Percent. The different elements that led to wider JAWS in the quarter are included in the left-hand side of the slide. NII and costs contributed negatively, but this was more than offset by the positive evolution of fees. In the case of NII, as we have seen, it shows a solid underlying evolution despite the lower contribution of the ALCO bonds. While recurrent costs grew slightly as a consequence of the seasonal impacts that we mentioned before. On the contrary, as we saw too, fees have had a very strong performance offsetting both effects.
For 2022, we expect this positive trend in JAWS to continue, and this will be driven, as mentioned before, by a flattish expected NII, by growth in fees, and more importantly, by a significant reduction in costs, the EUR 110 million mentioned before, therefore providing a high single-digit growth in recurring core results. Now, leaving the JAWS aside and moving on to cost of risk, the group's year-to-date credit cost of risk stood at 49 basis points. If you recall, this was 51 basis points as we closed Q3, and 53 basis points in June. The group's total cost of risk, including all the provisions in the quarter, the aforementioned credit impairments with the provisions of foreclosed assets, the NPA management costs, and other provisions for mainly legal and fiscal risks, reached 72 basis points, basically stable compared with Q3 numbers.
Analyzing the Q4 in detail, we see credit provisions amounted to EUR 195 million, which is a slight decrease of 1% in the quarter. TSB released more provisions due to better macroeconomic outlook in the U.K., driven by lower unemployment rates and higher house price index. The release is similar to the one accounted in the second and Q3 of the year. Taking a view at the breakdown of total provisions at the top right-hand side, we booked the aforementioned EUR 195 million of loan loss provisions. Also EUR 23 million for charges on foreclosed assets, whereas costs related to management of NPAs were booked at EUR 44 million.
Finally, EUR 52 million were recognized for other provisions, and this number is impacted by EUR 25 million in extraordinaries, as a more cautious approach was accounted for contingent and litigation risks. This should provide a lower pressure in these provisions for 2022, especially taking into account, and this is important in my opinion, that no new sources of litigation risks have arisen in 2021. As you have seen throughout 2021, these three items, foreclosed assets, NPA management costs, and other provisions, have remained reasonably stable in the quarter or quarter-on-quarter, just affected by extraordinary events that we have been sharing with you. These provision levels have allowed us to slightly beat our guidance, ending the year with the cost, credit cost of risk and total cost of risk slightly lower than H1 levels.
In order to see how 2022 could evolve in terms of cost of risk, it is worth mentioning or reviewing first the part of the credit book that enjoyed or is still enjoying payment holidays or ICO guarantees. Beginning with the loan portfolio benefited with payment holidays in Spain, basically retail, as of today, 100% of the total moratoria that were granted have expired. Of the total EUR 3.5 billion granted, EUR 500 million have already been fully amortized, while the remaining EUR 3 billion are all back paying down principal, as mentioned before. On the total payment holidays granted, or of the total, payment holidays granted, 12% are in Stage 3. Within that Stage 3, loans classified as unlikely to pay account for the vast majority, almost or more, a little bit more than 80%.
It is important to note that the percentages of loans in Stage 3 have remained stable quarter-on-quarter, while the percentage of payment holidays expired have been growing towards the current 100% of the quarters. The starting point in Q1, 16% of Stage 3, was due basically to the fact that the first moratoria to expire were those based on consumer loans, which by definition imply a higher risk than the mortgage loans. Additionally, as mentioned before, 14% of the total payment holidays granted have been already amortized, the before-mentioned EUR 500 million. This portfolio is represented by a larger amount of consumer loans, where two-thirds of the total loans granted, consumer loans granted under this program, have already been fully amortized. Moving on to the ICO state-guaranteed loans, this quarter we have granted EUR 260 million.
The total outstanding amount drawn to date is EUR 8.6 billion, where state guarantees cover an average of 76%. Once the deadline for the request of potential extensions has come to an end, more than 60% of the ICO exposures are already facing principal payments in 2021. Whereas the best part of the remaining 40%, approximately 80%, will end their grace period and therefore start repaying principal in Q2 2022, as you can see in the graph at the bottom right-hand side of the slide. From a risk quality perspective, it is important to note that circa 5% of these ICO loans are already classified in Stage 3, and out of these 5%, 60% are unlikely to pay. This is, they are not past due more than 90 days. Moving on to the next slide.
