Welcome to CaixaBank's Results Presentation for the First Quarter of 2023. For first time viewers, note that we are joined by the management team of the CEO, Gonzalo Gortázar, and the CFO, Javier Pano. We usually spend around 30 minutes for the presentation, followed by 45 minutes to 1 hour of Q&A, which is live. You should have received instructions to participate in that via email. One additional housekeeping issue. Please note that this is the first quarter that we are reporting under IFRS 17, the new accounting standard for insurance contracts. Our insurance subsidiary is also adopting IFRS 9. We published a document last week highlighting the differences between IFRS 4 and IFRS 17. As you know, within the P&L, they are mainly related to classification issues with very limited impact on the bottom line.
With that, let me just end by saying that my team and I are at your full disposal after the event. Let me hand it over to the CEO, Mr. Gortázar.
Thank you. Thank you, Eddie, good morning, everybody, and welcome to this first quarter results presentation. As Eddie said, struggling to get to substance. Okay, here's the summary of the quarter. I have to say, in a nutshell, it's a better quarter than what we expected. It's a great start of the year for us. Business volumes, particularly in light of results that have been posted by others are pretty good. You see that we have a stable loan portfolio and growth in customer funds, 0.5% in the quarter, with a significant production in long-term savings and also in insurance premiums you would see. A good level of commercial activity.
Net income, obviously underpinned by revenues, particularly NII, with a significant growth across all lines of the income statement, as you know. Asset quality, pretty good. It's actually fallen EUR 243 million in terms of non-performing loans. Because of rounding, it stays at 2.7%. It's basically down year-to-date 2.3%. Good news that also allowed us to maintaining a good level of provisions, 26% the cost of risk. Sorry, 26 basis points rather than 26%. Our coverage ratio has increased 2 percentage point to 76%, which indicates how well prepared we are for a eventual deterioration in this line if and when it happens.
Finally, on the capital front, we've absorbed the IFRS 17 impact and still grew 3 basis points. 12.5% Core Equity Tier 1 without the transitional adjustment. MREL and liquidity continue to be at very good levels. No relevant news there because we have fairly good level. Return on tangible equity, double digits finally. Hopefully, the start of many quarters in that territory. Net income growing by 21%. In terms of the economy last week we had the figures of GDP growth, a couple of days ago, we had it for employment in April. The numbers are actually stronger than what we expected.
What we see there, or what you see there, the 1.3% projection for growth in fiscal year 2023 is now being reviewed by our research team, and it will be reviewed upwards in a significant manner to the 2% region. Clearly, what we see is much more resilience and even growth in Spain generally. Obviously, environment outside Spain is also better than expected. Particularly in Spain, you see the numbers are really supportive employment figures. You have over the last four years history there, pretty good. I think the net exports is amazing. We've been over 10 years now with positive trade balance.
Not trade balance, but current account surplus, which is quite impressive. Obviously, the level of the debt in the private sector is much, much lower than it used to be and lower than in Europe. Again, the macro view feels pretty good, certainly on a relative basis. Some details on the activity. Loan book stable, as I said. Obviously there's a sharp contrast between business lending up 1.2% and residential mortgages down 1.4%. In between, consumer lending with fairly good showing in this environment. Positive growth in the year, 0.4% better again than our expectations.
Topic that is relevant, I'm sure Javier will elaborate on that on asset quality considerations, but our floating mortgage book, 84% of it has now repriced at positive rates. This is a process that is started, yes, now in with force. Still, we still have 80% of these that have not yet repriced at Euribor + 3% or Euribor at 3% level and above. I think here we have a good combination of resilience in the portfolio, at the same time upside in NII going forward.
We just get our affordability ratio on average to circa 30%, actually south of 30% at Euribor 4%, which is not, I guess it is not the base case now. I think a good combination there of where we are. Another point is gaining market share in business loans. As you can see, 14 basis points year to date, which is obviously satisfying for us. Loan production, as you can see, pretty good levels, particularly in business lending. On the mortgage front, I have to say this is likely to change in the next quarters as the very strong growth that we show from second quarter of last year onwards is not likely to continue.
Still, in this third quarter, we have a significant positive growth in new production and obviously at levels that are in line with the current with the current market. Customer funds, as I mentioned, up 0.5%. Obviously, a contrast between long-term savings and off balance sheet and what's deposits and other reduction of 1.2%. Overall, positive growth, which is relevant. You can see in terms of market share, we have gained market share in deposits year to date and also in the combination of deposits and long-term savings. Same way on the asset side.
Our bank is at full speed, is doing nicely, and I think it's a good sign for the rest of the year and the coming quarters. Certainly, the insurance business becomes even more attractive with long-term rates now in significant positive territory. I mentioned protection, and it's been a pretty good quarter. Growth in premiums. You see 15% in life risk and 23% in non-life. And non-life, as you can see across the board, health, home, auto and some others.
Significant success of, you remember we launched late last year the MyBox Jubilación, a combined saving and life risk product with optimizes both financial and tax considerations for our clients. Is actually working very nicely. We now have over 100,000 clients with MyBox Jubilación growing steadily. Small premium, recurrent monthly payments into MyBox Jubilación. Very good future ahead of it. And as you can see on the right-hand side, some of the differences in penetration of the non-life are starting to be reduced. The, I mean, difference in penetration between former Bankia clients and former CaixaBank clients.
You can see a striking distance in health and how former Bankia moved from 0.8% to 1.4%, which is still very low levels compared to the 6.5% that we have with former CaixaBank clients. Obviously the beginning of a process to deliver the revenue synergies that we are committed to. You can see actually better progress even in auto and in home insurance. Plenty of growth potential, particularly because I expect that the right-hand column, the block of CaixaBank will continue to grow because we're gonna continue to increase penetration among former CaixaBank clients. The ability to converge will be not just to those levels, but to even higher over time.
This is a slow process, as you know. BPI doing well. Very good contribution to profitability. Very rewarding to see BPI clearly breaking through the 50% cost income. Look at that, below 47%. It's a tremendous track record, and I expect it to honestly continue. Asset quality and the strength, particularly on the asset side and on the mortgage side, continues to be present. A good quarter also in mutual funds. BPI will be providing further details today as well, but very solid, very solid quarter. One more. Net income obviously influenced heavily by the growth in revenues, which in turn comes from very strong growth in NII. Also insurance and much less so to fees.
Small increase in cost in the quarter and impairments. All in all, despite the bank tax, which amounted to EUR 373 million this quarter, as you can see in the notes, the reality is, net income grows by about 21% and we get to that double-digit return on tangible equity. Looking forward, obviously, our pre-provision profit is growing. Our cost of risk is stable and fairly low. We have actually a very significant degree of comfort there in the income statement itself against any deterioration in conditions. Non-Performing Loans, as I mentioned, are stable in terms of the ratio, but coming down in absolute numbers. Coverage is up. Liquidity, you have the last 12 months liquidity coverage ratio.
