Hello, good morning, and welcome to CaixaBank's results presentation for the fourth quarter of 2019 and for the full year. With us today is the CEO, Gonzalo Gortázar, and the CFO, Javier Pano. If you are a first-time viewer, and we do have some of those, please note that we plan to spend around 30 minutes presenting and 45 minutes for live Q&A, and you should have instructions on your screen to participate in that. Let me just end by saying that my team and I will be available after the call. Without further ado, let me hand it over to our CEO.
Thank you, Eddie. Good morning, everybody. I will try to be brief, as by this time, obviously, you've seen the results. I just want to highlight the main messages from results we're presenting today for 2019. Clearly, on core revenues, we had a very good end of the year, particularly on the fee and insurance side in the second half. We had a strong third quarter, and the fourth quarter obviously has been very strong as well with that 10.7% growth year-on-year. Which makes us clearly meet our revised guidance and also made it with a nice trend quarter-on-quarter doing better than the previous. I think that's the first point. Second point is costs. Environment changed very significantly at the beginning of last year with interest rates changing from an upward expectation to, unfortunately, a downward one.
In 2009, we have been working both on producing results, obviously, but also on making sure that we actually adjusted cost developments and cost growth to a different environment. That's why we decreased the 5% initial expectation we had, which was based on very strong investments, initially to 3%, which we finally met with just 2.9% growth this year. Also looking into 2020, making sure that we lower the cost growth, and that's why we are today announcing that guidance of 1% for 2020. You can see in the fourth quarter, actually, already some of the fruits of the various measure. Of course, the reduction in personnel, but also the reduction in other operating expenses quarter-on-quarter of 1.6%.
Volume have been positive, both in absolute level as well as particularly on a relative basis with a 2.4% growth on the loan book, on the performing loan book year to date, and an 8.4% growth in long-term savings, with a very strong, as we will see, fourth quarter. Finally, on the balance sheet, even though I think we were in a pretty good position, actually, the year has been very positive and we have both increased CET1 to 12%, and we have also reduced the NPL ratio in a very significant manner to 3.6% while maintaining a cost of risk that is actually well below our targets at 15 basis points. We have announced a proposed dividend of EUR 0.15, which will be for the annual general meeting to decide, obviously.
Guidance on that front for next year also to keep effectively that range of 50%-60% payout for 2020. Return on tangible equity is at 7.7%. Obviously, with that 14% fall due to the charge associated to the restructuring of the reduction of headcount, which is an exceptional matter for this particular year. Some more detail. First of all, lots of things going on beyond what you see in the financial statements during 2019. Very significant transformation. I think it's important to look at our results, which have been, I think, very positive on the commercial side. Also particularly taking into account it's not just sort of business as usual, but heavy transformation. We have closed 528 branches this year.
We had accelerated the development of the store branches, which we expected to finish by the end of next year, 2021, and we're expecting to be more or less there by mid this year, in six months time. We achieve our objective of reducing the people, the headcount in the rural network, hence ensuring its profitability on a sustainable basis. You can see we have over 1,000 branches, but these branches now have an average of 2.4 employees. The branch network reduction, as I said, has been accelerated. When you look at our commercial performance, it's been as positive as it has been in the past. Obviously, restructuring our distribution network and also negotiating and agreeing the exit of 2,000 of our employees has been done and could have diverted the attention of the organization.
Clearly, the second half shows that we have very quickly recovered and actually ended up in a very good tone for business. As you can see, particularly life and pension plans and long-term savings are, again, very spectacular in terms of the market share we have captured this year. The details on balance sheet funds are well known. I think the fourth quarter confirms trends with one caveat, and you can see demand deposits, how they grow very slowly the fourth quarter. Obviously, that should help manage the excess liquidity that we have. While when you look at insurance and you look at mutual funds and pension funds, both year to date, but particularly in the fourth quarter, we have had a very strong commercial success. I think both the total numbers and also the quality of what we're achieving is good.
You can see the total of EUR 25 million. Clearly, the trend associated to our success of increased demand deposits moderating itself in the fourth quarter, which will hopefully help to manage that cost of excess liquidity that I mentioned. I think it's very noteworthy as well to look at net inflows, we'll see it in the next slide here on the top left. You can see net inflows on the long-term savings side. Obviously, with close to EUR 2 billion in the fourth quarter, this is a major development. From a very slow first half of the year, we have ended up in a very high tone. As you can see, the third quarter was pretty good, particularly considering the month of August, the fourth quarter has been outstanding. The advisory model, our 18,000 employees dedicated to advisory or certified with advisory.
The offering on the protection side of MyBox, which started in March and has been a tremendous success. It also shows why the first quarter and second quarter still, because we didn't have the full offering, had been slower, but the third and fourth quarter have been fantastic. You can see quarter-on-quarter in terms of new production of contracts in MyBox, plus 43% in the fourth quarter. This is good for results in the fourth quarter, but obviously, good for results going forward, given the nature of this product, which is at least a three-year one. On penetration of our clients, we have made good progress. You can see how we have increased penetration in all categories. Obviously, you look at it the other side, the potential we still have is substantial.
Obviously, we're not going to be able to reach 100% or anything closer, but clearly, we still have a big customer base, big amount, big number of clients that are our clients and still can become clients on the insurance front as well. Plenty of work ahead of us to do. Loan book, I think nothing to highlight. During the fourth quarter, maintained the trends, strong growth in corporates, good growth in consumer. I think the only thing I would say on the public sector, we had a quarter that was negative, but you know, and we've been very clear that we're much more tactical on the public sector. It also has a fairly limited contribution to the NII and to the P&L given the margins on that front.
Looking back at what we presented a bit over a year ago on the strategic plan, we feel good about most of the areas which you can see identified as drivers for growth. Business lending, consumer lending, payments, long-term savings, and protection are doing very well. BPI, I will comment briefly, but you have all the details. BPI has done very well this year. Really complying and meeting, and actually over-delivering in our expectations. Yes, we have lower rates, so that has an impact on our account, has an impact on the mortgages. Also, in terms of new production of mortgages, as we expected, the year has resulted in a fall in the stock, probably a bit even higher than what we were expecting. We'll see how that part of the market develops. We continue to prioritize value over volume on that front.
As you know, it's still an important part of the business, but obviously, it has different dynamics. On the right-hand side, you can see when you aggregate third and fourth quarter in terms of core revenues, the picture is self-explanatory. I don't have a lot to comment, but clearly, we are now on a different level, and we certainly expect to build on that. Financials, not much to say. Core revenues with that growth of 1.2%, obviously slowing down but still positive as we continue to feel will be the case in 2020, as Javier will explain later. The rest is obviously fall in income from investments, hence, increasing the quality of our results. We do not any longer include equity accounting from Repsol or BFA in particular. Savings in real estate as we sold a large portfolio last year.
