Good afternoon, and thank you for joining us for Sabadell's results presentation for the Q4 of 2019. My name is Relations. And presenting today, we have our CEO, Jaime Guardiola and our CFO, Tomas Varrilla. During our webcast, we plan to spend around 30 minutes presenting the results and another 30 minutes answering your questions. We kindly ask you to limit your questions to 2 per person.
Today's presentation will follow a similar structure to last quarter. Our CEO will start by going through the key highlights of the quarter and the main milestones of the year. I will then provide details on our business performance. Our CFO will then discuss financial results, capital, liquidity and asset quality before our CEO concludes with some closing remarks, including the outlook for 2020. I'm now handing over to Mr.
Guardiola to kick off the presentation. Good afternoon, Mr. Guardiola.
Thank you, Cecilia, and good afternoon, everyone. This year, we have earned a Total net profit of €768,000,000 versus a net profit of €328,000,000 in 2018. During the Q4, we recorded net results of minus €15,000,000 This followed the closing of €8,200,000,000 of Real Estate Disposals that entail extraordinary provisions totaling €72,000,000 net as announced last December and which affected our results. Return on equity for the year was 5.9%, while return on tangible equity reached 7.4%. Tangible book value per share increased by around 6% above our guidance.
Furthermore, I'm pleased to announce that our Board has approved a final dividend of €0.02 per share, Which brings the total yearly dividend to $0.04 per share. This is $0.01 higher year on year and implies a circa 40% dividend payout on profit excluding the capital gains from Solvia and the consumer loan securitization. Overall, our core banking performance in the quarter was good. Gross loans and performing loans both increased once again year on year. Core Banking revenue show ongoing resilience to the current interest rate environment and continue with its positive trend supported by increased volumes and a strong growth in fees, which were up 7.6% year on year.
Our efficiency ratio for the year was 55.6%. Our risk profile also continued to improve. Sabay Group's NPL ratio was brought down once again and stood at 4 point 8% at year end, while NPL ratio was 3.8%, both improving considerably year on year. Recurring cost of risk for the year stood at 52 basis points, following an increase in the 4th quarter due mainly to a higher level of NPL write off provisions related to a specific single names NPL disposals in the period. This quarter, we made significant progress in our balance sheet derisking, closing several institutional real estate portfolio disposals, Which means that a considerable amount of problematic assets were transferred out of our balance sheet.
All NPL disposals announced to date have now been closed with the single exception of our real estate developer disposal, which we are on track to close this year. Furthermore, our liquidity remained strong with a coverage ratio of 172%, which was up quarter on quarter Despite a DFS early repayment of £1,500,000,000 while the loan to deposit ratio stood at 99%. Our fully loaded CET1 ratio continued to show good progress in the quarter and increased by 34 basis points to 11.7%. The pro form a ratio increased by 76 basis points to 12.1% in the quarter, including The benefits of the disposals of our Asset Management Unit, which I will review in more detail later on in the presentation. And core banking revenue has shown resilience in the current interest rate environment.
We execute Our NPA plans by decreasing our NPA stock by approximately €1,000,000,000 in the year, Which brought the group NPA ratio down by 70 8 basis points to 4.8%. We also delivered on our commitment to close all of the institutional real estate disposals announced in 2018 before year end. Our cost of risk also improved significantly year on year. We have rebuilt our capital from CET1 ratio of 11.1% in December of 2018, adding more than 100 basis points in the year. SABES fully loaded CET1 pro form a stood above our medium term target of 12% at the year end.
In the U. K, PSV regained commercial momentum And it's rebuilding its reputation. Moreover, in 2019, TSB made several changes to its leadership team and presented a new strategic plan. TSB is now ready to start a new chapter of growth. Finally, We have delivered on our promise to increase tangible book value by more than 5% in the year and we have also declared A dividend of $0.04 per share.
Moving to Slide 6. Here you can see our results versus our year end guidance. Our NII ended the year in line with the lower end of the guidance range When excluding the securitization of our consumer loan portfolio, we reduced net interest income by €19,000,000 in the year. Furthermore, our fee revenue continued to post growth in the high single digits, in line with our expectations. We also achieved our trading income guidance even when excluding the gains on the securitization and the impact On trading income of Sarep's subordinated debt impairment incurred in the year.
Our recurring cost of risk was slightly above the guidance of 45 basis points, mainly due to an increase in NPLs provisions for specific single name exposures and for write offs. TSB's contribution in the year fell short of our guidance for TSB to make a small positive contribution. This was driven by restructuring and other one off charge in the year, some of which were still related to migration, as we explained in the presentation of TSB Business Plan in November. Overall, Taking all of these developments into account, we ended the year slightly below our return on equity guidance at 5.9% reported 52% excluding 1 offs, but ahead in terms of the guidance for tangible book value per share growth and capital. Moving on to business performance.
Looking At our performing loans by region, you can see on Page 8 that loans grew quarter on quarter year on year across all geographies. Volumes in Spain, including foreign branches, increased by around 1% in the quarter. In the year, volumes in Spain increased by almost 3%, including a strong growth in foreign branches both in the quarter and over the year. TSB volumes grew at a similar pace to the group as a whole By 0.7% in the quarter and by more than 3% year on year, showing that TSB commercial momentum is increasing. Volumes in Mexico returned to growth in the quarter at almost 3% and were up by approximately 8% year on year.
Overall, group performing loans grew by 0.8% in the quarter and by almost 3% year on year. On the right hand side of this slide, we show our business distribution across geographies. The U. K. Represents 26% of our performing loans Explained in our CSB business plan presentation last November, we expect the U.
K. To achieve a 7% recurring return on equity by 2022, which will significantly boost the group's profitability. [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] Slide 9 shows customers' balance sheet excluding TSB. On the left hand side, you can see the breakdown of performing loans. Overall, performing loans increased by 0.8% in the quarter and increased by 3% year on year.
Corporate SMEs, mortgages and consumer lending were the main drivers of growth both in the quarter and in the year. On the right hand side of the slide, you can see that our customer funds increased by over 1% in the quarter and by 3.5% year on year. Our balance sheet funds increased by 2% in the quarter and by circa 6% year on year. This growth is mostly driven by site accounts. Of balance sheet funds decreased by circa 1% in the quarter ended by circa 2% year on year as a result of smaller volumes of both pensions and mutual funds.
In Spain, we have delivered a strong business momentum across products during 2019. New loans and credit facilities to SMEs amounted to nearly €19,000,000,000 [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] Growing by 2%, excluding real estate development. Together with working capital loans granted, we achieved a 4% increase In new lending to SMEs, that's all right. Thank you. The other main activity indicators Show high single digit of double digit increases.
