Good morning, and welcome to Sabadell Results Webcast. My name is Cecilia Romero. I'm Head of Investor Relations. And today, we will be presenting our 4th quarter year end results. As usual, we have with us today our management team, our CEO, Mr.
Llama Guardiola, who will go through the yearly and quarterly highlights I will give you some of the details about profitability and efficiency, commercial activity as well as transformation and TSB. Then our CFO, Mr. Hector Mazarela, who will go through solvency and asset quality and finally, our Chairman, Mr. Josep Oyu, who will go through some of the closing remarks and the outlook for 2019. And with that, I'll hand the word to our CEO, Mr.
Giarmo Guardiola.
Thank you, Cecilia, and good morning, everybody. Let me begin by highlighting that 2018 was an important year for Sabadell, marked by credit growth and strong dynamics in commercial activity. Also during this year, Sabadell achieved 2 Key milestones, which have produced substantial one off charge but will significantly contribute to the future profitability of our business. The first milestone was the agreement to sell a large part of our NPAs to institutional investors. This will allow us to completely transform the bank's Risk profile, accelerating our NPA's disposal rate while improving the bank's profitability by reducing funding costs and the future need for provisions.
The second milestone is the migration of TSB to its new IT platform. Whilst the new the systems immigration caused considerable frustration and difficulties, The new platform is already delivering real benefits. TSVs is now a stronger bank, operating on a more agile, Responsive and modern platform, which is able to service more customers, offering them an enhanced experience and differentiating TSB from many of its competitors. In addition, our core banking business has continued to show a good performance in the quarter and the year delivering robust volume growth. Both gross and performing loans Grew by 1.8% 6% year on year, respectively, ex TSB.
This, together with our strong progress in fees, which ended the year up by 11.3 percent ex TSB, have boosted our core banking revenues to 4.1% higher year on year ex TSB. Overall, net profit was impacted in the year by TSB IT migration one off items as well as extraordinary provisions for the institutional NPA sales amounting to €637,000,000 Excluding these one offs, our group profit would have increased by 9.6% in the year. I think it's important to highlight that we don't expect any additional one off costs related to TSB migration. And looking ahead, We are seeing commercial activity at TSB gaining momentum from the beginning of 2019. In terms of asset quality, we have also continued to derisk our balance sheet.
At the end of December, NPAs reduction reached an impressive Total of €7,800,000,000 in the year. Our NPL ratio was down to 4.2%, And our net NPA ratio decreased to 1.8%. Regarding the institutional NPA sales, we can confirm That we expect €153,000,000 of annual savings. This scenario includes the sale of Solvia, which was announced in December. Most of these savings are being accrued prior to the closing date of these transactions.
Moreover, our fully loaded core equity Tier 1 Ratio pro form a of the NPAs and Solvia sales and the impact of IFRS 16 ended by End of the quarter at 11.3%, which represent an increase of 10 basis points in the quarter. Fully loaded reported core equity Tier 1 ended the year at 11.1%, also increasing by 10 basis points in the quarter, while the total capital ratio increased by 70 basis points to 14.9%. I would also like to emphasize that in 2018, Sabadell has considerably lowered risk to capital from its equities portfolio The last portion was transferred to the amortized cost portfolio in the year. And lastly, I'm pleased to announce that our Board has approved a final dividend $0.01 per share, which brings the total yearly dividend to $0.03 per share, in line with the last year dividend payout ratio of around 50 percent of profits. Now I will review our quarterly profitability and efficiency highlights.
In terms of volumes, this year, we have reached a turning point in gross loans, which are growing year on year, both at group level and ex TSB level. Performing loads were up 3.2% year on year for the group and 6% ex TSB, driven by a very strong performance of our corporate and SMEs business in Spain as well as in Mexico. In the quarter, volumes continued to grow and were up 0.7 percent ex TSB, while group volumes were stable, impacted by the reduced activity at TSB. Overall, we saw a strong core banking revenue for the group, which was 1% in the quarter and 2.9% in the year. Our core banking results growth was even higher ex TSB, increasing by 2.4% and 4.1%, respectively.
Net interest income performed very well ex TSB, growing by 1.1% both in the quarter and the year. At the group level, NII was Slightly down in the quarter, but continued to grow 0.7% year on year. And finally, fees and commissions Performed remarkably well, growing by 9.6% for the group and 11.3% ex TSB year on year. Performance in the quarter was also very strong, driven by service commissions. Regarding our yearly results, Our reported net profit in the year was €328,000,000 These results include 1 off charge, which, as I mentioned before, amounted to €657,000,000 Excluding this, our net profit increased by 9.6% in the year, driven by a very strong performance of our banking business in Spain, Mexico and our international offices.
