Good morning, welcome to CaixaBank's results presentation for the third quarter of 2018. Presenting today is our CEO, Gonzalo Gortázar, and our CFO, Javier Pano. Just a brief reminder for our first-time viewers, we plan to spend around 30 minutes with the presentation, and another 30 minutes after that for Q&A. You should've received instructions via email to participate in that. My team and I will be available after the call. With that, let me hand it over to our CEO, Mr. Gortázar.
Thank you, Eddie. Good morning, everybody. We just published results, brief summary of the quarter. I think it's a good combination of core revenue growth and obviously, lower provisions that have helped the bottom line vis-à-vis expectations. Core revenue, NII is up year-over-year, also quarter-over-quarter. In the case of fees, seasonally down, but I would say it's been a good quarter within that context. Just down 3.3% quarter-over-quarter. You can see that because year-over-year are up almost 5%. Other core revenues, also in the right direction. Good performance in terms of core revenues, 4.7% year-over-year, and on the quarter another 0.5%. I think it gives us good comfort that we are in the right direction vis-à-vis the guidance we gave for core revenues. Volumes and margins, good combination. Again, taking into account this seasonality of the quarter.
You can see how in particular AUM and insurance funds in this quarter, despite the volatility, are up 1% quarter-over-quarter, and 3.3% year-over-year. Also on the lending side, quarter is flat if we seasonally adjust it for the pensions advance that we had on the second quarter. Some small, yet positive growth on the overall year to date of performing loans, driven by consumer and business lending, which is the two areas we've been pushing for certainly in the last strategic plan, and where results continue to come across quite nicely. As you can see, defending spreads, which is not easy, continue to see strong competition in the market, that is not new. Asset quality, good progress in the year and in the quarter.
NPL ratio at 5.1% confirms our ability to deliver on the target that we have internally to be below 5% by year-end, which given where we are, should be attainable. Although obviously, we'll need to work on it during this quarter. Cost of risk at 8 basis points, 20 basis points if we exclude the one-off that we had in the quarter, which has obviously helped the bottom line. On solvency, 11.4%, which becomes 11.7% once we pro forma it for the Lone Star disposal and the Repsol sale. Just as a reminder, as we announced the cost of disposing of Repsol and mark-to-market, the rest of the stake is being 453 in the quarter. Again, I think good combination of core revenues, obviously helped by lower provisions, but also good performance on volumes, prices, and non-performing assets.
The commercial activity, precisely the point I was making quarter-on-quarter, although customer funds are down 0.7%, seasonally adjusted, the figure is 0.2%. Again, some good growth as you can see, both year-to-date, but also quarter-on-quarter on mutual pension plans and insurance. The overall trends are no different from what we've been seeing for the last years, where sight deposits continue to grow. Off-balance sheet funds and insurance do grow as well, reduction in term deposits. Overall, the numbers are, I think, attractive and show the resilience and the good progress of the franchise. Some further examples on long-term savings. A strategic critical area for us, continue to do well with 5% year-on-year on savings insurance on AUM.
Market share gains, significant gains over the life of the last four years, we are giving some statistics on comparing 2014 and the current moment because that is the horizon of our strategic plan, which we're about to finish. I think it's quite remarkable the fact that we've been able to win 2.7 percentage points of market share in the aggregate of mutual pension and savings insurance. Yet, as you can see on the right-hand side, we feel there's good potential structurally in this market for the future. Protection insurance, life risk in particular, with strong growth, 24%, but also on the non-life premia. Again, good progress on market shares year-to-date for the four years, or the almost four years, starting from December 2014.
Yet untapped potential because we still have a relatively low penetration, and hence, we still feel we can do better in this area. On the lending side, again, taking into account the seasonality of the quarter, it's been a good one. With a flat portfolio, once we take away the seasonal factor, and where particularly consumer lending has done very well, up 4.5%, and corporate and SMEs have shown good growth, 1.4% in the quarter. The quarter has been somewhat less good in terms of overall numbers, because we had a reduction on the public sector, which is a less strategic and certainly less profitable area for us.
When you see on the right-hand side the credit to the private sector, which is what we are focusing most on, you can see how year-to-date we have 0.8% of growth, and in the quarter also, 0.4% was adjusted for that seasonality. Again, consumer and business are the stars here. We continue to see deleveraging on the mortgage side, and I have to say we continue to be very disciplined in terms of pricing on the mortgage side. That is why you're still seeing those red numbers on that part of the portfolio. Overall, a reasonable level of growth given what's happening in the market. In terms of new production, it's up across the three areas. In this case, also for residential mortgages, where it's up 4.9%, but also stronger in consumer lending and business lending.
