Unicaja Banco SA

MAD:UNI

Earnings Call Transcript 2020-Q4

[Jaime Hernández Marcos, Head of Investor Relations]

Hello. Good morning, and welcome to Unicaja Banco Annual Final Year 2020 Results. As always, let me start confirming that we have published the quarterly financial report and this presentation in the CNMV website this morning. Pablo González, our Chief Financial Officer, will explain the quarterly results. And afterwards, as always, we will answer your questions. This quarter, we have splitted the presentation in 4 different sections. The first one includes an update and a quick overview of the merger with Liberbank that, as you all know, it was announced in December. The second section includes the main highlights of the quarter, followed by a third section with the results in detail. And finally, an update of solvency, liquidity and the asset quality trends of the quarter.So Pablo, whenever you want.

[Pablo González Martín, CFO & Director General of Finance]

Thank you, Jaime. Good morning to everyone. Before reviewing the quarterly results, as Jaime said, let me review and update the merger process with Liberbank.On Slide 4, you have the main transaction terms and the calendar. I won't go through all of them, but let me only highlight that the process is progressing as expected. And as you can see in the calendar in the bottom, in January, the independent expert was appointed by the registry. So we keep on advancing.In Slide 5, you have the details of the adjustments that we have announced. As a reminder, the restructuring charges will enable us to crystallize EUR 159 million cost synergies that, together with the Unicaja Banco stand-alone pending savings, represents almost EUR 200 million of total future savings, representing a bit more than half of Liberbank's total cost base and around 20% of the combined entity.Also, following the provisions booked in the quarter, the NPL coverage, after the mentioned adjustments, will reach 74%, which is the second percent -- which is 2 percentage points above the previous guidance. Total NPA coverage will also grow to 69%, also slightly above the level guided in the merger presentation. All in all, these charges will enable the bank to deploy partially the current excess of capital to improve recurrent profitability.Moving to Slide 6. As it happened with the coverage levels, the quarterly increase of the solvency of both banks has also improved the solvency levels above the reference published in the merger presentation. The combined CET1 fully loaded has reached 14.7% in December. However, the larger equity of the combined entity also increases the thresholds applied for the deductions, adding to the solvency other 40 basis points from the buffer's adjustments. In other words, there are capital synergies explained by the larger capital of the combined entity, which increases the thresholds applied to deductions and levels to CET1 of the combined entity at 15.1% at the end of the year, well above the 14.7% of September that was considered in the merger presentation. So really good news with higher than initially considered solvency.Now moving to Slide 7, we remind the synergies calendar. We expect a fast crystallization of synergies explained by some specific circumstances, as we explained at the top right. Almost half of the savings are already identified, mainly from Unicaja Banco stand-alone measures, Liberbank EPCs and the lower amortization of intangibles that will follow the impairments. On top of these measures, the experience in previous integration, together with application of the best practices of each banks, will help to meet the targets on time.And finally, in Slide 8, we show the mentioned adjustments will significantly increase the returns that consensus is expecting for both banks in 2023 from levels of around 3% to around 6%. It is worth noting that such improvement is coming mainly from cost-cutting measures with low execution risk. It is also important to realize that we are not considering any potential revenue synergies despite the opportunities arising from the merger and the limited commercial overlap. In addition, the relative high coverage of NPAs and the conservative loan mix should also help to improve the future cost of risk.Finally, these profitability levels are considering CET1 level well above the 1 of our peers, and it is not adjusted for that. All in all, the deal will enable to allocate the excess of solvency to increase consensus earnings per share by around 50% to a profitability that is close to 6%, all this while -- are currently trading the banks at around 0.2x tangible book value and 4x 2023 consensus earnings.If we move now to the quarterly results, I will start the second section in Page 10 with the main highlights of the quarter. Regarding the business, customer funds grew 6.5% year-on-year and 2.6% quarter-on-quarter with off-balance sheet funds also growing 2.6% in the quarter. Total performing loans grew 0.8% in the quarter, leaving almost flat for the year. New loan production improved significantly in the fourth quarter with new loans to individuals up 24% in the quarter.From the P&L point of view, as we will see later, trends are quite positive for second quarter in a row. On one hand, NII grew 1.1% quarter-on-quarter, owing, among others, to the lower cost of deposits. Fee income also show a significant improvement, growing 10.7% quarter-on-quarter. Such a positive trend left the core income almost 4% above the previous quarter.Regarding expenses, total costs fell an impressive 5.7% compared with 2019, with savings amounting to EUR 35 million in the year. In terms of impairments, we have anticipated other EUR 34 million of COVID provisions in the