Good morning, and welcome to Bankinter 4Q 2023 Earnings Call. Our CFO, Jacobo Díaz, will now talk you through the main details of our last 12 months' performance. Jacobo, the floor is yours. Thank you.
Hello, good morning. Good morning to everyone, and welcome to Bankinter's earnings presentation for the fourth quarter and full year of 2023. The related financial statements, as usual, were posted on the website of the CNMV before market opens. As usual, all documents can also be found on our corporate website. 2023 has been another year with outstanding commercial performance in the regions where we operate. This is clearly shown by the differential and almost unique performance in volume growth in all balance sheet and off-balance sheet items, that, together with the interest rate new scenario, have become the driving forces for the relevant growth in our operating income and pre-provisioning profit of 28% and 43% respectively. This outstanding performance, together with a maintained solid asset quality and capital levels, has made 2023 a record year in Bankinter's 58-year story.
2023 will not be the peak year for Bankinter. We are committed and driving all our commercial efforts to make this 2024 a better year than 2023 in terms of net profit and maintaining growth rates in volumes. Let me be, let me be more specific about some of the achievements during this record year. We have closed the year showing a solid growth in our loan portfolio. Also, retail deposits with a manageable cost increase, and finally, in assets under management, thanks to the very positive commercial activity and customer acquisition during the year. Second, the strong increase shown in our NII is mainly due to a 4% loan growth in the year, and the impact of the ECB rates increases in our variable rate loan book, that resulted in an increase of 44% of growth in NII, in the higher range of last guidance provided.
Third, fee income has been able to achieve the growth rate that we have guided for the year, and with no extraordinaries. Our mutual funds under management and distribution, together with pension funds and other wealth management products, reach in 2023, record level at EUR 44 billion, growing 18% in the year and 10.5% annual cumulative rate of growth during the past five years. This remarkable performance that will make fee income to improve the upward trend in future years, is driven by the growth in our customer wealth in both private and retail banking. That together adds to EUR 103 billion at the end of 2023, growing by EUR 11 billion in a year.
Fourth, our improved efficiency jumped to reach levels close to 37% and drives pre-provision in profit to grow a strong 43% year-on-year, above the guidance of the year. Fifth, asset quality continued to show stable balances with an NPA ratio, with no variation, as well as the provision coverage in the year, while solvency remains at comfortable levels of CET1 fully loaded ratio at 12.3 and below 12.5. Okay, so let's move on. These are the key financial indicators for the year. Group's total loan book grew 4% to EUR 77 billion, thanks to corporate lending in Spain and Portugal, and mortgage production in Ireland and EVO, and in Portugal. Also, consumer finance loan book shown healthy growth in the three geographies.
Customer deposits and off-balance sheet resources grew by 9% and 18%, respectively, in another very good year in our private and retail banking business. Gross operating income grew by 28% with respect to last year, showing improved trend in the customer margin and fees. Despite some one-off extraordinary cost increase in the last quarter, we posted a strong efficiency improvement and operating cost at the upper end of our guidance, making possible to grow pre-provision profit by 43%, a new record. NPA ratio remained stable in the year, in line with our overall asset quality indicators at 2.11. Group's net profit closed at EUR 845 million. Like for like, that is excluding the extraordinary banking tax in the year, net profit has grown by 65% or EUR 362 million.
Our capital ratio ended the year at 12.3, with a 50% dividend payout and the risk-weighted assets growth in the quarter. This is 44 basis points above last year and comfortable within our long-term guidance. And our return on equity jumped to 17.1%. That reflects the improved performance of the year and stands 510 basis points ahead of that of last year, and clearly above cost of capital. We will now go through the usual agenda. So moving to our full year income statement, it continues to show strong growth in the most important revenue lines, the NII and the fees. Fee income reaches our demanding guidance from the year. It grew by 3% from 2022, and this is without any one-off or extraordinary success fee.
Other operating income and expenses at EUR -177 million were EUR 119 million larger than a year ago, due to the EUR 77 million banking tax, together with the absence of dividends from Línea Directa. Total gross operating income went up 27%. This growth has been possible, in part, thanks to the good diversification of our incomes and with increased contribution from all of them, Portugal, Consumer Finance, Avant Money, and EVO, as we will see later. Group operating cost in a hyperinflationary year went up by 8%, but as we have mentioned in previous presentation, always below income growth, and despite the seasonal fourth quarter increase with some extraordinary or one-off cost, that I will mention later, mainly in personal expenses.
Despite this, efficiency has improved the group to 37.3, and not only in Spain, but also in Portugal, in Ireland, and in EVO. This very positive income and cost performance drives pre-provision and profit to grow 43%. Loan loss provisions went up 34% from 2022, in line with the cost of risk guidance of 40 basis points that we maintained the whole year. Other provision, as expected, had another good reduction ahead of our guidance. And after provisions, profit before tax stands 57% above last year, and group net profit, as I mentioned, EUR 845 million. In our quarterly comparison of the P&L, we can see the impact of last quarter extraordinaries, apart from the Deposit Guarantee Fund annual contribution in other expenses and provisions.
