Good morning, everyone. Welcome to Banco de Sabadell's Capital Markets Day. Today, we've also published our quarterly results presentation. This presentation was pre-recorded and is accessible to the audio webcast on the quarterly results through our website. As usual, we are joined today by our CEO, César González-Bueno, and our CFO, Sergio Palavecino. Let me share with you the agenda for today. Firstly, our CEO will begin by explaining the four main pillars of our strategy for the next three years. Then, our CFO will cover the guidance for the main P&L items, the capital evolution, and the shareholder value creation. Finally, we will do a Q&A session in which we will be happy to answer any questions regarding the strategic plan and the quarterly results. I will now hand over to César González-Bueno to kick off the presentation.
Thank you, Lluc. Thank you all for attending this Capital Markets Day. As Lluc mentioned, I will cover the strategy, Sergi, the financials, and then we will take a Q&A for both. Q2 results and the Capital Markets Day. Let's just start with what has happened over the last four years in a very synthetic way. We are aiming at profitability, and we are aiming at capital generation. We went from EUR 200 million net profit to EUR 1.6 billion in 2024, and from a return on tangible equity of 0% to 14%. One of the things I would like you to pay attention to is those small mentions with a thumbs up that are all across the presentation.
This is because we are going to try to show you that the projections that we are doing for 2027 are perfectly in line with the year-on-year that ends in the first half of 2025. Therefore, we are aiming for a return on tangible equity of 16%, and we are already on our way because we have achieved the 14.4% during the first half. We are also aiming at the EUR 1.6 billion, above EUR 1.6 billion for 2027. On the right-hand side, we have capital generation. Why do we have that next to each other? Not all returns on tangible equity are equal. You can have returns on tangible equity that are higher, but because of inflation and devaluations, the capital generation is seriously affected because of fair value adjustments and higher growth of risk-weighted assets. In our case, that analogy is quite substantial.
Our growth in return on tangible equity should mean that we also grow our ability to distribute, to generate, and distribute capital. If you look on the right-hand side, the evolution has been very positive from 37 basis points in 2021 up to 210. We expect an extraordinary distribution after the sale of TSB of 400 basis points and then an ongoing of 175 basis points per year. It progresses in the right direction. If we move to the key elements of our strategy, we are talking about Spain. After the expected disposal of TSB, we are going to be a Spanish bank. Spain is doing well. It is a safe country. It is growing above its peers. Our story is a story about growth. What is very difficult is to grow and generate capital at the same time.
We will try to convince you which are the elements of the next element, which is execution, that allow us to do that. Usually, when you grow, you put at risk either pricing or risk. We will try to show to you that that is not what we are doing. We are growing prudently. We are going to grow prudently. We are going to gain moderately market share, but we are going to do it in a way that generates value. Finally, last but not least, I think we have a spectacular shareholder remuneration to share with you based on our strong capacity to generate capital. This is what we're going to talk about now. A brief introduction around Spain. Spain is doing well. Second, we will talk about growth and how that growth can be profitable, how that growth generates value.
Third, we will mention a little bit about execution, our track record. We are very proud of our track record over the last four and a half years. Finally, we will close with shareholder remuneration before giving the floor to Sergio. Let's start with Spain. Spain, I mean, everything looks basically right. Private debt is at very healthy levels, almost half of what they have been historically and the lowest of the last 20 years. Our labor dynamics, we have never been the best in that, but in terms of dynamics and relative terms, we are at a very good level, much lower than in the past. Our GDP performance, agreed by all the international and national projectors, says that we are going to be above in terms of GDP and in line in terms of inflation.
That leads us to use as a backbone for our plan something, a growth of around 4%. A bit above for household lending, but around 4% both for customer deposits and corporate lending. This is very simple. This is the sum of the growth of the nominal GDP plus inflation, and that yields that 4% with the projections of ECB interest rates standing at around 2% by the end of 2027. Let's go to growth now. Preparation for growth. This is basic banking, and I hope I don't bore you with this, but it's at the core of our relentless focus on execution. Banking is about doing the risks right, doing the pricing right, and having the correct processes and journeys. We have transformed in depth our risk models. We'll talk a bit about that. Pricing, it's very analytical.
It's not only based on risk, but it's also based on price sensitivity. We have reviewed all the processes and journeys in order to improve the customer experience and in order to improve the conversion in our sales processes. We have leapfrogged in digital capabilities. We were behind, and I think we are becoming state of the art. On the right-hand side, you have some internal enablers that I will cover at the end of the presentation, but that are still also extremely relevant, although they might seem a bit qualitative, which is the metrics and incentives. They have been transformational in our bank. The technology, the support of it, and our team. Let me go through some examples. I will use an example for risk, an example for pricing, an example for processes and journeys.
We have covered them for all products, but of course, the presentation would be horrendously lengthy if I covered them all. I'm just going to give you a flavor of each one of them. Let's just start with risk. Microenterprises, the ones that sell below EUR 2 million. I mean, our management of that has been extremely focused. We did a little bit late, to tell you the truth. We started in 2023. Look, in 2023, it was only 3% of the book on the left-hand side, and it represented 22% of the cost of risk of the bank. It was absolutely disproportionate. You look in the center of the slide, and you see how the PDs of the new unsecured loans have declined systematically. And that's based on models. It's based on authorizations. It's based on processes.
It's a number of things that have completely transformed this portfolio, and we have cleaned it up. But this, of course, churns over the portfolio. This is just the entry. This is the probabilities of default of the new lending. And it takes a while to cascade through the portfolio in order to improve the cost of risk. That's why we are expecting, and this is in the plan, that by 2027, it will still be 3% of the loan book, but it will represent 14% of the total cost of risk. Even today, it has a positive ray rock, but very meager. By then, it will have a handsome ray rock based on this clear improvement of risk.
Because this is so important, and this is just an example, let me show you in the next slide what has happened with all the asset products, with all the PDs of consumer loans, self-employed, SMEs, mortgages, microenterprises. It's at the center bottom of the slide. It's exactly the same one that we covered. And CIB. You see that there is a dramatic improvement in the acceptance, in the caliber, in the quality of the risks that we are accepting: minus 60% in consumer loans, minus 57% in self-employed unsecured, minus 36% in SMEs, and so on. This, as I said before, it's absolutely crucial. That's why we say that our projection of a 40 basis points cost of risk going forward towards 2027, it's absolutely reasonable because all the portfolios are progressively improving at different speeds, depending on the duration, on the term duration of each of the products.
Let's move to the second element. You remember we were talking risk, pricing, and processes. Now, an example on pricing. We have chosen here consumer loans. Consumer loans have been reviewed upside down in all elements, in risk, in pricing, and in processes. Here, it's only the example around pricing. I think there's something that is especially noticeable. First, look at the growth between 2021, where the new lending was EUR 1.5 billion. In 2024, it's EUR 2.5 billion. We are growing 1.6x faster. What is more relevant is that if you look at the right-hand side of the slide in the center, the new lending spread has decreased. We are lending cheaper, 150 basis points cheaper. Is that good or bad?
We think it is very good because if you look at the cost of risk of the stock, and that is even more conservative because we are comparing a flow with a stock, it has gone down by 400 basis points. That is a tremendous value creation. Not only are we lending much more, we are lending cheaper, but it overcompensates from a profitability point of view because of the way we engage and the quality of the new. Pricing has made it to be much safer than before. Absolutely good business. Let's move to processes. SMEs. I think here the opportunity is fantastic. I think we have a franchise with 15 years of average length of relationship.
