Good evening, everyone, and welcome to Vanquinta's 3rd quarter results presentation. As usual, our CFO, Jacob O'Duez, will take you through the main highlights of the presentation. Thank you.
Hello. Good evening, And welcome to the presentation of Banquinta's earnings from the Q3 of 2019 And the 9 months period ended in September 2019. Fortunately, the presentation today, we are performing during the evening. This is exceptional. And rest assured that the next quarter, we will come back to the normal time.
And the main reason is Basically, there's too many banks at the same time presenting results. And according with our communication department, we've agreed the On the website, on the CNMV aftermarket close, and all related documents can also be found at this time on the Banc Inter corporate website. First, I would like to highlight that we closed the 1st 9 months of 2019 with a remarkable performance in our recurring business In Spain, Portugal and now in Ireland, after its full quarter, this is the Q1 with our operations of Evobanko and Avankar in Ireland, are registered in this quarter. This is summed up by positive results consistently quarter by quarter supported by recurring customer activity with a strong return on equity above the cost of equity. Secondly, increased growth in net interest income, gross operating income and pre provisioning profit, even excluding inorganic growth.
We are presenting adequate solvency levels with NPL, liquidity and capital ratios at expected levels. And therefore, In spite of the much challenging environment, we maintain our guidance for this year earnings in all our income and cost lines. To start with a brief comparison of key financial indicators in the 1st 9 months of this year. With the previous year, these are the set. The group's total loan book grew by 8.4% up to €59,400,000,000 While domestic lending continued to shrink year on year.
Gross operating income reached over €1,500,000,000 in the 1st 9 months. It show year on year growth close to 5% or 9% with respect to the same quarter last year. These are both an improved growth rate from the one at the first half of 2019. Banking efficiency jumped to 48.7% as a consequence of the integration of Evobanko, with most of the increase being nonrecurring. Like for like efficiencies maintained at the 46%, 45% level due to income growth over cost growth.
NPL ratio continues on its long term downward trend. Despite a 2 basis points increase Since the Evo deal was closed, it dropped by 47 basis points year on year, up to 2.73%. Consequently, group's net profit of €444,000,000 increased 10% from last year. Without the impact of our acquisition of Evo and Avantcar, this should be 2% increase, an improvement from the growth rate of the first half of the year. At the same time, our CET1 fully loaded capital ratio Stands at 11.6%, which is comfortably within our guidance for the year.
The group's ROE Has grown steadily in recent years and now it stands at a solid 12.6%, clearly above the cost capital used by most equity analysts. It should be highlighted that Banquinta recurrently delivers outstanding return on equity and remains As an outlier with respect to its peers in Spain and the rest of Europe, still our goal is to continue improving ROE and total returns to shareholders. Now we will move on to our income statement performance in the 1st 9 months of the year and the Q3. Our income statement for the 1st 9 months of 2019 has again shown positive trends in the most significant lines of revenues, interest income and fee income. Here you can see the group's cumulative and comparative P and L account as of September 2019 On the left and the like for like comparison without Evo Group on the right.
Looking first at the total group, net interest income is up by a solid 7.3%, while net fee income has risen by 4.3%. Other operating income, including Trading profit is slightly down by 0.8% year on year, mainly due to increasing regulatory expenses and a small decrease In our insurance income, we can reassure that our net interest income remains strong. These organic growth rates can be adjusted positively should we consider a small contribution from NPL recoveries in Portugal to the net interest income, EUR 4,300,000 in the period versus EUR 11,700,000 from last year. The negative seasonality affected 3rd quarter commercial activity Every year, the continued market volatility did not help fee income or assets under management volumes in the quarter. Thus fee income growth was 4.3% with respect to the same 9 month period last year and just 1% less than in the previous quarter, Although 7% up from the same quarter last year.
Like for like fee income remains in line with our guidance. It is up by 4% year on year, Owing to our continued commercial activity and a somewhat better market environment. Other operating income and expenses show a decrease of €17,000,000 or 6 from a year ago due to 2 different factors. First, the regulatory charges increased by 22% or €8,000,000 2nd, The slowdown in insurance income coming from Linea Directa with a 3% reduction in its technical margin. We will go over its premium pressures and effort to offset them partially with a strict cost control later on.