The development on the cost front that I explained at the beginning, the containment on cost of risk at those 15 basis points. All in all, that would have resulted in a return on tangible equity close to 11%, 10.8%, but obviously, there's this big restructuring charge, which brings it down to 7.7%. For me, that is an investment in the future and an investment that from a financial side is done, but also from an operational front is I think 90% done. Hence, we'll have all our eyes and ears focused on clients and business during 2020 since the 1st of January, which should help. BPI, briefly. A very good year. NII up close to 5%. Fees are down, but remember that there's an adjustment because we sold some of the factories or most of the factories to CaixaBank.
If you adjust for that factor, actually, they are up 5.7%. Increasing costs as we have invested in, I think, accelerating the growth and for the future in BPI. All in all, a net attributable profit that increases significantly. Again, consumer lending and business, and on the other side, long-term savings are driving in a similar way to what happened in CaixaBank, the success for BPI. With that, I think Javier will take it from here.
Perfect. Thank you. Good morning. Let me first have a view on the P&L for the fourth quarter. Well, a fourth quarter that, as Gonzalo commented, shows a continuation of the operating improvement that we already observed during the third quarter. Focusing on the evolution year-on-year in order to avoid seasonalities, you see core revenues up by 3.9%, in this case, with strong support from fees, mainly from assets under management and also other banking fees, with a continuation of the contribution of our payments business. Also, strong recovery in our life risk insurance revenues, up by double digits. And then on non-core revenues, also, as commented, reflecting mainly changes in scope. On costs, we have the savings from the restructuring that is now impacting in full the fourth quarter. And then below, we have cost of risk, a stable situation at low levels.
We close the year on a 12-month trailing basis at 15 basis points, below our guidance as you know, below 20 basis points. We have below the line also other charges, in this case, reflecting some one-offs, having a conservative year in provisioning. All in all, net income for the fourth quarter of EUR 439 million. Let me now continue with some focus on the different lines of the P&L. As always, first with NII, in this case, down in the fourth quarter-on-quarter and year-on-year, but up for the fiscal year by 0.9%. As the main positive, we have tiering, the tiering from ECB for two months. Unfortunately, we start having some narratives. We have here this fourth quarter started to have a negative annual repricing on loans, mainly on mortgages, but also on other loans.
Also, we have had lower average loan volumes despite ending the quarter with a higher figure by the end of the period. On average, volumes have been lower. Also, we have been impacted by a reduced ALCO contribution as we have had a high yield immaturity during the quarter. Well, all this has been affecting NII and has not been able to be offset by tiering. Going forward, obviously, the new rate situation is going to impact as we can comment later. A view on our loan book and the customer spread. The front book yield comes down by 5 basis points to 252, reflecting this lower yielding environment. The back book yield comes down by 2 basis points, mainly reflecting precisely these arrival repricings on our floating rate portfolio.
We have been able to reduce the cost of our customer funds by 1 basis point. As a result, our customer spread also comes down by 1 basis point to 219 basis points. Net interest margin also down by 1 basis point to 120 bps. Let me now make some comments on our ALCO portfolio. You may see that this in size is coming down to EUR 32.2 billion, precisely as we have had some maturities. The yield at 0.7%, down from 0.9%. The average life of the portfolio fairly stable above three years. You may see in the chart in the middle that the average yield of the maturities we have from 2020-2022 stands at 0.3%. It's lower this yield than the yield we have from 2023, where we have higher average yields. In terms of the composition of the portfolio, it's well known.
Here you have some further disclosure, 75% are Spanish government bonds, 9% in Italy, and other major sovereigns. In terms of wholesale funding, stability this quarter. You know that we have had an intense year in terms of issuance, close to EUR 5 billion at this average spread of our six-month arrival at 134 basis points. We have this fourth quarter stable situation in terms of costs. Let me now turn to fees. On this front, you know that we have had a strong quarter. Up fees by 5.7% quarter-on-quarter, 7.5% compared to the fourth quarter of last year, and for the fiscal year ending at 0.6% up.
We have a strong contribution from many areas, but I would remark here that quarter-on-quarter, we have been flattish in terms of recurring banking fees, and year-on-year up by 3.5%, in this case, as commented, with the support of our payments business. On asset management is where in the second half of the year, clearly we have had strong performance quarter-on-quarter up by 7.3%, 11% year-on-year. You may see in the right-hand side chart the evolution of our AUMs are clear on an upward trend, thanks to obviously market evolution, but also to the pace of inflows that Gonzalo has already commented that have resumed clearly during the third and the fourth quarter. Remarkably, the end of period balances are higher than the average of the fourth quarter.
Thus, this bodes well for the evolution of our AUM revenues into the first quarter of this year, markets permitting. In insurance distribution, we are flattish, but actually this is a positive development. You know that we had some weakness in the earlier part of the year as we were introducing also those products in our MyBox offer. Thus, we expect that this line also will start improving gradually during 2020. Finally, wholesale banking, a strong quarter, always more volatile. You know that in recent years, we have been working to build a stronger franchise in CIB and wholesale banking, and this is bearing its fruits also this fourth quarter. A look to core revenues. It has been commented, progressing in recent times despite the situation in market rates. Also here you have a year-end overview of our key businesses.
In terms of core revenues, long-term savings year-over-year for the full year up by 4.4%. The contribution protection 2.6%, payments 3%. This compares with the rest of our core revenues, obviously impacted by the situation in rates that are more flattish. Those three key businesses, long-term savings, protection, and payments, already making 40% of our core revenues up by one percentage point year-over-year. On your right, you have some more details about our protection revenues. You see clearly that distribution fees, those are mainly revenues from our non-life insurance business. You see those stabilizing during the second half of the year, clearly compared to the downward trend that we were having. As I commented just in the previous slide, we expect this to improve as this is already part of the MyBox commercial offer.
SegurCaixa Adeslas on equity accounted more volatile with seasonality during the third quarter, but also making better contribution compared to the previous year. Finally, in life risk premia, that has been clearly recovering during the second half. Let me now turn to costs. On this front, quarter-on-quarter costs are down, clearly benefiting in full from savings after the staff restructuring, but also other initiatives. Costs are down by 1.3% quarter-on-quarter. You may see in the central chart that it's not only personal costs. We are making an effort, obviously, on general expenses and amortizations. A plan that has already started during the fourth quarter, but will continue during 2020 in order to deliver this cost guidance for next year at around 1%.
In the chart in your right, you see the increase in the productivity ratio of the bank after the reduction in the number of staff. The productivity per employee, core revenues per employee, clearly has increased this year by 7%. Once you compare with the situation before the previous strategic plan back in 2014, core revenues per employee are up by 25%, which is significant considering the situation in rates. Finally, on the P&L, our loan loss provisions, you see that are almost flat year-on-year. This results into a cost of risk at 15 basis points below, clearly our guidance for the year. As we will see in the coming slides, a clear de-risking of the balance sheet that also bodes well to keep this contained.