Also, the strong performance in NII and its evolution every quarter, with a 22% increase over the same quarter last year. Also, a very resilient pattern in fee income, up 7% in respect to the same quarter last year. As we have mentioned before, on operating costs, they increased by 19% in the quarter and by 12% year-on-year, including EUR 17 million of extraordinary expenses, mainly in personal, that went up by the short-term, long-term variable retribution after a unique year in financial results. Excluding this one-off, operating costs will have increased by 12% over last quarter and by 5% compared to a year ago.
So despite this and a more conservative provision effort, net income has been EUR 160 million, 23% up from previous year in the same quarter and down from the third quarter, like every year, due to Deposit Guarantee Fund that I just mentioned. Let's move to the balance sheet. The group's total loan book grew by 3.6% from a year ago, bringing over EUR 2.6 billion in new business. Growth in the year was driven by our corporate lending in Spain and Portugal, together with a strong mortgage production in Portugal, EVO Banco and Ireland. At the same time, as expected, mortgage lending in Spain was impacted by a slowdown in demand.
After another seasonal good quarter in corporate lending as the last quarter of every year, our loan book grew by EUR 2 billion in the quarter, thanks mainly to working capital activity and mortgages. In Spain, the corporate and consumer lending production were able to offset the small reduction of the mortgage loan book, posting a 1% growth, including EVO, and again, gaining market share since the sector has contracted by more than 3.5% with the latest data of November. Our group total loan book grew by close to 4%, probably the only group able to grow in this shrinking market. In Portugal, lending is up by 16% from a year ago to reach EUR 9.2 billion, clearly ahead of our business. Retail deposits performed strongly ahead of plan.
They grew by 8.5% year-on-year and bring EUR 6.4 billion to reach 81.6. During the last quarter, an increase of over EUR 3 billion in deposits occurred due in part to some commercial activity, seasonality in Spain, and to a closing gap strategy in the Portuguese business. Deposits were up by 6.3% in Spain, while the market was shrinking by 1.3% as of November, those again, gaining market share in deposits. In Portugal, deposits continued to grow strongly in the year at 32% to reach EUR 8.4 billion. Moving to the NII. NII has been growing at very positive trend during the previous five years, with a 10% cumulative growth rate.
This good performance is not only a consequence of the rate increases, but also of being able to grow our loan book by close to 4% every year, together with our successful management of the customer margin, as we can see in the right-hand side chart. I want to emphasize the increased contribution of our different business to our NII, starting with Portugal, that grew by 85% with respect to 2022, in part due to the growth in all books: mortgages, corporate, and consumer finance. Also, in Ireland, Avant Money NII reaches EUR 94 million, growing 21%, and EVO Banco in Spain grew by 82%, reaching EUR 70 million. As for the customer margin, has increased in the year to 3%. This is 95 basis points above of that of the previous year, in a clear upward trend initiated in 2022.
Credit yield jumped 174 basis points to 3.89. For 2024, the key to customer margin resilience is to shorten duration in new production deposit and to reduce the front book prices below the back book, something which is already currently occurring. The ALCO portfolio in the year has remained almost stable, with a small reduction of EUR 500 million to close to EUR 11.1 billion, now split 90% under healthy maturity and 10% at fair value. The portfolio's metrics improve with an average maturity of nine years, with an average duration of four years and an average yield which is reaching now 2.3%. At the end of the year, post-tax unrealized losses were reduced by more than 50% to approximately EUR 300 million. Moving into fees, fee income shows growth.
It grew by 3% in the upper range of the low to mid-single digit guidance that we provided across the last quarters. So fee income has been growing at a 7% annual cumulative rate of growth during the past five years, and we expect this run rate to improve in the following years, thanks to our effort and market share gains in private banking and in corporate banking, both very profitable businesses.... In the fourth quarter, we have been able to increase fees by 6% from September to a better commercial activity in mutual funds and continued commercial activity in economic transactions in the corporate segments. Quarterly fees were up by 7% from the previous year.
The largest contributor to fee income, with EUR 196 million, is asset management, and finally, came up with 1% up in the year, despite the negative effect of the reduction in average fees that we mentioned across previous quarter. But this has been offset by an increased commercial activity in investment fund subscription that finally brings IUMs to record levels once again. The second contributor to fees, payments and collections, growing at 10%. The third fees from brokerage and custody is up 10%, and other fees related to risk-related transactions and life insurance and pension funds, etc., growing by 8% and 3%, respectively.
In other operating income and expenses, the most relevant components are EUR 83 million of trading income, plus dividends and equity method that compares negatively from last year due to a lower trading and dividends in Línea Directa, and EUR 212 million in regulatory charges increased by 52% due to the new banking tax. Gross operating income for the year increased by 28% from '22. This is again, clearly ahead of the compounded growth rate in previous years. All geographies and all the businesses showed growth. Moving into cost. Group operating costs total EUR 993 million. They are up 8% from previous year. This growth includes EUR 17 million, approx, due to the extraordinary expenses booked in the last quarter, which in majority are in personal expenses, but also are related to the JV in Portugal.
