Banco de Sabadell SA

MAD:SAB

Earnings Call Transcript 2018-Q1

[Cecilia Romero Reyes]

Good morning, everyone, and welcome once again to Sabadell results webcast. My name is Cecilia Romero. I'm Head of Investor Relations, and today we will be presenting our first quarter results.As usual, we are here today with our management team; our [indiscernible] Mr. Jaime Guardiola; and our CFO Mr. Tomas Varela. Good morning Mr. Guardiola. The floor is yours.

[Jaime Guardiola Romojaro, MD, CEO & Executive Director]

Well, good morning everybody and thank you for joining our results webcast. Our -- okay, our presentation today will follow a similar structure to other quarters. I will begin by going through the key highlights of the -- our financial results and providing details of our profitably and commercial activity, as well as our commercial transformation progress. Tomas will then discuss our asset quality and service yield results and TSB platform migration. You will then able to ask us any questions you may have.Before I begin with our results highlights, please let me remind that you may do that -- unless I say otherwise I will refer to comparisons on a like-for-like basis which means in cost and FX and excluding the contribution of Sabadell United Bank, Mediterráneo Vida and TSB mortgage enhancement portfolio.Now let me start with the highlights for the quarter. Our core banking business performance, which are first to net interest income plus fees and commission revenues continue to showcase our good commercial momentum across all regions, growing 3.8% for both the group and ex-TSB in a yearly basis.Performing loans grew by 3.6% year-on-year excluding the impact of the APS run-off and 2.1% ex-TSB driven by a robust performance in the SME segment and strong new mortgage lending. Customer funds increased by 4.9% year-on-year, 5.4% ex-TSB as a result of strong growth in sight accounts and mutual funds of 10% and 17.4% respectively.Regarding asset quality, our progress continued with the net NPA ratio falling to 3.1% and our NPA coverage increasing to 55.2% in the quarter. Our cost of risk fell to 64 basis points, on track with our yearend target, while real estate assets on average continued to be sold at a premium. And our capital position remains solid and comfortably in excess of requirements with a fully loaded CET-1 ratio of 12%.Also Standard & Poor's raised our long-term credit rating to BBB from BBB- with a stable outlook which validates the overall improvement in the operating environment for Spanish banks together with the positive evolution of our business performance. Moreover Moody's also raised Sabadell's mortgage and public covered bonds credit rating to AA1 from AA2.And finally I would like to highlight that last weekend TSB moved its 5 million customers and their 1.3 billion records to its new banking platform. The migration has been a success in terms of ensuring operational continuity and data integrity. However, there has been service problems in some of the TSB digital channels which unfortunately have affected the number of customers and have had an ample media coverage. TSB has been working hard on solving these issues during the week and we are confident that the service levels of TSB digital channels will be completely normalized very soon.Now we'll start reviewing our quarterly profitability and efficiency highlights. The key drivers of our profitability in the quarter included the positive evolution of performing loans which grow 0.4% quarter-on-quarter at the group level and 1% ex-TSB. In Spain, performing loans grew by 0.8% quarter-on-quarter. Year-on-year volumes were up 3.6% and 2.1% for the group and ex-TSB respectively as we continued to outperform the market in the SME segment while generating double-digit growth in the new mortgage lending.Net interest income performed remarkably well year-on-year with growth rates of 2.8% and 1.9% for the group and ex-TSB. Quarter-on-quarter NII decreased slightly by 1.5% and 1.3% for the group and ex-TSB due to a lower number of calendar days in the quarter, further Euribor re-pricing and an increase in wholesale funding costs.Customer spread remain robust at 2.8% driven by our ability to defend pricing. Also net interest margins remain stable quarter-on-quarter despite liquidity inflows. Fees and commissions grew by 8.2% and 6.7% year-on-year ex-TSB and for the group respectively supported by a strong performance in service and asset management fees. In the quarter they were down by 1.4% and 1.2% for the group and ex-TSB respectively, mostly due to seasonality in the asset management segment and also due to a lower number of calendar days in the first quarter as well as the Easter holidays.In addition, it's also worth noting that most of the trading income expected for the year approximately EUR 226 million materialized during the quarter. This income was partially offset by EUR 69 million of nonrecurring expenses for the design of the new TSB IT platform which had been included in the first quarter ahead migration.It's important to note that most of these nonrecurring expenses were already included in our cost yearend guidance and that we continue to be on track to achieve our net profit targets for the year. Excluding nonrecurring items, staff and administrative expenses increased by 1.5% quarter-on-quarter due to increasing cost in our Mexican business as we continued to grow in the region and also due to