Good morning and welcome to CaixaBank results presentation for the first quarter of 2025. We are joined today by our CEO, Gonzalo Gortázar, and our CFO, Javier Pano. In terms of logistics, we plan to spend about 30 minutes with the presentation and 45 minutes to an hour with the Q&A. The Q&A is live, and you should have received instructions by email on how to participate. Let me end by saying that my team and I will be at your full disposal after the call. Without further ado, Gonzalo, the floor is yours.
Thank you, Marta, and good morning. Good morning, everybody. Quarter has been much stronger than what we expected, I have to say. It's a great start for us into this new three-year plan. Some of the highlights, or the key highlights, are here on this slide. Activity, in particular, as you will see through the presentation, is accelerating from a fairly good fourth quarter last year. First quarter is confirming that trend, gaining clients and net gain of 340,000, performing loans up 3% after so many years of deleveraging, not yet catching up with nominal GDP, but getting closer to customer funds, continue to do very well. Our protection business is, again, double-digit growth. Activity, very positive, better than expected. The second area where we are beating expectations is asset quality. Non-performing loans are down, and the cost of risk is lower than what we were expecting.
Very good news. What we're seeing today is actually an improvement of trends rather than any worsening at this point, despite all the noise in terms of tariffs, etc. The expectations and the reality currently is as positive as it could be. Liquidity and capital, very strong capital, in particular, Javier will comment with a positive impact from Basel IV. That is leading to an increase in net income revenues, particularly revenues from services, up 7%. NII evolved as expected. In fact, the trends are actually better than expected. Provisions, as I said, very good performance. Net income is up 46%. There is, as you probably have all seen, different accounting for the banking tax, which means that if you harmonize for that, it is really 6.9% the growth in net income. Return on tangible equity close to 20%, cost income below 38%. Great numbers.
Brief comments on the macro. We have an expectation of 2.5% growth for GDP in Spain this year, very similar level in Portugal. This number already considered some impact from tariffs, actually 0.2%. Obviously, the tariff discussion could end up worse than what we had expected at the beginning of the year. We'll see. There is some, but limited downside from those 2.5% growth. Obviously, the fact that we have one of the lowest exposure worldwide to the U.S. is a key factor. 1.1% of our exports of goods and some percentage of GDP could be affected. Sentiment continues very well. Consumer data is actually very strong, including in April. Obviously, we continue to have now these lower leverage levels than the Eurozone and much lower than we used to have historically.
I have to say it's obviously not good to face uncertainty in terms of tariffs and trade globally. Certainly, if there is one position of strength to be had to face those, this would be the case of Spain and also the case for CaixaBank. We are actually quite confident that we'll be able to deliver in a good number of scenarios. As you know, in our plan, we talk about growth and transformation. Few data on growth. Client growth is very important. Business volume up 6.5%. Our market share strong. We're defending it well. In terms of transformation, we continue to develop a number of initiatives which are already yielding some results, like changes to our new app architecture where digital onboarding, digital sales are growing strongly. Continue to hire people very successfully in areas where talent is scarce, like tech.
We have added 400 developers in the last six months. We continue to obviously make progress also with the generative AI implementation in the group, particularly in areas of customer service. We have had significant improvements in this quarter already, and there is much more to come. Loan growth is at 2.9% year on year and even positive quarter on quarter, 0.9%. This has to be sort of considered in the context of first quarter being seasonally weak generally for business and including lending. It is a very good result, and you can see these kind of steps going upwards in consumer lending, in residential mortgages. The trend is very satisfying. Actually, on the business loan growth, which was the one when we presented our plan, we only had figures up until September.
Obviously, we had some discussion with investors and analysts and the market in general whether it was logical to think that business growth will sort of turn positive in Spain or not. We thought that it was about time. So far, so good. What we're seeing is very encouraging in terms of what's happening in Spain. Obviously, we need to see further confirmation in the future, but certainly it feels pretty good. On the new lending production, numbers are up 15% across the board, particularly high on new residential mortgages because the first quarter last year was a bit weaker, not as high when you look at the rest of the 2024 growth. In 2025, it is more reasonable than, let's say, 62%. Continue to do the business we want to do. We're not doing anything extraordinary. We're doing well across the board, residential, consumer, new business.
Thinking about the short term, but particularly about the long term, making sure we take the right credit decisions, both in terms of asset quality and of pricing in a very competitive market, as you know. The customer funds, year on year, we have a huge growth, 8.5%. We also have good growth quarter on quarter. Again, in a quarter that is seasonally weaker, a positive development is quite good. In our opinion, certainly better than what we were expecting. Obviously, the market in the month of March has been more negative. Actually, quarter on quarter, it has detracted 0.3% to the evolution. Despite that market effect, we have clear improvement, clear increase in the total customer funds. When you take away the market impact, you can see in the middle of this slide how that acceleration trend continues.
The reality is that sort of savings rate continues to be very high in Spain, compared to historical levels, close to 14%. There is good growth in disposable income as well. Barring sort of impact from markets, which I think most of them have already been felt, the situation is a positive one. Wealth management, in particular, increasing net inflows. Obviously, I think a position that is absolutely differential. Again, you can see on the right-hand side that 29.2% market share, how it compares to our two immediate competitors. The two of them together are not of the size that we are.
With our performance track record, which you can see in a number of periods on the bottom of the page, we are expecting to continue to attract clients, not just because we are offering better market performance, but also because our distribution and our advisory model is allowing us to do so on a consistent basis. Insurance, protection insurance, 12% growth, as I said, balance between life risk and non-life, and in non-life, between health, home, auto, and others gaining market share. The quarter has been particularly strong in life risk, associated also to strong mortgage production, but also to life risk not necessarily tied to lending. MyBox is continuing to have a great success. We are increasing the product range and adding new functionalities. We have, in the past, developed MyBox Care, MyBox Retirement for the self-employed, Tranquility, MyBox Tranquilidad, Senior Tranquilidad, etc., etc.
Good across the board. BPI, good quarter, 20% return on tangible, 38% cost income, very similar to the group, lower in terms of non-performing loans and obviously better than the sector, and gaining market share, very pleasing performance from BPI, again, in another quarter. Finally, net income, there is this adjustment to the banking levy. We would have made EUR 370 million more last year if we had accrued banking levy like we're doing this year. That is why we have that proforma to guide you through what is more, let's say, the trend of net income growth, that's 6.9%. That includes a slight increase in revenues, offset slightly more than fully by costs, and then a significant improvement, particularly in impairments. I read some of the comments early this morning. When you look at impairments line, tend to think that maybe this is a one-off.