Personal expenses up 6.4%, excluding the zig, but due to the increase of fixed remuneration and the small increase in the staff during the year. General and administrative expenses also went up by below 6%, somehow well managed, taking into consideration the current hyperinflationary environment that we will expect to slow down in 2024. With all this, efficiency continued to improve and reaching 37.3. For 2024, we plan to be able to maintain these relevant efficient gains and keep our cost to income within the 37%-38% range. Our Spanish business standalone runs at a second to none efficiency ratio of 34%, excluding the banking tax. With all this, PPP showed a stunning 43% increase, almost 2 times ahead of four years ago.
Let me highlight now that the growth rate of our pre-provisioning profit has multiplied by 10 in the period, a clear reflection of the strength of our customer base business, from 4% in 2019 to a remarkable 43% this year. Moving to cost of risk. Cost of risk finished the year at EUR 359 million, or 39 basis points of total credit exposure, 5 basis points up from last year and 1 basis point below our guidance for the year. As we see things today, we can anticipate that cost of risk will remain during 2024 in the range of 35-40 basis points.
What we consider recurring cost of risk maintained the same level of, in 2022, in Spain, in Portugal, and Ireland, and the only small growth occur in our consumer finance business in Spain and Portugal. Last quarter increase is just due to product provisioning within our 40 basis points guidance that we've mentioned every quarter of the last year. Looking ahead, we are optimistic for 2024, taking into consideration the measures we have been taking, during 2023, that together with the fact that, the most potential risky activity bears with the ICO guarantee. In the other provisions, you will see again the downtrend, that we will continue in, 2024, with the already known 10%-20% additional reduction year after year. So group net income reached EUR 845 million, a new record.
It compared with a net income of EUR 560 million in 2022, and this includes the banking tax. So the 10% compound average rate of growth over the last 5 years shows a very strong performance, most probably not mirrored by any other bank in the country. So return on equity, we reached 17.1%, and ROTE reaches 18.1%, clearly above the cost of capital and most probably best in class in the sector. After closing a very good year and clearly above our target set in 2019 of reaching double-digit return on equity by 2023, we expect for these new years to obtain return on equities in the mid-teens mark, very close to the figure that we have obtained this year.
Bankinter tangible group value per share ended the year at 5.59 euros per share, after starting the year at 5.15, showing a growth of 0.44 euros, plus dividends paid of 0.45 euros, up 61%, the value added to the shareholders has grown 11%. I will now go through the credit risk, quality, and solvency management. So NPLs continue on their stable trend, with total NPLs finishing the year at EUR 1.81 billion, just EUR 78 million more than December and just EUR 20 million lower than September. The small NPL variation in the year of EUR 63 million came half from the consumer finance business, and the rest from other type of business, mostly corporates. In Portugal, moving to Portugal NPLs, they came up EUR 11 million in the year.
In Avant Money, just EUR 2 million, and in EVO, just EUR 2 million. Group NPL ratio remains at 2.11%, 8 basis points lower from September, thanks to the impact of some small sales of NPLs. In Spain, NPL ratio ends at 2.4%, just ten basis points up from last year and 10 basis points down from September. This ratio continued to be clearly below the sector average. In Portugal, NPL ratio stands at 1.31%. As shown in the chart on the right, the NPL ratio in Spain went down to 1.7% for households, and slightly up to 3% for corporates and SME. Total provision for non-performing loans stands at EUR 1.32 billion, up 1% from last year. So coverage, provision coverage stands high at 65%.
If you see now, the group's foreclosed assets portfolio is 31% more than a year ago. It decreased by EUR 38 million from the previous year. This small portfolio now accounts for only EUR 85 billion. So moving into capital, CET1 ratio finished the year at 12.3, with a decrease of 18 basis points in the quarter, mainly due to the already well-known transaction in Portugal that took 16 basis points at the year-end ratio. So such ratio stands very comfortable, 44 basis points above that of December 2022. In the year, our retained earnings contributed with a total of 118 basis points, 41 basis points more than 2022.
Capital consumption of risk-weighted assets growth has been 32 basis points, and 20 basis points from operational risk, that you know, this is a consumption that is recorded only in the fourth quarter of every year, and is relating to the income, to the level of growth of income. Intangibles and other regulatory parameters bring one basis point negative to reach 12.51% CET1 ratio, and other valuation adjustments, the new banking tax and the Sonae transaction, bring the ratio down to 12.13%. Capital ratio finished the year at 16.1%, and the leverage ratio at 4.9%. The year-end ratio of risk-weighted assets for MREL at 22% from 22.86% remain well above our regulatory requirement.