Looking at the quarterly income statement, I would like to highlight that the net profit in the quarter was €80,000,000 The quarter on quarter comparison has been impacted by the year end payment to the Deposit Guarantee Fund and the deposit tax usually paid in December and recognized in other operating results. As expected, quarterly results were impacted by the post migration one offs of TSB close to euros 48,000,000 net. Nevertheless, as I mentioned before, core banking results evolved positively in the quarter. Moving on to the quarterly evolution of net interest income. Ex TSB, NII increased by 1.1% compared to the previous quarter, driven by strong volumes, the effect of the Euribor repricing and a slightly lower cost of liquidity.
In addition, TSB contribution to NII decreased in the quarter due to lower volumes as the bank intentionally managed operating capacity during the quarter. In the year and excluding the impact of customer remedies, NII increased by 2.6%. Overall, group NII remained stable in the quarter. This following slide shows the evolution of the group customer spread in the quarter, which remained broadly stable at 2.73%, supported by higher loan yields ex TSB, which increased by 3 basis points as we continue to defend pricing and also thanks to the positive Euribor repricing. In addition, cost of deposits ex TSB increased by 2 basis points due to the higher cost of foreign currency deposits.
Group net interest margins remained broadly stable at 1.7%. And in TSB, customer spread and net interest margins were down 4 basis points and 2 basis points, respectively, in the quarter, impacted by highly competitive U. K. Mortgage market and the effect of the Bank of England August rate hike on the deposit cost. Now let's move to the evolution and breakdown of fees and commission, driven once again by the strong commercial activity.
Compared with the previous quarter, commissions were up by 4.6% for the group and 5.2% ex TSB. Fees were up in the quarter across all segments, including 3.7% growth in Asset Management, which was a very positive result considering the negative performance of financial markets. In the year, fish grew by 9.5% for the group, 10.1% for the group, excluding TSB customer remedies And by 11.3 percent ex GSB. Regarding expenses, Our operating cost line was impacted by €33,000,000 of nonrecurring expenses in the quarter, of which 28,000,000 mainly corresponds to an increase in personnel compensation related to the restructuring of our Asset Transformation Unit following the sale of the very significant portion of our problematic assets and €4,700,000 which correspond to post migration one offs, Net of savings from TSB from TSB, check with these bonuses, which TSB board decided not to pay. Overall, total group costs were stable in the year.
Well, let's us let's turn to Commercial Activity and Transformation. As I highlighted before, the commercial performance of our banking business across the group Continued to show encouraging dynamics, especially ex TSB. Performing loans ex TSB increased by 0.7% in the quarter, which resulted in a cumulative growth of 6% in the year, including 5% in Spain. This performance was driven by SMEs and corporates, but also supported by the mortgage segment, which grew 0.9% in the year, reaching an important turning point. Customer funds also increased by over 4% year on year.
We also continued to outperform in the most profitable segments, corporates and SMEs, growing At rates of over 40% and nearly 4%, respectively, while simultaneously defending yields. GSV balance sheet was resilient with current accounts growing above 3%, while lending remained stable in the year. This performance includes slower commercial activity in the quarter as we intentionally managed capacity during the 1st 2 months of the quarter. December, however, was a very positive month in terms of commercial dynamics. In Mexico, we continued to see Sustained growth in customer lending with a 7.8% increase in performing loan volumes during the quarter, while customer funds continued to grow, representing a In this next slide, you can see a more detailed breakdown of the evolution of customer loans and funds.
Let me highlight that on the LIABBI side, we registered an increase in customer funds in the quarter, both At the group level at the group and on ex TSB level, representing a year on year increase of 2.4% and 4 0.1%, respectively. Our balance sheet funds show a negative evolution in the quarter, impacted by the performance of financial markets, which also result in a lower growth in the year despite the positive net Inflows in mutual funds recorded during the period. Looking at performing loans by region, including the impact of FX, You can see that this quarter growth was mostly driven by the strong performance of Spain, our foreign offices and Mexico. Spain and foreign offices grew by 0.5%, 5.1% in the year, while Mexico grew by 4.4% quarter on quarter and 43.6 percent year on year. TSB volumes fell by 2.5%, 5% in the year.