I just want to make a zoom on the consumer lending, as it is generating increased attention, and compare, A, with some of our peer countries, Italy, Germany, and France, in terms of percentage of consumer lending as the total of the outstanding credit. It's remarkably alike. For us as a bank, it's just 6%, showing that certainly we have growth. Particularly when you look at our market share of payroll deposits of 27.1%, we feel we still can do more and more on the consumer lending front. We obviously have to compete there, not just with the banks but with other specialized finance providers, but we think we can do. Besides the comparison with other countries, it's also the historical one, where you can see what's been the production of consumer lending. We're 39% below the peak in 2007.
Even though we have had good growth, historically, you feel that there is still more room to go. In terms of outstanding consumer lending, it's also 20% below the peak. We feel if the economy continues to go the way it's going, we feel that we would have further growth to capture in the next years to come. As you can see, 70% of that consumer lending is focused on durable goods. Our digital strategy, we don't speak too much about it, but we do a lot about it. This quarter, just a few headlines. The mortgage origination process has been completed online.
We're including the budgeting up to the post-sale, and obviously we want to make sure that our clients feel they can do this online, but they can do this on physical channels, and they can move across channels, making a truly omni-channel service in which we have obviously made a lot of advances. We'll continue to work in that direction. We have 58% of our clients that use digital channels today. It's a significant increase year-on-year, 4.5%, but it's more or less what we've been seeing in the last few years. Certainly more digital clients in Spain than any other bank, with 32% penetration. It's approximately 10 percentage points above our nearest competitor. We continue to explore and invest in open banking opportunities.
Again, just to give you an objective data, which is the rating that we get on the stores, for both CaixaBank and imagin Bank and our main peers. Again, it's always nice to see that we're doing better than any of the rest, both imagin Bank but also CaixaBank. Moving to results. The income statement is an income statement where we made EUR 470 million, a reduction from last year, but where we had EUR 453 million of losses associated to Repsol. Excluding that, obviously, we would have been an absolutely record quarter. Core revenues, I discussed it at the beginning, do not want to repeat myself. It's a good performance across the board, taking into account, in the case of fees, the typical seasonality reduction that is typical for the third quarter. Costs are up 3.2% year-on-year.
We continue to invest in the business. That requires costs, unfortunately. We would like to see revenues going up and costs coming down, but that is not possible. The reduction in provisions that are related to the provision release from one large exposure that we do not expect to be repeated, and hence we have made it clear it's a one-off. Bancassurance continues to be very profitable. In the current context, there's 12% return on tangible equity, approximately half of that return on tangible equity coming from non-banking business. Our model is working well from that point of view, despite the negative Euribor and negative rates. Bancassurance, once we adjust for the extraordinary one-offs of the quarter, is up double digits. Obviously, even higher if we don't do it, but I guess it's a better indication of the trend, the 10.7%.
We had a good performance on the investment side other than because of the fact of the Repsol disposal. BPI continues to provide significant improvement to our profits. That's all from me. Javier, all yours.
Thank you. Thank you, Gonzalo. Good morning. Here we have a slide with the P&L of BPI. BPI, as you know, has already released its numbers a few days ago. As commented, BPI is contributing markedly to CaixaBank profitability, and you may see that in different performance metrics, BPI is doing extremely well, both in mortgage lending, consumer lending, credit to businesses, and also on the liability side, where we are planning more and more to deploy our business model. BPI is now having a return on tangible equity, only considering the domestic operations, already at 8.6%. With this, let me focus a little bit more on the different lines of the P&L account. Starting as usually with NII, that continues to progress steadily. You may see that it is up by 0.7% quarter-on-quarter and 3.1% year-on-year.
It has been a quarter with broadly stable volumes. The third quarter has some favorable calendar effects. We have had the tailwind of lower funding costs after the redemption of retail subordinated bond in June. All this offsetting what are still negative Euribor impacts. We are still repricing at lower levels. A negative impact that now we really expect that will fade in very few quarters. Please note that when comparing BPI, the impacts of NII from BPI, there are some changes in the scope and accounting criteria. Altogether, we think that we are on track to slightly overperform our NII guidance for the year. Remember that we guided for NII to grow between 2% and 3%. With just one quarter left, we think that we may be slightly over this figure. Some more focus on assets and liabilities.
On deposits, on euros, we continue to roll them at just one basis point. The back book is standing at six basis points. On the loan book, this quarter, again, on the front book yield, we have the impact of, I would say, an extraordinary contribution in the front book of CIB with lower yields as always, because CIB always has lower yields. In this case, also this quarter affected by some large syndicated loans. As a result of this, the front book yield improves slightly, only to 267 basis points from 262. When looking to the performance of the different segments, I would say that we are in line with the performance of recent quarters, just a few basis points up or down, depending on the segment and the quarter, despite intense competition.
The back book yield at 230 basis points, down by one basis point, as commented, affected by negative Euribor resets. On loan volumes, as I said, stability in the quarter. With this, I shift to our ALCO activities. The wholesale funding costs are stable at 123 basis points over six months Euribor. On the ALCO portfolio, not much activity either. We have had a few redemptions on our structural portfolio. We have not had the chance to add to the portfolio during the quarter, something that in the future, we think that we have room to do, to slightly increase the size of this structural portfolio, that as you may see, is gradually trending down as we have some redemptions.
