Caixabank SA

MAD:CABK

Earnings Call Transcript 2019-Q4

[Edward O'Loghlen, Director of Investor Relations]

Hello. Good morning, and welcome to CaixaBank's Results Presentation for the fourth quarter of 2019 and for the full year. With us today is the CEO, Gonzalo Gortázar; and the CFO, Javier Pano. If you are a first-time viewer, and we do have some of those, please note that we plan to spend around 30 minutes presenting and 45 minutes for live Q&A. And you should have instructions on your screen to participate in that. Let me just end by saying that my team and I will be available after the call. And without further ado, let me hand it over to our CEO.

[Gonzalo Gortázar Rotaeche, CEO & Executive Director]

Thank you, Eddie, and good morning, everybody. I will try to be brief as by this time, obviously you've seen the results. But I just want to highlight the main messages from results we're presenting today for 2019. Clearly, on core revenues, we had a very good end of the year, particularly on the fee and insurance side in the second half. We had a strong third quarter and the fourth quarter obviously has been very strong as well with that 10.7% growth year-on-year, which makes us clearly meet our revised guidance and also meet it with a nice trend quarter-on-quarter, doing better than the previous. I think that's the first point. Second point is costs. Environment changed very significantly at the beginning of last year with interest rates changing from an upward expectation to, unfortunately, a downward one. And in 2009 (sic) [ 2019 ], we have been working both on producing results obviously, but also on making sure that we actually adjusted cost developments and cost growth to a different environment. And that's why we decreased the 5% initial expectation we had, which was based on very strong investments, initially to 3%, which we finally met with just 2.9% growth this year, and then also looking into 2020, making sure that we lower the cost growth. And that's why we are today announcing that guidance of 1% for 2020. And you can see in the fourth quarter actually already some of the fruits of the various measures, of course, the reduction in personnel but also the reduction in other operating expenses quarter-on-quarter of 1.6%. Volume have been positive, both in absolute level as well as particularly on a relative basis with a 2.4% growth on the loan book, on the performing loan book year-to-date and an 8.4% growth in long-term savings with a very strong, as we will see, fourth quarter.Finally, on the balance sheet, even though I think we were in a pretty good position, actually the year has been very positive. And we have both increased CET1 to 12%. And we have also reduced the NPL ratio in a very significant manner to 3.6% while maintaining a cost of risk that is actually well below our targets at 15 basis points. We have announced a proposed dividend of EUR 0.15, which will be for the Annual General Meeting to decide, obviously. And guidance on that front for next year also to keep effectively that range of 50% to 60% payout for 2020. Return on tangible equity is at 7.7%, obviously with that 14% fall due to the charge associated to the restructuring of reduction of headcount, which is an exceptional matter for this particular year. Some more detail. First of all, lots of things going on beyond what you see in the financial statements during 2019, very significant transformation. I think it's important to look at our results, which have been, I think, very positive on the commercial side, but also particularly taking into account it's not just sort of business as usual but heavy transformation. We have closed 528 branches this year. We had accelerated the development of the store branches, which we expected to finish by the end of next year, 2021, and we're expecting to be more or less there by mid this year, in 6 months' time. We achieved our objective of reducing the people, the headcount in the rural network, hence insurance profitability on a sustainable basis. And you can see we have over 1,000 branches, but these branches now have an average of 2.4 employees. The branch network reduction, as I said, has been accelerated. And then when you look at our commercial performance, it's been as positive as it has been in the past. But obviously, restructuring our distribution network and also negotiating and agreeing the exit of 2,000 of our employees has been done and could have diverted the attention of the organization. And clearly, the second half shows that we have very quickly recovered and actually ended up in a very good tone for business. Now as you can see, particularly life and pension plans and long-term savings are again very, very spectacular in terms of the market share we have captured this year. The details on, on-balance sheet funds are well-known. I think the fourth quarter confirms trends with one caveat. And you can see demand deposits how they grew very slowly in the fourth quarter. Obviously, that should help manage the excess liquidity that we have. While when you look at insurance and you look at mutual funds and pension plans, both year-to-date but particularly in the fourth quarter, we have had a very strong commercial success. So I think both the total numbers and also the quality of what we're achieving is good. You can see the total of EUR 25 million. And clearly, the trend of -- associated to our success of increased demand deposits, moderating itself in the fourth quarter, which will hopefully help to manage that cost of excess liquidity that I mention. I think it's very noteworthy as well to look at net inflows, but we'll see it in the next slide. Here on the top left, you can see net inflows on the long-term savings side. And obviously, with close to EUR 2 billion in the fourth quarter, this is a major development. From a very slow first half of the year, we have ended up in a very high tone. As you can see, the third quarter was pretty good, particularly considering the month of August, but the fourth quarter has been outstanding. The advisory model, our 18,000 employees dedicated to advisory or certified with advisory, the offering on the protection side of MyBox, which started in March and has been a tremendous success. It also shows why the first quarter and the second quarter still because we didn't have the full offering had been slower. But third and fourth quarter have been fantastic. You can see quarter-on-quarter in terms of new production of contracts in MyBox, plus 43% in the fourth quarter. And this is good for results in the fourth quarter, but obviously good for results going forward, given the nature of these products, which is at least a 3-year one. On penetration of our clients, we have made good progress. You can see how we have increased penetration in all categories. Obviously, if you look at it, the other side, the potential we still have is substantial. Obviously, we're not going to be able to reach 100% or anything closer. But clearly, we still have a big customer base, big amount, big number of clients that are our clients and still can become clients on the insurance front as well. So plenty of work ahead of us. To the loan book, I think nothing to highlight during the fourth quarter, continued trends, strong growth in corporates, good growth in consumer. I think the only thing I would say on the public sector, we had a quarter that was negative. But you know and we've been very clear that we're much more tactical on the public sector. It also has a fairly limited contribution to the NII and to the P&L, given the margins on that front. Looking back at what we presented a bit over a year ago on the strategic plan. We feel good about most of the areas, which you can see identified as drivers for growth. And business lending, consumer lending, payments, long-term savings and protection are doing very well. BPI, I will comment briefly, but you have all the details. BPI has done very well this year, really complying and meeting and actually over-delivering in our expectations. And yes, we have lower rates so that has an impact on ALCO and has an impact on mortgages. Also in terms of new production of mortgages, as we expected, the year has resulted in a fall in the stock, probably a bit, even higher than what we were expecting. We'll see how that part of the market develops. We continue to prioritize value over volume on that front. As you know, it's still an important part of the business, but obviously has different dynamics. And on the right-hand side, you can see the new aggregate third and fourth quarter in terms of core revenues. The picture is self-explanatory. I don't have a lot to comment. But clearly, we are now on a different level, and we certainly expect to build on that. Financials, not much to share. Core revenues with that growth of 1.2%, obviously slowing down but still positive as we continue to feel it will be the case in 2020 as Javier will explain later. And the rest is obviously fall in income from investments, hence increasing the quality of our results. We do not any longer include equity accounting from Repsol or BFA, in particular. Savings in real estate as we sold a large portfolio last year, the development on the cost front that I explained at the beginning and the containment and cost of risk at those 15 basis points. So all in all, that would have resulted in our return on tangible equity close to 11%, 10.8%. But obviously, there's this big restructuring charge, which brings it down to 7.7%. But for me, that is an investment in the future and an investment that, from a financial side is done, but also from an operational front is, I think, 90% done. And hence, we'll have all our eyes and ears focused on clients and business during 2020 since the 1st of January, which should help. BPI, briefly. A very good year, NII, up close to 5%. Fees are down. But remember that there's an adjustment because we sold some of the factories or most of the factories to CaixaBank. So if you adjust for that factor, actually they are up 5.7%. Increasing costs as we have invested in, I think, accelerating the growth for the future in BPI. And all in all, a net attributable profit that increases significantly. And again, consumer lending business, and on the other side, long-term savings are driving in a similar way to what's happening in CaixaBank such as for BPI. And with that, I think Javier, you will take it from here.