And overall, good performing loans were down slightly impacted by lower activity at TSB in the quarter, while they increased by 3% in the year. The following slide shows the breakdown of performing loans ex TSB by customer segment. As you can see, the corporates and SMEs segments performed very well in the quarter, growing by 1.7% and 0.9%, supported by strong working capital lending, which typically occurs at the year end and also by an increase in loans and credit lines. Mortgage to individuals were slightly impacted in the quarter by the Spanish mortgage tax uncertainty. Nevertheless, the segment grew 0.9% in the year.
In terms of pricing, we have continued to defend yields across all segments without sacrificing volume growth. Looking at Commercial activity in Spain. Our performance continues to be very positive across segments. As I mentioned before, we continue to show strong growth in new lending in both companies and individuals, and we have also achieved double digit growth rates in other relevant commercial areas such as credit cards, point of sale turnover and insurance. This positive performance is reflected once again in market shares increases.
As you can see, since the start of the year, we have increased our market shares in both customer loans and customer funds. In addition, we have continued to improve Key to sustaining this excellent commercial performance is our continuous focus on customer experience and service quality. In this regard, once again, we continue to beat the industry average in terms of service quality, and we have widened the gap between ourselves and the rest of the sector. In addition, we maintained the top position in Accenture NPS ranking for both SMEs and Large Enterprises. In the UK, as I mentioned earlier, Mortgage activity remained stable, while current accounts saw positive growth in the year.
Quarterly performance, however, suffered as the bank intentionally managed operating capacity, reflecting the conscious decision to reduce New origination in Q2 and Q3. In the Q4, TSB saw the value Of mortgage application increased by 142% on Q3 and therefore, enters 2019 with a Strong completion pipeline. On the liability side, current accounts decreased in the quarter but increased by over 3% in the year. In fact, more than 140,000 customers opened a new bank account or switched their account to TSB in the year, while nearly 80,000 customers reached out from TSB out of over 5,000,000 customers in total. The reduction in saving deposits, both quarterly and the year, reflects pricing decisions taken early in the year to manage The deposits volumes through the 2,000 ISA season, given the bank's strong liquidity position with the LCR of nearly 300%.
TSB has made remarkable progress in its Three priorities announced in September. Firstly, by putting things right for customers, resolving more than 90% of complaints received Since migration. Now there are significantly fewer complaints moving closer to pre migration level, And most of them are no longer related to migration issues. Secondly, enabling the bank to achieve nearly full functionality for customers. We have a customer focused team and a strong banking system that customers are starting to see the benefits of, including availability of most products across channels and the launch of a leading business banking offer.
Thus, TSB New's new IT system provides a current architecture involving significantly fewer platforms with improved and faster service for our customers. For example, current accounts can now be open in branch In half the time compared with the old system, an online current account openings have returned to underlying pre migration levels following the launch of our improved online application. Another example is that mortgage brokers can also submit application And how the time compare with the old system. And finally, the 3rd priority looking for 2019. David Crosby was announced as the new CEO of TSB, and she will join the business in spring.
Moreover, in December, TSB was named part of the incentivized switching scheme for SMEs, and it's applying for a grant from the Capability On this last point, I would like to highlight that TSB has a unique proposition to bring competition to SMEs Banking in the U. K. TSB already supports 100,000 small businesses and charities across the U. K. And to help us to do more, we have already appointed a new team dedicated to business banking.
We believe that no single bank or fintech has the community presence and scale with a branch network that can rapidly reach A large part of the SMEs nationwide to ensure that the small businesses across the U. K. Are provided with the tailored offering they need. In fact, branches and PCAs market share are the key drivers for business current accounts production. And TSB has both of these factors.
It has more than 7% of branches and has been constantly capturing more than 6% of the current account flow during the last few years. While there's more challenges would need time to build their PCA and branch reach, TSB already has the right infrastructure and customer base to quickly become a key challenger in the SME space. At the same time, incumbents are already at their natural market share. Also, TSB will leverage on the group's experience in Spain, where Sabadell is one of the largest players and the leader in customer satisfaction in the SME segment. If you look at the market What the remedies program is seeking to achieve, TSB is uniquely placed to bring more competition by delivering an exclusive combination of local human expertise combined with cutting edge digital services to help the small businesses owners to run their businesses.
Moving on to the benefits of the for TSB of its new IT platform. Firstly, the new technology will improve operational efficiency and give back give the bank a competitive edge by unleashing its capacity to offer innovative products. Secondly, it will make TSB more competitive in terms of the time to market of new banking services. Certainly, the new technology is fully adapt to open banking standards, meaning that TSB can deliver open banking and integration with FinTech startups. Also with the new platform, it will be faster and cheaper to deploy upgrades.