Turning to the balance sheet, precisely with our NPA exposures, a clear effort in the reduction of our NPLs, down by EUR 1.2 billion in the quarter. An NPL ratio now standing at 3.6%. Clearly, we think that being just a domestic bank, we compare really well with the rest of the sector. We keep our real exposure non-material, below EUR 1 billion, and also our rented assets well contained and disposing with disposals, making a profit. You see the pace of inflows into NPLs, that declines. This bodes well for the future, down 17% for the full year compared to 2018, but also the fourth quarter compared to the fourth quarter of last year. At the same time, despite this fast reduction of our NPLs, our coverage ratios remain sound, actually have increased to 55%.
Even if you look at the coverage ratio of our uncollateralized part of the non-performing loan portfolio, standing at 94%. A few words on liquidity. Not much to comment. A stable situation and a strong position. EUR 89 billion of liquid assets. We still have close to EUR 4 billion of TLTRO II that we are going to redeem shortly. We took EUR 9 billion of TLTRO III. We don't have much plan to take part of this facility, as we have, as you see, a strong liquidity position. Time will tell. You know that we have had successful market access during the last three years. EUR 20 billion issued as recently as last January. A new senior preferred EUR 1 billion at five years mid-swap plus 58.
Going forward, as we are really close, or we are already complying, actually, considering these issuance, our MREL requirements, you can expect that the pace of issuance slows somehow into 2020. On solvency, we closed the year in a strong position with a CET1 ratio at 12%. We have had this whole quarter organic capital generation for 19 basis points, and market and other impacts for 18. Among those, a change in the accounting treatment of some pension liabilities, which has had an impact itself of 18 basis points. As also a good year in terms of book value per share. We end the year with a tangible value per share at EUR 3.49, up by 6% after dividends. This is also remarkable. As commented, the board, yesterday, decided to propose the general meeting dividend in cash of EUR 0.15, which that will represent a 53% payout.
For the rest of the solvency metrics, as mentioned, considering this senior preferred issuance, we are already complying with our MREL requirement in terms of risk-weighted assets, 22.5%. You can expect us to build a small buffer over this number with some further issuances. With this, let's talk about guidance. First, trying to make a summary on what has been delivered for 2019 after our revised guidance. Slightly better in core revenues, up by 1.2%. On recurring expenses, finally ending at 2.9%. Cost of risk at 15 bps, below the 20s we mentioned one year ago. Clearly on NPLs, clearly below our initial targets, ending at 3.6%. For 2020, this is the guidance for the year. On core revenues, we expect those to grow around 1%. On this front, we expect more headwind than in 2019 for net interest income.
Clearly here, we have the situation in rates that, as commented, we will be having negative repricings in the next few quarters again. This is going to affect, obviously. This situation, in our view, will be more than compensated with a more upbeat view and feeling about the evolution of our fee business and our insurance businesses. On recurring expenses, as commented, 1%. This is what we expect for next year. We have cost savings from the restructuring, but also other initiatives that will lead us to this figure. Finally, our cost of risk that we don't expect that will be higher than 30 bps. Remember that this was the guidance we gave one year ago for the three-year period of our strategic plan. With this, thank you very much, and I think that we can be ready for questions.
Okay. Thank you very much, Javier, Gonzalo. It's now time to proceed to Q&A. I believe we have around 12 people on the queue. Try and keep your questions brief. Operator, please proceed with the first question, reminding viewers to state their name and the company they work for.
Thank you. Your first question comes from the line of Álvaro Serrano of Morgan Stanley. Please ask your question.
Hi. Thank you for taking my questions. The first one is on revenues and NII in particular. The exit run rate of fees was very strong in Q4, 7.5%, similar, even stronger in insurance. You've given a core revenue guidance of +1%, which feels like NII is going to be under some pressure. I don't know if you can quantify how much that is, if it's 1%, 2% or more, or any color around that. In particular, you've started to charge the network for the deposit at the beginning of the year, and I was wondering what the early feedback from that client reaction has been, or if it has been passed on, and how that affects your guidance, and your NII expectations. Could there be upside there?
The second question, very quickly on other provisions, is a bit higher in the quarter, in legal provisions in particular. One would have expected a downward trend over time. Can we expect how much is there left? Presumably, IRPH won't be an issue. Should we expect lower over time this year? A bit of context on that as well, please. Thank you.
Thank you, Álvaro. Just one comment and I'll pass it on to Javier. In terms of NII, you are directionally right. Javier will expand. In terms of the deposit charges, we have obviously included in our guidance the impact of what we are doing with corporates and financial institutions. We are expecting mostly is for these prices to contain the increase in liquidity, as I said. Obviously, Javier knows this in much more detail.
Okay. Hello, Álvaro. Well, on net interest income, here first we have the situation now with the forward yield curve. Also, I would like to note that the situation as of today of the forward yield curve is a little bit worse than the situation we had by the close of the year. By the close of the year, it looked like we were on an upward trend in terms of rates. Now, as you know, with recent global news, we are in a different situation. This is first thing. All in all, here, the only tailwind we have on this front is tiering. You know that we have quantified this clearly in the past, which is the effect.
Unfortunately, our view is that the other impacts in terms of repricing on the loan book, and also in terms of the ability to roll over maturities in the ALCO portfolio, are going to have a more negative impact than that. This is first thing. The net for rates, in our view, for the full year is going to be negative. Second, there is a view on volumes. Here, you know what is going on in terms of segments. You see the mortgages still deleveraging, and we think that this will continue to be the trend. I would say that here also, after the summer, coincidentally or not, but conceding with the new mortgage law, what has happened is that the new production has abated a little bit, and this is happening.
In general, we are taking a slightly more cautious view in terms of volumes. While incorporating our view on this, on our projections, we have been more cautious. At the end of the day, what we have been able to deliver in 2019 has been better than expected. You see in Portugal, the performing loan book up by close to 6%, in Spain, 2%. This was not our original expectation. This has been better. For next year, we think that this will not be the case. It's our best estimate, or at least it's the conservative estimate that we have taken into account. All in all, our view is that NII will have negative growth next year. To what extent is difficult to assess.
Obviously, as I commented before, being able to be compensated with good performance in the other areas you mentioned, probably the same pace that you are seeing in terms of fees and insurance. It's something that we need to see, if this is sustained for every quarter. Also a year is long and we'll see. This is our best assessment. For your question about deposits, is what I said in one of those meetings we had, that internally we have put everything in place in terms of transfer of prices. All the incentives, let's say, or the right prices are already put in place in order to have the right incentives, to put it differently. To what extent we will be able to charge more or not, it's still uncertain. It's something we are doing to large depositors and to all financial depositors.
It's something that we need to see how this evolves. Also this puts some uncertainty on the evolution of net interest income. Then there is a question on other provisions.
Other provisions, yes.
Yes. On other provisions. Well, remember by making this, let's say, soft guidance, as we call it, around EUR 50 something million per quarter related to other provisions. At the end of the day, we have been slightly above this, but not much. We have taken a cautious approach into year-end in some areas, but nothing related specifically to IRPH, as you mentioned it. We are not considering this.
Why is it not trending downwards?