We have seen during all this process of the potential hostile takeover, the reaction of our customers, the support of our customers. It is a bank that has been next to its customers, and it is very much appreciated. Those relationships have a lot of value. One in two SMEs is a client of Banco de Sabadell. At the same time, our share of wallet is not that large. It is 16%. By the way, in the last year and a half, it has grown by 7%. It was below 15 before. That is precisely where we are focusing. We are less focusing on acquiring new clients. We are focusing much more in increasing the share of wallet of the clients we have. I will not bore you with all the elements that we have driven through. Processes and journeys have been improved. We have specialization.
We have caught up with digital in a big way. From a risk perspective, I think we talked marginally about it before. We have done a phenomenal transformation. Look at the last point that I will leave for later on. Incentives. Incentives are going to be the key driver for further acceleration because they will be fully aligned with the strategy of generating growth and capital. I leave that for later. This is the jewel of the crown, and I think it is going to give us lots of further satisfactions. It already does in the future. Complex slide. Apologies for that. I think retail is detail, and it is about the execution. I think it is important to understand that the transformation that we have applied to the bank has been progressive, constant, sequential, and extremely focused. Here, you have three elements.
You have first the volumes. I am reading the left-hand column. You have first the volumes growth, and you have the products that are mainly on the asset side. You have the fees, and you have the growth in number of customers. This is what is driving the growth. You see on the lines when we have done that main transformation. The colors show that in gray, it's retail banking. In darker blue, it's SMEs, private banking. In light blue, it's corporate and investment banking. You see that some things have been finalized in terms of transformation. We have to see still continuous improvement, especially on the risk cost and especially in fine-tuning all the acquisition levers that we apply.
What you see is that that transformation that we did in year 2021, when we said, "Okay, let's break this in business units," has delivered because we have been able to do different things simultaneously without stopping the bank because it was different teams that were supporting that strategy. You see that. There are ticks there, which is when we did the major transformation. In the next slide, you will see how growth has changed dramatically after that tick happened. You also see that some things are still well on their way. Is the glass half empty, or is the glass half full? I would say that we are somewhere in between and that we are well on our way of continuing to develop a transformation of the bank that is unfinished. Therefore, we still have clear potential for improvement.
I think you see on the right-hand side, so beyond 2025, that we have to finalize the transformation of self-employed and businesses, that we have the second round of CIB that is coming to us soon, that insurance, we're just finishing and starting to collect a phenomenal return from that transformation. On payments, we will see an acceleration if and when we do the agreement with Nexi, which should happen naturally. Both parties are happy to continue engaging soon after the hostile takeover is over. In payments and cards, we haven't done much. That is pending. Here you have a little bit the schedule of the whole story of the last four and a half years and a little bit of the view going forward. What does this mean in terms of numbers? We are going to see now the results of that. This is at an aggregated level.
If you look at volumes, you see again that we have these volumes, fees, and commissions, and number of customers. If you look at volumes, we grew very slowly between 2021 and 2024, very meager growth. What did we do? We reduced dramatically the cost of risk. We were transforming the bank. Between 2024 and 2027, what do we expect? We expect a mid-single-digit growth, compounded average growth rate. You see again that thumbs up, which says that during the last year, year on year, we have delivered. We have already started the process with that 5.7% year-on-year growth. Fees and commissions, exactly the same, with the additional element that we had the single premiums and that we had to change into yearly premiums. And that showed a significant decrease between 2021 and 2024.
But now that that is behind us and that the transformation of the products that provide fees is on its way, we are again thumbs up with a 4.6% year-on-year ending in the first half of 2025. And that allows us to project to a mid-single-digit growth. In customers, look at 2021. The gray bar is branch acquisition. The blue part is digital acquisition. We had zero in 2021. Since then, it has been growing. We are accelerating that, and I will cover a bit more of that in a second. Let me go now one by one to volumes, to fees, and commissions, and to customers. Volumes. I will not make you suffer and go through the whole page. But look on the left. We are talking volumes. It's the asset side, consumers, mortgages, SMEs, self-employed, CIB.
And let me keep just at the growth that you see after the tick, which is the one that corresponds to the previous slide. So after 2022, we are growing at a compounded average growth rate in consumers of 17%, 3% in mortgages, 3% in SMEs. We are ready to grow in self-employed and microenterprises after fixing that major problem that we have in the entry of the PD, CIB growing at 12%. What is our projection? 2025, 2027. Well above market for consumers, for consumer loans. What have we done? A growth of 20%. Mortgages, in line with the market, we have done a 5.7%. And these are stock values. And SMEs, self-employed, and CIB, we are going to grow above market, and we have done a 3.2% year-on-year. What does this mean? Are we going crazy? Are we growing beyond our means?
Are we doing something that would put at risk the franchise? The answer is no. We have currently a weighted average market share of 8%. And we are aiming, after these three years, to be at an 8.3%. Being at that 8% is a very good place to be because you have, at the same time, the critical mass. You're not a minor player, but at the same time, you don't cannibalize yourself as you grow. But the question, this is growth. But the question you can have is, is this a healthy growth? And I think we can answer this in this transparency. For the sake of brevity. Let me just turn to the right-hand side of the slide. When we talk about new lending profitability in 2024. That is higher than the stock. Look at the railroads. Railroads include. So we've said we are growing healthy.
We are growing slightly above market. We are doing well. But the question is, are we growing at the expense of pricing, or are we growing at the expense of risk? The answer is no because that would be captured in the railroads. The railroads are clearly healthier than the ones in the past. In consumer lending, clearly above. In mortgages, clearly above. In SMEs, above. In self-employed and microenterprises, clearly above the historical railroad, the railroad of the stock, and the same for corporates. Growth, but it's healthy growth. The pricings are right, and the risk, as we saw before, the PDs are showing a very, very clear improvement. Let's go now to fees. You remember we talk about growth, which is asset products, now fees and commissions. On the left-hand side, what you see is in gray, the ones that are linked to transactionality and volumes.
Those are pretty stable. It's the ones that are related to the general transactions that we do with our customers. That includes, for example, the fees that we charge in current accounts for the clients that are not prime, for example. What is relevant is the growth that we are going to see in the upper part, in the three fee-generating businesses that are savings and investments, insurance, and payments. The transformation is phenomenal. Let's go to the right-hand side. Let me refresh you. This has been a little bit backloaded in our strategy plan, in our transformation over the course of the years. The time has come now. In savings and investments, which is basically related to the transformation that we've done in private banking, but also about products. It's also about value propositions. We have grown at 4.8% year-on-year, ending in the first half of 2025.
We are projecting a mid-single-digit growth. In insurance, we are projecting high teens. Here, the transformation has been phenomenal. I can assure you. We have reviewed with Zurich everything. We have updated products, journeys, pricing, retention. You mentioned it. Everything has been done. We have been the fastest growing in terms of gross net premiums over the last year with a 13%. Again, thumbs up. In payments, we had historically a 20% market share. We are already well on path at 21.8, and we expect that the agreement with Nexi will bring us to the next stage by 2027 of having a 25% market penetration. Now let's move to the last element, which is digital customer growth. This is a little bit more detail on what we saw before. You see the blue bars growing, which is the digital part, which was starting at zero.
