Good morning, everyone, and welcome to Banquinter Full Year twenty seventeen Results Presentation. As usual, Gloria Hernandez will go through the presentation and highlight the main details of our financial information. Thank you.
Thank you, David. Good morning, and welcome again to our presentation. The related financial statements were filed with the Spanish Securities Market Commission before market opened. You may access several related documents and files on our corporate website. I'd like first to summarize this year's main financial indicators.
Gross operating income has reached 55,000,000 up 8% from last year. Minus Portugal, which had an additional quarter in 2017, gross operating income growth would have been 6%. The group's NPL ratio has dropped 56 basis points since December to 3.45%. Without Portugal, our NPL ratio would stand at 3.06%, well below the sector's 8.1% at November 2017. The group's net income has reached €495,000,000 It is again a record year in terms of earnings, up 1% year on year, offsetting the extraordinary results around €100,000,000 after tax included in last year income statement mainly related to the goodwill generated in the Portugal deal.
Factoring out Portugal's total contribution in both years, net income would have been would have seen a 20% increase from 2016. Our fully loaded common equity Tier one ratio stood at 11.5%. It has remained flat since September 2017, but grew 31 basis points throughout the year. Adjusting for extraordinary results, the group's return on equity climbed 1.8 percentage points from a year ago to 12.6% and is best in class among listed banks in Spain. Before reviewing the group's quarterly performance, I'd briefly like to look back on our group's earnings over the last ten years.
Our 2017 earnings hit an all time record. We managed to outdo our extraordinary earnings from last year with an outstanding 32% compound annual growth rate that we have held since 2012. Looking forward, we could not start off in a better position to face new challenges and opportunities. I will now go over Banquinter Group's financial results and credit risk as well as liquidity management performance to finalize with a quick overview of our various strategic business lines. First, our fourth quarter income statement shows some very positive income trends.
Net interest income reached €272,000,000 4.8% more than in the previous quarter and up 2.3% from the same quarter last year. Both include the contribution from Portugal's extraordinary net interest income. In a better comparison, that is excluding these extraordinary impacts, net interest income grew by 3% with respect to the previous quarter and by 5.9% compared with the fourth quarter in 2016. Fee income last year was up 6.7% quarter on quarter due to usual fourth quarter seasonality and 5.1% year year. Total net fees were 11.7% higher than a year ago.
Excluding the extra quarter for Portugal, comparable growth was 9.6% from the year on the back of increased volumes and transactions in corporate business. Other operating income decreased by 32% quarter on quarter. This is exceptional due to the contribution to the Deposit Warranty Fund in the period. Nonetheless, compared with the fourth quarter of twenty sixteen, this item actually grew by 3.6%. In short, although our gross operating income saw a quarter on quarter decrease of 3%, it climbed 2.3% with respect to the same period last year.
Operating expenses for the period went up from the previous one because of the usual seasonality. What's more significant, however, is that they fell 2.6% year on year. As a result, this allowed our pre provision profit this quarter to grow by 8% from the same quarter last year. Looking now at the provisions. In this last quarter, we reclassified 17,000,000 in other provisions from impairments from NPLs, which we will explain later on with our credit quality analysis.
Aside from this, cost of continues to follow a similar downward trend both quarter on quarter and year on year. Finally, our net income this past quarter grew by 32 from the same quarter of 2016. The graph on the right hand side shows the trend in net income for the last eight quarters. Here are Banque Inter Group's total P and L figures for the full year 2017. This also includes a like for like comparison without our Portuguese franchise.
Net income totaled €495,000,000 This is up 1% from a year ago. On a like for like basis, that is without Portugal, net income would have been €472,000,000 up 20% with respect to last year. In the last twelve months, the group's net interest income saw an 8.5% increase. Minus Portugal, this increase could have been 5.2%. For another year, our net interest income has remained strong despite this low for loan rates environment.
Fee income was up 11.7 Like for like, it still stood strong at 9.7%. This demonstrates the constantly sound performance of our asset management business as well as increased activity in our Corporate Banking business. It also reveals the last year improved market environment for our assets under management business. With LDR revenues, other noninterest income from customers has grown by 5.6%.
And without Portugal, this figure would be 6.8%. Trading income hit record lows, standing at €62,000,000 for the year. Overall, Banquinter Group's total gross operating income showed a year on year increase of almost 8% or a very resilient 6% without Portugal. Costs increased, although at a slower pace than income. This increase at 4.7% continued to be due mainly to strategic investments.
