Good morning, everyone, and welcome once again to Sabadell Results Webcast. My name is Cecilia Romero. I'm Head of Investor Relations, and today we will be presenting our Q3 results. As usual, we are here today with our management team. We have with us our CEO, Mr.
Joao Guardiola and our CFO, Mr. Tomas Barela. Good morning, Mr. Guardiola. The floor is yours.
Thank you, Cecilia. Good morning, everybody, and thank you for joining our results webcast. Well, our presentation today will follow a similar structure to previous quarters. I will start by giving you our highlights for the quarter. I will then discuss our profitability and commercial activity results as well as our commercial transformation progress.
And finally, Tomas will discuss asset quality and solvency. Well, so let me begin by highlighting the main Developments, achieving our results this quarter and providing some information on some key elements of our performance going forward. First of all, and very important, our core banking business has continued to show a strong performance in the quarter, delivering robust Volume growth. Both gross and performing loans grew by 1.9% and 5.4% year on year, respectively, and ex TSB. This very good volumes performance, together with our strong results in fees, Which are up 10.8% year on year ex TSB, have driven our core banking revenues, which in turn have increased by 1.3% compared to the previous quarter and by 3.7% year on year ex TSB.
Also, we have continued to derisk Our balance sheet and to improve our asset quality profile this quarter. Regarding NPAs, the organic reduction that is excluding institutional sales In the quarter amounted to €244,000,000 And our NPL ratio Adjusted to account for the institutional sales announced in July was down more than 18 basis points to 4.3%. In relation to the institutional NPA sales announced last quarter, We can confirm that we expect €153,000,000 of annual savings. 85% of these savings Will impact provisions and impairments, while the remaining savings will go through amortizations and other operating results. It is important to note that these annual savings are calculated assuming the potential sale of Solvya.
Otherwise, The savings would increase to €209,000,000 Net profit was impacted in the quarter by post migration one off items in TSB amounting to €88,000,000 mostly related to increased resource and legal costs. In the 4th quarter, one off Charge to cover the final post migration costs will be limited to €30,000,000 This will bring the total and final costs Of the post migration issues to €320,900,000 Looking ahead, we expect commercial activity to increase in TSB from the beginning of 20 2019 once all products, including an SME product offering, are available in these in its different channels. Overall, group net profit for the 1st 9 months of 2018 amounted to €248,000,000 Net profit ex TSB and excluding one off items was €592,000,000 year to date, an increase of 8.3% compared to last year. I would like to comment briefly on the latest developments in relation to the Spanish mortgage tax. Our view in this regard is that Sabadell has acted according to the 1995 tax rule that specified that the tax on mortgages has to be paid by the customer.
This law has not been left void and without effect by last week Supreme Court ruling. However, we expect no retroactive impact since we have been complying with the tax law that was enforced at the time of the transactions. And finally, I would like to inform you that our Board has approved an interim dividend of $0.02 per share, in line with last year's interim dividend. Now let's move on to our quarterly In terms of volumes, we have confirmed that we have reached a turning point in gross loans, which are growing year on year for the Q2 in a row. Gross loans were up 1% year on year for the group and 1.9% ex TSB.
And performing loans were up 3.1% year on year for the group and 5.4% ex TSB. Overall, we saw strong core bank revenue for the group, which was up by 4.4% in the quarter 2.2% in the year. Net interest income performed well ex TSB despite Seasonality increasing by 1.1% quarter on quarter and even better at the group level, growing by more than 4%, thanks to lower remedies costs in TSB compared to the previous quarter. Fees and commissions performed remarkably well, Growing by 8.7% for the group and 10.8% ex TSB year on year. This next slide shows the income statement for the quarter on a like for like basis.
Net profit in the quarter was €127,000,000 including TSB immigration related one offs, which, as I mentioned before, amounted to 80 8 €1,000,000 The impact of these one offs translates into €4,800,000 in NII, €1,700,000 in fees, euros 17,700,000 relating to fraud and other operating income and finally, EUR 63,500,000 related to additional resources and legal advisers in operating costs. Excluding these one offs, Net profit for the group in the 3rd quarter was €190,000,000 which is 26.4% more than the previous quarter. And year on year, net profit for the group, excluding 1 offs, grew by 14.7%. In this slide, we show the quarterly evolution of net interest income, which ex TSB increased by 1.1% compared to the previous quarter, driven by strong volumes and the lower cost of liquidity. In addition, TSB contributions To NII increased considerably by 11.5 percent in the quarter as the cost of customer remedies decreased quarter on quarter.