For 2022, we expect some catalysts in cost of risk to provide a downward trend in provisions. First, let me briefly guide you through the evolution of cost of risk for this year. As it is shown on the graph on the left-hand side of the slide, both credit cost of risk and total cost of risk ended the year converging to a more normalized figure. Looking at the breakdown of the loan book, allow me to highlight the main drivers that we expect will support a positive trend in credit cost of risk. To this, we divide the book, as we have shared before, in three different sub-portfolios. The sub-portfolio, or the portfolio which has not been affected by either moratoria or payment holidays, the portfolio covered with ICO guarantees, and lastly, the portfolio which received payment holidays.
First, let us share our views for the non-affected part of the book, which is by far, obviously, the largest of the three. It represents 92% of the total. This is around EUR 143 billion. This portfolio has had a very good performance in terms of credit quality in 2021. We have not seen anything extraordinary, and as we have been sharing with you, the net inflows have remained at better than expected levels throughout 2021. We believe this tendency will continue in 2022 on the back of an even better 2021, better than 2021's macroeconomic outlook. Secondly, we have the ICO loan portfolio, where we have not seen any material deterioration today.
In fact, we have taken a conservative approach this quarter to advance some loss recognitions for those cases where we have seen or anticipated any potential significant increase in risk. The evolution of this book will be linked to the development of the loans that will start to face principal payments from Q2 onwards, as explained before. In any case, I think it's very important to remember that these exposures are covered with a state guarantee by 76%, therefore reducing any potential cost of risk effort to just 24% of the total exposure. Thirdly, we have the payment holiday portfolio, where, as mentioned before, 100% of the payment holidays have already expired, where the level of NPLs have remained stable since June, basically.
This evolution, as well as the more constructive macroeconomic environment, allow us to believe that this portfolio will not generate further NPLs, nor obviously cost of risk in 2022. Therefore, considering all these drivers, we believe that credit cost of risk for 2022 should land between 2021's and 2019's. In terms of the total cost of risk trend for 2022, let me review different dynamics across the different concepts. Keeping in mind, as we discussed earlier, that excluding extraordinaries, these lines should be reasonably stable. In foreclosed assets, we will not have the EUR 40 million of extraordinary provisions related to branch closures that were booked for in 2021. NPA management, I believe, costs should remain reasonably stable in 2022.
Finally, in terms of other provisions, which are basically, as I said, as I mentioned before, litigation and fiscal risks, we believe that we'll perform significantly better than 2022, among other things, because we have front-loaded EUR 25 million in 2021. Moreover, on top of this, as mentioned before, we see no new sources of risks in 2021, and therefore, these lines should improve in 2022. In conclusion, these drivers should allow for the total cost of risk to improve further also in 2022. As always, in the following section of the presentation, we will review the asset quality dynamics, the liquidity, and the capital. Starting by asset quality, we show the evolution of our problematic assets, and let's start with NPLs in slide number 30.
NPLs have had an increase in the year of EUR 395 million. This has been impacted by one-off items that we will see in detail in a minute. As a result, our NPL ratio also went up by 6 basis points, up to 3.65%, while the total coverage on NPLs remains stable at 56%. The outcome, as we have been sharing with you every quarter, has been significantly better than what we had budgeted at the beginning of the year. As per the increase of EUR 395 million in NPLs, I think it's worth taking into account that most of the movement has been due to non-recurrent items.
On the one hand, you might remember, TSB in Q1 had an extraordinary increase of EUR 190 million, which was related to regulatory changes for the definition of default of their mortgage portfolio. The evolution since then has been very stable. Additionally, we have had EUR 150 million of NPL portfolio report changes throughout the year. These report changes are linked to the portfolios that were sold in 2019 and 2022. Therefore, we don't expect any further impacts going forward because all the portfolios have been cleaned, if you wish. In addition, our exposures across stages have remained broadly stable QOQ, as well as our Stage 3 coverage, which stands at 41.2%. Finally, I think it's worth remembering that half of our current NPLs are classified as unlikely to pay.
Now, in terms of foreclosed assets and total NPAs, in slide 31, you can see that the stock of foreclosed assets declined by EUR 11 million in the year, representing less than EUR 1.4 billion. Coverage ratio for this portfolio slightly increased up to 38%. Regarding total NPAs, the stock went up and amounts to EUR 7.6 billion, which is explained by the previously mentioned increase in NPLs, while the coverage remained steady at 53%. Finally, the gross and net NPA ratios stand at 4.4% and 2.1% respectively, with a year-on-year and a quarter-on-quarter evolution that have remained broadly stable. Moving now on to liquidity. We see that the group once again ended the quarter and the year with a record liquidity position.