Our commercial momentum is reflected in our market share In our market set growth in the main product segments. For instance, customers' loans were up 7 basis points, excluding €1,000,000,000 of consumer loans securities site in September 2019. Retail payment services turnover was up 70 basis points And life insurance premiums increased by 98 basis points. You can see that our market share of customer funds Has continued to fall slightly by 2 basis points year on year. However, this is an improvement on the previous quarter as the change in mutual funds was partially offset by the increase in the market share of customer deposits.
In particular, as we'll explain in the next slide, the agreement with Amundi will be a key lever As you may already know, on January 21, we announced the disposal of our Asset Management Unit as well as long term strategic partnership with Europe's leading asset manager Amundi. This transaction We'll allow us to further build our out to build out our position in the Savings and Investment segment in Spain. It would also help us to increase penetration and accelerate growth in the medium term by providing our customers with access to a stronger, broader and more diversified investment proposition than the one we had before. This includes an outstanding ESG offering as we step up our commitment to responsible investment. It also provides us with access to Amundi world class expertise on retail networks and will allow us to leverage their scale.
This will reduce investment needs and expenditure in the future. By joining forces with Amundi, we will also be able to strengthen our digital capabilities for this Pacific segment and have more time to fully focus on client acquisition and relationships. The perimeter sold €21,800,000,000 of assets under management and earned a net income of €34,000,000 in 2019, including €65,000,000 in net fee income and €17,000,000 of operating and staff expenses among others. The transaction represents a capital gain of €351,000,000 net of taxes, adding 43 basis points of fully loaded CET1. Additionally, an earn out of up to €30,000,000 may be received and will be payable in 2024.
€58,000,000 of this capital gain is subject to specific guarantees over the length of the agreement. Accordingly, 7 basis points out of the total 43 basis points impact on CA81 will be accrued over the next 10 years rather than realized at closing. Closing of this transaction is expected for the Q3 of this year. Regarding customer experience and service quality, this continues to be one of our key focus areas and one of our main competitive advantages. And the 2nd highest NPS for Personal Banking.
Turning now to TSB, which continued to regain commercial momentum this quarter. On the asset side, net lending increased in line with last quarter, posting an increase of just over 1% As the strong growth in mortgage applications continue to generate higher completions and customer retention levels improve. Core mortgages once again saw 1 of the highest quarterly growth rates post migration at 1.5%. Unsecured lending was stable in the quarter as we continue to increase our products service offering through digital channels. Year on year, net lending was up 3.6%, driven by an improved service offering and a wider product range in mortgages.
On the liability side, customer funds increased both in the quarter and in the year with growth across products. Business banking deposits increased by 9.4% in the quarter, Partnerships, partially reflecting the incentivized switching scheme, part of the RBS incentives, but mainly due to a new competitive savings proposition. Year on year customer funds increased by around 4%, which grows across segments driven mostly by current accounts and also by savings. On these slides, we show GSV's improvement in business momentum through the year. As expected, Due to the end of year seasonality, new mortgage lending and new unsecured loans decreased in the last quarter.
However, Year on year, new mortgage lending increased by over 21% and new unsecured loans by 37%. Regarding the bank's net promoter score, we are pleased that both bank and mobile NPS experienced significant growth in 2019 of around 20% points each as TSB continues to rebuild its business reputation. Finally, on this slide, you can see Our digital transformation is progressing at a good pace. The group digital and mobile customers were up 5% 14%, respectively, year on year. Moreover, digital sales of unsecured launch in Spain increased by 50% compared to the previous year and accounted for 39% of the bank's total sales.
Digital sales in the U. K. Also improved compared to last year. They represent 45% of TSB total sales and have grown by 42% year on year. Regarding strategic alliances, I would like to highlight that we have signed a 10 year agreement with IBM We are consolidating our IT suppliers.
This partnership will make things easier for us because it simplifies our operating model. Furthermore, the deal improves our IT scalability, resilience and security and enable us to launch new digital products faster and more Effectively. Finally, the agreement will result in annual AT savings. I will now hand over to Tomas, who will discuss financial results, capital, liquidity and asset quality.
[SPEAKER FABIENNE
LECORVAISIER:] Thank you, Jaime, and good afternoon, everyone. Regarding our quarterly results, as Jaime said, we reported Group. A net result of minus €15,000,000 in the quarter. Reported results were impacted by [SPEAKER ANASTASIA ALBERTO PEREIRA DE OLIVEIRA:] Seasonal items typically incurred in the Q4, such as the tax on deposits in credit institutions and the deposit guarantee fund Payments as well as unusual items such as the provisions associated with the closing of The NPA disposals and the earn out received on our insurance business disposal. In total, these items amounted to minus EUR 143,000,000 net.
You can see The detail on the left lower left hand side of the slide. In terms of the performance of our recurring business, The commercial dynamism within the bank continued. Expenses were higher in the quarter, although the annual total was in line with expectations. [SPEAKER STEPHEN ROBERT BINNIE:] The same thing as per the expenses being higher in the quarter happened in 2018 last year. So it's a seasonality effect, nothing that signals any change in trends or any structural factor.
There is some degree of seasonality here, as I said. And also in terms of provisions, They were also higher, in this case, mostly driven by single name NPL exposures and higher NPL write offs. Overall, we reported an annual net profit of euros 768,000,000 which is significantly higher year on year. Reported net profit was positively impacted by a net €97,000,000 of unusual items. It is also important to highlight when looking at year on year comparisons that net interest income, operating expenses and Amortizations were influenced by the implementation of IFRS 16, as we explained already at the beginning of the year.
So it started in January 1, and it's gone all the way through the year. You can see the detailed summary in this page. [SPEAKER MARCO TRONCHETTI PROVERA:] Moving on to the evolution of net interest income. Group net interest income dipped by 0.9% in the quarter And by 1.8% in the year in constant FX. Looking at the quarter, NII was positively driven by volumes, by FX and tiering related savings and cheaper wholesale funding.
Factors which reduced NII included our securitization and the interest rates levels. Overall, group average volumes ended the year slightly above our latest guidance, reaching EUR 142,000,000,000 As you can see on the right hand side and excluding the execution of our securitization in the Q3. [SPEAKER MARCO TRONCHETTI PROVERA:] Finally, as I will explain in more detail shortly, in terms of sensitivity to interest rates, Based on the balance sheet as of the end of this quarter, an additional decrease of 10 basis points in all relevant rates Would affect NII by EUR 18,000,000. This is EUR 18,000,000, 1.8 in the 12 months following the rate cut. From book yields across products this quarter have been lower, influenced by the mix of new lending and the interest rate environment.
