Good morning and welcome to Bankinter's first quarter 2024 earnings call. Please note that related financial statements were posted with market authorities before the market opened, and that this presentation is available on our website as well. Also, please refer to the disclaimer in the presentation and note that this call is being recorded. On today's call, it is our pleasure to be joined by Bankinter's Chief Executive Officer Gloria Ortiz and Chief Financial Officer Jacobo Díaz. At the end of the presentation, they will respond to questions in the live Q&A. I will now turn the call over to Ms. Ortiz to review the highlights of the quarter.
Thank you, Laurie, and good morning, everyone. Yes, under a month ago I was appointed CEO, and it is a pleasure to be able to join this call today and to review with you the key highlights of the first quarter. Another strong financial quarter, indeed, providing a solid start to the year with EUR 201 million in net profit after tax and an increase year on year of 9% and 25% increase versus 4Q23. We have achieved these remarkable results by delivering consistently on our long-term growth strategy, accompanied by strong commercial performance across all business segments and geographies. During this presentation, I will start with a short review of the key highlights of the quarter, then hand over to Jacobo to review the financial results and progression of our businesses. Let me begin on page five.
Here, I would like to emphasize the four key pillars that allow us quarter-on-quarter to deliver and strengthen earnings over time. Firstly, growth, clearly shown by the differential and quite unique performance in volume growth in all categories. Versus first quarter 2023, we were able to grow loans 5%, deposits by 6%, and we did exceptionally well in off-balance sheet products with an outstanding increase of 18%. Secondly, in our current environment of unpredictable interest rates, we have managed to preserve healthy customer margins at almost 3% and increase net interest income year-on-year by 11%, even above our 4Q 2023 levels. We have also maintained stable asset quality levels, as seen in our ratios, in line with expectations and in a context of solid volume growth.
And lastly, we are delivering substantial return on equity at 17.4%, and we maintain our market leading cost-to-income ratio of 35% in the quarter. We are confident that we will continue to deliver value in the long term to Bankinter shareholders by consistently adhering to our growth strategy. Moving to slide 6. As you can see, we continue to grow with our customers both in loans and deposits by adding EUR 4 billion in each since the first quarter of last year. We have maintained 4Q23 lending book levels, which is outstanding considering the traditional weaker seasonality in the first quarters. And we have strongly outperformed the system in our core market, Spain, both in customer loans and deposits as well as in other geographies and businesses.
Additionally, as seen on slide seven, total customer assets under management increased EUR 4 billion this quarter, an increase of 4% since the end of 2024, and EUR 30 billion year-on-year. This is 12% up. Net new money inflows were EUR 1.3 billion, accompanied by strong market effect to increase the overall assets under management of our customers to a record level of EUR 118 billion in the group. On slide eight, again, considerable increase of EUR 7.8 billion and 18% increase year-on-year in customer off-balance sheet funds. I would like to highlight the solid increases in delegated mandates that include venture capital vehicles and funds that add up to EUR 10.6 billion, growing 23% year-on-year. But all other categories, as you can see, also grow strongly and are the businesses that support our fee income, as you see in next slides.
This impressive growth has translated into considerable relevant earnings growth, with quarterly net profit after tax of EUR 201 million up 9% versus first quarter of 2023 and 30% from first quarter 2022. We are increasing shareholder value, with tangible book value plus dividends also increasing by 9% year-on-year. Our key focus is long-term value creation for our shareholders, and delivering this quarter 17.4% return on equity is a remarkable achievement. In summary, I am very satisfied with this first quarter results, and I believe that it sets an excellent foundation to build upon for the rest of the year. Now I would like to hand over to Jacobo, who will talk through the financial results and business performance across the different segments and geographies.
Thank you, Gloria. Good morning, everyone. Let's talk through the financial results of this quarter and review some of our achievements in this very strong start of the year. On page 11, we have included a P&L summary of the group's earnings, in which we will provide a zoom into each of the categories of the following slides. All revenue lines performed particularly well this quarter and support our positive outlook for the year, with capping level of Euribor rates and decreasing deposit costs. I will highlight the exceptional year-on-year 11% increase in NII and 9% increase in net fees, bringing us to a total gross operating income increase of 7%. Operating expenses have reduced from last year's 8% increase down to 6% this quarter, permitting us to continue to improve our operational efficiency.
With cost of risk under control and stable, our profit before taxes reaches EUR 327 million and net profit EUR 201 million. Now, I would like to provide some additional detail into each of the result categories. On page 12, NII reached a record level of EUR 578 million. We have not only been able to deliver a strong 11% increase year-on-year but also have grown versus last quarter by 1%. Our customer margin remains resilient at 288 basis points, up two basis points versus first quarter 2023. On the asset side, customer credit deals are now stabilizing. However, we are optimistic that any reduction in rates will impact us more gradually than initially planned. Average deposit costs are up three basis points versus the full fourth quarter 2023.