This can be reflected in an LCR of 221% on EUR 57 billion worth of high-quality liquid assets. Our loan-to-deposit ended the quarter at 96%, so it's pretty solid numbers in my opinion. We have in terms of European Central Bank funding, currently have EUR 32 billion of outstanding TLTRO III. In terms of TFSME for the UK, we currently have GBP 5.5 billion outstanding, of which 2.5 were drawn in the quarter. As per our capital position, we continue generating capital even under a material loan book increase environment. Our CET1 fully loaded ratio stands at 12.18% at year-end, having increased by 16 basis points in the year, while our loan book has expanded over EUR 6 billion.
Now when we look at the quarter's evolution, we see an increase derived basically by organic capital generation, despite the contributions to EDIS and the Deposit Guarantee Schemes in the quarter, and also accruing a 31.8% cash payout. Another positive movement, it's the strategic disposals that we have been sharing with you through the year. Basically retail business in Andorra, which contributed with 17 basis points, as expected. It also should be noted that this quarter we have front-loaded a big part of the impact that we shared with you in previous quarters, that we were expecting for the EBA guidelines. We were expecting 15 basis points for 2022, and we have front-loaded 10 of those 15 in 2021, in this quarter.
Therefore, the only regulatory impact that we expect for 2022 is just a minor 5 basis points coming from these EBA guidelines. From a regulatory perspective, CET1 ratio stood at 12.43% on a phasing basis, and consequently, our MDA buffer now stands at 391 basis points, having increased by 78 basis points in the year. This buffer, as you might remember, is above our target of 350 basis points. We see it increasing in the future since what we are forecasting for 2022 is an increase in CET1 fully loaded. To conclude this section, the following slide shows you our current MREL position and the requirements for 2024. As we are already compliant with all targets, the ones based on risk-weighted assets, the ones based on leverage ratio, and also the subordinated ones, our issuance plan will be therefore focused on optimizing the funding costs and the funding sources, as well as keeping our capital buckets full and a number of management buffer. With this, I hand it over to César, who will conclude our presentation today.
Thank you, Leo. To finish our result presentation today, I would like to recap on the targets achieved in 2021. I would like to signal that 2021, we have reached all targets set in our strategic plan. On the strength of core results and perspective for cost of risk, as per the guidance Leo just provided, we are bringing forward our 2022, the more than 6% return on tangible equity target. Finally, the board has approved to propose at the next annual general meeting a cash dividend payment of EUR 0.03 per share, which implies a slightly higher than 30% payout and a dividend yield of around 5%. With this, I will hand over to Gerardo to kick off our Q&A. Thank you.
Thank you, César. We will now begin the Q&A session. We would love to take questions from all of you, and there are already many of you in line, so I would kindly ask you to try to make a reduced number of questions if possible, please. Operator, could you please open the line for the next question?
Thank you. Your first question from the line of Alvaro Serrano from Morgan Stanley. Please ask your question.
Hi, good morning, César and Leo. My question is really about NII. I mean, in slide 21, I think, Leo, you mentioned the 856 quarterly average is the reference for 2022, and there's three tailwinds, three headwinds. Is that should we interpret it as flat is a good sort of level of guidance, or am I misinterpreting it? Related to that, can you maybe discuss what your loan growth sort of assumptions are and how you see loan growth panning out, in particular in Spain? In the U.K., the margin sort of was down in Q4. Obviously the rate sensitivity is very, rates are gonna go up and potentially 3 or 4 times this year. Can you maybe walk us through the rate sensitivity, which we know, but how much of that in particular could be competed away? What do you think could be competed away?
Okay.
Thank you.
Let me give it the first shot, and then I'll let Leo. When we look forward, we think that NII should be flattish because although the ALCO portfolio disposal this year will be partially mitigated by reinvestment in government bonds, and there the higher yield curve will help, and also it will be helped by wholesale funding costs, the net effect should be negative. Also, the TLTRO that ends in June 2022, there we think that it will be more than offset, and this links to your second question, more than offset by TSB. Because TSB, although margins are going to have some pressure, will benefit from two significant factors, which are higher volumes and higher interest rates by the Bank of England.