seasonality in the staff expenses ex-TSB. And lastly cost of risk was reduced to 64 basis points in the quarter showing good progress towards achieving our year-end target of 60 basis points.Overall looking at the latest income statement, net profit for the group increased by 32.8% in the year, 58% -- 58.4% ex-TSB and the provisions income excluding trading income and non-recurring cost grew by 6.2% year-on-year and 5.7% ex-TSB.We will now look at our P&L in more detail as its usual. We will provide you with an individual breakdown of Sabadell ex-TSB and TSB results so that you can follow both sets of results separately.Thirdly, net interest income ex-TSB fell slightly quarter-on-quarter by 1.3% mainly impacted by further negative interest rates re-pricing, as well as a lower number of calendar days in the quarter. In addition TSB contribution to NII decreased as we slowed the pace of growth as anticipated in preparation for the migration event and also due to greater comparative pressure in the U.K. market. Overall group NII decreased by 1.5% in the quarter and was up 2.8% in the year.Group and ex-TSB customer spread remained robust and is stable at 2.8% despite an increasingly challenging interest rate environment and this was possible thanks to our ability to defend pricing.TSB spreads, TSB spreads were slightly down by 1 basis point mainly due to an increasingly competitive environment in the U.K. mortgage market. Group net interest margin fell slightly by 1 basis point due to the increase in our liquidity position resulting from higher cash balances and an increase of approximately GBP 850 million in the TFS funding of TSB over the quarter.NIM decreased by 5 basis points at TSB, whilst it remained stable ex-TSB. In addition it's also worth mentioning that we have now achieved the TL tier 2 -- [ tier 02 ] net lending requirement. That means that we have ensured that we now have the lowest possible funding cost of negative 40 basis points.Overall, as mentioned before, our customer profitability remains strong. Customer yield increased by 4 basis points thanks to a positive volume mix evolution and with a stronger growth in the higher-yielding geographies and customer segments. This positive performance of our customer yield was possible in spite of the negative effect of Euribor re-pricing downwards by 9 basis points over the previous 12 months.On the cost side, the cost of customer funds increased by 4 basis points quarter-on-quarter due to the increased cost of falling currency deposits. Furthermore, it's also worth mentioning that our wholesale funding cost recovered to its normalized level in the quarter. Remember that the last quarter included a positive extraordinary result of EUR 8 million from the early redemption of securitization transactions.Well, now moving to fees and commissions recorded -- which recorded a strong performance growing by 6.7% year-on-year and by 8.2% for the group and ex-TSB respectively. In the quarter commissions were down by 1.4% and 1.2% for the group and ex-TSB. The decline was driven by the impact of seasonality in asset management fees. For TSB, the quarter-on-quarter decrease was mainly due to lower overdraft access fees that was driven by regulatory changes. Overall, fees and commissions in the quarter have been in line with our budget and are in the path to progressively achieve our objective of double-digit growth for the year.Regarding expenses, as I mentioned earlier, this quarter our operating cost line was been impacted by EUR 69 million of non-recurring expenses corresponding to the migration to the new IT platform for TSB. From the second quarter onwards we should see synergies began to materialize as cost saving.Excluding nonrecurring items, staff and administrative expenses increased by 1.5% and 1.9% quarter-on-quarter for the group and ex-TSB respectively. And this was due to increasing cost in our Mexican -- as I said earlier, in our Mexican business as we continued to grow our business in the region and also due to seasonality in the staff expenses ex-TSB. TSB recurring costs were relatively stable quarter-on-quarter.We will now move on to commercial activity and transformation. Performing loans, ex-APS run-off grew 3.6% year-on-year to 2.1% ex-TSB and 0.4% quarter-on-quarter, 1% ex-TSB, driven by a positive performance on the SME segment and strong new mortgage lending.Group customer funds increased by 1% in the quarter, 1.1% ex-TSB. On balance sheet, customer funds grew by 0.5% due to an increase of 3.4% in sight accounts. And off-balance sheet funds increased by 2.3% quarter-on-quarter mainly driven by a high net inflow of mutual and insurance funds, which grew by 2.8% and 3.5% respectively.Our strong commercial performance was coupled with the highest quality of service and customer experience standards. In Spain, we continued to increase our market shares and run top in service quality. In the U.K., expected TSB grew at a slower pace as the main focus was on migration. And in Mexico we continued to grow our lending and customers fund exponentially.On this slide, you can see in more detail the evolution of customer loans and funds that I just highlighted. It's also worth noting that this quarter we have received the annual APS cash payment from the deposit guarantee fund for EUR 1.4 billion, and in aggregate we have already received 3 payments for a total value of EUR 3.2 billion.Looking at performing loans by region including