Gains on financial transactions continue to be slightly higher than in 2018, but its contribution to earnings is still very low. It is 38% more than in the previous year, but it only represents less than 4% of all group's revenue. Total gross operating income has reached over €1,500,000,000 up 5% from last year. It is keeping its pace from the 2nd quarter and increasing its year on year growth rate from the first half of the year. At the same time, income quality remains high As a way from extraordinary revenues coming from Portugal and Evo has followed.
Group operating costs continue to be under control. They have grown by 5 Back to the previous year. The positive income and cost performance has caused pre provisioning profit to increase by 4.3% with respect to the 1st 9 months of 2018 and by 6% over the same Q3 last year. Like for like growth for the period was up By more than 7% and by 13% over the same quarter last year. Loss, loss And other provisions are up by 32% in the 1st 9 months or 23% without Evo.
This speaks to our efforts to mitigate the positive impact of nonrecruiter Bagdewell from the acquisition of Evo. The difference in these rates are due to the growth of the loan book and at the same time, our commitment to enhance our provision buffer for legal contingencies. Finally, group's net profit has grown by 10% to €44,000,000 in the period with help from the bad will from the acquisition of Evoque Group and an underlying like for like recurring plus 2% growth rate in the net profit as you can see on your right. This is an improvement on the half year growth rate. Here can you see the quarterly income statement we were discussing before for each specific line.
Based on our resilient quarterly income performance, We can assert that we have closed out a very positive 9 month period. We feel comfortable about our guidance for the full year on all our income and costs line. The group's loan book has grown by a remarkable 8.4% year, bringing in Over €4,600,000,000 in new loans, including €1,300,000,000 of inorganic growth coming from the Evo Group. Here, you can see where this growth comes from the breakdown between Spain, Portugal, Evo and Avancar. In Spain, while the sector continues to contract, we showed €2,600,000,000 in net new lending, up 5% and not including Evo, lending growth in corporate banking accounts for less than half of this decrease over EUR 800,000,000 Even after repaying of the government's suppliers payment facility that I'm sure that you remember last November for €912,000,000 2nd relevant contributor to this growth is the new mortgages, which account for an additional net €500,000,000 the 1st 9 months of the year.
With such a differential growth rate, our market share in mortgage lending has continued to grow to close to 6% as of July of this year, which is the last data available. In Spain, we continue to be an outlier in lending. Across the sector, loan book is down by almost 1%, by minus 1% in mortgages and by minus 2.3% in corporate lending, according to Bank of Spain data from August. In Portugal, lending is up by 14% or an additional €700,000,000 This is in line with our business plan for Banquinta Portugal, where our market share are still smaller than in Spain. I will discuss its performance in greater detail later on.
Retail deposits across both geographies continued to grow strongly at over 13% year on year without Evo, they are up by 7% in Spain from a year ago. Despite this group's customer deposit have grown By €6,900,000,000 and deposit costs have been kept almost flat and under control. Net interest income continues to show strong resilience. It has grown by more than 7% in the period and by 13% from the same quarter a year ago. Evos and Avancar balance sheets were integrated last June, as you can remember.
So their contribution to our net interest income of €23,000,000 is for 1 full quarter. Net interest income in Spain also saw excellent results in the quarter. Growth is close to 6% with respect to the same quarter last year and 4.8% or $30,000,000 more than the previous quarter. In Portugal, net interest income has also grown by 5% with respect to the previous quarter and by 15% in respect to the same quarter last year. In the 1st 9 months of year excluding extraordinary recoveries, the recurrent net interest income in Portugal is up by 17%.
Customer margin continued to show resilience despite a 2 basis point drop from last quarter highs. It is still up 10 basis points From the same quarter last year, this is clearly owing to the variation in asset yields of minus 2 and plus 10 basis points in respective periods with no variation in deposit cost. Even though deposit repricing is possibly is probably close to the bottom, we expect our customer margin to remain resilient in the coming quarters given the positive delta between our mortgage front and back books and the continued improved asset mix in our loan book. We expect these 2 tailwinds together with a little head from the cost of deposits will be able to offset part of the additional drop in the headwind of the 12 month year LIBOR. Based on these trends, we should be able to maintain our customer margin and our year on year net interest income guidance of low single digit growth for the group, excluding Evo and despite facing a more difficult interest rate environment.
