Caixabank SA

MAD:CABK

Earnings Call Analysis

Robust Growth and Returns, Optimistic 2024

The company celebrated its strong financial position, with a return on tangible equity soaring to 17% and a net income increase of 54%. They reported a notable net interest income (NII) jump, while maintaining disciplined cost control, enabling pre-impairment income to grow by an impressive 52%. Customer funds climbed by 3% as a yearly reflection of positive market trends. Meanwhile, operating expenses aligned with guidance, rising modestly by 5.2%. Importantly, they delivered robust capital distribution, hiking the dividend per share by 70%. Looking to 2024, they project an NII steady with the previous year's EUR 10.1 billion, growth in wealth, protection, and banking fees in low single digits, and a capped cost increase below 5%. They anticipate containing the cost of risk at around 30 basis points and target an NPL ratio near 3%.

Financial Performance and Growth Trajectory

The company has seen substantial growth, with market share increasing significantly, particularly on the asset side, demonstrating strength in mortgages and business lending. A major highlight is the pristine balance sheet, which reflects low credit risk and robust capital levels. The financial health of the company got a nod with net income surging by 54%, and pre-impairment income showing an impressive upswing of 52%. This positive trend is not new but a continuation of the strong performance seen in the last few quarters.

Commitment to Sustainability

Sustainability efforts are proving successful, with the mobilization of sustainable finance including lending and managed assets reaching EUR 50.8 billion, exceeding the targets of the company's 3-year plan. The company has also been focusing on decarbonization, having announced targets in five sectors, which mirrors its dedication to being a responsible corporate citizen while also seeking out long-term competitive advantages.

Capital Distribution and Shareholder Returns

The company is rewarding shareholders handsomely, with a 70% increase in dividend per share to EUR 0.39, which is set for distribution in April. A second share buyback has been completed, and a third one is planned for the first half of the year, reinforcing the company's strong capital distribution capacity. This also aligns with a modest risk-weighted asset (RWA) growth from EUR 9 billion to EUR 12 billion, signaling a strategic approach to capital management.

Customer Funds and Loan Book Dynamics

Customer funds ended the year positively, with a 1.8% quarter-on-quarter increase. Long-term savings saw an even more robust growth of 3%, propelled by favorable market conditions. Deposits also experienced an uptick of 1% quarter-on-quarter. However, the loan book performance remained relatively flat, showing a marginal decrease of 0.4% quarter-on-quarter. These mixed outcomes reflect both the strength in customer funds and cautious loan book management.

Revenue Streams and Profitability

The company reported an astonishing net income of EUR 115 billion, with net interest income (NII) rising by 40% year-on-year. This significant growth was achieved despite some headwinds, such as a reduction to 0% of the minimum reserve requirement. Revenue continued to grow thanks to asset management, insurance, and corporate and investment banking. Insurance services, in particular, performed exceptionally well throughout the year, showing an 8% growth in the most recent quarter. The overall core revenues, combining net fees and insurance revenues, also saw an uplift of 1.5% for the year. Precisely, insurance revenues skyrocketed close to 25%, with life savings insurance leading the way with a 30% leap. Fees, on the other hand, dipped by 3.2% when excluding cash custody fees.

Earnings Call Transcript 2023-Q4

[Marta Noguer, executive]

Good morning, everyone, and welcome to CaixaBank results presentation for the fourth quarter and the full year of 2023. As usual, we are joined today by our CEO, Gonzalo Gortazar; and our CFO, Javier Pano.

In terms of logistics, we plan to spend about 30 minutes with a presentation and about 45 minutes to 1 hour with the Q&A. The Q&A is live, and you should have received instructions by e-mail on how to participate.

Let me end by saying that my team and I will be at your full disposal after the call. And without further ado, let me hand it over to our CEO. Gonzalo, the floor is yours.

[Gonzalo Gortázar Rotaeche, executive]

Thank you, Marta, and good morning to everybody. We'll get straight into the first highlights of today. And I would highlight 3 ideas when you look at the title sustainability, profitability and distribution. We have clearly made a significant improvement during 2023 in terms of net income, up 54% core revenues. That's leading to lower efficiency ratio, meaning, obviously better one, that is at 40.9% and a return on tangible equity of 15.6%. It's been a very significant move over 1 year, almost 6 percentage points. And obviously, that pleases us, I'm sure pleases shareholders as well. And we feel this new level is a sustainable one as we will discuss during the presentation.

We remain strong in terms of balance sheet. Nonperforming loans have been stable, year-to-date, in fact, slightly reduced in terms of absolute numbers and stable in terms of NPL ratio and equity, and CET, Core Equity Tier 1 at 12.4% gives us a very significant MDA buffer, which is allowing us that combination of profitability and strong capital generation to announce our payout at 60%, the top of the range in our policy for this year, 2023. That's EUR 0.39 as a dividend, and we're also announcing the intention to conduct a new share buyback in the first half, subject obviously to regulatory approval.

We are confirming our payout policy for next year, 50% to 60%, and we are adding the payment of interim dividend as you will see that we expect to be paid in November based on a range of 30% to 40% of the first half net profit. So next year rather than having 1 single dividend payment as we will be having this April with that EUR 0.39, we will be having 2, an interim and then a complementary one.

Capital distribution capacity, we said it was going to be above EUR 9 billion at the time of our 3-year plan. We are upgrading that level to EUR 12 billion -- approximately EUR 12 billion that we should be able to generate in terms of capital that is distributed that is above the 12% Core Equity Tier 1 that we have set up as our target. We expect, as I said, for profitability to be sustainable, and we are upgrading our target for ROTE for 2024 from plus 12% that we had in our plan to plus 15%, i.e., very much in line with what we have achieved this year.

And with that, I'll have a brief comment on the macro, which is well familiar to you, but it's been -- in terms of relative overperformance of Spain and Portugal versus the euro area has been quite an extraordinary year. This 2 percentage points is quite a gap. We expect that to continue into 2024. Still see it as a year of relatively a slowdown. You see Spain coming from 2.5% to 1.4%. I have to say these projections are a few months old, and all the data that we have been seeing, particularly the data we saw earlier this week on GDP for the first quarter, have been much better. And hence, I wouldn't be surprised if these numbers are revised upwards in the future because what we are seeing is even more strength. And certainly, relative to Europe, again, a pretty good picture.

And that has implied more employment, 780,000 jobs created this year in Spain, despite the slowdown, which is quite remarkable, consumption doing very well, the external sector, again, another year with current account surplus, inflation throughout Europe coming under control, so all that is obviously -- provided us a positive backdrop. We all know there are risks. We all know there are geopolitics and other threats. But I have to say at this stage, we remain quite upbeat about 2024 for the reasons I mentioned.

Commercially, 2023 has been a good year for us. Obviously, it's been a year of relatively low volumes in the industry, both on the asset and on the liability side. A year ago, we were all concerned about what would happen with cost of deposits and whether deposits will flow out of balance sheet or not. When we look back, I have to say, business volumes, on the right-hand side here, are up 1.2%.