the impact of FX, in this slide you can see that there was a positive performance across geographies. In the quarters paying grew by 0.8%, 1.4% in the year; TSB by 0.5%, 4.9% in the year; and Mexico grew by 13.5% quarter-on-quarter and 37.5% year-on-year. Overall, excluding the impact of the APS NPL portfolio which is as you know in run-off, group performing loans show a robust performance with 0.9% growth in the quarter and 3% in the year.Performing loans ex-TSB including the impact of the FX and ex-APS run-off grew by 1% quarter-on-quarter, driven by the good performance of the SME segment across all products which was 1.4% in the quarter. Also the negative net mortgage lending gap closed even further this quarter. This was offset by a weaker performance of corporate segment.Regarding pricing, lower front book in mortgages and consumer loans and the effects of negative rates and customer yield were offset by a positive evolution in the lending mix and the spread increases in the SME segment. The decrease in front book spreads for mortgages was due to increased competition, while lower consumer lending spreads were a result of higher amount of consumers loans given to expansion account holders. It's also important to know that front book yields continued to stand above back books levels across most products which will continue to support the evolution of our top line profitability.Looking at commercial activity in Spain, our performance has been very positive. I would like to highlight our double-digit growth in new lending, both in companies and individuals. We also -- we also been able -- we have also been able to generate double-digit growth rates in other relevant commercial areas such as card turnover and new insurance contracts. The positive performance is reflected once again in our market shares growth across products for both companies and individuals.In the companies segment, I would like to highlight the year-on-year increase in the market share of export documentary grade and point of sale turnover and in the individual segment, year-on-year life insurance contracts and mutual funds market share perform very well.Regarding customer experience and service quality, once again we hold the top position in the Accenture Net Promoter Score ranking for both large enterprises and SMEs. And in retail banking we were ranked second, improving from the previous quarter when we were ranked fourth. We also [indiscernible] to surpass the industry average in terms of quality of service, widening the gap between ourselves and the sector. And in fact we -- when looking at the service quality score in the quarter, Sabadell reached 8.19 which is the best score among our peers and the highest score achieved today by Banco Sabadell.In the U.K., as I mentioned earlier, it's important to note that TSB intentionally slowed down its volumes in the quarter to fully focus on the migration of its new IT platform. As a consequence, net customer lending in pounds decreased by 0.2% in the quarter. Yearly-on-yearly positive balance sheet strength continued with net customer lending in pounds up 5.8% driven by franchise mortgage lending which grow 7.9% in the year.On the liability side, customer deposits grew 0.2% quarter-on-quarter and 3% year-on-year driven primarily by strong current account performance as the bank continued to acquire more than 6% of the total current account flow in the U.K.Moving on to Mexico, our customer loans grew by 60% and customer funds grew exponentially as a result of our focus on deposits growth. We also continued to open new business centers in the main cities of the country with 3 new openings in the first quarter. Furthermore, the new 100% digital affluent banking has started to operate in Mexico following our growth plans for this region.We will now move to commercial and digital transformation. We will first look at the key performance indicators. Sabadell has increased the number of its digital and mobile customers by 11% and 19% respectively year-on-year. Digital sales remain at high levels. And I would like to highlight the increase in sales through digital channels of unsecured loans in Spain which increased by 57% year-on-year.Luckily the number of individuals and the remote management in Spain grew to 771,000 customers. And to end this section of the presentation, let me explain briefly some of the new initiatives during the quarter related to our progress in commercial transformation. Continuing with the development of our distribution model, we have launched a new branch format in order to gain efficiency and provide self-serving to our customers, especially in cash management operations.In terms of the digital offering, we have reached an agreement with Apple Pay to be able to provide to our customers in Spain this mobile payment solution which we already offered to our customers in the U.K. We also have implemented several digital capabilities that have improved our user experience in digital payments, pension plans' management and direct assistance for companies with an online chat service.And finally, we have continued our strategic investments through InnoCells, our digital hub which has led an investment round on Biometric Vox, a Spanish startup that offers authentication solutions and advanced electronic signature through voice biometrics.And now I will hand over to Tomas who will discuss solvency and asset quality and TSB platform migration.