In particular, in mortgages, From book yields reflected a lower contribution of fixed rate mortgages to the new volumes in terms of weight on new volumes, along with falling long term market rates, which hit a new low in the second half of twenty nineteen. [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] It is important to note that some of the new mortgages here were priced in Q3 when rates were lower, since it takes some time for mortgage granting to be completed. In addition, SMEs and Corporates new production included a higher level of corporate transactions this quarter, which are usually priced at lower yields. And finally, consumer loan yields were affected by a larger proportion Of loans to expansion current account, you may remember that this is a prime customer current account. [SPEAKER STEPHEN ROBERT BINNIE:] So loans to these customers usually are priced lower in average.
Also auto finance loans, which typically have lower yields as well. The group's customer spread was 3 basis Points lower in the quarter, driven by lower yields in Spain, which were mostly explained by desegretization that lowered the average and Rate Cuts in Mexico as well as lower yields in the U. K. As a result of the extraordinary in this case, as a result of the extraordinary effect of waivers and commissions. Group cost of customer deposits improved considerably quarter on quarter As TSB repriced its current and savings accounts and as reference rates were cut in Mexico.
Overall, group net interest margin remained stable quarter on quarter, thanks to tiering related savings and cheaper wholesale funding. And in addition, it is also worth noting that early repayment of DKK1.5 billion from the TFS.
[SPEAKER CARLOS ALBERTO PEREIRA DE OLIVEIRA:]
In this next slide, as we showed last quarter, we highlight the different features that Make our balance sheet more resilient to further interest rate cuts. Starting with the asset side, in terms of sensitivity to interest rates, Around 2 thirds of our lending is not sensitive to decreases in GeoRiver. In addition, the ALCO portfolio, We continue to have a very low reinvestment risk as only 11% of the portfolio will mature over the next 2 years. In fact, 7% of the portfolio will mature in the Q1 of 2020, yielding 1.2 percent on average. Moving on to the liability side, it is worth highlighting that The bank has different levers at its disposal to mitigate the effects of interest rates.
Firstly, we have €39,000,000,000 in wholesale deposits, and And there is a possibility that there could be a gradual repricing of these deposits. Currently, we pass through negative interest rates to €3,700,000,000 of these Wholesale deposits, which is €1,200,000,000 higher in the quarter. And secondly, we still have some Expensive outstanding wholesale funding liabilities maturing over the next few quarters, of which here we highlight a $400,000,000 Tier 2 issuance with a coupon of 6.25%. This should help us make our wholesale funding cheaper in 2020 despite new issuances. Finally, the new ECB measures that were put in place from October 30, 2019, are already helping to reduce costs through an excess cash balance.
In our case, Tiering will exempt more than EUR 6,000,000,000 of deposits currently at the ECB. Tiering related savings amount to EUR 32 EUR 1,000,000 in the year. Now Based on the details in this slide, our ALCO portfolio's contribution to NII expected to fall in the Q1 as a consequence of what I just said. The EUR 2,000,000,000 maturing, but it is then likely to remain broadly stable. Firstly, on the left hand side, we show how the amortized cost portfolio has increased over the quarters, limiting the sensitivity of capital to changes in the valuation of the fair value OCI portfolio.
On the right hand side, we show the maturity profile of our fixed income securities portfolio, which shows That only 11% is due to mature over the next 2 years, with the bulk of these maturities occurring in the Q1 of 2020, as I said. [SPEAKER MARCO TRONCHETTI PROVERA:] But if we look at the proportion that matures over the next 5 years, including the 11% that I just mentioned, Only 20% matures over the next 5 years. Finally, the average maturity of the total portfolio continues to be 9 years. Group fees increased in the quarter driven by the positive effect of asset management fee seasonality. The performance year on year remained strong at plus 7.6%.
[SPEAKER STEPHEN ROBERT BINNIE:] In terms of the segment evolution, it is worth highlighting that in addition to Asset Management growth, We saw growth in credit and contingency sorry, contingent risk fees in the quarter. [SPEAKER CARLOS ALBERTO PEREIRA DE OLIVEIRA DE OLIVEIRA:] Service fees were down slightly as price increases in this segment had already been fully accrued in the Q4. There is a new pricing plan for service fees, including further price increases, Which is effective from January 1, so the beginning of this month. In the year, FIST had a positive performance across all segments, including a modest rise from Asset Management. On the following slide, we show the positive evolution of core banking revenue excluding TSB.
The component annual growth Has been 6.8% over the period 2012 to 2019 despite your EORIBO in your driver, sorry, in In the same period, it has dropped by 2019 basis points. Year on year, at the end of the Q4 of 2019 core banking revenue growth was 1% or 1.5% if we exclude the effect of securitization. These positive results are possible, thanks to our improved structural resilience to interest rates, which we explained earlier on in the presentation. Moving on to the next slide. Group total expenses increased by 4.2% in the quarter, And also at group level, there was the influence of the appreciation of the Sorry.
Amortization was also higher quarter on quarter due to a higher level of IT investments. This as expected happens as IT programs tend to start at the beginning of the year and then in the second half. Therefore, amortization and investments are usually higher at year end. On the other hand, non recurring costs were also higher in the quarter expected driven by €26,000,000 of restructuring at TSB. It's worth remembering or highlighting that in the year, non recurring items included €85,000,000 of TSB related items, €50,000,000 for restructuring and €35,000,000 in other charges.
As we outlined at the DSV Investor event in November, going forward, about £45,000,000 in this case of TSB restructuring will repeat every year up to and including 2022, While the remaining nonrecurring of €35,000,000 will not repeat from this year onward. Finally, for those of you looking at the year on year changes, it is worth remembering once again that the implementation of IFRS 2016 distorted year on year comparisons, particularly here between general expenses and amortization. Recurrent provisions increased in the quarter at both ex TSB and TSB level. In the year, cost of risk improved by 14 Basis points. As explained briefly before, ex TSB provisions increased by more than the average level reported quarterly this year, so Just above EUR60 1,000,000, so higher EUR60 1,000,000 than the average quarterly charge of the year.
And this was due to higher write offs, single name exposures and to a lesser extent seasonal revaluation of collaterals. The increase at TSB was driven by the recalibration of model, which is policy there, which takes place every quarter and This is what and also the things that policy consists of for different products and can make provisions a bit lumpy in any single quarter. Overall, the annual charge for TSB was €74,000,000 which implies 20 basis points in line with expectations and is 4 basis points better year on year. On the following slide in this line, on the left hand side, We show a detailed evolution of both historic and future cost of risk. This is the first time that we provide this breakdown that we hope helps to understand better the dynamics of of Cost of Risk.