And as you can see, and we will see later today, customer funds had done particularly well. Long-term savings, particularly insurance business, up 8.5%, but insurance -- protection insurance, consumer lending, business lending, Portugal BPI, again, continues to do very well, it's all going in the right direction. And by the way, we are also doing fairly well in terms of sustainable finance, but we'll see that later.

So deposit franchise, market shares, basically stable in the year. Payrolls, pension deposits, very high at 36%, 34%, and deposit balance sheet, closer to 25%. That has stayed quite strong during the year. And at the same time, beta of deposits have obviously been evolving better than expected with the fourth year beta -- sorry, the fourth quarter beta at 16%, showing some gradual increase during the year and also showing that our strategy in terms of launching deposit, open to the public have -- has worked well in all senses, both for the customers and in terms of our own financial management of beta.

Commercial gap continues to grow and evolve in the direction of higher deposits. I was going to say in the right direction, but at some point, you wonder which one is the right direction because we obviously have quite a lot of liquidity, we're very happy to deploy in further lending, but demand is limited, though we expect that to change gradually during 2024.

On customer front, I said particularly off-balance sheet inflows have been growing strongly from EUR 4 billion to EUR 5.3 billion. And as you can see, actually, 2/3 of that has been into savings insurance, the other has been AUMs. But looking at the right hand of this page, our market share in savings insurance is now 36.5%, which is quite remarkable. And also as you can see, the evolution in the last 10 years is defying gravity.

In fact, looking at the industry on the bottom left of the page, you see the industry has been basically stagnant for 13 years from EUR 121 billion to EUR 125 billion. All the growth has been CaixaBank. We've been really expanding this industry. While the industry has been stagnant, we've actually multiplied our volume by almost 3.5x, which is quite remarkable.

And I think this is relevant because this is actually likely to continue. This is not just 1 year, it's a decade. It's a structural trend. We're doing something right, and we plan to continue doing it, certainly, as you can see. There's plenty of potential compared to the euro area for us. And we're planning on capturing that and make sure that all the strong growth of profits this year does not hide the fact that we have here quite a unique characteristic that is obviously very good news for shareholders.

Protection insurance, an amazing year. This is in light of a significant reduction of the production of mortgages, which has been generally in the market. Despite that, our protection insurance premium are up 7%. And when you look at the total portfolio, the earned premia, up 9.6%. Pretty balanced between life risk and nonlife. Nonlife health, auto and home being the most significant parts of our activity.

And again, just trying to provide you a longer-term picture, this is not that dissimilar to what we saw on the page before. Obviously, there's been some growth in the market in this case, but fairly limited over the last 13 years, while, again, we've almost multiplied our share or our size -- sorry, in this case by 4x, so market share above 25% and a significant increase year-on-year, 278 basis points, again, pretty good potential. Here, just to remind you, we still have a significant opportunity to continue converging clients from the former Bankia to the current average penetration of CaixaBank clients. But actually, there's plenty of potential in both existing CaixaBank clients, and clients coming from Bankia have plenty of potential, obviously, in the latter even further.

When you look at new lending, one thing that is quite relevant is the fourth quarter has been pretty good. And you can see here, particularly noteworthy on business, consumption, consumer lending and mortgages in all 3 cases, significant increase, very relevant one mortgages, which has not necessarily been the case for the market. I think we have now a pretty good trend on that segment and expect to obviously continue to maintain it.

BPI, as I said, a pretty good year again. Obviously, we look at efficiency coming down. In 2018, it was at 16. And before that, 2017-'16, it was at 70, is now below 40. It's obviously a very successful and nice journey for BPI and for us as owners of BPI, and obviously, the similar journey in terms of return on tangible equity, up to 17% this year.

Market share continues to go up on a significant money, particularly on the asset side. You see the figures there for mortgages and business lending. And as always, in terms of balance sheet, credit risk, capital, it's a pristine balance sheet for BPI, a very important piece of the group for us.

Sustainability, I mentioned it before, we're very happy in terms of the, what we call, mobilization of sustainable finance, including lending and also assets that we manage that were at EUR 50.8 billion. We're clearly well ahead of our target for this 3-year plan. We have completed now 5 sectors where we have announced decarbonization targets. We'll continue to do so in line with our commitments as a founding member of the net-zero banking alliance.

I have to say, generally, the sustainability agencies put us at the very top of our peers. And when you look at the overall picture, it's a very compelling one. Obviously, it reflects our DNA and our character. But I think long term, it's a competitive advantage and certainly in terms of financial inclusion, micro lending, housing policy, social projects. You have some of the data, I'm not going to bother you or bore you with reading them, but they are absolutely unique and different.

P&L for the year, Javier will be discussing the quarterly numbers. But for the year, you can see obviously a big jump in NII. After all, when we add up fees and insurance, we actually had a positive year, 1.5%, despite some of the headwinds, including the custody fee that we stopped charging as rates became positive. And, again, continue to feel pretty good about our potential there.

Operating expenses are under control. And high -- pre-impairment income is up 52%, and net income also 54%. So obviously, a very good year in terms of financial results, which is not a surprise to you because we've been just going on that line through the last quarters. There's a couple of reflections. One is, again, as we look forward, we have clearly the strongest financial position since 2008, since the great financial crisis.

In terms of pre-provision profitability, which is quite remarkable in terms of efficiency and profitability, our balance sheet with NPLs contained and a very high level of coverage, you see we've kept a very significant EUR 800 million stock of unassigned collective provisions. Liquidity, we repaid in full the TLTRO, I'll say, at 215% in terms of LCR and asset -- sorry, and capital. We've decided we have ample room to continue to be very generous in terms of capital distribution for our shareholder, which is precisely what you see on this page.

We're increasing the dividend per share by 70%. So we will be paying again EUR 0.39 next April. We completed the second share buyback in this plan, and we are, as I said, now announcing our intention to conduct a third one and to start that third one during this first half of the year. Very happy to see that this profitability is obviously supporting a very strong capital distribution capacity. RWA growth is, as you know, fairly limited. So we have -- again, where we said EUR 9 billion, we are now saying EUR 12 billion, which, as you know, 6.5 -- sorry, EUR 6.9 billion have already paid or executed or announced. So that's what I had to say.

And I think now, Javier will take us from here.

[Javier Pano Riera, executive]

Okay. Yes. Thank you, and good morning. So for my side, further details on the P&L, the balance sheet and later on guidance, the much-awaited guidance. Let's start with customer funds. Well, on that front, we are ending the year in good shape. You may see customer funds up by 1.8% quarter-on-quarter, of which long-term savings up by 3% on the back of strong markets in the latest part of the year.

Deposits also doing well, up by 1% quarter-on-quarter. And overall, in euro terms, as you may see in the bridge below, customer funds up by 3% for the year, of which plus EUR 13 billion of positive market effects from long-term savings, plus EUR 5.3 billion on net inflows, and then, deposits that are, as I say, flattish.

Then on the chart, bottom right, you may see the evolution of long-term savings, up by 8.5% year-to-date. And as you may see in the latest part of the year, a strong recovery that obviously is a very positive starting point looking into 2024.