Excluding remedies, NII and TSB remained stable. Overall, group NII increased by 4.1% in the quarter Or by 0.9% when excluding the positive impact of TSB's lowest remedies costs. This following slide shows the evolution of net interest margin, which excluding the impact of TSB 1 offs, Remained broadly stable in the quarter, helped by higher loan revenue and lower liquidity costs. In TSB, net interest margins, excluding 1 offs, Increased by 4 basis points to 28%, mostly due to the effect of the Bank of England base rate increase. Customer spread ex TSB fell by 5 basis points to 2.67% Due to the higher volume growth in lower yielding segments during the quarter, some pressure from the arugula repricing and the higher cost of foreign currency deposits.
At the group level, the customer spread increased by 5 basis points to 2.73 as TSB remedies were lower in the quarter. Now let's move into the evolution of and breakdown of fees and commissions, which recorded a very, very good performance driven by strong commercial activity. Compared with the previous quarter, commissions were up by 1.8% ex TSB, a strong performance taking into account seasonality. For TSB, commissions have more than doubled quarter on quarter coming from a relatively low base. The increase was mainly due to the end of Plasdense campaign, higher international payment fees as well as lower customer remedies Lower Customer Remedies Commercial Actions.
In the year, fees and commissions grew by 8.7% for the group, 9.4% for the group excluding TSB customer remedies and by 10.8% ex Regarding expenses, as I mentioned earlier, this quarter, our operating cost line has been impacted by 60 €3,500,000 of nonrecurring expenses related to TSB post migration issues. Excluding these one off items, group recording costs were down 1.1% quarter on quarter due to lower payments as TSB It has completed the migration to its new IT platform. Exhibitors were relatively stable in the quarter. Well, we'll now move on to commercial activity and transformation. As I highlighted before, the commercial performance of our banking business across the group continues to show encouraging dynamism.
In Spain, we delivered strong commercial results with performing loans increasing by 0.3% ex TSB and 0.1% in Spain in the quarter despite seasonality. This performance was supported by strong mortgage generation and positive volumes growth and positive volume growth in the corporate segment. In the year, we continued to outperform in the most profitable segments, SMEs and corporates growing at rates of over 5% 6%, respectively, with simultaneously defending yields. At TSB, we saw stable balance sheet trends in the quarter with growth in current accounts of 0.8% quarter on quarter and 6.5% in the year. Net lending, excluding Whistle 3 portfolio, was down 1% quarter on quarter and increased by 1.5% year on year.
This is below our initial plan due to the limitations on commercial activity produced by the IT mitigation issues. In Mexico, we continue to see sustained growth in customer lending with 1.1% growth in performing loans volume during the quarter, While customer funds continue to grow, representing a twofold increase year on year. In the next slide, you have a more detailed breakdown of the evolution of customer loans and funds. Let me highlight that on the liability side, we registered a small decrease in customer funds quarter on quarter, both at group and ex TSB level, as we had Some saving products expiring in the quarter. Also, it is worth noting that our wholesale funding increased in the quarter after the successful placement of €750,000,000 of senior preferred debt.
Of balance sheet, funds also show a more positive evolution in the quarter and grew by 0.6%, which was mainly driven by mutual funds and third party insurance products. Looking at the 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 and Mexico. Spain grew by 0.1%, 4.5% in the year, While Mexico grew 6.2% quarter on quarter and 44.9% year on year. TSB volumes fell by 2%, 3.6% in the year as the bank slowed down the loan application pipeline due to migration. Overall, group performing loans, excluding the APS NPL portfolio, which is in runoff, We're down slightly in the quarter and grew 3.1% in the year.
The following slide shows the breakdown of performing loans ex TSB, including the impact of FX and ex APS runoff by customer segment. As you can see, the Corporates segment has performed very well in the quarter, growing by 5% compared to June. Mortgages to individuals were also up by 1.2% quarter on quarter, and this was the strongest quarterly performance for this product in recent years. And SMEs volumes were down quarter on quarter impacted by seasonality, but grew by 5.4% compared to the previous year. Regarding pricing, we have continued to defend spreads despite some negative effects from Euribor repricing.
Overall, yields on mortgage, SMEs and corporates remained relatively flat, while consumer loans decreased quarter on quarter. Looking at Commercial activity in Spain, our performance continued to be very positive across segments. As I mentioned before, we We continue to show strong growth in new lending in both companies and individuals. Also, we have achieved double digit growth rates in other relevant commercial areas such as Expansion accounts, 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 our shares year on year across products for both companies and SMEs. And I also would like to highlight the increase in SMEs market penetration. Currently, 52% of Spanish SMEs work with Sabadell, up 2 percentage points in the year. 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 quality of service, Maintaining the gap between ourselves and the rest of the sector. And we continue to be at the top of the Accenture NPS ranking for both SMEs and Large Enterprises, where we achieved our best score ever. In the U. K, as I mentioned earlier, it is important to note that TSB slowed down the loan application pipeline to focus On migration, we have consciously maintained subdued loan levels to focus on post migration customer service. Therefore, net lending growth decreased by 1% in the quarter, excluding the Weasel III portfolio, VAT continued to increase year on year by 1.5%.
