Good morning, and welcome to CaixaBank's results presentation for the Q3 of 2019. With us today is our CEO, Mr. Gonzalo Cortazar and our CFO, Javier Pano. We plan to spend around 30 minutes for the presentation and 45 minutes live Q and A, and you should have instructions on your screen to participate. Let me reiterate My team and I are available for any questions that are not answered during the Q and A.
And with that, let me hand it over to the CEO.
Thank you, Eddy. Good morning, everybody. I'm going to try and beat Eddy's forecast For the presentation to be shorter at least on my side because I feel it's a relatively clean quarter with probably less explanations required. You have the summary of this quarter. On a quarterly basis, we have a strong growth on core revenues, and we have some cost savings coming from the restructuring plan.
So quarter on quarter, There are pretty good figures returning to just on a quarterly basis to those positive jaws. The long term savings and insurance have been pretty good in this quarter. And it's a seasonal quarter, and it's also a quarter in which we have had since the 1st August, 2,000 people less. So I feel very good about the achievements in the Taking that factor into account in terms of fees, life risk insurance revenues, they resume the growth that we have structurally had and where We have had clearly a slower beginning of the year. On the lending side, business lending and consumer lending that continue to grow the business.
Long term savings, AUMs, are up in the quarter and up significantly with that 7.6% year to date. And finally, on solvency side, we built capital to 11.7%, and we have continued Bill and Rail ratio to a level that is now very close to what we have been asked to have by the end of next year. So all in all, pretty good trends. Return on annual equity will exclude the extraordinary charge of 10%, 10 point 1%, also indicating what we feel is that our business model can actually deliver and prosper despite the very negative interest rate environment. Commercially, you've seen this slide before.
It's year after year. We continue to gain You can see in terms of market share, there's also strong gain in payrolls in the last 12 months. And the number of customers that we call relational or clientes vinculados in Spanish is now above €8,000,000 Significant increase year after year. Obviously, our strategy is to grow clients but particularly grow relational individual clients, and that is working nicely for us. Balance sheet Wise, in terms of customer funds, you see the strong increase Over the year, €22,000,000,000 Obviously, 2 big contributors: demand deposits, costly but indicators of the success we're having in the business and market related.
But I would also highlight that on the long term savings and mutual funds, we have seen better trends in terms of net inflows, particularly in the month of September in particular after the August holiday. The year up to September, as you can see on the right hand side, is record in terms Of the increase in customer funds. And obviously, it reflects, yes, partly a good evolution of markets, but generally, the commercial strength, the fact that the model is working and that the machine continues to be rolling forward. On the long term savings and protection, I said it's been a pretty good quarter As we had good levels of activity, but maybe not full reflection of those in the P and L in the first two quarters, You can see market share and long term savings up 22% up sorry, 33 basis points, 22%. And inflows, you can see the 3rd quarter at €600,000,000 is a good level compared to what we had seen In the previous quarters, MyBox has been clearly a success.
It's allowing to increase the penetration of insurance products in our client base. You can see that for life risk and household, health, Although all these indicators are up, I think it shows that it was the right strategy to deliver this new commercial offering, which had a transition period in the 1st part of the year, but it's now, I think working at very appropriate and good speed. The lending side, it's again a story of growth in consumer, Growth in business and mortgage deleveraging. That's the trends that we have seen. Public sector is a bit more volatile.
This year is But it is it tends to be more tactical and obviously More volatile quarter on quarter, but it's also contributing to lending growth is 2% growth on Performing loans year to date clearly above what the market is doing and showing the same I would Successful trends, particularly relevant in consumer with our 11% growth year to date, but also on the business side is Pretty good trends. View production is up on business and consumer led. As you can see, we continue To push various initiatives that are making us more successful in both sides, a specialization of our branch network is a key one. We have close to 200 Centro is now supporting businesses throughout Spain. We have moved from the centros and presas, the larger businesses, to Smaller branches, what we call Business Bank, which are having a very good, I would say very good performance in the early days across Spain.
Consumer lending continues To grow, we are, as you know, innovating both in terms of delivery channels, technology, AI in terms of credit scoring and preapprovals, Also in terms of what we're doing in consumer lending, where we have now distributed, as you can see, over 240,000 TVs, Cell phones and equivalent selling cars in through the what we call in Spanish, Renting and security alarms, a number of things that are helping the traditional consumer lending activity, which is doing fairly well. Mortgage side, you clearly see a fall in new production. And it's a bit early days, but I think there are 2 factors. 1 clearly is The new mortgage law, which has a slowdown, I think, during The summer period has slowed down production, and that should be obviously temporary. But I also feel there's some stabilization, I would say, In the market, some of the numbers that we have seen recently indicate that stabilization would suggest that the mortgage book is are likely to grow going forward.
In any case, for us, as you know, that was what we were predicting when we presented Our strategic plan. I'm talking about the strategic plan. I think it's a good time to just mention Actually, the various drivers for revenues that we said were going to be critical for our success in these 3 years Longer term, actually working pretty well. Obviously, the environment is more difficult with negative rates and the slowdown in the economy. But if you look at what we said is growth in on the lending side in business and consumer, this is doing very nicely.
Growth in payments with a 10% The year on year is actually doing nicely well. BPI growing, and we'll see the numbers on the P and L as well at good pace, despite the environment, long term savings, particularly good quarter and year to date, clearly continues to be an important driver As it is the protection, both the non life and the life risk element of our offering. Mortgages, clearly, both in terms of pricing and volumes, are weak. We were predicting it to be weak, and probably it's unfortunately even weaker. And then we have, On the negative side, the excess cash balance, around €17,000,000,000 which we have at the ECB, which is obviously a drag on results.
But if we look at what we actually said we could grow and allow us to continue Making progress and rich adequate profitability. All these drivers are there. We have a bit more of headwind because of rates. But clearly, it doesn't mean that the model is not actually doing nicely. In terms of results, P and L, I think it's marked by the recovery of core revenues.
And when you look at the recovery of core revenues quarter on quarter, obviously, there's a significant Difference between the stable NII and then 3% growth in fees and close to 7% growth in insurance. I think this reflects well the trends in which we are and trends that we expect in terms of further pressure on NII, but ability to continue net fees and insurance income going forward. That's clearly what we expect to do. And this quarter, I think we've shown it can work. Other than that, we have lower noncore revenues associated to the fact that we no longer have Repsol on year on year and obviously, the Telefonica division, which we recorded in the second quarter, But nothing unexpected on that front.