[Tomás Varela Muiña, General Manager & CFO]

Thank you, Jaime. Let's turn now to solvency and asset quality. The highlights of the quarter are that we've continued progressing in asset quality. The Group NPL ratio fell to 5.14%, NPA decreased by EUR 251 million ex-TSB and the net NPA to the total assets ratio fell to 3.1% at group level. The coverage also continued to increase slightly to 55.2% in the quarter and cost of risk has been reduced to 64 basis points which shows good progress towards achieving our year-end target of 60 basis points.Foreclosed assets continue to be sold at a premium on average and our capital position remains strong with a fully loaded CET-1 ratio of 12%. In the quarter, Standard & Poor's raised our long-term credit rating to BBB and stable outlook, while Moody's raised our rating for covered bonds.Capital, as I said, we continue to have a very solid capital position. The phase-in CET-1 stands at 12.9%. The drivers in the quarter for the variance in the change in the ratio are related to the already anticipated impact of IFRS 9 which was 78 basis points on the fully loaded and also higher RWAs coming from the evolution of the quarter and an increase in deductions due to lower transitional adjustments given that a calendar year has elapsed.The fully loaded, as I said, stood at 12% and it's -- we need to take into account that for the phase-in, everything is phased in including all the other concepts as well as the phase-in of the IFRS 9. For the fully loaded, everything is taken out -- there is no phase-in in the fully loaded. So all the previous things are included and also IFRS 9 is not phased in here, but fully loaded.Here we can see the evolution of the ratio -- the NPL ratio and the coverage. Newly present, the evolution in comparison with the pro forma figures at the end of 2017. So we can see that both the NPL ratio and the coverage have improved, the coverage slightly, and the ratio has fell from 5.32%, pro forma with IFRS 9 at the end of 2017 to 5.14% at group level, whilst the coverage has kept flattish with slight increase of 10 basis points.In terms of evolution and decrease of the NPA portfolio, it's been EUR 251 million in the quarter. This is less that what we've seen in a number of quarters in a row up until now, but it doesn't mean that we change our outlook guidance for the year. So we -- it remains at above EUR 2 billion in the year. The reason for this is probably we are considering a number of options in terms of the management of the reduction of their portfolio and this may have implied [indiscernible] in the quarter this slower pace, but doesn't change anything for the whole year.We've continued to sell at approximately the same pace per quarter that we sold foreclosed assets. This quarter it's been EUR 283 million, slightly below the average of some EUR 300 million per quarter and still as we've done over the last quarters, we've been selling at a premium that in this case is been about 5%.Here we see the evolution of the coverage ratios as well as the evolution of the net problematic assets that at the end of the quarter stood, as we can see in the lower right-hand side, at EUR 6.9 billion which represents a 3.1% ratio. And again the composition of the -- our NPL portfolio keeps improving, again the percentage of past due NPLs has been reduced as well as having reduced the stock itself and at the same time we still can see that the composition by collateral keeps being biased towards finish product -- residential product, commercial real estate and only smaller percentage of land.And at the same time, in the lower part of the slide we see how the rotation of land keeps behaving like in the last quarters where the proportion of sales is much higher than the proportion of inflows of new entries in the portfolio. And as a consequence the percentage of land in the resulting stock keeps decreasing.In terms of TSB risk profile, as already known, TSB holds a low-risk profile. The secured lending represents more than 92% of total net lending and the portfolio is of very good asset quality and low risk. Some of the ratios that characterize the profile are buy to let represents only 15% of the portfolio; mortgage lending in average represents an LTV of -- in the stock, an LTV of 44% interest only concentration in the portfolio is still at 28%.And at the same time the capital position of TSB is one of the strongest in the U.K. banks with a CET-1 ratio of 19.9% and a leverage ratio of 4.4% and in terms of diversification of funding sources, PCAs represents 34% of funding.And now to finalize the numbers of the migration project, the migration project has entailed development of a new IT platform, Proteo4UK, the installation and deployment from scratch of the entire IT infrastructure. This -- the investment in this has amounted to the equivalent of GBP 253 million in intangible assets. And the cost of the migration itself has totaled GBP 546 million of which GBP 450 million have been absorbed by the dowry of LBG that was agreed from inception for TSB.And therefore the remaining GBP 96 million is been accounted for, is been borne in the TSB and group's P&L. And across the last 2 years and finally the amount that we've reported that if accounted for in the first quarter of 2018. So GBP 96 million of cost incurred in the P&L of the group of which one part was in quarter already in 2016, another part in 2017, and the final amount of EUR 69 million in 2018 in the first quarter.And that's all. Now I hand over to Cecilia. Thank you.