[Javier Pano Riera, Chief Financial Officer]

Perfect. Thank you. Okay. Good morning. Let me first have a view on the P&L for the fourth quarter, well, a fourth quarter that, as Gonzalo commented, shows a continuation of the operating improvement that we already observed during the third quarter. Focusing on the evolution year-on-year in order to avoid seasonalities. You see core revenues up by 3.9%. In this case, with a strong support from fees, mainly from assets under management and also other banking fees with a continuation of the contribution of our payments business. Also strong recovery in our life-risk insurance revenues, up by double digits. And then on non-core revenues, also as commented, reflecting mainly changes in the scope. On costs, we have the savings from the restructuring that is now impacting in full the fourth quarter. And then below, where we have cost of risk, stable situation, at low levels. We closed the year on a 12-month trading basis at 15 basis points, below our guidance as you know, below 28 basis points. And we have below the line also other charges, in this case reflecting some one-offs, having a conservative year and provisioning. All in all, net income for the fourth quarter of EUR 400 million -- EUR 439 million. Let me now continue with some focus on the different lines of the P&L. As always, first, with NII. In this case, down in the fourth quarter, quarter-on-quarter and year-on-year but up for the fiscal year by 0.9%. As the main positive, we have tiering, the tiering from the ECB for 2 months. But unfortunately, we start having some negatives. We have here this fourth quarter started to have a negative Euribor repricing on loans, mainly on mortgages but also on other loans. Also, we have had lower average loan volumes despite ending the quarter with a higher figure. By the end of the period, on average, volumes have been lower. And also, we have been impacted by reduced ALCO contribution as we have had high-yielding maturity during the quarter. And all this has been affecting NII and has not been able to be offset by tiering. So going forward, obviously the new rate situation is going to impact as we can comment later. A view on our loan book and the customer spread. The front book yield comes down by 5 basis points to EUR 252 million, reflecting this lower-yielding environment. The back book yield comes down by 2 basis points, mainly reflecting precisely this Euribor repricing on our floating rate portfolio. We have been able to reduce the cost of our customer funds by 1 basis point. And as a result, our customer spread also comes down by 1 basis point to 219 basis points. Net interest margin, also down by 1 basis point to 120 bps. Let me now make some comments on our ALCO portfolio. You may see that this in size is coming down to EUR 32.2 billion, precisely as we have had some maturities. The yield at 0.7%, down from 0.9%. And the average life of the portfolio, fairly stable, above 3 years. You may see in the chart in the middle that the average yield of the maturities we have from 2020 to 2022 stands at 0.3%. And it's lower this yield than the yield we have from 2023, where we have a higher average yield. In terms of the composition of the portfolio, it's well known. Here, you have some further disclosure, 75%, Spanish government bonds; 9% in Italy; and other major sovereigns. In terms of wholesale funding, stability this quarter. You know that we have had an intense year in terms of issuance, close to EUR 5 billion at an average spread of over 6-month Euribor at 134 basis points. But we have this fourth quarter a stable situation in terms of costs. Let me now turn to fees. On this front, you know that we have had a strong quarter, up fees by 5.7% quarter-on-quarter, 7.5% compared to the fourth quarter of last year and for the fiscal year, ending at 0.6% up. We have strong contribution from many areas, but I would remark here that quarter-on-quarter, we have been flattish in terms of recurring banking fees and year-on-year, up by 3.5%, in this case, as commented, with support of our payments business. On asset management as well in the second half of the year, clearly we have had a strong performance quarter-on-quarter, up by 7.3%, 11% year-on-year. You may see in the right-hand side chart, the evolution of our AUMs, clear on an upward trend, thanks to obviously market evolution, but also to the pace of inflows that Gonzalo has already commented that have resumed clearly during the third and the fourth quarter. Remarkably, the end-of-period balances are higher than the average of the fourth quarter. Thus, this bodes well for the evolution of our AUM revenues into the first quarter of this year, markets permitting. In insurance distribution, we are flattish. But actually, this is a positive development. You know that we had some weakness in the earlier part of the year as we were introducing also those products in our MyBox offer. Thus, we expect that this line also will start improving gradually during 2020. And finally, wholesale banking, a strong quarter, always more volatile. But you know that in recent years, we have been working to build a stronger franchise in CIB and wholesale banking. And well, this is bearing its fruits also this fourth quarter. A look to core revenues. It has been commented, progressing in recent times despite the situation in market rates. And also here, you have an overview, a year-end overview, of our key businesses in terms of core revenues. Long-term savings year-on-year for the full year, up by 4.4%; the contribution of protection, 2.6%; payments, 3%. This compares with the rest of our core revenues obviously impacted by the situation in rates that are more flattish. And those 3 key businesses, long-term savings, protection and payments, already making 40% of our core revenues, up by 1 percentage point year-on-year. And on your right, you have some more details about our protection revenues. You see clearly that distribution fees. This is -- those are mainly revenues from our non-life insurance business. You see those stabilizing during the second half of the year clearly compared to the downward trend that we were having. And as I commented just in the previous slide, we expect this to improve as this is already part of the MyBox commercial offer. [ Several cash ] [indiscernible] on equity accounted, more volatile with seasonality during the third quarter but also making better contribution compared to the previous year. And finally, in life-risk premium, that has been clearly recovering during the second half. Let me now turn to costs. On this front, quarter-on-quarter costs are down, clearly benefiting in full from savings after the staff restructuring but also other initiatives. Costs are down by 1.3% quarter-on-quarter. You may see in the central chart that it's not only personnel costs. Also, we are making an effort obviously on general expenses and amortizations, a plan that is already started -- has already started during the fourth quarter but will continue during 2020 in order to deliver this cost guidance for next year at around 1%. In the chart in your right, you see the increase in the productivity ratio of the bank after the reduction in the number of staff. The productivity per employee, core revenues per employee, clearly has increased this year by 7%. And once you compare with the situation before the previous strategic plan back in 2014, core revenues per employee up by 25%, which is significant considering the situation in rates. And finally, on the P&L, our loan loss provisions, you see that are almost flat year-on-year. And this results into a cost of risk at 15 basis points below, clearly our guidance for the year. And as we will see in the coming slides, a clear derisking of the balance sheet that also bodes well to keep this contained. Turning to the balance sheet precisely with our NPA exposures. A clear effort in the reduction of our NPLs, down by EUR 1.2 billion in the quarter and NPL ratio now standing at 3.6%. Clearly, we think that it's being just a domestic bank, we compare really well with the rest of the sector. We keep our OREO exposure nonmaterial, below EUR 1 billion, and also our rented assets well contained and disposing with disposals making a profit. You see the pace of inflows into NPLs, that declines. Also, this bodes well for the future, down 17% for the full year compared to 2018, but also the fourth quarter compared to the fourth quarter of last year. At the same time, despite this fast reduction of our NPLs, our coverage ratios remain sound, actually have increased to 55%. And even if you look at the coverage ratio of our uncollateralized part of the nonperforming loan portfolio, standing at 94%. A few words on liquidity, not much to comment. A stable situation and a strong position, EUR 89 billion of liquid assets. We still have close to EUR 4 billion of TLTRO II that we are going to redeem shortly. And we took EUR 9 billion of TLTRO III. We don't have much plan to take part of this facility as we have, as you see, a strong liquidity position, but time will tell. And you know that we have had successful market access during the last 3 years, EUR 20 billion issued as recently as last January, a new senior preferred EUR 1 billion at 5 years mid-swap plus 58. Going forward, as we are really close or we are already complying actually considering this issuance, our MREL requirements, you can expect that the pace of issuance slows somehow into 2020. Finally, on solvency, we closed the year in a strong position with a CET1 ratio at 12%. We have had this fourth quarter organic capital generation for 19 basis points and market and other impacts for 18, among those, a change in the accounting treatment of some pension liabilities, which has had an impact itself of 18 basis points. As also a good year in terms of book value per share, we end the year with a tangible book value per share at EUR 3.49, up by 6% after dividends. So this is also remarkable. And as commented, the Board yesterday decided to propose at the General Meeting a dividend in cash of EUR 0.15, which that will represent a 53% payout. For the rest of the solvency metrics, as mentioned, we're considering this senior preferred issuance. We are already complying with our MREL requirement in terms of risk-weighted assets, 22.5%. But you can expect us to build a small buffer over this number with some further issuances. And with this, let's talk about guidance. First, trying to make a summary on what has been delivered for 2019 after our revised guidance, slightly better in core revenues, up by 1.2%; and recurrent expenses finally ending at 2.9%; cost of risk at 15 bps, below the 20s we mentioned 1 year ago; and clearly, on NPLs, clearly below our initial targets, ending at 3.6%. And for 2020, this is the guidance for the year on core revenues. We expect those to grow around 1%. On this front, we expect more headwind than in 2019 for net interest income. Clearly, here, we have a situation in rates that, as commented, we will be having negative repricing in the next few quarters again. And this is going to affect obviously. But this situation in our view will be more than compensated with a more upbeat view I'm feeling about the evolution of our fee business and our insurance businesses. And on recurrent expenses, as commented, 1%. This is what we expect for next year. We have cost savings from the restructuring, but also other initiatives that will lead us to this figure. And finally, cost of risk that we don't expect that will be higher than 30 bps. But remember that this was the guidance we gave 1 year ago for the 3-year period of our strategic plan. And with this, thank you very much. And I think that we can be ready for questions.