Expenses are coming down as the benefits of the restructuring The program start to feed in since August, and that is obviously helping to Slow down the significant growth in expenses that we had shown as of at the end of June. On the asset quality side, Javier will discuss, but we see stable trends in terms of cost of risk, good progress in NPL reduction. And as I say, obviously, return on tangible equity, that is Only 6.8% in terms of reported. But given this singularity of the restructuring charge, I think it's appropriate to and yes, for that to estimate what is the cruising speed of the bank. And at this level, we are at this 10% threshold.
BPI, been Clearly, a success story for us. I think what I would highlight is core revenues growth, NII fees with because we had this transfer of businesses from BPI to Caixabank, the reported figure is not Comparable when we adjust, we see significant growth in fees. We're investing on the cost side. Clearly, even if we have a quarter on quarter A reduction year on year, we have an increase. And the good thing is that we are seeing the revenues come associated to these investments.
Credit quality, very good. We'll continue to see write backs and hence a good contribution to Our P and L, obviously, compared to last year, there are some differences because there were a number of one offs last Clear but clearly quite good. And also in terms of activity, consumer lending, business, customer funds and savings, BPI is quite aligned in terms of its performance with the kind of things we're doing in Spain that are working, and Portugal is following Similar trends. With that, I think Fabrielli may want to go into the detail of the P and L.
Okay. Thank you, and good morning. From my side, some more details. On NII, as you may see, we are up by 0.1% quarter on quarter and 0.3% year on year. On the positive Slide here, clearly higher average loan balances helping after strong loan growth during the 2nd quarter.
Also, we have the help of a higher day count this Q3. And on the negative side, as already commented Hi, Gonzalo. It's the ALCO and obviously, reduced the size and also the excess Cash, that is having a negative impact. Going forward, I would say that in the 4th quarter, we also sorry, We will already have the positive impact from Teavink. And into next year, TLTRO gives us optionality to partially offset the lower impact of lower rates.
With this, Let me now focus into the customer activities in assets and liabilities. First, on deposits. You see us In recent quarters, there are no changes. We are repricing our euro deposits at 0. The above book yield remains at very low levels.
On the asset side, you may see that the front book yield comes down by 23 basis points this quarter and to 257 basis points. This also has to do With the fact that during this Q3, on average, we have had lower market yields. Euribor, depending on the tenure, is below between 15, 20 bps compared to the Q2 and also long term yields have been lower. Having said this, I would say that segment by segment, we are not seeing a of spreads of the new production. On the contrary, in on mortgages, as we can probably comment later, we have seen positive developments on this front.
On the bad book yield, it comes down by 2 basis points, in this case affected by this day count effect also That this technical reason, because of the different basis of our loan book, that once we have a longer day count The quarter affects downwards our back book yield, and it stands now at 223 basis points. With this, our customer spread comes down also by 2 basis points and our net interest margin by 1 basis point to 121. Now into the ALCO activities. From now, we have decided for disclosure to merge the former structural and liquidity portfolio, The latter no longer having the purpose it was designed for, has little bit has lost a little bit its purpose, As we now have TLTRO 3 available for TLTRO 2 redemption. And Well, you may see that the size of the portfolio the combined portfolio has remained stable, €44,000,000,000 with a stable yield this quarter at 0.9%.
We disclosed also for the first time the maturity profile. As you may see, Those maturities from 2020 2022 are spread across. And also, you may see that the average life And duration of the portfolio during this Q3 has remained stable. On the liability side, despite new issuance, It remains our wholesale funding cost remains fairly stable at 124 basis points over 6 months arrival. And the average of the issuance of this year has been a LIBOR plus 134.
So as you may see, pretty in line with the average of the stock. With this, let me turn to fees, Well, we have had a good quarter. We think despite the seasonality that usually affects the 3rd quarter, We are up quarter on quarter on fees by 3.2% and by 1.7% year on year. We have good performance across The different categories on recurring banking fees, we are up by 2%, both Quarter on quarter year on year, around 2%. In on Asset Management, we are strongly up both quarter on quarter year on year also.
Here, you may see on your right hand side chart that we have the average AUM balances that this 3rd quarter have been progressing not only because of good market conditions but also because we have started To have some inflows, and you may see that at the end of period, balances are already higher than the average, which Bodes well for the performance of the 4th quarter markets permitting. In insurance distribution, although Negative growth compared to the last quarter and also to the Q3 last year. Here, we have a more positive trend, and we think that we will look this into the detail In the coming slide, we are recovering after a weak first half of the year. In wholesale banking this quarter, despite being more volatile, have done really well during the 3rd quarter despite seasonality. With NII and fees in mind, I'll look more detailed look into core revenues.
As you may see, we reached, on a quarterly basis, an all time high, both in at group In group terms or in only considering CasaBank, as has been commented, core revenues up 1.2 2.9 percent quarter on quarter. Looking into the detail of our key businesses, you may see that We are doing well year on year on long term savings, up by 4.1% in protection, 3.8% in payments here, Clearly, thanks to electronic payments that are helping a lot, up by 3.6%. Those businesses already represent The total savings protection and payments, 41% of our core revenues, up by 1 percentage Point year on year and quarter on quarter. As I said, focusing more into our Protection revenues. You may see that across the different segments of this business, we are improving our performance.
Life risk is consolidating, Clearly, a recovery, and we expect this trend to continue. We also have this 3rd quarter strong growth in equity accounted From Jaguar Casa Deslas, there is always here some seasonality, but even compared to last year, doing better. And in insurance distribution fees, Still, as I said before, slightly negative compared to last year, but clearly on a steepening trend. And here on this front, With Myvox, the Myvox offering, we expect that this is set to improve also. Now I turn to costs.
So here, clearly, we have the impact of the restructuring program that starts to feed in. Costs Down quarter on quarter by 1.3%. You may see that it's personnel costs, what is driving Our cost base down, and this is more than compensating an increase in general expenses and amortizations. This is mainly due to the investment that we are doing, in many cases, in IT and So in the reshape of our network. As a result of 2,000 people leaving the company in August, Now the productivity per employee has really increased.