On the contrary, on the liquidity management portfolio, we continue to accumulate cash, and you may expect that in coming quarters, we may have a larger size on this part of the portfolio. On spreads, no news, just down by one basis point. Both the customer spread and net interest margin, as said, affected mainly by this tick down in our back book yield of the loan book. With this, I shift to fees. On fees, I would say that the third quarter is always a seasonal one. We are down quarter-on-quarter to minus 3.3 percentage points. When we compare to last year, we clearly have done better. We are up by 4.8%. I think that the best way this third quarter to look at the performance is to look at the numbers year-on-year.
You may see that on banking fees, we're doing well year-on-year. We are almost flat. In this case, also helped by low contribution from CIB during the third quarter of last year. Mutual funds and pension plans continue to do well. We have had steady inflows on those asset classes year-to-date, around EUR 3 billion, despite market turbulences. You may see that both are doing well, and I say in pension plans, despite the cap that entered into force last month of April. On non-life, also is a clear engine for growth for us, and you may see that year-on-year, our non-life insurance revenues are up by 17%. Some more focus on our insurance and asset management activities.
You may see that revenues continue to progress steadily, even on a like-for-like basis, only considering CaixaBank, we are up by more than 12% year on year. Those revenues now already represent 27% of our bancassurance revenues, up by 3 percentage points in one year. As in recent quarters, we display here a detailed P&L account of our insurance activity. You may see an improvement across the line, but I would remark that net attributed profit goes up by 21% quarter on quarter. On costs, not much news either. Remember that we guided for costs to grow in the 3% area. We continue to seize business opportunities, the way we are trying to run the business is in order to deliver positive yields.
Far, we have been able to do so, this is what we are planning to do in the future, we'll update you in a few weeks in our incoming strategic plan in London. Recurrent cost to income standing at 53.2%. With core revenues doing well, you'll see that they're up by, on a like-for-like basis, close to 4% year on year. Our core operating income, as a result of those positive yields, also continues to perform and up by 5.2% on a like-for-like basis, and up to 7.6% when considering Banco BPI. Finally, on the P&L, some final comment on our loan loss provisions. As commented, we have had the release of the provision of a single large exposure. It's a one-off. It's a EUR 275 million release. If it were not for this, our loan loss provisions would have been EUR 77 million in the quarter.
Our cost of risk on a 12-month trailing basis is standing at just eight basis points. If it were not for this extraordinary impact, it would be 20 basis points, clearly below guidance we gave earlier in the year for cost of risk to be below 30%. Clearly, a positive evolution on our loan loss provisions recently. I turn to the balance sheet. Some comments on some key metrics. On NPLs, well, continue to trend down. NPLs down by EUR 600 million during this quarter. The pace of inflows continues to clearly abate this year compared to the previous year. The pace of cures and disposals continues to do well. As a result of all this, the stock of NPLs is gradually being reduced.
Our NPL ratio down by 20 basis points to 5.1% and on track to be below 5% by the end of this year. On the coverage, I would only like to remark that the uncollateralized NPL coverage ratio stands at the sound level of 81%. On real estate exposure, the pace of disposals has continued during the year. You know that on top of this, we have the large disposal to Lone Star that is expected to be closed in coming weeks before year-end. Pro forma, this disposal, our stock of real estate available for sale stands at EUR 600 million. On liquidity, no news. Continue to hold sound liquid metrics, EUR 76 billion of liquid assets. Liquidity coverage ratio close to 200% at 193%. You may see in CaixaBank a slight decrease of liquidity.
This is also due because we try to manage our excess cash reserves, trying to avoid some large corporate deposits. On issuance, you know that we have been quite active this year, again, issuing across all asset classes. Recently, just last week, we took advantage of a narrow market opportunity in these difficult markets to issue a 5-year senior non-preferred at mid-swaps plus 145 basis points, continuing to build up our MREL requirements. You know that with progressive de-risking that our balance sheet is experiencing after the real estate disposal and our plans to dispose Repsol, I could like also to remark that in recent months, the 4 main rating agencies have upgraded our senior ratings by 1 notch. Finally, on capital, a stable situation, but some interesting developments. 11.4% is our fully loaded CET1 ratio by the close of the quarter.
On a pro forma basis, after the real estate and Repsol disposals, 11.7%. We have had +16 basis points of organic capital generation and a negative market and other impacts by 17 basis points. I would like to remark that these other impacts include an adjustment in our credit requirements in our non-performing mortgage portfolio of 24 basis points derived from the TRIM process. We think that with this, we are done on this mortgage review from the TRIM process. On our total capital, only to remark that it stands at 15.2% after the cancellation, the call that is planned to be done in November of EUR 750 million subordinated bond. I would like also to remark that our subordinated fully loaded MREL ratio pro forma, the real estate and Repsol sales, and the recent senior non-preferred issuance stands already at a sound 17.2%.