However, here it is important to highlight that the cost of deposits in the month of March is down seven basis points versus the cost of deposits in December 2023, providing us with a clear downward trend in deposit costs on a monthly basis that we aim to continue to manage downwards in the following quarters. In terms of our net interest margin, we have also been able to maintain stability above the 2% level, consistently one of the highest in the Spanish market when considering our peers over time. Our first quarter net interest margin reached 210 basis points and is mainly attributable to our high percentage of customer balances within our balance sheet, where we dedicate close to 70% of our total resources to customer activity, both in client assets and deposits. Our peers in Spain are closer to a level of 50% on a weighted average.
In terms of our outlook for the future, we are committed to defending current levels in both customer margin as well as net interest margin. On page 13, we can see the results of our strategy to convert customer deposits into higher-value products for our customers. As you can see, we were not only able to deliver a material increase of 9% in net fees, but we also surpassed our fourth quarter results, reaching EUR 166 million in the quarter. All this in spite of the typical negative seasonality of first quarters for the bank in fees. This quarter represents a record quarter in recurring net fees and is a clear tendency of what we can expect to see in the coming months. Total net fees now represent 22% of the total income in the group.
Our strong commercial activity across the group continues to drive our excellent results in assets under management. Fees are up 21% year-over-year. Additionally, our transactional activity continues to drive solid growth in payments and collection fees from both our corporate and retail activities. Moving on to the other income lines on page 14, I would only highlight that trading income and dividends remain stable at EUR 24 million. In the banking tax, we accounted for EUR 95 million this quarter, EUR 18 million higher than the previous year. On page 15, total operating income EUR 4 million higher than last quarter and a 7% increase year-over-year. Our strategic focus on diversifying and expanding income sources has resulted in the continued tendency of achieving higher growth rates in income from businesses outside of Spain while maintaining a similar distribution in terms of income by type.
On page 16, operating expenses under control and below the growth we experienced last year in costs and also below gross operating income growth, allowing us quarter-on-quarter to improve our cost-to-income ratio and maintain leadership across the sector at 37% on a rolling 12-month basis and a 35% in the quarter. If we move to review the asset quality metrics on page 17, loan loss and other provisions total EUR 100 million, down 2% year-on-year and EUR 36 million below last quarter levels. Cost of risk is within our annual expectation, and we also continue to see a downward trend of other provisions also in line with what we were expecting for the year. We currently have no evidence of any negative impact to consider modifying our expectations.
In summary, on page 18, these strong financial fundamentals have also allowed us to reach EUR 327 million in profit before taxes, 11% year-over-year, and total group net income of EUR 201 million, growing 9%, as we mentioned before. Now, moving on to a few pages on credit risk and solvency. On page 19, the group NPL stands at 2.2% and in Spain at 2.6%. The small increase in NPL ratio is attributable in part to growth in SMEs, which is well covered by the government-supporting ICO programs in addition to real guarantees. Notwithstanding, our ratios continue to be considerably lower from the sector average, up 3.6%. This evolution clearly shows the resilience and the high quality of our loan book, probably best in class in our sector for Spain, and a trend that we are also observing in Portugal and Ireland, where we compare against the sector.
On page 20, with a stable loan book and decreasing deposit base in the quarter, our commercial gap regained levels similar to the end of December 2022. The negative commercial gap in Spain more than offsets the positive gaps coming from Portugal and Ireland. As a result, loan-to-deposit ratio in the quarter was 97%, very similar to levels a year ago. We remain comfortable aiming for a loan-to-deposit below 100%, which we consider a balanced level for this liquidity ratio. This quarter, we repaid our last outstanding TLTRO of EUR 1.3 billion, resulting in total wholesale outstanding funding below EUR 7 billion, the lowest level of many years, accompanied by a comfortable maturity schedule. Last slide. In this section, details are fully loaded CET1 ratio, finishing the quarter up to 12.46%, 16 basis points higher than last quarter, given the strong retained earnings generation of 35 basis points in this quarter.
We remain well ahead of the minimum requirements set for the group, the fifth lowest across Europe and lowest in Spain, strengthening our capital buffers. Now, let's review the performance of our main geographies and business lines and their contributions to the group. We will start with Bankinter Spain. In Spain, excluding the EVO franchise, from which we have included a separate page in the appendix, we continue to grow our loan growth year-on-year, reaching now EUR 60 billion, supported by strong growth rates in corporate SME loans of +5% and outperforming the contracting sector rates in retail banking. Again, healthy retail deposit growth of 5.4% year-on-year and additionally extremely strong growth in migrating customer wealth into off-balance sheet funds, increasing by 20% on a year-on-year basis.
As of the income statement, we maintain strong growth in NII and fees to reach EUR 625 million in gross operating income, an increase of 7% year-on-year, with operating expenses and loan loss and other provisions under control. In this quarter, we maintain our cost-to-income ratio at the impressive level of 28.5%, which demonstrates the business focus and priority across all areas to maintain positive operating jaws, reinforcing the scalability of our business model. All these factors have led us to increase profit before taxes by 14%, up to EUR 365 million, a new quarterly record for the Spanish business. Moving into Portugal, the franchise in Portugal, on page 24, we continue to see excellent results across the board. Our loan book grew by 20% to reach a key milestone of EUR 10 billion. Retail banking increased by 5%, of which customer finance contributed 25% of that growth.