[Cecilia Romero Reyes]

Thank you very much, Tomas. Now we're going to open the floor for rounds of questions. And the first question goes to Mr. Guardiola. Mr. Guardiola, please could you comment on the evolution of NPAs this quarter? Also please, could you comment on the news regarding the potential sale of large books of NPAs and would you be ready to do this at a loss?

[Jaime Guardiola Romojaro, MD, CEO & Executive Director]

Well, as we announced in our plan 2 months ago that our target was to sell a minimum sale of 2,000 NPAs per year, the 3 years of the plan. But at the same time, we told that the fact that we have a high coverage ratio, we have flexibility to do operations of a greater scale, we are now analyzing the market's appetite. We are also watching which are the circumstances and we would consider selling a big portfolio, but obviously in the case that it was neutral for capital, so it's not included in our plan, but as we said we are open to do this kind of relation because we have the -- due to the higher ratio of coverage, we have flexibility to do.

[Cecilia Romero Reyes]

And the next question goes to Mr. Varela. After the large IFRS 9 adjustment, do you now consider the NPA coverage adequate? What is your expected cost of risk going forward?

[Tomás Varela Muiña, General Manager & CFO]

Yes, this is behaving as we expected. We are comfortable with the coverage. Actually the cost of risk in the quarter has been 64 basis points, and we see this in line to achieve the guidance of 60 basis points in the whole year.

[Cecilia Romero Reyes]

Sabadell's capital stands strong at 12%, would you be ready to make [indiscernible] distributions of capital at a level above this ratio of 12%?

[Jaime Guardiola Romojaro, MD, CEO & Executive Director]

As we announced in our Investors Day, our plan is to continue with payout ratio of 50%.

[Cecilia Romero Reyes]

And the next question goes to Tomas. Do you confirm the EUR 850 million profit target for 2018?

[Tomás Varela Muiña, General Manager & CFO]

Nothing has happened that makes us change the guidance that was already given, no. Yes.

[Cecilia Romero Reyes]

And the next question goes to Mr. Guardiola, and it's regarding the TSB migration. Have you resolved the TSB IT migration issues? And how much longer do you think we will have until a 100% -- until it is a 100% result?