Excluding Portugal, the growth was 3%. Both figures are according to plan. Cost of risk fell by an extraordinary 23% to €177,000,000 or 29 basis points. Finally, our pretax profit for the year stayed at €677,000,000 offsetting all the extraordinary bad will from 2016. On a like for like basis, our net income would have increased by 20% from a year ago.
Maginta Group achieved most of its business turnover targets for the year despite the unfavorable rates environment and the continued decline in lending across Spanish banks, down 1.7 year on year as of November 2017. For another year, Banquinter continues to be the exception to this particular trend. Our loan book grew by 3.8%. This marks an increase of €2,000,000,000 in the last twelve months and more than 1,000,000,000 Customer retail funds grew last quarter by €1,000,000,000 with continued reductions in time deposits as a result of our low rate policy and increases in site accounts and payroll accounts particularly. Despite the continuing transfer from deposits to mutual funds, customer retail funds grew in the last twelve months by €2,300,000,000 Organic growth remains well above 5% year on year, outperforming the sectorial growth rate of 3% as of November 2017.
Consequently, our market share both in Spain and Portugal continued to grow. Despite persistently negative euro rates, positive trends. Net interest income in 2017 grew by 8.5% year on year, while quarterly, it increased by 2.3% with respect to the same quarter in 2016. Like for like, these growth rates could be 5.24.7%, respectively. Banque Inter Portugal's recurring contribution to net interest income for the year was €54,000,000 Extraordinary net interest income in Portugal coming from the NPL recoveries in the corporate loan portfolio acquired from Barclays amounted to €47,000,000 in 2017, up from €34,000,000 in 2016.
For 2018, under the new IFRS nine regulations, most of the expected recoveries will be accounted as positive cost of risk, while a minor part, approximately €10,000,000 will be still accounted as net interest income. On a quarterly basis, net interest income also revealed a positive trend, growing at 4.8% to €272,000,000 the best quarter of the year and 2.6% excluding Portugal. Accordingly, our NII yearly guidance for 2018 is low single digit for both the group and our banking business in Spain. As regards our customer margin, the graph on the left shows us that despite another year of record low yield curves, it increased to 1.9% in 2017, up 15 basis points in the year and 110 basis points from 2012 and with a resilient quarterly trend throughout the year. Customer margin improved on the back of resilient credit deals in this past quarter.
It climbed seven basis points from the third quarter to 2% and with a mere seven basis points drop in the year average to 2.01. Meanwhile, our cost of liabilities decreased by one basis point quarter on quarter since we have likely reached the end of our rate reduction. Still, it fell 19 basis points during the full year to 0.12%. Our time deposit back book continues to shrink in size and cost, almost reaching record lows. It now represents less than 18% of total retail deposits.
The back book price stands now at 22 basis points, which is almost the same price as our front book. Going forward, we expect our mortgage and corporate lending yields to remain fairly stable. We also believe the cost of retail funds will continue to be very low and stable with some improvement in the cost of wholesale funding in 2018. All in all, our forecast is that our customer margin should remain resilient in the coming quarters. Our ALCO portfolio's contribution to net interest income continues on a downward trend.
The total ALCO portfolio amounted to €5,900,000,000 with an average yield of 2.7%. Its average duration is two point seven years, while the average maturity of ALCO bonds is eight years. 67% of them are Spanish government bonds. And due to this portfolio's long term maturity profile, we should expect a contribution of 15% trending down to 12% to our net interest income in 2018. Unrealized capital gains totaled approximately €440,000,000 Net fee income continued to be strong in terms of quarterly and annual trends, growing by two digits year on year.
The €7,000,000 increase in group fees from the previous quarter is due to the last quarter's seasonality as well as to the excellent performance of franchise. Overall, the group's total fees reached €423,000,000 up 11.7% from a year ago. The organic increase reached 9.7% with respect to a year ago. Today, Portugal contribution to group quarterly fee income is around €9,000,000 Fees from assets under management, the largest contributor to net fee income by more than onethree, increased by an excellent 23% year on year. This is due to the strong volume growth in mutual funds and managed portfolios as well as the extra quarter for Banquintra Portugal.