As you can see in the chart, while it has improved considerably year on year, we ended 2019 at 52 basis points, which was higher than our 45 basis points guidance for the year. The bulk of recurring cost of risk in 2019 was driven by new NPL entries and NPLs with vintages of less than 2 years. You can See how this was 27 basis points in 2018, 26 basis points in 2018, so pretty similar. NPA related expenses contributed 12 basis points in the quarter sorry, in the year. Excluding this NPA related expenses charge, With some of our peers done including provisions, our cost of risk in 2019 would be 40 basis points.
[SPEAKER STEPHEN ROBERT BINNIE:] In addition, it is also worth noting that expenses and foreclosed assets provisions have been an important driver of The improvement year on year, thanks to the strong progress made in reducing the NPA portfolio. Going forward, we expect the recurring level We improved slightly in 2020 driven by fewer NPLs and foreclosed assets as we continue to clean up our balance sheet. The reiterated item to consider in 2020 is the ECB expectation for prudential provisioning for NPLs. Part of this requirement will be covered by our recurring cost of risk in the year as every year. So it's part of of the ordinary course of business.
In addition, new actions to manage NPL exposures proactively may reduce the requirement and at anywhere between 5 to 10 basis points of nonrecurring cost of risk. Depending on these two components and on the final scope of the application of the guidance. Since the guidelines may have exceptions on the Application of the stock depending on a set of criteria established by the regulators. The final effect on CET1 could be up to 20 basis points, so less depending on How it's been dealt with through cost of risk within the ranges that I just explained. And this will be absorbed by capital generation in the year.
Moving on to asset quality, this slide shows a snapshot of The details of the final closure of the portfolios, commercially known as Coliseum, Challenger and REX to Cerberus. The transaction involves 61,000 units with a gross value of €8,200,000,000 Of these, There is a small amount of €1,800,000,000 corresponding to 15,000 units that is subject to 3rd party's right of first refusal. This right can be exercised during approximately 6 months following the closing date of the transaction. If the 3rd party doesn't exercise its right to acquired asset. The asset will be transferred to Cerberus under the agreed terms.
Exercising this right cannot alter the financial impacts of the transaction for Sabade Asset disposals have been now closed. In terms of the balance sheet, as a result of the deal, our assets available for sale have fallen considerably in the quarter. [SPEAKER CARLOS ALBERTO PEREIRA DE OLIVEIRA DE OLIVEIRA:] In addition, we have created an amount receivable to reflect the value of the assets with rights of a refusal, which will be liquidated Once these rights expire. Finally, as we have already discussed earlier in our presentation, there was an impact on results of a net 72,000,000 from extraordinary provisions related to the closing of these transactions. This comprised a net EUR 52,000,000 due to the implementation of certain contractual clauses relating to assets to the assets involved in the transaction And a net EUR 20,000,000 in cost related to the assets being transferred, but not attributable to the sale.
Moving on to the next slide. Our NPL and NPA ratios have improved once again this quarter to 3.8% and 4.8%, respectively. The non performing loan ratio improved in the quarter Our recoveries exceeded new NPL inflows. The stock of NPLs was reduced by 250,000,000 In terms of foreclosed assets, as explained earlier, we closed a number of NPA disposals, which means That the corresponding amount of assets available for sale highlighted in gray has been completely removed from our balance sheet. Overall, our foreclosed asset stock increased by €153,000,000 to €1,200,000,000 in the quarter.
[SPEAKER MARCO TRONCHETTI PROVERA:] It is also worth noting that the foreclosed asset stock composition improved once again this quarter and that is the reason for the lower coverage. Overall, the stock of NPAs, which includes NPLs and foreclosed assets, were down by 98,000,000 in the euros in the quarter, while NPA coverage was at 47%. As you can see on this slide, Our asset quality metrics are in line or better than those of our peers in Spain. Turning now to liquidity. At the year end, the group continued to have a strong liquidity position with an LCR of 172%, a loan to deposit ratio of 99% and high quality liquid assets of circa €46,000,000,000 Furthermore, in terms of TLTRO 2, We currently have €13,500,000,000 outstanding.
And in terms of TFS, we have €4,500,000,000 outstanding after having repaid €1,500,000,000 ahead of time £1,000,000,000 actually ahead of time this quarter. With regard to TLTRO III, no funding has been drawn at this point and we have no plans to use it at the moment. However, future withdrawal Securities as a percentage of TLOF stands at 9%, which is above the new requirement of 8.3%. Our funding plan for 2020 will consider the following objectives. 1st, AT1 and Tier 2 issuances as needed to keep these capital buckets full.
2nd, senior non preferred debt issuance of approximately EUR 1.12 EUR 2,000,000,000 to build up our additional MREL buffer. And 3rd, EUR 2,000,000,000 to EUR 3,000,000,000 of COVID bonds issuances, mainly subject to our euro balance sheet evolution. Moving now on to capital. On the following slide, we show the evolution of the group's fully loaded CET1 ratio in the Q4 as well as our pro form a position at the end of the year. Starting from the reported fully loaded ratio at the end of the Q3 in the left and following the graph to the right, we show The different drivers and capital impacts in the quarter.
First of all, the organic capital generation, including net profit. Net profit in this case excludes extraordinary provisions associated with the closing of our NPA disposals that are deducted from The contribution of these disposals in the slide. [SPEAKER STEPHEN ROBERT BINNIE:] It includes also dividends, intangible assets, other organic deductions and the decrease in organic RWAs. [SPEAKER MARCO TRONCHETTI PROVERA:] So this total added 1 basis points in 1 basis points, sorry, in the quarter. [SPEAKER CARLOS ALBERTO PEREIRA DE OLIVEIRA DE OLIVEIRA:]
Then an increase in deductions
driven mainly by fewer tax loss carry forwards being reverted in the quarter deducted 3 basis points. The closing of the NPA disposals added is 16 basis points. And additionally, the remaining capital gains on Solvia and the securitization, which were converted from accrued dividend into capital at year end as expected, added 8 and 4 additional basis points respectively. Finally, the payment of the treasury shares dividend announced last quarter added 7 basis points in the Taking all of this into account, our fully loaded CET1 ratio on a reported basis stood at 11.7% at the end of the year. In addition, there are a number of factors that bring us to the pro form a ratio.