quarter, totaling EUR 200 million in the full year. All in all, net income fell 55% in 2020 compared with 2019. However, excluding the mentioned COVID provisions, net income was EUR 218 million, almost 27% above the previous year.On asset quality, liquidity and solvency, I would highlight that both NPLs and foreclosed assets fell in the quarter. NPAs fell by 8% year-on-year and almost 6% quarter-on-quarter, with NPLs decreasing 13% and foreclosed assets almost 3%. It is also worth noting that the NPAs coverage levels continue to grow one more quarter, above 65%, which is more than 7 percentage points above the previous years -- the previous year.From a liquidity point of view, very little to add. LTD was 65%, and our LCR, 310% by year-end. Finally, our solvency continued to improve with CET1 fully loaded growing other 33 basis points to 15%, mainly owing to the lower risk-weighted assets. Regulatory total capital also improved to 18.2%, implying a EUR 1.3 billion buffer over our SREP. So as you can see, in 2020, trends are quite positive. Lending was stable. Core income finished the year with significant improvement compared with the first half of 2020. Total cost fell an impressive 6%. Impairments includes EUR 200 million for COVID provision that explain the best-in-class coverage level. On top of these, NPAs balances continued to decrease through the year and in the quarter. And finally, our solvency position has been reinforced, enabling us to merge with Liberbank in a deal that will crystallize significant synergies that will boost our profitability.I will move now to Slide 12 where you have the P&L details. Starting with the quarterly trends, as I already mentioned, both NII and fees improved in the quarter with fees reaching an all-time record of EUR 63 million, that is almost 11% above the previous quarter. Regarding the rest of revenues, I will highlight the relatively strong trading generated to partially compensate additional COVID impairments. Finally, other operating income and expenses include the DGF charge that explains the seasonality of -- in each fourth quarter. All this led to a gross margin of EUR 195 million in the quarter. Total costs were EUR 143 million, well below the EUR 152 million of the fourth quarter of 2019, leaving provision profit at EUR 52 million, of which EUR 34 million were used to book additional provisions for COVID-19. As a result, the net income was close to breakeven.From an annual point of view, I would highlight that despite the COVID-19, core income was pretty stable, even growing a little bit. Gross margin fell 5%, mainly owing to the lower other operating income as a result of the lower contribution from our real estate servicer that fell from EUR 55 million in 2019 to EUR 50 million in 2020, but still positive. Bear in mind that it was extremely high in 2019 following some portfolio disposals. Total costs showed a very positive trend and finished 2020 falling 5.7%, slightly above our mid-single-digit guidance.Finally, as you can see, in 2020, we decided to book EUR 200 million of COVID-related provision that left pretax profit at EUR 99 million and net income at EUR 78 million. However, excluding these extraordinary impairments, the net income grew from EUR 172 million in 2019 to EUR 218 million in 2020.If we move now to Slide 13, you can see that total customer funds grew 6.5% year-on-year. This trend is explained by a strong growth in deposits that grew almost 9% year-on-year. But also, and for third consecutive quarter, we have seen an improvement in assets under management and of balance sheet funds that recovered through the year -- throughout the year and finally finished at the same level as in 2019.In Slide 14, you have the credit and loans trends with gross loans fell 0.8% year-on-year, with NPLs balances decreasing almost 13%. By segments, loans to individuals fell close to 5%, while corporate loans grew 4.4%. As usually, on the right-hand side, we include performing loans evolution that, as you can see, remained stable in the year following an almost 1% quarter-on-quarter increase in the fourth quarter of 2020. By segment, corporate performing loans grew 5% year-on-year, while consumer loans and mortgages decreased both around 4%.In Slide 15, we show the new loan production by segments. Overall new production improved a lot in the quarter. In individuals new loans, the improvement was around 24% in the quarter. However, total new loan production still finished the year below 2019 with total private sector new loans falling 21% in 2020 compared with the previous year.Now in Slide 16, we start with the P&L review with net interest income. As you can see, in the top left, net interest income improved significantly in the second half of the year. In fourth quarter 2020, the improvement was mainly explained by lower cost of deposits because, as you probably know, we still have some redemptions of costly customer deposits. In the bottom of the slide, you can see that back book customer spread grew by 4 basis points to 156 basis points, following the mentioned lower cost of deposits.In Slide 17, you have the regular details of our debt portfolio, where you can see that overall balances reached EUR 22.3 billion as a consequence of the liquidity position of the bank. However, as you can see in the right-hand side of the slide, most of the exposure remains sovereign debt classified in the amortized cost portfolio.If we move to Slide 18, you have the fee income trends that, under my view, are one of the most positive news of the quarter. Total fees grew almost 11% in the quarter, owing to the improvements in our transactional business. Year-on-year, such fees reflected the impact mainly in the first half of the year