Payment and collection fees, the second largest contributor, were up 12% from a year ago on the back of higher corporate customer customer turnover. Equity brokerage and custody fees grew by almost 9% year on year. Life insurance fees also grew by 12.4% from a year ago, owing to our new mortgages production and the contribution from Banquinter Portugal. Finally, fee spec to our independent financial agents and partners grew by nearly 15% year on year, showing continued potential for both additional distribution channels. In 2012, when our new business model of Private Banking and Corporate Banking took off, fee income represented 19.5% of total operating margin.
Today, it represents close to 23%. This positive fee income performance clearly inclines us towards our guidance of mid- to high single digit growth for 2018 provided that the market environment remains stable. Other income increased by 5.7% from a year ago. Linea Directors insurance margin once again proved to be the largest contributor here, up 11% in the last twelve months. Today accounts for 21% of the group's total gross operating income.
The chart also highlights the recurrent 18% increase in regulatory costs during the year, including the contributions to the resolution fund as well as our national deposit warranty fund. All in all, gross operating income is up 7.8% from 2016. Customer related business in both Spain and Portugal has grown by 8.7, showing the improved quality and recurrence of our earnings. In this slide, we present how the contribution of the different revenue items of to the group's total income has changed in the last five years. The main contributor to the group's total income is net interest income with 57%, almost five percentage points more than in 2012.
It is followed by fee income with almost 23% from 19% in 2012 and other income from customer business at 16%, reducing its contribution by three percentage points because of the huge increase in regulatory charges in these five years. Lastly, noncustomer related income from trading and institutional activities remains at all time lows at 3% of total income. Our operating expenses have increased by 4.7% from last year. Excluding Portugal, costs have grown by 3% year on year according to plan. In Linea Directa, enhanced marketing and sales forces sales force expenses have led to a 9.2% increase in expenses year on year.
In Bank Interest Spain, operating costs have remained very stable, growing by less than 1% in the year. Lastly, operating costs of our Portuguese franchise grew 25% from the previous year, taking into consideration the extra quarter in 2017. Compared with the last quarter, the group's total operating expenses grew by 3.6% or €8,000,000 But more importantly, when compared with the last quarter of twenty sixteen, the group's operating expenses were reduced by 2.6%. Finally, cost to income ratio in our banking activity reduces to 46.8% from 48.6% in 2016, the year of the integration of our Portugal business, a less efficient franchise. In 2018, we will continue to invest in IT and efficiency gains projects and to enhance marketing efforts to increase sales while maintaining efficiency.
Therefore, a mid single digit increase in the group's cost would be our reasonable guidance. This slide presents Banque Inter Group's yearly cost of risk performance, which has continued to fall very steadily sorry, since 2012. I remind you that Banque Inter calculates cost of risk differently to its peers by including all impairment charges as well as losses from foreclosed asset sales. We set a new low for this significant indicator of 29 basis points or €177,000,000 for all of 2017. In this last quarter, following the Supreme Court ruling on November 15 regarding FX mortgages, we carried out a reclassification of some of our credit impairments as legal provisions that consequently reduced the last quarter cost of risk by €17,000,000 But it didn't affect the full year cost of risk because the reclassified provision had been fully charged in 2017.
The underlying cost of risk for the last quarter was 25 basis points. Adjusted for our reclassified provision, it is down from 26 basis points in the third quarter, 32 basis in the second and 36 basis in the first quarter of twenty seventeen. Nevertheless, after IFRS nine is fully implemented in the first quarter of twenty eighteen, we continue to believe that 40 basis points is our midterm cost of risk guidance for the cycle. And finally, our annual return on equity that has reached 12.6%, second to known among listed Spanish banks. Our ROE has made remarkable progress since December 2012 when it stood at 4%.
This upward trend will continue in the near future. I will now discuss the group's main solvency and risk management indicators, including credit and liquidity risk. Asset quality continued its positive trend. Our nonperforming assets have decreased with €61,000,000 negative NPL entries and a 20% decrease in early delinquency balances throughout the year. NPL balance is down 11.6%.
Portugal also reduced its NPL balance by 11% year on year and 2.5% quarter on quarter. The group's total NPL balance amounted to just €2,000,000,000 at the end of the year. Our NPL ratio continues to decrease and stands now at 3.45%, down 14% from a year ago. Bank interest Spain NPL ratio fell to 3.06% with less sorry, less than half the average of the Spanish banking system. NPL ratio of Banque Inter Portugal fell also 127 basis points to 7.43% at the December.