[Jaime Guardiola Romojaro, MD, CEO & Executive Director]

As I said -- we said in the presentation last week, we did the migration of TSB to the new platform Proteo4UK and it was a very significant and complex program. We moved, as I said, 5 million customers and 1.3 billion records. The -- in terms of operational integrity, in terms of data integrity, in terms of operational continuity, in terms of all the issues related to security, the program has run very well. But as I said, when we open on Monday the service of the access to our online channels, web and mobile appeared some problems to access. During Monday, all the day was very difficult for the customers that were -- that tried to access to our channels. It obliged us to close the access on Tuesday in order to analyze why that was happening and to fix the problem. To fix the problem takes -- took more time than expected and we were not able to reopen the access until Wednesday, yesterday. Yesterday was a day where the improvement was very clear, but because of the excess of traffic, that is logical because we had the access closed during the weekend because of the migration and we have been -- we had to talk to our customers that is what is going to happen. But Monday with problems, Tuesday closed, it generates very excess of traffic and this excess of traffic obliged us to regulate this traffic. And so yesterday was a day of great improvement, but not enough. We expect today that things improve more. And we are [ optimistical ] in terms of recover the normality in the next days. It's a question of a lot of customers that were -- that this flow of customers that is either no, but 8x more to the normal flow of a normal day will reduce. At the same time the [ Dish ] customers were able to close the transaction that they were doing. So I think that we are clearly in the process of stabilized and improving. And I -- obviously we are very sorry about the affectation to customers. Customers is the most important thing that the bank has. And so -- and I'm optimistic I think that in the -- during this week, today and tomorrow there will be good news in terms of improvement and expect next week we can -- we'll reach something very clear through -- very close to normality.

[Cecilia Romero Reyes]

And the next question goes to Tomas. Please could you comment on the revenue evolution of TSB now that the integration is over? And can we still expect a further slowdown given the problems that TSB IT is suffering?

[Tomás Varela Muiña, General Manager & CFO]

Well, the plan for TSB in terms of business, so far we don't have reasons to assume that have changed. It of course still depend on the market margins evolution and also the interest rates. What it's been announced is that if customers have suffered impacts, there will be -- so fees and commissions of specific things for them in April will be waived. And also probably there can be some impact on the remuneration of PCAs and this could have some impact. But nothing that makes us now change the outlook for the contribution of TSB significantly.

[Cecilia Romero Reyes]

Jaime, could you please elaborate on the implications from the IT issues in TSB in terms of potential additional costs, regulatory expenses and reputational risk?

[Jaime Guardiola Romojaro, MD, CEO & Executive Director]

Well, our first priority now is to put things right for our customers and reestablish the normality of the service levels. The service levels that the customers of TSB deserve and that TSB in fact has delivered in the last 4 years. So that is our first and absolute priority. We will ensure also that no customer is left out of pocket and we are asking customers to file a complaint that are starting to process. I think that our CEO in TSB Paul Pester has been very clear in saying that. And at the same time we are keeping the regulators and stakeholders thoroughly updated of the developments and the path to the -- recover the full normality of our services. I remarked that we are speaking about the online services, the web and the mobile, because the majority of our customers and transactions have -- has run normal. Our customers have had access to our services of cards, [indiscernible], standing orders, the ATMs and all these elements of our activity are operated normally. So at this moment, the only priority of Banco -- of the group and then TSB is to recover the normality. I insist the large scale of this transaction that was really a movement from a platform share with another bank to absolutely new platform is operation of a great scale and the main elements of the -- of this -- of the new -- of the platform and the migration has run well. But obviously there has been an [ affection ] to customers through the online services and our first priority is to fix the situation and to recover normality.

[Cecilia Romero Reyes]

And the next question goes to Mr. Varela. Regarding TLTRO II, will this mean that from Q2 onwards you will acquire the 40 basis point bonus? What's your TLTRO II exposure?

[Tomás Varela Muiña, General Manager & CFO]

We achieved the -- a net lending -- the TLTRO to net lending requirement ensuring that we will accrue the negative cost for the basis points for the remaining period as we did in the past. So the total exposure today is EUR 20.5 billion.