Corporate and SMEs also grew by an impressive 28% year-on-year. Retail deposits, up to EUR 7 billion, 8% from a year ago, and an increase in focus to migrate funds to off-balance sheet funds, reaching EUR 4 billion and also up 8%. As the income statement, gross operating income grew by 14%, supported by robust increases in both NII and fees. We continue to improve efficiency, with costs growing below revenues to reach exceptional levels of cost-to-income of 30% in the quarter. All of the above made possible pre-provisioning profit to grow by 17% year-on-year. In this quarter, after EUR 11 million of loan provisions, Portugal profit before taxes reaches EUR 47 million, 9% more than a year ago. Moving into Bankinter Ireland, on page 25, this is the first time we share this information.
We continue to see the remarkable loan growth, both in our mortgage book, up 53%, as well as in our consumer credit book, up 19% year-on-year. Total new loan origination this quarter in Ireland tripled the figures in the same quarter last year, placing us in a solid position to continue to grow between EUR 0.8 billion-EUR 1 billion this year. We are very optimistic that our direct operating model and value propositions in the market will continue to scale, with improving efficiency level and outperform competitors. Asset quality indicators remain low and stable, with 0.34% NPL ratio in March 2024. In terms of the income statement, this is the first time, as I mentioned, that we share this complete P&L.
Another franchise where we see strong growth in NII and fees, and combined with contained expense and loan loss levels, led to profit before taxes returns up 5% versus the first quarter 2023. Before I pass by to Gloria to close the presentation, I would like to give a quick overview and focus on our two core business lines in the group, which span across our regional franchises: corporate and SME and the retail banking. The corporate and SME loan book in the group experienced robust growth by 8.5% year-on-year, fueled by growth in Portugal at 28%, well above the stable levels in the sector, and increasing by 5% in Spain, while the sector contracted by 3.7%.
On activity indicators for the corporate segment, in this market, we can highlight the international business segment, loan book up 15% to close at EUR 9 billion, with supply chain finance multiplied by 4% its activity year-on-year. This international activity, together with a pickup in funding or financing through Next Generation funds, will continue to provide relevant sources of growth in our corporate banking pipeline. Turning to page 27, now on our key activity in retail banking in the group during this quarter, salary accounts in Bankinter Spain and Portugal continue to grow at a steady pace of 5% from a year ago, with good levels of new customers acquired and in the pipeline. Quarterly new mortgage production impacted by weaker demand in this quarter but offset positively with lower levels of anticipated repayments.
Also, important to note our strong market positions in Spain, Ireland, and Portugal, both in terms of market share of new origination as well as a stronger performance in the backbook versus the sector. Even with benign market dynamics in mortgage origination, our total group mortgage backbook keeps growing quarter on quarter, reaching over EUR 35 billion. So in summary and for this year, we want to confirm some expectations. So our target is to increase our net income in 2024. Related to loan growth, we expect continued growth in all geographies and businesses: Portugal in all three mortgage, corporate, and consumer loans; Ireland, continued focus on mortgages and growth in personal loans and in credit cards outstanding. In Bankinter Spain, we expect some recovery in mortgage lending. Also, the corporate loan book should do better than in 2023, with increased activity in corporate demand after first half of 2024.
We remain optimistic with net interest income, with resilience in client margin and loan growth. Fee income is expected to grow at similar levels as we've seen in this first quarter, in part thanks to the rise in average fees of mutual funds under management seeking for more value-added products, the attractive alternative investment, and brokerage activity as rates go down and increase in corporate activity. Group cost will grow again in this persistent inflationary environment but should be close to the rate of growth of incomes. And finally, cost of risk after a flattish 2023 in asset quality and with comfortable quality in our loan book and prudent provisioning, we expect to finish the year in similar levels that we've seen today. So Gloria, I would like to hand back to you for any closing remarks. Thank you, Jacobo, for the review.
I will try not to repeat myself with the highlights that I discussed in my opening, but I do need to emphasize that we are very satisfied with the group's ability to continue each quarter to deliver strong commercial activity despite the complex and volatile competitive market and economic scenario. We are committed to stick to our strategy to continue growing our businesses whilst preserving the asset quality of our balance sheet, to continue leading the market in operational efficiency in order to preserve and improve our profitability levels. If we move now to page 30, I will say that we are extremely pleased with all of our KPIs for the quarter, that in no doubt will build the foundations for a solid year of results as well as in future years.
Consistent volume growth across the board, even in shrinking markets, as we can see in the upper left table, solid recurrent income and financial results, and we show in the upper right corner, strong and improved set of management ratios with comfortable solvency levels and stable NPLs underpinned by our market-leading cost-to-income ratio, all of which help us report a substantial 17.4% return on equity and an increase of 9% in book value year-on-year, delivering to our shareholders a 7% dividend yield.