In addition, it will enable TSB to provide better experience and a faster service to its customers. In fact, TSB Mobile NPS score was in negative figures Post migration at h in the last quarter 27.4 by year end. So it is obvious That customers are already noticing the benefits. TSB now operates on a more current, responsive and modern platform as the foundation for its future success, differentiating the bank from many of its competitors. Moving on to Mexico.
Our commercial activity continues to deliver impressive results. Customer loans grew by 36% year on year, and customer funds grew by more And threefold as a result of our focus on deposit gathering to close the local funding app. We have also continued to grow our new fully digital bank for individual, which we launched at the beginning of the year, which has already acquired more than 10,000 customers. During the quarter, we have also continued our commercial and digital transformation. As you can see in this slide, which shows some of the key metrics that we use to track our progress.
For example, digital and mobile customers were up 6 Percent 17%, respectively, year on year. Digital sales of unsecured loans increased by 39% year on year, and commercial impact based on Business Intelligence have increased by 33% compared to the last year. To achieve These results, we are continuing to roll out new initiatives that leverage on technology to improve our digital offering and simplify customers' interaction with the bank, such as those shown in this slide. At this time, we are completing investments in technology ventures. In this quarter, we have completed Our first interaction with Amazon's Alexa voice service, and we have launched payments using facial recognition technology.
We have also invested in Base 10, a venture capital fund, which mainly targets Silicon Valley startups. And we have also invested in startup, which is a digital platform that allows users to make online payments easily, instantly and securely. Well, with this, I finish this part of the presentation, and thank you very much for your attention. I will now hand over to Tomas, who will discuss solvency and asset quality.
Thank you very much, Jaime. Moving on now to solvency and asset quality. I would like To highlight the strong progress once again in our derisking in the derisking of our business Our balance sheet, we continue to decrease the ratios. As we can see here, the NPL ratio stands now At group level at 4.2 percent and the net NPAs ratio at 1.8 We've achieved this through a strong activity in the quarter, reducing once again More than €300,000,000 in NPAs, which in the total in the whole of the year has been More than €2,000,000,000 to €2,045,000,000 On top of that, the Very significant amount of the reduction due to the sales of the institutional portfolios. We've achieved this while keeping the level of our coverage at still at a high level.
It stands now at 52.1 percent. And in fact, we've seen in the quarter A decrease in the cost of risk, in the charging the P and L for provisions. We can consider this broadly to be a good Indicator of for the coming quarters. In terms of capital, It's the ratios have evolved positively stronger, We've launched stronger. We see here the CET1 is 11.1%, 11.3% pro form a and the total capital, 14.9%.
The total capital Has increased in the quarter 70 basis points and the SCT1, 10 basis points. We expect the ratio to stand in terms of pro form a even if reported Due to the impact of the potentially the TRIM that we will face Could marginally be temporary below 11%. The ratio pro form a will remain Both the 11% level. We in this guidance, we are assuming A level of TRIM impact of 40 basis points. Also, moreover, The our liquidity ratios stand very comfortably in a very Solid level, well above and comfortably above the regulatory requirements.
The LCR stands at 168% for ex TSB and almost 300% in TSB. This is ahead of the roll off of TLTRO, which in any case, we expect to Not have significant impact on the ratio. So the LCR will keep being after the repayment of The TLTRO, well above comfortably above the requirements and also the Repayment of the TLTRO due to other factors like, for instance, the issuance of MREL And also the in the denominator, the positive impact of the sale of the institutional portfolios. In terms of the, as I said, net stable funding ratio, the payment the Absorption of repayment of the TLTRO will have neutral impact. We continued to The risk throughout the quarter, our balance sheet, it made all sense for us after the huge sale of The institutional portfolios to keep selling noncore assets, this we did With Solvia, which will add €138,000,000 in terms of capital gain.
There is an additional potential income, but this is absolutely additional depending and it's not counted for In the €138,000,000 that would come depending on the future performance of the franchise, The impact the positive impact of this is 15 basis points in terms of CET1, and we expect they're closing in the Q2 of 2019. In terms of capital, as I said before, the Reported is 11.1%. It increased in 10 basis points. And in terms of pro form a, it's 11.3%. The pro form a includes an impact of Positive impact of 19 basis points due to the sales of our NPAs and the corresponding RWA savings, Also a positive due to the sale of Solvia.
This positive is 15 basis points and a negative due to The new accounting rule, IFRS 16, this negative of 16 basis points. In the 4th quarter, We issued Tier 2, and therefore, our Tier 1 and Tier 2 capital buckets are completed. This, together with the organic evolution of the CET1, made our total capital ratio Increased by 20 sorry, 70 basis points. And the Total capital now stands at 14.9%. The CET1 Phase in stands at 12.2%.