[Edward O'Loghlen, Director of Investor Relations]

Okay. Thank you very much, Javier, Gonzalo. It's now time to proceed to Q&A. I believe we have around 12 people on the queue. So try and keep your questions brief. And operator, please proceed with the first question, reminding viewers to state the name and the company they work for.

[Operator]

Your first question comes from the line of Alvaro Serrano of Morgan Stanley.

[Alvaro Serrano Saenz de Tejada, Lead Analyst]

The first one is on revenues and NII in particular. I mean the exit run rate of fees was very strong in Q4, 7.5%, similar, even stronger in insurance. And you've given a core revenue guidance of plus 1%, which feels like NII is going to be under some pressure. I don't know if you can quantify how much it is, if it's 1%, 2% or more? Or any color around that? And in particular, you've started to charge the network for the deposit at the beginning of the year. And I was wondering what the early feedback from that client reaction has been or if it has been passed on and how that affects your guidance and your NII expectations? Could there be upside there? And the second question very quickly on other provisions, it's a bit higher in the quarter. Legal provisions, in particular, I mean one would have expected a downward trend over time. Can we expect -- how much is there left? Presumably, IRPH, it won't be an issue. Should we expect lower over time? And this year, a bit of context on that as well, please?

[Gonzalo Gortázar Rotaeche, CEO & Executive Director]

Thank you, Alvaro. Just one comment and I pass it on to Javier. In terms of NII, you are directionally right. But Javier will expand. In terms of the deposit charges, we have obviously included in our guidance the impact of what we are doing with corporates and financial institutions. What we are expecting mostly is for these prices to contain the increase in liquidity, as I said. But obviously, Javier knows this in much more detail.

[Javier Pano Riera, Chief Financial Officer]

Okay. Well, on net interest income, here, first, we have the situation now of the forward yield curve. And also, I would like to note that the situation as of today of the forward yield curve is a little bit worse than the situation we had by the close of the year so by the close of the year, it looked like we were on an upward trend in terms of rates. But now as you know, with recent global news, we have -- we are in a different situation. So this is the first thing. And all in all, here, the only tailwind we have on this front is tiering. You know that we have quantified this clearly in the past, which is the effect. But unfortunately, our view is that the other impacts in terms of repricing on the loan book and also in terms of the ability to roll over maturities in the ALCO portfolio are going to have a more negative impact at that. That's -- so this is the first thing. So the net-net for rates in our view for the full year is going to be negative. And second, there is a view on volumes. So here, what is going on in terms of segments. So you see mortgages still deleveraging. And we think that this will continue to be the trend. I would say that here also after the summer, coincidentally or not, but coinciding with the new, let's say, mortgage law, what has happened is that the new production has abated a little bit so. And this is happening. And in general, we are taking a slightly more cautious view in terms of volumes. So while incorporating our view on this on our projections, we have been more cautious. At the end of the day, what we have been able to deliver in 2019 has been better than expected. You see in Portugal, close to the performing loan book, up by close to 6%; in Spain, 2%. This was not our original expectation. This has been better. And for next year, we think that this will not be the case, which is our best estimate or at least it's the conservative estimate that we have taken into account. All in all, our view is that NII will have negative growth next year. To what extent, it's difficult to assess. But obviously, as commented before, being able to be compensated with good performance in the other areas you mentioned, probably the same pace that you are seeing in terms of fees and insurance. Well, it's something that we need to see if this is sustained for every quarter, so also a year is long and we'll see. So this is our best assessment. For your question about deposits is what I said in one of those meetings we had that internally we have put everything in place in terms of transfer of prices. So all the incentives, let's say, or the right prices are already put in place in order to have the right incentives, to put it differently. To what extent we will be able to charge more or not, it's still uncertain. It's something we are doing to large depositors and to all financial depositors. But it's something that we need to see how this evolves. And also this puts some uncertainty on the evolution of net interest income. And then there is a question on other provisions. Yes. On other provisions, well, it's -- remember by doing -- making this, let's say, soft guidance, as we call it, around EUR 50 million, EUR 50-something million per quarter related to other provisions. At the end of the day, we have been slightly above this but not much. We have taken a cautious approach into year-end in some areas. But nothing related specifically to IRPH, as you mentioned it. So we are not considering this.

[Alvaro Serrano Saenz de Tejada, Lead Analyst]

So why is it not trending downwards?

[Javier Pano Riera, Chief Financial Officer]

Well, you can always make assumptions on different issues. You know that the situation for the industry in general terms in terms of litigation, not only IRPH, is, let's say, not friendly. So you can always assume that you have a few things where you can be more conservative while you are closing the year.

[Gonzalo Gortázar Rotaeche, CEO & Executive Director]

And a good dose of conservatism, as Javier said. That's the reality.

[Operator]

The next question comes from the line of Francisco Riquel of Alantra Equities.