Thank you, Gloria and Jacobo. We can now turn over to David to manage the live Q&A.
Good morning. We will now begin a live Q&A session with Gloria and Jacobo. As per the instructions previously sent, please remember to press star five on your phone to be able to ask a question. We kindly ask you to limit to two questions each. Thank you.
Okay. The first question comes from the line of Maksym Mishyn from JB Capital Markets. Please, Maksym, go ahead.
Hi. Good morning. Thank you very much for the presentation and the live Q&A. We really appreciate it. I have two questions. The first one is on outlook for the net interest income. Could you please share your view on how you expect customer spreads to evolve quarterly? And then, is there anything we should think of that can prevent you from outperforming your NII guidance for 2024? And the second question is on loan book growth and particularly on new mortgage production. Your new production has declined while market has been resilient. I was wondering if you have less appetite for new mortgages in Spain and what's the reason.
Thanks. Well, I will answer one of the questions.
Regarding NII, I think the first quarter results allow us to be optimistic, and there is more upside risk than otherwise in this sense. One of the advantages of actually having lower and slower reductions in interest rates is that we had time to prepare our balance sheet for lower interest rates. Of course, what we're doing is shortening the duration of liabilities and, on the other side, increasing the duration of assets through hedges and also through the ALCO portfolio that, as you have seen, has increased around EUR 700 million and has also widened significantly its spread. So as I say, NII, we are optimistic looking ahead. With regard to mortgages, and please just if you want to make any other remark, Jacobo, with respect to NII or?
I think we are optimistic, and I think, as you mentioned, there is a reduction in the cost of the retail customer deposit, which is already in place. In fact, we have more room for larger customer reduction than other peers, so that provides us much more resilience in the coming quarter in terms of the client margin. And also, I would say that reinforcing what you just said about higher rates that might go down slower than expected or might stay higher for longer, I think we have still some positive repricing going in the coming months, but definitely, the future reduction will be at a much slower speed that we expected. So I think that is very positive messages.
And I would like also to combine this message with a strong focus on fees because we try to see the NII combined with the fees in part from that strategy that we have mentioned in terms of moving some of the wealth of our clients into some value-added products. And as we see in this quarter, we have a very strong result in growth in fees. That's it.
Do you want me to talk about mortgages? Okay. So I think this was the second question. And well, we still have appetite, of course, for mortgages in Spain. What has happened? Well, first, I think this first quarter, some of our competition has actually lowered prices, taking into account or going before the decline in interest rates. We didn't want to do that.
We want to have decent spreads on our fixed mortgage book, but we are quite optimistic about the second semester. First, because we think that the drop in interest rates will increase the market, the mortgage market, and the demand for mortgages by our clients. The other thing is that we will have to do lower production to be able to increase the book in Spain because we are seeing much lower repayments, earlier repayments in the book. And as I've mentioned, we foresee higher production in next quarters, lower anticipated amortizations, and therefore, increase in the book. I don't know if you want to make any remarks, Jacobo, about this. No? Okay.
Okay. Thank you, Max, for the question. The next question comes from the line of Francisco Riquel from Alantra. Please, Francisco, go ahead.
Yes. Thank you for taking my questions and for organizing this live call.
Very much appreciated. So I wanted to ask about the cost of deposits, which is down year to date as of March, but the stock of deposits is also down circa EUR 3 billion in the quarter, and the loan book deposits is rising again towards the 100% threshold. So I wonder how confident are you that you will not have to pay up for deposits in the second half of this year or whether you will have to slow down the off-balance sheet migration. So overall, you can comment on the front book, backbook dynamics in the cost of deposits. The expectations for the beta will be appreciated. And my second question is a general question for Gloria.
I mean, Bankinter is building up capital organically despite the loan growth, and I wonder if you have set an internal limit in terms of capital accumulation and how do you plan to use this excess capital generation. Thank you.
I will answer the second question first, and then Jacobo, if you can answer the first. Okay. Well, you know, Paco, that our strategy is a strategy of growth and mainly organic growth. Do we have an internal limit? I mean, we've always said that our objective is to have around 12.5% CET1 and maybe depending on the moment with a buffer or not, but that is more or less our target.
If we have plans, projects ahead where we think that we can return, that we can return, that we can give good returns to our shareholders with organic growth, we will retain this capital and invest it in our business. So I suppose that you wanted to know whether we are going to do any share buybacks. No, for the moment. We think we have very good projects ahead, and we are optimistic about business growth, so there is no point in actually returning this capital. We have this 17.4% ROE, which is well above the return any shareholder can get elsewhere with the same risk. So I'll pass you through to the next.
Okay. Thank you, Gloria. Good morning, Paco. Definitely, we are very confident that we can maintain quite good levels of liquidity ratio.