from the pandemic. However, this was compensated, among others, by higher nonbanking fees that grew almost 5% in the year. Net-net, total fees grew 1% year-on-year, something that, under my view, is quite positive if we consider all that has happened this year. And more important, it shows that the underlying trend going forward in fees will continue to improve.If we move now to Slide 19, you have the total expenses evolution that, under my view, is one of the other positive news of the quarter and the overall year. Total costs fell almost 6% in 2020 and 7.6% since 2018. Savings were possible following the provisioning efforts made in the past when we announced our stand-alone cost-cutting plan. We also did a review of the plan, including measures taken to accelerate the savings. Part of the savings are explained by the evolution of branches and employees that, as you can see on the right-hand side of the slide, have been decreasing during the last years at a run rate above 7% for branches and close to 5% for employees.In Slide 20, you can see the details of the impairments that we have booked during last year. As I explained before, we booked in fourth quarter '20 another EUR 34 million of provisions for COVID-19 potential future impacts, totaling EUR 200 million in the full year. In the right of the slide, you can see that excluding these impairments, the recurrent cost of risk represented only 14 basis points, increasing to 85 basis points when including all COVID provisions, which is under our upper cost of risk range guidance for this year. However, following the provisioning effort made in 2020, we expect to book much lower provisions in 2021 and onwards.We can now move to Slide 22 where we start the regular asset quality review. In this same slide, we have the details of the -- on the evolution of our NPLs. As you can see, NPL balances continue to fall one more quarter. NPL ratio fell to 4.2%, and balances continued its downward trend and decreasing more than 8% quarter-on-quarter. As we show in the table in the bottom of the slide, quarterly gross entries remain low, something that, together with strong the recoveries and stable write-offs, explain the EUR 109 million or 8% quarterly decrease. In Slide 23, we have updated the ICO loans and moratoria balances. In the left of the slide, you can see that we have granted almost EUR 900 million loans and credit lines guaranteed by the state. However, such amount is the limit, with the balance drawn at the moment representing only EUR 578 million at the end of December, which represents 7.5% of corporate loans and only 2% of total performing loans. In the right-hand side of the slide, we show the moratoria details. As you can see, 99% of the outstanding moratoria are mortgages representing EUR 567 million after falling by 1/3 and representing only 2% of the total performing loans. In Slide 24, we have updated our regular credit risk exposures and NPL coverage details. Overall, NPL coverage continues to grow one more quarter. At the end of 2020, NPL coverage reached 67.4%, which is 13.5 percentage points above the previous year, an extremely high coverage when considering our loan mix and that 85% of the nonperforming loan balances are secured by secured nonperforming loans. In Slide 25, you have the regular details on the foreclosed assets. Coverage remained one of the highest of the sector at 63%, while gross balances fell 2% quarter-on-quarter or EUR 26 million, leaving total gross balances at EUR 1.1 billion, although in net terms, they only represent EUR 400 million or 0.6% of total assets. Finally, let me highlight, as you can see in the right-hand side of the slide, that we continue to sell assets at very good prices at around 33% above book value on average last year. In Slide 26, you can see how overall NPAs have decreased to a gross balance of EUR 2.3 billion and the net balance of EUR 790 million, representing only 1.2% of total assets with a coverage of above 65%, which is one of the highest of the sector. In Slide 27, we have the details of our liquidity position that, as you can imagine, continue to be extremely comfortable one more quarter. Following the increase that we have in deposits, our LTD ratio fell further to 65% with the LCR around 310% and the NSFR at 142%, which are among the highest of the sector. Finally, we update our solvency in Slide 28. Our regulatory CET1 reached 16.6% in December, 36 basis points above the previous quarter. And our total capital ratio was 18.2%, representing EUR 1.3 billion buffer over our SREP requirement. In fully loaded terms, the ratio improved 33 basis points in the quarter, reaching 15%, with the big bulk of the improvement coming from lower risk-weighted assets, among others, explained by the continued decrease in NPAs. Finally, as I usually do, let me also remind you that our solvency ratios are calculated in full under the standard approach, something that we expect to change in the short term. But by the moment, it's still calculated with quite conservative credit risk densities. So that was all from my side. But before we start with the Q&A, let me finish reiterating that in 2020, despite the pandemic and its negative economic impact, we have kept pretty stable our core income. We have reduced by almost 6% the total expenses, something that has helped us to further and significantly reinforce our coverage and our solvency. And at the end of the year, we have announced a very positive agreement with Liberbank, an agreement that was possible owing to the strong financial position of both banks and an agreement that will improve significantly the future profitability of the bank and its shareholders' returns of these with limited execution risk.