Our Bank of England rates and our numbers are relatively conservative, and we might see some further tailwind. In Spain, as you have seen, we are gaining market share across all products, basically. Therefore, we consider that the volumes will continue to be healthy and will be offset somewhat by margin compression. Overall, our guidance, and you were right in reading, Leo's message, our guidance is more or less, flattish. I think I have kind of answered the volumes response. We expect in volumes in Spain, low single digit growth across the different segments, continuing, hopefully, to gain market share in all products. That's mortgages, consumer loans, SMEs, and corporates, as we did in 2021. The tailwind of the NextGenerationEU fund will come more in the second part of the year, the EUR 40 billion that we were mentioning before. In U.K., we are foreseeing a mid-single-digit growth in volumes. Leo, I don't know if you want to add.
I think you answered most of it. Let me just put some numbers, if you wish, onto that, so that we are as clear as we can. Basically, for the ALCO book, as we mentioned in Q3 , and I can refresh now, I mean, if we compare our current outstanding balances and the yield that we had in 2021 versus the one that we would have with those outstanding balances in 2022, we would have a negative impact of -EUR 60 million of contribution. But we are short of EUR 8 billion of bonds, and we expect to take advantage of the rate movements, long-term rate movements, you know. We expect that we will reinvest all or a big part of that portfolio through the year.
We should compensate most of that impact. Not total, because, you know, it will take time until we rebuild those portfolios with good rates, but most of that should be compensated. Remember that in this current context, it's not only the yield that you get out of the bonds, but also the reduction of the excess of liquidity, which is very important. The second impact is TLTRO -EUR 75 million for next year. We believe, as César explained, that this should be more than offset by the TSB evolution. TSB, we need to remember that we are counting on volumes next year, but it's not only volumes of 2022. We have to remember that TSB grew well over 11% this year.
What we have from 1 January, it's the total volumes that we ended with in Q4. It's significantly higher than Q1 2021. This adds also a lot of NII for 2022. On top of that, we're expecting to increase volumes in TSB in 2022. Now, in terms of rates, I think we've been reasonably conservative, if you wish, you know. For Spain, we have not considered any rate movement. I know there are a number of brokers that are coming now with more optimistic views in the last few weeks, but we have considered zero.
In terms of TSB, we've only considered 25 basis points, you know, while the market now is probably facing more to 100 this year, no? I think if anything, that should help. In any case, I'm talking about the NII sensitivity that you mentioned, Alvaro. We need to remember that, basically, higher interest rates take some time to flow into NII, you know, because it takes time to reprice all the asset side, you know? I think, in terms of sensitivity, we have a little bit more sensitivity in TSB than in Spain, but in a different context, if you allow me to explain it this way.
While in Spain or continental Europe, EURIBOR is still at -50, so deep negative, we don't expect that any rate movement, whenever that comes, will have an impact on the liability sides, you know? Because as I said, the rates are still very, very negative, you know? I think any movement in rates, whenever it comes, should be more or less passed, fully passed to NII. In TSB, it's a little bit different because the rate is already positive, and it's at 25 basis points. When looking at the NII sensitivity, we have to take an assumption regarding how much of that interest rate hike would be passed through to the customers, you know? In general terms, the sensitivity to NII for the group and for TSB should be around 2%-3% of NII for every 10 basis points movement. Please remember that the impact of this NII movement, as we have shared before, is much more concentrated on the second year than in the first year. Because, as I mentioned before, it takes time to reprice the asset side.
Thank you. Please, could we move to the next question?
Next question comes on the line of Maksym Mishyn from JB Capital. Please ask your question.
Hi, good morning. Thank you for the presentation and taking the questions. I have two, if I may. The first one is on taxes. I would appreciate if you could take us through the fiscal adjustments you included in the quarter. The second one is on profitability. You've brought forward the above 6% return on tangible equity target to 2022. I was wondering if you include any provision reversal at TSB in the guidance. Also, now that things are going in line or even better than expected, why don't you want to be more bullish on the 2023 target? Thank you.