Firstly, the sale of our real estate developer announced in August and expected to be closed this year will add 5 basis points. And lastly, The disposal of Sabadell Asset Management will add 36 basis points by closing, excluding the future value from the earn out. These elements will bring our fully loaded CET1 ratio to 12.1%. This is around 100 basis points presentation. On the following page, you have the details of our current reported capital base versus requirements.
The strong capital generation in the quarter has allowed us to increase our NDA buffer by 40 basis points. Our reported phasing total capital ratio stood at 15.7% At the end of the quarter, 256 basis points above our requirement of 13.1%. Our fully loaded total capital ratio stood at 14.99%. Both of these ratios would be around 37 basis points higher on a pro form a basis As indicated in this slide, if we take into account the new Tier 1 transaction completed in January this year.
Thank you, Tomas. To end our presentation today, I would like to give some key highlights of the outlook for the year ahead. In 2020, there will continue to be challenges that put pressure on the sector's profitability. Negative rates are pushing banks to find new sources of income and to rethink the way in which we have traditionally operated. [SPEAKER FABIENNE LECORVAISIER:] Expenses will continue to be linked to compliance, regulations and technology.
NPL trends have ceased to improve materially And regulation is still consuming a lot of management's time. Key regulatory developments this year include ECB provisioning guidelines, EBA guidelines and CRD V Article 104 among others. And finally, competition to capture and retain customers is not getting any easier. With this context, our priorities for the year are as follows: 1st, preserve revenue growth and keep up our business momentum, including containing costs 2nd, continue to improve our non performing exposures. 3rd, deliver on the restructuring of TSB as outlined in the plan presented last November.
4th, maintain adequate capital levels And last but not least, continue to create value for our shareholders. With this in mind, we have a clear strategy to help us overcome the market's challenges and deliver in our on our priorities. In Spain, Our objective is to continue to focus on our core businesses. We aim to contain cost in a number of ways, including branch closures in the year. Last year, we closed more than 40 branches.
And in 2020, we will close about 145. We will also continue to find ways to remove residual problematic exposures from our balance sheet at a reasonable speed and an appropriate cost. At the same time, we will focus on retaining our place at the top of the leaderboard in terms of customer experience in key segments To improve the cost structure of the bank in a sustainable way by executing on the restructuring plan launched last year, which include more than 80 branch closures. We will also develop new digital capabilities that will simplify and improve customer experience. And finally, we will also focus on growing our revenues by building on the momentum of our retail business and expanding our business banking proposition.
In Mexico, our main objectives are to increase the profitability of our existing businesses, to focus on providing best in class services to corporate and SMEs customers as we do in Spain and to develop our retail banking business through New strategic partnerships. Finally, it is also important to highlight that this strategy lays the foundation to realize the significant potential For improvement in the U. K. And Mexico return on equity in the medium term, which will be a key driver of group's profitability. Officer.
In this regard, we have normalized return on equity of 7% in Spain, and therefore, normalized levels of TSB profitability Would rise to raise the group's overall return on equity to a higher level. To finish this to finish our presentation, I will explain how all of this should translate into our financial performance. Our expectation is that fee growth and cost containment would support returns next year. We expect Core revenue and expenses to grow in the low single digits. As explained by Tomas earlier in our presentation, we expect recurring cost of risk to be slightly improved.
Taking all this together, recurrent return on equity is expected to remain broadly stable. And finally, our intention is to continue to grow tangible book value and maintain our CET1 at around 12%. And with that, I will now hand over to Cecilia for the Q and A session.
Thank you very much, Jaime. Operator, can we now open the line for a round of question, please?
Thank you. The first question is coming from the line of Alvaro Serrano from Morgan Stanley. Please go ahead.
Hi, good afternoon. Two questions, One on provisions and the other one on TSB, please. On provisions, I mean, you've just closed the €8,000,000,000 transaction. And I think there was an expectation or at least I had the expectation of a material reduction in provisions and they're actually going to go up. Can you maybe explain to us in a bit more detail the ECB supervisory expectations, how that plays?
Because I thought most of the charge
would Most of
the charter would have been via capital directly. So maybe if you could spend a bit of time Saying what the underlying sort of changes there are and why the recurrence is not going to go down as much. And maybe beyond 2020, how that's going to change your basically steady state or normalized provision charge? And the second question on TSP. As you know, these changes on overdraft fees and also Of late, the competition mortgages has been particularly sort of intense.
So the Bank of England didn't cut rates today, but it does look like There's a bit more pressure on margins than we previously anticipated. So can you maybe explain what the updated dynamics for this year in TSB are? And if you're going to be able to remain profitable this year. Thank you.
Thank you, Alvaro. As for the first one, The dynamics you referred to the views on how the Expectations of the ECB would play out and particularly pointing out to The views were they would play out through direct charge on capital. This is true. And no change or in any way, maybe more clarifications will be made. But of [SPEAKER MARCO TRONCHETTI PROVERA:] Of course, it's always above the level that is provisioned for or over the stock That remains outstanding in the balance sheet.
So there is this doesn't correspond to a [SPEAKER STEPHEN ROBERT BINNIE:] Changing the ECB expectations, the ECB expectations are clear, Provided or shown through The policy or the requirements of Complying with the specific percentages of coverage of the stocks as per the rules. And there is no more change or more interaction than this. The increase, it's true. We expected to the cost of risk The recurring cost of risk to be lower this year. The reality is we've seen this increase in the Q4.
It's related so [SPEAKER CARLOS ALBERTO PEREIRA DE OLIVEIRA:] It doesn't have to do directly with an expectation of an increase in the cost of risk per se. It has been [SPEAKER STEPHEN ROBERT BINNIE:] Due to, as I said, we have policies to examine, assess The different portfolios, different exposures, we have models and over the models in different set of criteria. We also apply the policies of assessment and review of our exposures And these two basically two things and another third that I've mentioned have occurred And the outcome of these reviews is known when it happens. So on average, [SPEAKER CARLOS ALBERTO PEREIRA DE OLIVEIRA:] It doesn't change things. So actually, the impact of this is affronting maybe effects that could have been seen over time.
As you can see in the slide that we show, there is An implicit view that the recurring cost of risk will continue to improve and also that There can be some add on in terms of non recurring cost of risk due to proactive actions of improving the stock. The reality is that we had an expectation of cost of risk in 2020 that we've exceeded, [SPEAKER JOSE ANTONIO ALVAREZ ALVAREZ:] Also in 2019, it was before knowing a number of things. [SPEAKER CARLOS ALBERTO PEREIRA DE OLIVEIRA:] It's true that it's clear that emphasis Needs to be put on quick reduction of NPA volumes, And this means sometimes to in this productivity to upfront charges and losses And it has an effect of saving, potential impact on capital of the stock regulation. It's always been so. So the business as usual And recurrent management of the stock always saves volumes and coverage Once the policy is there, right?
