Good morning? Welcome to CaixaBank's financial results presentation for the first quarter of 2021. I hope you and your families are well. For today's presentation, we are joined by the usual management team of the Chief Executive Officer, Mr. Gonzalo Gortázar, and the Chief Financial Officer, Javier Pano. Please note that for reporting purposes, the merger with Bankia took place on March 31, and as such, the P&L for this quarter does not include any Bankia figures, whereas the balance sheet and capital figures do. We have provided Bankia's current and historic P&L accounts in the appendices in order to facilitate comparisons restated to CaixaBank's presentation standards. Moving on, just a reminder that we plan to spend around 30 minutes presenting with 45 minutes or so after that available for live Q&A, for which you should have received instructions via email.
Let me just end by saying that my team and I are available after the call. Without further ado, let me hand it over to the Chief Executive Officer, Mr. Gortázar.
Thank you, Eddie. Good morning everybody? Thanks for joining us and joining this first quarter presentation, which is the first one of the combined entity. I have to say, I'm very satisfied with what we have achieved this quarter. Obviously, we have finally closed the merger project in the end of March, as Eddie said. I think in this period, we've been particularly successful in terms of our activity, and I think that is to be remarked. You can see on the slide two areas in which we have done particularly well in the quarter, which is our protection business. The MyBox premium, as you see, growing 73% quarter-on-quarter versus the first quarter of last year.
On the long-term savings business, where we have had a very significant increase, including over EUR 3 billion of net inflows, which bodes well for the future in terms of the fee income coming from that business. Obviously, the payment business has been less active in the quarter as there have been restrictions, which we are expecting to be gradually lifted, and hence also makes us confident on that front for the rest of the year. Revenues have been above last year, 1% for core revenues. You will see the detail later on in the presentation, very strong performance on fees and particularly insurance, and we have managed to control expenses down 3.3%. On the quarter, a very good performance. Beyond that, I think it's very relevant to look at what's our balance sheet, and there we're highlighting two things here. First, asset quality and fair value adjustments.
The cost of risk has been coming down in the last few quarters and clearly on this first quarter analysis, well below previous levels. We have built the COVID reserve. It's at EUR 1.8 billion. It is still unused. We have been very prudent in terms of overlay, stage classification, et cetera, and we feel very good about our position for the rest of the year and how we have already managed to be prepared to face increased asset quality issues coming from the pandemic. You can see our coverage is at 67%. We've obviously built it up further through fair value adjustments. With that EUR 1.8 billion of COVID provision, the non-performing loan is at 3.6%, is basically flat, slightly up in absolute numbers for the quarter. There's the impact of 0.3% from the integration with Bankia. Capital.
Capital is again another area where we have outperformed in the last quarters. What we present now at the end of first quarter is a 3.6% fully loaded ratio and pro forma for the TRIM, the low default portfolio for CaixaBank, it would be a 3.1%. This gives us plenty of room to absorb the pending M&A impacts and end up with capital ratios in terms of CET1 that are well above what we had announced in September at the time of the transaction. Those are the highlights. Again, I think a very strong quarter. A quarter that makes us confident vis-à-vis the rest of the year, and a quarter in which we have obviously done quite a lot in terms of closing the transaction and getting ready for the new life of the combined entity.
Some basic numbers of our size, you know them well, become very clear either in the Spanish market, in insurance, and in banking, and market shares ranging from 25%-30%, but particularly in areas like long-term savings and health insurance, where we are closer to the upper range. Some details on activity, which I mentioned. Long-term savings, very strong, over EUR 3 billion in net inflows, both life risk and non-life risk. Very strong performance, particularly on MyBox in terms of premium. We've also done well on the lending side, particularly on business and mortgages, with new production ending sort of higher than what we did in the first quarter of last year. Consumer lending is weaker associated to the current economic crisis. We are also expecting this to gradually change as the recovery takes place in the second quarter, and particularly in the last half of the year.
Some details on the customer fund evolution. EUR 580 billion of customer funds now, as you can see, very significant growth on the long-term savings, offset by a reduction in current account deposits, which obviously is good news from a P&L point of view. Worth highlighting again, when we look forward, you see AUM balances at the end of April were well above EUR 114 versus EUR 100 was the average for 2020. Obviously, the mathematical implication of this is we have, in force, I think, already built a good performance on fees coming out of AUM for the rest of the year, assuming obviously markets continue around these levels. On the loan book, not much new. I would say, slight growth on the business side, which is good. Also good for TLTRO purposes. Continue to see the mortgage portfolio de-leveraging, even though we have higher new production.
As you know, there's a structural decline of that book, probably consumer lending is the one that I would highlight, negative in this case. Again, very much associated to the current economic point, which we expect to be reversed during the year. All in all, a stable loan book and an appropriate performance on this beginning of the year. A comparison of net income from last year to this year, obviously, was very affected by the COVID provision that we decided to take in the first quarter of 2020. Beyond that big jump because of lower provisions, you see how fees and insurance revenues are offsetting the decline in NII, offsetting by a very large margin.
This is what really the name of the game is for us, and as we do very well on fees and insurance historically, and we have confidence in continuing that way, we're going to be able to offset those pressures on NII. Solvency, I mentioned that already at the executive summary page. I will not repeat myself on both non-performing loans and coverage at very high levels of absolute numbers, historical numbers, relative to the current situation, relative to competitors. That gives us, as I said, plenty of comfort that we are prudently, or more than prudently, provisioned to face the current situation. The macro scenario we're facing is basically unchanged from the one we have presented in previous quarter. We still see it as being fairly reasonable, erring on the side of conservatism.
We compare our scenarios with the Bank of Spain recently published the scenarios. As you can see, ours are slightly more conservative, very aligned. Some news that are quite relevant, particularly in moratoria. We have been arguing for some time that moratoria was not going to be an issue in terms of credit quality. We have had significant reductions on the moratoria book, particularly in April. At this stage, we have reduced the original moratoria numbers by approximately 50%. As you can see, out of the non-performing loans in our loan book, 0.4% correspond to moratoria. Actually, 0.3% were already problematic before the pandemic. Really the delta is just 0.1%. I'm saying this now in early May, having seen, as I said, the bulk of the moratoria, the mortgage moratoria expired, all the consumer moratoria practically expired as well.
The remaining moratoria in Spain will expire during the second quarter. I think this is now an issue that we have overcome, as we had expected initially, that this portfolio was not going to be an issue. With respect to the ICO loans, you see the total exposure we have now is EUR 22 billion, 6% of the loan book, with 76 average guarantee, and Javier will expand on how we are doing on that front. Certainly no bad news so far. A few comments on ESG matters. I just want to remind you that ESG is critical for us. I like to say that we were born sustainable. This is part of our DNA.