We do have a client base that brings to the bank somewhere between EUR 5-7 billion every year of new wealth, and definitely, there is room to bring on balance sheet and off-balance sheet new funds. There's still quite some liquidity in the market, so we see that there is no excessive pressure on price of deposits. We do have very good liquidity levels. We do have very good levels in LCR. We do have very good levels in loan to deposit or deposit to loan. So from that perspective, there is no major concern. And regarding our capacity to bring funds on board, we are very, very confident. And regarding the pricing, I must also I think Gloria mentioned it before. We are shortening the duration of the deposits that we are capturing.
So in the corporate banking business, duration is no larger than around three months, and in the commercial banking business, duration is around, on average, at six months. So we are quite confident that the reduction of cost deposit is something that will happen. Of course, bear in mind that rates expectations are to go down, and this will drive some tailwind to this moment. I also mentioned before that we have a position with the cost of deposit higher than others, so we have much more room for improvement and much more room for being resilient in our customer spread.
Tha nk you, Paco. And the next question comes from the line of Álvaro Serrano from Morgan Stanley. Please, Álvaro, go ahead.
Hopefully, you can hear me okay. First of all, congratulations, Gloria, on your new role. And I have two follow-up questions, I guess. One on deposits.
The deposit balance is the term deposits. My understanding is that the spike in Q4 was related to inflows in Portugal. Can you maybe discuss where those term deposits have gone to? Is it they've gone sort of out of the bank into sort of off-balance sheet products? Just what's going on in terms of the actual balances. Another question on loan yield. You mentioned that there's more repricing to go, but the loan yield has been flat in the quarter. I'm just thinking, should we expect that loan repricing to nudge loan yields up, obviously, adjusted for any central bank rate changes? But I'm just curious that we are everyone's talking about repricing of loans, but the yield doesn't seem to move at all. Thank you.
Hi. Good morning, Álvaro. Yes.
I mean, definitely, the increase on term deposits in Portugal last quarter, as you know, was due to seasonality and also because we have a strong growth in that quarter in Portugal. We have switched, again, into off-balance sheet items, and the growth in Portugal is also very good and the same strategy than in Spain, which are to bring onboard customer funds and try to transform them in value-added products. In addition to that, we manage the cost of deposits. And of course, if there's opportunity to reduce the cost of deposit, this is something that we also manage on a daily basis. And regarding the loan yield, I mean, there's still some repricing in the mortgage. In the overall book, probably, there is some stabilization, but in the mortgage book, there's still some repricing to come probably in the coming months until the summer.
But if Euribor keeps stable or starts decreasing, definitely, we have some shorter duration in the corporate banking book, and the overall yield may be much more stable in the coming quarters.
Thank you, Álvaro, for your question. The next question comes from the line of Nacho Ulargui from BNP Paribas Exane. Please, Nacho, go ahead.
Thanks very much. Hopefully, you can listen to me. Thanks for the live Q&A. I just have two questions. One on following up on the NII guidance. And you said before that in 2024, should be flat NII. Now you sound more optimistic. What can go wrong not to deliver a growth into 2024 NII? And the second one, it's on income generation, the high single-digit 9% level, should continue being underpinned by asset management. We have seen a very big decline in other fees in the quarter.
Should we expect something like what happened in 2021 with the investment funds, with the vehicles telling to support that 9%, or the 9% is excluding any kind of one-off into 2024? Thank you.
Good morning, Nacho. No, no. I mean, the figures that we are providing and the expectation of growth in fees, this is excluding any extraordinary items. I think we couldn't hear you very well, but I think that your question was related that our expectation for fees for this year, if it was including any type of operation and transaction with this type of vehicles, the answer is no.
I mean, we do expect this growth in fees to be, let's say, recurrent and due to our performance in anything related to asset under management, to payment and collections, and to anything which is driving our business from on-balance sheet items to off-balance sheet items and anything related to transactional issues. This is for the second question. The first question, and again, I'm not sure that because we couldn't hear you very well, but I think you mentioned something about the NII guidance, but I'm not sure exactly the point. But I think it's I mean, basically, we are more optimistic in terms of what's going to happen across the year in this line of the P&L.
We might wait until June to provide an updated guidance, but basically, we definitely are more optimistic after what we saw in this first quarter and after the dynamics that we are seeing in the latest months on this quarter.
Th ank you, Nacho. And the next question comes from the line of Britta Schmidt from Autonomous. Please, Britta, go ahead.
Hello. Good morning. Thank you for taking my questions. I've got two questions, please. One is on the cost of risk. It sounds like guiding to a cost of risk closer to 40 basis points from 35 to 40 basis points previously. Does that include any overlay usage, and have you deployed any overlays in the quarter? I think at the end of last year, there were still EUR 53 million remaining. And what would be the underlying cost of risk without any overlays if it's different?
The second question is on capital. It is fairly likely, I guess, that the Bank of Spain is going to introduce a sort of macroprudential buffer, whether it's countercyclical or systemic. What are your thoughts on the introduction of that, and do you expect that to change how you manage your capital and the target capital that you want to maintain? Thank you.
Hello, Britta. I will answer you. With respect to capital, yes, the Bank of Spain is speaking about introducing a macroprudential or something similar buffer, and this won't change the way we are managing our capital ratios. So we won't expect any difference in our target CET1. With respect to the cost of risk, we didn't deploy any overlay in this quarter, so it is a clean 39 basis points cost of risk.