So but in this environment, Of course, all things considered, and after having heavily derisked the portfolio, a number of new strategies [SPEAKER CARLOS ALBERTO PEREIRA DE OLIVEIRA DE OLIVEIRA:] Appear, on average, the speed up of reduction should be quicker and this may need or may mean some additional non so to speak non recurrent charge. This is the rationale behind all this. So it's not that there has been a change in the ECB expectations other than what we already know since the moment that the requirements or the guides were issued. In terms of the TSB overdraft fees changes, when we issued our strategic plan presentation, [SPEAKER CARLOS ALBERTO PEREIRA DE OLIVEIRA:] We of course, we were very conscious of this and this was taken into account. [SPEAKER STEPHEN ROBERT BINNIE:] So different scenarios on the level of impacts were considered, also mitigants.
It was all embedded in the outlooks that we presented. So the situation doesn't represent a change from what we presented in the strategic plan Day. Precious on margins are still there, but more or less the same. For some time, [SPEAKER STEPHEN ROBERT BINNIE:] They appear to ease a little bit, but keep being challenging. And yes, today's decision by the Bank Finland is a positive, and we'll see how in the future this unfolds.
Thank you. Next question please, operator.
Next question is coming from the line of Jose Abad from Goldman Sachs. Please go ahead.
Hello, good afternoon. Thank you very much for the presentation. Two questions from my side, credit quality and capital. On credit quality, a follow-up question here. I know that you made the point that you don't see a genuine deterioration in credit quality, but actually The expected increase in cost of risk is due to actually policies and single name exposures and so on.
Could you tell us at least whether actually this is actually taking place In specific sectors, and if I can be more concrete, if you could tell us where the cost of risk for your consumer book is today And where it was in Q4 'eighteen. A follow-up question on this as well is whether are you planning To make any further consumer securitizations going forward, like the one you closed in September last year? And my second question is on capital, whether you [SPEAKER CARLOS GOMES DA SILVA:] Could give us some color on your potential actually Basel IV exposure impacts? Thank you very much.
Okay. Thank you, Jose. Now we haven't seen changes in patents [SPEAKER CARLOS ALBERTO PEREIRA DE OLIVEIRA:] As compared with 2018, you see in the breakdown that actually the most significant proportion Of course, the risk comes from the ordinary course of business In terms of dealing with new entries and vintages lower than 2 years, so this is where [SPEAKER CARLOS ALBERTO PEREIRA DE OLIVEIRA:] We put the focus to keep saving cost of risk. In particular, you were asking about consumer lending. The asset quality of the portfolio of consumer lending that we sold actually was outstanding [SPEAKER MARCO TRONCHETTI PROVERA:] And we haven't seen changes in this.
We are not disclosing further more granularity on the segments, but I can tell you that we haven't seen Changes in the pattern of cost of risk in consumer lending, of course, we have and we've [SPEAKER CARLOS GOMES DA SILVA:] I talked about this in our interaction often. We have a high weight of Corporates and SMEs and therefore cost of risk for us needs to reflect this as we have also the highest [SPEAKER CARLOS ALBERTO PEREIRA DE OLIVEIRA DE OLIVEIRA:] Customer Spread and NIM and so on. And the net net is positive and rewarding. [SPEAKER CARLOS ALBERTO PEREIRA DE OLIVEIRA:] But particularly in consumer lending, we haven't had a change in pattern and not a particular change in pattern in any other segment. In terms of can we do more consumer securitization in the future?
It will depend on circumstances. I won't say [SPEAKER DANIEL MARTINEZ VALLE:] We won't because we see it as a particular effective tool to Keeping our strategic position with our customers And finding a very profitable way of optimizing The use of our capital, so optimizing our asset composition. So there is nothing Definitive, but I won't say that we can't do more in the future. Capital Basel IV, as nothing changed there in terms of [SPEAKER STEPHEN ROBERT BINNIE:] My view is that in Spain in general, as for credit risk impact should be [SPEAKER DANIEL MARTINEZ VALLE:] None or I don't know if for someone very little. For us, all our analysis projections is No effects from credit risk, neither from market risk.
[SPEAKER CARLOS ALBERTO PEREIRA DE OLIVEIRA DE OLIVEIRA:] An operational risk is always a question mark. The straightforward [SPEAKER CARLOS ALBERTO PEREIRA DE OLIVEIRA:] Application of the known regulation could have some impact in terms of 35 basis points, something like this or above, But this doesn't take into account all the national discretionalities that we don't know how So this anyway is for 2022 onwards with phase in and so on and so forth. So still I think Basel IV is not A significant issue.
Thank you very much, Jose. Please, operator, next question.
Next question is coming from the line of Carlos Peixoto from BPI Caixa Bank. Please go ahead. Your line is open.
Hello. Good afternoon. I'm sorry, just to take a step back again on the cost of risk And the guidance on cost of risk that was conveyed. Putting it in numbers, should we assume That's basically you expect cost of risk in 2020 to be somewhere between 52 basis points to 62 basis points, with the Second one being the figure including that leeway of 5 to 10 basis points that you mentioned for additional NPA management procedures. Then on the second question, I would like to touch M and A.
We have seen some recent comments from the Group's Chairman pointing towards M and A as a source of a solution for the banking sector and something that Apparently, you saw that we would be interested in or at least that was my interpretation of it. I would like to have more details on what type of operations We will be contemplating in on whether indeed that's the only pathway you see at this stage To improve profitability, basically this year, you're guiding us towards 5% return on tangible equity. So my question is basically in the absence of M and A, what layers could you have to improve profitability In a way to cover your cost of equity. Thank you.
Thank you, Carlos. [SPEAKER CARLOS ALBERTO PEREIRA DE OLIVEIRA:] I will answer the first one and the last piece of the second one, but Jaime will answer The second one. So in terms of cost of risk, we haven't given The precise number in terms of guidance as you've seen, but I think using the [SPEAKER CARLOS ALBERTO PEREIRA DE OLIVEIRA:] Proportion of the bar, more or less, you all can come up with a range of numbers. And note that In terms of the add on, we are saying between 5 10, it means between 5 10, no, not necessarily The 10 or the 5, but the range. And note also, please, that with this in mind, so taking this including this and embedding this, We've given guidance on recurring ROE for the year.