Just to remind also that we have just announced the payment of an interim dividend of EUR 0.07, like last year. To wrap up, some final remarks from my side. Only 1 quarter left to end our strategic plan. We think that we have been moving with confidence towards our targets. Continued core revenue growth, recently, also supported by lower cost of risk. That is clearly supporting the bottom line. The underlying volume trends in the asset side and also on the liability side on our long-term service savings business continues to remain unchanged. This has been a year also with a strong improvement in the pace of asset quality improvement, and all those solid balance sheet metrics have been confirmed by recent rating upgrades. Just to remind that we are hosting an investor day next November 27th in London.
Very shortly, you will be sent an invite. With this, I think that we may be ready to take some questions. Thank you very much.
Yes. Thank you, Javier and Gonzalo. I think it's now time to move to Q&A. Operator, can you please proceed with the first question, including the name and company of the caller?
Thank you. Your first question today comes from the line of José Abad from Goldman Sachs. Please go ahead. Your line is open.
Hello. Good morning. Thank you, guys, for the presentation. I have two questions. First question is, whether you could actually please remind us on the size of the IRPH mortgage portfolio, and maybe also on the judicial situation and your expectations with regard to this portfolio. The second is on Repsol. You booked that EUR 453 million provision, as you guided earlier in the year. Now what they implied the stock price at the time was north of EUR 16. Today, it's less than EUR 15. I estimate that probably you will need an incremental provision of around EUR 100 million. When would you plan to book any additional provisions? Thank you very much.
Thank you, José. On Repsol, it's counted as fair value or the comprehensive income. Whatever the result is, it will not go against the P&L. It will go against equity. Neither profits nor losses would show on the P&L. Obviously, economically, there will be an impact. On the IRPH, Javier, you want to take that one?
Absolutely. Now the stock of mortgages with the IRPH index stands now in the EUR 7 billion area. We're having the process. I think that everything is very well known. IRPH is an official index. It has been sanctioned by the Bank of Spain historically and published monthly in the "Boletín Oficial del Estado," the official gazette. Now, while some consumers have complained in the lower courts that probably this index has not been adequately explained. As a result of this, now there is a case where the European Commission legal service has presented a report stating that there are grounds for this ruling to be examined by the European Court of Justice.
We have to remind that the Spanish Supreme Court already ruled in November 2017 that this interest rate index was an essential part of the contract, and as a result of this, was fully transferred. It's early days to tell you how this will end, but we are completely confident that there is not a case of lack of transparency on this issue.
May I ask one follow-up? Gonzalo, you've been very vocal on potential consolidation down the road over the last few months, including this morning. Do you think the increasing legal uncertainty in the sector, and I'm having obviously mortgage fees in mind and AJD, could actually make this more unlikely? Has this actually changed your views with regard to consolidation in the sector, or do you think this will have no impact?
May I just make sure what I believe is that there will be consolidation, but not necessarily in the short term. That this is more a question of the sustainable profitability of the sector being under pressure, and hence that in due course we will see some moves by some banks. That's my feeling, but obviously I have no clue. I do not think that it's likely to be in the short term. Again, I do not think that we are likely to participate, although if there are opportunities, we will analyze them. We're going to be reactive rather than proactive. What is the impact of this sentence from the Supreme Court and this situation? It's a bit early for me to say. At least I would like to see how things develop over the next few days.
I don't think that necessarily that's going to be affecting consolidation one way or the other, because I didn't think that was something imminent, but we'll have to see, José.
Okay. Thanks, José. Can we move on to the next one, please?
Thank you. Your next question is from Alvaro Serrano from Morgan Stanley. Your line is open.
Hi. Good morning. First of all, on mortgage, on the ruling, apologize if you've commented on this already, but I dialed in a bit later. In terms as we look at the 5th of November, we all have a view on how fair or unfair it might be, but when you discuss with your lawyers in terms of what the potential outcome could be, I'm interested to see your opinion. We're waiting to hear from the administrative court, but when we think about the retroactivity, my understanding is what really matters is what the interpretation the civil court makes of that ruling. Can you just maybe talk us through what the different scenarios you see and maybe put some kind of limits to how bad it could be or what you think it might be?
Just to maybe handhold us a bit in how we think about that, to the extent you have any ideas you can share. My second question is, just in general, in global economy in Spain, we're seeing a slowdown in the growth. In Q2 results, you're very vocal about how the recovery in loan growth was coming through. As we look into next year or medium term, how confident do you think the loan growth recovery will be sustained? A lot of that is obviously mortgages breaking even. In general, how confident you are in loan growth accelerating even with the Spanish economy slowing down. Thank you.