This is clearly reflecting established good and improving trend in asset quality. I would not take it as lower quality than other parts of the income stream. Certainly, at least not in this particular quarter, because it reflects a clear improvement of the trend that has been undergoing for some time, as you know. I think with that, it is time for Javier to continue. Thank you.
Yes. Thank you, Gonzalo. As usual, from my side, additional comments on the P&L and the balance sheet. Starting with the consolidated income statement, that net income, as you may see, approaching EUR 1.5 billion. Obviously, as you know very well, comparing with last year, last year we had in full the impact of the banking tax, remember, close to EUR 500 million. That is now being quarterly accrued.
For this purpose, here in dark blue, we are showing that net income proforma for 2024 with the banking tax linearized, hence net income for comparison purposes up by close to 7% year on year. Moving to revenues, NII down by 3.5% quarter in quarter, fully in line with our expectations. You know also that the first quarter is impacted by the impact of the day count that this year has been higher than last year. Last year, February had 29 days. We can elaborate on all that in the Q&A for sure. Revenues from service are a really strong quarter. In this case, we'll focus on the year-on-year evolution because quarter on quarter, you know that the fourth quarter has plenty of seasonality. Year on year, as you may see, up by 6.8%.
Basically, on the back of a really strong contribution from wealth management, up by 16.5%. We have had over EUR 1 billion of inflows per month, which has been actually record high in recent times. Protection insurance with a really strong commercial activity that will filter into the P&L going forward for sure. Banking fees with real strong quarter in CIB and everything related to markets, strong performance on securities, on foreign exchange, etc. Other revenues, I would highlight here that we are registering the dividend from BFA, close to EUR 50 million. That is usually, or at least last year, was recorded on the second quarter. On other operating income and expenses, no longer the impact from the banking tax. That is from now on, as I say, quarterly accrued on the tax line.
Operating expenses are in line with the plan, with growing year on year 4.8%. Remember, we are starting to deploy our IT plans. As Gonzalo was commenting, really lower loan loss charges and other provisions, something that we think is here to stay. Also, I would like to remark that on the tax line this quarter, but also as we will comment on the Q&A session for sure, we are incorporating a DTA write-up. Let's move with that to NII. Here on the left, we have the usual quarterly NII breach. As you may see, the day count clearly having a negative impact, minus EUR 22 million. Then client yields, you know, lower index resets on floating loans, not fully compensated with lower deposit costs. We are already starting to have tailwind from business volumes.
There is quite a significant counterbalancing effect from the ALCO, plus EUR 89 million in a quarter, basically driven by lower costs from wholesale funding and deposit hedges that we have been implementing for several quarters. On the right, margins with that customer spread at 320 basis points, down by 11 basis points in the quarter. Also further to the right, the backbook yield of the loan book, 403 basis points. There is quite a significant reduction of our cost of deposits here, ex foreign exchange and hedges, down to 68 basis points from 80 basis points. Below, bottom right, you have plenty of details on our deposit balances, the composition. Basically, the message is that this quarter we have grown in deposits, let's say, beating this kind of negative seasonality that we usually have in the first quarter. It is not only that.
It's that actually growth has been coming on basically non-interest-bearing deposits. And those are average balances. You may see that this is the average for every month, for every quarter, sorry. We are up by EUR 3 billion on non-interest-bearing deposits. A trend that we are expecting is going to continue. We keep our interest-bearing deposit balances stable in the quarter. On the right, you may see precisely the evolution of the cost of those interest-bearing deposits, sharply down this quarter to 0.28% from 2.63%, and the wave remaining pretty much unchanged at circa 0.27%. Some additional comments on the yield curve and our ALCO activities. Here on the chart on the left, on the upper chart, you may see in blue the current deposit facility rate as of a couple of days ago. This is really recent.
In dark, that's the deposit facility rate as of September 2024, which was the yield curve used as base case for our strategic plan, three-year plan projections when we presented our capital markets day back in November. As you may see, current yields are a little bit below the levels used for the strategic plan in 2026, early 2027, but from late 2027 and beyond 2028 are clearly higher. This is resulting in this steepening of the yield curve everyone is talking about. Below, you have this additional chart here for disclosure purposes. We show here the European Union 10-year bond versus 12-month arrival. You may see that the spread is already 1 percentage point.
This together with a widening of sovereign spreads versus swap yields offer really value and really plenty of opportunities for ALCO management, something that actually during this first quarter we started to implement. As you may see, we have added EUR 3.5 billion of additional structural deposit hedges. Now the total amount outstanding is EUR 53.5 billion. Also, after several quarters with subdued activity, we have also increased, basically during the month of March, the increase in yields to add to the fixed income portfolio, adding over EUR 4.5 billion. You have plenty of details on the appendix about our ALCO positioning. Let's move now to revenues from services. As I said at the beginning, really a strong quarter in general, up by 6.8% year on year with improvement across the three main segments.
We have had strong inflows and, as Gonzalo was saying, already some negative impact from mark-to-market. We can update on that also on the Q&A session, but really strong momentum on that part of the business. Protection insurance with continued support from high activity, premia over 12% vis-à-vis last year. Although the evolution in the P&L year on year and quarter on quarter is impacted by some positive non-recurrent factors we had in the first half last year. We are also changing a little bit the product mix as we have been commenting. On banking fees, high contribution from CIB, everything related to markets in general, more than compensating this kind of underlying pressure on more recurring basic service fees. I have to say that this year we spent less pressure than last year on that front. Costs, not much to say, 4.8% up year on year.
We are starting to implement our IT plans. Remember that we are stepping up our IT cash out for the next three years by more than EUR 1 billion. Everything is doing according to plan. On the right, you have the evolution of the cost to income. You know that with the change in the accounting of the banking tax, cost to income has automatically an improvement now at 37.7%. For comparison purposes, we are, let's say, on a proforma basis restating here the cost to income as if it would have been accrued in the tax line every quarter. As you may see, we have been hovering between 37% and 38% already for several quarters. This is a level for cost to income that compares extremely well with our peer average. Loan loss charges, really low this quarter, less than EUR 200 million for the quarter.