With this, let's move to the loan book. In this case, on the quarter, we have an almost flattish performance, down by 0.4% quarter-on-quarter. And the trends remain broadly the same as in recent quarters, positive evolution on business lending, up by 1% quarter-on-quarter; consumer lending, slightly positive. And residential mortgages, still deleveraging, but I have to say that, as the CEO has already commented, a better performance in the latest part of the year and also early redemptions that are reducing the base gradually. So all in all, the loan book for the year down by 2%. And on the chart, on the right, you may see the evolution of the floating mortgage book index resets that is continuing still. As you may see, approximately 17% of the book yielding less than 3%, that obviously is going to reprice higher very soon.

With that, let's move to the P&L for the quarter. Net income, EUR 115 billion. Strong revenues continue. You may see NII up by 40% year-on-year, also positive evolution on the quarter despite a 0% remuneration on the minimum reserve requirement that has, on a quarter-on-quarter basis, a negative effect. But despite this, we have had a positive performance.

Fees, year-on-year, reflecting the lower account maintenance fees, something that we have been highlighting recently. But quarter-on-quarter, a better performance from asset management, insurance and also CIB. The insurance service result continues to do well. It has been the case throughout the year. And as you may see, even this quarter, positive evolution up by 8%.

On other operating income and expenses, you know well that this fourth quarter, we have the charge of the deposit guarantee fund that, as also we have been highlighting, is going to be reduced very significantly for 2024. Recurring operating expenses in line to -- compared to our guidance. Loan-loss charges, also, we are meeting our guidance, below 30 bps at 28%, and not much to comment from my side on the income statement.

With that, let's move to the NII to the details. You may see for the year up by 54%. And looking at the quarterly evolution in the bridge on the right, you may see that we have a slight negative contribution from client NII. This is basically due to lower average loan volumes but also reflecting higher beta, this 16% for the fourth quarter compared to 13% in the third quarter. And also, the total amount of deposits is now being remunerated at 20% versus 16%. On the other hand, we have positive contribution from ALCO basically due to higher cash balances.

Below, you may see the evolution of the customer spread that continues to progress, 358 basis points. And on yields, the back book yield of the loan book at 447 basis points, an increase of close to 25 basis points in the quarter. And then the cost of our deposits ex structural hedges and foreign exchange deposits progressing to 65 basis points.

Let's move now to the other core revenues. This is the combination of net fees plus insurance revenues. The combination goes up by 1.5%. Well, fees is down for the year, excluding cash custody fees, minus 3.2%, but on the other hand, extremely positive result on insurance, close to 20% on the year and also revenues from our insurance investments, up by 50%, although in this case, as you may remember, with some inorganic positives earlier in the year.

On the core revenues in euro terms, besides the extraordinary contribution from NII for the year, looking at insurance plus fees, ex cash custody fees, you may see that also we have a positive contribution. You have here all the details. I will not go across all of them, but basically on insurance on the left for the year, up by close to 25%, remarkably here life savings insurance up by 30% on the back of what has been commented before, almost 2/3 -- or circa 2/3 of inflows in long-term savings into annuity. So this has obviously had a strong tailwind on that P&L line, life risk insurance also growing over 18%.

On the right, fees, the well-known impacts from lower account maintenance fees on recurring banking fees, but on the other hand, quarter-on-quarter, you may see a good progression on asset management, insurance distribution, wholesale banking that leads to a quarterly evolution for fees that is up by 2.5%.

Moving to costs, everything in line with our guidance, costs for the year up by 5.2%. The most remarkable here probably is our cost to income. You may see that keeps falling down by -- down to below 41%, although it includes close to 2 percentage points, as you may see on the bridge bottom right from the banking tax. Cost of risk, finally, on comments on the P&L., we have kept a prudent provisioning approach through the year. 28 basis points is the final cost of risk on a 12 trailing months, and we keep by the end of the year still unassigned collective provisions for EUR 800 million.

And the NPL coverage remains pretty much unchanged during the year, 73%. NPLs, we have been at historically low levels throughout the year. So you may see between 260%, 270s, we end the year at 274%, and -- 274%, sorry. And you may see an increase on NPLs, but this is basically driven by the alignment with the prudential definition of default, the new definition of default and still some of that process into 2024.

A few words on ICOs, 55% already amortized, only 4.4% classified as Stage 3, and we keep with our steady reduction of our OREO exposure, down to EUR 1.6 billion by the end of the year. Liquidity, you know well about our ample liquidity position. This has allowed us to prepay in full all our TLTRO funding.

This has been EUR 8.5 billion repaid this fourth quarter. And including that impact, you may see that we closed the year with really strong liquidity metrics; liquidity cover ratio, 215%, net stable funding ratio were 140% and loan-to-deposits below 90%. Liquidity sources, EUR 100 billion of HQLAs and adding other facilities and covered bond issuance capacity, liquidity sources over EUR 200 billion.

And in terms of the mix of our deposits, it keeps pretty much unchanged during the year, as you may see, still retail having a strong weight, 80%; wholesale corporate 20%; and 64% of our total deposits being insured. As we are at year-end, a few words on MREL, our MREL ratio ends the year on a pro forma basis at 26.44%. That pro forma includes issuances, early calls or tender offers we have executed during the month of January, mainly an AT1, as you know, probably well. And that ratio results into an M-MDA buffer at 213 basis points by the end of the year, which is quite a comfortable position.

'23 has been a year of continued and successful market access, over EUR 10 billion issued, of which, slightly over 1/3 in foreign currency. This mix in foreign currency is our intention to continue, although at a slower pace because as you may see here, the funding plan for 2024 is contemplating only EUR 5.5 billion, only for MREL purposes, and of which, already EUR 700 million of an AT1 that has already been issued. And in terms of maturities of potential calls, you may see on the bottom right that our calendar is comfortable.

And with that, solvency, we are ending the year with a CET1 ratio at 12.37% for the quarter and 39 basis points of positive organic capital generation, minus 34 from the dividend accrual and AT1 coupons plus 14 basis points from markets and other. This results into a comfortable MDA buffer at 380 basis points over versus the 2024 SREP requirement, and resulting finally on a tangible book value per share that keeps progressing at EUR 4.20 that is including the dividend over 18% in the year.

And now, finally, guidance, but before that, let me comment and highlight the new presentation of revenues we are planning to implement from the first quarter. This is aimed at underscoring the evolution of the key business engines basically besides NII, Wealth Management and Protection Insurance, so it's known information. No -- does not affect the gross income or total core revenues. It's the breakdown. We are classifying those in a way that better reflects the way we are running the bank and our commercial strategy. We have on the appendix all the reconciliation and the quarterly evolution for 2023.

And now yes, guidance for 2024. NII expected to be in line with the NII of fiscal year '23. That has been EUR 10.1 billion. Then for wealth, protection and banking fees, according to the new way to present those revenues, expected to grow by low single digits. Recurring costs to grow by less than 5%. Cost of risk expected to be circa 30 basis points. And to end the year with an NPL ratio around 3%.

Remind -- as a reminder, the upgraded targets, already commented, on ROTE over 15%, and this distribution capacity over the span of our strategic plan of EUR 12 billion, while maintaining a strong capital position, 11.5%, 12% CET1 ratio as a management target.