Thank you, Alvaro. On the Supreme Court ruling, I am always cautious. We have a very close date, the 5th of November. We have a strong position that is, we have acted in compliance with the law or with the regulation, because this is a decree, as you know. We have acted in accordance with the regulation at all points, and hence, it is not expected and not reasonable to think that for complying with the regulations, there should be any damage to us, both reputationally and certainly economically. That is our position. That's a position that we have made with all due respect to everyone. If you comply with regulation, there should be no penalty for doing that. That's our position. What happens on the 5th of November, given the current ruling, we do not know. Would rather not speculate at this point in time.
Obviously, I know you would be interested in all our detailed views and scenarios, et cetera. I do not think it is productive for us to get into the public domain having these discussions. There is certainly, and all you know, that there is a four-year statutory limitation on tax matters, which is, if you wish, a second line of defense for the industry. Clearly, again, the principle of complying with the norm, hence not having a negative economic consequence, is the one we want to defend at this point in time.
Alvaro, just to clarify on that, because the four-year statute of limitations applies to tax matters, but the civil court, given the annulment of the expense clause, does that not open up risk in your view?
In our view, from a legal point of view, it does not. Obviously, I understand that investors and everyone is cautious in this environment because there was a negative surprise, certainly for us, and hence, I think to be cautious on what eventually comes out is a logical attitude, and I personally share it. The legal advice we have is a different one. Again, I'd rather wait and see what happens and take it from there. With respect to your second question, we were expecting a slowdown in Spanish GDP, and we were expecting a slowdown more or less in line with what's happening. Clearly, the risks are tilted to the downside, not just in Spain, but generally at this stage. We will see.
This coming down from a 3% sort of cruiser speed to a 2% cruiser speed, not this year, but I guess 2019 onwards, which is what we're expecting, is not a surprise for us. We have seen that with very strong credit Sorry, with very strong GDP growth, 3% for four years, actually, credit was coming down, not in terms of new production, but in terms of volumes. The fact that it moves from 3% to 2%, I do not think is going to force credit to take another dip. Quite the opposite. It is the accumulation of growth, whether it's a 3% or 2%, after four, five, six years, which should, at some point, lead to a recovery in credit. What we are seeing today, this year, is clearly positive.
You saw the impact on new production, the growth of 9% for mortgages, 15% for businesses, and for consumer lending. It's not slowing down in the third quarter. We obviously do not know yet if it will at some point. I have the sense is that our expectations for volumes of credit growth for the stock have been so low that the slowdown from 3% to 2% is not a negative, and it's included in our view of the world. Obviously, when we look at the former three years, some market observers, analysts, investors may think that there is a substantial opportunity for loan growth. We do not.
We think it's going to be a gradual recovery of loan growth, following the trend that we have seen in the past, but at some point, rather than moving from negative to less negative, it's becoming now neutral and then will become slightly positive. So far, that is what we see. We obviously will have the opportunity to update with detail on our views for the next three years, a month from now.
Thank you very much.
Thank you.
Let's move on to the next one, please.
Thank you. Your next question is from Mario Ropero from Fidentiis. Your line is open.
Hello, good morning to everybody. Two questions from capital. The first one is on the 24 basis points you said regarding TRIM. Does it mean that there is no further impact coming from TRIM going forward? In any case, can you give us an update on the possible capital impact you foresee due to this topic? The second question is on the unrealized ALCO gains that you have. Please could you update on the total gains you have and specifically on the gains you have included in your core capital ratio? Thank you.
Thank you.
Hi, Mario. On the impact on TRIM, it's an impact related to the mortgage loan book. It affects the parameters that we have been using to calculate the estimated loss for non-performing exposures. Actually, it's not a change. Does not entail a substantive modification or increase of our estimated losses. What happens is that there is a rebalancing of the components. With a lower weight of the expected loss and a higher unexpected loss. The unexpected loss, you know that is the one that is covered through capital. As a result of this, we have an increase of the density of the risk-weighted assets on our non-performing loan mortgage exposures, and that results into an impact of a minus 24 basis points. The TRIM process is ongoing. It has different steps.
The first one was, let's say, a general topics exercise, affecting mainly governance issues about the internal models, et cetera. We have had no issues on this. The mortgage loan book is the one that has already been finished, and the impact for this analysis on the mortgage loan book is this one. We don't expect further impacts for the mortgage loan book. Now we have also concluded the market risk TRIM. For us, we think that it will not be an issue. What has just started is the analysis of the large corporates, and this is still ongoing. Different phases. I would say that for the mortgage portfolio, with this impact, we are done. You were asking about our ALCO portfolio. If I remember well, the figure that is now in our numbers is around EUR 200 million.
You know that I take the opportunity now to comment that we have low Italian exposure, around EUR 1 million in CaixaBank. It's short maturities, less than three years, and also around EUR 700 million in BPI, so also short maturities.
Thank you very much.
Okay, thanks, Mario. Let's move on to the next one, please.
Thank you. Your next question is from Ignacio Ulargui from Deutsche Bank. Your line is open.