Well, you can always make assumptions on different issues. You know that the situation for the industry in general terms, in terms of litigation, not only IRPH, is, let's say, not friendly. You can always assume that you have a few things where you can be more conservative while you are closing the year.
A good dose of conservatism, as Javier said. Well, that's the reality.
Thanks.
Thanks, Álvaro. Operator, can we have the next one, please?
Sure. Next question comes from the line of Francisco Riquel of Alantra Equities. Please ask your question.
Thank you very much for the presentation. Two questions from me, one on costs and on cost of risk. On costs, wanted to ask about wage inflation, which is running at 4% in 2019. I wonder what have you incorporated in your 2020 budget in this regard, if you have made any progress in the negotiation of the collective bargaining agreement with the trade unions. Also, if you are in a position to revise the 3% CAGR target. Just want to be reassured that you are not delaying any spending related to the commercial strategy and digital transformation into the following year. The second question is about cost of risk. The loan losses in Spain have doubled quarter-on-quarter. Asset quality looks fine. I wonder if this is related to the new guidelines by the ECB in terms of NPL provisions.
What impact shall we expect about this new regulation in terms of cost of risk and capital in 2020 or beyond? If not, why this increase in provisions and also the expected increase in the 2020 cost of risk as well? Thank you.
Thank you very much. I would maybe start and Javier will complement. Cost guidance. This is good news. It's not that we are delaying costs for the future. This is genuine savings versus our initial expectations, going from 3% area, 4% to 1%. Anyhow, we expect to deliver on that. There is no cost that we are avoiding that is going to pop up next year. This is genuine better news than what we had. The 3% that we had said we would have every year in, obviously, initially we had 5% for this year. We brought forward the restructuring program, so it came from 5% to 3%, but we said, clearly, this we had accounted for. It's just moving from one year to the other. In this case, this is the opposite. It's a healthy reduction, okay. To be clear. The reference is at 3%.
The same way that in 2020, we have worked to bring that guidance down from 3% to 1%, we will obviously continue to work so that going forward, we also try to deliver lower cost growth. Clearly, at this stage, we're changing, bringing downwards our guidance for a 3% and a three-year compounded annual growth rate in cost, because it's been already cut by 2% in 2020. How did we get there? Obviously, there's a number of actions that have been taken. The restructuring program you know well, because we had already spoken about it. As a complement to that discussion, we had a commitment with unions to discuss potential early retirements or voluntary exit in the region of Barcelona, where for various reasons, because we do not have an excess, we didn't have that restructuring affect Barcelona.
In order to agree with unions on that, as you might have seen, because it's been quite public, we have started negotiations. This is of a totally different scale than what we did last year, this is the last leg of that. Here we're expecting probably to see around 200 people moving out, early retiring, with a cost that based on precedence, is not going to be far away or higher than EUR 100 million. That is not yet agreed, this is a discussion that is the last leg of what we had agreed last year with unions. There's nothing else planned, I don't expect anything else during 2020 or 2021, in this front. That is one of the reasons why we will have some impact on reduction of costs. We're assuming approximately EUR 20 million. There's wage containment. We're absolutely obsessed with jaws.
We did not like the fact that we had negative jaws in 2019. It's the first time since we are a listed entity that we had negative jaws. We've given guidance for neutral jaws. We are absolutely determined to get there in 2020. One of the decisions that we have taken is that actually most of the managers of the group are not going to have a salary increase or a bonus increase in 2020. We feel very good about our performance, the numbers, unfortunately, because of rates and environment, are not where we want them to be. Cost containment is critical. A lot of that salary is going to depend, not for management and for the top 2,000 people, but for the rest of the workforce, depends on the wage negotiation with the unions. That's ongoing. There's not much news to report on that.
Clearly, these stage positions are very different and we will see. We're determined not to sign any agreement that is not good for the future of the bank, and the future of the bank is critical for shareholders, but also for employees. After all, we're all in the same boat. That's a difficult negotiation. It's not taking place at CaixaBank only. It's all the former cajas. This will take time, and I think it will have an impact, not on our 2020 performance, which barring any unforeseen circumstances, we're going to deliver on the cost side, but it will have an impact obviously on 2021. It's a critical tool to reduce cost growth going forward. I think we should not, at this point, elaborate more, but certainly we will not settle for less.
There's been quite a lot of decisions in terms of reducing general expenses, marketing, communication, internal events, a lot of things that we think we can do in a more efficient way. Renegotiation of some contracts, which is also delivering savings for 2020 and the future. The investments. We have made a huge investment in 2019. We have actually made more than what we expected because we wanted to bring forward the exit of the 2,000 people. In order to do that, we actually had to build more store branches faster and spend more. That means that we're actually going to have a significant decrease in investments in terms of the branch network in 2020. These will have obviously an impact on lower growth of depreciation and associated expenses during the second half of the year and into 2021.
We're still actually increasing our investments in other areas of the bank, which we think are critical for the future. What we're doing in payments, what we're doing in IT generally, cyber security, cloud developments, et cetera. A number of other initiatives that we will explain as we launch them. It's a containment picture, but one that is still consistent with we want to beat our peers in gaining market share, in building long-term value, and that is something that we have found a solution for 2020. We're obviously working for making sure that we actually see some of those benefits also moving into 2021 and beyond. I will stop here. Sorry for the long answer, but this is obviously critical, and I emphasize 2019, we have actually done our homework for the year and also a lot of the homework for 2020 and ongoing.
I've been passed a note that my comments over 2021 have not been heard well, so I apologize if I'm wrong and some of you have heard them well, but I will repeat what I am saying for 2021, we are committed to work the same way we have done for 2020 to bring down the guidance from 3%-1%. We're already working on 2021, because obviously a lot of things we can do with sort of significant time in advance in terms of redesigning processes and taking all the decisions. We do not have obviously now an expectation for 2021, but clearly the savings for 2020 are in the pocket. We have not delayed any expense for 2021, so we're going to have additional pressures in 2021. That's the opposite.
In fact, what we have done is by bringing forward the new store branches and the transformation of the branch network, what we see is a very strong cost growth from those factors in 2019 and 2020 because we'll have 12 months, maybe more, and much lower level of investments in the second half of 2020. Hence, I think some good work done ahead of time for 2021. Having said that, 2021 will be significantly impacted by the agreement that we finally reach with unions, which we hope to reach at some point on the collective bargaining agreement, which is a sector-wide discussion, which is a difficult one, and one where we still do not have visibility. We're expecting at this stage, or the date for an agreement is June the 30th, and at this stage, the positions are fairly wide apart. I think there's more questions. Javier, sorry.
Paco, there was your question about the cost of analysis in Spain. Well, this has to do mainly with the you know that according to your expectations about different parameters, that is from GDP, employment, real estate prices, et cetera, among others. This is put into the model and result into an adjustment of the provisioning levels. This increase in Spain has to do mainly with this. We are done with this. Unless there is a significant deterioration of the, let's say, the macro outlook or those parameters that affect this provisioning model, we should not expect another step upwards. You mentioned that implicitly that we have had a release from the PPA from BPI. That's right. This demonstrates that the provisions we took initially while taking control of BPI were conservative and not.