Some of the statistics that are more, I would say, remarkable, is how large we've been in terms of issuer in ESG, where we have now the leading position for the last quarters in terms of ESG issuance out of CaixaBank. We will continue to strengthen our credentials, our activity on this front, and we feel the current market trends are welcome and certainly are playing to our favor, because this is the direction in which we have positioned the bank for decades. Obviously, we will continue pressing ahead with strength. To finalize, in terms of the timetable for the merger, big milestones have completed the approval of the mergers, the closing.
We are in the middle of a quarter of strong progress that we need to make with discussions we're having with labor unions, which we expect to be finalized by the end of the quarter, obviously with an agreement. That's what we're working for. At the end of the year, as indicated previously, complete the integration of our systems. We're providing some guidance for this year. As you all remember, we did not provide guidance at the presentation of the full year results, given that the merger with Bankia was impending. We're now giving you some color on revenues, which we expect core revenues, again, as we always discuss, insurance fees and NII. We expect core revenues to be flattish year- on- year. We expect expenses to grow up slightly by around 1%. We expect cost of risk to be below 50 basis points.
These are three, obviously, big numbers, which we have confidence in achieving at this time of the year. We obviously are expecting them to deliver the vast majority of the synergies from this merger for 2022, which obviously will have very positive impacts from that point of view. I guess that is all, and let Javier continue. Thank you.
Okay. Thank you. Good morning, all of you. Let me first elaborate on the evolution of the P&L. Then also some comments later on the balance sheet. First, an overview on the consolidated income statement for this first quarter. Let me highlight that I would rather focus on year-over-year evolution, because quarter-over-quarter, it is affected by seasonality and fourth quarter one-offs. Let me remark that core revenues have been up by 1% year-over-year. On this front, NII is slightly down by 0.7%, showing resilience to lower yields and average volumes. On fees, we have done better. We are up year-over-year by 0.2% on this front, with AUMs offsetting lower payment revenues and also lower CIB this first quarter. We have revenues from insurance, life risk, doing very well on this front, close to up by double digits.
We expect that this trend is set to continue in coming quarters. In non-core revenues, we have better trading performance this year. Last year affected by volatility in markets, obviously. Let me also comment on expenses with Gonzalo has already commented, down year-on-year by slightly more than 3% on the back of restructuring and some still tailwind from COVID-related savings. Note, please, that we have booked this quarter already EUR 40 million of extraordinary expenses related to the M&A transaction, mainly IT expenses. As a consequence of all this, pre-provision profit is up by close to double digits. Below, we have lower loan loss charges, EUR 174 million, clearly reduced following a prudent buildup of COVID-19 reserves last year. Also note, please, that on gains and losses, we have included the EUR 4.3 billion goodwill from the business combination.
Excluding those, let's say, M&A impacts, our recurrent net income this first quarter is EUR 514 million, well above the levels of last year, resulting in a return on tangible equity at 8%. Let me also give you an overview of our operation in Portugal. You may see that we keep improving our operating leverage there. Core revenues also up by 4%. You may see that NII is up by close to 3%, fees up by close to 5%. Also, some tailwind from expenses down by 3%. As a consequence, our core operating income year-over-year goes up by 17%. You see a very positive evolution considering circumstances in the loan book in Portugal, up by 1.4% and growing, I would say, across all segments.
We have, year-to-date, had the expiry of EUR 1.3 billion of mortgage moratoria in Portugal. Now the amount outstanding is EUR 4.3 billion. Let's go to the details. First on NII, that we are down quarter-on-quarter. As commented, we have in the fourth quarter of last year, positive one-offs that obviously impact and also a different day count. If were not for this, NII would have been down by approximately 3% quarter-on-quarter. You have all the details. In the central part of the slide, the impact of the day count. Client NII affected by lower yields and Euribor resets, mainly affecting the back book. The ALCO compensating to some extent, thanks to lower funding costs. On the right-hand side, you have all the details about the back book yields and margins.
The back book yield down by seven basis points to 183 basis points, mainly as we've filled those Euribor resets. Also, we give you the figure pro forma, the loan book coming from Bankia. With it, the back book loan yield would be 171 basis points, as you may see. The front book yield at 184 basis points, in line with the back book, and also impacted this quarter with strong weight of CIB in the new production at slightly lower yields. Also, let me note here that we have increased our exposure to TLTRO by EUR 8.5 billion, and this is going to provide support to NII in coming quarters. Related to NII, let me summarize a little bit the impacts on the ALCO portfolio. The Bankia ALCO portfolio is adding approximately EUR 22 billion. With it, the size of the portfolio is EUR 62 billion.
Those securities have been incorporated mainly as at AC, so this is the way, amortized cost, that we have incorporated those. You may see that, as you know, those securities have been marked to market, and as a consequence, at much lower levels. You may see that the impact on the yield-book is that now it stands at 0.3% from 0.6%. The average life and duration is fairly stable, slightly up. You also have here the maturity profile from 2025 to 2027. Those are the packets that have been filled. Also the sovereign exposure that remains broadly unchanged, as we have already made a small restructuring on the portfolio.
Interestingly, also on the liability side, also there is a mark to market of new issuances from Bankia, approximately EUR 20 billion, that are also fair valued, and as a consequence, now the cost of our funding is lower, and you have here the figures, 83 basis points over six-month Euribor. This is down by 30 basis points, which is approximately the same amount as on the asset side, thus offsetting the impact approximately. Let me now continue with fees. Also a slight decline quarter-on-quarter, but also when adjusting for the fourth quarter asset management success fees and the lower day count, fees would have been up by approximately 3.5%. You know that the main headwind on that front is payment fees that are clearly below previous years, also below 2020, as the first quarter was not affected.
On the right-hand side chart, you have precisely the detail for this impact. If it were not for this, you may see that our fee revenue pool would have been up by approximately 5%. Thus, we expect that when all this recovers, also we will do better on that front. You have in the central part of the slide, the breakdown by segments, asset management and insurance distribution, recovering very strongly, growing double digits year on year. To finalize with core revenues, an overview of other insurance revenues. On that front, revenues from our life risk business doing very well, up by close to double digits. Also the equity accounted from SegurCaixa Adeslas contributing with more volatility or with seasonality. You may see that year on year up by more than 15%.