You have the last 12 months, because that's the one that is most easily comparable in terms of disclosure by some of our competitors among the top 10 listed banks in the Eurozone, and you can see a striking distance. Good performance in capital, high levels of MREL. Honestly, we have reasons to see the future with optimistic feelings after again, a very strong quarter, including of the Spanish economy. Even if that view is eventually proved wrong because the conditions deteriorate, the solidity of what we have here in terms of balance, it gives us a lot of comfort, no?
Also not just comfort, but the feeling that any period of weakness, if it materializes, would be a period of relative strength for us, and we will make the most of it, I am sure. Finally on my side, a comment on our role as a bank that goes beyond obviously our financial results. Our financial results are allowing and the payment that took place in April of 2022 dividend is a good proof. It was EUR 1.7 billion, of which half has been directly reverted to society through mostly a Foundation, also through the stake that goes to the FROB. I keep saying, obviously you understand this well, but to the general audience, that profitability of CaixaBank goes up, that's good news for society.
We should all be happy, not just shareholders, because actually half of that profits go back directly to society. Obviously the other half go to the shareholders that are over 600,000 and have many reasons to deserve it. All in all, I think we have a very special position to combine optimization of financial results and of impact broadly in society and in ESG angle that is difficult to be replicated. Those results also allow us to confirm our payouts and certainly our target of capital available for distribution over the period. Actually, they give us plenty of comfort given where we are now.
On the left-hand side, I'm not gonna go through that, but we have a unique sort of scorecard of things that we do that are different. Our position as in financial inclusion in Spain, with MicroBank, the largest one in Europe. What we do in terms of social solutions and diversity in top three Bloomberg Gender-Equality Index for three years in a row. A long list, obviously, of points, both in environmental front with our net zero commitment and also in terms of the cooperation we have with the Foundation La Caixa.
Quite, quite a special position to make sure that everyone understands that, again, profitability, which a 10% return on tangible equity is just moderate, I would say. But improving profitability because we obviously want to go further beyond that 10%, is not associated to anything other than great profits for society as a whole. Okay?
With that, Javier, please, you can carry on. Thank you.
Okay. Thank you. Thank you very much. Good morning, you all. Okay, I take it from here with the usual details on the P&L and the balance sheet. Let's start with an overview on the consolidated income statement. As commented, net income, EUR 855 million, over 20% on a year-on-year basis and close to 30% on a quarter-on-quarter basis. Strong revenue on the back of NII performing strongly year-on-year and quarter-on-quarter, with margin expansion that is more than offsetting for on TLTRO. Fees, year-on-year show resilience to the end of corporate deposit fees, with evolution in the quarter affected basically by seasonal effects.
On the new P&L line on insurance service result, we have discontinued growth in insurance result close to 24%, with evolution quarter on quarter, mostly reflecting the fourth quarter positive one-offs in Unit-Linked. On costs, I think that we are in line with our guidance for the year, with that expectation of circa 5% cost guidance that we have been reconfirming today. Below the P&L, you have loan loss charges, that evolution in provisions that is much better than our initial expectation. On that front, you may see that we are at 26 basis points on a 12-month trailing basis. Let's move now to NII. On that front, I would say that we would rather focus on the evolution quarter on quarter.
You may see that we are up by 20% ex-TLTRO and 10% including the TLTRO. You may see on the NII bridge that on a quarter-on-quarter basis, we have the impact from the account, and then we have a strong repricing from client NII. Basically, on that front, on the back of strong repricing on our floating rate loan portfolio. On ALCO and other, we have on that front, still a strong repricing from our wholesale funding that, as you know, is basically swapped into floating rates. On the bottom left, you may see the evolution of bank book yields. I would remark here that on the loan book, we have a very strong progression to 318 basis points.
This higher yield environment results into a front book loan yield that improves by more than 133 basis points to 448 basis points, and that obviously is accretive, going forward. On client fund costs, we have an average cost for the quarter of 32 basis points. When excluding the impact from structural hedges and foreign exchange funding, we have had a cost of our deposits at 17 basis points, which is beta of circa 7%, which is extremely low. Results into a strong margin expansion, as you may see, up by 68 basis points to 286 basis points. A few comments on the ALCO portfolio, a slight increase to EUR 73 million.
We took advantage of the peak in yields so far back in February and early March and ahead of the incoming maturities that, as you may see below at the left, are still close to EUR 7 billion maturing during this year. The back book yield is progressing gradually at 0.9% now, and you may see the average duration on life pretty much stable, slightly below five years. We continue with the diversification process with our exposure to Spain, approximately 3 percentage points down at 64%. On the right-hand side, you may see the evolution of our wholesale funding costs up to 91 basis points.
In this case, this is over six month Euribor, as we have all that funding basically swapped into floating as new issuances have been made, obviously at wider spreads than the back book. Let's move to fees. On that front, I would rather focus on the evolution year-on-year. Basically, we have a flat quarter year-on-year, remember that we had the impact still during the first quarter of last year of cash custody fees. Ex cash custody fees, we are up by 3.3%. You may see the breakdown by the main categories, recurrent banking fees, up by 5.5% year-on-year, ex cash custody fees, with the support from payments and other transaction-related fees.
At bottom left, precisely, on this regard, you may see the evolution of credit and debit card spending that is up by 20% compared to pre-pandemic levels. Also continuing with asset management, the evolution year-on-year is mostly reflecting market impacts on average balances. This is already being offset positively by net inflows. As you said, you saw that in this first quarter and quarter-on-quarter affected by the usual seasonality. On insurance distribution, basically, that the line here is non-life, affected with a little bit more volatility, depending on the commercial focus, depending on the quarter. There are more or less focus from the commercial side. Wholesale banking, performing really strongly, up by 62%, clearly, a very positive surprise.
Below in the center, you have precisely the evolution of AUM balances. Remarkably, I would say that by the end of the third quarter, thanks to markets performing well during this first quarter, we are up by 3% compared to the average of last year. Markets permitting on that front, we think that we may have some tailwind. Let's move to then this new P&L line, other insurance revenues that now includes not only former life risk insurance result, but also after IFRS 17, other segments of the insurance business. On the chart on the left, you have precisely a summary of a little bit that complex restatement after introduction of IFRS 17. To that life risk insurance result, we add now NII from insurance.
This is basically NII from savings insurance annuities. Net fees, basically in that case from Unit-Linked, and there is here a netting effect from other factors. What is deducted in that line is, are the costs directly associated to insurance contracts. There are some other minor adjustments, and with that, we have restated insurance service result for fiscal year 2022 at EUR 961 million. From there to the right, what we have are the usual reporting as before. In blue, what is the new insurance service result, EUR 263 million for the first quarter of this year. We add the usual impacts on the equity accounted, basically from SegurCaixa Adeslas with some more volatility.