Moving into liquidity, our commercial gap after the relevant reduction since 2018, from a positive EUR 3.7 billion five years ago to a negative EUR 5.2 billion in 2023, this is EUR 8.9 billion. As a result, loan-to-deposit ratio moved to 94.3% from 97.2% a year ago, owing to more growth in deposit than in loans this year, after the quite exciting beginning of the year. Wholesale maturities calendars looks pretty much balanced. Liquid assets stand at EUR 27.6 billion, with high quality liquid assets at EUR 21.2 billion. LCR ratio of 206%, quite above the average in the system. Now, let's review the performance of our business lines very quickly.
Here we can compare the improved diversification of our operating income from five years ago, with better balance between the main recurring contributors and the new businesses, which continue to gain share of income. So this is quite positive evolution of our business model in terms of diversification. So moving into specific business, the corporate and SME loan book increased by EUR 1.4 billion or 4.6% in a year, with negative growth in the sector for corporate loan book. We think that once again, this is a remarkable performance and only slightly below our mid-single-digit guidance at the beginning of the year, and 6% compounded for the last five years.
So in Spain, after a strong last quarter, like every year, loan book reaches EUR 29.3 billion, growing by 2.8%, while the sector still declines by 5%. Therefore, we're continuing to gain market share in this business, now at 6.1% from 5.3% just two years ago. In Portugal, our corporate loan book grew by 27% in the year to reach EUR 3.1 billion. This includes EUR 400 million of the financing of the Sonae transactions, booked in the corporate banking book. Without this, the growth would have been 12%, which is also a double-digit growth. International trade and supply chain finance enjoy another good year, and continue to grow its activity in financing working capital, international trade, exports, et cetera.
In NextGenerationEU financing with corporates, we have seen a clear improvement in volumes to reach EUR 388 million signed in financial risk guarantees and similar instruments. And finally, regarding the ICO finance for corporates and SME, the outstanding at year-end was EUR 4.7 billion, out of a total of EUR 8 billion signed between 2020 and 2021, and the NPL ratio of the portfolio is low at 3.4%. Once again, every year in the fourth quarter, we have some mentions to our investment banking business. Another good year, operating income reached EUR 233 million, growing by 50% and without any extraordinary fees. Key indicators of banking investment in the year are management of 23 different vehicles of alternative investment for EUR 4.7 billion from close to 10,000 clients.
Here you can see the current status of the different vehicles for alternative investment. That provides you a level of knowledge about the number of vehicles, the level of diversification, and the value of this business. In wealth and retail banking, customer assets under management had continued to grow, thanks to the strong commercial activity and an increased number of customers. Adding both businesses, wealth and retail banking, assets under management increased by 11% or EUR 11 billion, to reach the first time in history, more than EUR 100 billion in patrimony under management, split between EUR 58 billion in wealth banking and EUR 46 billion in retail banking. So this strong track record of the last five years shows a 62% growth in AUMs since 2018 in wealth banking.
The strong commercial activity can be measured by net new money in the year that brings EUR 6 billion increase in patrimony, split 3.2 new money in wealth banking and 2.8 new money in retail banking. Again, an extraordinary commercial year in those businesses. So in asset under management, very good year, as you see. In the case of own managed funds, net new money was up by 15%, third-party funds, 18%, and pension funds, 12%. Patrimonial services and SICAVs also enjoy a very good year, growing by 30% in assets to reach over EUR 6 billion.
This very successful and profitable business, which is growing at 18% last year, or EUR 6.7 billion in net new money, is not new and has been growing at a rate of 10% every year over the last five years. We expect this rate to improve in the coming years with increasing customers and market share in this segment. Moving to the retail business. Our retail banking activity continues a strong measure, among other things, but the customer acquisition in Spain, very strong, over 122,000 customers in this year. In products, salary accounts increases by 4%. Mortgage origination in the year of EUR 5.8 billion euros represent a decrease of 14% from a year ago. EVO contribution is EUR 900 million, and Avant Money, EUR 750 million.
So despite this reduction, Bankinter continues to increase market shares in the mortgage origination business, clearly above our natural market share. Our total mortgage book grew again. It reaches EUR 34.9 billion. And once again, this is a very important business, very profitable to us. Moving into Portugal. So they have closed a very good year, outstanding year. In 2023, the loan book grew by 16% to EUR 9.2 billion, and retail deposit at EUR 8.4 billion, grew by 32% from a year ago, with an exceptional fourth quarter, trying to close their commercial gap. Growth in loan book was split between corporate banking, EUR 3 million, and retail banking, EUR 6 million. Corporate banking grew by 27% and retail banking by 11%.
As for income statement, operating income grew by 61%, while operating expenses grew by 8%. Therefore, efficiency improved dramatically to 33%, and pre-provisioning jumped by 112%. Finally, after EUR 39 million of loan provisions, loan loss provisions, Portugal, before taxes, reaches a new record of EUR 166 million. The continued Portuguese performance is clearly reflected in the operating income evaluation that has been growing at 21% cumulative annual growth for the last five years. This is almost unseen since the beginning, it was acquired from Barclays in half year 2016. So steady growth year by year, demonstrating their success in the implementation of the business plan that can be resumed in the right-hand graph, following the improvement of the efficiency ratio to end up at 33.4%.