As said, core revenues up by 1% with insurance and fees more than offsetting headwind on NII. You have also the figures for pro forma with Bankia for the first quarter, EUR 2.8 billion, and also the pro forma for the 2020 fiscal year, which is the one that is going to be used for our guidance to be flattish for core revenues year-on-year on a like-for-like basis. A brief comment on costs. I will not read much on the quarter-over-quarter evolution because it is affected mainly by own property taxes and also year-end positive adjustments in the fourth quarter. Let's focus on the guidance for the year. You have also the pro forma figures for recurring costs for the combined entity, and here we are guiding for costs to be up by approximately 1% this year.
Finally, on the P&L, loan loss charges, clear reduction and a downward trend already on cost of risk, 61 basis points from 75 basis points. Only EUR 174 million of loan loss charges. On that front, I would say that we have not changed the IFRS 9 macro scenarios. We don't have changes on our COVID reserves, although Bankia is adding EUR 550 million. We have EUR 1.8 billion of COVID reserves that remain completely unused. You also have the breakdown by stages. Minor changes are in stage 2, fine-tuning our overlays. With this COVID reserve unused and the really sound coverage ratio, we expect loan loss charges to be below 50 basis points this year. On the balance sheet now, on NPLs, you may see the NPL ratio stable before the Bankia integration at 3.3%.
Bankia is adding EUR 5.4 billion of NPLs, and with this, the NPL ratio goes slightly up to 3.6%. You may see that the pace of inflows remains really stable. We are not observing any kind of deterioration on this front. You have also the breakdown by segment. I will not remark any significant changes in those by segment. As commented, this coverage ratio at 67% with fair value adjustments also supporting to maintain this coverage ratio after the merger. This is, as I said, a key support for our cost of risk guidance for this year. Bankia is adding EUR 1.4 billion of real estate exposure. Thus, the total exposure now is EUR 2.5 billion. Some details on moratoria. Well, on this front, the most remarkable thing is that, and those are figures as recent as April, so a few days ago.
We have already had, year to date, EUR 6.5 billion of moratoria that has expired. The remaining exposure is EUR 8.5 in Spain and EUR 4.3 in Portugal. Gonzalo has already been clear. The delta of the non-performing moratoria is really low, so we are pretty confident that this is not going to be an issue, and we are very focused on the developments on this portfolio, but we are quite confident, as I say. Liquidity-wise, as you know, ample and a very ample liquidity position. Total liquid assets at approaching EUR 150 billion. You have all the metrics here, the liquidity coverage ratio, the net stable funding ratio at very sound levels. You have the total amount outstanding of TLTRO funding, EUR 81.2 billion. You have also the MREL position comfortable with a pro forma ratio at 25.39%, clearly above requirements.
You have all the layers comfortably above all of them. In terms of issuance, we have already been in the market for two green bonds, a senior non-preferred and a Tier 2 successfully. Very successfully, I would say. Going forward, you know the focus for insurances is only for MREL purposes, looking to comply with requirements, mainly through subordinated instruments. We are planning to issue from now to the end of the year up to EUR 1 billion of Tier 2 and approximately around EUR 2 billion of senior non-preferred, and also planning to diversify to other currencies other than EUR. Finally, three important slides about the M&A impacts and our solvency evolution. First, on the bad- will. Here you have the numbers. The Bankia book value by the end of March, EUR 13.1 billion. We have fair value adjustments post-tax for EUR 3.5 billion.
Taking into account the price consideration with the new shares issued, we have this goodwill at EUR 4.3 billion. You have all the breakdown for the fair value adjustments, higher than our initial announcement, as this mainly reflects the non-recognition of tax losses carried forward and total impact of those fair value adjustments, 89 basis points. On this slide, plenty of detail. I think it's worth commenting it. This is the CET1 waterfall. Please note that all figures are IFRS9 transitional. We ended the year at 13.1%. From there, we have 30 basis points of organic capital generation. We have an additional 32 basis points of value adjustments and other, mainly this is markets and some extraordinary risk-weighted asset optimization, plus 32 basis points. As I say, with this pre-merger, the CET1 ratio stands at 13.71%. We have the impact of the Bankia integration.
This is adding the regulatory solvency of Bankia, plus the risk-weighted assets. This is adding 76 basis points. The before mentioned -89 basis points of fair value adjustments. We are closing the quarter with, let's say, an official CET1 ratio at 13.58%. After the closing, we have received the final letter from ECB on the TRIM on the low default portfolio of CaixaBank. This is going to have an impact of -49 basis points. We have already commented this in detail in the past. On a pro forma basis, we close at 13.1%. On top of, we have 52 basis points of IFRS 9 transitional. On the right-hand side, you have the evolution of our tangible book value per share, up by 8% quarter-on-quarter with, well, EUR 0.12 of organic, let's say, generation.
The Bankia merger adding EUR 0.17 for a final tangible book value at EUR 3.78. Looking at our solvency through a different lens, remember now the pro forma CET1 ratio for the combined entity by the end of the year, 13.87%. Capital generation from CaixaBank and also from Bankia in the first quarter. The before mentioned impacts from fair value adjustments and the TRIM, 13.1%. From here, considering our best estimate of pending impacts, mainly M&A, we have still some small regulatory pending impacts. Our view is that as of today, as the end of March, considering all those pending impacts, our CET1 ratio stands on a pro forma basis at around 12%, well above targets we set earlier. Finally, from my side, just to close by saying that the merger has been closed successfully.
CaixaBank keeps having sound credit metrics and strong solvency post the merger with an ample buffer to absorb pending M&A impacts. Going forward, the focus is on keeping the commercial momentum and later on the year on integrating IT. I wrap up on our guidance for this year. Core revenues flattish, recurring costs up by approximately 1%, and cost of risk below 50 basis points. Thank you very much. We may be ready for questions.
Okay. Thank you, Javier, and thank you, Gonzalo. It's now time to proceed to Q&A. Operator, please go ahead with the first question, including the name and the company of the caller.
The first question comes from Alvaro Serrano from Morgan Stanley, y our line is open.
Good morning? Thanks for taking my questions. I had one question on revenues and another one on provisions. On revenues, your core revenues grew 1%, I think you've said, in the first quarter. I just want to get, if you can give some color to that 1%, how it compares to your flattish outlook for the full year. If I think about the fee element, I think you were guiding before the year lost EUR 125 million in payment fees. If I think that those are coming back on, presumably, sequentially, your fee should continue to grow. I'm just trying to get a bit of color. If fees are going to get stronger during the quarter, NII in Q1 with seasonality should have potentially troughed or at least not deteriorating. Maybe a bit of color on why you expect flattish versus that + 1% that you're doing so far.