Thank you, Britta, for your question.
The next question comes from the line of Marta Sánchez from Citi. Please, Marta, go ahead.
Good morning. Thank you very much. Just one question on EVO. What is the rationale of keeping it as a separate entity? You're still struggling to make money in that division. Wouldn't you be saving costs and gaining efficiency if you were to consolidate it with the main group? Thank you.
Hello, Marta. I will answer your question. I think when we acquired EVO Operations together with Avant Money because they came in one, the rationale for EVO was actually having a digital bank where we could learn and innovate and test different digital marketing, different products. That would be impossible within Bankinter first because growing this type of business organically within a big bank or a big organization, it's like I'm going to be very clear here.
For the traditional operations, this is like a tumor that you have to eat or you have to take away. So we decided to do this, to make our investments in innovation here in EVO. This is the rationale. What we are doing with it in the future, I don't know. I don't have this in mind for the moment, so we will give you more information in the future if there are any changes in the strategy.
Thank you, Marta, for your question. The next question comes from the line of Carlos Peixoto from CaixaBank. Carlos, please go ahead.
Yes. Hi. Good morning. So my first question would actually be on the cost guidance. So should we expect costs to remain growing at more or less these levels throughout the year?
And also, as we discussed full-year guidance, should we adjust for any specific costs related, for instance, with Sonae JV last year, or is the guidance including those costs as well? Then on the second question, we'll be focused a bit on NII still. So first, I noticed there was a bit of an increase in the output portfolio in the quarter. Are we now at or are you now at levels that you see as more or less stable for the portfolio, or do you expect it to continue to build it up throughout the year? And within that line as well, what's the current interest rate sensitivity of your balance sheet given the evolution that we had throughout the quarter? Thank you.
Okay. I will answer you the cost question, Carlos. As you might have seen already in the presentation, costs are growing in new businesses.
This is Portugal, Ireland, and EVO, as you've seen in the slide that we've presented. But basically, here, we have very optimistic expectations of growth in the business, and we are investing, and this is why we are investing there. Nevertheless, I want to point out that we invest in growing, and this is what allows us to still have a best-in-class cost-to-income ratio, which in Spain is under 30%, but in Portugal, it's in 30%, and as you have seen also in Ireland, it's in very comfortable levels, much better than any of the competitors in that geography. So we think we can invest. This will make, of course, costs grow, but we will keep our best-in-class efficiency ratios looking ahead. I pass you through the N&I. Okay.
Yes. Good morning, Carlos. I heard that you have a question regarding the ALCO portfolio and its size. Yes.
I mean, it has increased a little bit, the ALCO portfolio. It may increase, again, a little bit in the coming quarters. I mean, as you know, we have some limits on the size of the ALCO portfolio related to the size of the equity. Since the equity is growing a little bit, then the ALCO portfolio can grow a little bit. But no major changes are expected regarding the size and regarding the contribution. The contribution has always been a little bit around or below 10% of the NII, and this is something that it will stay unchanged in the coming quarters.
Thank you, Carlos, for your question. The next question comes from the line of Borja Ramírez from Citibank. Please, Borja, go ahead.
Hello. Good morning. Can you hear me?
Yes, please. Perfect.
Thank you very much for taking my questions. I have two.
Firstly, is on fees. You had a very strong growth in asset management fees of around 21% year-over-year. I would like to ask if you could provide more details on the asset management fee margin over AUM if your customers are shifting into products with a better fee margin. And then my second question would be, I understand that your rate sensitivity is 4% of NII or 100 basis points change in interest rates. If that were correct, then if I look at the change in the forward rate for 2024, the market is pricing in an average Euribor three months of 3.6% for this year. This is an increase of around 40 basis points compared to the expectations during your Q4 results.
So that would mean roughly that, based on your sensitivity, 40 basis points better rates multiplied by 4% sensitivity to interest rates would be a 2% better NII compared to your guidance of flat NII that you provided at your Q4 results. I would like to check if this would be correct. Thank you.
Hello, Borja. Thank you for your question. I will answer you with regard to fee income in asset management fees. Well, here, there are two effects. One is the volume effect that you have seen, a very significant growth of 18% year-on-year, and this, of course, accounts for an important part of the growth in fee income. The other effect is the increase we've had in the average commission. Okay?
It has increased around 3-4 basis points compared to the average that we had last year, and this is due to several actions that we took last year in order to increase this margin. Basically, one of the things we did was to try to transfer some of these funds that the clients had from very low monetary, very low-income monetary funds to our own funds, which have, of course, much greater fee income. One of the funds, actually, we launched it in the last quarter of last year. It has actually now more than EUR 1 billion, and it has 30 basis points better margin than the funds where these clients were positioned. So this is one of the reasons.