So thank you very much, and ready for questions.

[Marta Noguer, executive]

So, operator, we are ready for the Q&A, if you can please let the first call in.

[Operator]

[Operator Instructions] The first question is from Maksym Mishyn with JB Capital.

[Maksym Mishyn, analyst]

I have 3. The first one is on deposit beta. Even though it remains low, it seems that there was a pickup in quarterly growth. Could you shed some light on what was the driver for this pickup? And also it would be good to know what are your expectations for customer spreads in the coming quarters?

The second is on loan book growth. You are gaining market share in corporate and consumer loans while it seems you are losing some of it in mortgages. I was wondering what is the strategy for 2024 and what kind of demand do you expect on growth per segment.

And then, the last one is on fees. I was wondering if you could break down the guidance for fees and insurance by fees and insurance. And what are your expectations for fees and insurance revenues separately?

[Gonzalo Gortázar Rotaeche, executive]

In terms of first deposit betas, I let Javier comment as well as on the third question on the breakdown on fees and insurance. On loan growth, to be honest, our strategy, we're very big in the market in Spain and also fairly big in Portugal. And what we are trying is to do good business in all 3 areas. It's not that because we do well in business, we shouldn't be doing well in mortgage or in consumer lending. It's the 3 areas we're interested in.

And obviously, this year, what you have seen is a good performance on both business and consumer, I agree. I look forward, and I don't see any reason for that to change in 2024. In fact, the sense I have generally is that we are going to speed up commercially. It has been a fairly good year, but don't forget that the previous year, 2022, was a year of heavy integration for us. And hence, the franchise is gaining momentum. And in fact, figures for the fourth quarter in terms of activity suggests that momentum is materializing, and you can feel it.

So I would expect to gain market share next year, both in businesses and consumer lending. I think the environment is good, and we're in an excellent position. When we look at mortgages, we have had a fairly strong fourth quarter as you saw in terms of new production. I haven't been able to see all the comparative numbers for others. But my sense is that we clearly have gained market share, certainly in the figures up to November, we're gaining market share in new production relative to where we were. And our expectation is to continue and be sort of above 20% in terms of new lending production in 2024. So that should be also good news.

What it is true is that our mortgage portfolio tends to be more seasoned than others. That's great news in terms of its asset quality, I have to say. But it also means that it tends to have a decay in terms of amortization that is slightly higher. So we tend to see the stock coming down slightly faster than the market. But relative to 2023, I think we're going to be doing better in the mortgage segment. And hence, higher market share in terms of new production and lower reduction in the overall portfolio.

And the sense we have is, at this stage, a strong fourth quarter for us in terms of activity, the pretty good numbers for the economy. The fact that it starts to be fairly likely that we will have significant decreases in rates during the year, we're going to be surprised by the level of activity on the upside. That's my sense. So we will try all 3 really. We don't have 10 markets to compete. We have 2. And in this 2, we want to do everything that is in financial services and do it well.

And maybe, Javier.

[Javier Pano Riera, executive]

Well, in terms of deposit beta, I would not say that there is nothing different this fourth quarter compared to others. So the progression in terms of the percentage of deposits that are being remunerated, and that includes, remember, in our case, additional amount of corporate deposits, site accounts that are actually at a cost is gradually progressing. I would say that over time, as you are more time in a higher rate environment already with rates at 4%, I think that probably you should not expect a linear performance or a linear pace in terms of beta. But it's completely in line with our revised expectations in terms of beta evolution.

And remember, we commented last quarter that we were expecting deposit beta this fourth quarter to be well below 20%. So it has been actually 16%. So it's perfectly in line with our expectations. Going forward, we are expecting to give you more insight into next year because actually, it's what probably matters for you is that we are expecting deposit beta to keep progressing to low 20s. So this is our expectation.

Keep in mind that rates are expected to come down. So actually, deposit beta also goes up, not because costs go up, but because also the reference rate also comes down. Also there is here a mix effect from that situation. And in terms of customer spread, as we are guiding for NII to be in line with 2023, you should expect customer spread also to be pretty much in line. And so this is basically the message on that front.

Shifting to fees, insurance, et cetera. So here, my comments will follow this new way to present the P&L because, in our view, better reflects the businesses because, otherwise, we had some, let's say, long-term savings related P&L lines on fees rather on insurance results. So thinking with the new way to present this on what we are going to be calling wealth management that includes AUMs plus annuities basically, savings insurance, we are expecting to continue to do well. So I'm not going to give you specific guidance, quantitative guidance for every line, but the message is that at least we're expecting inflows at the same pace than 2023.

Our expectation is probably if markets do well or are more stable, remember that 2023, we were coming from 2022, that was a bad year for markets, this -- at the beginning of the year had some impact, to some extent save us with a little bit more cautious. And I think that as markets stabilize, start to do well, the pace of inflows into AUMs will also improve as we go into the year.

And in annuities, as we have been commenting, and well, really that super strong performance that we are having compared to our competitors, is expected to continue. So I think that, on that front, we are going to do well. In terms of insurance, which now is a life risk plus non-life risk or they are combined for 2, it has been such a positive year in terms of life risk that I think probably that close to 20% probably is challenging to be repeated. So I think that this will be my message. Although you know that this is a key business for us, we have a key strength, we still have plenty of ground to cover in terms of synergies with former Bankia clients, et cetera, so I think that in any case, we are going to do well.

On fees, on recurring fees and nonrecurring fees, let's say, CIB, here, on recurring fees, probably still some pressure, some headwind in terms of current account maintenance fees, but you know that this in a higher rate environment, there is a trade-off between charging clients those fees and keeping a low funding cost. And there is some more to go on that trend. So I think that we have not finished on that. But on the other hand, we are expecting much better performance in other business compared to this year on -- for example, on payments and also on CIB. So I think that overall that makes you an idea of the mix. I would say that basically, wealth and insurance very well and probably fees still to some extent impacted by those maintenance fees.

[Marta Noguer, executive]

Just to make clear -- make sure it's clear, the low 20s expectation for beta is the -- refers to the average for 2024. No, just to make it clear. Thank you, Maks. Next question, please.

[Operator]

Next question is from Ignacio Ulargui with BNP Paribas Exane.

[Ignacio Ulargui, analyst]

I have 2 questions and 1 clarification. The first one is on NII, if you could just give us a bit of the rate assumptions that you have behind flat NII guidance that you have given for 2024 in terms of the forward curve that you are taking or using for that guidance. And also looking to the deposit, you have said in the past, you have -- I mean, you have an ability to lower deposit beta when rates go down, so I think it's quite important just to understand how confident you are in managing the deposit costs when rates come down on those that you are paying at this stage?

Second question is on Basel IV impact and other regulatory impacts that we could expect into 2024 and what we should expect in terms beta for the year? Just 1 clarification, if you could just update on the EUR 38 million other income in Portugal and whether we should expect that to be the current in 2024?