Maybe I'm mostly missing the Bankia side of the equation. Is there any integration disruption that we should be aware of or any color that you can provide there in what I might be missing? The second question on provisions, you did EUR 300 million, what is it? Sorry, I don't have the number in my mind, but annualized in, sorry, EUR 174 million loan loss provisions in the quarter. Any reason why we shouldn't annualize that number? Obviously, you've taken the lifetime provisions for Bankia now. The economy looks like it's doing better. If I annualize that's about EUR 700, and consensus has got about EUR 2 billion. There's a big chunk delta there of about EUR 1.3 billion, which is a big chunk of your market cap. Any reason why we shouldn't be annualizing that, which would imply obviously well below that 50 basis points? Thank you.
Thank you, Alvaro. Good morning. Let me make a couple of comments and let Javier elaborate on revenues. Just to say we're not expecting any disruption from the integration. Javier will elaborate, but there's no disruption expected. On the loan loss provision, it's obviously the first quarter. We're optimistic about the economy and how things are going to come back into sort of normality, particularly in the second half of the year. Certainly for the second quarter of the year, we also expect now a quarter-on-quarter GDP growth in Spain after a slightly fall in first quarter, as you know, -0.5%. Hence, at this stage, we're saying our cost of base is going to be below 50 basis points. We haven't put a sort of a limit on the lower side. We're just saying below 50 basis points.
Obviously, we are trying to be cautious as we go through this second quarter, and we get then more clarity on economic recovery. Clearly, there is upside in terms of lower cost of risk versus the 50 basis points that we're putting as the upper limit, and we're going to be seeing it over the year. I'm personally confident given the provisions we have already built in, and I expect to have, I think, a good performance on that front going forward, but it's early in the year.
We have opted to just give sort of a ceiling on where do we see cost of risk evolving. The upside from that number is obviously very relevant. Javier, please, sure you can elaborate, particularly the revenue side.
Okay, Alvaro, good morning? Well, it's clear that we face a headwind in terms of NII. Mainly, the headwind comes from our Euribor repricing. We face a year where our Euribor is going to be lower on average, at least 12 months Euribor, by close to 20 basis points. We are going to have a negative repricing from this. Note, please, that Bankia portfolios reprice faster, because they have a larger part of 12-month Euribor, that instead of repricing every 12 months, reprice every six months. Part of the impact is already there. This is going to have a negative impact on NII. Only for this, our expectation is we are going to have approximately a -2% impact on the year. From here is where we have the potential positives.
First thing is that we are, and you may have noticed, that we have been quite successful on controlling inflows on deposits. You know that we established the right incentives internally in order to, let's say, pass on to customers those costs, or at least to try to contain deposit growth. This is a positive development, and we are quite encouraged that this may continue this, let's say, deposit inflow control may continue for the rest of the year, but time will tell. We have volumes. It's clearly that we expect that volumes will gradually pick up. A key area for us is consumer lending. You notice that the consumer loan book has decreased a little bit. We expect that as soon as the lockdown is removed, we expect that with mobility, consumer lending will recover quite rapidly.
This is going to be a potential, obviously, lever. When, it's still uncertain. If it's going to be already the second quarter, will it be the third quarter. You know all the uncertainty we face in terms of the back to normal. I will mention another lever, which is the ALCO portfolio. You know that we have been so far cautious in rolling over maturities, but as long as we have a steepening of the yield curve going forward down the road, we may have some opportunities to deploy our, let's say, excess cash, and also to roll over the maturities. Those are the upsides, but all in all, it's going to be extremely difficult to avoid a negative evolution for the year on NII.
I think that this is the main driver of things, and this is compensated, or hopefully more than compensated, with the evolution on fees. We try to be as transparent as possible on average AUMs. You saw that we are already up by 14% compared to the average of last year. This is mathematics, this is already something that, markets permitting, and with, let's say, a nice pace of inflows we are having, we may do really well in this business. Also on insurance, in the part of fees that is insurance, we are recovering very nicely. All the concept of protection, health insurance, that is in that line, is doing really well. You mentioned payments. Payments so far continues to be subdued. We have still not recovered the momentum there. We have lost approximately EUR 100 million of revenues in payments, and considering Bankia, maybe EUR 140 million.
If we recover all this, obviously, this is a strong positive. This is going to be 3%-4% to fees. When is this going to happen is unfortunately uncertain. It's much different if it happens next month than if it happens later in the summer. I only mentioned you what we have on the table, and the potential upsides and downsides. Then you can decide. Finally, on life risk. On this front, you saw that we are already doing very well. We are quite a bit on the evolution. This commercial offer that we designed a couple of years ago, the MyBox, is doing really well. We are already making more than 60% of the new production of insurance through this commercial package. We are quite a bit on the evolution.
I think that the trend we have observed in the quarter is sustainable. To what extent all those positives will offset NII is going to be a close call. Obviously, the sooner the economy recovers and lockdowns are removed, the better in this sense.
Thank you, Alvaro. I think that probably I have already touched everything in detail.
Okay. Thanks, A lvaro. Can we move on to the next question operator, please?
The next question comes from Francisco Riquel from Alantra, y our line is open.
Yes, thank you for taking my questions. First one, a follow-up on NII, particularly for Bankia. It's down 10% quarter-on-quarter. If you can please explain the weak trends of this quarter, if you have observed any destruction related to the merger. You have mentioned other reasons, such as the timing of the Euribor repricing, which is faster. I don't know if they have rotated also the portfolio or not. Any reasons for the underlying performance of Bankia specifically? Second question on capital. That has been a positive surprise. You are already 12%. I see that you are accruing a 30% dividend. I wonder if now that you are at 12%, you may be looking to move to 50% payout as soon as this year already.
Then if you can comment on how much restructuring are you including in this 12%, if it is the initial restructuring cost that you mentioned. Because the proposal that you have made and currently negotiating with the trade unions looks also a bit bigger, if you can comment a bit about this restructuring proposal. If you believe that you can accommodate for a higher payout and restructuring and still preserving the 12% threshold in capital. Thank you.
Thank you, Francisco. Good morning? I'll take the second question. Javier, you agree on, yes, capital with this pro forma 12% post-integration. Certainly good news. We feel good about that. We have been accruing for this first quarter, the average payout for the last three years, that's 30%, given the limitations that we have had in the past. The board has not taken a decision on dividend policy yet, as the focus this quarter for us is clearly to finalize the agreement with labor unions on the restructuring side. Hence, I think explicit decisions on capital distribution will have to wait. With respect to expectations of what payout will ultimately be, I think I want to reiterate what I've always said. This bank is generating and will be generating a lot of capital on an organic basis, and this capital is for shareholders.