So we are seeing with this [SPEAKER MARCO TRONCHETTI PROVERA:] The ROE broadly stable and The CET1 to remain around 12%. I think it's important to consider all these factors together. And actually, if we see these higher cost of risk than what we had thought of It's linked to more proactive management of the stocks of the portfolios. So we should see Relevant reduction of the level of the portfolios and the focus is On managing this, we don't want to get the cost of risk wrong. We are not allowing any Risk of going off track on this.
And therefore And this comes up to the ROE. Please note that We've been talking about ROE in Spain being around 7% or slightly above 7%. [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] And of course, we have TSB not contributing and we have Mexico around 3%. So I think the plan in TSB and And the evolution of Mexico are drivers to improve this. So these are probably the main drivers to make ROE grow.
And Jaime is going to answer there.
Regarding these Cushions about the comments done by the Chairman. I think that his comment was more a theoretical approach To consolidation, in line that consolidation makes sense From an industrial point of view, especially in a moment of Very low interest rates, but I think that the position of the bank is that for us, consolidation Has always been an instrument driven by strategy in the sense that it requires strategic sense, [SPEAKER CARLOS ALBERTO PEREIRA DE OLIVEIRA:] We are credit for our shareholders and having an execution risk that is manageable. But the position of the bank at this moment is that we are absolutely focused in the delivery of our strategic plan, And we are not contemplating any specific M and A in Spain.
Thank you, Jaime. Thank you, Carlos. Operator, please next question.
Next question is coming from the line of Sophie Peterson from JPMorgan. Please go ahead.
Yes. Hi. Here is Sophie from JPMorgan. So I had a question on your NII bridge that you give on Slide 19 quarter on quarter. So It looks like the volumes helped your NII by €14,000,000 while the securitization reduced your NII by €15,000,000 What because the securitization, I guess, was €1,000,000,000 and volumes are slightly above €1,000,000,000 in this quarter.
But Does that mean that the volume, the new volume growth that you're putting on your book has every 7% yield because The securitization basically had 7% 7.4% yield. So how should I read this graph, Especially the volumes and the securitizations. And can you also talk about your NII? Are there Any one off items or any extraordinary that we should be aware of? And then just a Quick follow-up.
On the cost of risk, so the when you mentioned the ECB Partners. Prudential Provisioning. Do you refer to the calendar provisions that you basically need to provide 100% of the unsecured book Within 3 years. And is that the impact that you basically expected or the cost of risk
Thank you, Sophie. Yes, so the evolution so The volume figures in Slide 19 show the average volumes. So the securitization wasn't there for the whole quarter and therefore the around BRL 1,000,000,000 of securitization It hasn't appeared at all in this. It's not included there at all. Therefore, the BRL 142,000,000,000 includes Investor.
It was New Lending. Please note that we have created and exposure for the closing of the portfolios of around above €1,000,000,000 for what we described is the fair refusal right, And this is included here, but it's been excluded in the It has very little impact in the average volumes because it was towards the end of the quarter. So actually, it's those volumes come from the evolution of the business. They have contributed not very much to NII given that They are average volume, but therefore, the NII is contributing There is a delay in contribution to NII and therefore, it comes more into The second so the Q1 of next year. It's true that The 7.4 percent yield of the securitization and I referred to this in the presentation is higher than the average yield of the new volumes And therefore, we've noticed this in the loan yield as is shown in the slides.
No other of one off items on NII, So nothing in particular. In terms of cost of risk, This is you are asking what about the calendar? Well, actually, this is so it is the calendar that it's that was set by the ECB in their expectations, which drives the impacts on So on those volumes that are older than the given Vintages in the calendar expressed by the regulators [SPEAKER CARLOS ALBERTO PEREIRA DE OLIVEIRA:] And that don't get to the coverage level required, The regulation on capital fills this gap. So it applies to the remaining volumes that are older than The vintages required and by the gap from the coverage to the required coverage. But all this is factored in, in the Guidance that we gave.
So in the slide where we provide the breakdown of cost of risk and we refer to [SPEAKER CARLOS ALBERTO PEREIRA DE OLIVEIRA:] The different impacts and the absorption of these in cost of risk of the year for next year And the potential up to this 20 basis points that is up to, so Probably less, depending on how much we've absorbed through cost of risk and the efficiency in doing so. So this is all of course, the calculation is done granularly. [SPEAKER CARLOS ALBERTO PEREIRA DE OLIVEIRA:] The 1st year of application of the calendar, of course, takes on all the stock and therefore, [SPEAKER CARLOS ALBERTO PEREIRA DE OLIVEIRA:] All the reduction on stock and all the catch up in the coverage done through Cost of risk makes all the effects disappear going forward. So from the 2nd year on, the impacts are significantly Lower and cost and the management of the stocks keeps reducing and reducing The
impacts.
Thank you very much, Sophie. Just reminding you please
Next question is coming from the line of Marta Sanchez Romero from Bank of America. Please go ahead. Thank you, operator.
Thank you for taking my questions. On your guidance on capital, what are you factoring in terms of dividends? Do you expect to return to full cash in 2020? Do you have a cash payout target? And then on I've got lots of questions.
On the deposit cost improvement this quarter, Is it largely related to Mexico? You still have €3,600,000,000 loans in the country, roughly €1,100,000,000 if I'm not mistaken. Do you plan to close that funding gap? And then just a clarification on your guidance. Could you split the revenue growth between net interest income and fees?
Are you keeping your ALCA portfolio flat next year? How much do you expect the new pricing policy to add to the fee line? And finally, a clarification on costs. The low single digit growth applies to the reported cost in 2019, so to the €3,300,000,000 you've reported? Thank you very much.
Thank you, Marta. The dividends, so for the guidance on capital, what we are factoring is the Continuity of our current policy. So as we expressed it already in the past, so between 40% 50% dividend payout excluding the positive capital gains in cash, [SPEAKER DANIEL MARTINEZ VALLE:] No changes. In the future, regarding cash, it could be dividends or now that [SPEAKER MARCO TRONCHETTI PROVERA:] The path of share buybacks has been clarified. It could be either of the 2, But the policy is in cash and there is nothing decided on that.
And as I said, [SPEAKER MARCO TRONCHETTI PROVERA:] As per the payout, the policy remains the same. Deposit cost improvement Mexico, as I said, plays out, But also the other geographies as well. Mexico, the closing of the funding gap It keeps going the same way that we've been doing, nothing particularly material No structural change, particularly material to highlight there. Revenue growth, not in Breakdown not in not precising figures, but volumes Support NII stability throughout the year and fees Have a higher growth than the average that we are guiding here for. And the ALCO portfolio, as was implicit in the presentation, [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] We'll not suffer significant changes.