Composition of our ALCO portfolio has changed slightly since last December. Its size increased by €1,700,000,000 reflecting additional liquidity after the integration of Evof Group. Still Today, over 50% of the portfolio remains under amortized cost and over 55% of it's on Spanish government bonds. The entire portfolio's average maturity is close to 9 year and its average yield stands above 2%. Unrealized gains on the total portfolio amounted to approximately EUR700 1,000,000.
Maturities for the coming years are minimal and well spread out till after 2025. Fee income in the quarter has performed as expected with some negative seasonality from the previous one. In the 1st 9 months, it continued to be fueled by growth in recurring business And now shows an increase of 4.3% year on year with an improvement from the first half rate of growth. All in all, it now accounts For 22% of our gross operating income, the largest contributor is always asset management with 32% of total fees, Still down by 10% with respect to a year ago. Despite the market's slow recovery in the quarter, it's been a very difficult year in equities and Funds volumes that still compares with a robust first half in 2018.
We expect this situation to continue to reverse during the second half and make it possible to meet our mid single digit guidance in fees by year end. The 2nd largest contributor to fee income with 25% is payment and collections with corporates and SMEs as the main contributors. They continue to grow steadily, having posted a solid 19% increase on the back of our strong international trade commerce and supply chain finance activity. This recurring income helps to offset other more volatile sources of fee income such as brokerage, which still fell by 2% Or our FX business with customers, which is flat year on year. Life insurance sales, risk related transactions like endorsements And other fees from the business are also improving.
They are up 6%, 50% and 14%, respectively, from a year ago and showing similar rate. Furthermore, fees on structured finance from investment banking are up by 41%. It's true from a low base, but in a continued effort to increase contribution going forward. In a difficult environment for market related fees but with a better year on year comparison during During this second half, we are maintaining our guidance of mid single digit growth for full year 2019 under the assumption that the market environment will not worsen in the last quarter of the year. In other operating income and expenses, the contribution from LDA, Linea Directed Insurance margin continues to be 3% smaller than in the previous year.
This is due to greater competition in premiums like in previous market. However, some of this pressure has been offset By strong cost control in a very flexible cost structure. As usual, regulatory charges had the most negative effect On the other income and expenses, which have grown by 22% or €8,000,000 year on year. Nonetheless, the quarterly performance the This income line is improving and we expect the year on year difference to flatten by the end of the year. Overall, gross operating income at the end of 1st 9 months stands as a new high of €1,545,000,000 an increase of 5% from a year ago.
Quarterly operating income has grown close to 9% with respect to the same quarter a year ago and by 8% from the previous quarter. In Portugal, gross operating income grew about 17% from the same quarter last year as well as the previous quarter. This is due to the good performance of recurring business and with less extraordinary NPL recoveries as we had anticipated. The graph on the right shows the contribution from various sources to gross operating income. This indicates a good diversification and a lower net interest income exposure of them peers to counter the extremely low interest rate environment and also the very small contribution of 4% from Let's now look at operating costs, which totaled €793,000,000 in the 1st 9 months, 5% from previous year.
Excluding the costs arising from the Evo integration, which are 48,000,000 as of September, group. Group costs have been 1% lower than a year ago. Over 70% of total group operating cost. Cost corresponds to banking business, including Portugal and Ebo. The remaining 30% is from linear Direct Insurance business, which has a much more flexible business model with tight control this year.
Thus, operating costs had different growth rates, while LinaDirectas costs drove by 5% from the same quarter last year. Recurring banking costs increased by 3% compared to the same quarter last year if we exclude the Evo acquisition. Following our business plan, Portugal's operating We will end the year with that within our mid to low single digit cost guidance in order to keep cost increase below income of growth And to keep our efficiency in an overall banking operations, not including the integration of Evo, of course. Group's cost to income jumped almost 200 basis points after the increase in perimeter from the Evora Bancar acquisition and the nonrecurring integration expenses. Despite these two items, recurrent jaws remained positive and breached recurring cost to income to 46.7.