Hi. This is Ignacio from Deutsche. Just two questions on my side. One, which is very recurrent, which is, so far, we have seen a very good performance in terms of cost of risk and NPL exits. How do you see this will evolve going forward? The 20 basis points something that we can extrapolate for the future? The second topic is if you could update us on your TLTRO exit strategy. What are you expecting to do? If there is any demand to accelerate that process or not. Thanks.
If I may, on credit risk, you're going to need to wait for 4 weeks because we will give you some further view. Sorry for that, but I want to give you a full view of the next 3 years and our perspective. So far, the trends are encouraging. Maybe Javier, you can get onto the TLTRO.
On TLTRO. You know that our main maturity is in June 2020, and we are planning for this since a long time ago. You see that we are accumulating cash. We have precisely set a separated ALCO portfolio for this. We are planning to continue issuing in wholesale markets, mainly for MREL purposes from now on, mainly with the senior non-preferred asset class. This together with the evolution of the business, et cetera, puts us into a comfortable position to redeem TLTRO in time in 2020. For us, does not make much sense to early redeem, although there are some windows. Because anyway, the cost for us of the excess cash is minus 40 basis points, which is the same that we pay on the liability side for TLTRO. There is no positive impact with an early redemption.
Thank you very much.
Thanks, Nacho. Should we move on to the next one, please?
Thank you. Your next question is from Benjamin Toms from RBC. Your line is open.
Good morning. I just have one question, please. The insurance revenue line has been very strong for you this year so far, but quarter-on-quarter, it was down a little bit. Were there any particular drivers here, or was it just seasonality? Thank you.
Nothing specific. I would say that first, we had extremely good results as we had a commercial campaign in the second quarter that entailed probably a slightly higher production than expected. It was extremely successful. Also, this third quarter, probably we have had a slight increase in some contingencies. The net result is slightly down, but I would not read much into this. As you see, the continued performance on that front is there and expected to continue.
Thank you.
Thanks, Ben. Next one, please.
Thank you. Your next question is from Carlos Cobo from Societe Generale. Your line is open.
Hello. Thank you very much for the presentation. A couple of questions from me. First one would be following up on what Alvaro touched before, lending outlook. Just a quick thought. In your previous business plan, and you weren't the only one, but you also consider lending was picking up three years ago, and that has disappointed expectations yourself and probably most of us. When you analyze all that, what happened that you weren't expecting at that time? The deleveraging of the private sector was stronger than anticipated? Now that you are planning, are you comfortable that you have what the sector needs to grow? Or this continued political instability with elections here and there, and different budgets could weigh on demand, as we are seeing for the sector level. Corporate loans are slowing down again. I would like to see your thought.
I'm sure you're going to discuss it in the Investor Day. I'm not asking for your outlook, but your thoughts around the drivers of that growth. We are also seeing how disposable income is not growing as fast as consumer loans. Saving ratio is at historical lows, and new car registration are already quite high. Just your thoughts there. The second one would be a more numeric one. On the 17 basis points negative impact from markets and other on capital. You mentioned that you have 24 basis points from the TRIM review, then say something around 7, 9 basis points from the Telefónica mark-to-market. Here I would be missing something around 15 basis points positive impact to reach that 17 basis points. Is that correct? What would be that positive impact? Thank you.
Thank you, Carlos. We'll start with the first question, but let Javier elaborate, because I'm going to repeat myself probably, and so you have a richer background on volume. I think one important point when you look at some of the sector figures, they are affected by sales of NPLs, and to some extent, the sector lending appears more disappointing than it really is. If you adjust for that, for the sector, growth is at 0.4% year-on-year on households and corporate, and households, it's also 0.2% positive. This is very low for 40 years of 3% growth, but it's better. That is what we have seen. I think we've just thought that strong economic recovery would lead to more outstanding volumes of credit, and we got it wrong. Obviously, capital markets were also a factor at some point for big corporates, but it's not just that.
Generally, we've seen that the depth and the length of the crisis has been so marked that it's taken much more time for credit to start to recover, and it's recovering at a much slower pace. That's my sense. Projecting the past, that's what we are likely to do. Would say, well, given that this is very slow, it will continue to be very slow, but still moving into positive territory, which is clearly happening already. Javier, you may want to give your own view and then obviously get on with the rest of the-
Yes, on the second question. I would say that on the loan book, everything is going according to our expectations. I remember always guiding for a flattish to slightly positive loan book, and actually is where we are. We have a performing loan book that is growing now at plus 0.8% year-to-date, with strong contribution from Portugal. There, it's up by close to 6% year-to-date. Things are doing really well in Portugal. The situation remains probably the same, still deleveraging on our mortgage portfolio, and this being compensated with growth in consumer and SME lending. The same picture is valid since at least two years old. At least for the next few quarters, it's more of the same. I think that it's the same situation. The stock of mortgages is so large, and, well, there is a large part of the monthly installment that is principal.