When adding everything, you may see a very positive evolution quarter-on-quarter and also year-on-year that as you may see close to 37%. On the right, you have the breakdown by the main businesses categories. That is now life risk insurance as before and now including life savings insurance and also Unit-Linked. You may see good progression across the board, although in Unit-Linked, impacted by year-on-year, basically by market effects, no? With correction in markets during the last year and quarter-on-quarter by strong success fees that were collected in the fourth quarter.
Let's move now to costs. There is not much to say on that front. I would say that we are on track to meet the guidance that we are reconfirming today, as you probably have already seen, despite quite significant inflation impacts and other non-manageable factors that we were already commenting on the three months ago, you know, in the first quarter. The most remarkable probably here is that the restatement that cost to income has after the introduction of IFRS 17, as you may see, slightly over 2 percentage points down and now standing at 48.2%. Cost of risk, as Gonzalo already said, stable and below our initial expectations, 26 basis points on a 12-month trailing basis. Still a reduction of NPLs close to EUR 300 million, down by 2.3%.
The NPL ratio, due to rounding effects, stable but slightly a few basis points down at 2.7%. Increasing coverage by 2 percentage points. The breakdown on NPLs, you may see a progression across the board, although there is a small uptick in consumer lending. Regarding ICOs, a few comments. 39% have already amortized. The current exposure, current understanding balance is EUR 16 billion and 4.4% of the initial exposure is now classified under Stage 3. Stable, I would say. On that front, also very positive news and no visible deterioration at all. Liquidity. Let me elaborate a little bit further this time on this slide. Well, liquidity is part of our DNA, and now it's clearly becoming also a competitive advantage.
You have plenty of liquidity indicators here. The most remarkable, in my view, is the liquidity coverage ratio pro forma ex-TLTRO by the end of the third quarter. That is as if we had already paid back in full, standing at 161%. Then we can compare that with the central chart below. It's the same chart that Gonzalo was already commenting. This is the average for last year for the liquidity coverage ratio for the top 10 European banks by market cap. As being the average for last year, it still includes a large chunk of TLTRO funding. As you may see, our liquidity coverage ratio ex-TLTRO compares extremely well with the peer average, even that average includes in the major part of the TLTRO funding.
On the left, our liquidity sources on top of HQLA and ECB facilities, just to highlight here that we have EUR 59 billion of covered bond issuance capacity for a total EUR 192 billion of liquidity sources. On the right, something that is very well known, no? Which is the fact that we are clearly a retail bank, and we have more retail deposits than our peers in general. Here you have those same top ten banks classified precisely by the percentage of retail deposits. We have 79% of those being retail. That results also into a high percentage of insured deposits by the Deposit Guarantee Fund. That is 64%, close to 2/3.
Then in more, with more detail also, in terms of liquidity ratios, 69% of our deposit base is considered stable retail or even being wholesale funding, wholesale, I mean by wholesale here, corporates, being operational. That gives plenty of stability. At the end of the day, it's a competitive advantage in terms of managing also the cost of that funding, as you are already seeing this first quarter. MREL, everything has already been said here. Comfortable position, 26.25%, close to 2 percentage points above requirements. That MDA buffer really comfortable. On the central chart, you have wholesale funding maturities until the end of 2024. That is EUR 11.1 billion.
That includes not only contractual maturities, but also potential calls on callable instruments. Obviously, a decision will be made in due time on those. You may see that we have maturities across the board, across the several asset classes, I mean. You can expect us in the market, rolling over those in order to maintain a comfortable MDA buffer. Finally, capital. On that front, stability, 12.5% CET1 ratio, but absorbing two significant impacts, which is the first application of IFRS 17, -20 basis points. We had already flagged this many, many quarters ago. Also the banking tax, you know, that clearly is affecting organic capital generation. That is 30 basis points, would have been obviously higher were it not for that impact.
Minus 20 basis points from dividend accrual. Remember, we are accruing a cash payout ratio at 60%, 81 coupons, that is minus 27 basis points. This quarter we have positive other impacts basically from markets on OCI portfolios. We still hold a marginal buffer from IFRS 9 transitional, resulting into an MDA buffer at 416 basis points. You have the tangible value per share waterfall. We have those EUR 0.05 impacting the tangible value per share from IFRS 17. Including the dividend already paid, we have progression at 3.8%, and when excluding the dividend, the tangible value per share at EUR 3.69. With that, let me move to an update on guidance.
We have tried to be as explicit as possible on this, on that slide. On the first two columns is the previous guidance already given three months ago under IFRS 4 standards. We have a restatement for, you know, under IFRS 17 for fiscal year 2022 on the third column, and the fourth column is the former guidance restated to IFRS 17. Finally, on the fifth column, you have the updates. We are upgrading NII to more than EUR 8 and three-quarter billion. That is an increase of more than EUR 250 million. We keep unchanged the fees and other insurance revenues and costs to EUR 5.1 billion and EUR 5.8 billion, respectively. We make also an important upgrade on cost of risk to less than 30 basis points from less than 40 basis points.
Thank you very much, and I think that with that, we may be ready for questions.
Thank you, Javier and Gonzalo. Good news and upgraded guidance. With that, let's open it up to Q&A. Operator, can you please let the first call in?
Yes, sir. The first question is from Ignacio Ulargui of BNP Paribas Exane.
Thanks, thanks. Good morning, everyone, and thanks for taking my questions. I have two. The first one is on NII. I mean, given the trends that you have seen in deposit betas in the quarter with 7% and the upgraded guidance, I'd like just to see what is the deposit beta evolution that you are factoring in that EUR 8.75 billion guidance for NII in 2023, and how you would see it progressing throughout the year, whether there is upside for growth from here in coming quarters.
The second one is on capital. If you could update us on the regulatory headwinds, pending for the year, and whether you see this kind of run rate of capital, organic capital generation, being something sustainable over the coming quarters, in order to get a bit of a sense where do you think the capital could be at the end of the year? Thank you.
Thank you, Ignacio. Beta is your favorite, Javier.
I will do it. Okay. Hi, Ignacio. Thank you very much for your questions. Well, we are not changing our estimates for beta, as we disclosed last quarter, no? We are expecting to end the year, circa 20%. We are expecting that to keep progressing into 2024 to those high- 30s we already mentioned, no? That continues to be the plan. We are doing well, at least seeing what others are reporting. We are happy to see that.
We are happy to see that, I think that the superior transactionality we have with clients compared to some of our peers, is at the end of the day, resulting into probably lower betas than the average, no. I think that this is something that obviously we are focused on, is part of our, I would say, DNA, as I said before. We expect that trend to continue, no. We expect that we can deliver on that, no. That's a summary, you know, on that front. In terms of capital, if I may, well, finally we had a delay on, you know that we need the regulatory approval for several models, no. Internal models.