I think what is worth mentioning are the things at the bottom, right-hand side, bottom of the slide. 12% of the gross margin has been generated by clients that we acquired between 2022 and 2024. This is a growing element because, as you see on the further right, the engagement of these customers is progressive and growing. As a sign, the debit card usage has gone from 34% for these new clients in 2023 to 58% in 2024. That closes the growth. Let's talk briefly about the enablers. This first one is very dear to me, and I think it's very much embedded in the organization, and I think it has been at the core of our transformation. I think what you measure and what you incentivize is what moves the needle. In 2021, we were just measuring income and revenue.
We were missing out, and this was when we did the budgets ex ante. We gave everyone an objective of revenue, but that ignored the asset quality. It ignored the costs. It ignored the capital consumption. Very quickly, we added a return on tangible equity and railroad. What is the problem with that? That was a major advancement, and I think it has given us a lot of mileage. How do you weigh each other? We were also doing it ex ante. At the beginning of the year, we gave everyone a target of revenue, a target of railroad. One is absolute. One is relative. Very difficult to combine them in what is value creation, and we did it ex ante. What are we doing since the end of 2024, during 2025? It's a progressive implementation that we expect to have finalized by the end of the year.
It's going very well because when you do these transformations, sometimes you can have a negative reaction from the organization. It's exactly the opposite. It's being accepted by the organization as a fantastic way forward. We're talking about value creation. Value creation is as close as it gets to capital generation. We start with revenues. We subtract costs. Then we subtract the expected loss because we have the PD per product and per transaction. We subtract the cost of capital, and we come to value. For every portfolio, for every manager, we have the value that they have as a stock, and we can measure the delta of that value. Last but not least, and this is a huge transformation, it's going to be based on rankings.
Enough of saying at the beginning of the year, we know what is going to happen, and these are your incentives, and this is what you have to do. Over the year, things changed dramatically. We have seen over our lives that people run very fast if they do not reach their objectives, even hurting pricing, even hurting risk. Or if they reach their incentives, they stop and hold for next year. This is relative rankings. These are percentiles, and people will be remunerated, evaluated, and compensated based on the relative doing on how they manage value for the bank. Let me cover quickly. Sabadell Technology, it's one of the areas of which I'm more proud. I think our business model is so simple, and it allows to operate on a single IT platform, and we have done all the transformations that were required.
The fact that we have these partnerships with Zurich and Amundi, that someone else does for us, those very expensive and continuous transformations with world-class caliber is extremely efficient and allows us to profit of a size that we don't have in major elements that require investments. And the IT cash out is increasingly oriented to growth projects. Let me tell you, the transformation of the IT infrastructure, the security, the cyber elements, the everything, we are top-notch. Furthermore, I have the satisfaction to deal with a bank where 60% of the CapEx is devoted to change the bank, to improve customer experience, to improve products, and not to run the bank or to regulatory elements. Last but not least, I will not entertain you with this slide, but our team, the commitment is at its highest.
We are able to attract and retain, and we have a corporate culture that enhances growth and focuses on customers and shareholders. Let me leave it at that. This one is crucial, but I guess that it would sound like rhetoric. It is not. It is at the core of who we are and what we do. Finally, a little bit of track record. With all modesty. I mean, in gray, you see the guidances that we have been given over time, and in blue, you see the achievements at year-end. I think it has been a relentless story of outperformance to our own guidance. Does that mean that we guide prudently? Yes. It means that we guide prudently. We do it bottom-up. We do it with all detail. And necessarily, we have always left buffers because it is our obligation not to surprise negatively the market.
Finally, the last slide before turning to Sergio. I think this one is quite spectacular, to tell you the truth. EUR 6.3 billion in the course of three years. EUR 1.3 billion are the recurrent capital generation and distribution for 2025. We add the extraordinary dividend of EUR 2.5 billion. That means that in the course of the next 12 months, we are going to distribute EUR 3.8 billion. Together with the EUR 2.5 billion on the back of 2026 and 2027, that brings us to EUR 6.3 billion. Is that a lot or not? I don't know. There are many precedents of anyone announcing with this level of certainty that they are going to distribute 40% of their market cap in the course of the next three years. This is on the back of our dividend policy. We are not doing anything extraordinary.
We are just following what we said we would do, a 60% payout and then distributing every excess above 13% CET1 . Of course, there's the extraordinary element of the EUR 2.5 billion because of the proceeds of the sale of TSB . Let me also emphasize that the cash dividend per share in 2025, 2026, and 2027 is clearly expected to be higher than the one of 2024. With this, I pass it on to you, Dear Sergio.
Perfect. Thank you, César. Good morning, everybody. Thank you very much for attending today's presentation. Also, big thanks to all Sabadell colleagues that have made this possible with lots of hard work behind. It's actually a privilege for me to be presenting for the first time today Sabadell Business Plan. After the sale of TSB, we'll be focused in Spain.
Spain has shown strong economic dynamics and is expected to keep on showing strong economic dynamics. GDP will grow on average 2% during the next three years. Inflation will be also around 2%. Unemployment rate is expected to be reduced, so therefore, employment dynamics to improve. That combined with the fact that Spain is gaining population, as a matter of fact, will affect the economic dynamics and will be further supportive. All that combined will also be positive for the volumes of the banking activity. We expect private sector credit to grow at a 4% CAGR over the next three years. Deposits in the private sector, deposits a similar figure. How realistic is that? I think César touched before on the low level of leverage in the Spanish private sector.
When we look at these numbers, 4% actually comes as the very similar growth than the expected growth of the nominal GDP, 2% real GDP growth, 2% inflation. That combined is a 4%. With these levels of growth for the Spanish economy, the leverage could not even be increased, could simply be maintained. When looking at the interest rate levels, interest rate levels have been normalizing. Currently, ECB is at 2%, and we are expecting ECB to bottom out rates after the summer with 1.75. We expect ECB to get back to 2% by mid-2027. With that, we expect to arrive over 12 months to finish 2027 at a 2.3, so a gradual recovery from current levels. The 10-year euro swap rate, which is important for the pricing of our fixed-rate mortgages, is expected to be at a 2.7.
Some steepening and our assumptions, I think, are well aligned with current market expectations. Let's move on to the loan growth volumes. We expect loan volumes to grow at a mid-single digit. That is a little bit above the figure that we expect for the industry. Regarding mortgages, we are expecting to grow in line with the sector. In consumer and SMEs, we are expected to outperform more clearly in consumer as we're coming from behind. I think César explained well the dynamics and a bit of outperforming in the SME space. This is going to be profitable growth. We are convinced of that. We have the discipline. We have the tools. We have the know-how. I think César has been explaining all the efforts and all the technology that we've been applying in order to grow safely and in a profitable way.
I think, again, connecting with the previous presentation, when we look at how this is progressing in the first half of the year, already a growth of 5.7%. On a combined basis, already well on track to meet that mid-single digit growth. That is why, thumbs up. In the next slide, customer funds, which are expected to grow in line with the volumes, also a mid-single digit with off-balance-sheet funds outperforming growth. In the first half of the year, we enjoyed a 4% growth in on-balance-sheet and as much as 13% growth in off-balance-sheet. All combined, 6.7% growth. Pretty positive. Again, thumbs up. Let me share with you some data points regarding the quality of the deposit franchise of Sabadell. In the on-balance-sheet funding structure, nearly 80% are current accounts, side deposit, and the vast majority of them transactionals. A minor part of those are actually remunerated.