NPL provisions at €900,000,000 were down 20% from last year, in part due to last quarter NPLs to sale transaction, holding our coverage ratio at 44.5%. Our foreclosed asset coverage has increased to 45.2% from 42% a year ago. Our total problematic assets coverage makes us feel comfortable ahead of the new cycle. Our foreclosed asset portfolio, including Portugal, shrunk in net terms 21% from a year ago. Around 44% of the total were residential properties, while the rest is evenly split between commercial properties and land.
Asset sales in the last twelve months accounted for just about 43% of the portfolio at the beginning of the year with an average discount stable at 39%. Our fully loaded CET1 ratio at 11.5% remained flat in the quarter and has increased by 31 basis points since December. Capital generation through retained earnings was 80 basis points during the year. Due to loan book growth, capital consumption was 57 basis points more than offset by the retained earnings. The fully loaded ratio is within our guidance of around 11% and well above regulatory recently set for 2018 with a 4.7% buffer.
In facing terms, the CET1 ratio stands at 11.8% with a total capital ratio of 14.33% as of December 2017. Lastly, our leverage ratio also remains very stable at 5.2%. As reflected in this sectorial comparison of SREP requirements for 2018, Banque Inter continues to be comfortably capitalized with a 4.7% buffer. It also continues to bear the lowest regulatory requirement in light of its risk profile, business model and growth pattern. We also summarized here the impact of IFRS nine after January 1 in terms of impairment provisions, reserves and capital ratios.
The increase in on impairment provisions of financial assets due to the application of expected loss model amounted to $2.00 €8,000,000 The reclassification and assessment of shown assets in our ALCO portfolio in accordance with the new regulations arose January in gross capital gain, leading to a net worth after tax reduction of EUR 20,000,000. Despite this, we will have a positive impact in our CET1 fully loaded ratio of around 30 to 40 basis points due to the application of the capital framework rules and the reduction of expected sorry, the well, later on, I will explain this point. Our loan to deposit ratio has remained very stable at 110.4% since last quarter, having improved by 20 basis points in the year. The liquidity gap of our Portuguese franchise has shrunk by €600,000,000 since It Watch acquired. It is now stable at a very modest level of €900,000,000 Despite absorbing this amount, the group's total liquidity gap fell by €200,000,000 during the year.
The maturity profile of our wholesale funding remained unchanged with no concentration in any of the coming years. Maturities for this year amount to just €590,000,000 due to a cover bond coming to maturity in February. Concerning new issues, we plan around €1,000,000,000 in wholesale financing for the current year, most likely in MREL eligible instruments and cover bonds. Manquinter's liquidity buffer is quite substantial and has increased over the years. Now liquid assets amount to €11,100,000,000 with a capacity to issue an additional €900,000,000 in cover bonds.
Let's now have a look at our main customer business indicators from last year. As you can see, the contribution to total income from our business segments remained diversified and balanced during the year. Our main contributors continue to be Corporate and SME Banking at 30%, followed by Commercial Banking with individuals at 28, including Private personal segments. Banquinter Consumer Finance contributed 9%, and 7% of total income came from Banquinter Portugal. Lastly, corporate centers such as treasury, capital markets, ALCO management and other noncustomer business only accounted for 5% of the total group's operating income.
This pie chart comparing the business contribution from 2012 shows a remarkable increase in our in source diversification and the success in all our new contributors. For another year, Banquintas corporate and SME lending continued to outperform that of other Spanish banks with 5.2% net growth year on year. Organically, the growth was 4.6% despite the 3.4% loan book decrease recorded across the banking system in November 2017. Not only the quantity, but also the quality of such growth was reflected in our loan book distribution. Almost 75% came from mid corporate and SMEs, growing at 124%, respectively.
Only 25% came from large corporates, which grew at 2% and now represents 51% of our corporate loan book. Meanwhile, on the other side of the balance sheet, side deposits grew by 14% in both mid corporate and SMEs at a cost of one or two basis points. They decreased in large corporates by 10% after a zero rate policy for treasury accounts was introduced. We believe that we can maintain this balanced growth in the coming quarters and for all of 2018 on top of our current business performance and our increased market share in new lending, still close to 6% and well above our natural market share. Our corporate and SME banking business model focuses on building long term relationships by offering value added products and services to our more than 91,000 active corporate customers, 6.4% more than a year ago.