Our core revenues per employee grow by 7.4% compared to the Q3 last year and by 24% compared with the starting point of the previous strategic plan late in 2014. Finally, on the P and L. A few comments our sorry, on the on our loan loss provisions, a few comments end the P and L, our provisioning levels are decreasing on a 12 month trading basis. You may see that Down compared to the situation last year by 28%. The cost of risk remains at 14 basis points this quarter and already down By 6 basis points compared to the Q3 of last year and well below guidance, remember, for cost of risk to be below 20 basis points.
And with this, we turn to the balance sheet. A few comments on our nonperforming Exposures, you may see that our nonperforming loans come down by €400,000,000 round numbers. This allows the nonperforming loan ratio to come down to 4.1 percent, on track to be below 4% by year end. We think that this is a clear, achievable target now. Our Rios exposure continues to be nonmaterial, €0 €900,000,000 And also, we continue reducing our rented real estate portfolio, now we're standing at €2,200,000,000 And as you may see, the pace of inflows continues to slow down.
And if you look at also The 1st 9 months of this year compared to the 1st 9 months of last year, down by 15%. And at the same time, despite reducing Our nonperforming loan exposure, you may see that the coverage ratios remain sound and stable with our I would remark Here, our uncollateralized coverage ratio is standing at 83%. On liquidity, no news. We continue to have really a strong liquidity position with all metrics In very comfortable levels, liquidity coverage ratio at 190% and net stable funding ratio of 124%, despite that TLTRO is now already not being considered as long term funding. And You may see also that we have had continued and successful market access, €5,400,000,000 issued During the year, during the Q3, €1,000,000,000 5 years in or nonpreferred in our social bond with great success.
And as commented before, the new TLTRO3 conditions that clearly have been improved since the Earlier version provide the ability management optionality, both in terms of corporate deposits and also in terms of wholesale funding. And finally, on solvency. It's a quarter where we improved our solvency metrics across the board. Our CET1 ratio up by 11 basis points to 11.7 percent with Contribution from organic capital generation and also market and others helping. I would remark also that tangible book value per share goes up by €0.13 of the euro quarter on quarter, and It now stands at €3.42 per share.
And as commented, our RMBOL ratio here on our Sovency metrics at now we're standing at 21.4%, really close to the target order requirement at 22.5%, something that we can manage easily during next year. And From my side, some final remarks to wrap up. It's a quarter where core revenues have clearly grown, supported by a strong recovery in long term savings and insurance revenues. At the same time, it's a quarter Where we have the impact of front loaded cost savings, and this has resulted into a boost of our quarterly net income. In terms of volumes, we continue to do well in businesses and consumer lending.
This is supporting the loan book, and also It's a quarter where long term savings have started to do well, maintaining what we think may be an structural growth Going forward and at the same time, further reinforcing our solvency metrics. Thank you very much. And with this, I think that we may be ready for questions.
Okay. Thank you, Javier. Before we proceed to Q and A, just Let me remind everyone to please keep your questions brief for the benefit of everyone on the call. I believe we have over 12 callers on the line. So operator, let's start then with everybody's name and company they work for, please.
Certainly. Thank you, ladies and gentlemen. Your first question comes from the line of Sophie Peterzent from JPMorgan. Please ask your question.
Yes. Hi. Here is Sophie from JPMorgan. So I had two questions. So my first question would be on capital.
What regulatory headwinds Or tension headwinds and both of our headwinds, should we expect going ahead on your capital? And then my second question Would be on NII. How should we think about net interest income going forward? At the Investor Day last year, You guided for around 1% NII growth in a flat rate environment. Is this still fair to assume in the current environment?
And how Should we think about the TLTRO 3, Tiering and other potential helps to your net interest income next year?
Okay. Thank you, Sophie. Well, on capital, we are in the same Plays that last quarter. So we are ending the process for the low default portfolio in TRIM on TRIM. And we expect that the final news on this will come early next year.
This is our expectation. That's probably in the next call in January. We can update you. So I think that This is the part that is pending on TRIM. As you know, it's the last part of our TRIM process.
In terms of other impacts, it's well, Basel IV, we have flagged this since 1 year ago when we precisely We decided to put this kind of extra buffer on our capital planning of 1 percentage point that It was precisely designed to absorb Parcel 4 mainly and the potential pending impacts from TRIM, which only pending 1, if any, it's this one for the rolled up portfolio. So from our side, other than this, No other significant issues on the capital front. On net interest income going forward, well, here, there are Plenty of moving parts. I'm not going to give you today guidance for next year. We are working now on our budget for And on NII, there are a few positives compared to the situation we In August, if you look at the screens, you could think that it would be a terrible situation.
But now the market clearly is discounting not so lower rates. So If you look at the forwards for 12 months arrival, more or less around minus 30 bps, which is the level that are now. On top of this, we have Tiering. In our case, we expect to take advantage of Tiering in full. We already hold at group level €17,000,000,000 at €7,000,000,000 at ECB by the close of the quarter.
Our the Tiering in order for us to benefit from Tiering, the maximum amount is 13.13, and we expect to maintain those €13,000,000,000 at 0% at DCB at any time. This results into a positive impact On our net interest income of €65,000,000 per year, around €60,000,000 in €1,000,000 in BPI. This is those €13,000,000,000 are more or less €12,000,000,000 in CaserBank Spain €1,000,000,000 in BPI or slightly more than €1,000,000,000 in BPI. So this is the plan. So from here, we are working on, as I say, on our budget, on volumes, in terms of Fair loan growth in terms of segments, in terms of pricing.
And obviously, TLTRO 3 offers us some optionality, as said before, in terms of funding, in terms we have to still need to take a final decision, obviously, on what to do with TRT403. We face redemptions of TLTRO 2 next year, we need to decide if we need this liquidity or not. And if we roll over the TLTRO 2 into TLTRO 3 and to what extent, etcetera. Remember that there are many windows for this, so it's not only in one shot. So the next window in December, the following March and so on.
And so we'll decide because we are doing the numbers. So all in all, obviously, it's a revenue line that will be under pressure clearly because rates are lower but not that low as at least in August could be expected. I don't know, Sophie, with this, I answer your question.
Yes. No, that's fair. That's very clear. Thank you.
Okay. Thanks, Fatim. Let's move on to the next one,
Next question comes from the line of Carlos Cobo from Societe Generale.