When you account for the global, taking into account that then 20% are term deposits, actually, what we have is that just one-third of the on-balance-sheet funds are remunerated. Two-thirds of that are non-remunerated. This applies to the EUR 127 billion figure. Roughly EUR 85 billion are non-remunerated. The pricing dynamics of that, what is the pass-through? Zero remuneration for two-thirds. The pass-through on the other third is high. It is around 90-80%. That is connected with our corporate activity, our public sector customers, our digital deposits. The combination of having two-thirds non-remunerated, one-third high pass-through is roughly a 30% pass-through of deposits, of rates into the cost of deposits. At the end of the last quarter, our cost of deposits in Spain was 65 basis points, trending down and well aligned with these figures.
We expect cost of deposits to keep on trending down as we passed on this new scenario of normalized rates. The cost of deposits are expected to land around 50 basis points, between 50-55 basis points. Again, let me highlight the very healthy and good growth that we're enjoying in the off-balance-sheet customer funds. I hope you find this table interesting. We have tried to summarize the guidance for this year, 2025, and for the entire life of the plan, up to 2027. Starting from the 2025 guidance, I am sure that you have been able to see in the resource presentation that we have just upgraded the expected profitability for the year to 14.5%. Therefore, that is going to be higher than the recurrent profitability of 2024 that came at 14%, as you can also see in the table.
The driver of this improvement comes from cost of risk. We are upgrading our cost of risk guidance at the group level to 35 basis points on the back of very strong quality asset. Dynamics in the book. While for the net interest income, we are adjusting from more than EUR 4.9 billion to around EUR 4.9 billion. For fees and commissions, we maintain the low single-digit expectation. For cost, we are improving our expectation from circa 1% to flattish. We are now also providing 2025 guidance for the TSB perimeter, which after the sale of TSB is the perimeter that will continue. We are expecting NII to land at around EUR 3.6 billion this year, fees and commission to grow mid-single digit, total cost to grow low single digit, and cost of risk at around 40 basis points.
That could be the sort of starting point of the plan, although we are referring to 2024, to get to 2027. For that journey, we are expecting NII to grow on the back of the volume dynamics that we just mentioned to EUR 3.9 billion. Fees and commissions to continue performing at mid-single digit, total cost at a 3% CAGR, cost of risk at 40 basis points. We will touch on all this on the next pages. All combined, our return on tangible equity in 2027 will be delivered at 16%. Let me get into the details, starting from NII. NII EUR 3.9 billion, as mentioned, for the remaining perimeter after the sale of TSB in 2027. That is a figure which is very similar to the one that we had last year, 2024.
We try to, and we do, show with you the bridge that we expect for the period. Starting from left to right. I hope you remember that we had a one-off of EUR 40 million last year. For customer NII, we expect a net positive of EUR 100 million. Behind this net positive are the movement between rates, yields, and volumes, which is non-minor. You see that we expect an adverse customer margin of EUR 400 million, which is connected to the customer spread that you can see behind. Customer spread peaked last year at around 330 basis points and is expected to come to 300 basis points in 2027. That is the reason why we expect an adverse contribution of EUR 400 million. While volumes, which are growing at the rates that we just mentioned, will more than offset that effect and will add EUR 500 million.
For the rest of the main contributors to the NII, we have first the ALCO and the liquidity that will be adverse, EUR 200 million. This is connected with the lower European Central Bank rates for the liquidity. Also, let me mention that in the ex-TSB perimeter, we have some emerald securities of TSB that, as you know, we have agreed to sell to Santander. That has also been taken into account in this impact. All that will be fully offset by the savings that we will achieve in the wholesale funding. I will get more into the details later on. In the left part of the slide is simply how we are going in 2025. As mentioned, guidance 3.6, in the first half, 1.8. Therefore, we are performing well in line with this expectation. Let's get into the sensitivity of interest rate of the NII to interest rate.
I think that you are aware that we have been reducing that sensitivity over the last years, as shown in the graph on the right-hand side of this page. We used to have something like above 8% sensitivity to 100 basis points. By extending a bit the duration on the assets and lowering the duration of the liabilities, we have been reducing that sensitivity to between 1%-2% that we have today. To be precise, we have been doing that by benefiting of the fixed-rate new business in the loan book and buying some bonds fixed rate for the ALCO book. With that, the fixed rate portion of assets that we identified is close to 56%, while the insensitive part of the liabilities is 60% after hedging the vast majority of the wholesale bonds that we have issued.
With this, what we mean is that we aim to provide a lot of stability to the NII and the risking and have more predictability on the earnings. Fees are underpinned by higher activity, and asset management fees are expected to play a more significant role going forward. You see that asset management contribution today is 20% of this PLA line and is expected to grow up to 28%. This is thanks to the success in the distribution model with the changes we did in our private banking business that has proven to be quite successful. On the rest, looking forward, we see positive underlying trends in banking services with higher activity, more business, more transaction, and more trading. All combined will deliver this mid-single digit CAGR, which is already in line with what we are seeing in the first half of the year with a growth of 4.6%.
Finally, with all this, we expect the fee contribution to be higher on relative terms to our revenues. It used to be 24% in 2024. It is going to get to 27%. Farther, the risking revenues from rates. I believe this is quite high-quality revenues. Getting into the cost evolution, we believe that the cost discipline of the bank is very high. We are showing in the first half of the year a very modest increase of cost, 1.8%, that comes as a testament of our commitment. Going forward, we plan to invest in making this business growth, in IT, and all that has been taken into account and is embedded into that 3% CAGR that we expect for the next three years. Before getting into the cost of risk description, let me briefly describe how our loan book looks like as of today. In this ring, you can see.
That what we would call the lower risk part of the business, which are mortgages to individuals, public sector and social security advances, and corporates, actually represents today two-thirds of our balance sheet of our loan book. Being definitely these low-risk components. Within the corporates, 80% of the names are investment grade. In mortgages to individuals, we find very good metrics of risk. More than 67% of them are fixed rates, so low sensitivity in the low sensitivity of the affordability and a weighted average loan to value of less than 60%. And then when we look at the SMEs and self-employed, it's 30% in total. I really would like to highlight the long-lasting relationship with our customers that Sabadell enjoys, more than 15 years in the case of SMEs and 10 years in the case of self-employed and microenterprises.
I would also like to highlight the focus that we have had in the last years in improving the quality of the book. I think César has described very well how we have developed metrics that have been embedded in the businesses, in the managers. As a testament of that, we are seeing an improvement in the probabilities of defaults in the range of more than 35% for SMEs and as much as 50% for self-employed. These are at the core of the explanation of the improvement that we are showing in the credit quality metrics, which I think it's self-explained in the graph on the right-hand side on this page. A very consistent and clear downward trend of the cost of risk. We are, as we speak, at 37 basis points cost of risk.
We are currently and very comfortably guiding for 40 basis points this year and also 40 for the end of the plan. This is interesting because actually the dynamics that we are observing, they keep on kicking in. The quality of the book, the new business, keeps on being better than the backbook quality. On the back of this positive trend, we do not expect any worsening of the quality of the book, any increase of credit quality. However, we are also expecting growth relatively higher in the consumer space and in the SME book. For that, we are budgeting a little bit more of a little bit of a buffer of cost of risk. All that has been embedded in the 40 basis points of cost of risk for 2027, at which we feel extremely comfortable taking into account the dynamics that we are currently seeing in our book.