That would be an annualized cost of risk of just 20 basis points. The way we report it, as you know, on a 12-month trailing basis, 25 basis points. We keep holding extremely high NPL coverage, 70%. And this quarter, we have kept unchanged the unassigned collective provisions that stand at EUR 341 million. Moving to the balance sheet, some comments on NPLs. You can see here the really positive evolution, record low for NPL ratio to 2.54%. NPLs EUR 10.1 billion, more than EUR 100 million less organically in the quarter. That compares very well with the average in the industry. On the right-hand side, as you may see, by segments, there is not any single corner of our loan exposures, credit exposures that is showing any sign of deterioration. Liquidity, as always, our liquidity coverage ratio hovering circa 200%, very comfortably net stable funding ratio at 148.
Liquidity sources, EUR 222 billion, really strong, very well positioned to seize opportunity from the expected releveraging of core economies. Now, we have a lot of worry about tariffs, but remember that there is a plan on defense, there is a plan on infrastructure in Germany. For sure, this will result in business opportunities. As you may see, we compare in terms of liquidity really well vis-à-vis our peers. Although you have all the EMREL information and funding information on the appendix, I would like to highlight here we have had rating upgrades from S&P to senior non-preferred, tier 2s and AT1s, one notch for every asset class. Finally, capital, we have the final impact from Basel IV with the final balance sheet for the year. It has been positive by 20 basis points.
From there, and here, remember that this is the day one impact, but going forward, we are not expecting any other material negative impact from Basel IV. For the quarter, as I was saying, we have a positive 51 basis points organic capital generation, minus 40 basis points from dividends and AT1s, a small negative of 4 basis points from markets. Another that results into a CET1 ratio at 12.46%, which is an ample MDA and is 21 basis points surplus above our threshold for additional distributions. Remember that remains unchanged at 12.25%. We keep creating shareholder value, our book value per share, obviously considering the dividend, up by close to 9% in year-on-year basis.
Our capital devolution plans remain ongoing with this EUR 500 million share buyback completed in March, the final dividend paid in April, just a few days ago, and the sixth share buyback, EUR 500 million to be executed. The final slide, which is exactly the same as last quarter, as we are fully reiterating our guidance, capital targets, and KPIs. Thank you very much. I am sure we have a few questions. Thank you.
Thank you, Gonzalo and Javier. Operator, we are ready for Q&A, so you can let the first question in, please.
Thank you. First question is from Marta Sanchez Romero, Citi. Please go ahead.
Good morning. Thank you very much. My first question is on NII. It has come a bit softer than expected in Q1. I would just like to understand the drivers going forward. What do you expect in terms of volume growth for loans and deposits, and then the contribution from the ALCO portfolio? Anything, any guidance around 2026 and beyond based on the current forward curve would be also very useful.
My second question is on capital. Could you please provide an update on the current volume of balance sheet DTAs? You've brought back EUR 67 million this quarter. Is that the run rate we should expect going forward? How does it play out in terms of capital? You were benefiting, more or less generating 15-20 basis points of capital from consuming the DTCs you had in your balance sheet. How does this new dynamic play out in terms of capital generation? Thank you.
It looks like it's you, Javier.
Okay, Marta, you have to deal with me now. On NII, we are fully reiterating our guidance for 2025. More broadly, we are also reiterating all the messages we gave at the capital markets day back in November in terms of sensitivities, etc. Although there are some positives that I will comment in a minute. Basically, the yield curve, as you say, I tried to explain on the slide, is a little bit lower, like 10-15 basis points in the very short term, but then it is higher. This has positive consequences because basically we lent long and borrowed short. The Maksymimum testimony of that is that we have 50% of our interest-bearing balances that are fully indexed to the overnight rate. This is as short as it can be on the liability side. That is providing support going forward.
I can elaborate on that in a minute, as I say. We are doing very well on volumes. I would remark this quarter, the evolution on deposits, that we usually have quite a negative first quarter in terms of seasonality and then quite a very positive second quarter. The first quarter has been clearly more positive than initially expected, not only in volume, but also in composition. I tried to make this clear on that slide showing average non-interest-bearing balances. We are progressing very well on that front. We are gaining clients that are, well, we have more payrolls. Employment is growing in Spain. We have a large market share in payrolls, as you know. That results in more transactional balances in general. It's not only retail, also from SMEs and corporates, we retain a decent amount of non-interest-bearing balances.
We are growing on that. We are good on transactionality. We think that once we have, let's say, this new trend in rates, I think that is showing up. On the other hand, on interest-bearing deposits, we are being able to pass on the lower rate environment really well, with no tensions, no loss of balances, I would say. I think that we are doing very well on that front to the extent that now we think that the average cost for our client deposits is going to be more in the mid to high 50s. Remember, I was checking my notes, and last quarter, we guided for low 60s. Now we are improving our view on that front. In terms of volumes, we think that we should grow by circa 4% in terms of deposits. That is our view.
In terms of lending, moving to lending, the evolution has been a really good one. We are happy to see also that looking at the GDP composition that was released yesterday or the day before yesterday, I do not remember, it was quite strong also in terms of capital formation, in terms of investment. This is actually what we are starting to see. As Gonzalo was commenting already with Spanish SMEs joining, remember that all the improvement in terms of volumes started with retail, households, mortgages, consumer lending. SMEs were a little bit more hesitant, at least during the first quarter, they have started to join. Being more precise about long-term prospects, we expect that, first thing, 2025 is a solid guidance, what we are giving.
I would like to emphasize that for the NII, for the first quarter, beyond the, let's say, the day count, which probably not all the consensus had it properly considered. I don't know, but it's our take. Taking into account that if you isolate the NII from BPI, that obviously is a more sensitive balance sheet and has had a more negative impact this quarter, and you isolate the NII coming from VidaCaixa, our NII would have come down by less than 2.5%. I think that also probably this when comparing with other Spanish peers is probably the proper comparison. It is a solid forecast for the year. We expect that on a quarter-on-quarter basis, the negative impact will gradually fade, that the trough should be later this year, the second half.