I'll leave the taxes to you, Leo, and give a very high- level on the profitability. On the profitability, to your specific question, if there's something about reversion in TSB, we have there still EUR 30 million of potential reversion, but that's not material in our consideration of the profitability. The profitability of the 6% is coming basically from a flattish NII, low single digit in fees, contribution of EUR 110 million of the saving cost, and a significant reduction in risk cost. That's the main origin of the profitability looking forward and our confidence in the more than 6% for 2022. I leave Leo on the taxes. Sorry, more than 6% on 2022. We are not giving any guidance for 2023 because we think that it's a little bit too early, no? This is just eight months old, and we don't think we should change the plan at this point in time. We are more optimistic about beating the plan of 2023 as we stand today, as it's quite obvious, no, from the numbers we have shown today.
With regard to the taxes, basically in Q4, we closed some subsidiaries. We've come from around 10 years ago, some real estate subsidiaries that allowed us to contribute or consolidate EUR 56 million of fiscal assets, no? This has an impact, a positive impact in P&L, which is the one that you're seeing, but has no impact in capital, because basically, there are tax losses carried forward. Basically, they are deducted from CET1. This is a one-off impact that was due to arrive in this quarter.
Thanks a lot for the questions, Maks.
Oh, sorry, yeah, one more thing. Remember that also in this quarter, we have the profit coming from the renting disposal, which is tax-free, okay? It does not contribute to the income tax.
Thanks a lot for the questions. Let's move on to the next caller, please.
Next one from the line of Ignacio Ulargui from BNP Paribas. Please ask your question.
Hi. Yes, I have two questions. One on fees. I mean, you have just sort of like gone through the NII, but I was wondering a bit on the low single-digit growth in fees. What are the main drivers behind? A very quick one on the strong corporate lending growth production in the Q4 . How should we see that sort of like impacting NII in 2022, particularly in the Q1 ? I mean, I assume that a lot of the lending growth, syndicated lending growth activity has been back-ended loaded in the quarter. If you just could elaborate a bit on the dynamics of that portfolio in margins and in NII. Thank you.
Shall I take them?
If you wish.
So first on fees. We had a very good year for 2021, no? It was better than what we expected. We guided for mid-single digit growth. We almost did 9%. And I think, yeah, we're very happy about the evolution, no? We are still seeing good momentum in 2022. There's a number of things that should help us increase our fees in 2022, but we see a little bit less of an evolution than the one that we had in 2021 because it was very big. Basically, that's why we're guiding for a low single-digit growth, no? We're fairly confident that we can achieve it. This is based on basically the very positive commercial momentum in terms of AUMs. Very happy with the evolution of AUMs.
I mean, when I look back now, basically, we are only 10% behind what we were making in terms of fees and commissions in AUMs before we sold the asset manager last year. Basically, we are about to complete a one-year payback, which is, in my opinion, quite impressive, no? This is because, yeah, the kind of products that we are putting that we're showing our customers was much better than what we could do on a standalone basis before. Therefore, we're getting quite a lot of momentum in this regard. We expect certainly this to continue in 2022, no?
We're also thinking that we can maximize some increases in terms of insurance, basically solely based on the evolution of our mortgage volumes and the insurance related to them. We are positive in that regard. Activity, no? We believe that the activity has to recover more in 2022 on the basis of the macro context, no? We're fairly optimistic in fees in 2022, but we don't think we will be able to achieve the numbers that we achieved in 2021 because they were basically better than what we were thinking, no? Positive, but low single digits. With regards to your second question, we saw in the quarter some pressure on the margins of especially corporate banking.
You know, banks were wanted to make certain that they were going to achieve the net lending target. Therefore, especially in December, we saw a little bit of a drop in prices, but I think it was a very seasonal impact, in my opinion. It was driven by this issue that I mentioned before, no? In terms of volumes for next year, as César was mentioning, we believe that we should keep on growing on this segment, no? I mean, on the SME segment, no? Next year or sorry, this year in 2022, we should start seeing the impact of the NextGenerationEU, but I think this is going to be, in my opinion, backloaded to the second half of the year. Despite that, I think the recovery of the economy should improve the numbers here. Not something spectacular, sorry. As César mentioned before, we're seeing low single-digit growth in volumes for Spain in 2022.
Thank you. Let's move, please, to the next question.
Next one is on the line of Marta Sanchez Romero from Bank of America. Please ask your question.