[Gonzalo Gortázar Rotaeche, executive]

I would just say, as a way of introduction, we are fairly confident in our ability to manage our beta in order to meet the guidance we have given you. Obviously, we'll be working to deliver further. Actually, that's what happened last year. But certainly, on a qualitative basis and having looked at how the market has evolved and how we have managed over the last 12 months, we're confident that we will be able certainly to accommodate beta to the environment.

But with that general comment, I'll pass it on to Javier.

[Javier Pano Riera, executive]

Thank you, Gonzalo, and hello, Ignacio. Well, on the NII assumptions, let's start with volumes. On the loan book, the assumption is that the pace of origination will gradually pick up as we progress into the year. We have been in -- during the summer and after the summer, probably in a more subdued situation, although as we have commented, we have been positively surprised, but by a better pace in terms of new origination during the fourth quarter and basically on also mortgages.

So -- but the assumptions are probably in that sense, a little bit more conservative, not incorporating that more positive momentum we have had during the fourth quarter. So what is underlying here is a loan book that is flattish at best. So this is the situation. In terms of mix, a little bit more of the same, better performance in general on SMEs, corporates, consumer and still leveraging on mortgages, but less than in 2023, as we have lower prepayments that we are seeing those stabilizing clearly and probably already into 2024, probably coming down vis-a-vis '23.

So those are the assumptions, but I can see that probably according to the trend we have seen in the fourth quarter, there may be a little bit more upside, obviously, to be confirmed in coming quarters. In terms of deposit volumes, we are assuming a slight increase, in line with what is expected for the market macro wise. So I would say that on that sense, keeping our market share would be the broad message. And my comment here is that actually, in terms of NII, keeping your deposit volumes is as important or even more compared to loan volumes because obviously, margins also on deposits are really significant.

Then, on deposit beta and back to the clarification by Marta, we are assuming a deposit beta on average for 2024 in low 20s, gradually progressing. Here, keep in mind what I commented to a previous question, rates come down. So the average deposit facility rate according -- by the end of the year, which, by the way, is what we have used to make our forecast is the yield curve by the end of the year, is expected to be circa 3.3%. So just by keeping your costs stable, your beta increases because the reference rate goes down.

Just to keep this in mind, and well, that's the plan, beta gradually progressing. And eventually, as Gonzalo was commenting, obviously, managing the situation in a way that already plants the seeds for 2025 in terms of deposit cost management.

And lately -- lastly, sorry, for rates, I have already said this, rates, we have used the yield curve by the end of the year. That is like 200 -- 280 -- 275, 280 for 12-month Euribor that as an average for the year. And then, on all those comments, just to add, that this is, let's say, the message at the group level, although in BPI, we have a slight different situation with, generally speaking, higher betas, a more competitive environment in terms of deposits in Portugal. So you can expect in BPI to have a little bit faster pace of beta evolution.

And then, you had a question on the charge from BPI. No, this is part of the National Guarantee Fund that formerly was, let's say, placed as collateral and already deducted from capital. And now we have been asked to pay it in cash. So basically, there is no impact in terms of solvency. And there is -- just does not result into an increase going forward. Actually, it's the opposite. I take the opportunity to comment and to update you that the impact from the much lower contribution on the resolution fund and the deposit guarantee fund overall at group level are expected to fall year-on-year by close to EUR 600 million, which is a very relevant figure. So thank you, Ignacio. I hope this clarifies.

[Marta Noguer, executive]

Javier, the impact from Basel IV, an update.

[Javier Pano Riera, executive]

Sorry, Basel IV. Yes. Basel IV, no impact, nothing. We're expecting no impact at all.

[Marta Noguer, executive]

Okay. Thank you, Ignacio. Operator, next question, please.

[Operator]

The next question is from Sofie Peterzens with JPMorgan.

[Sofie Peterzens, analyst]

Yes. Here is Sofie from JPMorgan. So I also had 2 questions. Maybe first of all, on -- just going back to net interest income, did I understand this correctly that you assume Euribor 12-month around 270 to 280 basis points at the end of the year. Could you maybe also walk us through just on net interest income what kind of hedging you have in place both on the asset side and liability side on how it hedges [indiscernible] kind of interest rates? That would be my first question.

And then the second question would be on the interim dividend. What was the rationale to move to an interim dividend from kind of 1 dividend previously? And yes, if you could just talk about the thinking around that and how we should marry that with share buybacks. Should we expect basically some announcement either on interim or on dividends or share buybacks every quarter?

[Gonzalo Gortázar Rotaeche, executive]

I'll take the second question, and let Javier deal with the first one. In terms of the rationale for the interim dividend, we have now announced EUR 0.39. That is based on where we were trading, and we're still trading, it's really a 10% dividend yield. So it is indeed a very, very significant one-off payment. Given that -- back to my first comment, we recovered profitability, and we think it is sustainable, and it's not just profitability that is sustainable, but it also flows into shareholder remuneration. We think, given the size of payouts, it makes sense for us to split it into 2 payments.

And as you know, there's different practice across different countries really in Europe on this, but it's been a typical case in Spain as has been in other places, like the U.K., to have an interim dividend. So we think that it makes more sense to -- as we generate so much capital that is distributed to shareholders, to be able to do it earlier just makes sense to us. That's 1 story.

It's a parallel story that we, on top of our ordinary sort of dividend policy, will keep generating more capital. And hence, we're also looking at all the ways of returning that capital to shareholders with commitment that is unchanged from now many years, as you know well. And in that front, as we have finished the year with 12.37% of core equity Tier 1, we have enough space to again conduct a share buyback. And hence, our intention is to do it subject to the corresponding regulatory approval.

Now, when we announced our last share buyback of EUR 500 million, we said we would like to move into more frequent buybacks, but of lower amounts than the EUR 1.8 billion we did in 2022, and you should expect that to continue. That's the comment I would have made. I think, it's all pretty good news, I have to say, the extent of shareholder remuneration is -- well, speaks by itself.

Javier?

[Javier Pano Riera, executive]

Well, to your point on the Euribor rate, no, this is not a year-end Euribor, it's the average for the year. And this is actually -- you take the yield curve, December 29, which is the last day of the year, so this is the implicit rate on average for 2024.

To your question on hedging, yes -- well, we have not made a decision, so we have not changed our hedges during the fourth quarter, first thing. And then, about taking decisions on that front, it's a little bit market-dependent. So we don't exclude to do this. Here, just as a reminder, we have those EUR 20 billion of deposits that are hedged to floating. So we are receiving a fixed rate, and we are paying basically euros there for EUR 20 billion, of which EUR 5 billion are maturing by the end of this first quarter '24. And as I say, we have not made a decision.

The EUR 15 billion remaining will still have a maturity of close to 3 years. And on that front, taking into account the maturity we have had of those EUR 5 billion plus the implied rates for 2024, you may expect a positive impact on a year-on-year basis of approximately EUR 140 million. So this is my message. So time will tell. We can do both sides of the balance sheet. We can hedge into fixed -- floating mortgages or we can receive fixed against deposits, so we have all options. What I can say is that -- probably I already highlighted this on the previous quarter, is that from now on probably we will be more keen to use derivatives in terms of the ALCO portfolio to manage our sensitivity of the balance sheet.