This is not just one, so we need, like, several approvals and finally for different reasons. This is more having to do with the ECB, we have had a delay, no. We are now expecting those impacts to be the same as initially expected. Those pending impacts that would be now are circa minus 40 basis points. This is the best estimate that we continue to have as of today. Those to happen in the second quarter. Is there any chance that there is some of those still being delayed into the third quarter? There is some chance. I cannot now have 100% visibility that all of them will be in the second quarter.
The estimate is unchanged. In terms of organic capital generation, well, that connects probably with another question, no? Which would be the loan book. The loan book has performed. I mean, I mean that in terms of risk-weighted asset growth, no? We are not expecting much, eh? Obviously, there will be an impact on risk-weighted assets from precisely those, the review of those internal models. Let's say, this is like an inorganic impact. Organically, we are not expecting much risk-weighted asset growth. The loan book has performed well during this first quarter, but we are cautious, eh, towards the, let's say, the rest of the year. There are uncertainties, all of us we know.
We see our peers also probably not doing so well, we should think about it, you know. This is something that we are thinking that probably keeping during all the year the loan book flat is gonna be probably challenging, no? Assuming that, assuming that we don't have much risk with the asset growth, I think that basically all net income goes to organic capital generation, you know. If you do the maths, that may be approaching close to 50 basis points per quarter on a run rate. Remember that during this first quarter, we have been in a situation where we had to absorb the tax, no? The tax now is fully absorbed.
Let's say four quarters without the tax, those 50 basis points before obviously the dividend accrue on 81s probably should be a good figure. Thank you. Matthew.
Okay. Thanks, Nacho. Let's move on to the next one, please, operator.
The next question is from Alvaro Serrano of Morgan Stanley.
Hi. Good morning. I kind of have two follow-up questions actually. On deposits first, could you maybe talk a bit about the flows? Have they performed in March and April, both in the absolute amounts and the mix change to term deposits, is that going better or worse than you expected? I guess I'm trying to assess how conservative your guidance is. The second question on capital, my favorite topic. Apologies for-- on potential buybacks. The answer you just gave, Javier, I think points to capital being almost above 13% even at the end of the year, even with the headwinds that remain.
If that's the case and some of your competitors that had similarly very strong capital prints in Q1 have raised the expectation for a buyback even in Q2, do you think that's possible given the strong capital print? Thank you.
Thank you, Alvaro. Let me give you some color on flows, particularly in terms of what we've seen in March and April. Basically, first of all, there's been no change in customer behavior as a result of the instability, mainly in the U.S., during the month of March and some of the rent recent news. It's business as usual in terms of the behavior that's not having an impact. I would say from our point of view, what we have seen is, A, flows as discussed and including also sort of acquisition of treasury bills that our clients are doing, which we do not technically include in customer funds.
Clearly, our funds are not moving away or staying within our perimeter with some changes from balance sheet to treasury bills, mutual funds and saving products. This is the trend. Within this trend, which is continuing in April, what we have seen is a slowdown in this movement, particularly towards some mutual funds and treasury bills in March and April. A steady and fairly good level of growth on the insurance business. Particularly, the annuities. Okay. No exceptional changes as a result of the changing market circumstances. The trend from balance sheet to off balance sheet staying but slowing down, I would say with the exception of the long-term insurance saving business, which is doing very well. Okay.
Don't see necessarily reasons for this to change in terms of the trend will continue, but I don't see that changing necessarily. We remain vigilant, obviously, in terms of market conditions. With respect to capital, we have not provided a given estimate of where capital will be at the end of the year, so I don't wanna confirm or reject your own sort of back of the envelope estimate. What I have to say on capital is, first, we've made a very clear statement of how much capital generation we could achieve in the three-year period, no? This, this EUR 9 billion. Today, we feel comfortable, and I would say, we can add the word very. We feel very comfortable about about that level.
That level implies an extraordinary capital distribution beyond the payout of 60%. Remember, we have a very high payout compared to others. Clearly, we're very comfortable with that number, and that number implies an extraordinary capital distribution, which needs to take place basically between 2023 and 2024. The timing is going to depend, and I think I mentioned this earlier, is going to depends really on the speed of the capital build and on the external environment. What I can say now with the first quarter completed is the speed of the capital build is being faster than anticipated.
This quarter has been very good and let me emphasize, Javier was saying it, we had not only IFRS 17, but the full impact of the banking tax in the quarter, which is obviously two burdens that we could overcome and still grew capital by three basis points. Clearly the speed of the capital build and the expectations Javier was mentioning, what's the expectation of our RWA growth. I hope it's a bit better because we are at this stage feeling that we can invest capital in the business at clearly above the cost of capital, even if the cost of capital is very high. In any case, the expectation is of a very limited growth in assets.
This profitability that has already improved and is going to continue to improve during the year, particularly because obviously we will not have the impact of the banking tax, and obviously the trend in NII is gonna continue for quite some time. It means that we are certainly generating capital not only better than expected at the end of the first quarter, but also feelings are very good. With respect to the external environment, I discussed it earlier, it's also it's also a better one. I think all of that means that all the things being equal, we could think of upside both in terms of quantity and in terms of timing with respect to capital distribution. Having said that, to be more specific, we want to wait.
Javier was very clear. Our pro forma Core Equity Tier 1 as of the end of March, given these 40 basis points is 12.1. Talking about what we will do in the future, I think it's enough to say there will be an extraordinary capital distribution. It will take between what rests or what remains of 2023 and 2024, let us be prudent before we disclose more details. As of now, our capital is still a projection into the future rather than something that is actually available for this distribution today. You know? Those would be, I think the main lines of how we feel about capital, which in a nutshell is very, very well.
Okay. Thank you, Alvaro. Let's move on to the next question, operator.
The next question is from Maksym Mishyn of JB Capital.
Hi, good morning. Thanks for the presentation and taking our questions. I have a couple. The first one is on loan book growth expectations. You seem to have outperformed the market in corporate loans new productions, but underperformed in mortgages. I was wondering if you could shed some more light on what are the expectations for growth by segment for 2023 and your strategy. The second one is on consumer spreads. could you please give us your thoughts on where we should expect customer spread to settle after the repricing is done? The last one is on SegurCaixa Adeslas. The results have improved significantly, and I was wondering if it's related to one-offs or it's a new sustainable level of profitability. Thanks.
Thank you. Let me give you some color on loan growth by segments, and then I will let Javier complement. In terms of where we are, clearly we're gonna see a significant reduction of the loan book on the mortgage front. We've seen 1.4% in this first quarter. Production is kind of stable, but we're seeing obviously ordinary payments and an increased level of prepayments. Although we cannot necessarily forecast how strong this is going to be for the rest of the year, I would say is annualizing the 1.4% would be too much. Clearly, we're gonna see further significant reductions in the mortgage book. On the consumer lending side, we've had a very good quarter.