It's hard now to say it's going to be the third quarter or the fourth quarter, but it should be in one of those. Looking beyond 2025, basically what we expect for 2026 is NII to be at or above 2025 levels. We think that 2025 NII, when thinking about the three-year cycle, is going to be the lower one. 2026 looks better. 2027 looks even better. Remember that we guided for flattish NII 2027 vis-à-vis 2024. According to the latest projections we have internally, considering the current yield curve, we should be in 2027 above EUR 11.5 billion NII. That's the latest internal forecasts we are managing. Moving to DTAs. Yes, we have this write-back. The total amount we have off balance is EUR 3.2 billion. The major part of those are tax losses carried forward.
Basically on that front, we have always been managing different scenarios. Obviously, the better the profitability and the better it looks going forward, the highest probability we have to be able to write back. It is something that we have started to do. Basically here, the plan is to write back the same amount of tax losses carried forward, the same volume that is going to be consumed. This quarter, it has been EUR 67 million. I think that for this year, you could consider that this may be the run rate for every quarter. This is not just a one-off for this quarter. For 2026 and beyond, I cannot recommend now to a specific figure, but it is something that should continue as the profitability of the bank is being confirmed. We guided for this 50-20 positive basis points coming from DTA consumption.
This guidance is maintained with the it was already including to some extent when we guided for that that right back could happen. That would be my messages. Thank you, Marta.
Thank you, Marta. Operator, next question, please.
Next question is from Sophie Peterson, J.P. Morgan. Please go ahead.
Yeah, thanks a lot for taking my question. My first question would be on fees. The fee progression was strong this quarter. I was just thinking like, how should we think about the fee in coming quarters given the volatility that we have seen in equity markets now, especially in April? My second question is on mortgage competition in Spain. It seems that there is quite intense competition in Spain. Are you participating in this price competition? What is your view on the Spanish mortgage market? Thank you.
Thank you, Sophie. I'll make some comments. Then, Javier, you can add as you wish. In terms of mortgage competition, it's very intense indeed. This is something we've been saying for some time. The market in Spain, generally on the asset side, is very competitive. Mortgage is a very good example of that. We obviously are in the market. We are the largest player. We need to compete in the market in which we are. We obviously make sure that we have a positive return on those clients that have a mortgage that obviously has to be ahead above cost of capital. It is. Obviously, those clients do not just have a mortgage, but have many other businesses and products with us. This is the reality on the mortgage per se is not beating cost of capital in the Spanish market.
The mortgage, including all the revenues that it brings, means that the clients that have a mortgage are obviously clients with positive returns for us. I think this is probably a structural feature of the market. We obviously have, as I mentioned before, a market share in the new production of mortgages that is aligned slightly below, but aligned with our backbook, 25% backbook market share versus 24% in new production. Very similar, but again, very competitive, absolutely. On fees, we completely agree. It's been a very strong quarter. A quarter that would clearly leave upside for us in the future. Maybe, Javier, you can elaborate on that.
Yes. We really had a strong quarter. It's true that the market's correction has had an impact. I can update you on that front.
We are estimating that since the end of March, the balances of our AUMs are down circa -2% to -1.5%. That is from a few days ago. Markets have performed a little bit better since a few days. Basically here, the message is clients stay calm. We are not having outflows at all. Inflows were really strong. They had a really strong positive momentum process. Probably April is going to be a little bit more subdued, but not going to be a negative month in our view in terms of inflows. Honestly, if were it not for the market's corrections, probably we would have taken the step to update our guidance for services. Remember that we have this low to mid single digit guidance. We have not done so.
We wait for more visibility to normalize things in order to reconsider a potential upgrade going forward. Let's see how things evolve. For the rest of the fee pool on insurance protection, you see quite a strong commercial activity. I think that this is basically supported this year by life protection, really strong on the back also by coming from a mortgage origination. We are expecting the P&L impact of all that to show up soon in coming quarters with a clear progression. Remember that our long-term view for protection was a positive growth in P&L terms, circa 5% CAGR. Fees, we had a really strong quarter on CIB, foreign exchange, securities, everything related more with markets, although CIB is more related also to loan origination.
Maintenance fees, although I commented at the presentation, we have this structural pressure on everything related to maintenance, but we expect this year to be less intense than the past year. All in all, were not for the turmoil in early April, probably we would have taken the step to upgrade our guidance.
Okay. Thank you, Sophie.
Thank you.
Thank you. Operator, next question, please.
Next question is from Maksym Mishyn, JB Capital. Please go ahead.
Hi, good morning. Thanks very much for the presentation and taking our questions. I have three. The first one is on corporate lending. Could you walk us through the trends you see in the corporate loan book? Any additional color and demand by sector and maturity and company size would be most welcome. Also, do you see any slowdown in demand or any signs of cautiousness whatsoever due to macroeconomic uncertainty?
The second question is on the cost of risk. You booked 20 basis points in the first quarter. Your guidance is below 30. My question is, why not become more positive on this line already? The last one is on capital. Have you included any optimization efforts in the first quarter? Are you currently working on any? How much do you aim to generate this way in 2025? Thanks.
Thank you very much, Maksym. On business lending, your first question, I would say we are seeing good dynamics across the board. SMEs are, again, doing well and with good growth there. We expect to see loan demand continue growing in this part of the book. Obviously, there's some uncertainty associated to the current tariff and market discussion, yes.
I think given where we're coming from, given obviously also the need to increase investment associated particularly to the defense sector, the dynamics in Spain, we see good trends. I would, at this stage, say that actually the defense sector is not yet part of these numbers. That is all potential upside. The rest is actually very broad. Bear in mind that we're talking about still growth that is below nominal GDP. It is just looking at that inflection point, what is making us optimistic. Investment in equipment generally is accelerating in Spain. Hence, the opportunity for us to help in that growth is very much there. The cost of risk, you're right. I mentioned it in my presentation. We have numbers that are better than what we expected. Clearly, we have a guidance of below 30 basis points.
To some extent, how far below we are those 30 basis points is something to be seen. At this stage, looking at the first quarter, there is going to be some gap between the 30 basis points and the cost of risk figure. As Javier said, for fees, in normal circumstances, I think even at this very early stage of the year, we would have upgraded guidance and cost of risk. There is an element that is somehow in our hearts that from history, we tend to be quite conservative. Given the current sort of global scenario, we thought it was not the time to provide sort of a revised positive guidance on cost of risk at this stage. Clearly, all what we see today leads in that direction.
