Welcome and thank you everyone for joining our session with CaixaBank. It's a great pleasure for me to introduce Javier Pano, who is the CFO of CaixaBank, a role that he has held since 2014. Javier is also the Chairman of the ALCO Committee and sits on the board of director of BPI in Portugal. Maybe we start with the macro, which is a little bit more a broader question. How do you see the macro backdrop in Spain and Portugal are currently evolving?
Well, thank you. Thank you, Sofie. Well, a very timely question because our economists have just upgraded, or updated, better said, not upgraded, updated our macro views for Spain and Portugal, considering also the circumstances in the Middle East. Basically, the summary is the following. Considering oil in the EUR 90 area for this year and EUR 80 for next year, between two and three rate hikes from ECB, inflation over 3% this year, coming back to the 2% area next year. We are expecting GDP in Spain to be slightly over 2% this year, coming slightly down to 1.8% for 2027. Portugal, pretty much the same, maybe a little bit below that, but not far. In terms of the components, we are also seeing personal consumption and investment, somewhere between low and mid-single digits.
Basically, the message is that when we think about nominal GDP, that is going to be, let's say, circa 5%. Our initial forecasts we had for volumes continue to be still valid, huh? Remember that we have been guiding for 2026, 2027 for loan growth, somewhere between 5% and 6%, and deposits circa 5%. We feel that is still valid considering the circumstances. You know that Spain is in a good position in order to face this energy shock. We have quite a good mix, for example, for electricity inputs, the weight of renewables, we still have nuclear, so it's been fine. That's the situation in terms of what we are observing on the ground. So far, we are not seeing a material change in the performance of economic agents in terms of loan demand, et cetera.
Well, but all of us, we know that we have this uncertainty to be solved, and hopefully before the summer. Otherwise, maybe in terms of sentiment could be impacting new loan demand and activity in general. So far it's not the case, and our base case, as I say, is one where we are going to find a solution on the Middle East. This macro backdrop I just explained is the good one.
No, that's very clear. Quite recently you upgraded the 2026 Return on Tangible Equity target to over 18% for 2026. You target around 20% in 2027 and 2028. What are the kind of key milestones that we should be thinking about over the next 12-18 months? Also the around 20% Return on Tangible Equity, how sustainable is that kind of longer term and through the cycle?
Well, what is driving this improvement are a few things. First thing is NII. Our NII had to absorb, last year, the impact of lower rates. Well, from this year, we're already having a positive evolution. As we commented at the call some weeks ago, we are expecting now a consecutive positive performance on a quarter-on-quarter basis on NII. What is behind that? What you have first is no longer rates impacting negatively, so the headwind from rates is not going to be there any longer. This is first thing. Second thing, you have the compounded effect from volumes, both on lending and on deposits. Third, we have quite a classic circumstances on our hedging activity that where we have some legacy positions on hedges and fixed income that are maturing and hence, having a positive impact on NII going forward.
That's a driver, on top of that, our key engines, wealth, insurance, that continue to perform very well, in terms of inflows on wealth management, on insurance in terms of commercial activity. We see very good traction on those two key businesses. You know that in Spain, still the penetration on both is still low. We have plenty to do, we are quite optimistic. Finally, you have, in terms of cost of risk, the situation is very benign. Our level of coverage is really sound. We have unassigned provisions in case it's needed. Basically, we are confident that for next year we are going to be circa 20%, we feel that this is not the cap.
We have presented a plan with, let's say, formal targets for 2027, but we have been sending a message that we don't feel that, okay, we arrive to 2027 and that's it. According to our internal projections, there is more to come.
Very clear. You mentioned that nominal GDP growth in Spain will be around 5%, you target around 6% CAGR volume growth between 2025 and 2027. Could you maybe talk a little bit about the volume outlook that you're seeing? How is competition? Are you still seeing a lot of competition on the mortgage side, or is that easing a bit?
Well, by segments, mortgages are clearly the most competitive part, because every player is there. For some players, it's like the anchor product, to establish a relationship with clients. I hope that there will be some improvement in new pricing, because basically there is more business because volumes are growing. Also, the yield curve is moving upwards, and also the ECB is going to hike rates almost for sure, well, actually next week. I feel that eventually the new pricing will be gradually improving. It's something that we are starting to observe at a very low pace. I hope that by the end of the year, we may be at a better place. We'll see, because also rates are moving upwards, so hence, the industry will have to come with that. Corporates, SMEs, I would say that is as it has been.