What's also remarkable is our growth in yearly corporate customer acquisition. Last year, we acquired 18,500 new corporate customers or 6% more than in 2016. Our main contributor to gross operating income in Corporate Banking is our international trade business. This transactional business generates fee income, 49% of its total contribution, liquidity and greater customer engagement. It has grown by 18% from a year ago and reached €140,000,000 during the year.
It now represents 24% of operating income, up from under 14% in 2014. Our Private Banking business continued to perform extremely well with net new money growing by €2,800,000,000 in 2017. With the market effect, customer assets in Private Banking grew by €3,800,000,000 or 12% to €35,000,000,000 by the end of twenty seventeen. More importantly, 85% of this growth relates to advisory products that now represents 43% of total assets. Customer acquisition increasing by 14% over the same period in 2016 is gaining speed and continues to be a major driver of the solid growth in this very profitable business segment.
In the last five years, asset under management in Private Banking had a stunning compound annual rate of growth of 20%. Looking now at our Personal Banking business. Assets under management and other wealth managed in this segment reached €21,200,000,000 up 14% with respect to last year with €2,300,000,000 in net new money during the period. Discretionary management and mutual funds still constitute 31% of total assets, but it grew by 33% in 2017. Customer acquisition grew by 24% from a year ago.
I would like to remark that if we add both private and Personal Banking Asset Under Management, we are now managing over 56,000,000,000 which is up from €26,000,000,000 in 2012. In Retail Banking, we continue to grow in our better known products. We closed the year with €6,800,000,000 in payroll accounts, up 22% from a year ago. 34% of our new customers came to the bank attracted by the payroll accounts. This product is also growing now in Portugal.
In mortgage loans, new lending reached similar levels from 2016 even though the total mortgage book shrunk across system. We took in €2,300,000,000 in new mortgages and continue to hold a significant 6.1% market share in this business in Spain. Our fixed rate mortgages represented close to 20% of new mortgage lending last year, reaching 30% by December. This figure is still below the market average at 57 as of September. Total balance sheet funds performed robustly during the year.
They rose by 2.7% with respect to September and by 13% overall, reaching almost €27,000,000,000 Most assets under management are mutual funds, which show a 22% increase in 2017 to €20,000,000,000 Overall, this growth is concentrated in equity, growing by 71% long term fixed rate funds, up 51% and guaranteed funds. Money market funds fell by 37% during the year. Third party funds continued to be 57 of the total, which reveals a very different profile to those of most of our local peers and our good relative position in the application of MiFID II in this regard. And now a yearly review of Banque Inter Portugal. The contribution of Banquinter Portugal after its first full year since the acquisition is relevant for the Banquinter group, and it is growing according to plans.
The 31 plus million net income is above plan and represents just over 7% of group incomes. Its total loan book grew by 6% in the year to 4,800,000,000 Its commercial banking loan book, mostly residential mortgages, amounted to €3,900,000,000 a 3% growth in the year. Corporate lending stood at €939,000,000 growing by 21% since December. Our market share in mortgage lending in Portugal was 4% as of November, and we have an outstanding presence in new residential mortgage loans where our market share was 5.7% in 2017. Banque deposits remained almost flat because their costs dropped eight basis points in the year to 11 basis points.
Still, our Portuguese franchise enhanced its product offering, including also payroll accounts. It also lowered its cost of corporate treasury accounts by 15 basis points to six basis points at the end of the year. Our market share for deposits in the Portuguese corporate markets stands at 5.1 at the November. Finally, our balance sheet growth has also been remarkable at 21 sorry, 25% in the year to €3,000,000,000 mainly in mutual funds as well as unit links. Banquinter Portugal's income statement shows a pretax profit of 31,400,000 for 2017 with €133,000,000 in revenue and operating expenses at €87,000,000 Still 35% of the revenue resulted from non recurrent credit loan recoveries.
Going forward, we expect that cost should remain mostly flat, while recurring revenues should rise due to increasing turnover. Therefore, in the near future, Portugal efficiency levels should improve to achieve a cost to income ratio more similar to that of Banquinter Spain. Banquinter customer sorry, Banquinter consumer finance maintained robust growth, having attracted 297,000 new customers in 2017, 21% more than a year ago. Lending balances have increased by 42% year on year to €1,500,000,000 At the same time, the cost of risk and NPL ratio, both crucial KPIs in this business, have performed according to plan. They ended the year at 2.27.2%, respectively.