On the liability side, current accounts growth It was more pronounced in this quarter, increasing by 0.8% quarter on quarter and by 6.5% year on year. And saving deposits were down quarter on quarter, reflecting pricing decisions made in early 2018 to manage deposit volumes through the 2018 individual savings account season given TSB's strong liquidity position. Moving on to Mexico. Our commercial activity continues to deliver impressive results. Customer loans grew by 47% year on year and customer funds more than doubled as a result of our focus on gathering deposits to balance the local funding gap.
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 9% 17%, respectively, year on year. Digital sales of unsecured loans increased by 67% year on year. And commercial impacts based on Business Intelligence have increased by 36% compared to last year. To achieve these results, we are continuing to roll out new initiatives that leverage on technology to improve our digital offering and to simplify customer interactions with the bank, like the ones that you can see in this slide.
In the field of alliances with digital players, in this quarter, we have reached an agreement with Alibaba to offer Elipay users in Spain the option to pay using Sabadell's point of sales terminals. And we are continuing to invest in technology ventures. During this quarter, we have acquired Pay TPV, An Internet payment service provider for retailers, and we have invested in Antai, a venture builder, which has strong know how in the launch of digital businesses. And with that, I finished my part of the presentation. Thank you very much for your attention.
And I will now hand over to Tomas, who will explain to you the sections of solvency and asset clarity. [SPEAKER IGNACIO CUENCA ARAMBARRI:] Thank you, Jaime.
Sorry. Thank you, Jaime. Well, if we refresh the main metrics of our risk profile Improvement in the year, again, we mentioned that the NPL ratio stands now at 4.3%. The net NPAs to dollar asset ratio stands at 1.7%, while the gross Our ratio is 5.5 percent and our NPA coverage is circa 55%. The EUR 12,000,000,000 NPA sales portfolio sales that we did, as we've mentioned, Generate annual savings of €153,000,000 before taxes, that could be 290, will retain Solvia.
15% of this, as we said, will appear through Amortization and other operating results and the 85% will be seen in cost of risk. Taking this into account and further developments in cost of risk, the cost of risk ratio or the guidance for 2019 would be 45 basis points and 40 basis points for 2020 with potential improvement. We've seen a slight increase in the over the expected cost of risk this quarter due to idiosyncratic Charges with some names, but the underlying trends continue to be favorable. The pace of organic reduction is significant. We see here that what we say What we call organic reduction has been EUR 244,000,000, this doesn't include the sales on the perimeter of the portfolios that were sold.
If we add these, those sales were €294,000,000 in the quarter, which shows Significantly strong sales trends in this kind of assets. From now on, sales in The perimeter of the sold portfolios will depend as well on the positioning of the Owner of the portfolios. In terms of the capital position, as mentioned, pro form a, the CET1 stands at 11.2% and the reported is 11%. Here, we see the evolution of the ratio and this stability. It's worth mentioning that there is no risk coming from the ALCO portfolio exposure in Italy since All the Italy exposure is within the amortized cost portfolio and therefore, Doesn't provide volatility on the ratio.
On the other hand, going forward, our Question is that in the coming quarters, the ratio will keep being behaving will keep behave We'll keep behaving stable. There are some potential negative impacts coming from 3 effects that we expect to be offset by Organic growth, organic capital generation and also other positives related to Disposal of assets and other changes in the balance sheet. We can see here the confirmation of a strong delivery on NPL improvements, both in terms of exposure and also in coverage. The total group NPL ratio It's going below 4.5%, and the ex TSB is approaching 5%. The coverage kept increasing slightly and as it's done in the over the what all the quarters that we can see here.
In terms of the evolution of the stock of NPAs, We again see a significant reduction both in NPLs and foreclosed assets. And in terms of the total NPA exposure, the reduction pro form a In 12 months, year on year, it's €9,300,000,000 and is potentially approaching €10,000,000,000 by the end of the year. Once again, here we see the evolution of the volumes, also the coverages On the ratios of NPAs to dollar assets, the pace of reduction is Remarkable and it continues. And the net ratio stands at, as mentioned, 1.7% And the gross group ratio, as we can see here on the lower right hand side, is 5.5% at the end of the quarter. The pro form a tax rate ratio at the end of this quarter is 55.7%.