[Jaime Hernández Marcos, Head of Investor Relations]

Thank you, Pablo. We move now to the questions that we have received.

[Jaime Hernández Marcos, Head of Investor Relations]

Let's just start with the P&L. Pablo, we've got lots of questions regarding NII trends and net interest income guidance, if we can provide some color, please.

[Pablo González Martín, CFO & Director General of Finance]

Yes. And as you saw, we have met our guidance of leaving NII flat in 2020 compared to 2019, something that, whilst discussed, are not considered by all analysts and investors a possibility at the beginning of the year. And such a positive trend was possible owing to the significant improvement in the second half of the year where NII improved more than 8% compared with the first half. We started the year at a quarterly run rate of EUR 140 million per quarter, while the last 2 quarters, it has improved to EUR 150 million. We have some positives going forward and negatives ahead. On the positive side, we still have high-yield customer deposits maturing ahead. And following the maturity of EUR 200 million in this fourth quarter, we still have around EUR 400 million of high-yield retail deposits at an average cost of around 4% maturing in 2021. So the NII will benefit from these maturities and mainly in the first half of the year. On the negative side, we have lower Euribor and lower contribution from our debt portfolio going forward. All in all, we believe that we can -- Unicaja Banco, in the stand-alone, can keep NII pretty stable in the coming quarters.

[Jaime Hernández Marcos, Head of Investor Relations]

Thank you, Pablo. The next one, on volumes, if we can update our loan growth expectations.

[Pablo González Martín, CFO & Director General of Finance]

Yes. As you saw in the fourth quarter, total performing loans grew EUR 200 million in the quarter, leaving almost flat for the year. So the new production has improved, and we hope to maintain this trend, mainly in this improvement has happened in the second half of the year. So for 2021, in stand-alone basis, at this moment, we believe that total performing loans will remain quite stable.

[Jaime Hernández Marcos, Head of Investor Relations]

Thank you, Pablo. The next one, it's on the debt portfolio, regarding the ALCO portfolio, if we can update the expected contribution from this portfolio going forward and the strategy and maturities that we got ahead.

[Pablo González Martín, CFO & Director General of Finance]

Yes. Regarding the contribution, so going forward, we think the contribution of our debt portfolio will be slightly below current levels, but also will depend on market conditions. And the lower contributions in the coming quarters -- or the headwind is explained mainly by the maturity of around EUR 3 billion of our debt portfolio in 2021. The contribution of the debt portfolio has been higher in the last 2 quarters as the -- in 2020, we have bought in advance some of the bonds that we were expecting to be purchased in 2021. So we expect its contribution to come back to more normalized level throughout the year. Regarding the strategy, there are no significant changes with previous quarters. And the main objective continues to be to invest in the structural liquidity of the bank to obtain a stable income. With this objective in mind, the strategy will be analyzed, the liquidity in the different periods of time and how the liquidity evolves and invest, as we have done in the past, mainly in government bonds. In most cases, we will probably hedge the medium interest rate risk. So we avoid any impact in pricing of this portfolio going forward if rates finally pick up. As I mentioned -- well, let me remind that most or probably all our structural bond portfolio is accounted and will be accounted in amortized cost, which have no impact in P&L, neither equity. And as I mentioned before, in 2021, we have EUR 3 billion maturities that will significantly increase our liquidity. And although it's not something that we have defined yet, as the bank is analyzing different ways to optimize liquidity, part of this redemption will probably be reinvested depending on market conditions. And finally, regarding the -- how is the valuation of the portfolio, let me remind you that in -- at the end of the 2020, the unrealized gains of the amortized cost debt portfolio was around EUR 800 million. And we follow closely the valuation of the portfolio and market conditions to try to secure part of the current unrealized gains unlock some capital gains for 2, 3 years.