[Operator]

The next question is from Alvaro Serrano with Morgan Stanley.

[Alvaro de Tejada, analyst]

Two questions. The first one is kind of a follow-up to what you just mentioned, Javier. I didn't catch the updated rate sensitivity. Sorry, if I missed it or -- I think it used to be minus 5% for 100 basis points lower rates. Is that still the case? And you have room to reduce that rate sensitivity based on what you've just said of using more swaps.

And maybe related to that, we haven't talked about deposit volumes. In the lower rate environment, I know this will be a huge focus last year, but would you expect deposit volumes to grow or total deposit balances to grow or them being more channeled to off-balance sheet. So those are a multi-prong question on rate sensitivity.

And the second on the dividend. You've obviously announced 60% payout and another buyback. When you think about that 60% dividend, how do you decide between the mix? Because if I look at EUR 0.39, if your profits do go down, you risk having to cut the dividend in a couple of years. Do you think there is that risk? And how have you thought about it? Or are our earnings going to be more resilient than consensus fears?

[Gonzalo Gortázar Rotaeche, executive]

My expectation is, yes, our earnings will be resilient. So that's what I tried to convey today. But in any case, I will, obviously, let Javier comment on the first point. But in any case, our dividend policy is based on a payout as a percentage of profits. So we are by definition, and I think it's a good practice in the banking sector to talk about payout and all, absolute dividend per share, because I can remember a few institutions, and those tends to be 10-year and older that were too attached to dividend per share and eventually had trouble. I think the payout as a percentage of profits is the right way to look at it, and hence, dividends have plenty of upside when profitability goes up and they have a downside when profitability goes down.

Having said that, I would say I would not take for granted that profitability is going to go down, certainly not in 2024, although you point correctly to sort of further down the line, we will have an impact, and Javier will comment on the sensitivity, the 5%, which is corrected, as you said, will have an impact down the road. But this is not the only driver of the income statement. We have a great business. We're going to grow volumes, and we're going to grow volumes of balance sheet. So we need to put that all into account.

And then one point and one factor, you are very familiar with, Alvaro, but for the benefit of everybody, we're reducing the share count. We have already done 2 share buybacks. We're announcing another one. So when you look at dividends, and you look at dividend per share, you need to look at our profitability per share, and there will be lower shares certainly in the future than today. So there is that additional factor to look at dividend per share on the long term.

And I think, generally, given the level of capital we are generating, sometimes, we need to look at -- let's imagine you look at net interest income per share, if NII is in line, obviously, NII per share is going to go up because number of share -- and then you can go down the P&L and keep that in mind because it's -- and I know you do, you all do because you follow us closely. But sometimes, we're so used to look at absolute numbers in the P&L., when you add this additional engine of looking at the P&L per share, and particularly when you project it going forward, it's quite an interesting story.

With that, Javier?

[Javier Pano Riera, executive]

Well, comments on rate sensitivity. Yes, you are right. Actually, we have added to our presentation on Slide 47, if I am correct. Some further information about this, our sensitivity has come down markedly since December '21, let's say. We have had an upward sensitivity of circa 30%, and now, it's 5%. What is behind this? Basically, here, you have a gradual, but steady increase of the percentage of fixed rate assets, that is like approximately EUR 20 billion more into -- in that period. This is basically fixed rate mortgages, also a slight increase on the ALCO portfolio.

And then also to take into account that with higher rates, it's like having a higher percentage of floating liabilities because you have deposits that are now variable. So that is even indexed to an index rate -- a rate index or time deposits that eventually at maturity you are going to be able to reduce the cost of if rates go up to -- unfortunately, to increase the cost. So this reduces the sensitivity.

Also, there is a base effect because NII back in 2021 was lower. So now it's higher. So in terms of percentage, there is an effect from that. And we are happy with this positioning. We can reduce it a little bit further, I agree. I see that when other peers face this question, more or less everyone has a slight positive sensitivity. And probably, I can explain you why. So imagine now that we fully hedge that sensitivity, and with that, we start receiving fixed rates by a large amount to close that sensitivity, and you do that into a negative yield curve. So you are actually fixing on the asset side much lower rates in the future.

Imagine that eventually, this does not happen. So what is priced in the market does not happen, and finally, rates are higher. What happens then? So you are locked on the asset side with low rates. And then, on the liability side, you cannot manage the situation because you have higher beta, and eventually, you have a negative evolution on NII if rates go up.

So you need to be careful in terms of full hedge that sensitivity. For the time being, we are fine. We think that -- to a previous question, I answered that, yes, we can contemplate additional hedges, but probably not to the extent that fully hedge the sensitivity, okay? So that would be my message here. And in terms of deposits, well, time will tell. At the end of the day, the summary of -- for 2023 is a positive one for us. So the first quarter was a little bit like the uncertainty, what is going to happen, are we going to have strong outflows from deposits to off-balance sheet, treasury bills, whatsoever.

At the end of the day, this has happened to some extent, but very well contained. So I think that we have already the situation well under control. We are happy to see that at system level in Spain, at least, the situation is comfortable. So there is not any single player or major single player that is to some extent into some kind of pressure to gather deposits. So we think that the situation will evolve in line with your macro projections that, well, in nominal terms, yes, deposits will to some extent grow, and we are happy to have our market share on that. So -- but well, you know that we are good on that front. We are good deposit gatherers, and I think that, in any case, will be a strength for us.

[Operator]

The next question is from Britta Schmidt with Autonomous Research.

[Britta Schmidt, analyst]

I've got a few. On the wording regarding the share buyback, bringing the CET1 closer to 12%, do you intend to keep a margin above that? And do you expect there to be any headwinds other than Basel IV being nothing?

The second question will be on the guidance. You got to a flat ROE, but the ROTE is guided to a number that could potentially be lower than last year. Do you expect there to be any changes in -- for example, in tangible reductions? And if so, would that also impact capital?

And then maybe you can just update us on the underlying cost of risk baked into the 30 basis points -- less than 30 basis points guidance. Where does that stand right now excluding overlays, and what overlay usage have you employed?

And then just a clarification. Thanks for Slide 47. That's very useful. Could you just split the sensitivity into the Spanish, into the Portuguese balance sheet separately?

[Gonzalo Gortázar Rotaeche, executive]

In terms of the closer to 12%, it means exactly that. So we are 12.37%. So we're going to end up somewhere between 12.37% and 12.00%. And as you know, that is mostly reflecting, one, the desire to keep our excess capital flowing to shareholders and also the need to do it in some kind of orderly process where we are probably going to be doing round numbers. And beyond that, it gives you a range of an amount that is fairly narrow in any case. But no, it is not the fact that we are leaving some capital for some unforeseen or foreseen event. We've said no impact from Basel IV, no further regulatory impact, a year of pretty good profitability, both past and ahead. So feel -- let's feel good about that.