Hello, good morning. My first question is on the ALCO portfolio. Can you please elaborate a bit more on the volumes you could be adding, and what are you buying? Because you can get a bit of a yield now, but you're incurring a lot of duration risk, particularly if the reflation inversion, I don't know if it's a very consistent strategy. The second question is on asset quality. Can you please provide a bit more color on those repurchases of NPL portfolios? What is this, and could we see more? More generally, what is your outlook for NPL entries in 2022? We've seen that NPLs are up. You are a bit of an outlier here. Banks that have reported so far have shown very down NPL trends. Also on coverage, your Stage 3 loan coverage has dropped to 41%. Seems low, particularly when, like I say, Stage 3 loans are going up. Thank you.
Sure. On volumes, as I mentioned before, we are now short of EUR 8 billion of bonds if we compare it to September of 2020, which is when we started selling bonds in order to fund the restructuring plans. As I've mentioned, there is a chance that we reinvest those bonds. I do not fully agree with your view on this regard. I think, obviously, if we buy bonds, it's going to be in the held-to-collect portfolio, so it shall have no impact in capital in any case, going forward. I think we need to remember that it's not only the yields that we're getting out of the bonds that we buy, but the excess liquidity, which is costing us 50 basis points at the current day, no?
As I said, with the construction of this portfolio in 2022, we're probably not gonna be able to fully offset the impact of the -EUR 60 million that I mentioned before, because it will take time to build this portfolio, and we're gonna be opportunistic with the yields. I think it should help to offset most of it. With regards to asset quality, basically what we had in the year was a flow back of EUR 150 million in NPLs. I think it's worth seeing the context of this, no? This is EUR 150 million on the back of over EUR 10 billion of transactions, of the disposals of this portfolio. Barely, I don't know, 1.6% of the total, no?
The reasons for this are basically two. On the one hand, in NPLs is the difference between the signing and the due diligence and the closing, which is basically that the purchaser identified assets not eligible, loans related to social housing, loans that have been repossessed during that period, et cetera, et cetera, no? This is absolutely normal. I've seen it in my previous job. I've seen it everywhere. I think it's the numbers, in my opinion, are not very relevant. Then there's also another impact in the case of foreclosed assets, and this is due to the Ley de Crédito Inmobiliario, no?
When this was implemented, any repossessed assets sold that did not meet the new Ley de Crédito Inmobiliario would have to be reverted to the bank, and these REOs are coming back to the bank in the forms of NPLs, no? In any case, we do not see any impact going forward because the portfolios that were sold in 2019 and 2020 are already clean, no? This was more of an historical issue that was pending to finish, if you wish, no? Not anything that we still have going forward, no? This is EUR 150 million of the movement of NPLs. The NPLs moved EUR 385 million in the year.
We also have another specific impact, which accounted to EUR 190 million in Q1 that was derived from TSB, as explained before, no? All in all, we're saying that 350 of the EUR 395 million growth in NPLs in the year are basically explained by these two factors, no? In my opinion, an evolution of 40-50 million euros in 2021 of increase of NPLs, well, we're very happy with it. I think it's much, much better than what we ever could imagine, no, in 2021, no? For next year, what's the outlook, no? As I tried to explain before, dividing the three different buckets of the portfolio that we have, no?
On the vast majority of the portfolio, over 90% of the portfolio, which is not affected by neither moratorias nor ICOs, trend is very good. Has been very good in 2021, and I don't see a reason to believe that the trend should not be at least the same or even better in 2022, no? Because the macro is holding up very well, real estate prices are going up, unemployment rate is going very well, and GDP should grow 5%-6% next year. On the second book, moratorias, I think that's done, as I mentioned before, no? Everything is already paying. EUR 500 million out of the EUR 3.5 billion have already been amortized. So we don't expect neither new NPLs nor basically any kind of cost or risk for 2022, no?
On the ICO book, we anticipated and front loaded a little bit of NPLs this quarter out of that book. As I said, we have around 5% of the book classified as Stage 3. Out of that, 60% is likely to pay, therefore, it has not past due over 90 days. We will see, and we need to wait a little bit on how this evolves. I think the trigger here for us, and I believe the sector, will be second Q next year because 80% of the remaining exposure that is not paying principal today will start in second Q . In any case, the impact of this in cost of risk, I think, it's certainly reduced given the fact that 76% of this book is covered by state guarantees, therefore, we only have to provide for the remaining 24% in terms of cost of risk. For overall movement in NPLs, I'm not certain whether we have seen the peak at the end of 2021, but I believe that if we have not seen that peak, the movement in 2022 should not be relevant, in my opinion.
Thanks a lot. Let's move on to the next question, please.