The question is how and when it is paid out to shareholders. There's no other logical destiny for our capital, and we will be generating quite a lot in this environment. The proof of it is that actually we were expecting to be saying just at the end of September, we said pro forma, fully loaded at the end of March, we'll be talking about 11.3%. We're now saying it's going to be circa 12%. Certainly, we've always been conservative in estimates, and in this case, very conservative. We feel good about the outlook from that point of view. In terms of the cost of restructuring, it's premature to elaborate on it. We obviously made an estimate when we presented numbers in September. At this stage, we're in the middle of this negotiation.
It will not be sensible from our point of view to elaborate a new number of estimate. We'll try to find an agreement that is reasonable, and that is certainly one that will allow us to deliver on our objectives. Obviously, if we can exceed our objectives, we certainly will do. We are taking all of this into account when talking about the 12% or circa 12% capital ratio post-restructuring. We're taking in mind what the ultimate cost of restructuring would be, not just with the numbers that we announced in September, but with our best estimate of the various ranges and approximations to what restructuring may ultimately cost us. Javier, you want to elaborate on NII?
Yes. Hi, Francisco? The NII on the first quarter for Bankia. On this front, I already highlighted one main reason, which is the fact that the mortgage portfolios of Bankia, although also indexed to the 12-month tenure, have a large part of those that reprice every six months. This is quite a difference compared to CaixaBank portfolios. Actually, I can give you the figures. The loan book of Bankia, 53% is indexed to 12-month Euribor, and in the case of CaixaBank, it's 38%. We have a larger part that fixed, and also what I say, that to a large extent, this that is indexed at that 12 months reprices faster. As a consequence, the back book yield of Bankia has come down by 12 basis points quarter- on- quarter instead of 7 basis points at CaixaBank. You see the differences.
This faster repricing obviously has to do with a more negative evolution. Also there were some one-offs in the fourth quarter as we had also in CaixaBank, if you remember. Also related to some asset-backed securities that were canceled, et cetera, had a positive impact. This is the main reason. In terms of business, no disruption. I would say that we are, as Gonzalo was commenting, fully focused on business as usual, both the CaixaBank commercial branches and Bankia's. By the way, going forward, this is a segmentation that it's going to be impossible to follow. This first quarter, we are still giving you these pro forma figures for Bankia, but going forward, Bankia does no longer exist. It's not going to be possible to follow separated evolutions. Francisco, I hope that this helps you.
Okay, let's move on to the next question, please, operator.
The next question comes from the line from Britta Schmidt from Autonomous Research, y our line is open.
Yeah. Hi. Thanks for taking my questions. I've got three, please. Coming back to the cost plan and the synergies. I know you can't be very precise given the ongoing negotiations. Can you give us a little bit of color to describe whether the targets were struck conservatively enough to survive the challenge of the obvious political debate around cost restructuring? My second question is on the fees. Bankia in the past guided to a run rate of around EUR 300 million per quarter. Q1 looked fairly weak relative to that. Is there any impact there from the integration? Is that a new trend that we should be working with for the near term? The third one is on the PPA for loan loss provisions.
What is the stock of PPA that you now have on the balance sheet that can be used, and is there any usage already implied in the less than 50 basis points guidance for this year?
Thank you, Britta. Good morning? I will answer the first question. On the targets for cost savings, we remain committed to deliver those in any scenario. We feel that we will be able to do that. We have to obviously continue working on this labor agreement, but we are confident, highly confident that we will be able to deliver those. On fees and PPA, maybe, Javier,
Yes. Well, on fees, on the Bankia side, what I can tell you is that, and probably they already commented back when they made the transaction, but you know that one piece of information you need to take into account is that they disposed the custody business of the, let's say, AUM business. This is going to have a small impact going forward. We have estimated that this is going to be approximately EUR 20 million, EUR 25 million per year.
We need to take this into account. Other than this, remarkably, this first quarter probably is that on their side, on let's say CIB related activities, it has been more subdued, probably ahead of the M&A, I don't know. It's that part. The rest, I would say that it's business as usual. As I say, it's probably not the part I have more details on this front. On the PPA, well, the PPA from Bankia, gross, is round numbers is EUR 1 billion. Approximately 1/3 comes from these, let's say, forward-looking or lifetime expected losses for the stage 1 portfolio. Then there are other adjustments here and there for single large exposures. Also, the COVID reserve has been a little bit upgraded, and you have to make things homogeneous overall. This is the result.
To what extent this is going to be used, time will tell. Probably, yes, will be the case, because we have been confident, and we are confident that the performance is going to be good. Probably we will be able to release over time, but we don't have a specific timetable for this, Britta.
Okay, thanks. Let's move on to the next question, please, operator.
Thank you. The next question comes from Ignacio Ulargui from Exane, y our line is open.
Hi. Good morning? Thanks for taking the questions, and also thanks for delaying the results presentation and giving us more time to understand the results. Not going to a very busy day, so thanks for that. I have just two questions on my side. One is coming back to fees and insurance. Based on your previous M&A experience, how long would you say it would take to roll out the CaixaBank model to Bankia customer base? In terms of insurance, you have said that MyBox is growing very nicely. Could you give us a sense how much penetration you have in that product and how much scope of growth we could have going forward? Insurance revenues have really performed better than what I have expected, at least. A second one on costs.
What are your main assumptions in terms of inflation underlying the underlying cost guidance that you have given in terms of underlying inflation back to normality trends, et cetera, and what would be the scope to adjust that cost if revenues, for whatever reason, becomes weaker than what you expect? Thank you.
Thank you, Ignacio, and good morning. On the time that it will take to roll out the model to the combined client base, obviously, it will take time, but this is not a cliff effect. It's going to gradually have an impact. six weeks into the merger, we have already started distributing some of the CaixaBank products like MyBox on the non-life side, like Wivai, and like renting, et cetera, to Bankia clients. The work has already started, I would say, earlier than what we were expecting. This is going to gradually have an impact. When we disclosed revenue synergies, we gave ourselves a five-year period to basically deliver the total of those revenue synergies.
I am optimistic that we can do sooner than that, but this will take time, and certainly, there are certain prerequisites like the integration of systems and then the integration of the branch network, which is likely to take place in the first part of 2022, post the system integration, that are going to be taking priority. It's a long process, the same way that we expect to deliver cost savings mostly in 2022, so in a very compressed timetable. The experience we have is that synergies on the revenue side will provide us a tailwind of additional growth from what the market has seen for quite a few years. It doesn't mean that all is achieved in the end of that period. It means that we have this delta of incremental growth as soon as the machine is ready.