As the time passes, also, we can release part of those provisions as the expected losses are not occurring. You mentioned about NPL guidelines. First thing on this, you know that this is subject to a supervisory dialogue, there is not a precise, let's say, quantification of the situation because this would vary a lot for every bank. It's a one-on-one dialogue with the ECB. In our case, we don't expect, let's say, any significant impact. You saw before which were the coverage ratio of our uncollateralized part of the NPLs. Our estimate is that we will not have a significant impact from this. We gave a 30 basis points maximum core guidance because this is part of a little bit this more uncertain world we face into 2020. This coincides with the guidance we gave one year ago.
We have had this 2019 performance on this, probably slightly better than initially expected. We rather prefer to have a more cautious approach while wading into 2020.
If I may add, obviously, you saw the news on GDP this morning. A couple or a few days ago, we also saw the figures for job creation. Both were better than expected, both were better than we expected. When Javier talks about IFRS 9, in fact, what I'm sort of preloading the impact. The latest news from the few days are actually better than what we have accounted for in terms of the basic assumptions. A year is very long. Who knows how the economy will develop this year, but with our 1.5% growth for 2020 in terms of estimate for GDP, we're clearly on the very conservative side of current estimates. Obviously, there's always a possibility and a hope that we will end up with stronger growth and good news on the asset quality side, but time will tell.
Thank you very much.
Okay, thanks. Thanks, Paco. Let's move on to the next one, operator.
Thank you. Your next question comes from the line of Andrea Unzueta of Credit Suisse. Please ask your question.
Hi. Thank you for taking my questions. Mine are on insurance revenues, which grew by 5% year-over-year, but the second half of the year was a lot stronger than the first one. Should we take the second half levels as the benchmark, i.e., is it fair to assume that your insurance revenues grow by more than 5% in 2020? Similarly, on your mutual fund fees, which were down on the year, but your assets under management grew by 6%, and it was particularly strong in Q4. What are your expectations there? Some of your peers are very optimistic on that line. If I can go back to your slide 18, and if you could clarify a bit the payment figure, because if I deduct insurance or savings and protection, that EUR 1.1 billion figure from payments, that's roughly what, 75% of the banking fees.
Can you give us more color on that number, please? Thank you.
Okay, please.
Hello, Andrea. Well, clearly, the second half in insurance revenues has been stronger. This was our expectation. Remember, one year ago or less than one year ago, having a slower pace and explaining you all this rollout of a new product, MyBox. Well, this combination of products, commercial offer, MyBox, et cetera. Well, you know that doing very well. The CEO has given you some figures about the penetration ratios and so on. We expect that this will continue to do well. This is our assumption, this together with fees generally, but mainly from those businesses generating fees, are the elements that will help offset the pressure we are going to have in terms of net interest income. I would not like to give you a specific number, our feeling on this business is quite upbeat. Probably this already gives you some guidance.
On mutual fund, I would like just to clarify, because if you looked only to mutual funds, you are right. Mutual funds are down year-on-year. We have a broader view while analyzing our AUM business. It's not only mutual funds, it's pension funds. It's unit links, in our case, are part of our savings insurance. It's part of the product of savings insurance. On a broader view, fees from AUMs are actually up. If I am not wrong, it's up by 2%. You have transfers from one products to others. In this case, it's true that this year we have had less growth in mutual funds, but probably in those insurance products that include unit links. This, you have some transfer between lines. We look at those broadly.
Our salespeople, our network, while dealing with clients, have a broad view in the advisory process and do not focus on lines. We have specific targets for mutual funds or pension funds, but for the broad business. Here, probably the best way to see, you may see in our presentation, this chart that shows the average AUMs per quarter. If you do the numbers, you will see that the average AUM for the year, or to put differently, the end of period AUM balances are above the average AUM for the year by 4%-5%. This is obviously thanks to the market performance, but also the pace of inflows. We don't expect much, let's say, fee compression in terms of management fee, this already gives you an idea of what we can expect there, at least.
Depend according, obviously, then to market performance and what may happen with evolution in inflows, et cetera. Clearly, this is an area where we have also a very strong view. As for payments, this includes not only what we can consider, let's say, electronic payments or everything related to credit cards, et cetera. This is why it's a high figure. It's a broader, let's say, definition that includes wire transfers, foreign exchange, and other, let's say, fee revenues that are not purely related to more, let's say, what we can call electronic payments, et cetera. To give you an idea, in this part of, let's say, everything related to credit cards and e-payments, et cetera, the pace of growth is much faster than this one that we show in this chart. It's approaching 7%, 8%, if I am not wrong. Probably this gives you information you needed.
Thank you.
Thank you, Andrea. Let's move on to the next one, please.
Thank you. The next question is from Ignacio Ulargui of Exane BNP Paribas. Please ask your question.
Hi, good morning. This is Ignacio Ulargui from Exane. Just two questions on capital. The first one is, could your data have been on the buffer, the 100 basis points buffer that you guided last year, the 12 plus one guidance for 2021? How do you see that evolving and whether you have a bit better visibility on what will be the final impact of everything outside possible? Also linked to the regulatory front, just wanted to get a bit of your thoughts on what would be the potential strategy the bank will follow regarding the software intangibles guidelines that the EBA has to publish in the first half of the year. Whether that could change your IT expense strategy? Thank you.
Thank you, Ignacio. I say that we're nicely on track in terms of capital after one year. Javier obviously has the detail. We feel good about where we are compared to what we said and the plan.
Okay. From my side, no news. You know that we're still waiting for these, let's say, final recommendations or whatever information about the TRIM exercise. As for the loan default portfolio, it's being slower than probably initially expected. I really don't know when we may have further information about this, all together with Basel IV. I think that at some point during the year, probably, we can update on those 100 basis points, so where we are, as of today, are still there.
As Gonzalo comments, we are already at 12, so you know that from here, our estimate is that we would like to build this extra one percentage point buffer in order to absorb this, but we have full two years from now. We are already at 12, you see, which is the organic capital generation capacity of the bank, and you may see that we can be there quite comfortably. As of today, we don't have any further information on which base a different estimate of those 100 basis points. For your suggestion about software intangibles, well, this is unfortunately part of the unknowns in the world on we will have to operate in 2020-2021. We don't have certainty on this.
You know that when we presented the strategic plan one year ago, precisely we said that we were not planning to rely much on an increase on intangibles, precisely because we thought that it was cleaner not to do so. Obviously, if there is a change, potentially we will rethink about this. As of today, before rethinking anything, we would like to have more clarity, and as of today, we don't have. We take probably a conservative approach on this front, but we think it's the way so far, what we need to do. Thank you.
Great. Thanks, Nacho. Let's move on to the next one, please.
Thank you. Your next question comes from the line of Sofie Peterzens of JPMorgan. Please ask your question.