Moving into consumer finance, they reach a total loan book of EUR 7.2 billion, up from September, improved by the solid mortgage origination in Ireland and despite the contraction in revolving credit cards business in Spain. The breakdown of the loan book by product is on the right hand. Personal loans represent 46%, growing 19%. Household mortgages in Ireland reach EUR 2.2 billion, represent 32% of the total book, and they've grown 41%. The revolving credit cards in Spain are now less than 6%. Total number of customers grew by 9% to more than 2 million customers. NPL reduced to 3.9, and as you can imagine, we continue to see this business with great opportunities. In Ireland, the underwriting of mortgages, as I just mentioned, has been running well.
This activity keeps as the main driver of loan book in that country. They grew by 34%. The mortgage loan book ended at EUR 2.2 billion, with a new production of EUR 700 million, that, as I mentioned before, this growth came with a very stable asset quality ratios. We will keep growing mortgages in 2024 in Ireland. Avant Money current market share of drawdowns in mortgages is close to 6%, and we maintain our expectation to continue growing operating income last year by 22%. And then EVO Banco has continued to grow. New mortgages granted in the year were EUR 873 million. This is only 11% down from a year ago.
The book reaches EUR 3.4 billion, and of liabilities, they have EUR 3.9 billion in retail deposits, up 4% compared to a year ago. NPL very low, 0.46. Cost of risk, again, very low, 12 basis points. So the promising evolution of the operating income based on increased customer acquisition, robust mortgage lending, and good prospects for consumer finance, made possible the recovery of positive results at EVO, and fully in line with our business plan to achieve profitability. Last, but not least, I want to emphasize some of the relevant achievements made in our 2021-2023 ESG strategic plan, called 3D Dimensions, that has been developed through 20 different strategic lines, distributed in 50 programs and 580 actions.
This new plan, there is, a new plan for 2024 and 2026, recently approved, that will reinforce our privileged position in ESG by focusing in, three new pillars, which are responsibility, differentiation, and sustainability of the business. So now let's move to the recap, and the guidance for next year, which is also very important. The recap, again, I think we are closing a strong commercial, a strong year, with a very strong commercial activity, reflected in solid volume growth, client acquisitions, every business and in every geographies. This is quite differential. Best-in-class in asset quality, with a provision coverage enough to manage potential future risk, together with our existing good quality loan book. Operating income growth, enough to improve our PPP by 43%.
Net profit at EUR 885 million, with the extraordinary banking tax and strong set of management ratio, with return on equity at 17%, ROTE 18%, efficiency 37%, NPL at 2%. In our opinion, it has been a quite brilliant year. But as I did mention in my introduction, this is not a peak. Next year, we do expect a better year in net income. So basically, our target for 2024 is to increase net income compared to 2023. Related to growth, we do expect continued growth in all geographies and all businesses. So Portugal, in all three, mortgage, corporate, and consumer loan books. Ireland, continue to focus on mortgages and growth in personal loans and in credit cards. EVO Banco focus on mortgages, but continue developing personal loans and consumer finance business.
Bankinter Spain expects recovery in the mortgage lending. Also, the corporate loan book should do better in 2023, with increased activity, after this, this good second half of the year. We aim to be able to grow our loan book again by mid-single digit, and customer deposit has leaked slightly below that rate in 2024. We do expect NII to keep stable, with resilience in client margin and loan growth. Deposit beta will be maintained under control, thanks to shortened duration and reduction of deposit costs, aligned with yield reduction as interest rates start some down, downward trend at the end of next year. Fee income is expected to grow.
We set our guidance as high single digit, in part, thanks to the raise of average fees of mutual funds under management, seeking for more value-added services, the attractive alternative investment and brokerage activity as rates go down, and increase in corporate activity. Group costs will grow again in this persistent inflationary environment, but should be close to rate of growth of incomes. That is most probably around low- to mid-single-digit by the end of the year. And finally, as I did mention before, cost of risk should be some sort of flattish in asset quality and with comfortable level of quality. We do expect to finish the year in 2024 in the range of 35-40 basis points. So now I'm happy to take your questions. Thank you.
Thank you, Jacob. As usual, in the interest of time, we'll try to do our best effort to group all the questions in their most relevant topics. Let's start with the NII. As usual, focus on this topic. For example, what are your assumptions behind our NII guidance in terms of rates, deposit beta, and loan growth, mainly?
Okay, so we do expect, as I did mention, client margin resilience. Basically, there are still some positive repricing to come in the first couple quarters of 2024. We do see that rates are volatile, as you might see. We do have expectation of average ECB rates quite different, depending on if we expect one cut or we expect more cuts. So in our case, we do expect a one cut in the middle of the year. We do expect a reduction in the ECB rates somewhere in June, potentially in June and July. We do not expect a large reduction in these rates. I know that at the end of 2023, there's been some high expectation of multiple cuts or type of rate reduction.