[Cecilia Romero Reyes]

And the next one is also for you Tomas. What are the insurance plans? Can you remind us how would you manage the TLTRO II and TFS maturities in 2021 and 2022 and can you discuss your enroll requirements?

[Tomás Varela Muiña, General Manager & CFO]

Yes, we currently have finances liquidity position and we don't have significant upcoming maturities for 2018. And on the other hand we haven't received yet any official communication regarding MREL in terms of the final amount or the eligible securities. In any case we expect the final requirements wouldn't be -- won't be different or maybe could be even better than what we have embedded in our plan. And we don't have, as I said, neither clarity on the eligible instruments; we don't have plans in the immediate future for MREL issuance. Regarding TLTRO II and TFS, the funding plan related to the profile of the maturities of those is already embedded in the plan that we provided and therefore it's -- there is no change about this. So if any change, it would be more related to the fact that in MREL things are still moving and therefore this could mean that until we don't have all the clarity, we probably won't issue, since we are not today in a hurry for this. Other funds of -- other sources of funding are of course the positive funding gap of -- over this period the APS payments that we received, NPA reduction and at some point in the period of the plan -- of the business plan of course we will issue MREL, but only when we have clarity about the effectiveness of anything that we could do.

[Cecilia Romero Reyes]

The next questions are also for you. Regarding your ALCO portfolio, have you marked-to-market portfolios that were [indiscernible] to maturity this quarter?

[Tomás Varela Muiña, General Manager & CFO]

Yes, we've reclassified this quarter EUR 2.1 billion from the held to maturity to the -- by our for sale portfolio.

[Cecilia Romero Reyes]

And regarding IFRS 9 provisions, you did more than announce, is this due to a worse performance of the portfolio than expected?

[Tomás Varela Muiña, General Manager & CFO]

We included EUR 100 million more provisions in the final IFRS 9 number. As a result of the review on the models we added some loan with more conservative assumptions for segments that have a longer residual life and we will keep this add-on until we have a longer experience impact testing of the models. For the moment these will get, but will be balanced throughout the back testing -- as I said, the back testing exercise of the models in the future.

[Cecilia Romero Reyes]

And the next question goes to Mr. Guardiola. Some of the other Spanish banks are talking about competitive pressure on lending margins in some of the segments. Are you also seeing this?

[Jaime Guardiola Romojaro, MD, CEO & Executive Director]

Yes, I think that in this moment of better performance in terms of volumes, there could be more competence in terms of pricing. But I think the additional -- very much different what has happened in the last year, so I think that we are very well prepared to compete. I think that we have managed the pricing very well, so I think that the mix of volumes and pricing is going to be very positive in the next time.

[Cecilia Romero Reyes]

Mr. Guardiola, the next one is also for you. Fee income progression in 2018, when do you think it will be visible, the improvement in banking fees?

[Jaime Guardiola Romojaro, MD, CEO & Executive Director]

Well, I think that we are doing very well in terms of fees. We are -- we presented in our plan average growth for the -- of 6.5% for the 3 years of the plan, but we are especially committed to have a very good performance this year. It's basically due to the good performance of volumes, but also the -- we have improved pricings in terms we had some roof to improve pricing compared with our peers and we are doing so. As I said, we have done a very good performance in the first quarter, but obviously we are committed to progressively reach our target of double-digit for the year in terms of fees and commissions.

[Cecilia Romero Reyes]

And regarding the mobile app of TSB, it seems that has been one of the main problems on the events unfolded. When do you expect the service to perform well?

[Jaime Guardiola Romojaro, MD, CEO & Executive Director]

Well, as I said before, we are optimistic in terms of the improvement of the service these days. Yesterday was a clear day of improvement. We are -- the first signs that we have of today is that things are running clearly better than yesterday. So I think that today is a good day for reduce the gap of service that we had and that's what we are very optimistic of doing the rest of the week and so to reach normality if it's possible next week.

[Cecilia Romero Reyes]

So it appears as there are no more questions and this bring our webcast to an end. At the Investor Relation department, we would like to remind you that we are still available to respond to any questions that you may have. Have a great day.