That is further supported by the metrics that you can see in the graph below, which are the NPL ratio and the coverage. NPL ratio trending down in the ex-TSB perimeter, 2.8. 30 basis points reduction in the quarter, 100 basis points reduction year on year. We are guiding to less than 2.5% in 2027. Again, we feel extremely comfortable with this expectation. Finally. Let us share with you, hopefully. For your facility of understanding how we are seeing the plan dynamics, the ROTE, the contribution of all these elements into the final construction of the return on tangible equity. From left to right again, starting from the profitability that we had last year, 14.9%, we have mentioned several times that there were one-off items that when excluded, the recurring profitability was 14%.
If we do an analytic exercise of how does the ex-TSB perimeter look like for last year, then we could add 60 basis points. And therefore, the starting point for 2024 could be 14.6%. By the way, extremely well aligned with the current profitability. Then going forward to 2027, we expect revenues to add 1.6 points. We expect cost to detract 1.4 points. Looking into this number, it is easy to see that efficiency is going to look similar in 2027 when compared to 2024. The benefits in asset quality and the reduction in cost of risk are going to add 130 basis points to our profitability. Finally, in others, we have a minus 0.1. The main components there are first the adverse for ROTE of the increased equity.
Also, for as much facility as possible, we are sharing with you our best estimate of the tangible book value for 2027, EUR 10.5 billion. Offsetting that increase in the equity in that others, we have included the smaller expected payment of the banking tax. We expect EUR 60 million less banking tax because of the new scheme in 2027 than the one that we paid in 2024. Getting into the last section, funding, capital, and shareholding value creation, just three more slides and one final. Regarding the funding plan, I think the remarkable thing is that when we sell TSB, our MREL buffer is going to jump up. In a pro forma basis, without TSB, the MREL buffer would move from 3.7% to 7.2%. What we will do is, that would effectively lower our funding needs.
We are expecting negative net new issuances that will bring the MREL buffer back to our target of around 250 basis points. This is connected to the savings that we expect in NII coming from wholesale funding. Those savings, therefore, will come from lower volumes, but not only lower volumes. The securities that we issue will benefit from the improvements in the ratings that we have already had in the last year. We have benefited from four notches upgrade from the rating agencies, two from S&P, S&P Standard and Poor's, that have left our senior and secure rating at A minus, and two from Fitch. We have Credit Watch Positive in Fitch as well. For the rest of the liquidity metrics in the right-hand side, I could say that very sound. Circa 90% loan to deposit, more than 150% liquidity coverage ratio, and more than 130% net stable funding ratio.
All of them look sound. In this slide. We do bridge the CET1 again for hopefully your benefit and showing the capital accretion and the connection with distributions. Again, starting from left to right, starting from the 13% CET1 at the end of last year. As announced, we expect the TSB to contribute with a positive 400 basis points to capital. And the recurrent capital accretion for the period is more than 700 basis points. Then we need to account for business growth, the risk-weighted asset increase connected to the loan book increase. And that is expected to be 200 basis points. Then we will have the benefit of SRT. And here the benefit is only 10 basis points. Again, behind these 10 basis points, it is going to be a lot of activity because we have the rolling of our existing positions.
We would do transactions to roll the existing positions and to increase a little bit the benefit. The benefit currently is 40 basis points that mostly will roll off during the period. We will do transactions that for an equivalent of 50, so a net positive of 10. 81 cue points that, of course, we will be paying on a timely manner, 70 basis points. Finally, distributions, EUR 6.3 billion. Which are equivalent to 8.7 percentage points of this. 5.2 will come from recurrent shareholder distribution because of the net capital accretion that we achieve through the plan. I think César touched on that point early on. We will finish again on a 13% CET1, which is, as you know, our target ratio, the threshold for distribution. We could feel comfortable on an operational level of 12%-13%, but certainly in order to the commitment for distributions are above 13%.
An MDA buffer of 360 basis points that we think compares well with the rest of the industry. This last slide of the section. Dividends and shareholder value creation. I find this very interesting. I am a shareholder myself. Regarding shareholder value creation, we expect tangible equity per share plus dividends to increase at a CAGR of 15% over the plan. This is precisely the same figure that we are sharing with you at the end of the first quarter. 15% is the year-on-year figure that you can see the details in the second quarter results presentation. This is very well connected with our profitability between 15%-16% during this period. I could say that there are no leakages of profitability when transforming P&L profitability into shareholder or tangible book value creation and distributions. A comment on the left, I think César touched on this already.
If I may get a bit into the details of when we say cash dividend per share in 2025, 2026, and 2027. Expected to be higher than the one that we had in 2024, that was EUR 20.4. That is connected with the expected improvement in profitability, but also with the reduced number of shares. We are making lots of progress in our share buyback program. We are getting close to completion. After completion, the final number of shares are expected to be around 5 billion shares. Going forward, we are expecting to keep the dividend payout between 40%-60%. As you know, we are accruing today at a 60% dividend payout, and we are committed to distribute all excess capital over 13% to our shareholders. That is what has been embedded into these numbers. Finally, to wrap up, this plan is focused on growth, profitability, and shareholder remuneration.
In 2027, net interest income is expected to land at EUR 3.9 billion. Fees and commissions are expected to grow as a mid-single digit and cost at a 3% CAGR. With total cost of risk of around 40 basis points, we expect to deliver a profitability of 16% return on tangible equity with a 13% CET1 fully loaded ratio. All that combined will deliver cumulative shareholder remuneration of EUR 6.3 billion over this period from 2025 to 2027. With this, I will hand over to you again, César, to conclude the presentation today and start the Q&A session.
Do not be worried. It is just one slide. If you can push the slide next, thank you, Sergi. Very briefly, and I am not going to repeat everything that we have said before. This is about Spain. It is about growth. It is about execution. It is about shareholder remuneration.
We will land at 16% return on tangible equity, and we will distribute shareholder remuneration in the next three years north of 40% of our market cap. With that, I pass it on to you, Lluc, for the Q&A.
Perfect. Let us start then the Q&A session. I would kindly ask you to limit the number of questions to no more than two. Operator, could you open the line for the first question, please?
First question is coming from Maksym Mishyn from JB Capital. Please go ahead pressing star six.
Hello, good morning. Thank you very much for the presentation and taking our questions. I have two. The first one is on the outlook for loan book growth. Could you please explain why are you less bullish on the mortgage market? You expect to gain market share in both corporate and consumer loans, but not in the mortgage market.
The second question is on the TSB. The NII fell quarter on quarter. What was the reason for the decline? Is this the reason for a more cautious NII guidance for 2025? Thank you.
On mortgages, I think we are just planning to grow with the market. I think we are having very healthy rate rocks. I think after all the fine-tuning that we have done in pricing, in risk, in procedures, I think we are very satisfied. At the same time, it is not the most profitable among all the products in Spain. We just plan to grow with the market. That's going to be a healthy growth because the market is growing handsomely. It's safe, it's profitable, but it's not the most profitable product in the whole portfolio.
Thank you. Regarding the NII at TSB, there was a small decline in the quarter.
This is connected with some one-off that we recorded in the first quarter. The underlying dynamics are as good as we were expecting them to be. We are confirming the guidance of high single-digit growth. However, we have seen a small depreciation of the sterling. In sterling, the growth is expected to be high single-digit, fully as expected. When you see the year-on-year evolution, it's absolutely in line with that expectation. However, the depreciation of the sterling then is a bit less when converting into euros. Yes, that is one of the reasons we are adjusting a bit the NII guidance for the year. This lower contribution or lower contribution because of the effects is adverse in the NII, but positive in the cost. It's a bit bigger within the different P&L lines than in the bottom line. In the bottom line it is not so important.
Actually, you see that all that is being embedded in. Taking that into account, we are improving the overall expectation for profitability for 2025.