We are not in that environment right now. Euribor is very similar. Euribor, we've seen, some volatility, but now we see it some stable, at today's at 3.65%-3.67%. That give us a good resilience in terms of repricing of our book and in terms of management of our beta. We have the beta in average below 20%, and at the end of the year, somewhere close to 30%. We do expect that percentage of term deposits to stay stable, we've seen around 20%-25% range of term deposits composition in the following quarters. We do see already that the front book in term deposits is below the back book. That means that in the coming quarters, the management of cost of deposits is under control.
So these are basically the main drivers. Of course, in additional growth that I did mention, around mid-single-digit growth in all the businesses and in all geographies, they will provide some support in that client margin resilience in this NII growth. I think, I think the first half of 2024 should be a good opportunity for good growth, and on average, we do expect quite a good resilience in the client margin for the entire year.
Thank you, Jacobo. In terms of sensitivity to rate movements, what is our sensitivity to 100 basis points rate cuts?
Yes.
-for 12 months?
Yes. I think I did mention in previous quarters. Our sensitivity to a 100 parallel reduction in rates is somewhere around 0% to -3%, -4%. That means that the reality is that there is a lot of resilience to a reduction in interest rates currently.
Thank you. Also, we are getting questions on whether we are changing our hedging policy to reduce sensitivity to rate cuts.
This is something that we do across the year, whereas there's nothing that we have changed in the short term. So our ALCO portfolio and the way we manage the balance sheet is something that we do permanently, and of course, we have been managing to reduce the impact of the reduction in rates. Let me remind you that two years ago, when the question was in the opposite, in the opposite way, we mentioned that a 100 parallel increase in rates, 100 basis points increase in rates, we're mentioning that our NII was growing somewhere between 10%-15%. Now, the answer for the opposite question, for a 100 basis point reduction, as I did mention, is somewhere between 0%-4%, with a parallel shift of 100 basis points down.
That means that we have made our homework during this period, that we have managed the situation in the balance sheet in order to reduce the impact of any potential reduction in rates.
Very clear. Thank you. Specifically on this quarter, on the last quarter, were there any one-offs in NII?
Yes. Basically, in NII, this quarter, what we have seen is that we have eliminated the minimum regulatory reserve, which has accounted for EUR 5 million in the quarter. We can consider, again, something which is different from the previous quarter, that we have a new issue of senior non-preferred that we issue in September, and that amount of negative impact has amounted to EUR 6 million. That means that putting both together, this is EUR 10-12 million of negative NII in this quarter, which are not in the third quarter. This is probably around 2% of our NII that we do not have in this quarter.
Okay, one more on the NII-related topic. What is driving our strong commercial activity in deposits in the last quarter? We are getting questions whether we are pre-funding our growth, credit growth, or substituting any off-balance sheet items. And also, what is the duration of our deposit book, and when do you expect the migration to end between checking accounts and term deposits? Thank you.
Okay, let me answer first the last question. The migration, as I mentioned, we have. Today, we consider that we have a stable percentage of deposits in a range of 20%-25%, and this is something that we don't think it will change. So that is, that question is clear.
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The increase in deposits during the last quarter is basically due to our very strong commercial activity. Just bear in mind that we do business attracting patrimony for clients, and we do acquire as much as we can, and then we transform it. So for us, it's doing business. So first reason is commercial activity, acquiring new clients and bringing new patrimony to the bank to do business and to generate fees in the future.
The second is related to the Portuguese business. As you know, we have closed a JV with Sonae in Portugal. This has required additional new funding, and this is another reason why, specifically in Portugal, the number of term deposit has increased. The market is different, and the situation is different. So we have strongly closed the gap in Portugal as well, and these are the main two reasons. We are not pre-funding any specific activity for 2024, although the reality is that we have brought to the bank a large amount of customer wealth, which is something that, in our opinion, is an extraordinary news.
Sorry, I missed the average duration on the time deposits.
Sorry, I missed that answer. So, in the remunerated deposits, we need to clearly differentiate between those who are related to the corporate banking business and those who are related to the retail business, which probably accounts for half of them for each. So in the corporate banking business, the duration is extremely short. It's probably close to one month, one to three months maximum. In the retail business, it averages around six months.
Understood. Thank you. In terms of customer spreads, can you give us some color on how long yields versus deposit costs will evolve, in the quarterly series for 2024? Thank you.
Okay, this is bringing the crystal ball. I guess that the first quarters are gonna be strong in repricing in the asset side. Just bear in mind that we still have a large part of our portfolio of mortgages that need to reprice at higher rates. So I do expect that there is increasing yields in the first half of the year, and then more stable. Well, of course, it will depend on how the Euribor 12 months will behave in the second half of the year. And in terms of costs of deposit, I will say they will move in a parallel way because now there is the inertia of the increase in the past quarters.
But as I mentioned before, the new front book now is below the back book, and this is something that will drive cost of deposits down, keeping overall margin quite resilient across the following quarters.
Thank you. Why did the ALCO portfolio decrease in the last quarter? Thank you.
The ALCO portfolio has some amortizations, first of all, and I think that's it.
Great, thank you. Regarding our funding plan, any color for 2024?