[Francisco Riquel, Head of Research]

So yes. Two questions for me, one on costs and then on cost of risk. On costs, I wanted to ask about wage inflation, which is running at 4% in 2019. And I wonder what have you incorporated in your 2020 budget in this regard and if you have made any progress in the negotiation of the collective bargaining agreement with the trade unions. And also, if you are in a position to revise then the 3% CAGR target. Just want to be reassured that you are not delaying any spending related to the commercial strategy and digital transformation into the following year. And then the second question is about cost of risk. The loan losses in Spain have doubled quarter-on-quarter. Asset quality looks fine. So I wonder if this is related to the new guidelines by the ECB in terms of NPL provisions. What impact shall we expect about this new regulation in terms of cost of risk and capital in 2020 or beyond? And if not, why shall we expect -- why this increase in provisions and also the expected increase in the 2020 cost of risk as well?

[Gonzalo Gortázar Rotaeche, CEO & Executive Director]

Thank you very much. I would maybe start and Javier will complement. Cost guidance, this is good news. It's not that we are delaying costs for the future. This is genuine savings versus our initial expectations, going from 3% area to 1%. And anyhow, we expect to deliver on that. And there is no cost that we are avoiding that is going to pop up next year. This is genuine better news than what we have. The 3% that we had said in -- we would have every year, obviously initially, we had 5% for this year. We brought forward the restructuring program. So it came from 5% to 3%. But we said clearly this, we had accounted for. So it's just moving from 1 year to the other. In this case, this is the opposite, is healthy reduction, okay, to be clear. So the reference is at 3%. And the same way that in 2020, we have worked to bring that guidance down from 3% to 1%. We will obviously continue to work so that going forward, we also try to deliver lower cost growth. But clearly, at this stage, we're changing, bringing downwards our guidance for 3% on a 3-year compounded annual growth rate in cost because it's been already cut by 2% in 2020. How did we get there? Obviously, there's a number of actions that have been taken. The restructuring program, you know well because we had already spoken about it. As a complement to that discussion, we had commitment with unions to discuss potential early retirements or voluntary exit in the region of Barcelona, where for various reasons, because we do not have an excess, we didn't have that restructuring affecting Barcelona. And in order to agree with unions on that and as you might have seen, because it's been quite public, we have started negotiations. This is of a totally different scale than what we did last year and this is the last leg of that. And here, we're expecting probably to see around 200 people moving out, early retiring with a cost that's based on precedence is not going to be far away or higher than EUR 100 million. That is not yet agreed, but this is a discussion but is the last leg of what we had agreed last year with unions. There's nothing else planned. And I don't expect anything else during 2020 or 2021 in this front. That is one of the reasons why we will have some impact on reduction of costs. We're assuming approximately EUR 20 million. There's wage containment. We're absolutely obsessed with jaws. We did not like the fact that we had negative jaws in 2019. It's the first time since we are a listed entity that we had negative jaws. We've given guidance for neutral jaws. And we are absolutely determined to get there in 2020. One of the decisions that we have taken is that actually most of the managers of the group are not going to have a salary increase or a bonus increase in 2020. We feel very good about our performance. But the numbers, unfortunately, because of rates and the environment, are not where we want them to be. So cost containment is critical. Now a lot of that salary is going to depend, not for management and for the top 2,000 people, but for the rest of the workforce, depends on the wage negotiation with the unions. That's ongoing. There's not much news to report on that. Clearly, at this stage, positions are very different. And we will see. We're determined not to sign any agreement that is not good for the future of the bank. And the future of the bank is critical for shareholders but also for employees. Because after all, we're all in the same boat so. But that's a difficult negotiation. It's not taking place at CaixaBank only, it's the former Cajas. This will take time. And I think it will have an impact, not on our 2020 performance, which barring any unforeseen circumstances, we're going to deliver on the cost side. But it will have an impact obviously on 2021. And it's a critical tool to reduce cost growth going forward. I think we should not at this point, elaborate more. But certainly, we will not settle for less. Then there's been quite a lot of decisions in terms of reducing general expenses, marketing, communication, internal events, a lot of things that we think we can do in a more efficient way. And the renegotiation of some contracts, which is also delivering savings for 2020 and the future. And then the investments. We have made a huge investment in 2019. We have actually made more than what we expected. Because we wanted to bring forward the exit of the 2,000 people. And in order to do that, we actually had to build more store branches faster and spend more. That means that we're actually going to have a significant decrease in investments in terms of the branch network in 2020. This will have obviously an impact on lower growth of depreciation and associated expenses during the second half of the year and into 2021. But we're still actually increasing our investments in other areas of the bank, which we think are critical for the future. What we are doing in payments, we're doing in IT generally, cybersecurity, cloud developments, et cetera, a number of other initiatives that we will explain as we launch them. So it's a containment picture. But one that is still consistent with we want to beat our peers in gaining market share, in building long-term value. And that is something that we have found a solution for 2020. And we're obviously working for making sure that we actually see some of those benefits also moving into 2021 and beyond. And I will stop here. I'm sorry for the long answer. But this is obviously critical. And I emphasize, 2019, we have actually done our homework for the year and also a lot of the homework for 2020 and ongoing. I've been passed a note that my comments over 2021 have not been heard well. So I apologize if I'm wrong and some of you have heard them well. But I will repeat what I'm saying. I'm saying for 2021, what we are committed to is to work the same way we have done for 2020 to bring down the guidance from 3% to 1%. We're already working on 2021 because obviously a lot of things we can do with sort of significant time in advance in terms of redesigning processes and taking all the decisions. And we do not have obviously now an expectation for 2021. But clearly, the savings for 2020 are in the pocket. We have not delayed any expense for 2021. So we're going to have additional pressures in 2021. That's the opposite. In fact, what we have done is by bringing forward the new store branches and the transformation of the branch network. What we see is a very strong cost growth from those factors in 2019 and 2020 because we'll have 12 months to be more -- a much lower level of investments in the second half of 2020. And hence, I think some good work done ahead of time for 2021. Having said that, 2021 will be significantly impacted by the agreement that we finally reached with unions, which we hope to reach at some point on the collective bargaining agreement, which is a sector-wide discussion, which is a difficult one and one where we still do not have visibility. We're expecting at this stage -- or the deadline for an agreement is June 30. And at this stage, the positions are fairly wide apart. And I think there's more questions, Javier, sorry.

[Javier Pano Riera, Chief Financial Officer]

There was -- in fact, Paco was your question about cost of risk and loan losses in Spain? Well, this has to do mainly with the revision of parameters, that rule, IFRS 9. You know that according to your expectations about different parameters, that is from GDP, employment, real estate prices, et cetera, among others. This is put into the model and result into an adjustment of the provisioning levels. So this increase in Spain has to do mainly with this. We are done with this. So unless there is a significant deterioration of the, let's say, the macro outlook or those parameters that affect this provisioning model, we should not expect another step upwards. You mentioned that implicitly that we have had a release from the PPI from BPI. That's right. So this demonstrates that the provisions we took initially while taking control of BPI were conservative or not. And as the time passes, also we can release a part of those provisions as the expected losses are not occurring. And you mentioned about NPL guidelines. Well, first thing on this, you know that this is subject to supervisory dialogue. So there is not a precise, let's say, quantification of the situation because this is -- this will vary a lot for every bank. So it's one-on-one dialogue with the ECB. And in our case, we don't expect, let's say, any significant impact. You saw before which were the coverage ratio of our uncollateralized part of the NPLs. So we -- our estimate is that we will not have a significant impact from this. And we gave a 30 basis points maximum core guidance because this is part of a little bit this more uncertain world we face into 2020. This coincides with the guidance we gave 1 year ago. We have had this 2019 performance on this probably slightly better than initially expected. And we'd rather prefer to have a more cautious approach while wading into 2020.