It's very competitive, but in line, so it's rational. There is more business also. It's been fine, and probably consumer lending is the most profitable segment, where basically we are doing the business within our own clients, with pre-approved credit lines in several cases. It's a business that is doing fine, supported by personal consumption that, as I was mentioning before, is growing nicely. That's the situation. The fact that we have better volumes is helping, but still continues to be a very competitive market. I would say that on deposits, it's calmer. It's a situation that is calmer, but on lending, continues to be quite competitive.
You mentioned that on deposit side it is calmer, but you have a 36% market share in payroll accounts. We are seeing in the local papers that there is some quite targeted kind of offers from some of your competitors in Spain, some competitors are also increasing the saving deposit rates. Are you worried at all about losing your payroll market share?
Worried not. We are confident. We have always had competition. I think that competitors understand that it's a key product. We have always said it is for us. It's the best way we have had historically to gain clients, to have the revenue stream of the client and all the information that comes from that. From there, we start building, let's say, the relationship and all the business. Now competitors are saying that they are going to try to do the same. It's fine. No problem. We have been in the market for decades. For the time being, as far as we can see, we are being able to compete and not being significantly impacted.
Okay. Very clear. Maybe then just tying that all into net interest income, you have guided that there is upside risk to consensus net interest income estimates for 2027 and 2028. Could you maybe just walk us through how you think about the net interest income progression over the next two, three years?
Yes. Well, clearly we have now higher market rates than at the beginning of the year, and also you know that we have positive sensitivity to rates. This is why we mentioned that there is some upside. Well, also for 2028, because we start to have already quite a decent consensus around 2028. This is why I mentioned that. Back to the point where we don't see 2027 as like the end. That the positive performance, in our view, is going to continue beyond that. Well, what is behind is higher rates. Here, I would like to note that the yield curve is flattening, what is happening is that short-term rates are moving up, long-term rates are not moving that much. NII sensitivity we are providing to the market is more for a parallel move in the yield curve, which is not the case.
NII sensitivity is a little bit lower in the current circumstances, but in any case, it's obviously positive. As always, we face a new rate cycle. There is always the open question about what is going to happen with the famous deposit beta. No?
Yeah.
We are back to that discussion. Internally, we are estimating that the performance is going to be in line with the previous cycle. We had a beta in the low 20s. It's what we're estimating for now, but we know that at the end of the day, the actual things are going to be maybe different. Maybe better or slightly worse. You never know because the previous cycle was rates from negative to 4%. Now it's from 2%-3.75% , so maybe things evolve differently. Let's see. We are back to this kind of situation where every quarter, we are going to be, let's say, tracking actual performance versus what was being modeled, et cetera. We feel that we are going to be delivering strongly on that front as it was in the previous cycle.
What I would just like to flag that this is back again, a new test. A new something to be checked in this new cycle.
No, that's very helpful. I guess maybe if you could also elaborate a little bit on the structural deposit hedge you have and the ALCO tailwinds that are going to come through, which are really meaningful?
When do you think those tailwinds will be fully done?
Well, we have a significant tailwind coming from. I try to simplify the message here because it can be quite complex otherwise. Basically, in between low-yielding hedges and a legacy fixed income that is maturing in 2027 and 2028, we have circa EUR 28 billion that is having a yield slightly over 0.5%. This is going to be rolled over naturally because those hedges need to be rolled over in order to keep that NII sensitivity within our, let's say, management parameters. It's going to be rolled over 200 basis points higher. That means that we are going to have annualized positive impact on NII of over EUR 600 million, just coming from that part. That's a significant step up. This is why we are guiding for a significant step up for NII for next year, amongst other things.
This is a big part of it, and probably quite idiosyncratic, as I was mentioning before. It's about how this is going to be felt. As I say, this is mainly 2027. Remember, when we are guiding for NII sensitivity, it's always one year forward, because it's when you have all the repricing on assets and liabilities already done to the new level of rates. In this year, it's going to be a marginal positive because higher rates is always going to be a marginal positive. The main impact is for 2027. I can imagine that eventually at some point this year, we are going to be able to fine-tune better all that. That's a little bit what is behind. That's the message.