And obviously, the story will not finish with this additional share buyback. We're going to keep generating capital and keep coming back to you with news on how we will -- how and when we will return that excess capital. In terms of return on equity and return on tangible equity, I'm sorry, we have somehow misguided you. But the message is the same, when we talk about return on tangible equity above 15%, this year being above 15%, because it's 15.6%, I didn't want to put a return on tangible equity above 15.5% or whatever. You should take us as 2 ways of saying the same thing, and we shouldn't see different evolution between return on equity and return on tangible equity.

Now, nothing to look in terms of intangibles or any funny stuff out there that we are expecting, absolutely no. This should be evolving in line, both return on tangible equity and return on equity. Cost of risk, we're saying, again, around 30 basis points. We have EUR 800 million in unassigned provisions. This is something that we expect to partially use during 2024. The extent to what this is used is obviously something that we will see during the year.

When you look back for the last 12 months, 24, 36 months, actually, we've always used much less than what we had. Let's see how the year goes. We will be using -- my expectation, we'll be using part of that. What exact amount we're not, at this stage, venturing into public disclosure. But again, it gives us a pretty good confidence that we can meet our cost of risk guideline for the year. And then there was one final point...

[Javier Pano Riera, executive]

On sensitivity, in Portugal, it's higher because Portugal has a higher percentage of floating rate assets. And, well, you could see already this in 2023, better progression -- even better progression in Portugal in terms of NII than in Spain. And although in Portugal we are already originating fixed-rate assets, they started later. And so the sensitivity is a little bit higher, not significantly higher, but slightly higher.

[Operator]

Next question is from Andrea Filtri with Mediobanca.

[Andrea Filtri, analyst]

Just a clarification on the very detailed guidance you have given on NII. Are you, therefore, expecting deposit remuneration to fall with rate cuts happening? I also wanted to thank you for the new disclosure on insurance. It is much appreciated.

And finally, on your CET1 target, more of a strategic question here. Why insisting on undergoing share buybacks above tangible book value instead of carrying some buffer for when balance sheet growth will return and eventually M&A opportunities would come along? Given your evaluation, would these alternatives not be more accretive to EPS than a share buyback capital deployment?

[Gonzalo Gortázar Rotaeche, executive]

Very good point you make here. I will -- I would say our first objective is to grow our business organically. And capital has never been a constraint for us on that front because we have ample capital today, and also, we generate so much as we go forward. So certainly, if there's good organic use of capital in the business, that's always the first priority. The reason why our RWAs are not growing or growing slowly is not because we want to pay capital to shareholders, it's because there's no further demand. And if we find further demand, we certainly will use the capital to grow the business on an organic basis. So I absolutely agree there. And my expectation, when you look at 2024, we're going to have better news. And hopefully, that should accelerate beyond that level with the current macro environment. So be certain we will be giving the first priority to that.

In terms of M&A, we are not active. M&A is something you know we've done because actually, the last big transaction has been ours with Bankia. And if you look at cross-border transactions, actually acquisition of BPI is also the most significant one since the SSM is in place. So we know how to do it, but we know in order to do one, you need to pass on many. And at this stage, to be honest, we don't see synergies or value to be created in acquisitions outside of our core markets.

In our core markets, we've done a lot, and I think we'll benefit from continued focus on our operations, certainly in Spain. And if you look at BPI, the growth it has and it has had for now 7 years in a row, we have gained 200 basis points of market share in the last 5, 6 years in Portugal. Without any acquisition, that is tremendously accretive to valuation. And that's why our return on tangible equity there is around 17%, and it was single digits only a couple of years ago -- no, in fact, last year.

So we want to focus on organic growth. Capital priority would be to fund that in 2024 and beyond. No M&A that we see creating value, and hence, we have plenty of capital to distribute to shareholders, even though the focus might be the other one. And -- the other one meaning organic growth. And obviously, buying above tangible book is what we would like because we would like to be our stock price higher, but tangible book now is 4.2%.

The share price is below 4%, so we are not there. We're at 0.95%, but if something that obviously you do and you know, Andrea, but for the benefit and for the sake of everyone, you take EUR 0.40 or EUR 0.39 out of our share price, you move from the EUR 4 area of EUR 3.95 to EUR 3.55 or so, you need to take it of our tangible book as well. But then you get -- again, we're trading, and I'm saying take EUR 0.39 because, obviously, in April we are going to pay this thing. I want to do that pro forma, but, again, trading at 0.9x tangible book and less than 0.8x, closer to 0.7x book value. And this is where we are saying, and we feel we can actually sustain profitability that is this year above 15% of tangible equity.

So we continue to see very high value in our shares. But obviously, we know we are biased, and the market is the one that needs to judge what's fair value for our shares. But we see plenty of value to be honest, today. And clearly, we are still below tangible book, particularly when we are just for our dividend. And I don't think tangible book is the right valuation for us. There's plenty more when we have 15% return in a market that is mature. We have a sound balance sheet, and I think we can have a stability and sustainability around those levels.

[Javier Pano Riera, executive]

Andrea, well, first, thank you, and thank you also for your comments on our new breakdown on the P&L. Thank you very much for the feedback. And to your third question, I think that is a very old one because actually, it's what matters, the remuneration, we have been used to talk about betas when rates are going up. But now if -- when rates go down, keep talking about betas is a little bit more confusing.

More precisely to your point, we are not considering that the average cost of our deposits is coming down in 2024 compared to the cost we have had in the fourth quarter 2023. If I remember well, it was 65 basis points. Well, note that I am commenting here excluding hedges, okay? Hedges is another angle. But if you exclude hedges or we are talking about the real underlying beta, we have had a cost of our deposits at 65 basis points. We are expecting the average for the year to be slightly higher than this at that level.

And if you do the math, this results into a 20 -- low 20s beta, which is the guidance we have provided to you. But I agree with you that probably at some point next year, we should start talking directly about the cost of deposits instead of linking it to deposit beta.

[Operator]

The next question is from Carlos Cobo with Societe Generale.

[Carlos Cobo Catena, analyst]

Thank you for the presentation and for the clarity on the dividend policy, which is on the share buybacks, which is very much appreciated. I have 3 quick questions. One is on cost of risk, one is on basis one and the -- and swaps. One, the cost of risk, I wanted to understand your thinking. It's not that I'm asking for your forecast for cost of risk in '25, I think.

But thinking about how IFRS works, in theory you should be putting through models now and more severe -- macro scenario because people if consuming liquidity buffers, and in theory, asset-wide dynamics should be more challenged now than the stronger GDP and lower rates in the future. So if IFRS is front-loading this type of risks, do you think that the normal trend should be for cost of risk to normalize lower? I'm just asking because consensus seems to be a bit more defensive in our plans due to the lack of visibility.

But if everything progressed for the better and lower rate and lower inflation, should that mean that cost of risk should fall and normalizing at a lower level than historical average because we are now operating under a less leverage economy? I wanted to see if that's your thought.

Second one, very quickly, it's on Basel IV, you said no impact. I wanted to understand if this is just the balancing impact of different moving parts, but you still have some operational risk negative impact? Or is it simply that your models already were conservative enough?

And lastly, if you can share, what is the -- I think you said you have some receivers, swaps in the mortgage portfolio or that you are planning to add them? If you were to, what's the average duration that you can get in those swaps considering the risk that Javier mentioned about fixing too much assets?