[Gonzalo Gortázar Rotaeche, CEO & Executive Director]

If I may add, obviously you saw the news on GDP this morning. A couple or a few days ago, we also saw the figures for job creation. Both were better than expected and both were better than we expected. So when Javier talks about IFRS 9, in fact, what -- and sort of preloading the impact, the latest news from the last few days are actually better than what we have accounted for in terms of the basic assumptions. So a year is very long. Who knows how the economy will develop this year? But with our 1.5% growth for 2020 in terms of estimate for GDP, we're clearly on the very conservative side of current estimates. And obviously, there's always a possibility and a hope that we will end up with a stronger growth and good news on the asset quality side. But time will tell.

[Operator]

Your next question comes from the line of Andrea Unzueta of Crédit Suisse.

[Andrea Unzueta, Vice President]

Mine are on insurance revenues, which grew by 5% year-on-year. But the second half of the year was a lot stronger than the first one. Should we take the second past levels of the benchmark, i.e., should we -- is it fair to assume that your insurance revenues grow by more than 5% in 2020? And similarly on your mutual fund fees, which were down on the year, but your assets under management grew by 6% and it was particularly strong in Q4, what are your expectations there? Some of your peers are very optimistic on that line. And if I can go back to your Slide 18 and if you could clarify a bit the payment figure. Because if I deduct insurance and asset -- or savings and protection, that EUR 1.1 billion figure from payments, that's roughly, what, 75% of the banking fees. Can you give us more color on that number, please?

[Javier Pano Riera, Chief Financial Officer]

Well, clearly, the second half in insurance revenues has been stronger. This was our expectation. And remember, 1 year ago -- well, less than 1 year ago, having slower pace and explaining to you on this rollout of a new product, MyBox, well, this combination of products, commercial offer of MyBox, et cetera, well, you know that this is doing very well. The CEO has given you some figures about penetration ratios and so on. So we expect that this will continue to do well. So this is our assumption. And these, together with fees generally, but mainly from those businesses generating fees, are the elements that will help offset the pressure we are going to have in terms of net interest income. So I would not like to give you a specific number. But our feeling on this business is quite a bit. So probably, this already gives you some guidance. On mutual funds, I would like just to clarify because if you looked only to mutual funds, you are right, mutual funds are down year-on-year. But we have a broader view while analyzing our AUM business. It's not only mutual funds, it's pension funds, it's unit-linked that -- unit-linked, in our case, are part of our, let's say, savings insurance. It's part of the protocol for savings insurance. So on a broader view, fees from AUMs are actually up, if I'm not wrong. It's up by 2%. So you have transfers from one product to others. So in this case, it's true that this year, we have had less growth in mutual funds that probably in those insurance products that include unit-linked. So this -- you have some transfer between lines. But we look at those broadly. And our salespeople, our network, while dealing with clients have a broad view in the advisory process and do not focus on lines. And we have specific targets for mutual funds or pension funds, but for the broad business. And here, probably the best way to see -- you may see in our presentation this chart that shows the average AUMs per quarter. If you do the numbers, you will see that the average AUM for the year or to put it differently, the end-of-period AUM balances at above the average AUM for the year by 4%, 5%. So this is obviously thanks to the market performance but also the pace of inflows. As we don't expect much, let's say, fee compression in terms of management fee, this already gives you an idea of what we can expect there at least, depending according obviously then to market performance and what may happen with the evolution in inflows, et cetera. But clearly, this is an area where we have also a very strong view. And as for payments, this includes not only what we can consider, let's say, electronic payments or everything related to credit cards, et cetera. It's a broader -- and this is why it's a high figure, it's a broader, let's say, definition that includes wire transfers, foreign exchange, another, let's say, revenues, fee revenues that are not purely related to a more, let's say, what we can call electronic payments, et cetera. To give you an idea, in this part of, let's say, everything related to credit cards and e-payments, et cetera, the pace of growth is much faster than this one that we show in this chart. It's approaching 7%, 8%, if I am not wrong. Probably this gives you the information you needed.

[Operator]

The next question is from Ignacio Ulargui of Exane BNP Paribas.

[Ignacio Ulargui, Analyst]

This is Ignacio Ulargui from Exane. There's 2 questions on capital. The first one is could you update us a bit on the buffer, the 100 basis points buffer that you guided last year, the 12% plus 1 guidance for 2021, how you see that evolving and whether you have a bit better visibility and what will be the final impact of everything outside Basel IV. And also linked to the regulatory front, just wanted to get a bit of your thoughts on what will be the potential strategy that the bank will follow regarding the software intangibles guidelines that the EBA has to publish in the first half of the year. Whether that could change your IT expense strategy?

[Gonzalo Gortázar Rotaeche, CEO & Executive Director]

Thank you, Ignacio. I say that we're nicely on track in terms of capital after 1 year, but Javier obviously has the detail. But we feel good about where we are compared to what we said in the plan.

[Javier Pano Riera, Chief Financial Officer]

Okay. From my side, no news. So you know that we are still waiting for this, let's say, final recommendations or whatever information about the TRIM exercise as for the [ loading for ] portfolio. It's going to -- it's being slower than probably initially expected. I really don't know when we may have following information about this and altogether with Basel IV. So I think that at some point during the year, probably we can update on this -- on those 100 basis points. So where we are as of today, are they still there. As Gonzalo comments, we're already at 12%. So you know that from here, we -- our estimate is that we would like to build this extra 1 percentage point buffer in order to absorb this, but we have 2 -- full 2 years from now. So we are already at 12%, you see -- which is the organic capital generation capacity of the bank, and you may see that we can be there quite comfortably. And as of today, we don't have any further information on which base a different estimate of those 100 basis points. For your suggestion about software intangibles, well this is unfortunately part of the unknowns in the world on, we will have to operate in 2020, 2021. We don't have certainty on this. You know that when we presented the strategic plan 1 year ago, precisely, we said that we were not planning to rely much on an increase on intangibles, precisely because we thought that it was cleaner not to do so. Obviously, if there is a change, well, we -- potentially, we will rethink about this. But as of today, before thinking anything, we would like to have more clarity. And as of today, we don't have. So we take probably a conservative approach on this front, but we think it's the way, so far, what we need to do.

[Operator]

Your next question comes from the line of Sofie Peterzens of JPMorgan.

[Sofie Caroline Elisabet Peterzens, Analyst]

Sofie from JPMorgan. So I wanted to ask about any potential one-off costs that we should be expecting in 2020. You guide for the recurrent growth to be 1%, but how should we think about any one-off costs? Should we expect to see something similar to what we saw in 2019? And then my second question would be on Angola. There has been quite a lot of recent news around dos Santos and being involved in bribes. Is this having any impact on BFA in Angola? And could you also remind us how much your book value of your ownership in BFA in Angola?