We see that the financial condition of what we have defined as the consumption universe is over 10 million people to which we have pre-granted lending is actually not deteriorating. It's doing fairly well, and hence consumption and consumer loans are actually growing. Looking at the year, I think this is probably the most at which we can expect on this front. Slow, sort of, limited growth in the portfolio with some downside depending on how the year evolves, assuming that the year continues to kind of erode purchasing power of people, even though so far it has not happened. Anyhow, it should be a flat to slightly positive.
On the business front here, we have had an extraordinary first quarter. Clearly the lending demand from all kind of businesses is coming down. You saw the survey from the ECB, which is quite striking in terms of where demand for credit is. Uncertainty about the environment, a certain position of high liquidity at this stage, but difficult to take sort of investment decisions in this environment means that again not much growth, as Javier was saying. I am a bit confident on our ability to gain market share here. In the first quarter, we gained 14 basis points in market share. Coming from the merger, very strong. We are everywhere. I think we still have some upside there.
In any case, it'd be a challenge to keep the pace of growth that we have had on the corporate and business book in the first quarter during the year. Unless at some point, somehow the circumstances change and the external environment becomes clearer, and hence there's a new cycle of CapEx decisions which we're not, we're not yet seeing. You know, a lot of the growth is also related to working capital associated to higher level of inflation. Javier?
Yes. Hi, thank you. Good morning. Well, you ask about the customer spread, no? That obviously has to do with evolution of betas. We gave you already our base case in terms of evolution for this year and next. According to those forecasts, we can make the numbers, no? I would like to emphasize here that obviously, we will try to outperform that guidance, no? Giving you a specific guidance for customer spread is a little bit tricky, no? Because it depends on the asset side of the final level of rates, the evolution of rates themselves and at the end of the day, how we can manage our deposit base, no?
If we find always the right balance between volumes and the cost of those deposits, so far it's something we are doing, no? Well, I think that we can see a margin, at least in the short term, circa 3%, no? I think that we are gonna be close to that figure really shortly, no? Then time will tell, no? Because as I insist, it depends also from markets and from on the loan book in terms of what is gonna be repriced, thinking into 2024 mainly. Then on the management on betas, no? So far, as I say, the situation is evolving for us, better than our initial expectation.
Let's see if we can sustain that, which we think we'll do, no? In terms of SegurCaixa Adeslas, there is a one-off. In that case, it's an affiliate that SegurCaixa Adeslas already had a participation, and they have increased that participation. As a consequence of that, there is a revaluation of the original stake, no? Well, that has resulted into some one-off, yes, on that extent. I would say that in terms of organic performance, it continues to be in line what has been in the past.
Okay, Max, I hope that answers your question. Let's move on to the next one, please.
The next question is from Sofie Peterzens of JP Morgan.
Yeah, hi, here is Sofie from JP Morgan. Sorry to go back to net interest income and kind of capital, but firstly, on net interest income, you mentioned that you still have 80% of your mortgages that haven't repriced. How should we think about the net interest income trajectory in 2023? Do you expect net interest income to be up in all quarters, quarter-on-quarter, throughout 2023? When do you expect net interest income to peak? My second question would be, how do you view the Single Resolution Fund and Deposit Guarantee Fund? Do you still expect the regulatory fees to come down in 2024? My final question would be kind of on your thinking around M&A and growth.
It sounds like loan growth this year is quite challenging. How should we kind of think about growth opportunities, both organic and inorganic, beyond 2023? How do you think about M&A, especially outside of Spain? There are some smaller banks for sale. Is that something you would consider, maybe Portugal? If you could just discuss your thinking around M&A. Thank you.
Thank you, Sofie. Let me comment on the second or second and third question on the contributions to the Single Resolution Fund Deposit and Guarantee Fund. Was nothing changed. We foresee a very significant decline in 2024, no? There is debate now around the whole system coming after the events in the U.S. and in Switzerland. It's going to take a long time, clearly, as you have seen by the Crisis Management and Deposit Insurance initiative now. That initiative is by itself not necessarily leading to any change in Resolution Fund contribution or Deposit Guarantee Fund contribution, in any case, it's gonna take a long time.
Certainly no change in view for 2024. With respect to M&A, nothing new. We love our business and the way we have it now. We see plenty of opportunities. We love the fact that, after exploiting all these opportunities, there's a lot of capital available for distribution. We like it, you know. Hence, there's no M&A plans. You should look at our group as a group with a stable perimeter. We have no other ambitions currently. I personally do not expect any movement on the M&A front in the foreseeable future.
Hi, Sofie . Well, regarding NII, I think that our base case may be that, yes, we may have a positive quarter-on-quarter evolution on NII for the remainder of the year. Obviously, not by a large extent, but at least in some of the quarters. That will have a lot to do basically with the beta evolution. So far is very well managed in our view, from our side, and doing better than our competitors. I think that we will be able to continue delivering, so at least in April has been also the case, I can already tell you. Unless there is like at some point during the year, like a sudden change in the conditions.
Obviously we have to catch up fastly in a faster way. If it's not the case, I think that yes, we will be able to manage quarter-on-quarter growth, no? The peak, no? Well, the peak is the big question, no? I really don't know when is the peak because it has to do with plenty of things, no? It has to do with rates, as you know well, and the situation for rates for 2024 is now quite an important debate, no? Depending on the moment, the market discounting rate cuts already. In the U.S., even rate cuts this year due to the financial turbulences we are having during the last weeks, no?
Then all of a sudden it looks like what matters is inflation and job growth, et cetera, and the economies that look that are doing better than initially expected, then rates go up again. At the end of the day, it's gonna depend on our beta management also on volumes, which is quite an important factor. Volumes, importantly, not only on the loan side, but also on the deposit side. I think that it's difficult to have much visibility on the combination of all those and as are highly volatile, no? Because for example, imagine in a scenario where rates are gonna be lower next year.
I think that in that case, probably the guidance we gave you for terminal betas in the high 30s probably does no longer apply. If rates are gonna go down, I'm sure that probably we will be able to manage betas on a better way, no. It's, it's complex, no. I would rather prefer not to pre-commit on a specific date for a peak, if I may. Thank you.
Okay, Sofie, hope that answers your questions. Let's move on now to the next one, please.
The next question is from Francisco Riquel of Alantra.
Yes, thank you. Another one for me on deposits, which is the topic of the day. If you can give more color on the customer behavior that you are observing in the last few months, particularly between retail and institutional clients. If retail clients are migrating off the balance sheet, whether TBs or mutual funds, and the deposits do not fall that much, so you may be recovering some of the institutional money that you lost during the second half of last year. Other large banks in Spain are letting that money go. I don't know if you are benefiting from that or not. Also you can also comment on the trends between Spain and Portugal. The Portuguese deposits look weaker in terms of performance here.