Let's keep at this stage the fact that there's a clear upside to be further below from those 30 basis points. Let's be clear, we're not seeing any particular threat or any question in the loan book that makes us conservative other than what everyone generally sees, the potential for some turmoil associated to whatever is the final outcome of the tariff negotiation. My expectation is positive, but obviously, I'm not a decision maker here. I think there will be a new equilibrium, which will not be so bad. Obviously, a lot of volatility between now and the moment in which that destination is clear. We'll generally take a conservative approach, as always, to guidance. Leave it as a clear upside at this moment in time. Javier, maybe you want to take the one on.
Yes, there was, hi Maksym. There was a question on capital optimization. Yes, we are working on projects. We already commented about our capital markets days that we were planning to be more active. That is the case. In this quarter in particular, there is not any positive impact from any capital optimization. We guided for those EUR 3 billion-EUR 4 billion of risk-weighted assets optimization during the next three years. I think that this is probably not linear, probably faster into 2026 and beyond. You can expect already, as we are working on several projects, some impacts in coming quarters. Thank you.
Thank you, Maksym.
Thank you.
Operator, next question, please.
Next question is from Francisco Riquel, Alantra. Please go ahead.
Yes, thank you. My first question is about the profitability of the new business. I see in the slide of the NII bridge that the business volumes, loans, and deposits, NII contributing EUR 10 million in the quarter with volumes I see is they are up EUR 3 billion. It seems to me that the customer spread of the new business is lower than the customer spread of the stock. You can please comment on what's the overall profitability of the new business. My second question is on BFA. I saw some announcements in terms of potential IPO. You could be looking to participate or not, and what impact shall we expect? Thank you.
Could the second question was what?
BFA.
Oh, BFA. Yeah. Why don't you start with the first one? I want to take that.
Hi, Paco. You have also, we are providing you the front book yield of the new production for the quarter, has been a little bit below 4%, 392 basis points. The average 12-month arrival for the quarter has been 2.40 something. It is like a 150 basis points margin, more or less. This is another way to look at it. It is in line with the margins that we are having and the margins that we are planning in the future. It continues to be as always. You have strong competition, as Gonzalo was saying, on mortgages. Actually, there is no margin unless you consider all the cross-selling that is attached to a mortgage that is significant.
That probably in our case is larger than in other peers because we have more cross-selling capabilities in terms of insurance, in terms of our capability to retain cash balances, etc. If you look only at NII, this may distort a little bit the numbers. It is as always. There are no changes, unfortunately, on mortgages as competitive as ever. BFA, Gonzalo.
Just to confirm that, obviously, the business we're writing is adding to our profitability. Obviously, it's across the board. We look at it not in the contribution of one given line, but obviously, the P&L coming from that. Javier mentioned the EUR 3 billion increase in, for instance, in non-remunerated deposits in the quarter is obviously a very profitable increase. In remunerated deposits, it's less profitable, but it is what we're seeing of balance sheet.
Obviously, on the asset side, we mention it as well. BFA is obviously at this moment in an IPO process. The government in Angola has actually announced that intention. The intention from BPI is to sell along with the government a 15% stake. That's what the government is planning to sell. Basically, we'll sell a stake that is very similar, circa 15%. This is obviously a process that is not yet completed and has, like any IPO, certain execution risk. All the things look going in the right direction. We are obviously working together with the government through Unitel, the other shareholder of BFA, and with BFA. This is something that, at this stage, looks like a distinct real possibility for later this year with all the caveats that, like every IPO, is subject to market conditions.
It will depend, obviously, on final conditions to see if there's a price that is attractive enough for the sellers in this process.
Okay. Thank you, Paco. Operator, next question, please.
Next question is from Ignacio Ulargui, BNP Paribas Exane. Please go ahead.
Thanks very much for the presentation and for taking my questions. I have two questions. One is coming back a bit to credit quality. If I just look to the NPL formation, inflows were very low in the quarter, but outflows were also quite low. I mean, was something especially in the quarter? Should we expect this formation going forward, providing no material change in the economic environment? The second one is on capital. I mean, if I just look to the CET1 ratio, you're already 21 basis points ahead of the target that you set up at 12.25% for this year.
How should we think forward about distributions? And just one small follow-up on the NII in Portugal. I mean, the performance of the customer spread was a bit weak in the quarter. How should we think about the repricing in Portugal? Is it faster? Should we expect this progression? You said, Javier, the trough will be somewhere in the second half. Should we see the trough in Portugal to be earlier? Thank you.
Thank you. I would say on NPL, sometimes the gross entries and particularly the exits are influenced by portfolio disposals, which you do not see this quarter. That may be part of what you are seeing. I think what is more important here is that the actual entries into non-performing loans in the first quarter have been very low.
The entrance into sort of past due, but not up to 90 days, are also at historical lows. Hence, we have a true trend here. It's associated to the fact that the economy continues to do very well and that interest rates are coming down. Remember that last year, we had some noise in NPL evolution last year because we had this new definition of default and some sort of accounting reclassifications, which we completed in full last year to apply the most conservative criteria. Beyond that, there was some pressure, much less than what we expected, but some pressure on the mortgage book and generally associated to higher interest rates. Now, this year, we're having the opposite. In fact, what we are seeing is trends that are improving.
Even some of the sort of problem loans that were reclassified from an accounting point of view in 2023 and early 2024, we're going to see probably them coming back and cure in the next quarters. Pretty good trends. If we have the opportunity, we will do NPL disposals, as we've done in other years, which, again, may be cloudy the numbers of entries and exits from that category, but clearly are, again, improving our asset quality levels without any other sort of cost of risk implications. Very good, again, in terms of trends. The rest may be Javier.
You had a question on capital, about capital evolution, if I understood well. That's why the plan remains the same. We have that threshold. From there, it's for shareholders. It's 12.25% for this year, 12.5% for next. That's it.
I do not know if probably I missed part of the question. I do not know, Marta, if there was something else on that topic.
He also asked about repricing in Portugal.
Yes, on that one, I follow that. The point in Portugal is that the cost of interest-bearing deposits, by chance or not, is the same as in Spain. It is in the 220s. The difference is that the percentage of interest-bearing deposits is larger. That is close to 45%. In Spain, it is a little bit below 30%. In Portugal, we are being able to pass on lower rates for the interest-bearing part at the same pace as in Spain. The difference in Portugal is that it is not common to have current accounts indexed for corporates or public sector. The system is working with time deposits, which makes the rollover process a little bit intense.