Here, we can see this quarter, we started To report our NPLs taken into account and also actually our NPAs already Without the volumes of the sold portfolios, which we account for in Non current assets are available for sale in preparation for the closing of the deals in 2019. And we also present here the ratio the NPL ratio in terms of both Taking into account the share percentage the lost share percentage of the asset protection scheme At a 20%, at anajuan 100%. So we start now reporting These ratios in terms of on the basis of 100% volumes of the assets under the asset protection scheme, which doesn't imply any change in the protocol. So the asset protection scheme Remains the same. And the only thing is that we are changing the reporting, the accounting behind it, but the reporting of the ratios, But without any additional change.
So the in terms of The previous reporting standard, the ratio the group ratio stands Now at circa 4%, which represents a reduction of 48 basis points in the quarter. We see the evolution of the volumes of the nonperforming assets in the quarter. The quarter are actually compared with the previous quarter, so the total evolution in the year as well. In the quarter, as previously said, the reduction was of more than €300,000,000 of which The NPL portfolio saw a reduction of €491,000,000 Whilst the foreclosed assets portfolio increased by $186,000,000 This increase in the foreclosed assets portfolio makes sense Given that after the sale of the institutional portfolios, The volume of the portfolio remained hugely lower than it was before. So now what we are seeing is the additions of the workout of the NPLs Where we acquired the collaterals, and this increases the portfolio whilst we see the sales, which are Lower than they were because, of course, the basis of the portfolio is lower.
This is the reason for this Evolution, but anyway, it keeps presenting significant pace of Reduction and highlighting the derisking of our position. And in terms of total coverages ratios, we see here that in terms of the Previous reporting standards. So comparatively with the previous reporting, the total coverage of The NPAs stands at 53%. In terms of the net NPAs to dollar assets at 1 6% 1.6%. And in terms of NPAs plus foreclosed assets, the ratio is 5 0.3%.
In terms of TSB, the profile of TSB hasn't seen Relevant changes in the quarter. TSB remains to be one of the most capitalized banks in The U. K. With CET1 ratio standing at 19.5% on a fully loaded Basis, in terms of NPLs and LTV, the ratios have remained Stable over the quarter. We've seen a reduction of cost of risk in the year of 6, 8 basis points mainly driven by an improvement in the performance of the unsecured portfolio.
And the ratios show that there hasn't been a relevant change in our risk appetite or our customers' Risk profile in TSB. And that will be all from me. So I hand over now to the Chairman.
All right. Thank you, Thomas. Well, a few words to See my look about what has been 2018 and what it looks ahead. I think that 2018 has been very important for 2 things. One thing is that we overcame the very relevant strategic events In which we reduced significantly the bank risk profile.
2nd, because the performance Of the bank ex TSB was satisfactory. I think that these are the main issues that we have to see. The events, namely the extraordinary events that produced derisking, Namely, the sale of the large portion of our problematic exposures, okay? The MPI's sales will help the bank to reduce the cost of risk, Volatility and operational costs, while freeing up precious management time that will be instead invested in core business outlooks. As you know, TSB IT migration, different from other migrations that we have done before, represented a significant Risk for the bank before, and it did not go initially as we all would have liked and hoped to be done.
So we can but fortunately and on the positive side, I can definitely say very positively that the issues of the migration absolutely resolved and belong to history. The stability of the platform, in fact, is proven Not only by my words, but also by objective data like the ones of FCA, major incident Reports in which banks are required to public every quarter. Already in the Q3 of last year, TSB recorded less than half The number of incidents compared with the other banks. So we are absolutely online, normalized, stabilized and looking ahead. On this note, it is also important to highlight that we do not expect any more one offs related to the migration.
That has all been reported and given up by the CEO, Mr. Guardiola. And at the same time, what has to be Taken into account is that we have created a technology that TSB needs, that TSB now has the first Line in the market technology that can and at the same time, for the first time, it can operate in fully independent and competitive bank, leveraging on this competitive technology and platform. In addition, TSB Has performed in line with the expectations on its track to meet, I think, that Sabadell, the Yes. I told you that on the positive side, the performance of Sabadell ex TSB was according to expectations.
And finally, in this front page, we also mentioned what is always a concern to you and is about the capital. And Mr. Varela has already told you. With regard to our capital position, the core Tier 1
of At the
end of this year, it's 11%. We expect that to continue being above 11%, as Mr. Varela said, and With regard to this year's results, I also want to stress and outline the performance of the franchise of Spain and Mexico, Which have not only achieved, but in some cases, have even beaten the 2018 objectives in our plan. Yes. The strong performance places us in very good track to meet our ex TSB 2020 targets.