No, very clear. If you read that, we can move to fees. You target around mid-single digit fee growth. If you could maybe just talk about the different fee components, like how much pressure do you still see on the traditional banking fees, and what growth opportunities do you see on the wealth management side, insurance side, and what are going to be the most important fee drivers going forward?
Well, the mid-single digit guidance is for the combined fees and insurance. Okay? Here we have two parts. Well, I would say three, but it's basically two in terms of size, which are wealth management and insurance protection, but also CIB, that are doing very well. Actually, if you look at our latest year-on-year performance on those three components, it's well above double digit. Okay? We are a bit on wealth and insurance, so the performance is good. Wealth is, to some extent, impacted by markets. The direct impact markets may have on the mark to market of AUMs. Well, on that front, so far we have had quite a nice recovery. Just to note that we have approximately 25% of our AUMs that are pure equities and diversified equities. It's not only Europe, so it's diversified.
Usually when the U.S. markets do well, our AUMs tend to do well also. That's just to give you a little bit of this kind of sensitivity. The pace of inflows is sound. We are having, let's say, over EUR 1 billion per month of inflows. I think that we are going to be able to match the circa EUR 15 billion inflows we had last year. I say that despite the, let's say, the market correction we had in March. Well, we are quite positive on the evolution of that because as, probably back to one of my previous comments, the market is under-penetrated in Spain, and well, we have plenty of business to do here. Basically, it's about engaging clients into the business, into the product, that are not currently engaged.
This is still a market where we are far from a situation where you have to compete per price to gain clients. It's still a market that is growing, and the key is to take the major part of the new business, something on what we are quite good at. The same as for insurance. In this case, probably even with an additional tailwind, which is the strong mortgage production, that is the key cross-selling product for mortgages is insurance in general, life, home, but also health, et cetera. I would say that, well, we are having very positive dynamics. There has been a clear acceleration as last year, as the year progresses on that business, and now we are having the results. I think that is fine. We are quite a bit on those two businesses, wealth and insurance.
Probably for 2026, insurance in percentage terms of performance may do better than wealth, but really strong. We have CIB, that is in euro terms, probably less important. Thanks to our international diversification on CIB, you know that we have been opening, during the last few years, CIB branches among the major capitals in Europe. It's a business that has become more important. Now something that started with being a lending business is gradually becoming also a fee business. Okay? Our CIB fee business is also doing pretty well. You have another part which are those more, let's say, plain vanilla fees on low added-value products. That goes from a maintenance fee on a debit card, on a current account, a fee on a transfer, all that on securities, on foreign exchange. All that in general is subject to competitive pressure. Okay?
It's becoming more of a commodity. There is also, in some cases, some regulation impacting because, for example, we have now the implementation in Europe of instant transfers. Transfers that go immediately. Now the price for those transfers has to be the same of a traditional transfer. You have a constant pressure that to some extent is compensated by more volume because there is more volume. In terms of margins, there is some pressure. On that part, I would say that my best guidance would be flattish, maybe slightly positive, sometimes slightly negative, some parts positive, some parts slightly negative. Let's assume flattish, would be my overall guidance. The good thing is that the weight of that part is losing weight because the other markets are growing. The other segments are already like circa 70%.
The overall guidance of mid-single digit on all that, I think is quite solid. Well, depending on the evolution of the year, I would say that it has more upside than downside. Let's see as the year progresses.
Very clear. If we move to costs, you guide for a cost-to-income ratio in the high 30s, by 2027. Could you maybe just talk about the main cost drivers? How do you think about wage inflation, additional investments, and kind of longer term, where do you see the cost-income ratio going?
Cost-to-income are two components: our revenues and costs. We tend to focus on both. The cost-to-income per se, for us, it's like a by-product. It's like a consequence. Although obviously we give guidance for costs and we want to be strict on that, and we care obviously about positive jobs, et cetera, and it's our aim and our target. Don't forget about revenues. To some extent, part of the investments we are making now is to gain commercial productivity. Maybe there is some kind of investment and some extra additional cost into that. The target is to obtain those extra revenues and increase productivity. Don't forget that we are gaining clients. Last year, we gained close to 400,000 clients in a year.