Hi, here is Sofie from JPMorgan. I wanted to ask about any potential one-off costs that we should be expecting in 2020. You're going for the recurrent costs only to be 1%, but how should we think about any one-off costs? Should we expect to see something similar to what we saw in 2019? My second question would be on Angola. There has been quite a lot of recent news around Dos Santos and being involved in bribes. Is this having any impact on BFA in Angola? Could you also remind us how much your book value of your ownership in BFA in Angola is? Thank you.
Thank you, Sofie. In terms of extraordinaries, we're not going to repeat what happened in 2019. I mentioned earlier that we have an ongoing discussion for kind of early retirements for the province of Barcelona, which was not subject to the reduction of people last year for reasons that were explained at the time. We had an agreement with unions that we will negotiate in good faith measures to reduce and to allow some people to leave. We are expecting that this may result in a charge of around EUR 100 million, and that they will result in savings this year of EUR 20 million, and on an ongoing basis, EUR 25 million. This is what is expected, and this is associated to the discussion, and agreements we had with the unions last year. In terms of we cannot comment on specifics in terms of clients, people, or transactions.
We have obviously appropriate policies Has always had, and we comply with all our obligations, compliance, AML, and we'll continue to comply and cooperate. We have, obviously, resources both complying with local applicable laws and with the standards of the group. In terms of the value of our investment in BFA is just north of EUR 400 million, but maybe Javier, you want to take it from here.
It's exactly EUR 414 million. We have had a fair value adjustment of around EUR 70 million this quarter. This has to do with the devaluation process of the Angolan kwanza. We value this asset using a dividend discount model. When there is a devaluation, future cash flows are affected, but also, there is the assumption that rates, in order to control the devaluation process, are also maintained at high levels. This is the way we fair value this asset, and this devaluation is the main reason behind this adjustment.
Thank you.
Thank you, Sofie. Next one, please.
Thank you. Your next question comes from the line of Andrea Filtri of Mediobanca. Please ask your question.
Yes, thank you. Three questions, if I may. The first on fees, simply if you are planning any repricing of fees in 2020. Secondly, on capital, I'm following from Nacho's question here. You reached your 12%, you have 100 basis points, CET1 build up left in your target. I'll try to rephrase the question. If Basel IV comes out lighter than expected, there are good news from treatment of the deduction of intangibles, and finally, Article 104a of CRD5 is already European law. There is very little uncertainty about this. Would you, in response, adjust downward your capital target and therefore hike payouts sooner? Can you please provide us your reaction function to this type of dynamic? Finally, if you could help us providing a guidance on the other revenues line that dropped a lot for 2020 onward and tax rate. Thank you.
Thank you, Andrea. Let me start with the first two questions, and then Javier can help me out completing or responding the rest. Fees repricing, the answer is yes. We want to continue having a fee policy that incentivize people to bring more business and do more business with us. This year, we have increased our number of, call it loyal clients, but you call it differently, no?
Relational clients.
Relational clients. Okay. Clientes vinculados in Spanish for those of you who understand Spanish. We have again increased that level to over 8 million. We have more active clients. As you know, we have on the retail side, close to 13 million clients. Some of them are non-active, others are active, but they are not yet relational, as we say. This has been increasing nicely to 3% increase in percentage penetration over the last years. We want to continue going that direction, which means we're going to be charging more to people that are not relational and incentivizing them to become relational. This is obviously, to some extent, what the market has been doing. We've been working on this basis for, I guess, probably four or five years at least that I can remember as I have been CEO.
There are still some further steps that we can do on this front. I think it's going to be positive, not because necessarily we're going to make more money by charging fees to non-relational customers, but because we're going to have more and more relational customers. You know in our case, relational customer means more consumer lending, means more protection insurance, means more long-term savings. Really, we know how to really monetize by providing appropriate services to our clients. I think this is a line we have been following, but we can do more, and that is the plan. Hopefully, that will also create better services for our clients. A lot of our clients do not know how many good services we can offer to them. We're going to make sure they know.
Obviously, charging appropriate fees for clients that are not active or not relational is part of that incentive. With respect to capital, we were at 11.5, and we said we want 12 plus one. We have three years. After one year, we're at 12, which happens, or is nicely exactly the one-third of that gap that we have built. There's a lot of, I think, positive noises about capital over the last three months. Delaying Basel IV, changing some of the requirements. We'll see how soft floor ends up. I think the tone generally from the responsibles of the SSM, et cetera, the tone is a tone of more positivism. We've just seen the figures for this year's SREP exercise, where sort of the overall capital levels are stable. We still have to go through some of these three exercises, on the other hand.
Basel IV has certain areas which have not been yet defined completely, particularly in our case, on the operational side. We have some uncertainty. We're doing well on a more conservative assumption, and we're going to continue building capital on this conservative assumption until we see that maybe we've been too conservative and then we need to rethink. Certainly, I don't think that that's going to happen in 2020. Even if there are all these positives, it's not going to be something that we know in three months or in six months. I think it's more likely to be by the end of the year and into 2021. When this happens, and I think most likely, as we end this strategic plan and we look forward, by that time, we're going to have much more certainty.
I think at this stage it's possible that we have good news, and at that point, we will need to reassess how do we use this capital, which is obviously capital for our shareholders, one way or the other. I think we need some time. As of today, the objective of the bank is to finish 2021 with a 12% fully loaded Basel IV, even if there is a delay, so that all shareholders know that any profits that we made are either going to grow the business, because there's good organic growth, or for shareholders. That we do not have any longer to look at our profits and say, "This is for shareholders, this is to grow the business, and this is to comply with new things that are facing you," and et cetera. We want to front-load all this.
I think we're in reasonable good shape to have everything done by the end of 2021. If growth continues to be slow, it will mean that from 2021 onwards, our ability to generate profits that are either enhancing capital or distributed to shareholders, or used for buyback or whatever, is basically 100% of what we make. That's what we want. I think, given that what we have seen this year, and the noise that clearly says this increasing bar on capital is coming to an end. We need to run through TRIM and Basel IV, but that's it. That's the message I hear. I think we're going to position the bank for the long term in a very attractive place.
Very profitable, hopefully, or at least very profitable related to the level of rates, and where profits are basically all available for the business and for shareholders.
Andrea, there was a third question, if I understood well the question, which is about other revenues and expenses line. Why is it dropping this year? Is it right?
Yes.
Okay. Well, this has to do mainly with savings from real estate. You know that after the disposal of real estate portfolio to Lone Star, this was part of the plan. We were planning savings in terms of local taxes, IBI in Spanish, and also maintenance costs, et cetera. This has to a large extent to do with this. Also, this line is affected on the opposite direction by a lower revenue stream from the rented real estate portfolio that is decreasing. We have closed the year with a portfolio standing at EUR 2.1 billion. There are other impacts here and there. This is, I would say that the bulk of the reduction comes from the reduction of the real estate portfolio. Does this answer your question?
I was looking more for a guidance on it, and also on tax rate.