Hi, good morning. Thank you very much for the color and the explanation so far. A couple of questions, one on capital and the other one, I think it's a must on IRPH. I'm not sure how much you can explain, but I guess you are under a better position to Understand potential scenarios are asked. So that is basically the question.
If a general advocate recommendation is Reaffirm, could we be talking about no impact at all? Or that would still have some impact in terms of litigation costs? What would be your measures to compensate them? It would be only P and L readily over time? Or you would still need to take some upfront charges?
And second on capital, please. First is on the 100 basis point buffer that you mentioned for TRIM and Basel IV, we've already so I wanted to understand how we should read that Buffer, is it a dynamic buffer because you've already absorbed part of the TRIM impact? So now it should be lower than 100 basis points? Or how should we read that? You will maintain it at 100 basis points until Basel IV is clarified?
And lastly, also on capital, if you could elaborate on the 5 basis point capital generation organically In Slide 10, I think of the pack. It looks low when you look at the retained earnings in the quarter and the fact that The loan book has fallen a little bit. I would justify more than 10 basis points or even more of capital generation organically this quarter. So I wanted to understand what have been the negative or the increase in risk weighted assets that compensate that? Thank you.
I'm sorry for the long questions.
Well, thank you, Carlos. Let me me start with the IRPH. Our base case So far has been and continues to be that we will not have a material impact from IRPH. And certainly, when you say is there no impact at all possible, obviously, yes, it is. Say no material impact.
We think that Based on what the general advocate said in terms of the index or the clause not being void No abusive that it has to be the local Spanish courts that are the ones that have to analyze transparency case by case. And based on this particular situation, actually from another bank, being in accordance with the transparency requirements and practice that we have followed, we are optimistic that this will eventually be the case. Having said that, obviously, We need to wait and see what the final court decision is. With respect to the buffer, we We have created 100 basis points to include TRIM and Basel IV. As Javier said, TRIM is not yet finalized for us.
It's a low default portfolio pending. That is likely to be next year. We'll have to see If and what is the final impact from that, there's also a few things about Basel IV that still need to be defined about operational risks, which are relevant for us and certainly also what is the then the Timing because it's more and more heard that there might be a delay. But in any case, we have, a year ago, provided an estimate of moving parts, which was 100 basis points, and I think that estimate is Today is still valid. We may have some variations over that 100 basis points, but it continues to be a good buffer to offset these two things and something that we are still Able to build organically in the 2 years and now 1 quarter that we have between now and the end of 2021.
Besides that, I think there could be a delay on its not just on the output floor, which doesn't have a real impact for us, but The rest of the Basel IV package, which do have impacts for us, may actually also be delayed. But our strategy at this stage is to build this buffer by the end of 2021 so we can operate in a 12% post Basel IV fully implemented after that date. We cannot I'll be 100% certain, as you know, because there are some moving pieces. But I think it's a good comfortable estimate that we have and that we actually already disclosed almost a year ago because we saw this coming, and we always want to be quite fair to the market and also for our own planning purposes. Just to Just to acknowledge that whether we like it or not, Basel IV is there, and it has a small impact on us relative to others, but it's still a significant impact.
And Javier, you can elaborate on that and the quarterly buildup.
Yes. Carlos, on the quarterly buildup It's what you say. There is more probably more intense risk weighted asset growth organically this quarter, and this is for a few reasons. Well, first, we have had a strong growth in Portugal, remember, still not under advanced models. 2nd, there is growth in contingent liabilities of balance sheet contingent liabilities.
Probably you don't you look at this, then we have had growth And then there is a mix effect because the loan book has come down. We continue to have growth in corporate SMEs plus consumer. So there is a little bit of mix effect on this. So That's it. This is probably the reason.
Perfect. Thank you.
Thank you, Carlos. Let's move on to the next one, please.
Thank you. Next question comes from the line of Jupri Ahmad from Goldman Sachs. Please ask your question.
Hello. Good afternoon. Thank you very much for the presentation. I have two questions. The first question is on the other income and losses line.
You've booked €44,000,000 this quarter, which is above expectations, at least my And also of your own guidance for 0 net real estate related impairments. So I would like to know, I mean, if you could actually please elaborate a bit on your expectation for this line going forward. The second In Spain, in particular, we are seeing actually slowdown gradually slowdown actually in the economy driven by weaker actually household consumption. So this leads me to 2 sub questions, if I may. The first one is whether you still expect you had a guidance of below 20 bps Cost of risk this year and below 30 bps next year.
So do you still expect a pickup in the cost of risk For next year? And would the next year actually cost of risk be above your guidance, given that the macro outlook is weaker Then at the time that you announced your guidance. And the second question here is how do you expect your consumer lending originations to evolve? Do you We expect them to continue a double digit growth. And if not, would you be willing actually to sacrifice prices?
Thank you very much.
Thank you, Jose. Maybe I'll start with the second question, and you can build on that and answer the first one. In terms of the slowdown, yes, there's a slowdown. Clearly, when we look The latest employment figures in Spain, there's still growth but at a much slower pace than what we had seen before, which has to message us as a slowdown, but we're still in positive territory. And that is what we are expecting.
And in fact and I think depending on, I think the increased confidence that should come associated with the creation of a new government, which my expectation is that it And on trade issues between the U. S. And China, even if today there was negative news on that front, it's still our base case that we will have some kind of agreement. And hence, that first point is yes, we are in a slowdown area but Not in something worse than that. We'll have to see.
In this scenario, we're confident to stay within the limits of Cost of risk that we discussed both for this year and next year. We actually have had a pretty good year in terms of cost of risk. And Certainly, the negative rates is also a great environment for us to continue reducing NPLs. In the past, We've been asked whether we will see cost of risk going into negative territory or very low. And we've always said, obviously, cannot predict the future, but We're going to still working on reducing our NPL book, and that may have costs will continue to reduce NPLs strongly, not just by the end of the year, as Javier said, below 4%, but also into 2020, and that is consistent with the cost of risk targets that we have announced.
In terms of the consumer lending, we are being surprised to some extent of the strength of the growth of our book. In this case, what we are doing is actually yielding better results than what we expected Over the years, we were not expecting double digit even if we were expecting high single digit growth. I think it's logical to think that this will slow down. It's in our forecasts, in our expectations and that would have growth going forward in 2020 but below that level. And that will be consistent with the current pricing policy that we have.