Yes. As you see, we have ended the year in quite large and high liquidity ratios. Our deposit to loan at 106, our loan to deposit at 94. We do expect some reduction in those figures for 2024. Probably we'll reach 102, 103 in deposit to loan, and probably 97, 98 in loan to deposits. So that, that will. I think that will provide you a good view on how liquidity will be managed the year.
Okay, here we have a very long shot. Any sensitivity, any color you can give us for the NII for 2025?
As you can imagine, it's very difficult to forecast with the level of uncertainty of the rates, but what I can do assure you is that we manage client margins. We're not just thinking about the beta deposit or the beta of the loans. So we are basically thinking about client margin and, of course, fees. For us, fees is a very important business as well. So we do expect some resilience in the client margin, and basically, because there's still a lot of liquidity in the system, and there are no major players growing at the same path as we do. I think we are something unique. We're still growing while others are not growing.
That means that there is no apparent potential pressure in increase of cost of deposits, and that will provide a good level of margin to keep client margin resilience. We have our ambition for growth, and we have a strong expectations in terms of fees in the coming years. So therefore, we are very positive in terms of how we see the bank in 2024 and, of course, in 2025 and 2026. Our ambition, again, needs to be clear. We have a huge ambition for growth in all business and all countries. And growth is not just in terms of loans, growth is also in terms of deposits and wealth of our clients, because these are levels that provide us profitable business to keep our return on equity very high.
I want to remind you as well that we are a very efficient bank, and this is something that we will keep in the coming years, and that we are a very prudent risk profile bank, and this is something that we will keep over the years. So, I don't know what will happen with interest rates, but whatever happened to them, we will keep preserving client margin and increase of volumes, and increase of fees, and increase of margin, and increase of results.
Thank you. Very clear. So what should deliver in terms of ROE in medium term?
As I did mention, I think our guidance is in the high teens. I know this year we end up at 17%. I do expect that in the coming years, in the high teens should be a very quite reasonable way to think where return on equity will stay.
Thank you. Moving on to trading. Can you explain us what happened to the trading gains in the quarter?
Yes, in the fourth quarter, we have done some changes in our ALCO portfolio. We have purchased some bonds generating higher NII in coming years, versus the sale of some bonds that generate lower return. And this has generate a one-off loss of EUR 15 million. So basically, we are generating more NII in the coming years, and we have generated a one-off of EUR 15 million. This is something which is, I think, is something which is good for our coming futures. Apart of that, there is nothing relevant in the trading.
Okay. In terms of run rate, what shall we expect for trading, for that line going forward?
I think the figure should be the one that we've seen in the past years, so around EUR 60 million, that will be something correct, more or less correct.
Thank you. Okay, now, regulatory expenses. In terms of, what are your expectations in terms of, Deposit Guarantee Fund and Single Resolution Fund contributions? And also, what are we expecting from the banking tax for 2024?
Yes, very, very important questions. So first of all, for the banking tax, what we do expect is some sort of increase of around 25%, basically because this is linked to the level of growth of our, of our income, as you know. So we do expect a banking tax for 2024, somewhere in the range of EUR 90 million-EUR 100 million, compared to the EUR 77 million that we have recorded in 2023. Again, somewhere between EUR 90 million-EUR 100 million. In regarding the other regulatory charges, we do expect a strong reduction, somewhere between 80%-90% lower than the amount that we have charged in our accounts in 2023. So that means that this is a good contribution to the P&L next year.
So if we combine this with a resilient client margin, some growth in fees, et cetera, that gives you some rationale for my comment regarding that we do expect a better year in 2024 than in 2023.
Thank you. Now moving on to expenses. Were there any one-offs in the quarter? And also, how much of the increase is related to variable remuneration?
Yes, as I did mention, there is almost EUR 20 million of one-offs in this fourth quarter of costs. So I would say that three quarters, 75% of these increases related to personal expenses. Let me just explain once again that in the bank, we have a strong variable remuneration, which are linked to financial results and commercial results. So we set those figures at the beginning of the year, and as you can imagine, we have more than exceed expectations. This is a reason, the reason why there is a, an extraordinary variable compensation, which is a one-off. In addition to that, I just recall that we do have some extraordinary expenses related to the implementation of the JV in Portugal. So this is more or less the other 25%, which is increasing in cost.
So basically, at the end of the day, so around EUR 20 million of one-off, the majority in personal expenses. And I will, again, I want as I did mention in my, in my comments in the presentation, for 2024, we do expect some low- to mid-single-digit growth in terms of costs, down from 2023.
Very clear. Thank you. Now, cost of risk, what are your expectations for 2024?
So again, we do, we do have a good quality book. We do have a great risk profile of clients, so basically, we don't see any deterioration in the future. We have met our guidance of 40 basis points for 2023, and I share with you that our guidance for next year will be somewhere below 35 and 40 basis points. So there is no changes in risk profile, or delinquencies, or NPLs position that we expect in the future. And that's it.
Thank you. Do you expect any further declines on other provisions for this year?