After integration period, we aim to keep our banking cost to income ratio within the 45.6% range as we did after the Portuguese acquisition, as we show in the graph. Cost of risk remains low at 23 basis points of total credit risk, increasing by 12 basis points from the year. Should we take in consideration the provisions that were reclassified in 2018 from credit risk to litigations, more than EUR 50,000,000 in the year, EUR 43,000,000 of which were recorded in the 1st 9 months. With this effect, the adjusted cost of risk For 2018, would have been 19 basis points. Thus, the small four basis points increase from last year Has to do only with the recent integration of Evo and Avancar.
Adjusted for reclassification, Cost of risk continues to stand at all times lows and in line with asset quality and with no signs of deterioration. Going forward, we maintain that total cost of reach will be in line with the previous year and with a long term trend of 30, 35 basis points as we mentioned in previous sessions. We will go now Overall management of credit risk, liquidity and solvency. Nonperforming loans have remained almost flat In the quarter and since December of last year, the increase of €20,000,000 since last June is only due To the growth in both banc inter consumer finance business and avantcard loan book and consequently in their delinquencies levels. However, in both cases, well within our KPIs for this type of business as we will see later on.
All in all, NPLs have fallen by 7% year on year the The group and by 50% in Portugal after the year end sale of NPLs. The group's NPL ratio now stands at 2.73% From 3.2% a year ago or 2.9% of last December. On the contrary, it has slightly rising to 2.75 in Spain due to the integration of Evo Navankar Business with a relatively higher cost of risk. Finally, in Portugal, the NPL ratio now stands on a normalized 2.7%, down from 6% a year goal. Total provisions account for €914,000,000 Up $53,000,000 or 6 percent since December.
Despite yearly asset sales, we have maintained our NPL coverage at 51%, a similar lever to our peers. Coverage for foreclosed assets is up 1% up to 46%, well above the average discount on sold assets. The group's foreclosed asset portfolio It's 16% smaller than a year ago, having decreased by €58,000,000 year on year. It now amounts to €308,000,000 Total sales in the 1st 9 months amount to 25% of the stock from the beginning of 2019. We continue to sell repossessed assets through our commercial network with an average discount of sales of 30%, below our provision coverage and after all the maintenance and selling expenses with a small impact earnings.
Let's move into capital. Our fully loaded CET1 ratio stands now at 11.57 percent at the end of the Q3. Since December, our organic capital generation brings an increase of 57 basis points, 19 basis points more than last June. This increase is able to offset all the negative impact Our risk weighted assets growth of 42 basis points, 8 basis points more in the quarter and most of the 29 basis points Owing to the Evo acquisition. Finally, value adjustments, mainly coming from our ARCO portfolio, brings additional 13 basis points and other small issues insurance business, etcetera, detracts 17 basis points to the September ratio.
Total capital ratio and leverage ratio remains mostly stable at 13.9% and 4.8%, always within our guidance. Therefore and once more, we are reiterating our guidance of CET1 ratio in the range of 11.5%. And I also would like to mention that we mentioned this week, We have received the confirmation that our capital requirements will be the same until the end of 2020. Volumes increasing deposits and loans plus the incorporation of Evos and Avancar balance sheet since June 1 has helped To manage to close our funding gap, now at a new record low of less than 700,000,000 From close to €4,000,000,000 a year ago. Even more, now the gap is positive by €600,000,000 in Spain, but still negative by 1 to BRL 1,200,000,000 in Portugal, where it shows the strong growth in lending over deposits.
As a result, our loan to deposit ratio has improved to over 100%, its lowest level ever, owing to the continued growth in retail deposits over lending in the past figures. The maturity structure of wholesale funding is well balanced with no more amortization in this year and 800,000,000 next year. We can easily assume any forthcoming amounts over the next years with an increase EUR 14,700,000,000 in liquid assets and our current capacity to issue over €6,000,000,000 in copper bonds. Let's move to the performance of the core business lines and their contribution. All the contribution remains well diversified and at similar levels to previous quarter as shown in the graph.
Let's move into the corporate and SME Banking. The loan book Grew by almost 4% year on year, while the sectors shrunk by more than 2%. This loan book has been growing for more than 9 years in a row Without suffering any major changes in the bank's risk profile and in the required RORAC for this business, This recurrent loan growth helps to increase the in transactional corporate activity and collateral business volumes, which are one of the main sources of fee income for the bank. In Portugal, where we still have a small market share in the corporate sector, new lending is up by 34%, reaching 1 point EUR6 billion Our long term goal is to increase market share in the mid corporate market to reach a similar level to Spain. The breakdown of our corporate loan book in Spain shows half in loans to large enterprise, which grew by 1% last year.