Furthermore, our risk adjusted return continues to be above 10% at 10.6%. It is important to mention that the share of Banquinter customers in Banquinter Consumer Finance current back book is over 40%. As regards new business, the percentage of customers acquired through its partnered network, such as Vodafone, BP Linea Director or Aer Europa, is over 87%. The open market customers represent a tiny part of the book. About Linea Directa, the full year showed similar trends to the previous quarters.
Insured clients clients and premiums continued to grow by high single digits, close to 9%. Total Insured customers reached $2.00 €8,000,000,000 no, sorry, 2,800,000,000.0 people. Furthermore, both motor insurance and home insurance sales outperformed sector growth, having risen by 7.30.5%, respectively. Total issued premiums climbed 8% from a year ago. Motor insurance premiums increased by 7.1% over the sector average of 3.6%.
Home insurance premiums increased by 14.5% despite 2.8 growth across the sector at the November. Our combined ratio improved once again in 2017. It stayed at record low levels, which is difficult to maintain going forward, mainly because of the delayed impact of the Varemo, particularly in high severity claims that sooner or later will increase claim costs. On the positive side, newly increased requirements for less severe claims have helped reduce both fraudulent claims and the related provisioning. LDA's combined ratio at 87% continues to be second to known in an industry with an average combined ratio well over 90%.
In the last part of 2017, LDA launched a new line of insurance products called VIVATH. This is an innovative and digital value proposition in health insurance, where customers interact and use the insurance through their smartphones, and it is the first health insurance in Spain that rewards for healthy habits like just walking, applying direct discounts in premiums. Initiative is to increase both the number of customers and cross selling across among existing customers of LDA Group. Its business plan for the launching year has been achieved. LDA now has more than €2,800,000 risk in shared customers.
79% of them are concentrated in motor insurance and 18% in home insurance. Finally, here is Linea Directors' stand alone P and L in accordance with insurance accounting regulations. Its underwriting result will continue to show the strength of its business, growing by 17 in 2017. The increase in operating expenses, mainly in marketing and sales force cost, reflected the increased number of policies sold in the period. Financial income fell by 2% year on year, owing to the low for loan interest rates environment and represented a minor contribution to the total income.
All in all, LDA's net income climbed 6% to €112,000,000 reaching an outstanding ROE of 35% while maintaining a Solvency II ratio at two twenty seven. Here, you have a summary of the main indicators of the LDA record year. And finally, in this last slide, you have a brief recap of our main figures for this excellent year for Bargain Bank Intergroup. That is all I have on my part. Thank you all for your attention, and I will now take any questions you may have.
Thank you, Gloria, for the detailed explanation. Obviously, we will summarize now the questions that we have been receiving in the last half an hour from analysts. Les, perhaps, explain or elaborate a bit further on the impacts estimated impacts arising from the implementation of IFRS nine, especially the positive impact we have seen on the CET1 ratio fully loaded.
Thank you, David. What I before try to explain was the following. We applying the expected loss models, we have seen an increase in the provisions. This impact is clearly negative. Second, and taking advantage of the IFRS nine regulation, we have reclassified our ALCO portfolio to adapt it to the new business model contemplated by the IFRS nine regulations and to gain or to win more flexibility in these portfolios.
This has had a positive impact of around EUR 180,000,000. All these impacts are gross before taxes. Take this into account. Apart from this, we applying the taxes, we have the impact in in the net worth, that is EUR 20,000,000, in this case, is negative impact. How can we manage to get a positive impact in our capital ratio?
It's very simple. The explanation is that the increase in provisions has reduced the deficit of the expected loss that we had in the last quarters. And by reducing this deficit, increased our capital ratio. We have decreased the requirements of capital and we have increased the capital ratio. So that the last quarter, we talked about around of an impact of around 12 to 15 basis points negative impact of around 12 to 15 because we were considering only Now including this effect of the reclassification of the ALCO portfolio, this negative impact has been conveyed or has been translated in a positive one of 30 to 40 basis points.
This is an estimation. You know that we have to fix all these figures when we presented our annual report. We will have in that in this moment, we will have the definitive information on the IFRS nine impact.
Perfect. Thank you for the explanation. Moving now perhaps into the volumes, volumes growth that we had seen in the last year. What are your expectations for 2018, 2018, both on balance sheet lending growth and also off balance sheet AUMs and private banking Okay.