Okay.
Thank you very much.
Thank you, Maks. Could we move to the next question, please, operator?
Second question is coming from Ignacio Ulargui from BNP Paribas Exane. Please go ahead pressing star six.
Thanks very much for the presentation and for taking my questions. I have two questions. The first one is on fees. Looking to the plan outlook, if I just compare what has happened in 2Q with the trends that you expect to have in the future, there's a very clear shift from whatever you could call service banking fees to asset management and insurance. Just wanted to get a bit of a sense of where do you think, when we would start seeing that shift, that starting recovery of asset management.
Also linked to that, what is the role of that insurance? You have made a very clear work as I don't know how much you have worked on the insurance. Maybe with SREC. If you could give us some examples of where you think that there is upside in the insurance business, it would be great. Then on volume growth, just looking to the kind of conversion of that volume growth into RWAs, just wanted to see if you expect any change in risk ratings throughout the plan, or is just a pure conversion of loan growth into RWA growth. Thank you.
Taking your first question, thank you very much. I think we showed very clearly that the growth has started. It is not that we are projecting for a future growth that has not occurred during the last year. The savings and investments have grown.
The fees by 4.8% year on year. That is a very healthy number, and it is very much in line with our mid-single digit. I think we will continue to grow at that pace, and that is what we are projecting. Everything is in place. We are just fine-tuning the final elements. In insurance, as I mentioned during the presentation, we have been the highest-growing insurance producer in the year with a 13% growth in gross written premiums. We have just finalized the transformation, so I think we should see even more and better of the same, and it is across all segments. It is life, it is health. Of course, we do not do auto, but with the exception of that, it is across all business lines in insurance. I have to say that the partnership with Zurich is at its best, and it is a level of cooperation.
We have a joint venture in which they have 51, we have 49, but at the same time, we make income from there, and we also make income from the fees for the commercialization of the products. They are extremely proud of us. We are providing a tremendous delta in their growth, and that is very satisfying for them, and we expect more coming forward. Our market share in insurance is below our market share overall. We are just the same as we are doing in consumer lending. We are just catching up, and there is a lot of room to catch up now that we have, I think, top-notch products, value proposition. Retention is playing a big, big role. We have specialists that are focused solely on the sale of insurance.
You have to realize that the transformation has also meant that many of the things that we have digitalized have freed up human capital to focus on sales, and that is the specialized people that we have in all these products, certainly in private banking and certainly in insurance. Payments, I think payments will also grow handsomely. We have a very good, very, very good market share there. We do very well. We will continue learning and developing if the deal with Nexi goes through. Even besides that, the interaction that we have had with Nexi has helped us to learn a lot, and we expect handsome results from that. As I said during the presentation, fees and commissions are backloaded. You saw a decline in the past, mainly due to the single premium moving to multi-year premium, and we are ready to grow.
I think that is going to be very relevant because it is going to make more balanced our P&L, and from a capital perspective, it is very effective to grow this fee business, and we will do it for sure.
Yeah, thank you. Maybe, Nacio, your question is connected with the fact that there is a decline in asset management fees and insurance fees in the quarter. The explanation of that is that in the first quarter of this year, we recorded the performance fees. Therefore, the best way to look into this is on a year-on-year basis. On a year-on-year basis, we are delivering that 4.6% growth, which is, as César explained, so growth is already taking place. Even quarter on quarter, we do offset that with the services fees that have changed the trend and now are growing and expected to keep on growing.
You can see 1.5% quarter on quarter and 4.6%, and the decline in the quarter for asset management and insurance was already taken into account because of the extraordinaries in the first quarter. Regarding the volume growth connected with the risk-weighted asset inflation, nothing special to comment on. We are expecting also mid-single digit growth, somewhat lower than the loan growth because, as mentioned before, we will keep on using SRTs. We see them very efficient and very good for optimization, but that is going to be somewhat marginal. Pretty much in line growth of risk-weighted assets and loan book, of course, adjusted by our density. Thank you.
Thank you, Nacio. Operator, could we open the line for the next question, please?
Next question is coming from Francisco Riquel from Alantra. Please go ahead pressing star six.
Yes, morning. Thank you for taking my questions.
The first one is on the EUR 2.5 billion of distributions for 2026 and 2027, which gives an average of EUR 1.25 billion per annum, similar to the EUR 1.3 billion that you have committed for 2025, but you will not have TSB. The question is whether you will be compensating the loss of TSB with extraordinary capital gains such as the Nexi JB that you postpone or increasing the resort to SRTs by the end of the period, any other measure, or if you believe that the EUR 2.5 billion will be generated in an ordinary way with the improved results from the ex-TSB operations. Sorry, yes, I have a second question, which is this EUR 2.5 billion, if this is a forecast of available capital for distributions, or you are really committed to returning it to shareholders.
What is your hierarchy when it comes to capital allocation between organic growth and M&A and related to M&A? What is your strategic and financial criteria when addressing M&A opportunities? Thank you.
Okay, let me cover in very simple terms. The EUR 2.5 billion is organic, it's natural, it's a normal course of business, it's no divestment. The plan doesn't include Nexi at all. In terms of available for growth and for capital generation, the plan includes the capital consumption that is required to grow at the rhythms that we have stated in the plan. On top of that, to generate those EUR 2.5 billion in an ordinary manner. I'm sure that Sergio can give more light to the comments.
Yeah, sure.
When it comes to the discussion of the capital hierarchy that you were mentioning, if there is more loan growth in the way, it's actually probably a nice problem to have, right? We have thought about that and we have some sensitivity numbers. The growth, let's see where it comes from, the higher growth than expected. If it comes from mortgages, which so far has been the case, mortgages have been a surprise to us on the strength of the market. Mortgages have very low risk weighting, so it's very easy to manage incremental growth with the existing capital. If it's on the SME space, the densities there are between 40%-50%. For consumer, it might be a bit higher, but then that comes with higher profitability.
For those particular parts of the business and for the higher density ones, we have developed our SRTs, and we have programs in place for consumer, SMEs, project finance, which, by the way, are the ones with the higher density. Should opportunities for growth occur in these higher density products, as long as they are profitable, then we could make more use of the SRT going forward. Therefore, when running different sensitivity scenarios of this shareholder remuneration, we feel very comfortable that we will be able to deliver this amount, and as César was explaining, fully organically.
I think Paco was also asking about M&A.
No M&A in expectation. I've said it a thousand times. That doesn't make any sense for the bigger players in Spain. They have already enough market share.
For the smaller ones, it makes sense for all of them, but at this point in time, there's no appetite in the market. Everybody's doing well, everybody's performing, everybody's generating capital, everybody's profitable. I don't think you should anticipate in the near future any type of M&A, so we don't need this plan. It's on the basis of its own merits. In the long run, who knows? In the foreseeable future and probably in the term of this plan, I think you should count on our organic growth and in the developments that we have pointed out in this presentation. The only thing that could reasonably happen is a transaction with Nexi, which is not included in the plan, but of which we gave you clear flavor in the past.
No need to give you more flavor at this time, but I think the two parties are still interested, and the chances are that it will happen in the near future after the hostile takeover declines.
Okay, shall we move on to the next question, please?
Next question is coming from Borja Ramirez from Citi. Please go ahead pressing star six.
Borja, we cannot hear you.
Hello. Good morning. Okay. Thank you very much for your time. I have two questions, please. Firstly, I would like to ask you, since you are targeting small market share gains in deposits, is it good to kindly provide some information?