Also, for very low, for instance, funds from third parties, we are starting well, depending, of course, on the client because it goes on one-on-one basis, but we are charging depository fees that we weren't charging before and many other actions that we've taken to support and increase the average fees in asset management. Looking ahead, we continue to see good volumes, and of course, you will continue to see some bps increase in the average commission.
Good morning, Borja. Regarding the NII sensitivity, I think the assumption or the comment on the NII sensitivity that we provided in January, I mean, that's correct, and it's exactly the same. We have a minus 4% for every 100 basis point parallel shift. I think, basically, rates are behaving better than expected since they are probably higher for longer. We'll definitely be more optimistic.
I'm not going to check your figures and let you know right now if I totally agree or not, but basically, what I'm trying to say is that we are definitely more optimistic, and as I mentioned before, in Q2, we will provide an updated guidance, but of course, NII will perform better than expected.
Thank you for your questions, Borja. The next question comes from the line of Miruna Chirea from Jefferies. Please, Miruna, go ahead.
Good morning, Gloria. Morning, Jacobo. Thank you for taking my questions. I just had two, one on NII and one on asset quality.
On NII, I just wanted to check with you that it's fair to think now that NII has likely peaked in Q1, and I would like to understand how you're thinking about asset yields versus the cost of deposits in further quarters from here because asset yields are more or less mechanical in the function of the level of interest rates in the market, but cost of deposits is probably where you have more control. So how do you think about your ability to manage down cost of deposits further as asset yields are starting to come down as well?
Then on the asset quality, in Q1, you had a cost of risk of 39 basis points, which is indeed towards the higher end of the 35-40 basis points guidance that you provided at full year, while some of your peers, if anything, are guiding for upside risk to their cost of risk guidance given at full year. Is there any segment in your loan book that is maybe performing a bit worse than you were expecting at full year? Specifically, how is the ICO loan portfolio performing, please?
Hi. Good morning. I'll start with the second one regarding the cost of risk.
Of course, we have some seasonality also in the first quarter, so it's a much more stable level, and that's why the final figure might be in the higher range, but we don't have any expectation in terms of changing that figure in the coming quarters. We haven't noticed any increase in delinquency levels. You were mentioning some business segments, and nothing has changed. I mean, the consumer finance segment and the SME segments are the ones that, by themselves, have the higher normally cost of risk. And of course, in the SME business, we have fully protection either from real guarantees either from ICOs that you have mentioned. So from that perspective, we are a very defensive and prudent loan book in the SME business.
Regarding to the first question regarding to NII, and apologies if I missed something because we couldn't hear you very well, but I think you mentioned something about how are we managing the reduction in the cost of deposits. And I think, as I mentioned before, we have much more room than others to reduce these cost of deposits. I think we are shortening the durations. We are trying to transfer or to switch on-balance sheet into off-balance sheet that provides a very good long-term relationship with clients and very good flow of income in the future. So this is the balance that we are managing. And I think also you mentioned something regarding peak in terms of yields or cost. Yields and cost. Yields and cost. As I mentioned, I think this is going to be resilient across the year.
We need to manage the timings of the things because the repricing speed of the deposits. It's not exactly the same of the assets. Excluding those potential timing effects, I think that at the end of the year, we will end up with quite good resilient figures in terms of client margin.
Thank you, Miruna, for your questions. The next question comes from the line of Hugo Cruz from KBW. Please, Hugo, go ahead.
Hi. So I wanted to ask a bit on rate expectations, and it's great that we have an open Q&A because it was never clear to me what your expectations were when you gave the guidance to NII. So if you could clarify how many rate cuts did you assume for 2024?
And then on the fees, is there a performance fee effect in your guidance, and if so, is there any or also on the fees you reported in Q1, and if there is a performance fee effect, is there any seasonality in that? Do you book it in particular quarters? That's it. Thank you.
Hello, Hugo. With respect to fees, because I was answering the question before, no, we are not factoring any success fees or any extraordinary success fees into our expectations of fee income. We expect, as I say, very good performance in asset management, also in anything that has to do with payments and with corporates and with volatility that we are seeing in the US dollar. I think that also income from interest rates, sorry, from exchange will be up also in the year. So we really have very good expectations with fee income this year.
With respect to NII, I think that we with respect to rate cuts, what are our expectations? Okay. Really, we are very much in line with the market, so what we are expecting is cuts probably but timid cuts by the ECB probably in June and July sorry, one in June or July, and then maybe another or two maximum in the second part of the year. But we are not expecting huge cuts in the year, many, many, many less than we were expecting at the beginning of the year.
Thank you, Hugo. The next question comes from the line of Ignacio Cerezo from UBS. Please, Nacho, go ahead.
Hi. Good morning. Thank you for taking my questions. I've got two sorry, to come back on the loan yield. I would probably have expected loan yield to go up this quarter.
I mean, we have three-month kind of flattish 12-month tailwinds still coming. You still have a third of your lending book in fixed-rate status. So is there anything in particular this quarter that has basically stalled the loan yield expansion? And the second question is a bit more qualitative, if you want. Actually, I know it's very early to think about next year, but I mean, if you can give us your views about how you plan to sustain your normal approach, basically, of keeping operating yields flat or positive, considering that probably the pressures on NII should be accelerating in coming quarters and the carryover into next year is negative. Thank you very much.