On top of that, there has been a natural tendency in recent times to have shorter maturities on deposits. When the year curve became inverted, depositors, instead of making a 12-month deposit, made a 3-month deposit or even a 1-month deposit. It is a different dynamic compared to Spain. That is on the deposit front. On the asset front, the difference with Spain is that BPI has a larger percentage of floating assets. If you think about both sides, at the end of the day, the end result is not that different. Thinking about the trough in Portugal, it is a little bit harder to assess because there is a little bit more margin of error, but should not be far from the consolidated trough in terms of NII. Okay?
Javier, on the question, it was basically about future distributions considering that we already have a surplus of 21 basis points.
Yes. That was the message is that we are aiming for frequent and regular distributions. In that sense, we have just ended the fifth share buyback in March, paid EUR 2 billion dividend in April. There is a sixth-year buyback to be executed. We already have excess capital above 12 and a quarter. There is even room for more. Eventually, we'll be more specific on the topic. The plan remains the same.
Okay. Thank you. Thank you, Nacho. Next question, please.
Next question is from Andrea Filtri, Mediobanca. Please go ahead.
Hi. I wanted to ask you if you're happy with your current ALCO level or where you plan to go to and when. The second question is, when do you expect to fully utilize the remaining overlay provisions? If it's possible for you to minimize the bank levy via higher tax deductions, what would be the guided tax rate from you? Finally, just a very broad question. We have read that a task force for regulation simplification is going on. If they asked you what would be your wish list, what would you like to see there? Thank you.
Thank you, Andrea. Quite a few. You may want to start with the ALCO, certainly for you, Javier. You want to start?
Okay. I start with the ALCO. Basically, we have two tools to manage our NII sensitivity, which are, as you know well, deposit hedges and fixed income securities.
Lately, we have been more keen, and it's something that we have, as you could see, already started to do this quarter, is to use also fixed income securities because the spread between the sovereign in general and the swaps has widened significantly. This was the case particularly since the ReArm Europe program and the infrastructure program in Germany was announced, which makes sovereign spreads now more attractive compared to swaps. You can get, depending on the maturity, but on average, for a Eurozone sovereign basket, you can get between 50-60-70, up to 80 basis points margin above the deposit facility rate, which is nice to have. There has been a widening of between 30-40 basis points, depending on the country and the maturity. We are now more keen to use fixed income, although we will not abandon swaps.
You can expect us adding in order to manage our sensitivity. As you can see, the non-interest-bearing balances have grown by EUR 3 billion in a single quarter. Basically, this is what drives the need for further hedging because you have 0% cost deposits unless you hedge. Obviously, that increases accordingly the sensitivity. This is, to some extent, market dependent, but to some extent, because obviously, we need to keep looking at our sensitivities and we do not want to deviate materially from what we are guiding, that 5% NII sensitivity 12, 24 months. Overlays, maybe. Overlays? Okay. On overlays, we are comfortable. Part of those overlays, honestly, were planned to be used for the floods in Valencia, a large chunk of those. You know that we have been reclassifying the purpose of those overlays over time.
It started with COVID, and now we are a large chunk of those for the floats in Valencia. Actually, the performance of our trade exposures on the area are doing massively better than initial expectations. We are comfortable. The base case is that will be used eventually. Probably the base case is that may be used to a large extent this year. As you know, I have said that several times, and then we keep holding part of those overlays. It may be the case also this year. It is too early to say. As Gonzalo was commenting before, talking about cost of risk, let's see the environment and the additional uncertainty we have how this ends up. You had a question on the bank levy.
If you want me to elaborate on that, we are already incorporating all the, let's say, tax deductions that we can incorporate. So that 25% that can be deducted. Keep in mind here that this is 25% on the effective tax rate, which is not the nominal tax rate. The effective tax rate is lower because we are usually incorporating DTAs. Basically, we do not settle all our corporate taxes in cash. Part of those are settled with DTAs. This is why the effective tax rate is lower. Hence, we cannot benefit in full of the 25% deduction. Although the part that is being able to be deducted is already deducted. About the tax rate, as you could see, I was checking. This quarter, it has been 34% incorporating the banking tax and also the write-back of DTAs.
As we expect that, now that the banking tax is accrued quarterly, you can expect that this tax rate can be to some extent around those levels.
Very good. If I may, Andrea, on the regulatory simplification, obviously, there is plenty of work ahead. I would say the first thing is to stop the trend of more and more regulation coming in. The last five years in our accounts, there have been 1.3 rules per day that are applicable to the financial sector. That creates a lot of complexity, a lot of resources to follow them, make sure that we are compliant with new regulations. Sometimes the new regulations make limited sense and make things just too complex. To stop the flow of new regulation, or not, you would not stop it completely because by definition, there will always be things to be regulated.
To slow it down is quite significant, particularly what is second and third level legislation, which is sort of the bulk of the new rules coming onto us, is something that is very important and that it creates very often sort of unintended consequences because there is some gold plating on those, in my view, in certain cases. You have already seen some discussion around sustainability, particular sustainability, particularly with disclosure rules and sort of the current obligation for disclosure on that front, which has been, I think, put in the fast lane by the European Commission, which is obviously welcome.
I think on that front, while we strongly support sustainability, we need to make sure that we continue to sort of follow an approach that is mostly based on, obviously, avoiding doing the wrong things, but then a lot of disclosure and explanation on what people do for those very large financial institutions, but not overregulating exactly what they need to say because it becomes impossible. Retail investment strategy, that's something that has been discussed at the Commission in the past, and that creates, I think, again, potential for unintended consequences through overregulation and then limiting the ability of retail customers to get proper advice. I think that needs to be very well considered and certainly to a large extent redirected. That is my expectation. On the supervisory front, we still have potential. I would highlight, obviously, we have different layers of supervisors on the same topics.
Asset, sorry, anti-money laundering is one with, again, different levels of supervision, which being very important is not always ideal because there are sometimes different priorities and different views. We have the risk of these being repeated in AI, where there are also quite a few potential, or not potential, but actual bodies that are looking at how they will supervise what financial institutions do on this front. It would be a clear stopper for the rapid development of AI. There is quite a long list. I think it is great to have an understanding that something needs to be done. Obviously, we have been and we continue to offer to participate in anybody looking at what needs to be done, which is obviously including all these subjects, but I am sure there will be others that are also relevant.
Thank you, Andrea. Operator, next question, please.
Next question is from Britta Schmidt, Autonomous Research. Please go ahead.