What beta in each market and what is the environment in each market? Second question is in terms of cost of risk, you are lowering the guidance, so I wonder how much of the overlay provisions, if any, will you be using in 2023 to sustain the cost of risk? If not, what makes you so comfortable to lower the guidance at this point in the year when there are fears about the credit tightening and macro recession? How can you reassure about your asset quality trends? Thank you.
Thank you. Paco, let me comment maybe on the second one and leave Javier for the first one. In terms of the cost of risk, clearly we have had a much stronger quarter, both from the macro point of view and the micro point of view. Our guidance of - 40 basis points was based on a scenario that is, at this stage, not the base one, clearly. No? We're at the end of April, and we can say we were too conservative. Actually, the first quarter we have had a reduction, as I mentioned, of over EUR 240 million in NPLs. Cost of risk has been stable, but coverage has increased. The economy in Spain is doing much better. Job creation in particular is doing very well.
We do not think that 40 basis points is a relevant benchmark, and we brought it down to 30. That's the reality. We have not used our macro reserve buffer in this first quarter, so it's entirely available. We continue to have approximately EUR 300 million of PPA associated to the acquisition of Bankia, plus some other smaller amounts outstanding from other corporate transactions. In total, really
The unassigned collective provision is close to EUR 1.4 billion. We are going to be using some of that during this year, among other things, because we need to update our models with the latest macro forecasts and the ones that we do this twice in a year, second and fourth quarter. We now need to update our models in the second quarter. By including more conservative macro forecasts, not more conservative than the current that we have of EUR 1.3 billion , which is gonna improve, but the ones that we had in our models dating from last year, that by definition, we'll use some of that provision, certainly only some and certainly not all.
We are consistent with that, minus 30 basis points is using part of the currently unassigned collective provisions. Obviously we will be updating depending on how things evolve and the new macro forecast, we will be updating provisions. Under IFRS 9, as you know, there's a bit more complexity on that front, but clearly the expectation is - 30 basis points and using part, but not all of the unassigned provisions, no?
Hi, Paco. Well, more color on deposits. Well, as you rightly pointed out, the situation, the evolution in Portugal has not been the same. We gave figures, and it's minus EUR 4.8 billion at group level in terms of deposits and some other related, but included, as deposits, minus EUR 4.8 billion , of which minus EUR 1.9 billion in Portugal. In Portugal, we have a little bit of different dynamics so far. Basically there, you have the Portuguese treasury offering a very competitive product to retail, and that has been affecting in general the system. I think that we were probably a little bit late reacting to that in terms of pricing. We have already done so.
I would say, a pace in terms of loss of deposits, that I think that will not continue, you know. T hat results into probably a beta in Portugal a little bit higher than in Spain, eh? But, when we gave guidance, we gave guidance, overall, for the group ? But, you can expect a slightly higher beta probably in Portugal than in Spain. In Spain, we had, then a minus EUR 2.9 billion, this is less than 1% , eh? We gained at 20 basis points, uh, market share. Of those minus EUR 2.9 billion, I would say that the major part have gone from CIB and retail--
In retail, because as you have already seen and been commented, we have had strong inflows into AUMs, EUR 3.6 billion. On top of that, close to EUR 2 billion of an additional, let's say subscription of treasury bills, et cetera, and fixed income. There has been a move from sight, -EUR 8 billion to time, EUR 5 billion+. That's it. But well, generally speaking, a better outcome than probably initially expected. Needless to say also that we have had a slight uptick in terms of mortgage prepayments, as I think everyone has experienced.
Well, so far in the month of April, I would say that the trends continue to be the same, although those purchases of securities by retail are being now at a lower pace, no? That's the summary.
Okay, Paco, thank you for your questions. Operator, let's move on, please.
The next question is from Carlos Cobo of Société Générale .
Hi. Thank you very much. Congrats on the results. Quick, three quick questions from me. One is on the deposit hedge and the swaps you have there. If you could elaborate a little bit more on the duration and when those swaps will expire, and I'm assuming they won't be rolled over from there. Second is on deposit betas, and I'm trying to assess my views on your guidance here. You're guiding for the high- 30s, and you expect to be below the system average. That seems to be pointing towards a system average of around, or let's say above 40%. My point is that that is consistent with historical beta in the system.
I'm right to assume that you are being extra conservative on your guidance for the terminal betas in Spain, and you're not even factoring in the stronger funding and liquidity position in the system compared with the historical average of loan to deposits, well above the current levels. Lastly, a very quick one on costs. Other peers have been guiding a little bit more optimistically on their capacity to control cost inflation. Are you feeling the same way even when you reiterated your guidance? Do you think that cost inflation is well under control, and this could even room for positive surprise here later in the year? Thank you.
Thank you, Carlos. Let me elaborate on part of the question and then pass it on to Javier, as always. On betas, obviously, Javier is better equipped than myself to deal with question. Let me say what we think. Obviously, it's very difficult to estimate exactly what the terminal beta is going to be in the system. We don't even know what the terminal rate is going to be, and the terminal beta is going to depend on the terminal rate. I.e., the higher the terminal rate, the higher the terminal beta. Some people estimate beta on deposit facility rate, others look at Euribor, others do average for the year, others do quarterly average. There's a bit of all numbers are all over.
If there's one message that I want you to keep is we will be doing better than the system. I am absolutely convinced that's because precisely the nature of our business and the way we're gonna manage. If your view is that the beta of the system is gonna be lower, you should certainly be comfortable in thinking that we will be clearly markedly below the level of the system. That's my feeling, and we will do what is in our hands on that on that on that front. I'm happy for Javier to elaborate because he obviously is dealing with it in a very intense way.
With respect to cost inflation, looking at what's inflation in Spain and Portugal, but in Spain and Portugal, because obviously inflation in other markets has sort of different behaviors from some of our peers that are present in other markets. The main impact is going to be certainly a renegotiation of the collective bargaining agreement, which has not started yet, and which we should start later on in this year. This is obviously relevant for the long term. For this year, I think we have a good degree of comfort in terms of what's our expense forecasted for this year, the EUR 5.8 billion.
Again, let's look at costs. I know you all know this, but sometimes when we do the numbers, we tend to look at costs as just destroying value. That is true numerically, but obviously, in order to grow our business, we need to spend some money? We are gonna keep doing that because I think we are entering a fairly good moment for us. Obviously, in the short term, we have some clouds in the economic environment. Looking at the position we have on a competitive basis, the attractiveness of the economy, the fact that rates are likely to be in positive territory on a sort of a regular basis, our business is good business. We keep thinking of business as bad business or good business.