What I would say, the machine is not going to be completely ready until we integrate systems and integrate the network. The machine is also partially ready now because we're already doing things. We have one integrated, one single network with two different platforms, at this stage, from a technology point of view. We're moving ahead, and I have to say, all the qualitative elements of how this merger is working in practice, all what I see is very positive. The degree of cooperation between our employees, regardless of their origin, the degree of alignment, the degree of sharing a common objective is very, very high. I have to say, higher than what I have ever seen, and certainly even higher than what we expected. We feel good about where we are. We know, we're conscious that there's yet a lot to do.
To give you some specific figures, for instance, on life risk, penetration is approximately twice at CaixaBank versus Bankia, around 22% versus 11%. Obviously when you look at seven million clients and doubling life risk penetration over a period, this provides substantial upside. We're going to see similar differences when we look, obviously, at the non-life. We've also seen similar difference when we look at the longer saving products, particularly on the insurance side, our annuities business, et cetera, which is obviously not yet going to be until we find an agreement with Mapfre with respect to the current JVs. It will not be fully operational, but this hopefully will come on pretty soon. I think good beginning and certainly great expectations for what we can be doing along the next five years. Javier, if you can maybe
Yes, there was a specific question on MyBox. MyBox is approximately 60% of the new production of insurance products overall. The MyBox pack, we call it. It was only 30% one year ago. We have increased gradually from 30% to 60%, and this is facilitating a lot the penetration, and it's going to make much easier what Gonzalo has just been commenting, to roll out our commercial offer into Bankia clients. There was a question about costs, about inflation. Well, here, a couple of comments. First thing, you know that we've had this, let's say, agreement in terms of wage inflation last year. That was, let's say, no wage inflation actually from 2019 to 2021. Then there is a gradual pickup to up to one a quarter in two years' time. This is the underlying trend.
On top of, there are additional, let's say, bilateral agreements between CaixaBank and the staff, and employees. This is also part of the discussion now, because obviously, those agreements are not the same in Bankia than in CaixaBank, and this is part of the labor negotiations that are ongoing right now. If I may, and this is a key part. I will not elaborate further, Ignacio, on this front, because it's part of the negotiation. Thank you.
Okay, thanks, Ignacio. Operator, let's move on to the next question, please.
The next question comes from Mario Ropero from Bestinver Securities, y our line is open.
Hi, good morning. I have a couple of questions on asset quality. The first one is, have you advanced stage 2 recognition in line with your expectations about moratoria expirations in the second quarter? Could you please tell us how much of the expired moratoria is in stage 2? You mentioned stage 3, could you please tell us also stage 2? Finally, related to this also, if you could tell us, please, how much ICO loans are in stage 2 and stage 3. Thank you.
I missed the last one. Sorry.
ICO loans. How many ICO loans in stage 2 and stage 3?
Okay. Starting by this last one, I have the figures here with me. In ICO loans, we have EUR 22 billion, and it's 29% in stage 2 and just 1% in stage 1. Also to give you some more color on ICOs, you know that we classified the loan book by different levels of risk. 31% of ICOs are granted to borrowers considered high risk. You have the figures in the presentation, actually, but just to update you on this. On the moratorias, on this front, we have, of all granted moratorias, we have 7% in stage 3 and 34% in stage 2. You know that both with ICOs and with moratorias, we have been proactive with those overlays to stage 2. It was a very large overlay in the fourth quarter, if you remember, and also we have this quarter fine-tuned a little bit.
Once considering different criteria, once it coincides that a borrower has a moratoria plus an ICO, or it coincides that it's an ICO borrower that is in a high-risk sector. Considering different parameters, we have, let's say, been overlaying the stages ahead of the process. On the moratoria that has already expired, you had the question, it's pretty similar. The stage 2 is 36%. This is the number. Note here what we commented, that a large extent of this stage 3 balances were already classified as a stage 3 before the COVID crisis started. In order to have access to moratoria, you could be in stage 3.
The conditions, remember, were that you had no more than two installments past due, et cetera, but you could already be classified as a stage 3, that we had an initial stock of stage 3 before we started with this process. The delta is really low, and this is what is important. Because it tells you about the evolution of what is in moratoria during this period. As I say, it has increased very little. As you can imagine, we are monitoring this extremely closely. We have teams on the ground. We are really close to borrowers. We have a full organization around this, and we are quite happy that this is evolving much better than initially expected, and we are now pretty confident that this is not going to be a major issue. Thank you.
Okay, Mario. Thanks. Let's move on to the next one, please.
The next question comes from Sofie Peterzens from JPMorgan, t he line is open.
Hi, here is Sofie from JPMorgan. My first question would be if you could just give an update on the revenue synergies. I realize you have talked in detail that you expect to get revenue synergies from Bankia over the next five years, but if you could just confirm the magnitude that you still expect EUR 290 million of revenue synergies from Bankia. My second question would be that you have EUR 1.8 billion of unused provisions. What needs to happen for CaixaBank to kind of see these management overlaid COVID provisions reversed? On the other side, what would need to happen, kind of from a macro standpoint, for CaixaBank to have to use all of this EUR 1.8 billion? Just finally, a quick question. If you can just remind us what your expected capital headwinds are going forward.
Any more TRIM impacts or other regulatory impacts that we should be aware of? Thank you.
Yes, Sofie. Thank you, and good morning? Let me start on revenue synergies. The figures that we disclosed to the market, the EUR 290 million, included EUR 75 million.
To be made out of the recovery of 100% ownership in the JV. Really, it's a question of looking at EUR 215 million of real additional revenues. We feel that the estimate still holds. We think it is sensible, reasonable. We are early days, but we are committed towards delivering those numbers. Obviously, as we keep working together, teams of different origin, we continue to see business opportunities. We are quite confident that this transaction that we have closed is going to allow us, on the revenue side, to be more successful through the various forms that we have identified and made public, and some other various initiatives we're working on. I don't think at this stage it makes too much sense to try and do a new revenue synergy plan, but we're tracking the ones that we identified, and we feel confident that we can deliver those numbers.
On the other questions, Javier, maybe let you answer, please.
Well, in order to see a write back, this is your question. Well, the key is better performance than what we have modeled on our loan portfolios, clearly. Obviously, as long as moratoria performs better than initially expected, this is good news. Time will tell. Remember that also in Portugal, we have to wait a little bit more because moratoria there ends in September. We have still a long period of time to observe what's really happening. This is one thing. Everything related to ICO loans, to government-guaranteed loans, to see really which is evolution. You know all this process about, let's say, extending or novating ICO loans. We have already close to 50% of ICO borrowers already asking for an extension, or a change at least. Let's see how this evolves.