I don't think we can outgrow the market So much and pretend to keep or intend to keep double digit growth if the market is just not growing at that level. We have had a good rent performance this year, but I think it's prudent to think that we'll continue to grow faster than the market and at good levels into next year but at lower levels than what we have today. That is, in fact, what we When we presented the strategic plan, in this case, 2019 has surprised us on the upside, which from time to time is not bad. We're keeping a very close eye on asset quality, particularly in this book. As we've commented in the past.
We've discussed how we'll track various vintages. And actually, we're having pretty good performance in terms of improvement of asset quality statistics of each quarterly vintages over the last couple of years. So We feel good about the business, but obviously, we agree with you. It's difficult to keep the double digit growth rate into the future.
Okay. From my side, on your question on other gains and losses, here we have A few impairments on the new inflows into Rio. So you mentioned that guidance for 0 net real Estate impairment, well, this was before the disposal to Lonestar. Now there are small inflows into the OREO portfolio, now standing at €900,000,000 And well, from time to time, we need to provide a little bit on this. Other than this, I would say that We are accelerating the pace of our the restructuring of our network.
So we have impairments related to branches As we are closing branches, old branches into new ones, so we there are some impairments related to this. So we may have had an uptick on this on those expenses due to this, but I will not expect that this is setting a trend for the future. So we have had this quarter probably with a slightly larger impact, but it's not a trend at all.
Thanks,
Jose. Let's move on to the next one, please.
Next question comes from the line of Alvaro Serrano from Morgan Stanley. Please ask your question.
Good morning. Two questions. First of all, this year has been a pretty rough ride for you. I mean, the first two quarters revenue missed quite a lot. You announced a big restructuring plan.
The question is, what part of that first half misses and looking back, do you think was market related? And what I think what was maybe sort of you restructuring some of the your internal processes Or for example, in insurance redesigning insurance offering. And because if I look at the Q3 performance, This is much more what we're used to from CaixaBank with fees up to insurance up 4. Is this disruption over? And is the 2% And is the 2% 4% kind of growth that we should be looking forward to going forward is really the question.
And the second question is about costs. I realize 2020 you haven't given guidance for 2020. But Given the experience this year, how committed are you to have positive jaws in 2020? And how much flexibility do you have To be able to commit to that.
Thank you very much, Alvaro. I would say We gave you the 3rd quarter shows the strength of the franchise. And 1st and second quarter, it wasn't that obvious when looking at the P and L. I insisted a lot that the activity was doing well, that we have been obviously affected in terms of net inflows, which I think we have some lag period and have been slower at the beginning of the year. They are picking up into Q3, and I expect them to continue to be positive, although obviously, We'll have to see, but we have a good progression there.
And then there was associated to the change in our particularly insurance offering with a MyBox product, which took a while to replace one the former offering with the current offering. And the products are different. We tried to insist that actually the machine was working and that terms of activity, number of policies, etcetera, that this was more a temporary accounting related bleep than anything else. And fortunately, the 3rd quarter is suggesting that, that the case, obviously. We are working now in, I think, in good shape to continue on this path, and we understand that you'll have to see how that continues to consolidate quarter after quarter to Confirm that this was more a temporary thing.
I do not think it was distraction internally. The agreement, obviously, that we had to get headcount reduction was difficult, but I don't have the feeling that the people have been really worried or distracted. In fact, Well, we have had the biggest challenge has been in August and particularly in September. In August, we had 2,000 people less, but people are on holiday. So the clients It tends to be on holidays, so it's less of an issue.
September, when people come back, it's quite tough because obviously, we are operating with 2,000 people less than these employees were doing things. They were not sort of idle. And we need to reengineer things, and we have been keen on that, but the 1st couple of months are always a challenge. And what we have seen is that actually, the organization has delivered very nicely In having the best quarter in terms of revenues and a very strong September because obviously, best quarter is not usually done in August When for seasonal reasons, business is slow. So I take part of your comment The organization is in great shape and has been able to deliver a great quarter September despite all these changes.
And with this inertia, I am confident for what is ahead this quarter, next quarter. It doesn't mean that it's not a difficult environment. It's an extremely challenging environment. You know that well. But I think we are going to be up to the challenge.
And certainly, the Q3 helps us and hopefully also gives You, financial community, some data to support that actually we have a model That can do well in this environment. So yes, we expect Q3 to be more representative of the future in terms of activity. What it is true is we have negative rates, and we have a negative repricing on new on the mortgage, on the ALCO, etcetera. So those headwinds are there, and they are going to be felt progressively during the next quarters. So we're going to need to work harder and harder to offset that.
At this stage, with respect to 2020, we cannot I'd love to say something to both help Your analysis and also, obviously, to say something that we can deliver on, it's too early. We are working, as So Javier said on the detail of the budget for next year, we certainly are working and I've said it's not the natural State of things to have negative jaws like we're having actually this year for the first time in 10 years. And we are working to return to As soon as possible. When is that? At this stage, it's not something I'm comfortable in making a comment and generally because we want to provide guidance on 2020 at the end of the year and be more comprehensive and also make sure that whatever we say we feel we can actually deliver and we can not just actually the lever, but also explain to you why this is going to be etcetera, provide enough.
And on that front, we're not yet done. We hopefully will be soon and certainly expect that, all things being equal, we can have this discussion next
Thank you.
Thank you, Alvaro. Let's move on to the next one, please.
Your next question comes from the line of Andrea Ullentgen from Credit Suisse. Please ask your question.
Hi, thank you for taking my questions. The first one is a bit more specific on insurance revenues and specifically on protection. The numbers have improved significantly in the quarter. But on aggregate, the revenue from Insurance is still declining year on year by roughly 1.5%. Is it fair to assume that you finished the year With slight growth?
Or how big is the seasonality of Q4 on production? And then my second question is on Portugal and specifically on NII, which was up 7% Q on Q. I think it comes from a lower cost of funding mostly. Could you give us a bit of color on the trends In Portugal? And also, sorry, the last one.
If I understood correctly, Are you planning to move the risk weighted assets of Portugal to IRB? And if so, when and what would be the impact?
On both. Well, on insurance revenues, clearly, we are on an upward trend. It's something that, in this case, and Back to the question from Alvaro. Yes, we were working on reshaping our commercial offer on this with my works. This is Doing better than, I would say, that even than expected initially.