Yeah, thank you for taking my questions. I'd like to come back to the deposit cost guidance that you gave. You seem a bit more optimistic about the deposit cost by year-end. Could you perhaps split that by Spain and Portugal? Just because, as we just discussed, the deposit cost in Portugal are still quite high and only came down 10 basis points Q1Q. The second question is on the cost of risk. I mean, Spain is more isolated from tariffs. You have a decent amount of overlays. And as you highlighted, there's much better underlying asset quality as well. Can you be a bit more specific as to where you are cautious and why you're not really changing your cost of risk guidance now?
Also, maybe you can give us a heads-up as to whether we should expect any IFRS 9 potential impacts in Q2. Lastly, on the share buyback that's still pending, could you give us an update as to when you intend to execute that? With regards to the decision of any further extraordinary distributions, is that a year-end decision, or would you also consider communicating something during the year? Thank you.
Thank you, Britta. Cost of risk, I'll start, but Javier, you should also comment on that because I haven't been able to explain myself enough. There is no particular information that we have that makes us cautious. It's the general view on what is the turmoil associated to a potential outcome of the tariffs.
This is something that, again, we are optimistic, but we have thought that this being the first quarter and our cost of risk guidance being less than 30 basis points, we were not in a rush to say exactly at what point the cost of risk or below what level the cost of risk is going to be. There is no other reason to be cautious other than the fact that we, as you know, tend to be cautious, particularly on cost of risk that it has a bit more volatility than maybe the cost line or some others. I think we, at this stage, do not see a need to top up provisions, even with we typically update our IFRS 9 model in the second quarter.
The reality is, as you say, there are so many other positives, including the fact that we have not used overlays, but the macro scenario, our internal experience in terms of NPLs, both sort of NPL and pre-NPL situations, that it is something that I think is likely to come during the year. Certainly, at this point, I can say we are extremely comfortable with our guidance.
Hi, Britta, on the rest of the questions on deposits costs in Portugal. You know that we have the view that the wave of interest-bearing deposits will actually not come down significantly. In this environment of rates, let's say between now 1.5 and 2, we do not expect that many of those balances will suddenly move to, let's say, non-interest-bearing deposits. They will remain even at lower yields, but will remain as interest-bearing deposits.
The starting point in Portugal is that those interest-bearing deposits weigh more than in Spain. It's 45% currently versus 27-28% in Spain. We expect that trend to continue. Eventually, obviously, we'll do our best to try to reduce the percentage of interest-bearing deposits, but honestly, I don't think that this will happen in the current environment of rates. For the consolidated level, I have just guided for our cost of deposits on average for this year to be mid to high 50s. In Portugal, as the weight of those deposits is going to be higher, it's going to be a little bit higher, but not, I would say, deviating materially from the overall evolution that we are having at group level.
You had a question also on the additional distributions, etc., and if we have to wait until year-end, the answer is no. We have been announcing in the past additional distributions whenever we thought that we had a buffer over the capital devolution threshold that was wide enough. This will continue to be the case. You should not per se think that we should wait until year-end. Regarding the share buyback execution, I just gave an answer on the topic. We are aiming for frequent and recurrent distributions. We just had in March the end of the fifth share buyback. We have had EUR 2 billion dividend in April, and now this is to be executed. We retain discretion on the timing of that, as it has been the case always. Thank you, Britta.
Thank you, Britta. Just to clarify, the guidance for deposit cost is average for the year, annual average, not year-end.
If I said that, I was wrong.
No, no, I think you did not say it, but just to make clear because she asked about year-end. Operator, next question, please.
Next question is from Alvaro Serrano, Morgan Stanley. Please go ahead.
Hi, good morning. I just wanted to follow up on some of the deposit comments. I think, Javier, you said that there was unusual seasonality. I wonder why you think that is happening. In particular, I am focused on the interest-bearing mix that has improved a touch, but is it the beginning of the trend? I think in previous quarters, you were a bit more hesitant that the actual mix could improve.
Related to that, if it does improve, does that give you more scope to increase the outcome or the hedges beyond just managing that 5%? Presumably, you would have to increase it more to manage that 5% increase, but I mean, increasing more than just the volume growth of deposits to reflect that message. Does that give you? Related to that last one is, what term are you now investing the swaps and the government bonds? Thanks.
Well Alvaro, I'll just make an introduction on the unusual seasonality. I think we have here two trends. One is the typical seasonality year-on-year, which has not changed, and the other is structural. That structural is associated to higher growth in disposable income and a higher savings rate that is certainly at higher levels than that we had seen in the past.
This is sort of building on year after year. What we're seeing this quarter is the structural part is actually more than offsetting the seasonal weakness, and/or that we're doing extremely better than our competitors. I think we are maybe doing a bit better than our competitors. I'd like to think, but that a lot of this is to do with the actual sort of macro dynamics of savings in Spain. Obviously, that is a very positive development.
Yes, actually, I tried to highlight that on the slide on the ALCO, sorry, not on the ALCO, on the NII, with a detail of what is interest-bearing and non-interest-bearing and evolution. It's a nice trend, nice trend to have. We call it internally the jewel of the crown, those non-interest-bearing deposits.
Happy to see that we are being able to deliver, commercially speaking, on that front because it's extremely important. As you say, it results into more ALCO opportunities, more liquidity, more, let's say, long-term liabilities that offer the potential to be hedged and taking advantage of a more positive yield curve. As of today, on ALCO hedges on derivatives, we are, let's say, between four, five years, usually. I would like, if I may, I will take the opportunity here to elaborate on that, taking advantage of my background as fixed income manager. We are hedging that basically what you do is you receive a fixed rate and you pay a floating rate. The way we are instrumenting the hedges is that as floating rate, we pay the overnight rate. Depending on the tenor of the floating rate, then you have a different fixed rate or another.
I think that this is so important also because you are not subject this way to a lack in terms of repricing as you are indexed to the overnight rate. On fixed income, we are taking advantage to go a little bit longer than that. We are going as long as 10 years, although the bulk is more 7-8. We are basically investing into a basket of EU sovereign bonds and also EU sovereign bonds themselves. That is basically what we are doing. You are right. The more non-interest-bearing deposits, the more opportunities in terms of carry and taking advantage of the steepness of the yield curve.
Thank you.