[Gonzalo Gortázar Rotaeche, CEO & Executive Director]

Thank you. Thank you, Sofie. In terms of extraordinaries, we're not going to repeat what happened in 2019. I mentioned earlier that we have an ongoing discussion for kind of early retirements for the province of Barcelona, which was not subject to the reduction of people last year for reasons that we explained at the time. And we had an agreement with unions that we will negotiate in good faith measures to reduce and to allow some people to leave. We are expecting that this may result in a charge of around EUR 100 million, and that they will result in savings this year of EUR 20 million and on an ongoing basis, 25%. This is what is expected, and this is associated to the discussion and agreements we had with the unions last year. In terms of Angola, obviously, we cannot comment on specifics in terms of clients, people or transactions. We have, obviously, appropriate policies, norms and procedures in place. BPI has always had. And we comply with all our obligations, compliance, AML, and we'll continue to comply and cooperate. We have, obviously, resources, both complying with local applicable laws and with the standards of the group. In terms of the value of our investments in BFA is just north of EUR 400 million, but maybe, Javier, you want to take it from here.

[Javier Pano Riera, Chief Financial Officer]

Okay. It's exactly EUR 414 million. We have had a fair value adjustment of around EUR 70 million this quarter. This has to do with the devaluation process of the Angolan kwanza, as you know. We value this asset using a dividend discount model. Obviously, when there is a devaluation, future cash flows are affected. But also, there is the assumption that rates, in order to control, the devaluation process are also maintained at a high level. So this is the way we fair value this asset, and this devaluation is the main reason behind this adjustment.

[Operator]

And your next question comes from the line of Andrea Filtri of Mediobanca.

[Andrea Filtri, Research Analyst]

Yes. Three questions, if I may. The first on fees, simply, if you are planning any repricing of fees in 2020. Secondly, on capital. And I'm following from Ignacio's question here, you reached your 12%, you have 100 basis points, CT1 build up left in your target. I'll try to rephrase the question. If Basel IV comes out lighter than expected and there are good news from treatment of the deduction of intangibles, and finally, Article 104a of CRD V is already European law, there is very little uncertainty about this, would you, in your response, adjust downward your capital target and therefore, hike payout sooner? Or can you please provide us your reaction function to this type of dynamic? And finally, if you could help us providing a guidance on the other revenues line that dropped a lot for 2020 onward and the tax rate.

[Gonzalo Gortázar Rotaeche, CEO & Executive Director]

Thank you, Andrea. Let me start with first 2 questions, and then Javier can help me out, completely respond to the rationale. Fees repricing, the answer is yes. We want to continue having fee policy that incentivize people to bring more business and do more business with us. This year, we have increased our number of, call it, loyal clients, but you call it differently.

[Edward O'Loghlen, Director of Investor Relations]

Relational clients.

[Gonzalo Gortázar Rotaeche, CEO & Executive Director]

Relational clients, okay. [Foreign language] in Spanish, for those of you who understand Spanish. We have, again, increased that level to over 8 million. We have more active clients. We -- as you know, we have 13 -- on the retail side, close to 13 million clients. Some of them are nonactive. Others are active, but they are not yet relational, as we say. And this has been increasing nicely, 2%, 3% increase in percentage penetration over the last years. And we want to continue going in that direction, which means we're going to be charging more to people that are not relational and incentivizing them to become relational. And this is obviously, to some extent, what the market has been doing. We've been on this -- working on this basis for, I guess, probably 4 or 5 years, at least that I can remember as I have been the CEO. But there are still some further steps that we can do on this front. And I think it's going to be positive not because necessarily we're going to make more money by charging fees to nonrelational customers, but because we're going to have more and more relational customers. As you know, in our case, relational customer means more consumer lending, means more protection insurance, means more long-term savings. Really, we know how to really monetize by providing appropriate services to our clients. So I think this is a line we have been following, but we can do more, and that is the plan. And hopefully, that will also create better services for our clients. A lot of times, our clients, they do not know how many good services we can offer for them. We're going to make sure they know. And obviously, charging appropriate fees for clients that are not active or not relational is part of that incentive. With respect to capital, just for the sake of -- we're at 11.5%, and we said we want 12% plus 1%. We have 3 years. After 1 year, we're at 12%, which happens that is nicely exactly the 1/3 of that gap that we have built. There's a lot of, I think, positive noises about capital over the last 3 months. Chilean Basel IV, changing some of the requirements. We'll see how software ends up. So for -- and I think the tone, generally from the responsibles at SSM, et cetera, the tone is a tone of more positivism. We've just seen the figures for this year, a swap exercise, where sort of the overall capital levels are stable. We still have to go through some of these TRIM exercises, on the other hand, and Basel IV has certain areas, which have not been yet defined completely, particularly in our case, on the operational side. So we have some uncertainty. We're doing well on a more conservative assumption. And we're going to continue building capital on this conservative assumption until we see that maybe we've been too conservative, and then we need to rethink. I do not -- certainly, I don't think that, that's going to happen in 2020. Even if there are all these positives, it's not going to be something that we know in 3 months or in 6 months. I think it's more likely to be by the end of the year and into 2021. So when this happens, and I think most likely as we end this strategic plan and we look forward, by that time, we're going to have much more certainty. I think at this stage, it's possible that we have good news. And at that point, we will need to sort of reassess how do we use this capital, which is obviously capital for our shareholders one way or the other. But I think we need some time. As of today, the objective of the bank is to finish 2021 with a 12% fully loaded Basel IV, even if there's a delay so that all shareholders know that any profits that we made are either going to be to grow the business because there's good organic growth or for shareholders, and that we do not have any longer to look at our profits and say, this is for shareholders, this is to grow the business, and this is to comply with new things that are facing in, et cetera. When I front-load all these, I think we're in reasonable good shape to have everything done by the end of 2021. And if growth continues to be slow, it will mean that from 2021 onwards, our ability to generate profits that are either enhancing capital or distributed to shareholders or used for buyback or whatever is basically 100% of what we make. That's what we want. And I think given that what we have seen this year and the noise that clearly says sort of this increasing borrowing capital is coming to an end, so we need to run through TRIM and Basel IV, but that's it. That's the message I hear. Then I think we're going to position the bank for the long term in a very attractive place, very profitable, hopefully, or at least very profitable related to the level of rates and where profits are basically all available for the business and for shareholders.

[Javier Pano Riera, Chief Financial Officer]

Andrea, there was a third question, if I understood well the question, which is about other revenues and expenses line, why is it dropping this year. Is it right?

[Andrea Filtri, Research Analyst]

Yes. [ It has ].

[Javier Pano Riera, Chief Financial Officer]

Okay. Well, this has to do with -- mainly with savings from real estate. You know that after the disposal of the real estate portfolio to Lone Star, and this was part of the plan, we were planning savings in terms of, well local taxes, EV in Spanish. And also maintenance costs, et cetera. So this has the largest thing to do with this. And also, this line is affected on the opposite direction by lower revenue stream from the rented real estate portfolio that is decreasing. We have closed the year with a portfolio standing at EUR 2.1 million. And -- well, under our other impacts here and there, but this is, I would say, that the bulk of the transaction comes from the production of the portfolio, real estate portfolio. Does this answer your question?

[Andrea Filtri, Research Analyst]

I was looking more for a guidance on it and also on tax rate.

[Javier Pano Riera, Chief Financial Officer]

Guidance on it. Well, the -- as I say, the real estate portfolio was sold. So you can expect from this, you should not expect savings into 2020. So looking to the numbers probably, there is not much variation. So now I probably should rethink about it, but not much compared to the figure we have had in 2020. And for the tax rate, well, here, we have a clear difference between 2019 and 2018. You know that, in 2018, there were some expenses, costs, provisions or costs in this case, losses from the disposal of Repsol and other aspects that were not tax deductible. And this year has not been affected, so -- by those because the restructuring is tax deductible. So this probably explains the difference in income tax paid from 1 year to the other one.