The velocity of prepayments is quite fast now, and I would say that in this case, it is very difficult to compensate this natural tendency of the mortgage loan book with the new production. Although our new production year-to-date is up by close to 10% on mortgages. Even by doing so, it is difficult to balance. As a consequence, we are doing our best to grow in other segments that, by the way, are more profitable and with a higher return on equity. I think that, like it or not, from our side, is what we have for the next very few quarters. You had a question? Sorry.
Just to clarify. I just wanted to clarify that I was referring to the assumptions in the business plan. Obviously, your colleagues have been very diligent in toning down the expectations, and everybody was already factoring in lower growth. Originally, when you planned, that was kind of the idea, but I think you have elaborated on that already.
Okay. May I move to the second question now? To the second question, I think that the piece that probably you are missing is that we have lower deductions from DTAs this quarter, as we have set out the corporate tax, and there is a release of deductions there. That is an impact of around 10 basis points, and then you have some other small moving parts here and there.
Okay, thank you.
Okay, thank you, Carlos. Let's move on to the next one, please.
Thank you. The next question comes from Marta Sanchez Romero from Bank of America Merrill Lynch. Your line is open.
Thank you very much. Good morning. I've got three quick questions. The first one is, how much dividend accrual have you included in your capital ratio of 11.38%? What's the implied payout relative to your EUR 1.8 billion reported earnings? The second question is, what are your plans for your EUR 3 billion rental portfolio? The third question is about Angola. In a recent interview, the governor of the central bank mentioned he had given the country's banks a December deadline to raise their capital requirements. Is there a risk BFA needs to raise equity, and would you commit more capital to the country? Thank you.
Thank you, Marta. May I answer too? In terms of the dividend expectation or included, it's in line with our policy of 50% plus. That's what it's included in our capital ratios. With respect to Angola, BFA's capital ratio is 37.9%. That's the total capital. The position of non-performing loans, yet they have very limited loan to deposits because of the sector. The non-performing loan ratio is 3.7%. BFA is extremely well provided for, extremely well capitalized. We expect absolutely no impact. That is not the case for all banks in the country. I will not elaborate more for obvious reasons. Certainly, BFA is in a very strong position. Hence, it will not need capital, and certainly, we're not planning to contribute capital because there's no interest on our side, but also because there's no need for it. Javier?
Only to emphasize on this, probably, Marta, is that I would like to highlight that BFA has already paid the dividend corresponding to 2016 in US dollars. BPI has already received the US dollars. I would say that just to highlight that I can imagine that the Central Bank of Angola would not authorize the payment of this dividend in US dollars if we're not quite comfortable with the situation of BFA. On the rental portfolio, you had a question on this. Well, now it's not actually EUR 3 billion. It's EUR 2.5 billion. Well, we'll see. I think that we have already demonstrated that we were able to dispose our available for sale portfolio, and we have to think about this over time. I think that it's not such a large exposure now.
If you look at our non-performing asset ratio, I think that you can calculate it in different ways, but I think that we are clearly not an outlier on that front. Anyway, it's a, let's say, profitable portfolio with a yield in the region of 4%, and we'll have to think about it. Obviously it's not our long-term business plan to be landlords. We'll see what comes in the future for this.
Thank you very much, Javier.
Thank you, Marta. Let's move on to the next one, please.
Thank you. Your next question is from Sofie Peterzens from JPMorgan. Your line is open.
Yeah. Hi, here is Sofie from JPMorgan. I wanted to have a follow-up question on BFA. Given that you now are selling Repsol, how should we think about BFA and your other stakes? Should we expect that everything you have is core, and we're not going to see any changes to these ownership stakes, or should we expect reduced stakes going forward? My second question would be on trading income. It was a little bit lower than what we had expected in the quarter. How should we think about trading income going forward? What do you think is a normalized trading income level, especially considering that rates potentially go up? My last question would be on the EBA stress test that we get next week. What are your expectations from the upcoming stress test? Thank you.
Thank you, Sofie. On the first one, I would separate Telefónica and Erste, where we have a stake. We are planning to keep those stocks, and I wouldn't expect activity in the future as long as I can see. We have now around 3% of our capital allocated to these stocks. We come from 24% in 2011 and 16% in 2014, so obviously we've made very significant progress, and we are at a level where we are comfortable with these two stakes. With respect to BFA, the situation is different. First, the bank is doing well. Javier has mentioned that we've been paid the dividends in hard currency. The bank is very profitable. Obviously, Kwanza has had a devaluation process, a very significant one. At the same time, that has been a result of, I think, the right economic policy from Angola.
They continue to work closely with the IMF, moving into the right direction economically, I think generally politically. The oil price has helped, obviously as well, the country, and certainly there are less clouds on the horizon now than in the future. We are interested in, at the right time, reducing our stake, because generally it's all about the quality of the investment. For us, owning a minority stake of 48% makes not much sense. It's just too large for a minority stake. I think in the next years, we will find the opportunity to reduce that stake in a cooperative manner with Angola, with the rest of the shareholders, and that BFA will continue to prosper, and that will also be done in a shareholder value maximizing way. We need time for that to happen.