[Gonzalo Gortázar Rotaeche, executive]

Thank you, Carlos. I will take the cost of risk one. I will say I completely agree with you. We have been seeing actually much better cost of risk now for a number of years in Spain and in other countries, but certainly in Spain. And I think there's something that is different about the current situation. When we look at a normalized cost of risk going forward, I don't think that looking past is the right way to do it.

The level of leverage in Spain is -- again, in the private sector is much lower than in the eurozone. It's been reduced from basically almost 100 basis points, it's now 131% of GDP. That's been an issue for us in terms of new loan production. You know that well. And -- but -- I mean both -- families at 48% and businesses at 83%, they are much lower leverage than the European peers and certainly compared to historical standards. We have a strong private sector in Spain in terms of asset quality. And my conviction is that we're going to have a long cycle of good cost of risk from that point of view absolutely.

You could look at BPI in Portugal, and they've done extremely well for a pretty long time. I am looking forward to see that same figure reflected across the whole group.

[Javier Pano Riera, executive]

Yes, on Basel IV, we have some rebalancings, basically impacting some of our affiliates, basically insurance that moves from a risk-weighted 370 to 250, and so this obviously helps. But besides this, there is not much negative impacts on the other side of the equation.

In terms of the swaps, you can do whatever you like in the market. So there is market, there is a size, but you are right, in case of executing something probably will be prudent in terms of maturity. So tying us for a shorter period than the underlying asset, you are right.

[Operator]

The next question is from Marta Sánchez Romero with Citi.

[Marta Sánchez Romero, analyst]

Question is on the FROB stake. Have you discussed an exit plan with the FROB? If you keep doing buybacks and the FROB doesn't tender as it's been the case so far, the government will end up earning more than 20% of your shares, and it's going to complicate the future exit.

And then my second question is on 2025 NII. Because I don't want to extract guidance from you, just comfort that we are not facing a cleavage. So the NII guidance for 2024, EUR 10.1 billion looks low. But I guess, about EUR 300 million could be explained because of your more conservative forward curve assumption. But how do you see 2025? How do you see rates?

So is that your assumption that rates kind of stabilize at that level that you've suggested or that the headwind is smaller than what the market is factoring in today? Do you have in mind putting in place structural hedges, that's something that you have hinted? Or I don't know if you can help us with the amount of deposits that priced 1 for 1 with the moves in Euribor?

[Gonzalo Gortázar Rotaeche, executive]

Thank you, Marta. And first question, I'm not going to be able to comment, as the policy does not want to comment on conversations we may or may not have with our shareholders. On that front, we have obviously very large bank, a liquid share and shareholders can decide what they want to do at any given time. To be honest, our job is to continue to try to and manage the bank for the better and create shareholder value, make it obviously more and more attractive for anyone who is a shareholder, whether they want to stay or they want to sell better and a higher share price will be surely facilitated.

Javier?

[Javier Pano Riera, executive]

Well, on 2025, it's further down the road, but I will try to give you some insights. I think that precisely this sensitivity, remember that the sensitivity we are providing you, and you have in this Page 47, is what we call the 12, 24-month sensitivity. So it's a sensitivity of 1 year, 1 year forward, okay? And actually, this is already 2025, okay? So this is kept pretty much unchanged, circa 5%. And here, my comment would be, if I see the updated consensus for 2025 that we had after our results presentation last quarter, but already updated with our results presentation, and before the strong fall in the yield curve we have had basically during the second half of November and December.

You know that the euro curve has -- implicit rates for 2025 have come down by circa 85, 90 basis points as we speak. So what I see is that, that consensus has been updated according to that sensitivity. So that delta -- I mean, the delta that the consensus for 2025 -- updated consensus, I mean, because consensus you have plenty of inputs that are not updated. But when you consider updated consensus, I see that it has moved in line with that sensitivity, which is our -- in line with our internal -- that delta is in line with our internal estimates.

So what -- I think that we have been clear on the sensitivity. We see that the market is adapting to that accordingly. In terms of further hedging to a previous question, I have already given some ideas. Yes, we can do more, probably we'll do. Time will tell. It's a little bit market-dependent. But I insist probably not hedging fully because if you are wrong, you are really in a very bad position because you don't have any further positive replacing on the asset side and your liabilities start costing more and more and you face negative NII in a very bad moment. So we'll see. It's something we can do, and time will tell.

And in terms of the managing of our -- cost of our deposits, I think that we are going to be able to do so, as a starting point, our liquidity position. So we are not, let's say, with a constraint of having to retain deposits at any price because, otherwise, we will have a problem. So I think that this is a key advantage in this environment.

And second, I think that we do pretty well in several businesses, but the deposit gathering probably is one of them. I think that in that sense our ability and commercial ability to manage this situation is going to be a really good one as has been the case on the way upwards. So, Marta, I hope this helps, and obviously, 2025, there is plenty ahead, and plenty of things will happen for sure.

[Operator]

The next question is from Hugo Cruz with KBW.

[Hugo Moniz Marques Da Cruz, analyst]

I just -- a lot of great answers already. I think there's clear upside to your NII estimate. Do tell me if you disagree? But I just wanted to ask on the timing of the buybacks and the site because if I consider the EUR 12 billion capital return target, I understand that implies around EUR 2 billion of buybacks that will have to come by the middle of 2025. So, now, how should we think about -- let me know if you disagree, but if my numbers are right, how should I think about the timing of that? Should it be 1 in 1 or more than 2 buybacks because you want to have smaller numbers each time and more regular? How do you think about that?

[Gonzalo Gortázar Rotaeche, executive]

On the timing of buybacks and capital distribution, as I would refer to our previous comments on trying to do them more often of lower amounts, and obviously, you're right, there will be some lag between the year end of 2024 and further capital distribution because it has to be that way. We need to create the capital before it is distributed.

But obviously, as we are creating capital quarter-over-quarter, we'll keep updating you on this. I think, obviously, the next piece of news would be once we get regulatory approval on the current one and then I think by June second half, we will be updating you on plans on this matter of capital.

[Marta Noguer, executive]

I think we have time for 1 last question. Operator, please.

[Operator]

The next question is from Fernando Gil de Santivañes with Bestinver.

[Fernando Gil de Santivañes d´Ornellas, analyst]

Just a question on the MIR -- MRR requirement. What is included in your assumptions for the MIR -- MRR, sorry, for this 2024 and 2025? Are your expectations that these might be going up from this 1%?

[Javier Pano Riera, executive]

We are assuming what we have now. So this -- the 1%, our expectation. We have been commenting this, it was really a question that was in the market after the summer. I think that since then situation is much quieter. My expectation is that there will be no changes. But obviously, I know that ECB is proceeding with a framework review that we'll update before the summer. So let's see what comes from there. But -- and our guidance is as it is.

[Marta Noguer, executive]

Okay. So I think that's all for today. Thank you very much for joining us, and have a wonderful weekend.

[Gonzalo Gortázar Rotaeche, executive]

Thank you, everybody.

[Javier Pano Riera, executive]

Thank you.