So our view is that yes, we can deliver More positive performance quarter by quarter. To what extent to the specific to your question, no, very specific. If we may see slight growth this year, let's see what happens during the Q4. But Let me say that the trend is there and a trend that is expected to continue to be better. On Portugal, you have a specific question on NII.
Portugal has done very well. And I would say that here, it's More or less fifty-fifty, two main reasons, which is: 1st, good performance from a commercial point of view. And here, you have loan growth. You have good performance in terms of spreads, as you said, on the liability side. But other than this, there is also a standardization of asset and liability management practices at the group level.
And also, this have resulted in better performance, let's say, at ALCO level from BPI. And on IRB, yes, at some point, we will roll out, But we still don't have an impact on this. It's something that probably into next year, we can be more specific. But as a group, we should be within the same parameters and the same models and apply IRB to BPI also.
Your next question comes from the
Hi, guys. It's Stefan from Citi. Can you hear me okay?
Yes, we
can hear
you. Yes.
Okay. Because there's a pretty bad echo. So two questions from my side. Firstly, to come back to IRPH And to understand a little bit better in terms of how you guys are managing that exposure, can you share with us Out of 100 IRPH mortgages, for example, what is the percent that you approach the customer and ends up Being converted into a regular Eribor mortgage or a fixed rate mortgage. And of the remaining proportion, how much goes to court and how much you end up winning versus losing?
Any color, obviously, numbers would be amazing. But if you don't want to give specific numbers, just give us some color in terms of how you're approaching the issue overall. And secondly, a bit more of a sort of strategy question on insurance. When I look at your market shares in long term savings, life insurance, pension plans, payrolls, Those have been doing amazingly well for the past 4, 5 years. It looks like you might be plateauing in terms of the Sort of second derivative, so to say, of the increase.
Do you see reaching a natural ceiling at some point in the next Ex years on insurance and on long term savings more generally as well as pension plans. Any color around that would be very interesting.
Okay, Stefan, let me give you some color. As you said, I don't have the figures, and I'm not sure if this is stated. We'll be productive To get into too much detail on this front when we have a few months before we have final outcome on this. But generally, we have not renegotiated IRPH. So our exposure is what we had, and it's reduced by Maturities.
And obviously, if a client comes to us and says they want to change the mortgage in one way or another, obviously listen and we try and find an accommodation, if it makes sense, for both the client and ourselves. We have not engaged into an active restructuring of our negotiating with clients on that Book, we've said that we're winning the vast majority of cases in the Spanish court so far on IRPH, meaning the vast majority, so a very high number. And for this reason and for The content of what the AG has said, I think Maintain our base case is what is reasonable, but there's nothing new from what we have discussed in the past on this front. In terms of market share development, Obviously, market shares evolve over time. I don't have the feeling that we are plateauing, but Obviously, depending on which sort of numbers or series of numbers you look, You may at some point say that.
Long term savings, in particular, is now facing a big challenge, which is that Obviously, in Spain, we had negative rates for a few years, but we had a steeper yield curve than everywhere else. We had some sort of yields on the 10 year bond and the longer term maturities, that now has gone close to 0. So a typical long term saving product based on just fixed income is very difficult to construe today and offer some positive returns. It means that we have to develop a new generation of products That is combining other exposures, obviously, to equities and other underlyings that are not just sort of long term government bonds or high quality corporates. In order for this to work, we need to also provide to clients some Certainly, they are not going to suffer losses in the short term combined with particular Actually, 75% what if something happens in the next year, and I pass over.
And at the same time, markets are down, And then I have a big loss. So we are working in building a series of products that combine biometrics protection With long term accumulation, these are more complex products. But because of our market share and expertise, We now have a full range of alternatives. We're seeing those work nicely in the month of September and actually now in October. And I think there's higher value add in our offering, not just in the product but also in the Suitability of a product for a given client, hence, our 16 over 16,000 people with financial advisory degrees, which no one has to that extent are critical.
And this construction of value add advisory and value add products is quite unique, I think, now in Spain. And hence, my feeling is that we actually can have A higher degree of differentiation in terms of market share increases than in the past. It's certainly a challenge, but I would not at all give up on the idea that we can continue gaining market share, particularly long term savings. Obviously, there will be quarters up and down, and And maybe if one competitor comes with a very special sort of push offer or something under a campaign, you'll have a quarter where things change. But over time, I think in this environment, where sort of simple products do not work, it's going to play to our advantage.
And it's not just a Fees is of the future. It's a reality today because we have an offering that is absolutely differential. And whether in the end, a given product Sold to a client because it fits or not. In any case, we have a different dialogue with the client where we can really offer a full range of solutions for long term savings even if rates are not above 0 in the long term. So we feel good.
Okay. Thank you, Gonzalo. That's very interesting context. So from what I understand, You basically are starting to offer more capital protected products with more And customization around it, which is really the name of the game in asset management going forward, and that carries over to your insurance offering. Sure.
All right. Thank you.
Thank you, Stefan.
Thank you, Stefan. Let's move on to the next one, please.
Operator? Next question comes from the line of Andrea Fried Tree from Mediobanca, please ask your question.
Hello. One question Tarsa, that EBA guidelines should be included within the TRIM Process. Do you feel the same about it? And what would you expect from the new definition of default in future years? And if this were the case, Would you not then have to progressively reduce and update the market on your 1 percentage point CET1 buffer as These hurdles actually hit your capital ratio.
Secondly, on the other provisions, They looked surprisingly high this quarter. I've heard your answer to the previous colleagues. But could you elaborate a little bit On these trends and how we should model them going forward? And just finally, have you done any repricing on banking fees?
Sorry, I didn't write your piece. The last one, the repricing on biking fees. On biking fees, yes. Yes.
Yes.
Okay. Thanks.
The answer to the letter is not in a meaningful way, no. The On the first point, I'll just like to say the new definition of default is not going to have a material impact And with respect to updating the market as we go through the TRIM, Basel IV, etcetera, Javier?
Well, we as soon as we have or as long as we have news On the development that regulatory developments that may impact our capital base, and this is for what we have built This buffer of 1 percentage point, we may be able to update on the position. But remember that when we placed This buffer 1 year ago was for Basel IV TRIM plus EBA guidelines in terms of the change of parameters that will happen because of this. And so in our view, this 1 percentage point buffer It's what is needed to face all those regulatory headwinds. In terms of other provisions, Well, remember that we gave a soft guidance of the those other provisions To be around €50,000,000 per quarter. And we are in an environment where we should think that this is This will continue to be the case, and some quarters may be slightly down and some quarters slightly up.