With judgment and limiting obviously investment to make sure that it's optimal, but we will continue growing the business. This year we have this very specific impact of the employees' credit facilities that have to go through the cost base and have an offsetting revenue entry as NII. That is neutral on bottom line, but is sort of affecting our facial optic growth ex synergies. This is obviously not likely to be a factor into 2024 and beyond. We are working on a number of programs to continue making our operations more efficient.
Technology has obviously not disappeared. It continues to be a big tool for us to offset inflation with the work we do to be more efficient. That's clearly going to continue. I don't see here issues coming forward. What I expect is for us to continue to improve our efficiency through what we're doing, increase revenues, you know?
Hi, Carlos. Thank you. Regarding these deposit swaps you mentioned, we have approximately one quarter of those expiring early next year. While those are swaps that were set once rates were negative in order to protect, well, the fact that we were paying zero for deposits, but we had negative negative rates on the deposit facility. I say one quarter expiring early next year is obviously there's no decision yet on what we are gonna be doing. Time will tell depending on the situation in rates, et cetera. Not much to add on betas, no? Just to emphasize that, well, models are hard to assess, you know?
When is exactly the turnaround in rates, and the evolution of betas is not the same if rates go to the peak and then stay there for a while, compared to a situation where rates peak and then go down, let's say, immediately, you know? If rates stay at a peak for quite a while, then betas keep accelerating and probably reach those levels we are guiding, you know? If rates go up and then suddenly go down, I think that we will have additional capacity to manage the beta as obviously we already know that rates are gonna fall. Probably, in terms of managing our deposit cost base, we are gonna be able to outperform, you know, the, what we say, the model. Well, this is not science, no?
This is, I would say, it's an art, and it's our commercial team that is doing a great job on managing that situation that obviously is a clear change compared to what we have been doing in the past, in the recent past. Well, we have had to rescue the deposit management toolkit, no? We are trying to do our best. I think that if the system does whatever, we really feel that we are gonna outperform. Thank you.
Thanks, Carlos. Operator, let's have the next one, please.
The next question is from Andrea Filtri of Mediobanca.
Yes, thank you. You have elaborated on already a lot about this, so I'm going to ask a more generic question. Given the current conditions, which I recognize, keep moving up and down. At the current conditions, what is your feeling about 2024 year-on-year NII evolution? The second is, on the other revenue line, it seemed to be less negative than expected. Is there any one-off item, positive one compensating the banking tax, or was the banking tax lower than was guided before? Thank you.
Do you wanna take this one ?
Yes. Well, the current conditions, it's difficult to answer, Andrea, because it's, yesterday, it's was two weeks ago, so it's difficult to say, you know. I insist, I would not like to pre-commit on 2024 vis-a-vis 2023 on NII because things are changing really fast, moving a lot. There is plenty of uncertainty in terms of volumes, first, and on rates, no? Well, it's hard to say, you know. Now we have in recent days, obviously the yield curve turning negative as the situation in the U.S. is not stabilizing. As I said before, no, you have already priced it in the, in the U.S.
USD rate cuts in 2023. Do you really believe that, or not? It's hard to answer, no? I already said that we are expecting on a quarter-on-quarter basis for 2023 growth in terms of NII. It will depend a lot on better progression. If it is quite steady, I think that this is gonna be the case, we will be able to deliver. If suddenly there is a sharp increase for whichever the reason or there is like a catch up at some point, this is the disclaimer I make as of today, you know. On the tax, yes, we set like circa EUR 400, if I remember well. At the end of the day it has been EUR 375, EUR 373.
It has to do with, well, some final changes, looking to the details, looking to specifically, which revenues, need to be taken into account, which not, et cetera, the perimeter. So, well, some small adjustments, on the final, on the final numbers. Nothing, nothing exceptional, I would say on that line.
Okay. Thanks, Andrea. Let's have the next one, please.
The next question is from Ignacio Cerezo of UBS.
Yeah. Hi, good morning. Thank you for taking my questions. I've got two on NII and then one on detail on capital. On the NII, if you can tell us when do you expect the lending book to be fully repriced under existing yield curve conditions? If you can give us some color basically about sensitivity of your NII to 100 basis points rate cut right now. The one on capital is if you can update us on the losses on the held-to-maturity portfolio end of March or end of April, if you have the number. Thank you.
Okay. Hi, Ignacio. Well, the lending book is gonna be repriced continuously. You have second repricings, no? Fully, I think, if I am not mistaken, it's gonna be at some point in 2024, no? I don't have the numbers here, but we can come back to you, no? This is according to the current yield curve, no? That will depend a lot on the situation, no? The sensitivities is unchanged, so it's between 5% and 10% for my ± 100 basis points, and this is unchanged compared to the situation we had three months ago, no?
In terms of the held-to-maturity portfolio, I give you the answer in a minute, but let me elaborate a little bit, no? We have here a situation where we have you have to see that portfolio as part of the interest rate risk management of the balance sheet, no? It's one of the key parts, but obviously it's not the most important one for us, no? There are two other big issues here, no? One thing is deposits, and you know that we are a retail bank with quite a strong franchise that results into quite a stable deposit base. We gave you some figures on the presentation about that. Very granular deposits, et cetera.
That means that those deposits are probably less sensitive to rates than others, no? Because our retail, because we have plenty of transactionality with clients, et cetera, no. Then you have to combine that on the asset side with a situation where we have a large part of our loan book at floating rates. That is 2/3 approximately of floating rates. That means that on that part we have beta one, 100% on 2/3 of the portfolio, no. And here, the role that the fixed income portfolio plays out is to try to reduce the high gearing we have towards higher rates naturally, you know, because structurally we have those deposits that are with low sensitivity, and then we have a floating rate portfolio that with very high sensitivity.
We have fixed rate assets, in order to reduce a little bit that extreme gearing towards high rates, higher rates that we have. As you know that, well, because we are obviously having a sharp improve on, in NII compared to last year, no? That's the role of the fixed income portfolio. Well, as such, obviously at some point, we had also to cover the risk of rates going down, not only going up. Now the scenario is very clear, but at some point it could be worse and going down. That's the situation, no? This is the role I insist of that portfolio, no?
By the end of the first quarter, the unrealized or the mark-to-market of that portfolio is minus EUR 5.9 billion down, no? Well, we are not worried about that. I understand that there is focus. Those are all high quality liquid assets. We can always repo those assets in the market and ultimately at ECB, no? Obviously first there is a first step in the market, no? That's my answer on that topic, and I hope that helps to understand a little bit the different sensitivities of the balance sheet and how we take advantage of the different instruments in order to manage those sensitivities. Thank you.
Thanks. Just to add, Ignacio , that would be pre-tax. The EUR 5.9 billion is pre-tax. Moving on. Operator, could we have the next one, please?
The next question, sir, is from Marta Sánchez Romero of Citi.