Yes, we continue to keep our guidance of reduction of 10%-20% of other provisions year after year. So we'd end up the year with a very strong performance, and we would, we do expect that the following year will again record a very good performance.
Thank you. One quick clarification: Is the 80%-90% reductions in regulatory charges applies for both DGF and Single Resolution Fund?
Yes, I've made the addition of both together. Both together.
Great. Very clear. Okay, moving on to capital now. Do you expect any growth in operational Risk-Weighted Assets again in 2024?
You mean in operational consumption?
Yes.
Yes. I mean, the operational consumption is related to the increase of, of margin, of, of gross income. So there will be some increase in 2024, because we do expect increase in gross margin in 2024, but obviously, we will not be at the same level. This quarter, as I did mention, we have recorded around 20 basis points of capital consumption due just to operational consumption. So next year, definitely, the amount will be much lower.
Okay. One more question on the movement in capital, on the capital ratio in the quarter. Do we have any impact from intangibles?
Nope. Basically, it's very minor, very minor amount in intangibles. As you know, Bankinter doesn't have as much intangibles as others, and there is just investments in IT. Nothing extraordinary, just normal, very tight, very normal.
Okay, one more in capital, regulatory. Do we expect Bank of Spain to impose a countercyclical buffer, and will that impact your capital targets?
This is again a very difficult question. As you know, Spain and there's another country, we have not done countercyclical buffers, so we don't know what will happen in the future. Hopefully, we will stay the way we are. In the case there is implementation of this countercyclical buffer, it will just affect to the minimum levels of our buffers. But our buffer, as you see, we have at 457 basis points over minimum requirement, so I think we have buffered enough to absorb any increase in countercyclical buffers.
Understood. Any thoughts about increasing payout, about 50%?
There is no expectation of changes this payout policy.
Okay, we have time for one final and then two more clarifications that just arrived. What is our strategy in the payment business? Do we have any plan to dispose it or anything like that?
No, we don't have plan to dispose anything of this business. This is a business which is important for us.
Okay, two quick clarifications. Is the cost growth guidance adjusted already for the EUR 20 million one-off that we have in the last quarter?
Yes.
Okay. Whether you can repeat the interest rate assumptions that you are making for on the 2024 NII guidance?
We are expecting a rate cut in the middle of the year from the ECB.
Okay. Thank you, Jacobo. That was the final question. I think you have an important message to communicate now. Please, Jacobo.
Yes, thank you for your attention. I just want-- I have just one very relevant communication for all of you. So before finishing this webcast, I would like to announce that our colleague and friend, Alfonso Alfaro, will end a successful professional career at Bankinter of 35 years on January 31st, 2024. So Alfonso is a reference for us, for all of us. He has worked for all of us, that we work at Bankinter, and especially for those of us who have worked close to him for many, many years.
Alfonso is Deputy General Manager and has held numerous positions of responsibility in the bank, and I will highlight his work as Director of Telephone Banking many, many years ago, Director of Corporate Banking, Director of the Madrid Regional Business, and finally, Deputy CFO and Investor Relations Director in two different and prolonged stages. Alfonso is unique, very well known in the market by both financial analysts and institutional investors, both foreign and domestic. I am sure that all of us, we will miss him very much. I leave the floor to Alfonso for a couple of words. Please, Alfonso.
Thank you. Thank you, Jacobo. Thank you, David. Just a few words to say goodbye to all of you after more than 35 years at Bankinter, 20 of them dedicated to investors and analysts like, like you, gents. Last words to thank you from the bottom of my heart for all these gratifying and productive years. Thank you for your patience, your professionalism. It has been a real pleasure for me to meet all, you all, and learn from your extensive experience and professionalism, and always enjoying the work well done. Goodbye, friends. I wish you all the best. Good wind in markets, always bullish. I will remain follower of some of you as a simple shareholder and admirer of Bankinter. Thank you very much again for everything you all have given and teach me, and sorry if I have ever unintentionally failed anyone. Goodbye now. See you soon.
Thank you very much, Alfonso. Thank you for your kind words. We will miss you, Alfonso. I wanna mention that, Laurie Shepard, who until now has been leading the efficiency and transformation area for Bankinter Group, will take over Alfonso's position. Laurie, she's from Boston, Massachusetts. She has more than 28 years' experience in financial services, starting her career in JPMorgan Chase, Morgan Stanley, both in New York and London. She moved to Spain in 1999. For the next 13 years, she worked in different commercial areas of the retail and consumer finance business in Citibank and Bank of America. Laurie joined Apollo Global Management as an advisor, and two years later, she was appointed Deputy CEO in EVO Banco. Therefore, since 2019, she joined Bankinter.
She also remains a non-executive director of the Avant Money board in Ireland, and I'm sure that soon you will have the opportunity to meet her in the coming weeks. I think that's it. Thank you so much, Alfonso. We will miss you again. Thank you for your kind words. It's been a pleasure working with you. I think we all will start crying right now in a minute, but I leave you all, and thank you again for your audience today with us. Bye-bye. Take care.