This has been the case. But we don't see that because this 3rd quarter has been a slightly higher number. This is a trend upwards. So I think that this is the expected evolution.
Thank you. Just one clarification then. With regards to the buffer, Are we then allowed to deduct from the 1% the basis points that you take on from TRIM Quarter after quarter. And have do you have the feeling that EBA guidelines are included in the TRIM exercise?
If we have further information about the final TRIM exercise, which is about the loaded 4 portfolio, I mean, if there is an impact, this will go against 100 basis points. So at that point in time, we will be able to update you on the remaining buffer. So yes.
And the guidelines are
included in this exercise, yes.
I would say there's no additional impact from that
Next question comes from the line of Ignacio Carrezza from UBS. Please ask your question.
Hi, good afternoon. Thank you for the presentation. A couple of quick ones on cost of risk from me and one in costs. On the cost of risk, if you can update us on the provisions you're Currently charging on the consumer lending. And the second one is how long do you think BPI's PPA can go for before you actually start providing normally in the P and L?
And on the costs, you kind of hinted in Q2 that you were looking at new cost initiatives to reduce the cost growth. You're still forecasting for 2020 2021. I Don't have seen or haven't seen anything actually in the presentation. I don't think you have mentioned anything in this direction in the call. So if you can update us on that as well.
Thank you.
If I may start with BPI and then leave the rest. I think we, every year, are quite conservative in assuming that BPI It needs to go to normalized cost of risk. BPI has had extraordinary low cost of risk Relative to the cycle, in the past, I will continue to be surprised on the positive. We also have, obviously, Provisions at the consolidated level. So we have a very good position on this aspect at BPI.
But I am unable to say how long. And I just see that we have seen quite a lot of upside beyond what we were thinking and that we also have this additional cash at Caixabank level.
And then Johanna, well, just to complement on this, the PPA related to PPA stands €298,000,000 right now. So just to complement the information with this. You asked about Cost of risk of consumer lending?
Yes, on the consumer lending, yes.
Yes, on consumer lending. Of our provisioning levels right now, rough numbers, But probably between onethree 50% is precisely due to the consumer loan portfolio. And as commented before, but we feel really comfortable With this position, with this portfolio, we are monitoring it very closely. In terms of vintages, every quarter, I would say that the performance of recent vintages are doing well, even better than previous ones. So that way, I'm not seeing a deterioration at all from recent developments in terms of macro.
I would add to this that the new production You know that we have part of the new production that is coming from those agreements we have with major vendors like IKEA, FNAK, etcetera. And so those this new production made it Even more closely monitoring, and we are extremely happy to see that are doing really well and in line, if not even better than the new production of loans from, let's say, the Cascia Bank or PPI So it's a portfolio that is profitable, nice returns, Provisioning levels that, as the rest of the loan book does not require right now, high provisioning levels Makes around onethree of the provisioning right now, but on a very Sound trend and no major worries or no worries at all from our side, although obviously, monitoring it closely. I think that this answers your first question. And there was a second question about costs that I missed. I
don't know.
Yes. So on the operating costs,
I think you hinted in
the second quarter that you were looking at new initiatives to reduce the cost growth in 202021. You can give us an update on that.
Well, it's this is what we are working on right now as we are working on the budgeting process for next year. It's about reviewing general expenses broadly. There are key areas of focus in marketing, in terms of sponsorships, in terms of many areas Well, you can rethink again and again about what really makes sense for us. And on top of this, obviously, reviewing all investment initiatives in terms of freight investment, obviously, never or trying at least not to put Into any difficulty, the initiatives for, let's say, evolving the bank or changing the bank compared to the initiatives for running the bank. But in terms of costs and with a large cost base, You can always do things.
And this time, again, despite having done many times, we review everything again. And, as I say, working on it. So this is the main this will be the main contributor to any effort, Additional, therefore, for next year, something that we think, at the end of the day, we can deliver.
Okay. Thanks, Natio. Let's move on to the next one, please, operator.
Your next question comes from the line of Fernando Hill from Barclays. Please ask your question.
Hi, hello. Good morning good afternoon. Just a question on mortgage market. Can you hear me well? Okay.
So mortgage, have you seen any change in mix from fixed Mortgages production in quarter 3 from quarter 2. And if you can update what is the mix on new production From fixed to variable mortgages?
No. The short answer is no. We are making around 60%, 60 something percent at fixed of the new production of mortgages to individuals. And we are between 60%, 65%. I would say that It's a number that we are having every quarter, and this is not changing.
What we see is that also there is a more broad based trend towards fixed mortgages across the industry. And if I remember well, industry wise, The weight of new production at fixed is getting closer to 40%. So we are not alone on this. We were the first ones, but we are no longer alone. So this is also, in our view, a positive development.
Your next question comes from the line of Benjie Creelan from Jefferies. Please ask your question.
Yes, good afternoon. I just had a Question on fees. Do you still expect to get back to positive year on year growth for full year 2019 on the fee line? And perhaps more specifically, On the CIB fees, I mean, you mentioned earlier the domestic political situation. Do you think that's having any material impact in terms of holding back CIB fee growth or how do you see the outlook there?
And the second question is just a quick one on Angola and BFA. Are there any live discussions ongoing? Or is there any update around the potential to exit that holding?
I'll start with the second one, and the answer is simple. No, no update, nothing going on. And Obviously, there is a discussion around the ownership structure of our partner, Onitel, and potential for 1 party to sell there, which is the only news, but we're not part of that. So we can only follow the news of the apparent Interest of the Telecom Brazilian Oi to sell their stake, but nothing on that front. On fees, you want to comment, Aurelio?
Yes. On fee performance into year end, Well, we'll see. So I will not recommit here. It's what you say. CIB is more volatile For fees to do really well into Q4, we would need this contribution from CIB.
We'll see. On the other front, on fee revenues, we have a more big view on everything related to AUMs as Inflows into AUMs have resumed. Always, we need to see markets permitting, but so far, It looks that maybe the case on this front. And in terms of all the businesses that Impact on fees like payments and other general more broad fee base, I would say that performance is expected. So I would say that towards More positive progression.