Guidance on it. As I say, the real estate portfolio is sold. You should not expect savings into 2020. Looking to the numbers, probably, there is not much variation. Now, probably I should rethink about it, but not much compared to the figure we have had in 2020. For the tax rate, well, here we have a clear difference between 2019 and 2018. You know that in 2018, there were some expenses or costs, provisions or costs, in this case, losses from the disposal of Repsol and other aspects that were not tax deductible. This year has not been affected by those, because the restructuring is tax deductible. This probably explains the difference in income tax paid from one year to the other one.
Andrea, I'll give you a call and we'll run through what's taxable and what's not. Okay. Essentially, the tax rate is the same. It's 30% in Spain, 28% in Portugal.
Okay.
Let's go to the next one, please.
Thank you. Next question is from Carlos Cobo of Société Générale. Please ask your question.
Hello. Thank you. Thank you for the call. Two quick questions from me. One is on cost of risk. I was trying to understand a little bit better the more cautious view or more cautious guidance you are providing on cost of risk. I'm now seeing below 30 basis points instead of 20, and it feels that consensus was already discounting a lower number. Why becoming more conservative? I think you've touched on this, but if you don't mind going through that again. In particular, if we ignore for a second all the moving parts from the new calendar and the stock and everything, if we focus only on the pace of new NPL formation, gross inflows at around 1.3% of the loan book, if I worked it out correctly. That is like EUR 2 billion per annum.
It's coming down, yes, but if that is going to be stabilizing at those levels, could you touch on what is the underlying cost or risk that should generate? If you could explain what's the mix in terms of collateralized and non-collateralized new NPL formation. Thank you very much.
Javier, this is a complex question. Let me say on NPL formation, we continue to see it coming down. Actually, we are today restating the target of minus 30 basis points that we have given in our plan. We're saying minus, we're not saying 30, we're saying minus. The ability for us to predict exactly the cost of risk is more limited. You've seen precisely what we've done now in terms of adjusting to IFRS 9. We are, I think, upbeat on NPL formation. We have reduced to 3.6%. We're seeing the economy a bit stronger today with the information we have on the fourth quarter than what we thought just a few weeks ago. I wouldn't like to take and market the minus 30 basis points as an indication that we are concerned or that we're seeing something that is deteriorating. That's not the case.
We're giving us a margin in line with what we expected in our plan. In terms of new NPL formation, collateral, new versus collateralized, Javier, I don't have the information with me.
Nor me here. Probably we can follow up on this because at least I don't have the data here in our assumptions. Stock. We have information on the stock but not on the flow, which you can see on page 22. Okay. We will follow up, Carlos.
Okay. Thank you.
Thanks. Can we have the next one, please?
Thank you. The next question is from Britta Schmidt of Autonomous. Please ask your question.
Hi, two quick questions from me. One is on the RWA decline in Q4. Maybe you can give us a little bit of color of what's driven that. Secondly, can you tell us what the earn-out from SCA was and whether there's anything that we should expect for 2020? Thank you.
Sorry, the first one.
The first one is the RWA decline. Why did we have the decline, and the second one was the earn-out from SegurCaixa.
Okay. On the RWA decline here, well, mainly it's. Let me just consult. Yes, it's mainly you know that VidaCaixa pays a dividend for mainly large part of its profit. This dividend has been paid during the fourth quarter. As a result of this exposure at default of VidaCaixa is lower. This exposure with VidaCaixa is lower, and you know that this is weighted at 370%, thus it has a large impact in terms of these weighted assets. I was looking at if there are other effects, but I would say that this is the main one. Obviously, there are also a reduction on these weighted assets, unfortunately, because Telefónica has also trended down and here and there.
A slight risk-weighted asset inflation because of loan growth. The main downward impact is this one from the dividend from VidaCaixa. As for the earn-out from SegurCaixa Adeslas, you are right. There is a positive impact this fourth quarter of around EUR 80 million. This is included in other revenues and expenses. This has been an earn-out slightly higher than the previous year. 2020 is the last year where we can have earn-outs, but it's on a cash basis, will be paid in 2021.
Okay, Britta, hope that answers your question. Let's move on to the next one, please.
Thank you. Your next question comes from the line of Marta Sánchez Romero of Bank of America Merrill Lynch. Very much. Please ask your question.
Hello. Thank you very much for taking my questions. I've got a follow-up on asset quality. Do you have a target of NPL reduction in absolute terms for 2020? A clarification on cost of risk here. Could we have the split of the 30 bps guidance between Spain and Portugal? How much PPAs are left in BPI, and what is the underlying cost of risk in BPI? Also related to all this, you're not providing guidance for other asset impairments, but we've seen higher charges over the past few quarters. What do you expect for this line next year? What's the current markdown in your rental portfolio? Do you think you need to do further adjustments there, given what's happened in Catalonia recently with new rules that have been passed? Just very quickly on net interest income, how much came from NPLs this year?
I think it was 6% in 2018. How much was in 2019? Do you think preserving that income is a constraint when it comes to selling faster your problematic exposures? Thank you.
Thank you, Marta. Quite a lot of detailed questions.
Lot of questions in just one minute. As a target for NPLs, lower than where we are. If you can remember, we guided in our strategic plan for an NPL ratio, let's say around 3% by 2021. We are at 3.6%. We are comfortably getting there. This is our, let's say, long-term target. It keeps valid. Cost of risk, the PPA from BPI. The PPA outstanding is, and Eddie remember me exactly, but it's EUR 180 million, if I remember well. Yes, EUR 180 million. As for the cost of risk in Portugal, our best estimate is that it's going to be lower than in Spain. I can't give you a specific number. Why? So far it has been the case. BPI has done historically a very good job in terms of risk management on the loan portfolio.
As you know well, we are expanding there our NPL activities, sorry, our consumer lending activities. It's going to accordingly rise a little bit going forward, it's going to be lower than in Spain. Other asset impairments, I understand that by this you mean other provisions or no, you mean the bottom line?
Well, this relates to the question about the provisioning levels of our rental portfolio that are north of 25% of the gross value of the portfolio. We don't expect much on this portfolio. We are disposing on this portfolio. So far this year, we have sold, combining the Eolio and the rented portfolio, more than EUR 500 million at a profit of around 15%. Thus, this already tells you that it's marked with a fair value that is according to market prices. Obviously, new inflows into the Eolio portfolio need, in some cases, further provision. Thus, this lands into this line. While at the same time we are making profits on disposals, I would say that roughly one thing and the other will be matching.
As for the contribution into 2020 on NPLs, what we expect, well, in 2019, it has come down by, if I remember well, and now giving you the figures in my memory, it is less than an impact of comparing 2019 to 2018 of around EUR 90 million or EUR 100 million less is what we have had, because of the NPL reduction. This has been and obviously having an impact. The fact that you dispose NPLs, at the end of the day is having an impact on net interest income. Probably this answers more or less your questions, Marta.
Thanks, Marta. Let's move on to the next one.
Thank you. Your next question comes from the line of Mario Ropero of Fidentiis. Please ask your question.