There is this maturity in the Q1. [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] We will be opportunistic in the market seeing options. So we might refill this, But we are not thinking of changing dramatically the size of the portfolio. And in terms of reported costs, so the guidance on cost is on the reported.
Thank you very much, Marta. Next question please, operator.
Next question is coming from the line of Britta Schmidt from Autonomous Research. Please go ahead.
Yes. Hi, there. A couple of questions, please. Coming back So the provisioning guidance, how much of the nonrecurring cost of risk This will therefore recur in 2021, 2022, 2023. And the capital impact of minus 20 basis points, shall we expect that something will Expect there to be an offset by the nonrecurring elements in loan losses.
And slightly related to that, the return on equity guidance To stable recurring return on equity, am I right in assuming that this then excludes any nonrecurring items from the cost of risk And the base for that is the 5.2% reported for 2019. And then lastly, just wanted to know how do you treat the asset management Operations in your revenue and your cost guidance. Am I right in reading that half of the A half year of contribution is included in that guidance of these growth rates? Thank you.
Sorry, I realized that I hadn't. I was the micro was off, sorry, Britta. So, operational guidance, this is for 2020. [SPEAKER STEPHEN ROBERT BINNIE:] As we keep managing down the portfolio even quicker, we reduce the cost of risk. You see that we've reduced a number of items in the breakdown.
We've reduced related costs. We expect to keep reducing the component of less than 2 years of vintage in the portfolio. In terms of you will have noticed that In terms of the portfolio older than 2 years, the contribution to Costa Rica is small. Maybe it's worth clarifying that there is a charge there and also netting it, There is the amount of recoveries from write offs. So And this anyway keeps being reduced amount.
And The piece, the portion of the nonrecurring that we are giving as guidance for 2020, We don't see it. I don't see it to be replicated in 2021 and going forward. Anyway, this needs to be taken into account in the framework that We are not providing guidance for 2021 onwards because this will be part of our New strategic plan that we will present in due time, okay? In terms of the quarters, I think the most appropriate way to look at it is [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] To consider the quarters as average the quarters of this year for 2020 [SPEAKER CARLOS ALBERTO PEREIRA DE OLIVEIRA:] As a starting point, return on equity, when we clarify that is recurring ROE, That is aligned with recurring cost of risk. And anyway, in the Guidance that we give around capital, [SPEAKER CARLOS ALBERTO PEREIRA DE OLIVEIRA DE OLIVEIRA:] There is a margin room for parts of the nonrecurring.
So [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] Everything is quite aligned. How do we treat the asset management operation? So assuming that as we said, we expect it to close likely In the Q3, we think that up until that moment, [SPEAKER MARCO TRONCHETTI PROVERA:] The contribution of the Asset Management business will be accounted for through the different lines of the P and L. And then when the transaction is closed, the Accumulated net income coming from these months that the operation will have kept going Will be deducted from the level of capital gain that we've announced. So But the contribution either to revenue or costs, Therefore, to the guidance is relatively limited, but because half of the year is already included in the P and L going forward.
And anyway, the amount of it is limited. So this is not a material impact.
Thank you very much. We have time for one more question. Operator, please.
The last question is coming from the line of Andrea Filtri from Mediobanca. Please go ahead.
Thank you for taking my question. I wanted to ask first of all about capital. Why do you guide CET1 at 12% in 2020. If you start from 12.1% and you consider 20 basis points of hurdles from NPL guidelines, Are you changing the dividend policy, which I think before you said you aren't? Or are there other hurdles that [SPEAKER CARLOS GOMES DA SILVA:] You are embedding within your guidance on capital.
And then wanted to ask you about Article 104A of CRD V. You have hinted at that. Just wanted to understand in light of your capital repair of 2019, how were you considering using this instrument? What do you need to see to put it into place? And is it more of a potential buffer against Further hurdles like Basel IV or could that change your capital return policy in the future?
[SPEAKER FABIENNE
LECORVAISIER:] Thank you, Andrea. So in our guidance, we are saying around 12% For capital, so starting, as you said, pro form a in 12.1%, [SPEAKER CARLOS ALBERTO PEREIRA DE OLIVEIRA:] You need to consider the guidance we are giving in terms of recurrent ROE, Cost of risk. With this and with our track record in how our RWAs evolve with volume growth, [SPEAKER DANIEL MARTINEZ VALLE:] You can come up with some views on capital generation. The 20 basis points we are saying is, As I said, it's up to and depending on how much we absorb within the guidance we've given in cost of risk and how efficient we are in reducing the stocks. And [SPEAKER MARCO TRONCHETTI PROVERA:] So with all these, I think you can get to the 12% that we are not Giving us a precise and absolute target, we are saying around.
[SPEAKER CARLOS ALBERTO PEREIRA DE
OLIVEIRA:] It's not that
we are saying that if we are above 12% a little bit, we will give back the excess or if we are a little bit below, We will do something to get back to the 12. So if we are 10 basis up or 10 basis down, it doesn't mean That we will do something very quickly and very proactively. So this is sort of a corridor Averaged in the 12%. So for the future, until something Changes that makes us as an industry and particularly as [SPEAKER CARLOS ALBERTO PEREIRA DE OLIVEIRA:] Seeing that the levels of expected required capital change and we need to consider a number of things. So The guidance, I think, if you've and you know that and probably you've done already, if you put all these together, the around 12% Makes sense.
There are no other things that are not ordinary course of business. And in terms of Article 104, we are not saying anything Because what we just wait for is to see how eventually this is confirmed and precise. Of course, the ECB have done some signal In favor of or in favor meaning that they would go forward with this, still how Needs to be precise and it needs to be translated into a specific legislation. [SPEAKER CARLOS ALBERTO PEREIRA DE OLIVEIRA:] So that's why we are prudent and we are not saying anything. Of course, depending on how this was for banks in general, [SPEAKER CARLOS ALBERTO PEREIRA DE OLIVEIRA:] Touch of the
capital requirements with a different mix
of instruments would sort of ease the requirement on CET1. That is of course, but we are prudent because I think we think that Around this, which is marginally positive or is positive, some precisions need to be done by the regulators.
Thank you very much, Andrea. That was our last question, and this brings our webcast to an end. We thank you very much for joining us. And obviously, our Investor Relations team will be available for what's left of the day to answer any questions that you may have. And have a great evening all.
Thank you.