We expect that we can do well in the Q4. But as To pre commit to what to your question, not able to do so at this stage. Thank you,
Next one, please.
Your next question comes from the line of Gonzalo Lopez from Redburn. Please ask your question.
Hi. Thank you, Eddie. A quick question on Portugal's tax rate. You reported a positive tax rate this quarter and therefore Gross rate is somewhere close to 18%. I was wondering if you could please elaborate what happened this quarter in Portugal and also [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] If there is something that we can extrapolate going forward.
Okay. Well, we have had The reversion of provision previously set aside to cover tax liability for an overseas investment, and this is no longer expected to be required. So this is the reason of this and but this is a one off, so to make it clear.
Yes. Is that okay?
Thank you.
Okay. Super. Let's move on to the next one then.
Your next question comes from the line of Britta Schmidt from Autonomous.
Two quick questions for me, please. You already discussed the CIB volatility in fees. But regarding the structure of the fees on the insurance side, We see the insurance results, LifeRisk doing better, Unit Link doing well, the Siguul Kachare Dessler doing well. But we don't see an increase really in Insurance distribution fees, maybe you could just explain as to what will be driving that. Are there is there any pricing pressure?
Are you offering lower prices to customers? And then the second question would be, where are we on the debate regarding negative rates on deposits, Including deposits for high net worth retail customers. Maybe you can give us an idea as to where you see the outlook for that.
Thank you, Britta. On negative rates, we continue to I believe on not having any negative rates passed on to retail customers but do it gradually onto our corporate client base. And we are in that process, right? It's a process That is obviously important. At the same time, it's delicate, and we need to go case by case and make sure that what we are doing and we're measuring appropriate the overall profitability of the relationship and making sure that we can get those costs Reimbursed either through a specific fee or cost or through an increase in the overall relationship in essence.
When we look at our retail clients, we do a bit the same. Whether we like it or not, today, to provide basic banking services has a cost, And clients do not like to pay for that cost. The way we're getting paid is by having a very wide relationship with a client that brings us quite a lot of business so that overall, we can offer the daily banking service, the branches, the people, the systems And get the profitability because they bring many products. And all in all, it works. And obviously, with corporates, we've been doing that at the very top in the past, including negative rates, and we need do it on a more generalized basis.
We're working on that. Obviously, it's very relevant for you. So what is the impact on that? And unfortunately, at this stage, we're not in a position because it's too early to give you a figure or an indication. And certainly, we'll incorporate it into our guidance for next year.
With respect to the other, I'd like to say one thing, and Javier will, I'm sure, elaborate. But Bear in mind that the Q3 is quite seasonal, and it's not the best quarter to sell new products. And hence, we typically have obviously, for the distribution fees on insurance, It should be a worse quarter on that front. We have the summer season. The summer season helps us on the Equity accounted results from Adeslas because they are seasonal and people the claims come down drastically in August as people tend not to go to hospitals or the doctor unless they have a real issue in August and they try and relax and do something else.
That's a behavior. But in order to sell new products, it's not easy. On the life risk, we have been quite also clear We'll have a good typical sort of periodic premium accumulation. The Success of what we've done in the past moving from single to sort of monthly premiums Was going to have some sort of impact gradual impact, positive roll on and building up gradually. And we're clearly seeing some of that.
And obviously, that is good news. This is coming because once we've sold one of these new products, we're going to see more and more positive results in the future as we build on what we've all sold plus the new production. So I would say it's not that surprising what we said. Javier, maybe you want to add Something more specific on the numbers or
Yes. Well, only that if you look at one of the charts I explained it, and you may track here the performance in recent quarters this year. You may see that precisely those insurance or fees related to non life insurance. Although during this Q3, it's still slightly down Compared to the Q3 of last year, we are much less down than in the previous quarter. So progressing As long as all those products are being incorporated into the MyBox commercial offer, We expect that we will get traction gradually.
So we expect that this is going to improve in coming quarters.
Great. Thank you.
Okay. Super. I think we have time for one more, and I believe there's only one more on the line. So what a happy coincidence. Let's have the last one then.
Sure. Your last question comes from the line of Marta Sanchez Romero from Bank of America Merrill Lynch. Please ask your question.
Thank you very much. The first question is on NII. Does it make sense to take your full allotment of TLTRO 3, so Adding roughly EUR 15,000,000,000 to what you have today and invested in 3 year European sovereign debt or you think you don't need to prop up your NII with Low quality short term fixes. How advanced are you in passing through negative rates to your non operational corporate deposit base? And can you remind us about volumes there?
We haven't seen any deposit cost savings this quarter and the cost of time deposits is actually up in Spain. The second question is on your €2,200,000,000 rental portfolio. If you were to sell it all today in a wholesale transaction, do you think you would be breakeven? Or do you think you need to bring the net book value of that portfolio down to be closer to market prices?
Well, on the second one, and then, Marta, I don't know. We are not trying to sell all in one go. We are gradually improving the quality of this portfolio. It's coming down. Yield is increasing.
And we actually want to manage it for value. I think we have it conservatively in our books. But certainly, I cannot elaborate on what will happen if we try to sell altogether because that's not what we are pursuing. Maybe Javier, you can take on the
Yes. Marta, how are you? On the question on TLTRO III, well, I don't I said before that we have not made a final decision on this, but I don't feel that we will take Full in full TLTRO to invest into short term bonds because mainly because the spread is not that high. If you invest into Spanish government bonds, for example, you have a few basis points only. And I don't think this will be Our plan, although as I said, we are working on our budget, cash balances, so there are many moving parts here, and it's part of the process.
You had a question on nonoperational deposits. So I think that the number has been disclosed sometimes. It's Those are or first thing is those are nonoperational deposits, wholesale deposits From a regulatory point of view, in terms of the calculation of the liquidity ratios, and this figure stands around 35,000,000,000 if I remember well, €35,000,000 was already higher than €35,000,000,000 But this does Not mean that, as Gonzalo was explaining, that we are planning to charge unilaterally to those deposits because at the end of the day, one thing is the regulatory treatment, and the other thing is the commercial relationship you have with those clients and which what kind of business and how much business you have with them. And this is It's going to be a process that will take care of and be gradual in a case by case basis and on what we are working. And for sure, we will update you on our views on this in the next call, no?
Okay.
Well, thank you, Marta. Thank you, everyone. And we will reconvene in 3 months' time.