In this page, you can see the 2018 results with the year end targets, starting with the commercial dynamism. I think that performing loans growth 305 percent is above expectations. The reported growth of NII is in line with the year end targets, And the reported core banking revenue growth above 4% is slightly below target, While fees and commissions had an outstanding performance in the year, growing 11.3%. Regarding the recurring cost of risk, Sabadell achieved a level of 65 basis points, which is reasonably close to the target of 60 basis points that we had for the year and along with the lines of what we saw in our 2020 plan. Going forward and considering the savings related to the large NPA sales executed during this year.
We remain very confident that we can achieve the cost of risk guidance of 44 45 Basis points in 2019 and the 40 basis points in 2020. I think that Sabadell's success in achieving This result, ex TSB, is worth highlighting. And Of course, the group's final results, as you know. The results were basically impacted by the post TSB of by the TSB migration issues. This brings me to the asset quality issues, which is one of the areas in which we have made tremendous progress.
As a matter of fact, we decided to increase the speed and go ahead with big sales of portfolios, Well, above what we had communicated before, in order to increase the level of the risking of the bank. This has been important. We have reduced NPAs by €7,800,000,000 in 2018, well ahead what was our 3 year accumulated reduction target of EUR 6,000,000,000. The group's NPLs ratio was significantly reduced also during this year towards Also towards our target of 2020. And furthermore, we completed the derisking with an NPA coverage of circa 53%, which also much higher than our 50% target.
It's also important to highlight that in our net NPAs ratio ended the year below to the year below Our 2020 target of 2%. It ended below our target of 2020, as it was 1.8%, if I don't Definitely, in 2018, we have completely by completely transforming our balance sheet, We have turned a page on our important chapter in the bank, and we are managing and looking facing Coming years afresh and away from the heritage. In terms of our business outlook and how I see it going ahead, I just mentioned that, first, Sabadell ex TSB is on track to meet its 2020 financial targets With an event with even better asset quality profile. Core banking trends are in line with our original business And we expect the potential increase in funding and MREL costs and the delay in the interest rate hikes that might be There to be offset by higher volumes and by higher commercial activity, some upside in fees also and slightly lower operating costs. Lower risk in capital from ALCO portfolio will also mean that we will be realizing a lower level of trading.
However, this will be offset by savings related to the NPA sales, which will result in lower provisions and higher operating income. Also, I have to stress that we'll be focused in the next Coming years to progress in our digital transformation as planned. Capital as regard to capital, I come back to that. In terms of group capital, we expect, as I said, that our fully loaded pro form a ratio to remain around 11% over the next 3 quarters. Organic capital generation should bring the ratio above this level by the year end.
Additionally, we are considering whatever is necessary to sell Coming from noncore assets, for instance, as we have already identified, the sale of Solvia, Desarrollos in Mobile Diallios And other things to be considered like residual foreclosed assets that would contribute additional capital inflows for the year. Additionally, I would like to highlight that without that and according to our current dividend policy of maintaining the dividend about 40 between $40,000,000 dividend payout in cash. This is consistent with maintaining our pro form a Fully loaded, it's set above 11% through 2019 and also about our about achieving around 12% during 2021. In terms of TSB, the bank will be Contributing, and that's our big missing achievement, TSB will be contributing much less than we initially expected in the next year's results, Which we are obviously dissatisfied about it, but it's the way it is. We are currently considering different initiatives to improve the efficiency, The profitability and the bank, and we'll be back to you when the new CEO of TSB is on board later this year to present the details of our new midterm plan for the bank with you, including several initiatives in cost reduction and towards Better efficiency and profitability for the bank.
That will be the focus of the plan, Boosting profitability by optimizing costs. There's a long way to go there. And regaining commercial momentum, which has already been started in the last quarter last year and this year. This regain of momentum will not only include the mortgages, but also The plan for diversifying its revenue by launching our SME strategy. Well, this is all that I wanted to tell you, and that is also the end of our result presentation today.
We are happy to answer Cecilia, and you will coordinate that, the answering of the questions that you may have.
Thank you, Mr. Liu. So So let's quickly go into the round of questions, Mr. Guardiola. We have been asked by some of the analysts a little bit more detailed guidance on the outlook for 2019 on NII.
So what's your group NII outlook for 2019?