[Jaime Hernández Marcos, Head of Investor Relations]

Okay, Pablo. Also related to NII, if we can update our TLTRO strategy and the impacts coming from the TLTRO III and the TLTRO III.2.

[Pablo González Martín, CFO & Director General of Finance]

The new measures announced by the ECB last month allows us to ask for an additional EUR 500 million of the TLTRO facility, on top of the already drawn EUR 5 billion that we requested in June this year -- well, in 2020. The formal decision to ask for this additional 10% of the TLTRO funding hasn't been taken yet, so we cannot advance any impact. But the most likely, the conditions, as you can imagine, are quite favorable, we will probably will draw that 10%.

[Jaime Hernández Marcos, Head of Investor Relations]

Okay, Pablo. Moving through the P&L, if we can update our guidance, what do we expect in terms of fees going forward?

[Pablo González Martín, CFO & Director General of Finance]

As you can see, fees have been affected at the beginning of the year in -- of the 2020 by the lower activity and the lockdowns and the measures that we took to offset the situation of our customers, and this impact was mainly shown in the second quarter figures. But since then, the trends has recovered and improved significantly, supported by higher transactional business and the evolution of the nonbanking products like asset under management and insurance. And that finished 2020 -- the asset under management finished 2020 almost EUR 1 billion above the balance that we have at the end of the first quarter. So last quarter, we guided for flat fees in 2020, and we finally have finished the year growing slightly more than 1% with the highest quarterly income ever for fees in this fourth quarter. And the new strategy regarding fees that was applied at the end of 2020, together with softer lockdowns, makes us feel comfortable with the future fee trends. But obviously, it will depend on the evolution of the pandemic. But under our actual scenario, if we don't go back to hard lockdowns, as the ones that we had in March and through May of the 2020, we believe that fees for Unicaja Banco in the stand-alone can grow at high single digit again in 2021.

[Jaime Hernández Marcos, Head of Investor Relations]

Thank you, Pablo. Can we also please clarify why was other operating income and other operating expenses so weak this quarter?

[Pablo González Martín, CFO & Director General of Finance]

Yes. The other operating income and expenses fell in the quarter, in the fourth quarter 2020 compared to the fourth quarter of 2019, owing to the higher contribution to the deposit guarantee fund and the lower income from our real estate business. The contribution to the deposit guarantee fund, obviously, was higher, among others, to the -- in customer deposit increase, that was almost 9% year-on-year. On top of this, our real estate contribution to this P&L line, mainly through our real estate servicer, was lower due to, as I mentioned, the large portfolio sales that we have last year.

[Jaime Hernández Marcos, Head of Investor Relations]

Moving to cost, to expenses, Pablo, if we can update the -- on cost-cutting trends in the stand-alone and the timing of -- on the stand-alone pending savings plans.

[Pablo González Martín, CFO & Director General of Finance]

Yes. As you all know, cost-cutting has become something key for Unicaja Banco under the lower-for-longer interest rate environment and the threats from COVID-19 pandemic. In 2020, under my view, we did quite a good job with total costs decreasing by almost 6% year-on-year, which was slightly better than our initial guidance. This drop was possible, among others, to the acceleration of part of the savings announced 1 year ago.Going forward, as we explained in the merger presentation, there are still around EUR 30 million of additional savings pending to crystallize at Unicaja Banco level. However, in a stand-alone basis, we don't expect the same savings in 2021 as in 2022 due to the last year drop was very high, and we expect to have some additional investment this year. In net terms, the final savings will depend on the amount of these new investments. We will be updating the trends in the coming quarters. But in comparable terms, we expect to further reduce our total cost in 2021, although at a slightly lower rate than in 2020. On top of these savings, we have additional cost-cutting from the merger, as you probably know by now. And putting all expected savings together, we believe that the combined bank will be able to crystallize around EUR 30 million of savings in 2021 and close to EUR 150 million in 2022 and EUR 190 million in 2023. And this represents around 3%, 16% and 20%, respectively, of the combined cost of the 2 entities in 2020, which are quite significant reduction in the cost and improvement of profitability.