The rest is split between loans to medium sized enterprise, 27% of the book with an 8% and small and medium enterprise, 23% with an increase of 5%. Therefore, we continue to improve the asset mix in the loan book other way to preserve asset yields despite greater competition. In Spain, the number of active corporate customers continues to grow organically are 4% 5% year on year, while our market share new lending continues to spend in this strategic segment. As we have been following Through all this year, our corporate international business continues to lead in loan book growth, now by 22% year on year And has become a very important source of income for the corporate segment. Its gross operating income is up by 11% And in the year and more important, half of its revenues have come from fees rather than interest.
In Investment Banking, ongoing activity with new products and services have Made both its loan book and operating income to increase by 22% 18%, respectively, from the same period last year. Also, fees collected have been have increased by 26% with respect to the year before. Private Banking, customer wealth grew by 3,300,000,000 In the 1st 9 months, where the market effect has positive has been positive by €1,200,000,000 This resulted in a 5% increase in managed customer wealth Up to €39,000,000,000 Collecting fees in value added management funds now stand at €16,300,000,000 42 percent of all our managed assets. This is €1,400,000,000 more than in December. The launch of new products such as a new equity broker for the mobile have help to increase the number of customers and assets managed in this strategic segment.
Personal Banking, assets under management are By 5%. Customer work is up by 1,400,000,000 in the 1st 9 months with a positive market effect of €800,000,000 Our delegated and advised assets represent over 32% of total managed assets in this segment with a clear room for improvement. Commercial Banking continues with its strong performance in their principal products. Payroll account balances are up by 25%. New mortgage production of over €2,000,000,000 in the 1st 9 months climbed 12% from the same period last year with 32% being fixed rate And with a loan to value of 65%, our market share now stands close to 6% at 5.9%.
As a result, the total mortgage book keeps leading to the growth in the Spanish and Portuguese market without losing any of the good quality indicators, loan to value 58% 9% of total book at fixed rates. All balance sheet funds are growing again after a more depressed 2018 year, Although the low interest rates, high volatility environment persist, as of September, total assets amount to €29,600,000,000 a 4% increase. With respect to the same date last year, an 11% increase since December. Year on year, mutual funds remain almost flat, Although growth refers mainly to pension funds, the new Portugal business and other managed assets. As for our differential mix of funds, just under 6% are managed by 3rd parties and 41% are unmanaged.
Average fees on all funds managed in September stands at 71 basis points, Down only one basis point from a year ago after MiFID II effect. Now let's look at Linea Directa's contribution Linea Directa has continued to perform relatively well for another quarter. Total insured risk, what we used to call the number of policies, Have increased by 6%. Linea Directa maintains market share of 7% in motor insurance and close to 3% in home insurance. This increase in new policies and the slightly lower increase in premiums reflect the before mentioned strong pricing competition in the sector, Particularly in motor insurance.
Nonetheless, Linea Directa's growth in motor premiums continues to double sector growth and almost triples home insurance sector growth. Linea Directa combined ratio at 87.3 continues to be well below that of the sector. It has improved from the previous quarter, benefited from the reduction in the claims ratio in the quarter to 67.8% after a more difficult start of the year And by the cost ratio reduced by 5 basis points, showing better behavior in cost during this quarter. The combined ratio Under 90% represent a strong competitive advantage that will allow Libya Directa to outgrow the industry in the coming quarters. New health insurance business, Vivas, continues to grow in policy, mostly to new insurance customer.
Total policies Are now approaching 70,000. This is within the plan for the year and with an impact of expenses of less than 7,000,000 If we look at its cumulative income statement, net profit is down by 5%. This is due to 11% cost increase in net claims, Which exceed the 6% increase in net earned premiums. This behavior reduced revenues from business by €6,200,000 Nonetheless, well managed cost control offset €2,200,000 to bring its technical insurance down by Down only €4,000,000 to €81,000,000 5% decrease from a year ago. This relatively modest earnings performance is still translating to a very high return on equity of 36% while increasing the company's solvency ratio to 2 16%.