This year, growth has been more or less in the loan book around 4%, 2,000,000,000. And this is the same amount that we are waiting more or less for next year, between 2,000,000,000 and €500,000,000 for Spain plus Portugal in the loan book. In the balance sheet items, particularly in the mutual funds industry, this the growth this year, 22%, has been really very strong and related not only with the commercial activity, which has been very strong, as I mentioned in my presentation, but also to the favorable effect of the market as well as to the commercial activity with our corporate clients, which has been also sorry, this is why I was talking about only the mutual funds, sorry. The next year is the base effect is going to be less it's going to reduce a little bit the growth for next year because the base is higher and it's difficult to maintain a growth rate of 20%. But we will probably see two digit growth for this item, management or asset management.
Okay. Thank you. Moving now on to the P and L. We're getting asked questions on guidance on the different income and cost lines. Let's perhaps start with the NII.
What do you see on the NII for this year? And also, what do you see in terms of spreads, competition? And also, what is our rate sensitivity? Well, you have an updated figure.
Well, the guidance I have mentioned in my presentation is low single digit, but this is very affected by one fact that I have commented also in the presentation, which is the reduction in the nonrecurrent part of the NII coming from Portugal extraordinary recoveries. Well, we are this year, we have seen a very high contribution of this nonrecurring part, 47,000,000. And for next year, we are waiting for a reduction in this contribution, first of all, on an overall basis. Instead of 47,000,000 we are waiting more a figure more close to €30,000,000 But what is more important is the fact that of this amount forecast for 2018, this around €30,000,000 only a very small part around 8,000,000 or €10,000,000 is going to be reflected as NII because the rest is going to be reflected as positive credit impairment. This is a result of the IFRS nine regulation.
So that means that the reclassification of the extraordinary recoveries coming from Portugal will reduce three percentage point to the growth forecast in NII. That's the reason why we are forecasting low single digits instead of mid single digit. In any case, we are waiting not talking about the extraordinary NII, but the recurrent NII, we are very confident about the next year being maintain the same trends as we have seen this year, stable growth in volumes in the loan book as well as in the customer deposits book, but with a very reduced almost zero cost, more additional reductions in wholesale funding cost and a continued positive asset mix to offset some of the pressure in margins. In this regard, we waiting for more stable margins on the loan book. And this is more or less a better and lower impact from Euribor reductions in the repricing of the portfolio.
This is also a good effect or would impact positive impact for next year.
Okay. Do you have any update on the rates sensitivity to interest rate rises or
No. The exercise that we have done is more or less the same 10% impact if the interest rates goes up or goes down 100 basis points.
Okay. Thank you. Can you probably put some color on the guidance for fee income next year? You already commented on the AUM's growth, so that should produce
Okay. First of all, just to remind you that the growth this year has been the one that we have been anticipating in our guidance, double digit growth. Even excluding Portugal, the growth has been almost 10%, which is really very good and is based in both factors. First, the first that has been mentioned before, the good health of our asset management industry or franchise that has been also imposed by the favorable market conditions. But on the second hand on the second another second factor is the good health also of our transactional business with our customer coming from the corporate side.
In this sense, well, for this year, we expect most of this trend to continue probably at a slower pace due to the larger base that I commented before. So we can wait for mid to high single digit growth for 2018. So this is what we are waiting for. And this is well, this is based on forecast of markets performing reasonably well. If markets perform well, it's much more difficult to maintain this double digit growth in fee income.
Okay. And also, what are your views on just flipping outside costs on or cost to income medium term?
Well, first of all, you have to take into account that this the cost annual cost or yearly cost include one more quarter in Portugal this year and that's the reason why the increase is 4.7%. Like for like, the growth in cost is 3%. And excluding also the impact of LDA growth in cost, looking at the Spanish banking activities only, the growth is really very, very small, less than €6,000,000 and less than 1%. So this has permitted us to reduce the in the banking activities, the cost to income ratio, and we are in line with our plans. The reason for this increase in Portugal of 25% is this additional quarter that I have mentioned because Portugal is doing very big efforts to reduce cost and to increase and to improve its efficiency towards the Spanish bank levels.
And in LDA, the point here is that to increase premiums and policies, more specifically policies, you need to increase acquisition cost and you need to increase the marketing expenses as well as the sales force. In fact, in LDA, they have had an increase in FTAs FTEs, sorry, of 145 people. So for this year, 2018, as we have to continue investing in marketing acquisition, both in LDA as well as in Banquintur consumer finance. And we will continue investing in IT and our new digital teams, we are forecasting we are we have a guidance of mid single digit range with a more stable quarterly performance.