Okay. I'm sorry. Our view is that The for the evolution of NII is that the level of NII that we have obtained in the Q4 of 2018 should be sustainable on average during 2019 based on the good performance of the Growth and also the stable prices pricing. So I think that We can consider that the as a good guideline, the level of NII that we have obtained in the Q1 of 2018.
Thank you very much. And also they've been asking about fees, whether you think the level that we're seeing is sustainable. What do you expect for 2019? And How do you think you can achieve that plan?
Well, As you know, the evolution of fish has been one of the most Strength points of our performance last year, and we are very optimistic about the That will this is going to be the level in the next year in 2019, sorry. Probably the figure is going to be high single digit, Based mainly in different elements. First of all, is that part of the Price increases that we carried out in 2018 were implemented in the 2nd part of the year. So The RISE is not completely accrued in 2018, and we will see it totally accrued in 2019. The second is that we have a plan to increase customer loyalty that Helps to increase the level of fees.
So I think that this There are some initiatives that are going to be implemented this year and that will foster fish further. And finally, the As I said in my presentation, the high level of commercial activity and the increase of number of customers also helps To this positive vision of fees for 2019.
And I would just finish One last question that we received for you as well regarding TSB one offs. The question here was, If you could please explain why are you confident or why do you expect that there will be no more one offs related to TSB post migration issues going forward in 2019.
Okay. The fact is that in December, the level of one off has been Negligible. So I think that is clear to see that This trend is going to continue looking forward. So all the fixes of the platform has been already applied. And the platform, as we have said, is now stable and in the Good level of the industry and clearly materializing benefits from our customers.
The redress provisions in the other is the other the source of one offs. As I said, 90% of the compliance has been already resolved. So I think that The last data that we have confirms that we have this expectation of no more One off costs of TSB for this year 2019.
Thank you very much. And the next question goes to Mr. Varela, and it's regarding provisions ex TSB. The question here was why is the level of provisions at ex TSB So long in the Q4 and whether you consider it as recurring rate of provisions, as TSB, for 2019.
Yes. On the one hand, in the second quarter, there were provisions coming from single names that We're entries in the quarter, so this increased at that moment, the level of provisions. We've seen lower we've seen a Significant decrease of NPL entries in the Q4. And yes, I think this is I would indicator of the recurrent level going forward for 2019.
Thank you very much. And Also for you, Tomas, regarding trading, obviously, we've seen a very low level of trading this quarter. And analysts are asking if you Consider these lower trading gains in the Q4 to be that can be extrapolated into 2019. What are your expectations for trading?
Yes. In the quarter on the one hand, in the year, our target was achieved already by half year, More or less or the Q3. And but we've seen Some marginal negatives in the quarter, also in the Q3. So therefore, we it was half year when we achieved the target. And those came basically from different contributions of sales of some non core assets in a format that made them go through trading So not actually to losses in the trading portfolios.
On the other hand, our exposure the exposure of our portfolio to volatility that That can affect our capital ratios and position is much lower now. So the portfolio is derisked in terms of Potential impact on capital. And therefore, the level of trading income that we Expect going forward is lower. We expect for 2019 between €80,000,000 €100,000,000 of trading income. And therefore, we can consider the Q4 to be a good benchmark for The outlook or the guidance into the trading income of 2019.
And Tomas, the next question is also for you. It's a very recurrent topic, obviously, Enbrel. And the analysts are asking if you could comment on your Enbrel requirements.
Yes. We received in we received a requirement Of 22.7 percent on our December 2016 balance sheet. And we are on track to meet this requirement by before January 1st of 2020. However, if the new BRRD II framework is approved In this first quarter or in the first half of this year, the requirement would change. So there would be a higher requirement for More so through subordination, but at the same time, the periods would be longer and it would drive us into 2024.
If this is the case, we could meet the requirement issuing no more than €5,000,000,000 to €6,000,000,000 over the next 3 to 4 years. And basically, we would use senior non preferred.
Thank you, Thomas. And we're going to finish this round of questions with 2 questions for our Chairman on the outlook and your vision on on the economic outlook for Spain first. So Mr. Oliu, I mean, could you explain what's your your Spanish macro outlook and what you've seen the impact of this outlook could be on the business.
Yes. Well, our outlook for Spain, I think that Spanish economy shows an important dynamism, especially With respect to all the other European, EU countries, that in This 2018, our forecast for the ending of the year will be around 2.5% of GDP growth. So that's quite an achievement. And our outlook for next year for the 2018 will Be slightly lower than we had, but above definitely and solidly above 2%. So our forecast is 2.2%, 2.3% for the GDP growth.