Hi, good afternoon. Thank you for taking my question. My questions are on litigations. Javier mentioned that this quarter there was some impairments for issues different from IRPH. Can you clarify if this is a revolving credit card? Also, could you comment on your exposure, on how you see the situation resolving? We're expecting a ruling probably in the next three to four weeks. Thank you.
Well, what I mentioned is that we took a cautious approach into year-end, because the environment in general is not friendly in terms of litigations for banks. Not giving any specific. It's not because we are worried about something specific. I mentioned clearly that has not to do with IRPH. We are not making a provision for this. As for our exposure on revolving, I don't know, Eddie, if we are disclosing this figure, can you?
Yeah, we have around EUR 1.9 billion, and the current litigation, well, we need to see what happens at the Supreme Court level. Our view is that the bank's position will be held. As you know right now, there's a ruling which states that anything above 24.6% is considered usury, and our revolving rates are way below that. We need to see what the new jurisprudence say. In the meantime, we're just waiting for that to happen, obviously with an outlook that's positive.
Thank you, Eddie. Sorry, can you repeat the exposure you said?
It's EUR 1.9 billion.
Okay, thank you.
Okay, let's move on to the next one.
Thank you. Your next question comes from the line of Stefan Nedialkov of Citi. Please ask your question.
Oh, hello. Thank you for making my last name a female one. In Bulgarian, Nedelkova is for ladies. Anyway, hey, guys, it's Stefan Nedialkov from Citi. Two questions on my end. Sorry to come back on capital. Just to kind of summarize things clearly, because there's been a lot of back and forth. You had 100 basis points of a buffer for regulatory impact. Can I confirm that this is based on your most conservative read of the current Basel IV proposals and your most conservative read of EBA/ECB regulations and guidelines? Secondly, how much have you used year to date, or to date of the 100 basis points? Third, does the 100 basis points include expected mitigation actions from you? That's on my first question. On my second question, when it comes to Erste, has your thinking changed in terms of strategic ownership versus non-strategic ownership? Thank you.
Stefan, on Erste there's no change. If I may say, no change in our thinking about Erste . On capital, just one thing, the most conservative, I would say it's based on a conservative, but not on the most conservative, because there's uncertainty, really, that is very difficult to break. We think we have been reasonably conservative on our views, but Javier can expand.
Is what has been said, we have not used so far this buffer. What we said is we are already at 12. We have two years ahead of us to build this buffer. It's based on our best estimate of which can be the impacts going forward, and obviously it includes anything that can be done in order to manage those impacts. This is the situation. Mainly, you know that we are waiting for the final say from the SSM on the TRIM exercise for the low default portfolio. The uncertainties on Basel IV are mainly arising from the operational risk, that it's still ongoing, some discussions on this. Unfortunately, every quarter is a little bit boring, but we are in the same position as we don't have news.
The only thing is that we have been able to build, one way or another, 50 bps of CET1 during one year. We think that we are on track to meet this estimate. I think that we have elaborated during the call about any potential changes, about if the regulation changes or what to do in this case, et cetera. Time will tell. As of today, we need to run the bank with the most, let's say, expert judgment we can do on this as unfortunately, there are some uncertainties.
Okay. Thank you, Javier. Just to follow up on the 100 basis points, I thought that that includes every single regulatory impact, plus accounting impact that you could think as of your invest today. You've also taken some IFRS 16 hits on that. I think it was 10 or 11 basis points. On top of that, remind me, you have had some TRIM impacts. Would that not have been included in the 100 basis points?
The TRIM impact for the mortgage portfolio was before we disclosed our strategic plan. Thus, this impact is not included. Okay?
The IFRS 16?
Well, IFRS 16 is 10 basis points. It does not make much difference. Our estimate for 100 basis points is not 100 basis points. It's around 100 basis points. I don't think that 10 basis points will make much difference on our assessment.
Okay. Basically, what you're saying is before regulatory impact, you will have to be at 13% before-
Yes.
The end of 2021.
Correct.
Okay. All right. Thank you, guys.
Okay. Thanks, Stefan. I think given the time now, it's 1:35 P.M. We'll take just one more. I know there's some more people on the queue who will follow up with my team. Let's have the last one then, please, operator.
Thank you, sir. Your last question comes from the line of Benjie Creelan of Jefferies. Please ask your question.
Yes, good afternoon, everyone. My first question was just to check on the movements in the balance sheet. The balance sheet shrank 5% quarter-on-quarter. I think there were some accounting changes within that. Could you perhaps just confirm the reason behind that move and also confirm whether there's any lagged impact potentially on the P&L going into the first quarter of this year? The second question is a bit more strategic. At the end of last year, you merged your payments and consumer business. Are you able to give perhaps a bit more detail about the rationale for that move? We've obviously seen some of your European peers selling or creating partnerships on that side of the business. Is that something you would consider going forward?
I guess, is there any sense you can give us or any more details around the financials of that subsidiary and the type of growth you expect from that part of the business going forward? Thank you.
To answer the second question, at least on the strategy, this is not a step that would lead to looking for an external partner or, let's say, transaction, joint venture, whatever. We love this business. We want to keep 100% of it. We had a separate piece of business, consumer finance, mainly third point of sale. Six years ago, we incorporated all our card and payment business into a specialized subsidiary. What we saw at this point is that the payment element and the fund and the extended ability to provide lending at the payment point is obviously a critical part of where the business is going. The fact that we have those two specialized subsidiaries working together would facilitate the growth of the business going forward.
We also like to have it as a subsidiary and not as part of the bank, because it does have different dynamics, the kind of people that we need, the speed at which we need to operate. We think it benefits from its own separate subsidiary, but at the same time, it's obviously fully integrated in the overall group. Obviously, we have been doing very well in consumer lending, and we continue to be very upbeat about what we can deliver there. We have been very good also in our payments business, Javier mentioned it. This is instrumental for us to be able to be more successful. There's a slight element of cost savings associated to it, but the main reason is not synergies on the cost side, is ability to grow the business in a more innovative, faster way. We like a lot what we're doing.
We will continue to report going forward, what part of this is, in terms of results, what's the contribution from this side. On the rest, on the balance sheet, Javier, you want to say about this?
Yes. Surely. It's a couple of things. It's netting of our derivatives exposures from an accounting point of view that we could perform. Second, we have reduced our cash balances. We rely less on TLTRO. You know that we have reduced TLTRO II, and we have taken less TLTRO III, thus reducing cash balances, and also less reliance on the repo market. All this has an impact in the P&L in terms of lower contribution to the single resolution fund. You know that you contribute according to the size of your assets and liabilities. This is more positive. Thank you.
Thank you.
Well, that's what we have time for. Before we leave, just let me clarify one thing that my team is telling me was misunderstood. The revolving credit card balances is EUR 1.9 billion. Less than EUR 2 billion. Okay? Just wanted to clarify that because apparently some people misheard that. With that, thank you very much, and we'll reconvene in a quarter. Thank you very much for everyone.