Thus, keeping profitability and growth as the main drivers on the company behavior. Banquinta Consumer Finance on this slide do not include avantcar figures. It only refers To our subsidiary in Spain, since new Avancar still belongs to Evobanca. In the period ended September 19, Our loan book continued to grow by €600,000,000 along with a number of customers, which now are up to well over 1,400,000. This pure organic growth brings the total consumer finance loan book to €2,300,000,000 or up 27% over a year ago.
Credit quality ratio remains under tight control. NPL stands below 9%, provisions coverage at 101% and cost of risk at 3.5%, Which brings the risk adjusted return of the business to 8.4%, which continues to look good, particularly since over 40% of our business is with current bank inter customers with a much better risk profile. Moreover, the riskier revolving credit card outstandings had been reduced from BRL 800,000,000 to less than BRL 600,000,000 adjusted by some BRL 170,000,000 that are debit cards Payable only at the end of the month. We can maintain that growth continues to come only from personal loans rather than credit card lending. Our small consumer lending book in Portugal is included in these figures and already accounts for 8% of total portfolio EUR196,000,000.
Once we include a clear car and avant car loan book of EUR 430,000,000 it will account for 19% of the total book. Then consumer finance total exposure will show much better geographical diversification. I will go Now over Banquito's Portugal main figures. Balance sheet continues to grow in line with our expectations. Low book increased by 14%, Mainly in corporate loans, which grew by a remarkable 34% to €1,600,000,000 Commercial Banking loan book, consistent Many of mortgages and small consumer lending increased by 8% to €4,400,000,000 With respect to the 1st 9 months Of last year, customer sorry, we'll put the first with respect to the 1st 9 months of last year comparing to the last year, customer deposits are also up by a solid 15%, While our balance sheet funds have increased 7%.
As for earnings, the small one percent increase in net interest Income is impacted by the decrease of extraordinary NPL recoveries, euros 4,000,000 this year versus €12,000,000 last year. Otherwise, Net interest income should be close to 17% increase. This positive a very positive performance adjusted for We'll bring out 12% increase in total operating income for these 1st 9 months. At the same time, strong control and positive cost of risk have led to a strong 17% increase in profit before taxes. Recovered NPLs and the year end sale of NPL portfolio have freed up credit provisions, which have improved from last year.
The extraordinary contributions are expected to finish by the end of the current year or latest Q1 of next year. So we will see the Baguio Inter Portugal cost of risk come into a normalized situation. Recurring business trends in Portugal continue to improve where you can see quarterly performance in recurring net interest income, up 17% with respect to the same quarter last year as well as recurring Total income with a 17% increase with respect to the same quarter last year since fee income growth is not that relevant. As in our business plan, Banquinta de Portugal's cost performance is well constrained, showing an increase of only 2% from the same quarter last year or less than 500,000 Finally, its profit before taxes is more volatile due to the NPL recoveries quarterly impact, but with a clear downward trend, those underlying profit before taxes is improving quarter after quarter. In this slide, Some data for Evo and Avancar business.
Evo balance sheet stands at €900,000,000 in net loans in total, Of which 7, almost 800, are home mortgages and 18,000,000 personal loans and only 15,000,000 In revolving credit cards. As for the liability side, Evo shows $3,100,000,000 in retail deposits and $319,000,000 in off balance sheet, split between mutual funds, pension funds, equities and unit links. Client acquisition has been over 25,000 clients between June September to a total of 461,000 customers. As per management ratio, customer margin stands at 1.71 percent, NPL ratio 1.65 and provision coverage of 61. And for avancar, for avancar, our consumer finance unit in Ireland, The book is €0,400,000,000 split 69% credit cards and 31% consumer lending to Irish customers With a 19% growth year on year with total gross yield of 12.8 percent.
NPL ratio is at 1.4 or less than €5,700,000 in default and with a cost of risk of €9,500,000 or 3.2%. Both new ventures in the Banquinta group are developing their business plan for the coming years, and we will communicate in due course. Avon Card is a very profitable business with a current return on equity above 20%. And his main task will be to grow within the limits for the group and without deteriorating the credit quality standards. In the case of Evobanko and after its reorganization, this is a nonprofitable operation for the time being with a solid growth in customers.