Inflation is under control. It's under the 2% both last year, this year, next year. So we are not expecting to have any problem on this side. And On the other side, the leverage of the private sector has gone down significantly. Levels that are below the euro area average and much below what it was before Well, it was before the in the 20s in 2000.
So it's well below. It's around 60%. That's in a good situation. The other thing that I wanted to tell you that, of course, What will this growth be driven by? It will be driven by domestic demand will continue And that is because household expenditure and residential investments are growing supported by the employment creation and by the favorable financial conditions.
The unemployment rate is continuously going down from those top levels at the 2011. I expect that to go down another 1.5 points percentage points down during this 2018. So There is employment creation and that we also expect continuing forward in the upcoming 2, 3 years. So and that keeps the domestic demand strong. The business investment has also remained Substantially dynamic in a setting in which rising capacity utilization and the expectations for Expanding activity, higher profits, the restructuring of business balance sheets and the persistence of favorable financing conditions, all that together We have and will continue supporting the credit demand on the business side.
So on that side, we are Reasonably optimistic, although there are headwinds. Where are these headwinds coming from outside? So that the dynamics of growth of Our GDP might be slightly lower because of the external headwinds. Also, we But at the same time, in this context, we expect that the net lending, which is what affects us in the domestic area, the net lending in 2019 will increase above 2%. 2.1% is our forecast, it was above 2%.
This growth will be driven, as I said, by corporates and SMEs That will be growing by 3.9%, while the households, We expect to be to remain stable in the growth of 0.5% possibly. So You also a question about no, if this yes, if we take Into our activity, I think that we already have experienced positive growth In the loans, excluding the APS exposure, that was 1.8% in our domestic performing loan book. And our domestic performance loan book grew 5% year to year. So that is already Being taken or being incorporated in our path of growth of domestic Growth. This year, on the mortgages side, as I said, we expect stable or Small growth for the next year in the market, but for the first time in few years, we reached the turning point in our bank of mortgages.
And that is something That lending being, for the first time, offsetting amortizations and prepayments. So that's also to be taken into account. The second question that you asked me?
Before we move to the second question, Tomas, there is one more for Tomas, But it's coming in repeatedly. And the analysts would like you to explain why are the taxes solo this quarter.
Yes. There are some reasons, as always, and this happened also Another quarters, all revenues coming from the contribution of the equity method Come already with tax deducted at this level in the P and L and therefore, don't flow Downwards to the bottom line. Then also, it comes there are effects coming from different tax rates in other countries, different from Spain that Tris, different from Spain that differ from the 30% corporate tax in corporation tax in Spain. Then also The impact of this year's TSB losses. And of course, this affects more When the bottom line, the net income is lower as it happens this year.
So those are the reasons that are affecting the average tax rate.
Thank you very much. And Mr. Oliu, this is the last question for you. Obviously, the audience has been watching very closely the developments in the U. K.
And they would like to understand, How probable do you think that this scenario for hard Brexit is? And how do you think a hard Brexit could impact said Collin Pach TSB. And if you can comment a little bit on the preparations that we have done for such a scenario.
It is not our base Case scenario or base case scenario continues to be that there is not a cliff edge and that there will be a deal. And that is And we attribute a very low probability to the cliff edge despite the fact it has a positive probability. And since then, we have To take into consideration, we have protocols in place. We have teams that meet and that have already For the last months being prepared contingency plans for that affect basically our branch, which is not significant. With respect to TSB, it is less important, 1st of all, because TSB is purely a domestic retail bank With no business dealing outside of the U.
K. Therefore, the impact of a no Brexit deal scenario may have in TSB Your impact of what that scenario would be in the real economy of the U. K. TSB has a very low risk profile, underweight In London, buy to let underway in London, in buy to let and in SMEs that Could be most affected by a no deal Brexit. So our investment in U.
K. Has a certainly endogenous component. The operational efficiencies that can be delivered no matter what happens to the external environments and that Therefore, that does is not to be very worried, except for the worry that could improve that could imply You know the worst performance of the U. K. But on the other side, and that's important also, TSB, we have The TSB capital is fully the excess capital is fully hedged.
So we do not have volatility With respect to the exchange rate with for our ratio of capital, so that we should be it's clear enough, No impact on capital from the whatever happens to the currency of the pound vis a vis the euro.
Thank you very much, Mr. Iolio, Mr. Varela, Mr. Guardiola. This concludes our presentation today.
We want to thank you also very, very much for joining our webcast today. And obviously, as always, Investor Relations is available for any question that you may have. And now