Alvaro, just another point. Obviously, we have gained 340,000 clients on your first question, which was not the case last year. This is obviously having an impact. The fact that the group is now in a clear growth mode starts with capturing clients, and obviously, that has an immediate implication for non-remunerated deposits in particular.
Thank you, Alvaro.
Thank you.
Next question, please.
Next question is from Cecilia Romero Reyes. Barclays, please go ahead.
Thank you for taking my questions. My first one is on NII. For next year, do you expect NII results at or above this year level? What is the deposit rate assumption under things that outlook? Is that a 1.65% terminal rate? I'm not sure if you have mentioned in your answer to Andrea, but has your NII sensitivity changed this quarter following the increase in the ALCO portfolio? My second one is on the bank tax for 2024. Do you have now visibility on what is the expected timing of payment?
Given that you have already or you are already accruing the one for 2025, is there a risk of two payments in the same year? Thank you.
Thank you, Cecilia. I would say on the second question, we do not see a real risk because the willingness of all parties is to avoid double counting or double taxation in one given year. It is still up in the air exactly how things are going to be landing, but I do not think that is going to be the outcome on NII.
On NII, my comments today are according to the current yield curve that as we speak is pricing the terminal rate or the low better than the terminal rate to be at 160. As you could see, the yield curve and on the chart, I was disclosing very gradually going up back again. All my comments are valid according to that yield curve. Thank you, Cecilia.
NII sensitivity, Javier.
Sorry. No, the ALCO actually is we take the action as I answered to a previous question, basically to keep that sensitivity in place, so in line with our targeted sensitivity. It is not being reduced. It is just being maintained.
Thank you, Cecilia. Operator, next question, please.
Next question is from Pablo de la Torre Cuevas, RBC Capital Markets. Please go ahead.
Thank you for taking my questions. I just had a couple of follow-ups, really. The first one, I'm afraid again on asset quality, given the uncertainty around charities that we have discussed at length already, I was wondering if you could just share with us some more color on the lending exposure to those sectors that could potentially be more exposed in this context and whether you could tell us again as well if the coverage levels in these portfolios are in line or above those of the group. It is related to that as well. It would be very helpful for us if you could provide some sensitivity to how your cost of risk guidance could change under a significantly more negative macro scenario as well if you have those numbers. Lastly, just a quick follow-up on the timing of capital distributions and related also to the uncertainty around the payment of the 2024 banking tax.
Would you wait to announce the new buyback program, the seventh one, until there is more clarity in that regard? Thank you.
Thank you. Pablo, let me start with the third question. Those two things are not related. No, that is not the reason as Javier explained it. The second, in terms of sensitivity to cost of risk, I would say we are very comfortable with our guidance even if there is a significant deterioration or, let's say, a bad outcome on the tariff discussion. That is also the other way to look at the fact that we see potential to our cost of risk guidance if, based on what we have seen so far, it means that even if there is a deterioration, we do not necessarily think that cost of risk is going to be impacted. We have quite some caution on that.
The range of scenarios is obviously infinite and very complex to predict, but we have quite a few worse scenarios which would still fit in our existing cost of risk guidance. Maybe, Javier, you can provide some detail on cost and on the asset quality and exposed.
Obviously, when there is additional uncertainty, we always reassess our exposures, etc. The conclusion is that in any sector that, you may consider that could be more exposed to the new uncertainty about tariffs, etc., we reach the conclusion that actually our exposures are to the industry champions. Honestly, in the major part of those cases being investment-grade names with very large market shares on the industry. Honestly, we don't expect to have any kind of material impact in any of the scenarios we have been working on.
Thank you, Pablo. Operator, next question, please.
Next question is from Fernando Rio de Sant'Ivans in Tesa, São Paulo. Please go ahead.
Thank you. Can you hear me okay? Hello? Can you hear me okay? Yes, we do. Okay, thank you. Two quick questions, please. First one, can you please provide an update on the Mufasa situation and the potential changes and how can these impact Caiçaras? The second one is very generic about the blackout that we had a couple of days ago. Do you anticipate any negative impact except from the delay in effect from the blackout? Thank you very much.
Thank you. Fernando, in terms of the blackout, we were surprised, but also positively surprised by the quick recovery of everything. I think there was an impact that the macro level is going to be very limited.
I think what is most important is to make sure that we understand the ultimate causes and make sure that whatever actions are needed are put in place so that this does not happen again. Obviously, there is still a clear advantage for Spain on having a significant share of renewals in the product mix, and we've become very competitive vis-à-vis most countries in the Eurozone, precisely for that reason. We need to make sure that it's obviously stable and resilient. There would be some insurance claims in the market. It's too early to have a precise estimate, and it will need to be done by our affiliate, Adeslas. We need to be clear on the causes and look at that. Certainly, there's not going to be any material impact for our results at the CaixaBank level. It's not something I would be worried about.
On the other hand, as you correctly said, the outcome of the agreement with Mufasa is a positive development for Adeslas. It's very good news. Basically, what we had is a contract that was loss-making for Adeslas. They estimated somewhere around EUR 270 million of losses in a three-year period, which actually were growing. If you do a basic rule of thumb and say, okay, one-third of that per year is not going to be now seen in the accounts of 2025, you probably see somewhere around EUR 90 million of pre-tax profits at Adeslas. Once you tax them, it's going to be close to EUR 60 million, and obviously, half of that would accrue to us. This is not the sole impact on CaixaBank's Adeslas. It's a company that has many other factors affecting the profitability.
Clearly, the Mufasa is removing a loss contract, a loss-making contract is going to have a positive impact of those kind of levels.
Okay, thank you, Fernando.
Thank you so much.
Operator, is there any other question or that's it?
We have one more question.
Okay.
Next question is from Marta Sánchez Romero, Citi. Please go ahead.
Hi, thank you. Sorry, a quick follow-up on Britta's question. Why are you dragging your feet on the EUR 500 million buyback that has already been approved? Is it a matter of price? Are you thinking about M&A or is it the ECB asking for caution? I would like to understand why it's taking so long. Thank you.
I think it's the third time I have answered to this question, but I will try again. Our aim is for frequent and recurrent distributions. We had a share buyback in March. We had a dividend in April. We have this to be implemented, to be executed. We retain discretion. There is no why. There is nothing else. That is it.
Recurrency and frequency, Marta. Thank you. Shoutout to all for today. Thank you all for joining us. Talk to you later.