Task here is to become profitable after the investment needed in product offering and service development. Those are true long term objective. Finally, quick recap, a consistent delivery of results, an appropriate solvency level, And we maintain our guidance. Here is the summary of the figures. And This is a little bit too late today, so I'm not talking anymore and wait for your questions.
Thank you very much for your full time.
Thank you, Jacobo. As usual, we will group the questions and we will call through different topics. Let's start with the P and L. We have some questions regarding your outlook for NII and fees and also for cost. What can we say there?
What do you see there? Thank you.
Thank you. NII, we maintain our low single digit growth guidance. I mean, let's say, in a like for like situation, I'm excluding the EvoNAVancar, which, of course, will add up new interest income. But excluding the new contribution of Evo Avancar, I think we will be very close current situation. Fees, we've maintained our mid single digit growth for this year.
And as we mentioned, we've maintained also our guidance for the costs. So no major changes from our perspective.
Okay. That's clear.
Thank you. This is the low mid- to low single digit cost guidance as I did mention before. Okay.
Still on the NII, we got some questions whether you can add some color on the NII growth in the quarter and whether we see any changes on the NII sensitivity.
Okay. I think the NII growth in the quarter is has been is fueled by the same, let's say, components that in the previous quarter. I think growth in loans is still very is the main contributor. We are keeping a very good margin over a very good spread. I think we are managing very well the yields Even if your eyebrow has started to repreciate in our mortgage loan book, We are keeping a very strong spread in margin.
I think the mix of our book also is contributing To have a quite resilient client margin. And of course, the contribution the ALCO portfolio and the contribution of the bonds that we have in the ALCO portfolio, basically, the management Of the current trade. Sorry, I didn't find that. That's the right word in English. Okay.
No major changes in net interest income the same components in growth. And hopefully, we will see similar rate of growth in the coming quarters.
Okay. Specifically on the ALCO portfolio. We had some analysts asking about the strategy and whether we shall expect any changes on the contribution to the NII.
I mean, the ALCO portfolio, as you know, has increased by during the year for around €1,800,000,000 This is originated by the purchase of Evobanko. The yield It's a little bit lower in this quarter. It's at 2%. We don't have any maturity, as you've seen in the presentation, In the coming months, in the coming quarters. So we expect the contribution to be sort of stable.
We have around 700,000,000 unrealized gains. And duration is around 4% to 5% sorry, 4% to 5 years. So there's no major changes?
Thank you. We move to expenses now. We have seen some nonrecurring expenses accounted in the quarter. Shall we expect any more of that or any further nonrecurring provisions in the coming quarters?
Non recurring costs or provisions? Both. Both. Okay. Sorry.
In terms of non recurring costs, during This year, we have already registered around BRL46 1,000,000 of new costs. BRL 30 of them approximately come from the new, let's say, contribution from Evo and Avancar. That means that Evo and Avancar are bringing 3 30 new costs, €30,000,000 of new costs. And the others are related to the integration of the transaction. Obviously, we expect that costs related to Evo and Avacar will stay there for the coming quarters.
And in order to integration costs, we will see probably in the last quarter, we'll still see some integration costs quite equivalent to what we've seen in this Q3. But this will be a one off. Next year, we will not have these nonrecurrent costs, which are not related to the proper Evo and Avanca activity. I'm not sure it's been clear.
Sure. Yes. I mean regarding the pad, are we still planning to spend that against the restructuring costs and also provisions this year.
Okay. But we'll, of course, we'll be dedicated to cover integration costs And potential additional provisioning.
Moving now on to asset quality. Can Can you explain the reasons behind the growth in NPLs in the quarter and also the increase in the cost of risk that we have seen?
Okay. So we have because they are 2 different questions. First of all, there's a lot of We have a new Evo and Avancard coming to its full quarter. So the volumes have increased, 1st of all, due to the presence of Evo and Avancard. We in the Q2, in the last quarter, Evo and Avancard We brought just 1 month of new provisions.
In this quarter, we have 3 months of full provisions. So this is one of the main reasons. We have also stationality. July August are months, at least in Spain, which is a little bit more difficult to recover positions. We don't see Any change in terms of the cycle, but it's true that this stationality has been there and we need to recover those positions from the summer season.