[SPEAKER MARCO TRONCHETTI PROVERA:] And as per TSB, we present here a snapshot of The asset quality and solvency metrics, they remain stable and And really low risk profile and the risk appetite in TSV is prudent. And the target product offer will be ready by the end of the year to resume growth. We are seeing that the expected growth in 2019 hasn't happened as a result of The focus on migration and post migration, but by the end of the year, The target product offer will be ready and growth will be resumed. And As we can see here and reminding the metrics, of course, loan to value on the mortgage stock is 44% at the end of the quarter. Buy to let is 15%, significantly below The U.
K. Average CET1 is 19.5 percent. So it's, as I said, is remarkably stable throughout the quarters. And here, I would end my part of the presentation. Thank you, Cecilia.
Thank you, Tomas. We are going to open now the floor for a round of questions. And the first question, do you expect to maintain this performance throughout the year?
[SPEAKER MARCO TRONCHETTI PROVERA:] Well, yes, yes. As I said in the presentation, in terms of volumes, ex CSP, basically Spain, The figures are very robust with positive growth in even in mortgages, 1%, Very significant increase in corporates and SMEs, 5% and 6%, respectively. We are doing this defending pricing. In our view, This trend is going to continue through the year, basically supported by the good performance of the Spanish economy. Obviously, there is some kind of expected deceleration.
But in relative terms to other European [SPEAKER MARCO TRONCHETTI PROVERA:] Economy in Spain is doing very well, so we are taking advantage of this good performance of this Spanish economy. At the same time, we are taking advantage of our, Let's say, unique position in SMEs, in a ample vision of SMEs, meaning Business, retailers, small companies, micro companies, I think that we are doing very well because we have Singular and special offer for them and a very strong position in terms of market share. So we are very positive of the evolution of volumes. At the same time, we are doing well in terms of NII, more base Volumes with a little bit pressure in margins. But in the other side, we are doing, I think that remarkably well in fees and commissions were ex TSB.
We are year on year 10 point 8% up. I think that we can improve a little bit more this ratio for the full year. And also looking ahead, I think that Fees and commissions, we expect to be ahead the plan because the position is where we are At this moment, it's very strong. So I'm very positive to maintain, even improve The performance of our banking business in Spain.
Thank you very much, Mr. Guardiola. The next question goes to Tomas. For the 2nd consecutive quarter, trading income has been mute. Could you please comment on the evolution?
Yes. Well, it's important to take into account that Trading income can be volatile across quarters, but also is worth reminding that We've already achieved EUR 246,000,000 in trading in the year, and this is aligned with what we expected for the full year.
Okay. Thank you very much. And the next question goes to you again, Tomas. We've seen the ALCO portfolio increasing in the quarter. Could you please comment on your strategy?
After the sale of Italian bonds in the second quarter, We took actions to manage the portfolio, and therefore, This increase has been seen in the Q3, but we expect it to remain stable both in terms of size and yield.
Perfect. And the next question goes to you again, Tomas. Regarding capital, you discussed a little bit on the presentation, but could you we have been asked to again about the CET1 guidance for the coming quarters and what is driving the change.
Yes. We've derisked the balance sheet. As I mentioned in the presentation, the ratio stands the reported ratio stands at 11% on pro form a and 11.2%. We expect it to remain fairly stable across the coming quarters. The drivers will be organic RWAs growth, Organic capital generation, some impacts likely in the coming quarters coming from TRIM.
[SPEAKER IGNACIO CUENCA ARAMBARRI:] And as I said also, other management actions related to disposal of assets and other changes in the balance sheet that will offset And maintain stable the ratio.
Thank you. The next question goes to Joao. Could you please provide us with some color about Situation of the NPA transactions, please.
Well, the NPS transactions that we announced last Quarter are the process of optimizations, and we expect that [SPEAKER MARCO TRONCHETTI PROVERA:] To be closed during the first half of the year, the next year. This is a process that requires the authorization of different Authorities, so I think that it could be our expectation is that to finish before the end of the first or the 1st semester of next year.
And the next one is for you, Mr. Guardiola. How confident are you of being awarded the RBS remedies in the U. K?
Well, we consider that we are a very strong candidate to these awards. Basically, because we have the best platform to serve SMEs, We have to convince the market that The platform that has been, let's say, liability or Because of the problems of the migration, is now, once we have recovered The normal activity is a great asset to offer to have the best offer To our customers, we consider that we are also a very good candidate because we have The better footprint in terms of branches that match more with the offer of Former Woolies and Glynns in terms of our presence in England, Scotland and Wales. We have experience in treating SMEs and small businesses [SPEAKER MARCO TRONCHETTI PROVERA:] In this branch footprint, and I think that we are going to be one of the more strong candidates. We have prepared a very good offer. We are just, in this moment, completing the offer in all the channels in our platform.