In the meantime, as we understand that shareholders and analysts are valuing Angola differently, which I have full respect for, we will continue to provide appropriate disclosure so that everyone can do it. We are confident that the course of events is certainly putting us in a much better position to be able to reduce that stake when it is sensible, which still is not around the corner. In the meantime, we will continue to hold that stake, providing all the details. On trading income, Sofie, while it is clearly a volatile line, I would like just to remind that the trading income line this year includes a negative impact of around EUR 40 million due to the pass-through of the dividends on the equity swaps we have been holding during the year, mainly on Repsol. Just to take this also into account.
On the other hand, had an extraordinary impact from the disposal of Viacer stake that BPI was holding historically. I think that it's difficult for me to give you a clear guidance. For somewhere between EUR 200 million-EUR 300 million is where we should be. No doubt that as long-term yields are no longer trending down, making trading profits is becoming more difficult. So far, we also have a recurring business with our CIB activities, where we have some trading income derived from the distribution of derivatives with large corporates, et cetera. Clearly it's also helping. I think that between 200 and 300, I understand that it's quite wide, but it's where we may stand. On the EBA, unfortunately, I can say nothing.
You know that we are strongly encouraged by the supervisor to not to say nothing, and you have only to wait slightly more than one week before knowing.
Okay. Thank you.
Thank you.
Thank you, Sofie. Can we move on to the next one, please?
Thank you, your next question comes from the line of Andrea Unzueta from Credit Suisse. Your line is open.
Hi, good morning. I just want to better understand how I should be thinking about the cost of risk in the context of the increasing consumer book. If I do a rough calculation, consumer loans are roughly 20% of your lending revenues. What is the cost of risk for such loans, and today, what percentage of your 30 basis points guidance comes from consumer loans?
Hi, Andrea. Well, a few comments on our consumer loan book. It is a loan book now standing around EUR 11 billion. The non-performing loan ratio is standing at 4.3%. I would like to remark here that there are different categories or sub-segments within this consumer loan book. I would say that generally speaking, consumer loans for household needs or auto loans, even revolving credit, et cetera, is in the average or clearly below the average of this non-performing loan ratio. It is only one sub-segment, which is what we call Click & Go. This is less than 10% of the portfolio, are those loans that are, in some cases, granted online, et cetera. Here we have done some changes on our internal policies also for the credit scoring and in order to better assess the credit scoring of the borrowers, et cetera.
It is only in this sub-segment where we have had a slightly worse performance probably than expected initially. The rest is doing extremely well, really sound. We are estimating a normalized cost of risk for our consumer loan book between 2% and 2.5%. I would say that this is the round numbers that we are using. With those numbers, the return on equity of this portfolio is extremely high. It is between 25% and 30%. It is a business that, if done properly, that is what we think that we are doing, and adjusting in due time for any changes that we may have to do, it is extremely profitable. It is only a part of our portfolio. EUR 11 billion out of our loan book of more than EUR 220 billion is less than 5%, so it is not going to grow exponentially.
On the other hand, it is extremely profitable with a strong contribution to NII, as you know. This is one of the keys of our resilience on NII performance. I do not know, Andrea, with this, I have given you some color.
Yeah. Thank you.
Okay, Andrea. I think in the interest of time, we can only take one more. We will, of course, follow up with people who are still on the line. Operator, can you please take the last one?
Thank you. We'll now take our last question from Andrea Filtri from London. Your line is open.
Yes. Good morning. First question on VidaCaixa. Could you please give us more visibility on the Solvency II ratio in Q3? If you could provide the sensitivity of this ratio to credit and sovereign spreads, interest rates, and markets. The second question is on TRIM. How much does the TRIM change to your models overlap with EBA guidelines? Would you say that the change incorporates both TRIM and EBA guidelines at the same time then? Just finally, very quick one on Repsol. How should we expect the P&L contribution from Repsol to evolve in the coming quarters? Thank you.
All yours.
On Solvency II, we'll come back to you with those sensitivities because unfortunately, I don't have them with me. The Solvency II ratio of VidaCaixa is in the 140s area, as you know. It's not expected to be materially impacted by those market moves that you are mentioning. We can come back to you with this. On TRIM and EBA guidelines, I think that with those 24 basis points that we are already impacting, within that we are including all those impacts. This is my best estimate that I can give you. Sorry about that. The last one on Repsol, I missed exactly which was your question.
Just what we should be expecting in terms of evolution of contribution to quarterly profits from Repsol in the coming two quarters?
Repsol now, it's accounted as fair value with impact in OCI, so the impact will be the dividends paid by Repsol. According to the position we may be holding at each moment that you know that we are in a plan to dispose.
Thank you very much.
Thank you, Andrea. We'll follow up with the additional information we require. I think that's all we have time for today. Thank you very much, and we'll see you next quarter.
Thank you