We in addition to that, I must say that in terms of NPL ratio that this 2 basis point increase, the The end of the second quarter has an extremely high peak in loans, the last couple of weeks of June That generate or create that an LPL ratio probably a little bit more optimistic than the reality. No, this quarter, loans are more stable and probably this NPL ratio is probably more real than the one we saw in June. But basically, for that peak in loans, in loan growth at the end of the quarter. This is something that even though this 2 basis point increase is, From our perspective, it's almost not a concern at all.
Okay. Thank you. On capital, we had also a few questions. Can you just remind us on the capital target?
Our guidance is around is the Z1 fully load ratio of 11.5%. This is a place where we feel comfortable. And as I mentioned before, We had the decision from the SREP decision that we will continue with the current capital levels up until the end of 2020. Therefore, we feel comfortable with the current levels of capital.
Okay. Also on capital, what sort of impact shall we expect from IRB models in the next few quarters?
Okay. So from our B Models, we should expect some sort of release of basis points probably At the end of this probably in this Q4, we should see an increase of somewhere between 10 or 10, 12 basis points increase. And potentially, the Q1 of next year, we should see again some around 10 basis point increase, okay? As we mentioned, we had approved the from the authorities, new IRB model for large corporations. So from what side, we will we have not released all the potential benefits from the lower density.
And this is something that we will release over the current quarter and the Q1 of the following year.
Okay. Still on capital. Any feedback from the SREC communication already confirmed by the regulators?
Nothing new apart what I've just mentioned is all the rep decisions that we received This year will be maintained exactly where it is until the end of 2020. So there's no news from that perspective. Basically, I think it's a good news to stay where we are for at least 1 more year.
Okay. And last one in capital, obviously, interest topic. Any guidance we have for Basel IV?
For Basel IV, it's still a little bit too early to have a proper guidance. There are Many technicalities to be clarified. As far as we know, we do not expect major impact. At least in our cases, we do not expect major impact. But as I mentioned, there's still a lot of technicalities that need to be clarified.
Okay. We are also getting questions whether we have any updates on litigation expenses, so we expect the similar run rate going forward.
Well, as you've seen, the effort in provision this quarter has been lower than in the previous quarter. So this was within our guidance for quarterly effort that we mentioned early this year. So everything sticks to the plan. We're still thinking that the We are making an extraordinary effort in 2019. Our expectations is that the effort that We will need to make in 2020 will be definitely lower than the one that we're doing today.
That means that for next quarter, we should expect something similar to this quarter because this is the plan.
Thank you. Moving now on to Linea Directa. We are getting questions on what sort of premium growth combined ratios that we expect from here.
Okay. I think combined ratio will always stay very competitive. So This is not a concern from that perspective. You know that cost the expenses in Line Directa can be managed very well. So the cost control is very tight and there shouldn't be any problem at all.
In terms of growth, if we think about premiums, premiums, as we mentioned, Premiums have grown at 5% and almost double than the market. And we have the motor has grown at 3%. Home has grown at 11%. Therefore, The company is growing quite well. So this is not a problem from the growth point of view.
Okay. Is that what you were asking?
Yes, yes, yes. Thank you. And apparently, we were not clear enough with the question regarding the one offs in the quarter, regarding to restructuring costs. Can you just quantify that in the Q3?
Yes. So we got In we got overall, the year we have as we present in the P and L, there is a difference in cost €46,000,000 in the 9th month. Yes, in the 9th months. Out of this 46,000,000, 30 are brought from Evo and Avancar. And the other 16 are one off costs That will be not generated the following year.
Out of these 16, 6 were in the 2nd quarter and 10 has been in this quarter. And our expectations For the following quarter, is that it should be somewhere between 610,000,000 and 10,000,000,000. I mean, very similar. We do not expect an additional effort Different from these 2 quarters. But definitely, in the Q4, we will see again integration costs.
Very clear. And final question, promise. Any comments regarding M and A?
Well, no, no. I mean, we are not thinking about doing any transaction. We have just bought Evobanca and all our efforts and thinkings our focus on make Evo transaction successful, not only the Spanish operation, but also the Irish operation. So I don't see any other potential transaction being where the bank inter could be
thanks again, Jacobo. Thanks, everyone, for joining us today, keeping the timing of the call. For any further questions you might have, please contact the Investor Relations team. Goodbye.
Thank you very much. Nice evening.