We need to prepare the platform also in order to absorb that extra business, let's say, with a similar cost base. The main focus currently is because that links with AI and those related investments. You know that we have stepped up our IT expenditure, or let's say investment, by EUR 1 billion in this three-year plan, 2025, 2027. Part of that goes into AI. The focus as we speak is now basically on improving this commercial productivity. We already have tangible results on that front. Going forward, it's more about costs, and we are already going to have some benefits on that front in 2027, but clearly much more from 2028 and beyond. That is coming basically from reducing outsourcing. Banks in general will rely on plenty of outsourcing.
Basically with AI, we are planning to some extent re-internalize processes, and then hence reducing outsourcing what we would call external FTEs. Which is something that is clearly more, let's say, interesting than internal FTEs. That's the plan also. Don't forget that we are operating in a growing market, where we are planning to obtain a n ROTE, circa 20% next year. We don't want to miss any growth opportunity just for the sake of a specific cost-to-income target or a specific level of cost. Although we give guidance for cost, we have our targets, we're going to comply with those. It's not the same to manage a bank that is operating in a market that is not growing or where you are not obtaining a good profitability than a bank that is operating in a market that is growing and with a good profitability.
That's very clear. Maybe a final question from me before we open up for Q&A. Your capital positioning is very solid. You have a very clear dividend payout policy. You continue to conduct share buybacks. How do you think about dividends versus share buybacks versus growth opportunities, both organic and inorganic?
Our message is pretty clear and consistent. We have a cash payout ratio between 50% and 60%. We have set a threshold with a 12.5% for this year, above which we don't feel we need that extra capital. We are not building buffers for any kind of inorganic situation. Capital is for shareholders. Once you accrue a 60% dividend and capital exceeds 12.5% and we have a decent buffer, we execute a share buyback. Far for the time being, we are executing EUR 500 million tranches, which I think is something that is well understood by the market. It's very predictable in terms of execution in the market, is fine. At the same time, we are being able to fund on capital terms the organic growth that we are planning.
According to our internal planning, we are going to be able to do the three things at the same time. Cash payout, internal organic growth, and still some extra capital for share buybacks from time to time. We don't pre-commit to a specific figure on that because, back to the point before, we want not to miss any kind of growth opportunity in a profitable business, for having a constraint in terms of capital devolution via share buybacks. I think that this is very well understood by the market, and as long as we are being consistent on that plan and executing that plan, is fine. That's the situation. We have also the extra tailwind from SRTs and other, let's say, capital management tools. We currently have an impact from SRTs and, let's say, other similar tools of circa 25 basis points on our CET1.
We think that this can grow, and we can go easily circa 50 basis points by next year. We'll see, no? There is always this kind of debate of how much of your capital should be coming from those kind of solutions, considering that there is a maturity, that there is a need to roll over, et cetera. It's becoming a more and more liquid market, so as long as it consolidates, we'll decide.
Great. Very clear. With that, let's open up for questions from the audience. Do we have any?
If there is any. Don't be shy. There is one here.
Thank you very much. You mentioned that Spain is well-equipped with energy mix, and you see less impact from the economic downturn if Iran situation continues. What other risks do you see for the business? What are the topics that make you concerned in the negative scenario?
Well, negative scenario, I think that is pretty much the same for everyone. Which would be much higher energy prices, so I think that probably hard to say a specific level. I think that we can agree with oil levels, petrol levels, over 150 would be really a bad situation. In terms of supply, I don't think that Spain would be that affected because, well, first thing, gas is coming mainly from the U.S. and Algeria. I would say together is over 60% of our supply. On oil, so Spain has almost 100% of the refining capabilities, so we can import the raw material, and that is basically coming not from the strait, so it's coming also from the U.S. and basically Latin America in general. Some is coming from Africa.
I would say that those areas are making for the bulk of our supply, and with the country being able to self-manage the refining capabilities also for jet fuel, that has been, to some extent, a concern for the summer season, et cetera. Spain has the capabilities, no? I would say that, well, but at the end of the day, not from a supply point of view, but from a price point of view, that would be the pain point. Not for Spain, but for everyone. Even under that scenario, I think that probably Spain would be in a better position than others, but on a relative basis. In any case, would be a bad situation, no?
I guess with that, we're on time. Thank you everyone for participating, and a big thank you to Javier.
Thank you, Sofie. Thank you.