[Edward O'Loghlen, Director of Investor Relations]

So Andrea, I'll give you a call, and we'll run through what's taxable and what's not, okay? But essentially, the tax rate is the same. It's 30% in Spain, 28% in Portugal, okay?

[Operator]

Next question is from Carlos Cobo of Societe Generale.

[Carlos Cobo Catena, Equity Analyst]

Two quick questions for me. One is on cost of risk, and I was trying to understand a little bit better the more cautious view you are -- more cautious guidance you are providing on cost of risk. Now seen below 30 basis points instead of 20, and it feels that consensus was already discounting a lower number. So why becoming more conservative? I think you've touched on this, but if you don't mind going through that again. And in particular, if we ignore for a second all the moving parts from the new calendar and the stock and everything, if we focus only on the pace of new NPL formation, gross inflows at around 1.3% of the loan book if I work it out correctly, that is like EUR 2 billion per annum. It's coming down, yes. But if that is going to be stabilizing at those levels, could you touch on what is the underlying cost or risk that, that should generate? And if you could explain what's the mix in terms of collateralized and non-collateralized new NPL formation.

[Gonzalo Gortázar Rotaeche, CEO & Executive Director]

Javier, this is a complex question initially. On NPL formation, we continue to see it coming down, actually. We are, today, restating the target of minus 30 basis points that we have given in our plan. We're saying minus, we're not saying 30. We're saying minus. The ability for us to predict exactly the cost of risk is more limited. You've seen precisely what we've done now in terms of adjusting to IFRS 9. But we are, I think, upbeat on NPL formation. We have reduced to 3.6%. We're seeing the economy a bit stronger today with the information we have on the fourth quarter than what we thought just a few weeks ago. So I don't -- I wouldn't like to take market, the minus 30 basis points, as an indication that we are concerned or that we are seeing something that is deteriorating. That's not the case. We're giving us a margin in line with what we expected in our plan. In terms of new NPL formation, collateral -- new versus collateralized, Javier, I don't have the information with me...

[Javier Pano Riera, Chief Financial Officer]

Nor me here. Probably we can follow-up on this because at least I don't have the data here.

[Edward O'Loghlen, Director of Investor Relations]

Stock. And we have information on the stock, but not on the flow, which you can see on Page 22. Okay, we'll follow-up, Carlos.

[Operator]

The next question is from Britta Schmidt of Autonomous.

[Britta Schmidt, Non]

Yes. Two quick questions for me. One is on the RWA decline in Q4, maybe you can give us a little bit of color for what's driven that. And secondly, can you tell us what the earnout from SCA was and whether there's anything that we should expect for 2020.

[Edward O'Loghlen, Director of Investor Relations]

The first one is the RWA decline. Why did we have the decline? And the second one was the earnout from SegurCaixa.

[Javier Pano Riera, Chief Financial Officer]

Okay. On the RW (sic) [ RWA ] decline here, well, mainly it's -- let me just consult the -- yes, it's mainly the -- you know that VidaCaixa pays a dividend for -- mainly, that's part of its profit. And this dividend has been paid within the fourth quarter as a result of this disposure at default of VidaCaixa is lower, the exposure at -- with VidaCaixa is lower, and you know that this is weighted at 370%. Thus, it has a large impact in terms of risk-weighted assets. I was looking at -- if there are other effects, but I would say that this is the main one. Obviously, there are also a reduction on risk-weighted assets unfortunately because Telefónica has also trended down and here and there. Slight risk-weighted asset inflation because of loan growth. But the main downward impact is this one from the dividend, from VidaCaixa.As for the earnout from SegurCaixa Adeslas, you are right. There is a positive impact this fourth quarter of around EUR 80 million. This is included in other revenues and expenses. This is -- has been an earnout slightly higher than the previous year. 2020 is the last year of -- that where we can have earnout. But it's on a cash basis that will be paid in 2021.

[Operator]

So your next question comes from the line of Marta Sánchez Romero of Bank of America Merrill Lynch.

[Marta Sánchez Romero, Director and Analyst]

I've got a follow-up on asset quality. Do you have a target of NPL reduction in absolute terms for 2020? And a clarification on cost of risk here, can we have the split of the 30 bps guidance between Spain and Portugal? How much PPAs are left in BPI? And what is the underlying cost of risk in BPI?And also related to all this, you're not providing guidance for other asset impairments, but we've seen higher charges over the past few quarters. What do you expect for this line next year? What's the current markdown in your rental portfolio? Do you think you need to do further adjustments there, given what -- what's happened in Catalonia recently with new rules that have been passed? And just very quickly, on net interest income, how much came from NPLs this year? I think it was 6% in 2018, and how much was in 2019? And do you think preserving that income is a constraint when it comes to selling faster, your problematic exposures?

[Gonzalo Gortázar Rotaeche, CEO & Executive Director]

Thank you, Marta. Quite a lot of detailed questions but I...

[Javier Pano Riera, Chief Financial Officer]

A lot of questions in just a few -- just in 1 minute. Well, as a target for NPLs lower than where we are. So if you can remember, we guided in our strategic plan for an NPL ratio, let's say, around 3% by 2021. We are at 3.6%. We are comfortably getting there. This is our, let's say, long-term target, so -- and it keeps valid. Cost of risk and the PPA from BPI. The PPA. Its outstanding is -- and you remember me saying that is EUR 180 million, if I remember what -- yes, EUR 180 million. And as for the cost of risk in Portugal, our best estimate is that it's going to be lower than in Spain, but I can't give you a specific number. Why? Because so far, it has been the case. So BPI has done historically a very good job in terms of risk management on the loan portfolio. Although, as you know well, we are expanding there, our NPL activities -- sorry, our consumer lending activities. It's going to -- accordingly, going to rise a little bit going forward, but it's going to be lower than in Spain. Other asset impairments, I understand that by this, you mean other provisions or no, you mean the bottom line.

[Marta Sánchez Romero, Director and Analyst]

Yes. The one...

[Javier Pano Riera, Chief Financial Officer]

Okay. Well, this relates to the question about our -- the provisioning levels of our rental portfolio that are north of 25% of the gross value of the portfolio, and we don't expect much on this portfolio. So we are disposing on this portfolio. So far this year, we have sold -- combining the OREO and the rented portfolio of more than EUR 500 million at a profit of around 15%. Thus, this already tells you that it's marked with a fair value that is according to market prices. Obviously, new inflows into the OREO portfolio need, in some cases, further provision. Does this land into this line? But while at the same time we are making profits on disposals, I would say that roughly one thing and the other will be matching. And as for the contribution into 2020 of the -- on NPLs, what we expect. Well, in 2019, it has come down by -- if I remember well, and now giving you the figures in my memory. It's less than an impact of comparing 2019 to 2018 of around EUR 90 million or EUR 100 million less is what we have had because of the NPL reduction. So this has been -- and obviously, having an impact. So the fact that we -- you dispose NPLs, at the end of the day, it's having an impact on net interest income. Probably these answer more or less your questions, Marta.

[Operator]

Your next question comes from the line of Mario Ropero of Fidentiis.

[Mario Ropero, Senior Banking Analyst]

My questions are on litigations. Javier mentioned that, this quarter, there was some impairment for issues different from IRPH. Can you quantify if this is a revolving credit card? And also, could you comment on your exposure on how you see the situation resolving? At least we are expecting our ruling probably in the next 3, 4 weeks.