Could you, Borja, raise your voice a little bit, if you're so kind?
Can you hear me better now?
If you could raise your voice a little bit, please.
Yes. Can you hear me better now?
Not so clear, but let's try.
I think you were asking about market share in customer deposits. Is it possible?
Yes. I'll link to that. What are your assumptions on the ALCO portfolio? And also, if you could give some details on the interest rate hedging strategy.
I think, Borja, we cannot hear you very clear. I tried to. Could we check if it's because you were asking about the ALCO portfolio and what were the assumptions and the contribution that we are expecting for the business plan? Is that right?
Yes, that's correct. Yes.
Okay.
Right. So the ALCO , yeah. We have increased a bit our ALCO portfolio that is connected with the liquidity that we hold, the ALM, and going forward, the assumption is further stability and increase in line with the expected increase in the balance sheet.
So this line is expected to increase in line with the increase in the loan book and in the deposit, in the customer deposit book.
Okay. Let's jump to the next question. Sorry, Borja, because we couldn't hear you very, very well. Operator, thank you.
Next question is coming from Carlos Peixoto from Caixa Bank. Please go ahead pressing star six.
Hello. Good morning. A couple of questions from my side, retail ones, I would say. First, in slide 17, you mentioned an expectation of a 30% increase in retail customers. I was just wondering if you could give some more clarity on that, basically, what you classify as being a customer because the increase seems quite material. The second question would be on the cost side. You mentioned that the 3% increase in cost is to allow for IT investments.
I just wondered if you could give some color on how much you expect to deploy in IT throughout the lifespan of the program. Thank you very much.
Yeah, the 30% customer acquisition is driven. This is quite mechanical. It is related to how much you invest in marketing. We have just cooled down during the last period our investments in marketing. Furthermore, although I think we have swung through all this hostile takeover very swiftly and very prudently, it's obvious that attracting customers in a period of uncertainty is, at least marginally, I think everybody will coincide, more difficult. I think our models explain very clearly that that is perfectly feasible with the increase of marketing devoted to specific acquisition with the brand consideration that we have and without having the certain.
Slowdown in the acquisition based on the uncertainty because it's hard to move to a bank when some people think that maybe it might not be there in the future or not. We think it's a conservative approach and we think it's perfectly feasible and it's in our plans. As per the cost.
Cost and IT.
Yeah. Regarding, as mentioned before, running the bank will lead us to a cost increase that could be probably below inflation a little bit. Then we take into account the growth initiatives and the IT that are investments as CapEx that then goes into the amortization. All that combined will leave this 3% CAGR that we are extremely comfortable we can run this plan with this type of expense. I think it's worth mentioning that the biggest or the heaviest expenditure in IT for us is behind.
In 2021, 2022, and some of the years where we upgraded our backbone and our data centers. I said that is already done and behind, and investment now are related to the front end improvements, which are a lot more effective and manageable.
I remember, and this is just a bit of back memory, that back in 2021, at the beginning of 2021, there was a major concern of how much we were going to have to invest for the digitalization. We kept saying at that time that our backend was in good shape, that our infrastructure was in good shape. It's in a much better shape even today. The front end was much more about execution. It was about working together. It was about mixing the people from commercial, customer experience, IT, second line of defense, audit, everybody doing everything at once and correct and once and for all.
That's not very expensive. That's just a way of having a focused execution, and that's exactly what we have been doing. I know that this is a little bit intangible when you explain it, but in practice, it has a tremendous impact on costs also and in the speed of delivery.
Operator, could we have the next question, please?
Next question is coming from Britta Schmidt from Autonomous. Please go ahead pressing star six.
Yeah. I hope you can hear me.
Yeah, we can.
Okay. All right. Thanks for taking my questions. On the net interest income and the. Would you be able to split the 3% customer spread into the contribution from the lending yield and the deposit costs in 2027? Do you have any sort of clues you can give us on what the outlook for 2026 would be to get to the 3%?
My second question would be on the cost of risk. Where does the 40 basis points guidance of realized cost of risk sit versus the expected loss that you see in the book? Would you be able to maybe split that by product into. The expected cost of risk for consumer mortgages and corporates? If I may, just a very quick follow-up on the M&A. With 16% return, you do not need it, but my interest would be rather in weighing M&A options. How important are the financial measures versus strategy? Do you think that there is even any target that could potentially fit given that you are expanding more in consumer and SME lending? Thank you.
Thank you, Britta.
Will you take the first one?
Sure. Sure. Let me take the first one. Thank you, Britta, for your questions.
Regarding the customer spread breakdown by 2027, we think it will be a combination, of course, of the loan book and the deposits. When we think of 300 basis points, the contribution is probably going to come 50/50 or slightly biased towards the loan side of that, of the loan side of the book. You were asking for the 2026 dynamics. Effectively, we are guiding to NII quarterly for the next quarters at a similar level than the one we are seeing now. This is for this quarter, we will still have the headwinds of rates, the combination of tailwinds from volumes. We are expecting that combination to start delivering growth from 2026 and into 2027. I hope that answered your question.
On the second one, I do not know if I understood fully, and certainly I will ask you to repeat in the second, the third one.
Let me see if I understood the second one. You were asking if the 40% seemed reasonable given the PDs and the improvement of the PDs that we have shown in page 11. You were further asking for a breakdown of the cost of risk in 2027 for each of the products. What I would say is that I think we have been prudent. I think we have been prudent in all the lines and feasible in all the lines, and that is what takes us to the 16% return on tangible equity and above the EUR 1.6 billion on net profit. We are not, in principle, I think we are not giving the breakdown of the cost of risk per each and every one of the lines. It is considering relatively continuation of the relatively benign environment.
Of course, it is subject to worsening of the general environment, but we do not expect it. I think it is a prudent assessment, the 40%. I do not know if you heard more about the second question or if you want to elaborate.
No, I think it is precisely that. We are not providing the precise number. However, it is very clear for everyone that mortgages, corporates, public sector are very low, cost of risk very low, and consumers have been reduced to more manageable levels, and SME are within the middle. All of them combined are delivering the cost of risk that we have now. Going forward, as we are planning for more consumer, more SME, then we are budgeting for that buffer of cost of risk that has already been explained.
Rita, could you repeat, although you only had two questions, you made three.
Can you repeat your third question? I'm not sure I understood it fully. I'm sorry.
It was just with regards to M&A, how you're thinking about M&A, considering that you're growing in business areas that are somewhat differentiated from some potential targets that are available domestically in terms of M&A. How strongly are you looking at that sort of strategic fit versus just the financial impact of doing a deal with cost synergies?
Let me be very clear again, and this is very risky because I could be misquoted. I think we would have a fit with each and every one of the remaining banks that exist in Spain besides the three large ones. Furthermore, they would have a very good fit among themselves also. Why? Because there's complementary from a territorial point of view. There's little overlap.
That brings synergies, but in terms of cost synergies, less than if there was a tremendous overlap. In that sense, it is positive because it's value creation and it's good for clients and for everybody. Furthermore, they would bring income synergies. I think the specialization of the different players, and let me not mention one by one, but you can all have them in your head. Some are more specialized in retail, some are more specialized in off-balance-sheet products, some are more specialized in SMEs, some are more specialized in some. There would also be income synergies. I think that it will make sense over the medium to long term to see, depending on the appetite of the different players, to see some convergence or not, because everybody is doing very well on their own. Everybody has good returns on tangible equity. Everybody has good capital levels, etc.