[Jaime Hernández Marcos, Head of Investor Relations]

Thank you, Pablo. We have a few questions related to the cost-cutting measures, but more related to the merger with Liberbank. If we can provide more details on the measures and the cost-cutting measures for the merger, how many branches we close, how many employees will be affected and so on, if we can elaborate a bit, please?

[Pablo González Martín, CFO & Director General of Finance]

Yes. We -- I have just given the -- what we expect on the overall savings from the merger, but we haven't published, obviously, the details. Obviously, we have a plan, and we expect to execute it quite quickly, but we need to go step by step. Part of these adjustments will require reaching agreements that obviously we haven't got yet. And we will update you on the details once we reach those agreements with the parties. However, let me stress that we have measures that are already either in place or identify and will help us to speed up the crystallization of these synergies. As we have explained in the presentation, we have the Unicaja stand-alone savings, we have the Liberbank EPCs and the straightforward benefit from the intangible impairments that will accelerate the process significantly and allows us to reach the target. Bear in mind that all these 3 measures together, these identified measures represents almost half of the expected savings and can be implemented quite quickly.

[Jaime Hernández Marcos, Head of Investor Relations]

All right. Moving through the P&L to cost of risk, if we can update our guidance for loan, loans impairments, Pablo.

[Pablo González Martín, CFO & Director General of Finance]

Yes. Our loan mix and the -- our conservative loan mix, let me stress the proven loan mix with the higher-than-peers mortgages and public sector exposure and the relative -- or not even relative, the very high coverage that we have on stand-alone, but also with Liberbank, leave us in a very good position going forward. Bear in mind that the coverage has improved further in the quarter, above the initial level announced in the merger presentation. Our asset quality trends continue to improve, although the economic situation, one more quarter, and foreclosed assets and NPL balances decreasing almost 6% in the quarter. On top of this, we have decided to book another EUR 34 million for COVID-19-related provisions in the fourth quarter of 2020, reaching a total of EUR 200 million in 2020. And this leaves the final cost of risk at 85 basis points, close to the high end of our guidance. But this is due to our conservative approach and will leave us in a good position going forward. The reported cost of risk has been abnormally high in 2020 due to the COVID provisions. But as we anticipated, it has already started to decrease, a positive trend that will continue during next quarters.I think in 2021, if we exclude the impairments related to the merger, we expect to book significantly lower provisions. With the current information on our base scenario and considering the uncertainty still for the economy and the measures taken by governments and the ECB, we see as the most likely cost of risk reduction in 2021 to level between 50 to 60 basis points of cost of risk.

[Jaime Hernández Marcos, Head of Investor Relations]

Thank you, Pablo. Also, regarding asset quality trends, if we can explain the trends that we saw in our risk exposure by type of stage.

[Pablo González Martín, CFO & Director General of Finance]

Okay. Stage 1 loans were stable. Stage 3 loans decreased one more quarter. These are the nonperforming loans, as you saw in the presentation, and the trend in NPLs remained positive quarter-after-quarter. So no change in the trend here. However, as it's happening throughout the sector, following a very prudent and conservative and thorough review, our Stage 2 loans have grown in the quarter by around EUR 400 million, and they have provision representing 11% of their balances, which is very conservative, and leave us in a quite comfortable situation going forward.

[Jaime Hernández Marcos, Head of Investor Relations]

All right. Another one, Pablo, on asset quality. If we consider the cost of risk 2020 provisions and the merger impairments, could we see -- could we expect at some point to see releases in the future? Will the impairments for nonperforming assets of the merger reduce the future cost of risk? If you can elaborate a little bit.