[Javier Pano Riera, Chief Financial Officer]

Well, what I mentioned is that we took a cautious approach into year-end because the environment in general is not friendly in terms of litigations for banks, but not giving any specific. So it's not because we are worried about something specific. So -- and I mentioned clearly that has not to do with IRPH. We are not making a provision for this. And as for our exposure on revolving, I don't know whether if we are disclosing this figure. Can you...

[Edward O'Loghlen, Director of Investor Relations]

Yes. We have around EUR 1.9 billion. And the current litigation, well, we need to see what happens at the Supreme Court level, our view is that the bank's position will be held. As you know, right now, there's a ruling, which states that anything about 24.6% is considered usury, and our revolving rates are way below that. But we need to see what the new jurisprudence say. In the meantime, we're just waiting for that to happen, obviously, with an outlook that's positive.

[Mario Ropero, Senior Banking Analyst]

Sorry, can you repeat the exposure you said?

[Edward O'Loghlen, Director of Investor Relations]

It's EUR 1.9 billion.

[Operator]

Your next question comes from the line of Stefan Nedialkov of Citi.

[Stefan Rosenov Nedialkov, Director]

It's Stefan Nedialkov from Citi. Two questions on my end. Sorry to come back on capital. Just to kind of summarize things clearly because there's been a lot of back and forth. You had 100 basis points of a buffer for regulatory impact. Can I confirm that this is based on your most conservative read of the current Basel IV proposals in your most conservative read of EBA/UCD regulations and guidelines? Secondly, how much have you used year-to-date or to date of the 100 basis points? And third, does the 100 basis points include expected mitigation actions from you? So that's all my first question. On my second question, when it comes to Erste, has your thinking changed in terms of strategic ownership versus nonstrategic ownership?

[Gonzalo Gortázar Rotaeche, CEO & Executive Director]

Stefan, on Erste, there's no change. If I may say, no change in our thinking about Erste. And then on capital, just one thing. The most conservative I would say, it's based on our conservative, but not on the most conservative because there's uncertainty, really, that is very difficult to predict. We think we have been reasonably conservative on our views, but Javier can expand.

[Javier Pano Riera, Chief Financial Officer]

It's what has been said, we have not used so far this buffer. What we said is we are already at 12%, we have 2 years ahead of us to build this buffer. It's based on our best estimate of -- which can be the impacts going forward. And obviously, it includes anything that can be done in order to manage those impacts. And this is the situation, so mainly you know that we are waiting for the final say on -- from the SSM on the TRIM exercise for the [ loading for ] portfolio, and the uncertainties on Basel IV are mainly arising from the operational risk that it is still ongoing, some discussions on this. So -- and unfortunately, every quarter, it's a little bit boring, but it's -- we are in the same position as we don't have news. The only thing is that we have been able to build one way or another, 50 bps of CET1 during 1 year. So we think that we are on track to meet this estimate. And I think that we have elaborated during the call about any potential changes, about -- if the regulation changes and what to do in this case, et cetera. But time will tell. As of today, we need to run the bank with the most, let's say, expert judgment we can do on this as, unfortunately, there are some uncertainties.

[Stefan Rosenov Nedialkov, Director]

Just a follow-up on the 100 basis points, I thought that, that includes every single regulatory impact, plus accounting impact that you could think as of your Investor Day. And you've obviously taken some IFRS 16 hits on that. I think it was 10 or 11 basis points. Plus, on top of that, remind me, you have had some churn impact. Would that not have been included in the 100 basis points?

[Javier Pano Riera, Chief Financial Officer]

The TRIM impact from the -- for the mortgage portfolio was before we disclosed our strategic plan. Thus, the impact is not included, okay?

[Stefan Rosenov Nedialkov, Director]

And the IFRS 16?

[Javier Pano Riera, Chief Financial Officer]

Well, IFRS 16 is 10 basis points. So it does not make much difference. So I think that we are not going to -- so our estimate for 100 basis points is not 100 basis points. It's around 100 basis points. So I don't think that 10 basis points will make much difference on our assessment.

[Stefan Rosenov Nedialkov, Director]

Okay. Basically, what you're saying is before regulatory impact, it will have to be at 13% before the end of 2021.

[Javier Pano Riera, Chief Financial Officer]

Yes. Correct.

[Edward O'Loghlen, Director of Investor Relations]

I think given the time now, it's 25 to 2. We have -- we'll take just one more. I know there's some more people on the queue. We'll follow up with my team.

[Operator]

Sir, your last question comes from the line of Benjie Creelan of Jefferies.

[Benjie Creelan-Sandford]

My first question was just a check on the movements in the balance sheet. The balance sheet shrank 5% quarter-on-quarter. I think there were some accounting changes within that. But could you perhaps just confirm the reason behind that move and also confirm whether there's any lagged impacts, potentially on the P&L going into the first quarter of this year?The second question is a bit more strategic. At the end of last year, you merged your payments and consumer business. Are you able to give perhaps a bit more detail about the rationale for that move? I mean we've obviously seen some of your European peers selling or creating partnerships on that side of the business. Is that something you would consider going forward? And I guess is there any sense you can give us or any more details around the financials of that subsidiary and the type of growth you expect from that part of the business going forward?

[Gonzalo Gortázar Rotaeche, CEO & Executive Director]

I'll answer the second question, at least on the strategy. This is not a step that would lead to looking for an external partner or, let's say, transaction, joint venture, whatever. We love this business. We want to keep 100% of it. We had a separate piece of business, consumer finance, mainly third point of sale. Then we -- 6 years ago, we incorporated all our card and payment business into a specialized subsidiary. And what we saw at this point is that the payment element and the fun -- and they sort of extended the ability to provide lending at a payment point is obviously a critical part of where the business is going, and the fact that we have those 2 specialized subsidiaries working together would facilitate the growth of the business going forward. We also like to have it as a subsidiary and not as part of the bank because it does have different dynamics, the kind of people that we need, the speed at which we need to operate. We think it benefits from its own separate subsidiary. But at the same time, it's obviously fully integrated in the overall group. And obviously, we have been doing very well in consumer lending, and we continue to be very upbeat about what we can deliver there. We've been very good also in our payments business. Javier mentioned it. And this is instrumental for us to be able to be more successful. There's a slight element of cost savings associated to it, but the main reason is not synergies on the cost side. It's the ability to grow the business in a more innovative, faster way. And we like a lot of what we're doing. We will continue to report going forward what part of this is -- well, in terms of results, what's the contribution from this side. On the rest of the balance sheet, Javier, do you want...

[Javier Pano Riera, Chief Financial Officer]

Yes. Surely. It's a couple of things. It's netting of our derivatives exposures from an accounting point of view that we could perform. And second, we have reduced our cash balances. So we rely less on TLTRO. You know that we have reduced TLTRO II, and we have taken less TLTRO III, thus reducing the cash balances. And also, less reliance on the repo market. All this has an impact in the P&L in terms of lower contribution to the single resolution fund. You know that you contribute according to the size of your assets and liabilities. So this has -- this is more positive. Thank you.

[Edward O'Loghlen, Director of Investor Relations]

Okay. Well, that's all we have time for. But before we leave, just let me clarify one thing that my team is telling me was misunderstood. The revolving credit card balances is EUR 1.9 billion, EUR 1.9 billion, less than EUR 2 billion, okay? Just wanted to clarify that because, apparently, some people misheard that. And with that, thank you very much, and we'll reconvene in a quarter. Thank you very much for everyone.