Next one comes from the line of Benjie Creelan from Jefferies. Please ask your question.
Yes. Good morning, everyone. It's Benjie here at Jefferies. Just a question on the cost guidance, please. Perhaps if you could just split out a little bit more detail on the moving parts between the expected savings in 2022 versus, you know, the underlying inflation, wage drift, et cetera. Perhaps more specifically, just in terms of the outlook for wage growth going forward, is there any terms or deadlines that we should be aware of just post the recent headcount reduction agreements with unions that might impact upon wage growth and the potential impact on inflation going forward? Thank you.
Sure. Basically, as explained before, we are expecting 85% of the expected savings out of our second efficiency plan, which we are now basically executing to be reflected in our numbers in 2022 already. At the end of January, basically around 50% of the efficiency plan will have already been executed. That's why we are confident that the remaining 50% will be executed in February and March. That's why we're very confident that we will achieve this, at least this 85%. In our case, we're very confident that we can meet those targets. As per the inflation, yes, there is inflation in costs, but it's basically linked to electricity or the biggest part of that, it's linked to electricity. While inflation is over 6% in Spain, if we go to the part that should be or could impact our costs, it's probably more linked to the service inflation, and that's more around 2%. In any case, we are fighting to try to reduce that in this year.
We have some cost efficiency initiatives in order to offset that, efficiencies in the field of, I don't know, the amount we are expending on consultancy, the amount that we are spending in physical mailing, driven by the fact that our clients want to relate with us through digital and not physical. That seems silly, but there's a lot of money in that physical mailing, so I think we can save there some money. Then as per your last question, which was wage inflation, for this year, we are according to, or we are subject to the labor union's agreement, and that includes 1% increase for 2022, which is obviously considered in our numbers.
And, 4% for the U.K.
Correct. 4% for U.K. Yep. Sorry, that was Spain.
Thank you. Let's please move on to the next question.
Next one comes on the line of Fernando Gil f rom Barclays. Please ask your question.
Hi. Good morning. Thank you for the presentations. On the questions, a question on capital and dividends. You have declared intention to pay EUR 0.03 cash dividend. I was wondering if there is any change for the payout policy during 2022, given the guide that you have provided on capital to be better. The second question is on TSB and the strategy of the asset in the group. We still don't know about a potential buyer that may be coming. Do you have any inputs that you can share with us on that? Yeah, that would be it. Thank you.
Okay. On dividends, there is no guidance, and there's no decision from the board for future, besides what has been communicated today around the distribution over the 2021 results. The logic and the mood would be that, logically, as results continue to improve, payout should also naturally increase. There's no more than we can say at this time because there's no formal decision from the board. In terms of the TSB fine, it's still early, although we think that the movements will happen, probably this year. I think there are two factors here. One is the fine, which is uncertain, and the other one is the recovery from the insurance, which is also uncertain. The way we see it is that we expect that there will be no material impact from that because they will tend to compensate each other. The only thing that we do is we expect a timing difference between the potential fine, which should come earlier than the recovery from the insurance on the matter that we are discussing.
Thank you.
Thanks a lot. Liz, please move on to next question.
Next question from the line of Francisco Riquel from Alantra. Please ask your question.
Yes, good morning. Thank you for the presentation and the detailed guidance. I wanted to ask about TSB. You have reached 7.7% ROTE at TSB in 2021. Obviously, this is with the help of write-backs. Overall, if you can comment on how do you see ROTE for TSB going forward? On the one hand, the write-backs, you mentioned that there is still room for additional write-backs in 2022. You were guiding also for a 20 basis points cost of risk normalized, but for a pure mortgage monoline bank maybe conservative. The cost base, I understood you were also mentioning that you could beat the EUR 730 million guidance for the cost base. You have someone also in fee income, positive. If you can please comment on the overall sustainability of this profitability for TSB going forward. Also, strategically on TSB, any update on your views on this asset? Thank you.
Shall I take the profitability one, César?
Sure.
Basically for TSB, we're also positive, if you wish, you know. It's true that we have been able to reach this 7.7% ROE, sorry, return on tangible equity in 2021, which is well ahead of our initial guidance, which was north of 6% for 2023. Things are improving. Things have improved more than we thought. I think with regard to the management of the bank, things are going very well. The macro is improving much faster, and it has helped a lot, you know. For example, in terms of the volumes that have been done both for the market and for TSB in 2021, which was not in our expectation.