[Pablo González Martín, CFO & Director General of Finance]

Yes. I think at this moment, I think it's too early and the uncertainties are significant. So we don't expect to release provision. I think that's going too far, and we have to wait to see that. But we -- what we are quite confident is that we will have an improvement in the cost of risk, as I said, to the tenor of the 50 to 60 basis points. So in other words, it is too soon to talk about reversal of any provisions, and there are still lots of uncertainties in the economy. And so we maintain our prudent approach. So in asset quality trends, we remain positive with NPAs decrease every quarter. But at some point, obviously, we expect to see some deterioration in our books. And that's why we have booked EUR 200 million of COVID-related provisions in 2020. However, such amount of provision reflected in our high coverage and also owing to our conservative mix of loans, as I explained, the one at Unicaja, but also the one at Liberbank. So makes that both individually, but also as a combined entity, will report lower recurring cost of risk going forward, something that, as I said before, together with the cost-cutting plans, that will enable to improve their recurring profitability and the shareholder return significantly from 2020 onwards. Regarding, as I said, the future cost of risk, what I can say is what I said before, we have the highest coverage ratio among our peers. And we also have a very conservative or low-risk profile in our lending mix. So there are still uncertainties, as I said. But considering this level of coverage and the prudent loan mix, I'm quite confident that we can have a relative lower cost of risk going forward.

[Jaime Hernández Marcos, Head of Investor Relations]

Thank you, Pablo. We are moving now to solvency. Let's just start with the IRB models, if we can update the process. What is the situation of the approval of the IRB, the advanced models?

[Pablo González Martín, CFO & Director General of Finance]

Yes. As we announced, we expect to have the ECB approval in the coming months, probably before formalizing the merger. But we need to wait for the regular and formal steps of this type of process, and we cannot confirm any specific date. However, this is only a matter of time. Here, what is more important is that sooner rather than later, our solvency will start being more comparable with one of our listed peers, although initially only for one part of the credit exposure, but the remaining will come in the future, leaving additional solvency tailwinds for the combined entity.

[Jaime Hernández Marcos, Head of Investor Relations]

Thank you, Pablo. Maybe a follow-up related to this one. If we can explain if there are additional regulatory tailwinds ahead in terms of solvency, Pablo.

[Pablo González Martín, CFO & Director General of Finance]

We -- as you know, we don't have TRIM because we don't have the IRB models. And the new ones will be considering the TRIM of the low-risk part of the portfolio. So we don't expect in the coming quarters any additional regulatory changes other than, obviously, the one that I mentioned before, the IRB for the mortgage and the consumer launch of Unicaja Banco. So the benefit from the change in intangibles, in our case, represented 10 basis points, and it was already included in our solvency numbers. So no impact from additional regulatory.

[Jaime Hernández Marcos, Head of Investor Relations]

Thank you, Pablo. Can we update on 2020 expected dividend and the accrual of dividends that we did this year?

[Pablo González Martín, CFO & Director General of Finance]

Yes. We haven't formally decided on the final dividend that we will ask to our shareholders' meeting. However, in the fourth quarter of 2020, we have adjusted our solvency for a dividend that is considering a 15% payout, adjusted by the buyback formalized last year, and this is all following the ECB recommendation.

[Jaime Hernández Marcos, Head of Investor Relations]

Thanks, Pablo. Another one related to the previous one, on the potential payout, what will be the adequate payout following the merger with Liberbank?

[Pablo González Martín, CFO & Director General of Finance]

As we explained in the merger presentation, our aim is to reach a cash payout ratio of around 50% as soon as possible. And following the merger with Liberbank, the solvency position, even better now with the quarter evolution, will remain among the highest of the sector. And it will be further improved by the future approvals of IRB models and higher recurring results. So we believe that a payout of around 50% will be adequate.

[Jaime Hernández Marcos, Head of Investor Relations]

Okay. Just one final question before we finish, Pablo. If we can elaborate or provide a bit more color on the expected revenue synergies coming or arising from the merger with Liberbank.

[Pablo González Martín, CFO & Director General of Finance]

Yes. We didn't consider in the presentation that we had any income synergies for prudency, but we know that following the best practices of each bank and the larger scale will bring us new opportunities. Also, it is worth noting that the relatively low overlap of our branch networks compared with other similar deals will reduce significantly the risk of losing part of the business after closing some branches. So considering this, we do expect to generate some revenue synergies, but we want to be prudent and conservative, and we are not quantifying the potential impact. I think only with the cost synergies, the potential benefits are so significant that we don't even need to consider the revenue synergies to make this deal a great opportunity for our shareholders.

[Jaime Hernández Marcos, Head of Investor Relations]

Thank you, Pablo. That's all for the webcast. Please, if you have further questions, do not hesitate to contact the IR department. We'll be delighted to answer you and follow up with you off-line. Thank you very much, and see you next quarter. Keep safe.

[Pablo González Martín, CFO & Director General of Finance]

Thank you very much. Stay safe.