You know that the government also has set up a EUR 3 billion package in order to handle all this situation, about extensions, about subordinations, or even a write-off. Well, let's see how all this evolves. I think that, obviously, the sooner the lockdowns are removed, because I think that is clearly this what is preventing the economy to do better, the sooner the better. This is clear. As long as the summer season is, let's say, a more normal one. It's not going to be fully normal, but at least more normal than last year. This is going to be positive because are precisely those labeled as high-risk sectors. Everything related to hospitality, tourism, leisure, et cetera, that is obviously more at risk, and is what we are monitoring closely.
In order to have a more upbeat view, we need to see that this performs better than initially modelized. Let's see. You had a question on regulatory impacts, what we expect from here. You know that we have been clear by saying that the TRIM on the low default portfolio of the CaixaBank book has already, let's say, included in this pro forma CET1 figure. From here, we mainly have the negative impact on the low default of, let's say, Bankia's portfolios. This is going to be to some extent offset by the rollout of IRB models on the BMN part of Bankia portfolios, mortgage portfolios. It's not clear when. Probably all this is not going to happen at the same time, and it may happen that some quarters we have the negatives and not the positives or vice versa.
Another thing that makes us to be a little bit more Well, at least a change we have compared to what we said is that the expected benefit from the non-deduction of the deposit granted fund seems less likely now. This was approximately seven basis points. With this, the summary is that we expect additional regulatory impacts by somewhere between, or at least slightly higher than 10 basis points, is what we're expecting now. This is already included in this pro forma 12% we have already given you as of today, including all pending M&A and other impacts. Thank you, Sofie.
Thanks, Javier. I just wanted to clarify, in a previous question made by Mario Ropero, I think we may have said that we had 1% of ICO loans in stage 1. Obviously, what we meant was stage 3, so 1% ICO loans in stage 3. Just for the record. Moving on to the next question, please.
The next question comes from Maksym Mishyn from JB Capital, y our line is open.
Thank you. Hello, good morning. Thank you for the presentation and taking my questions. I have two. The first one is on the NII. Thanks for providing detail on how loan books compare between Bankia and CaixaBank. I just wanted to follow up and ask you, what is the sensitivity to interest rate of the merged loan book? The second one is on core revenues guidance. Does the flattish guidance include the consolidation of Bankia Mapfre Vida, and if so, how many quarters for 2021? Thank you.
Thank you, Maksym. Let me start with the second one. The answer is no, it does not include any quarter of consolidation of Bankia Mapfre Vida. Javier?
On sensitivity, it's actually not that different, because you have this faster repricing. Once, let's say, in a one-year horizon, the situation is the same. It's the same. A downward parallel shift of approximately 10 basis points is one percentage point on NII. This is to the downside. To the upside, we have a more positive sensitivity. We have more sensitivity to the upside because there are some loans that have, let's say, a minimum at zero. This is clear. We are not paying interest on our loans, and in some cases we are already there, we have a slight more sensitivity to the upside. Thank you.
Thanks, Maksym. Move on to the next question please, operator.
The next question comes from Carlos Cobo from Société Générale, y our line is open.
Hi, good morning? A couple of questions from me. One on NII. It's a quick follow-up. If you could clarify if the mark to market of the ALCO portfolio of Bankia that you explained should come on top of the NII figure that you reported for this quarter, meaning that the series that you published is not adjusted for the new yield on the portfolio. Or if it is, that would be helpful to understand. Then a couple of questions on competitive dynamics on the sector where you operate. Some peers, and it's logical, are targeting to poach clients from the banks that are merging. They actually target very aggressive loan expansion supported by this process. How do you plan to stop this risk? What's your view there? What's the client attrition that you think you could suffer?
On competitive dynamics, we've seen a very resilient performance in fee income. Over the last year, despite the lockdowns and the GDP contraction, fee income has been very resilient. That seems to be proving that banks are successful at increasing the pricing power on fee income on the customer base. Where do you think we are in terms of seeing the sector doing the same on loan yields? That's precisely the area where competitive pressure remains very strong and banks are not being able to stop it, and that could be a game changer if the concentration of the system continues. Lastly, if you could touch on what's your expected default ratio on ICO loans, that would be helpful if you have some color. I'm sorry for all the answers, it's a different quarter. Thank you.
Thank you, Carlos. Good morning. Let me offer you some perspectives on your questions and then let Javier complement. With respect to competitive pressure on peers and our client base, I think at all given time, we are all banks trying to gain more clients from other institutions, and other institutions are trying to get clients from us. That's the name of the game. This game is played over a long period, and over a long period we have been net winners, and I expect to continue to be a net winner. So far so good. We have had no attrition or particular moment or change in trends in terms of our client base, both origin CaixaBank, origin Bankia.
We're working in order to make sure that stays the case, and obviously we're also ambitious, and we think that even with 25% market share, we're going to have a superior commercial offer, and hence we will continue to gain clients, and certainly we'll target that. Yes, there's no question that merger creates friction for clients. That is obvious. We will go through some of that. I expect it to be very limited. To be honest, what we're seeing in the market is plenty of organizations that are having to do substantial changes or structuring to the way they operate, branch closures, et cetera, at the same time, whether they are part of a merger or not. Hence, I don't think we're going to be particularly vulnerable to that. It is our work as managers to try and minimize that vulnerability.
We're confident that will be the case. Certainly, so far, as I said, so good. In terms of loan yields, I think, obviously, every institution needs to make its own decisions based on their own models, strategy, sort of risk appetite, cost base, et cetera. We believe we have the right policy, and it's one that generally tends to put more weight on appropriate returns on capital and on volumes. We've been able to combine that with significant growth, particularly on the business and on the consumer side, where we have seen better risk-adjusted returns. Each institution does the same thing. I think the market is going to be particularly competitive on the loan side as long as we all have significant levels of excess liquidity.
The monetary policy and the excess liquidity that the financial system has is, no question, a great incentive to reduce asset yields. I do not think that's likely to change in a significant way unless the structural imbalance of, in this case, excess liquidity in the system changes gradually. Even within the current competitive environment, we are obviously doing business that is positive on our risk-adjusted return every day. We're going to continue to do so. Hence we think the environment, it's competitive, but it's consistent with us operating profitably there. We just need to do things better and better every day. Javier, there was quite a few other points.
Okay. Yes, there was a specific question on NII and the ALCO portfolio. On this, you may have noticed that we have had a negative impact, a fair value negative impact from the mark to market on assets and liabilities. It's not only assets, but also liabilities. This means that over time, we will have a positive reversion of this, but this is going to take a while. It's quite a long period because you have issuances that are quite longer maturities, mainly covered bonds. It's not linear, so at the very beginning, it's slightly positive, then turns slightly negative, then becomes positive again over the years. To your question about the ALCO, you need to look at it broadly, not only assets, but also it's the, let's say, the combination of both, assets and liabilities.
