line of mortgages, I'm sure, we will bring plenty of new business, plenty of new sources of revenues. And again, we are very happy with what is happening in Ireland, of course, also with the Consumer Finance business, which is recovering probably faster in Ireland than in Spain.And I mentioned, too, Luxembourg. Our Luxembourg business is also growing a lot with assets under management also growing at a good level. So our international franchise is working very well.
Thank you, Jacobo. Thank you, everyone, for joining us today. That was all from us. Obviously, the Investor Relations teams will be happy to take any further questions. Goodbye.
Thank you very much. Have a nice day, and hope to see you next time. Bye-bye.