We have also had the experience in of Banco Sabadell in SMEs. That is our DNA basically. And we can serve British SMEs in the better way that Any competitor could do. So I think that we are strong candidates, and we are going to fight I'd like to be one of the winners.
Thank you. The next question goes to Mr. Varela. Why has the cost of risk this Quarter being a bit higher than expected. Including the NPA savings, how do you expect your cost of risk to evolve?
As I said, we had a few names this quarter that triggered some idiosyncratic charges. And therefore, this explains the small pickup in cost of risk. And going forward, the Guidance will be 45 basis points in 2019 and 40 basis points in 2020, with potentially some Marginal improvement on this.
Okay. Thank you very much. And the next question goes to Mr. Guardiola. Will you sell Solvia or end
Well, we have received interest investors' interest [SPEAKER CARLOS ALBERTO PEREIRA DE OLIVEIRA:] In Solvia, and Solvia Salvatoressimo Villarios, we have told in any presentation that [SPEAKER MARCO TRONCHETTI PROVERA:] For us, this real activity real estate activity servicer and development of real estate It's not a core business, and we are interested in extracting value of this transaction. So Given this investor's interest and given the that Most of the real estate legacy of Bank of America has been sold. We are considering selling these two assets.
Thank you. And the next question goes to Mr. Varela. Why is the yield as TSB falling quarter on quarter? And can you also please Comment on the evolution of deposit costs?
Yes. In the quarter, we've grown more in lower yielding segments like mortgages and [SPEAKER MARCO TRONCHETTI PROVERA:]
Chesson, the corporates than in the
other higher yield segments. This has been particularly so in this Quarter also, we had some negative UroIBOR repricing effect, and those are the 2 basically, the two reasons. In terms of deposits, the evolution in our Mexican business has been remarkable and growth in deposits significant. So the weight of those deposits has increased. And there, of course, deposits the cost of deposits is higher, and this explains The small pickup we've seen.
Thank you, Tomas. The next question is also for you. What's your standard TLT802? And how do you plan to refinance it?
The volume is now €20,500,000,000 1st of all, I should mention that our position in cash and equivalents now is EUR 20,000,000,000. We have an excess of liquidity, but also going forward is we need to remember that we have some €4,000,000,000 in cash that should come from the development of our asset protection scheme. And also with TLTRO funding, we invested in Some €5,000,000,000 in assets that basically have the same duration or maturity and are very similar. And also, we will be, of course, issuing MREL over the coming quarters, years. And finally, of course, one of our very viable sources of Funding is the repo market that we are using at a relatively low level now.
So one of the last points you made, the audience is also asking what are your EMBA plans?
We plan to tackle the unsecured debt market over the next over the coming quarters as planned, So no changes in our approach.
Thank you. And also, Thomas, for you. The artist is asking obviously, they're asking whether you are planning to revise your business plan targets given the developments this year.
We are our review of the targets is underway. We will Take into account the developments that have happened this year basically. Of course, the additional savings that we've confirmed in this presentation related to the sale of the NPAs portfolio, We've seen that credit volumes and core banking revenues in Spain remain Very strong, so growth and the evolution is very strong. In terms of TSB, of course, we need Take into account that the as I mentioned in the presentation, the 2018 growth Hasn't happened because of the focus in migration and post migration, but growth will be Resumed at the beginning of 2019. Therefore, we need to, As I said, take all these things into consideration in TSB.
Also, the strategy of SMEs We will be built into the review because it starts to be launched effectively now. So in what I mentioned in terms of the target product deployment in TSB To be ready by the end of this year, this includes an offer for SMEs. So this is already on. This hadn't been included in the previous plan as we disclosed at the time. And in terms of the interest rate levels And their impact on the NII, this also It's being followed.
For the moment, we are not that different from what we included in the plan And was disclosed. So there is a number of things that we are working on and And in due time, will be explained.
Thank you very much. And the next question goes to Mr. Guardiola. In terms of dividend policy, do you confirm your 50% payout policy?
Well, yes, we are keeping our policy. But obviously, this is ultimately the decision that has to be proposed by Our Board, but our intention is to keeping this policy.
Okay. Thank you very much. And this was the last question. With this, we conclude our webcast. As always, the Investor Relations departments continue to be available to answer any questions that you may have.
Have a great day.