Hi. Good morning. Good morning, Nacho. I mean, loan yield, it's a combination of some assets that reprice much in the longer term, like the mortgages that reprice once a year.
As I mentioned before, from that perspective, there's still positive repricing in the mortgage book. But we also have corporate banking activity, which has shorter duration, which are linked or reprice faster. So even if rates are probably higher than expected, the repricing of those assets has been faster, and Euribor has gone down in the second half of 2023, and therefore, there is a lower level of yield in that part. Combining both of them, today, we are in a stable position in terms of the movements of the loan yield. Regarding the operating yields, we still, I mean, confident that we can keep positive operating yields in the future. We still positive not only 2024 but also in 2025 that our total income in 2025 is going to be growing again.
So we don't have any specific concern as of today regarding the level of cost because we are very confident today that the level of income in 2025 is still going to be positive with good news, and therefore, yields will remain resilient in the future.
Thank you for your questions, Na cho. The next question comes from the line of Fernando Gil from Bestinver. Please, Fernando, go ahead.
Hi. Hello. Can you hear me okay?
Yes.
Okay. Thank you for taking my questions. Congrats, Gloria, and good luck in this new role. A follow-up question regarding deposit and the deposit mix, please. Does the bank have any target split between sight deposits and term deposits? We have seen in this quarter a stabilization in the trend moving from sight to term, and I just want to explore a little bit that strategy. Thank you.
Thank you, Fernando.
Well, basically, effectively, what we've seen is the contagion from sight deposits to stop. Actually, we are seeing increasing sight deposits now in the retail, very stable and maintaining costs in private banking, and where we are seeing maybe a little more drop in term deposits is actually in the corporate segments. We think that the movement to term deposits is almost over unless there is an increase, of course, in rates, which is very unlikely, as you can imagine. And what we are trying, actually, now is in the renewal of these term deposits to reduce significantly the duration so that we can adapt the price quicker in the year. We are quite happy. Actually, what we are seeing is a reduction of cost in retail. As I said, stabilization in private, and in corporate, it's also stable.
We foresee, because we are seeing it already within month after month and week after week, that the overall costs are going down.
Thank you for your question, Fernando. The next question comes from the line of Alberto Nigro from Mediobanca. Please, Alberto, go ahead.
Yes. Thanks for taking my question, and congratulations, Gloria, for the new role. I have just one follow-up question, and it is, again, on the switch of deposits into AUM. If this is also coming from the term deposits, and in particular, if you are changing your assumptions regarding the evolution of term deposits throughout the year in terms of volumes and how much switch you think you can do in the coming quarters according also to the duration of the term deposits?
Hi. Good morning, Alberto. Yes. As Gloria has mentioned, we think that the level of term deposit has reached the maximum.
We do expect some stabilization and probably some decrease in coming quarters since interest rates will go down. The attractiveness of term deposits will reduce over time. In addition to that, as we mentioned before, there is a reduction in the duration of those deposits. Therefore, the transformation into assets under management is something that we will stay over the following quarters because we believe that in the long term, we can provide a much better profitability and try to advise our service to our clients switching from the term deposits into a much more value-added product.
So in summary, I mean, there is a stabilization in the level of proportion of term deposits versus sight deposits, and in the coming quarters, we will expect the starting of some declines, small decline in the future as the attractiveness of assets under management will increase in contrast to the term deposit. Thank you.
Thank you, Alberto, for your question. The last question, I think it comes from the line from Marta Sánchez, again, from Citi. Please, Marta, go ahead.
Hi. Sorry, just a follow-up on costs. Have you changed your guidance? Because I think before you were very committed to positive yields, and I think Jacobo said that cost growth would be close to income growth, so I just want to clarify that, please.
Yes. We expect positive yields. We expect income to grow more than the growth of the costs.
I did mention that in 2025 because there was another question regarding to costs that in 2025, we do also expect income growth that will provide us some resilience in terms of that positive yields. Sorry if it was not clear before.
Thank you. This has now ended our live Q&A session. On behalf of Bankinter, we thank you all for your interest and participation in the webcast. Prior to closing the webcast, I would like Jacobo, if he has any closing remarks he would like to add.
Thank you, Laurie. Yes. First of all, thank you for your questions. Before finishing this webcast, I would like to announce that our colleague David will leave the investor relations team after 13 years in this role.
David joined the investor relations team in 2011 with Gloria as a CFO and has performed an outstanding job during this period providing support to all of you over time. Now, it is time for new challenges for David, and David is taking over new responsibilities within the financial team leading the financial analysis function of the group. I want to publicly thank David for his outstanding job during these years. I strongly believe that you have appreciated his role over this time. Thank you, David. If there's anything, David, that you want to mention.
Just thank you, Jacobo, obviously, for this opportunity, and thank you, everyone, obviously, for listening us today and joining. Thank you so much. Bye-bye.