Okay. Moving now on cost of risk. What would be your guidance there given the already commented impact positive impact of the Portugal recoveries?
Well, for we have a mid term or long term guidance that we haven't changed of around 40 basis points. But this is, I repeat, a midterm guidance. Once the IFRS nine has been fully implemented and the cycle has stabilized. But what we are seeing that for next year, cost of risk is going to decrease by 15% to 20% with regards this year.
Okay. Thank you. And also, could you explain the reclassification on the quarter, the impact of the lower cost of risk that we have seen? Okay.
The fact or the question is that from the beginning of the year, we have been charging some impairments loss impairments related to the FX mortgages. And as a result of the Supreme Court ruling of November 15, which has nothing to see with Banquinter, first point, but is a Supreme Court ruling in any case, we decided according to our accountancy people recommendation to move this impairment losses from this line of the P and L to the legal provisions line. This is the reason why in the last quarter, the impairments have diminished, but this not this effect hasn't affected the annual cost of risk because I insist they were they have been charged in 2017, all the amount that has been reclassified.
Okay. What are your views on the litigation risk we've been asked?
Well, we as you know, all the banks in Spain, we are experiencing more litigation costs. And this is a trend that is here to stay for a long time. In our case, we have the main issue is the FX mortgages. And we have been provisioning this contingency as the rest of them according to our methodology and according to the recommendations and the requirements of the regulator as well as to the external auditor. So we have now a well provisioned contingency, and we are, in this sense, we are confident about this.
Okay. Moving now on different businesses. We are getting questions on Linea Directa, on the evolution of the business, the premiums and combined ratio expectations and also the impact from the variable.
Okay. Linea Director, as I have explained to you before, has had a very good performance in the last quarter, and that has been even better than the previous one. And that means that we continue outperforming the industry, both in policies as well as in premiums, and we have been able to offset the price pressures coming from our competitors. We continue being very efficient in customer acquisition and very flexible in rate changes. During the year, as I mentioned in the last quarter presentation, frequency has increased as expected, but we have been able to reduce the average cost of claim by 6% almost seven percent.
And this has been due to a fewer high severity claims provisions on less severe claims as a result of the new RMO. As a result of that, the impact in the P and L of the new RMO has been lower than expected at the beginning of the year. The result of this has been that the claims ratio improved by two percentage point in the year. But at the same time, the operating cost ratio have worsened, although remained very low at 19%. And the increase has been due to these marketing expenses and these personnel increases needed to allow the growth in policies and premiums.
In any case, the combined ratio has improved in the year more than one percentage point to 87%, maintaining the gap with the industry. And this is something that we are waiting for the next year. Thanks to all this, LDA technical result reached €112,000,000 a 17% growth over the last year. And including the financial result that was reduced by 2% because of the low interest rates environment, the LDA technical insurance result has increased by 12% in the year and by 11% in pretax profit. So we are very happy about these results because we have been able to maintain the ROE in 35%, and we expect this ROE will be maintained for the next year.
And also, just to mention the new milestone of the year that has been the launching of a new business line, VIVATH. And we are very confident on the success of this new and very innovative business line
Okay. For the And then finally, just to touch on capital and ROE medium term guidance. We have seen obviously efficient quarter in terms of risk weighted assets given the growth in the loan book and where we are getting questions on what the expectations for capital organic growth should be for next year given also our expectation on loan growth for this year and the ROE expectations for medium term.
Well, first, capital. Capital, well, we have been seeing the whole year that capital generation continues to be enough to finance the growth of the balance sheet as we are forecasting growth in the balance sheet very similar to this year growth, we will wait for maintaining the capital ratio around the current level or in any case, around 11%, which is our guidance midterm guidance. Second point, the ROE. The ROE has been growing systemically from the last few years, and this is the trend that we will wait for the future. We are in the 12.6 area, which is really very good when compared with other Spanish peers as well as other European peers.
But in any case, we think it's not the cap. We will continue growing this area. We don't know what is we don't have any limit in this variable.
Okay. Excellent news. Thank you, Gloria. Thank you, everyone, for connecting today. This is all we have time for today.
As usual, the Investor Relations team is at your disposal for any further questions you might have. Thank you, and goodbye.
Goodbye.