Good morning. Thank you very much. The first question is on new lending yields. Thank you for the chart on slide 8. The spread versus Euribor 12 month has gone up from 33 bps in Q4 to 97 bps this quarter. How much of that is mix effect? What can we expect for front book spreads for corporates and mortgages going forward? The market is rightly concerned about deposit betas, but perhaps underestimates the bank's pricing power on the asset side. The second question is a follow-up on your mortgage strategy. What's your expectation for the size of new mortgage lending at sector level, and what market share do you want to have? Mortgages were a great focus for you last year, and you now seem less interested. Thank you.
Thank you, Marta. Let me try and answer in terms of margins. Obviously, we have had a significant improvement in margins, as you mentioned, 60 basis points in a quarter. Half of it is approximately mix effect and the other is improvement across segments. How are things going to evolve going forward is difficult to know. I would think that margins are not going to substantially move from where they are. There is also an impact of how the capital markets evolve, to what extent, and looking now at corporates, to what extent they are open, expensive or not for corporates.
Obviously bank lending will have an impact in terms of volumes and margins associated to that. I would say, all in all, as a base case, I think margins are likely to be stable across the board. Circumstances can change, obviously. As long as my assumption and our assumption is that the system remains pretty liquid, hence a relatively benign view on how beta may evolve with upside there. If the system is pretty liquid, we can also have to think that on the asset side, spreads are not necessarily going to be moving up in a significant manner.
I don't think they'll be coming down because even if the system is pretty liquid, clearly liquidity is being, are much more scarce now than it used to be, you know? Let's see, but I don't expect great change. In terms of mortgages, we like mortgages now, and we liked mortgages last year. Our commercial, strategy and the market environment may result in a higher share of new production, in one given quarter or period, but that's not because we like to or dislike. Obviously.
Mortgages are a key part of our offering, and at the same time, it's a fairly competitive market and pricing has to be an important part of decisions here. With the numbers in January, February, because we don't have the numbers for March, our market share in new production is approximately 20%. We're comfortable with that number. I know it's below our stock, which is closer to 25%. I don't think we need to aspire to produce exactly the same amount, given that obviously the market for new mortgages is very competitive. Many players that are taking clearly a higher share of the new production than their current stock, including some relatively new entrants, no?
20% is a good indication of where we are and also a good indication of where we would be comfortable with. If situation is reasonable in terms of margins that were successful, we can do a bit over that, somewhere between 20% and 25%, I would be happier. I do not expect us to be doing 30% or 35% of new lending market share because that would mean we would be systematically underpricing in order to get there, and that's not what we want to do. We are also not changing our credit standards, and those have tended to be fairly strict in the past in terms of loan-to-value, debt-to-income, sensitivity to changes in rates, et cetera.
It means that probably, the sort of the target market for us is not 100% of the mortgage market, but maybe 90% of it, which also explains why we're slightly less aggressive in terms of what market share we want to have in new production versus stock than we would otherwise be. We like mortgages, and we will try to be over time, I think month-on-month and quarter-on-quarter, numbers could have some volatility, but be around that 20% market share.
Thanks for the questions. Marta, let's move on to the next one, please.
The next question is from Britta Schmidt of Autonomous Research.
Yeah. Hi there. Good morning. Three quick questions. The first one is a follow-up to your comments just now. If we look back to the lending targets in comparison with the business plan, you guided to less than 35 basis points cost of risk. Is there any impact on that from a potential mix shift of now seeing less mortgages and more consumer? Second one would be on the SRM charge, which was a bit lower last year. Some of your peers have reported a 20% reduction year-on-year. Do you expect that to be booked as well? Lastly, could you just detail the rate assumption you've included in your NII guidance? Thank you.
Thank you, Britta. I defer to you, Javier, if you want to--
Yes. Sorry, Britta. The last one is the beta embedded in our NII guidance.
It is the Euribor forward assumption.
The Euribor forward assumption. Well, it's actually for 2023, the final level of rates is not affecting that much, to be honest. The repricing is already ongoing, so you know that mortgage repricing takes into account the Euribor rates two months before. Once we have already rates at current levels, the final level for rates is not changing that much. We have done the numbers with the yield curve we had in by the end of the first quarter. If you look at today's levels are not that different. The market is obviously having an impact into 2024, but not that much on 2023.
On the Single Resolution Fund, you are right. W e have a larger contribution this year that may be approaching approximately EUR 80 million compared to the situation last year, no? That had to do with some adjustments when we had the M&A transaction with Bankia. On the cost of this for the overall plan of less than 35 basis points, no, we are not planning to make a change on that. As with the guidance, we are-- The update on cost of risk guidance we are making today, the implicit for next year is quite high. I don't mean that this is gonna be the case, but obviously there is ample room, but we are not now thinking about changing it, if that's a question.
Important to emphasize that our guidance for the strategic plan is below a certain level. At this stage, the same way with return on tangible equity or cost income, where we have above 12 or below 48, or now on cost of risk, below 35, we obviously have the ability to comply with that guidance by being well below or well above, depending on the cases. We've decided that it's not the time to change what was the three-year target plan, even though as of today, we clearly have a better view of the future than we had in May last year when we presented the plan. Things are going better than expected, and they look good when we look forward to the future.
Yeah, thank you, Britta. I think we have one more question, operator. Let's have that final question, please.
The final question is from Fernando Gil de Santivañes of Bestinver.
Hi. Hello, thank you for taking my questions. Two quick ones, please. First one is on rates and ALCO. What is the strategy regarding the maturities and the pace of reinvestments of the ALCO portfolio? If I recall well, I think you were targeting EUR 90 billion size of that, on that portfolio, and you're currently at EUR 63 billion. If you can comment on that would be great. The second question is on the NII on BPI in Portugal. Year-over-year is up 80%, and you have commented that betas are gonna be somehow higher than in Spain. Can you please split the guidance on NII growth for the year 2023 in Portugal, please? Thank you very much.
Thank you. Big ask, Javier.
Well, big ask on the ALCO. We are gonna be opportunistic. As I have said in the past, at current yield levels, the ALCO is not adding value because the yield curve is flat or negative, so it's more about hedging to the downside. We'll see. You can expect us to add if we have higher yields and obviously a steeper yield curve, you know? On BPI, I don't know. I don't have the split figure with me now, but just to give you some color, we have less negative impact from TLTRO. This is one thing that explains a little bit probably the performance.
There is less wholesale funding with that that justifies the differences, you know? Overall, despite not having you a specific giving you a specific number, I would say the overall trends are pretty much the same. Probably we have slightly higher betas. On the other hand, in terms of the loan side of the equation, the performance is really, really a good one. Know that, I'm sure that is gonna compensate. You cannot expect major changes in the dynamics in Portugal compared to Spain.
Okay. Thank you.
Okay. Thank you, Fernando. That's all we have time for today. It's been a pleasure to host you one more quarter. Thank you and goodbye.