Obviously, in the first quarter figures, all those impacts are not affecting because this is from the closing, and the closing was at the end of the quarter. You had a question also on the expected default on ICO loans. I think that we are not in a position to share this, if I may refrain on this. Remember that 76% of this exposure has a guarantee from the Spanish Treasury, okay?
Carlos, you can also look, we provide some information on high impact exposure. Within that high impact exposure, if you want to take a look, we provide what part of that high impact is covered by ICO loans. Hopefully that will help you some more.
I thought I gave this information in a previous question.
Okay. Let's move on to the next one, please.
The next question comes from Fernando Gil from Barclays, y our line is open.
Hi. Good morning? Thank you for taking my questions. I just have two questions, please. First one is on cost and jaws. You have given and provided guidance, which includes a small negative jaws, while in the past you have been able to deliver positive jaws. Can you please comment on your long-term cost targets? This is one question. The other question is regarding the JVs and specifically the negotiation with Mapfre. We have read in the press that there's an independent entity helping on evaluating these assets and the agreement. Can you please provide a calendar when we should expect this to be achieved? Thank you very much.
Good morning, Fernando. Thank you. I'll answer the second question with respect to the joint venture with Mapfre. We are in discussions with Mapfre. At this stage, we cannot confirm or disclose where things stand. We think that these discussions should remain between the parties, and hence, I am not able to provide you a calendar. We obviously would like to find an agreement sooner rather than later, both parties, like in any negotiation. It's still too early to say, and because of the confidential nature of these discussions, apologies, but I would like to keep it to us. On cost and jaws, Javier, you want to make any comments?
Well, on this front, I would say that you are right. We are aiming for structural positive jaws over time, and this is going to be the case. We face a very, let's say, special year, if I may say. We are in the aftermath of the largest crisis we have faced, all of us. Obviously, this is affecting our revenues. We face the lower yields ever. We are still not having positive impacts from cost synergies. I would say that we are at the crossroads of the worst of the combinations with the impact of lower deals at its maximum, and with the benefit of this M&A transaction still to be felt going forward.
I am sure that from next year, with hopefully a better environment in terms of yields and obviously with cost synergies already in, we face a situation with clear positive jaws and is our structural aim. Thank you, Fernando.
Thank you. I believe we have one more question operator. May we have that final question, please?
That final question comes from Pamela Zuluaga from Credit Suisse, y our line is open.
Hello. Good morning? I have, if I may, three questions, two of them on NII. The first is, you mentioned you expect the consumer segment to recover sometime this year, we have seen an increase in deposits that may signal that excess liquidity for households. Should we not expect this trend to maintain consumer loans subdued? The second one on NII as well is, the loan book dynamics that you have been highlighting point to a continuing deleverage of the consumer and mortgage books. The ICO contribution to growth will not be the lever that it was last year. TLTRO remains tailwind for NII. With this in mind, how do you see the top-line outlook evolving after the current deal terms expire? If I may, one last one.
Your isolated cost of risk of below 30 basis points gave you an ROTE of 8% for this quarter. You have discussed an 8% ROTE for the merged entity. Could we assume that in a normalized cost of risk environment, this normalized ROTE could go higher as costs decline? Therefore, could we maybe hope for a double-digit target? Thank you.
Thank you, Pamela. I would say on first question, obviously, we expect the people that have accumulated the liquidity, to use that liquidity in terms of consumer spending. There's also people that will go beyond that and other people that may not have accumulated liquidity, but they trust the confidence to take on certain consumer good purchases. As you know, we do a lot of financial sort of lending or undertake other projects. I think we will see both a reduction of balances of excess savings and a take-up on consumer lending. We obviously do not have a crystal ball, and we all are looking forward reactivation of that fund, but it's difficult to ascertain now how much it would be one versus the other. Time will tell. What we think is that, in any case, things will get better.
Even if we just have people sort of spending their excess savings, we're going to have also some positive impact because we will have sort of less surplus liquidity at -0.50 basis points. Still significant pent-up demand, car purchases, for instance, housing investments in efficiency, energy, et cetera. We think that there will be good trends on that front. Again, we agree it's very difficult to put an exact number at this stage. I think the point we're making is this has to reverse, and it has to reverse I think during the year, and we're only going to have good news out of this. If you see this first quarter, we had very strong sort of performance from long-term savings and protection business, and we have had a weaker performance from consumer and weaker performance from payments because of sort of the pandemic consequences.
These two weaker performances should reverse. Weaker relative to the other should reverse. I think it's a matter of time, and that gives us some confidence that we're going in the right direction. Moving on to your last question on our Return on Tangible Equity. We discussed 8% not as a target, but as a pro forma of looking at consensus from the market, from analysts, what putting the synergies on what consensus would mean. Hence, I think it's at this stage premature to elaborate on what is the sort of mid to long-term potential of this entity. We want to be ambitious on that front, certainly. We need to go in order. Sequentially, this year, 100% of our attention is on delivering the synergies and sort of setting the ground for the future success.
As the year goes by and we move into 2022, we're going to be working on sort of a mid-term plan where we will be sharing our sort of longer term objectives for profitability and others during, in all likelihood, the first half of 2022. That will come. I ask you for some patience to wait until we have really the necessary elements to do that exercise in a proper way, rather than giving you a very sort of top-down rough estimate of where we think we can
We can get. We want to do these things with a lot of backup, a lot of groundwork done, and that means it takes some time. For 2021, all our efforts are being put on integration. Hence, we'll need a few quarters before we can share that with you, which we expect, again, to be during the first half of next year.
There was a question on TLTRO III expiry and what's next. It was a little bit the summary of the question. Well, in our view, you know that this - 1% funding has been designed in order to some extent hedge the financial system from the negative impact it's having from negative yields. Let's see what happens by then, which is the situation if rates continue to be negative. According to market estimates, obviously, it's going to be the case. I am sure that if the tool was designed to some extent hedge the financial system of this monetary policy measure, some kind of hedge will persist. It's clear that I don't know, and I think on this, we're in uncharted territory, as we don't know really what's going to happen in one year's time or even more than this.
It's not only TLTRO, it's the tiering. Remember that we hold a large amount of balances now at ECB at 0% instead of - 50 basis points. What will happen with all this will depend very much on the environment. On the macro environment, on the monetary policy decisions. What I see is that the ECB is aware of the impact that the situation is having on the profitability of banks. Thus, I imagine that they will be also taking this into account in the future. Time will tell. Thank you.
Okay. I believe that was the last question, and that's all we have time for today. We shall reconvene for Q2 results, and in the meantime, we wish you all the best and good health, of course. Thank you.