Of course, as you can imagine, it has to be amicable. It wouldn't make any sense to go into hostile at this point in time, even if it made sense from a financial perspective. The jury's out. I think in the long term, for sure, something will happen among some of these players, maybe including us, maybe not including us, but it is not in our plans. Our plans are the plans of a standalone and include absolutely nothing external, except, as I mentioned, the potential of next year. They don't include either a restructuring. They don't include things that could or could not happen. They just include what is the foreseeable future.
Shall we move to the next question, please?
Next question is coming from Cecilia Romero from Barclays. Please go ahead pressing star six.
Thank you very much for taking my questions.
I have two on the deal, if I may. The first one is following the government announcement of remedies tied to the transaction, how do you affect the executability of the synergies assumed in the VBA software? Do you think these conditions, particularly around employment and branch closures, materially affect the economic or integration feasibility of the deal? With the sale of TSB now announced and proceeds expected to support a significant capital return, how do you think this changes the context of VBA software? Thank you.
I missed the second part. If you heard it, you take care of the second part. On the deal and the synergies, look, the synergies for the foreseeable future, which is three to five years, are zero. This is extremely simple.
The definition of synergy, if you look it up, is when two jointly concur to do something that is better for the sum of both. What has been established by the government in the resolution of phase three is that for the next three to five years, both banks have to take decisions autonomously. They have to respect the offerings that they were doing up to now, which includes the customer experience, and they have to solely think of maximizing shareholder value for their own. Anything that is around synergies requires an upfront cost, and that yield occurs over time, and it can have a positive net present value. In the first years, it is a negative value.
It would become completely contrarian to the rules that have been established if a board of directors of an assumed independent and non-merged bank, Banco de Sabadell, assuming that there was a majority of shareholding by BBVA, if they took any decision that was against the interests of the shareholders, minority shareholders of Sabadell, and did not maximize the value. The synergies for the foreseeable future, three to five years, depending on what is the final result, are zero.
The second part? Yeah, I think the second part was related to the sale of TSB and the dividend with the offer. Let me say that we do things only in the interest of our shareholders. The TSB sale, we think that it unveils a remarkable value for shareholders, and that is why the board was keen in submitting this proposal to the EGM, to the shareholders' meeting.
For the dividend, I think it is absolutely in line with the commitment of delivering all capital in excess of 13%. I think the board is simply honoring this commitment. Of course, we do things because we think it is in the best interest of our shareholders. On top of this, parallel in another plan or in another site is the offer. To that, I mean, I am sure you can say more things than what we can say. What we have said from the beginning is that the offer is not compelling, that it is unattractive. The. Spread, the premium has been negative since January, and as time goes by, it's more clear that that is the case. It was negative when we announced the sale of TSB, but it's even more negative today.
That is a reality, that is a factual thing that we observe, that I think it's confirming the view of the board that the offer was undervaluing clearly Sabadell Group.
Thank you, Cecilia. Operator, could we move to the next question, please?
Next question is coming from Hugo Cruz from KBW. Please go ahead pressing star six.
Hi, thank you for the time. I want to ask about NII first. When do you expect your loan rates to bottom in your assumptions? Also, I think you talked about non-remunerated deposits to be around two-thirds of the deposit mix by the end of the plan. Do you think is there any chance you could actually beat that target? With lower rates, it becomes less attractive for people to stay on remunerated deposits. How do you think about that?
A final question around your, I'm struggling to reconcile your ROTE guidance with dividends or the payout targets. If I'm doing it correctly, I'm getting to a much higher payout than 60%. I was just wondering if your ordinary distributions in 2026 and 2027, do they include any buybacks? Thank you.
Just on the last one, to clear that one, and then I leave the rest to you if you want.
Of course, sure.
Of course, we don't know at this point in time what would be the mix of share buybacks and cash. What we know is that we have a commitment to at least distribute 60% in cash. What we know is what is the capital generation. You're not doing any calculation wrong. It's just that it's not defined yet what would be the difference between the capital generation and the 60% payout.
We don't know, and we can't define because that's something that the board defines when it comes, when the date comes closer, what would be the percentage of share buybacks and cash.
Yes, exactly. We don't know. It will be set in the future. However, there are clear precedents. So far, for some years already, the dividend payout has come in the form of cash, and the excess capital has been implemented as share buybacks. I think that's a very clear precedent. It's in our assumptions. For your question of NII, starting from the second one, the cost of deposits and the percentage of non-remunerated, actually two-thirds is not at the end of the plan. It's as of today. Today is two-thirds of the customer deposits that are non-remunerated. To your question of can that percentage get bigger as rates go down, it could.
However, for the level of rates that we're seeing, and I mentioned that. The third that is remunerated has a high pass-through. We are expecting rates to be. Bottom to bottom, it should be 175, you arrive at 2%. For that type of level of interest rates, we think that. This structure of non-remunerated and remunerated will be pretty stable. I think we should see much lower interest rates, like kind of close to 1%, to then start seeing a big migration into non-remunerated because it's simply we would then be touching on the zero floor. For the customer, for the loan yield, I think we are. Expecting the bottom by. The end of this year, the beginning of the next one. Thank you.
Okay, we have one final question. Operator, could you let them in, please?
Last question is coming from Pablo de la Torre from RBC Capital Markets. Please go ahead pressing star six.
Thanks for taking my question. It's just two briefly on modeling questions, I guess. You've mentioned that the capital distribution targets presented today are not dependent on any particular outcome from the Nexi transaction. I just wanted to ask on what would happen to the missing utility income guidance if the Nexi agreement does not materialize in the payment side. Also on fee growth, it would be useful to know what you have assumed in terms of market impacts in your AUM growth estimates going forward. On the cost guidance, just a clarification and apologies if I've missed it, but you have guided to the 3% CAGR. Could you just clarify the cadence of this or if there's any lumpiness during the plan expected? Thank you.
Thank you, Pablo, and thank you for the questions. I think it's a good clarification.
That i n the plan. The agreement with Nexi has not been. Built. We reached an agreement with Nexi. I think it was. Two years ago already that was expected to close last year, but then the offer came in and. This was placed on hold. If the offer doesn't go through, we plan to resume conversations with Nexi to close the agreement. Whenever we do that, then we will inform you of the impacts in the different targets of that agreement whenever it happens. Of course, as you were pointing out, if it happens, then it will probably mean a reduction in fees, but also a reduction in costs. The net impact was, in our expectation, always quite. Low or even broadly neutral. The second one, sorry, but I didn't get the question.
I think it was on costs, whether there's the timeline or the evolution throughout the plan.
Yes. Okay.
Regarding the evolution of cost. When we look at what has happened with efficiency this year. Of course, with the path of interest rate, I think it was well flagged that. NII was going to decrease in 2025. With that in mind, I think the increase in cost is very moderate in order to mitigate as much as possible the impact in efficiency. However, efficiency in 2025, as a matter of fact, is a bit worse than in 2024. For 2026, now we expect revenues to grow and also costs to grow. We expect efficiency to be broadly stable. In 2027, we expect revenues to outperform clearly costs and improve efficiency to get back to the levels that we had in 2024. At the end of the day, we see a connection between revenues and costs going forward.
Okay, that concludes our Q&A session and our capital markets day.
Thank you, César. Thank you, Sergio. As always, the investor relations team is available for any additional questions, any follow-ups you may have. Thank you, everyone, for participating, and have a nice day.
Thank you very much.
Thank you all. Thank you.